<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL CROSSING LTD. GLOBAL CROSSING
HOLDINGS LTD.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
BERMUDA 4813 BERMUDA
(STATE OR OTHER (PRIMARY STANDARD (STATE OR OTHER
JURISDICTION OF INDUSTRIAL CLASSIFICATION JURISDICTION OF
INCORPORATION OR ORGANIZATION) CODE NUMBER) INCORPORATION OR
98-0189783 ORGANIZATION)
(I.R.S. EMPLOYER 98-0186828
IDENTIFICATION NO.) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
---------------
WESSEX HOUSE
45 REID STREET
HAMILTON HM12, BERMUDA
(441) 296-8600
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 479-8200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
D. RHETT BRANDON, ESQ. JAMES C. GORTON, ESQ.
SIMPSON THACHER & BARTLETT GLOBAL CROSSING LTD.
425 LEXINGTON AVENUE 150 EL CAMINO DRIVE, SUITE
NEW YORK, NEW YORK 10017 204
(212) 455-2000 BEVERLY HILLS, CALIFORNIA
90212
(310) 385-5200
</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 the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 5/8% Senior Notes due
2008................... $800,000,000 100% $800,000,000 $236,000
- -----------------------------------------------------------------------------------------------------------
Guarantees of 9 5/8%
Senior
Notes due 2008(/2/).... $800,000,000 100% $800,000,000 $ 0(/3/)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1)Estimated solely for calculating the registration fee.
(2) See inside facing page for table of additional registrant guarantors.
(3)Pursuant to Rule 457(n), no separate filing fee is required for the
guarantees.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 1993, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
EXACT NAME OF GUARANTOR ADDRESS AND TELEPHONE NUMBER
AS STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER IDENTIFICATION OF GUARANTOR'S PRINCIPAL
SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION NO. EXECUTIVE OFFICES
- ------------------------ ------------------------------ ------------------------------ ----------------------------
<S> <C> <C> <C>
Global Telesystems Bermuda Not Required Wessex House
Holdings Ltd. 45 Reid Street
Hamilton HM12 Bermuda
(441) 296-8600
Global Crossing Bermuda Not Required Wessex House
International, Ltd. 45 Reid Street
Hamilton HM12 Bermuda
(441) 296-8600
Global Crossing Holdings United Kingdom Not Required Wessex House
U.K. Ltd. 45 Reid Street
Hamilton HM12 Bermuda
(441) 296-8600
Global Crossing United Kingdom Not Required Wessex House
Marketing 45 Reid Street
U.K. Ltd.
Hamilton HM12 Bermuda
(441) 296-8600
Global Crossing Delaware 95-4670902 150 El Camino Drive,
Development Co. Suite 204
Beverly Hills, CA 90212
Global Crossing Delaware 95-4670978 150 El Camino Drive
Marketing Suite 204
USA Inc. Beverly Hils, CA 90212
</TABLE>
2
<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 AUGUST 13, 1998
PROSPECTUS
OFFER TO EXCHANGE 9 5/8% SENIOR NOTES DUE 2008, WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR 9 5/8% SENIOR NOTES DUE 2008
GLOBAL CROSSING HOLDINGS LTD.
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, AS SUCH DATE MAY BE EXTENDED TO A DATE NO
LATER THAN , 1998 (THE "EXPIRATION DATE").
----------
Global Crossing Holdings Ltd., a Bermuda company (the "Issuer"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal"), to issue an aggregate of up to $800 million in
principal amount of its 9 5/8% Senior Notes due 2008 (the "Exchange Notes"),
which have been registered under the United States Securities Act of 1933, as
amended (the "Securities Act"), in exchange for an identical principal amount
of its outstanding 9 5/8% Senior Notes due 2008 (the "Restricted Notes"; the
Restricted Notes and the Exchange Notes are collectively referred to herein as
the "Notes"). The terms of the Exchange Notes are identical in all material
respects to those of the Restricted Notes, except for certain transfer
restrictions and registration rights relating to the Restricted Notes and
except for certain interest provisions related to such registration rights. See
"Description of Notes."
The Issuer will accept for exchange any and all Restricted Notes that are
validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. Tenders of the Restricted Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of the Restricted Notes being
tendered for exchange. However, the Exchange Offer is subject to the terms and
provisions of the Registration Rights Agreement dated as of May 18, 1998 (the
"Registration Agreement") among Salomon Brothers Inc, Merrill Lynch Pierce,
Fenner & Smith Incorporated, CIBC Oppenheimer Corp., Morgan Stanley & Co.
Incorporated and Deutsche Morgan Grenfell Inc. (collectively, the "Initial
Purchasers"), the Issuer and the Guarantors named therein relating to the
Restricted Notes. The Restricted Notes may be tendered only in multiples of
$1,000. See "The Exchange Offer."
The Exchange Notes will be guaranteed by the parent of the Issuer, Global
Crossing Ltd., a Bermuda company ("New GCL" and, together with the Issuer and
the Issuer's subsidiaries "Global Crossing" or the "Company"), and certain
subsidiaries of the Issuer as specified herein (together with New GCL, the
"Guarantors"). The Issuer has deposited in the Escrow Account (as defined
herein) an amount of cash or U.S. government securities that, together with the
proceeds of the investment thereof, will be sufficient to pay when due the
first two interest payments on the Notes.
The Restricted Notes were issued in an offering (the "Offering") pursuant to
which the Issuer issued an aggregate of $800 million in principal amount of the
Restricted Notes. The Restricted Notes were sold by the Issuer to the Initial
Purchasers on May 13, 1998 pursuant to a Purchase Agreement dated May 13, 1998
(the "Purchase Agreement") between the Issuer, the Guarantors named therein and
the Initial Purchasers. The Initial Purchasers subsequently resold the
Restricted Notes in reliance on Rule 144A under the Securities Act ("Rule
144A") and certain other exemptions under the Securities Act.
The Exchange Notes will bear interest from May 18, 1998 (the "Closing Date")
at a rate of 9 5/8% per annum, payable semi-annually on May 15 and November 15
of each year commencing on November 15, 1998. The Exchange Notes will be
redeemable, at the option of the Issuer, in whole or in part, at any time on or
after May 15, 2003, at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the date of redemption. Additionally, the Exchange
Notes will be redeemable, in whole but not in part, at the option of the
Issuer, at a price of 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption, in the event of a Change in
Tax Law (as defined herein) requiring the payment of Additional Amounts (as
defined herein) by the Issuer. In the event of one or more Equity Offerings (as
defined herein) on or before May 15, 2001, the Issuer may, at its option, use
all or a portion of the net proceeds therefrom to redeem up to a maximum of 25%
of the original principal amount of the Notes at a redemption price of 109.625%
of the principal amount thereof plus accrued unpaid interest, if any, to date
the date of redemption. In addition at any time prior to May 15, 2003, the
Exchange Notes may also be redeemed at the option of the Issuer, in whole but
not in part, upon the occurrence of a Change in Control (as defined herein), at
a redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined herein) as of, and accrued and unpaid interest,
if any, to, the date of redemption. In the event of a Change of Control, each
holder of Notes will have the right to require the Issuer to purchase all or
any part of such holder's Notes at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase. See "Description of Notes--Change of Control."
The Exchange Notes will be senior unsecured obligations of the Issuer ranking
pari passu in right of payment with all other existing and future senior
unsecured obligations of the Issuer and will rank senior to all existing and
future subordinated indebtedness of the Issuer, if any. The Issuer is a holding
company that conducts substantially all of its operations through subsidiaries.
Thus, the Exchange Notes will be effectively subordinated to all indebtedness
and other liabilities (including trade payables and lease obligations) of the
Issuer's subsidiaries that are not Guarantors. As of June 30, 1998, after
giving effect to the Offering and the application of the net proceeds
therefrom, the Issuer's subsidiaries that are not Guarantors would have had
outstanding total indebtedness and other liabilities (including trade payables
and lease obligations) of approximately $518 million, to which the Notes would
have been subordinated. See "Description of Notes--Terms of Notes" and "--
Guarantees."
There is no existing trading market for the Exchange Notes, and there can be
no assurance regarding the future development of a market for the Exchange
Notes, or the ability of holders of the Exchange Notes to sell their Exchange
Notes or the price at which such holders may be able to sell their Exchange
Notes. See "Risk Factors--Lack of Public Market for the Notes." The Issuer does
not intend to apply for listing or quotation of the Exchange Notes on any
securities exchange or stock market.
----------
SEE "RISK FACTORS" COMMENCING ON PAGE 18 HEREIN FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS OF THE RESTRICTED NOTES.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE UNITED STATES 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.
----------
The date of this Prospectus is , 1998.
<PAGE>
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Issuer and certain of the Guarantors are organized pursuant to the laws
of Bermuda, and Old GCL (as defined herein) is organized pursuant to the laws
of the Cayman Islands. In addition, certain of the directors and officers of
the Company reside outside the United States and a substantial portion of the
assets of the Company 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. Similarly, Old GCL has been advised by its
legal counsel in the Cayman Islands, W.S. Walker & Company, that generally
speaking, the Cayman Islands courts will enforce United States judgments in
personam for a debt or a definite sum of money which is not as a matter of
Cayman Islands law a tax, fine or penalty and where the defendant is as a
matter of Cayman Islands law properly brought before a U.S. court, subject to
certain limited defenses. For these purposes an express contractual agreement
to submit to the jurisdiction of a U.S. court will suffice to bring a party
properly before a U.S. court.
The Issuer and each Guarantor organized in a jurisdiction other than the
United States have expressly submitted to the jurisdiction of the U.S. federal
and New York state courts sitting in the Borough of Manhattan, The City of New
York for the purpose of any suit, action or proceeding arising out of the
Offering, and such parties have each appointed CT Corporation System to accept
service of process in any such action.
----------------
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."
i
<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 New
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 51,300 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 NOTES. 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."
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 (excluding
potential future upgrades), 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 $556 million. The Company's AC-1 customers now total more than 22
international telecommunications 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
2
<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 $231 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 credit
agreement for the financing of such indebtedness was executed on July 30, 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 and amounts capitalized with respect to
the PCG Warrants (as defined herein)), 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 and amounts
capitalized with respect to the PCG Warrants). 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
3
<PAGE>
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 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.
4
<PAGE>
FINANCING PLAN
Of the $750 million in total estimated costs for AC-1 (excluding potential
future upgrades), 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 (excluding potential future upgrades and the
amounts capitalized with respect to the PCG Warrants), which is comprised of
$1,200 million for PC-1, $350 million for MAC and $475 million for PAC. Equity
investments in PC-1 by Global Crossing and its partners will be $400 million
(of which $231 million will be provided by the Company), with the remaining
$800 million of estimated costs 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 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, the Issuer, the direct wholly-owned subsidiary of New GCL,
consummated the Offering pursuant to which the Issuer issued an aggregate of
$800 million in principal amount of Restricted Notes. The Issuer utilized
approximately $295 million of the net proceeds of the Offering to refinance
certain obligations incurred as part of the initial financing of AC-1. The
balance will be utilized to make equity investments in certain of the Company's
systems and for general corporate purposes.
On August , 1998, 21,000,000 shares of Common Stock of the Company (the
"Shares") were offered in concurrent offerings made in the United States,
Canada and internationally (the "Stock Offerings"). Of the 21,000,000 Shares,
18,950,000 Shares were being sold by New GCL and 2,050,000 Shares were being
sold by certain selling shareholders (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The net proceeds to the Company were
approximately $318.2 million (approximately $371.5 million if the underwriters'
over-allotment options are exercised in full). The Company intends to use the
net proceeds of the Stock 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
provides, (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.
5
<PAGE>
THE EXCHANGE OFFER
Securities Offered.................. Up to $800 million aggregate principal
amount of 9 5/8% Senior Notes due 2008,
which have been registered under the
Securities Act. The terms of the
Exchange Notes are identical in all
material respects to those of the
Restricted Notes, except for certain
transfer restrictions and registration
rights relating to the Restricted Notes
and except for certain interest
provisions related to such registration
rights. The Exchange Notes will be
issued pursuant to, and entitled to the
benefits of, the Indenture governing
the Restricted Notes. See "Description
of Notes."
The Exchange Offer.................. The Exchange Notes are being offered in
exchange for a like principal amount of
Restricted Notes. Restricted Notes may
be exchanged only in integral multiples
of $1,000. The issuance of the Exchange
Notes is intended to satisfy
obligations of the Issuer and the
Guarantors contained in the
Registration Agreement. For procedures
for tendering, see "The Exchange
Offer."
Expiration Date; Withdrawal Rights.. The Exchange Offer will expire at 5:00
p.m., New York City time, on ,
1998, or such later date and time to
which it is extended, provided it may
not be extended beyond , 1998.
The tender of Restricted Notes pursuant
to the Exchange Offer may be withdrawn
at any time prior to the Expiration
Date. Any Restricted Note not accepted
for exchange for any reason will be
returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions to the Exchange The Issuer's obligation to accept for
Offer............................... Exchange, or to issue Exchange Notes in
exchange for, any Restricted Notes is
subject to certain customary conditions
relating to compliance with any
applicable law, or any applicable
interpretation by any staff of the
Commission, or any order of any
governmental agency or court of law,
which may be waived by the Issuer in
its reasonable discretion. The Issuer
currently expects that each of the
conditions will be satisfied and that
no waivers will be necessary. See "The
Exchange Offer--Certain Conditions to
the Exchange Offer."
Procedures for Tendering Restricted Each holder of Restricted Notes wishing
Notes............................... to accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile,
together with such
6
<PAGE>
Restricted Notes and any other required
documentation, to the Exchange Agent
(as defined herein) at the address set
forth herein. See "The Exchange Offer--
Procedures for Tendering Restricted
Notes."
Certain Tax Consequences............ The exchange of Restricted Notes for
Exchange Notes pursuant to the Exchange
Offer will not constitute a taxable
event to United States Holders (as
defined herein).
Exchange Agent...................... United States Trust Company of New York
is serving as exchange agent (the
"Exchange Agent") in connection with
the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE RESTRICTED NOTES
Holders of Restricted Notes who do not exchange their Restricted Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Restricted Notes as set forth in the
legends thereon as a consequence of the issuance of the Restricted Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Accordingly, such Restricted Notes may only be offered, sold, pledged or
otherwise transferred (i) to the Company, (ii) pursuant to a registration
statement that has been declared effective under the Securities Act, (iii) for
so long as the Notes are eligible for resale pursuant to Rule 144A, to a person
it reasonably believes is a qualified institutional buyer ("QIB") within the
meaning of Rule 144A that purchases for its own account or for the account of a
QIB to whom notice is given that the transfer is being made in reliance on Rule
144A, (iv) pursuant to offers and sales that occur outside the United States
within the meaning of Regulation S under the Securities Act, (v) to an
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act that is an institutional investor (an "Institutional
Accredited Investor") purchasing for its own account or for the account of such
an Institutional Accredited Investor, in each case in a minimum principal
amount of the Notes of $250,000 or (vi) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases to any requirement of law that the disposition of
its property or the property of such investor account or accounts be at all
times within its or their control. The Issuer does not anticipate that it will
register the Restricted Notes under the Securities Act. See "The Exchange
Offer" and "Plan of Distribution." See "Risk Factors--Consequences of Failure
to Exchange Restricted Notes" and "The Exchange Offer--Consequences of Failure
to Exchange." Based upon no-action letters issued by the staff of the
Commission to third parties, the Issuer believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Restricted Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents (i) that it is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Issuer, (ii) that it is acquiring the Exchange Notes in
the ordinary course of its business and (iii) that it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes; provided that, in the
case of broker-dealers, a prospectus meeting the requirements of the Securities
Act is delivered as required. However, the Commission has not considered the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Holders of
Restricted Notes wishing to accept the Exchange Offer must represent to the
Issuer that such conditions have been met. Each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer, where it
acquired the Restricted Notes exchanged for such Exchange Notes for its own
account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Restricted Notes where
7
<PAGE>
such Restricted Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. A broker-dealer that
delivers such a prospectus to purchasers in connection with such resales will
be subject to certain of the civil liability provisions under the Securities
Act, and will be bound by the provisions of the Registration Agreement
(including certain indemnification and contribution rights and obligations).
THE EXCHANGE NOTES
The terms of the Exchange Notes are identical in all material respects to
those of the Restricted Notes, except for certain transfer restrictions and
registration rights relating to the Restricted Notes and except for certain
interest provisions related to such registration rights. The Exchange Notes
will be issued pursuant to, and entitled to the benefits of, the Indenture
governing the Restricted Notes.
Securities Offered.......... $800 million aggregate principal amount of 9 5/8%
Senior Notes due 2008.
Issuer...................... Global Crossing Holdings Ltd.
Guarantors ................. Global Crossing Ltd., the parent of the Issuer
and certain Restricted Subsidiaries (as defined
herein) of the Issuer as specified herein. As of
the date of the Indenture, ACL and its
subsidiaries will not be Guarantors; however, ACL
and its subsidiaries will become Guarantors when
such action is permitted by the terms of the AC-1
Credit Facility or the AC-1 Credit Facility has
been retired. See "Description of Notes--
Guarantees" and "--Certain Covenants--Future AC
Subsidiary Guarantees."
Maturity.................... May 15, 2008.
Interest.................... Interest on the Exchange Notes will accrue at the
rate of 9 5/8% per annum, payable semi-annually
in arrears on May 15 and November 15 of each
year, commencing on November 15, 1998.
Escrow Account.............. The Issuer has deposited in the Escrow Account an
amount of cash or U.S. government securities
that, together with the proceeds of the
investment thereof, will be sufficient to pay
when due the first two interest payments on the
Notes. See "Description of Notes--Principal,
Maturity and Interest."
Ranking .................... The Exchange Notes will be senior unsecured
obligations of the Issuer ranking pari passu in
right of payment with all other existing and
future senior unsecured obligations of the
Issuer, and senior to all existing and future
subordinated indebtedness of the Issuer, if any.
See "Description of Notes--Terms of Notes."
Optional Redemption ........ The Exchange Notes will be redeemable at the
option of the Issuer, in whole or in part, at any
time on or after May 15, 2003, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In
the event of one or more Equity Offerings on or
before May 15, 2001, the Issuer may, at its
option, use all or a portion of the net proceeds
therefrom to redeem up to a maximum of 25% of the
original principal amount of Notes issued in the
Offering at a redemption price of 109.625% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of the redemption.
See "Description of Notes--Optional Redemption."
8
<PAGE>
Optional Tax Redemption .... The Exchange Notes will be redeemable, in whole
but not in part, at the option of the Issuer, at
a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of redemption, in the event
of a Change in Tax Law requiring the payment of
Additional Amounts by the Issuer. See
"Description of Notes--Optional Tax Redemption."
Change of Control ..........
In the event of a Change of Control, each holder
of Notes will have the right to require the
Issuer to purchase all or any part of such
holder's Notes at a purchase price equal to 101%
of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase.
There can be no assurance that the Issuer will
have the financial resources necessary to
purchase the Notes in such circumstances. See
"Description of Notes--Repurchase at the Option
of Holders--Change of Control."
In addition, at any time prior to May 15, 2003,
the Notes may be redeemed at the option of the
Company, in whole but not in part, in the event
of a Change of Control, at a redemption price
equal to 100% of the principal amount thereof
plus the Applicable Premium as of, and accrued
and unpaid interest, if any, to, the date of
redemption. See "Description of Notes--Optional
Redemption."
Certain Covenants .......... The Indenture under which the Restricted Notes
were issued and the Exchange Notes will be issued
contains certain covenants which, among other
things, restricts the ability of the Issuer and
its Restricted Subsidiaries to incur additional
indebtedness, pay dividends or make other
restricted payments, create liens, enter into
transactions with affiliates or related persons,
sell assets, consolidate, merge or sell all or
substantially all of their assets or issue
capital stock. These covenants are subject to
important exceptions and qualifications. See
"Description of Notes--Repurchase at the Option
of Holders" and "--Certain Covenants."
Exchange Offer;
Registration Rights ........ Holders of Exchange Notes are not entitled to any
registration rights with respect to the Exchange
Notes. Pursuant to the Registration Rights
Agreement, the Issuer agreed to file, at its
cost, the Registration Statement of which this
Prospectus is a part with respect to the Exchange
Offer (the "Exchange Offer Registration
Statement").
Use of Proceeds............. There will be no cash proceeds to the Issuer from
the Exchange Offer. See "Use of Proceeds."
9
<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 and six months ended June 30, 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 June 30, 1998 and results of operations for the interim periods
presented. 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 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
MARCH 19, 1997
THREE MONTHS (DATE OF INCEPTION)
ENDED SIX MONTHS ENDED TO DECEMBER 31,
JUNE 30, 1998 JUNE 30, 1998 1997
-------------- ---------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales and Operating
Revenues................. $ 101,255,867 $ 101,255,867 $ --
-------------- -------------- ------------
Expenses:
Cost of Capacity Sold.... 41,200,229 41,200,229 --
Operating,
Administrative and
Other (1)............... 183,705,088 187,748,840 3,101,708
-------------- -------------- ------------
224,905,317 228,949,069 3,101,708
-------------- -------------- ------------
Operating Loss............ (123,649,450) (127,693,202) (3,101,708)
Other Income (Expense)
Interest Income.......... 4,327,602 4,673,436 2,941,352
Interest Expense......... (7,403,037) (7,426,271) --
Provision for Income Taxes
(2)...................... (9,000,000) (9,000,000) --
Extraordinary Loss on
Retirement of GTH Senior
Notes (3)................ (19,709,471) (19,709,471) --
-------------- -------------- ------------
Net Loss.................. (155,434,356) (159,155,508) (160,356)
GTH Preference Share Non-
Cash Dividends (4)....... (3,898,203) (8,306,433) (12,689,923)
Redemption of GTH
Preference Shares (5).... (34,140,067) (34,140,067) --
-------------- -------------- ------------
Net Loss Applicable to
Common Shareholders...... $ (193,472,626) $ (201,602,008) $(12,850,279)
============== ============== ============
Basic and Diluted Net Loss
per Common Share before $ (1.05) $ (1.10) $ (0.08)
Extraordinary Item....... ============== ============== ============
Net Loss per Common Share $ (0.12) $ (0.12) $ --
on Extraordinary Item.... ============== ============== ============
Basic and Diluted Net Loss $ (1.17) $ (1.22) $ (0.08)
per Common Share......... ============== ============== ============
Shares used in Computing
Basic and Diluted Net 166,194,035 166,062,697 165,441,150
Loss per Common Share.... ============== ============== ============
<CAPTION>
AS OF
AS OF JUNE 30, 1998 DECEMBER 31, 1997
-------------------------------- -------------------
AS
HISTORICAL ADJUSTED(6) HISTORICAL
-------------- ---------------- -------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Restricted Cash
(7)...................... $ 541,610,392 $ 859,844,392 $ 26,727,880
Accounts Receivable, Net
of Allowance for Doubtful
Accounts................. 41,854,617 41,854,617 --
Construction in Progress
and Capacity Available
for Sale (8)............. 779,646,579 797,564,960 518,518,509
Investment in Pacific
Crossing Ltd. (9)........ 126,456,345 152,519,445 --
Deferred Finance and
Organizational Costs, Net
of Accumulated
Amortization............. 44,338,405 44,338,405 25,934,021
Other Assets.............. 30,326,686 30,326,686 1,015,958
-------------- -------------- ------------
Total Assets.............. $1,564,233,024 $1,926,448,505 $572,196,368
============== ============== ============
Long Term Debt and Other
Obligations.............. $1,185,431,817 $1,185,431,817 $315,334,000
GTH Preference Shares..... -- -- 90,643,919
Shareholders' Equity:
Common Stock............ 110 2,016,885 110
Treasury Stock.......... -- (198,255,724) --
Other Shareholders'
Equity................. 397,095,005 955,549,435 74,280,922
Accumulated Deficit..... (159,315,864) (159,315,864) (160,356)
-------------- -------------- ------------
Total Shareholders'
Equity................... 237,779,251 599,994,732 74,120,676
-------------- -------------- ------------
Total Capitalization...... $1,423,211,068 $1,785,426,549 $480,098,595
============== ============== ============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
--------------
<S> <C>
OPERATING DATA:
Executed CPAs............................................... $556 million
<CAPTION>
ESTIMATED(10)
--------------
<S> <C>
Route Kilometers............................................ 51,300
Fiber Kilometers............................................ 345,200
Estimated System Costs (excluding potential future upgrades
and amounts capitalized with respect to the PCG Warrants)
AC-1 ..................................................... $750 million
Other Systems Under Development........................... $2,025 million
Landing Stations............................................ 14
</TABLE>
- -------
(1) Includes a charge for the Advisory Services Agreement Termination on June
30, 1998. See "Certain Transactions." The Company acquired 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 has recorded a non-recurring charge in
the approximate amount of $137.7 million. Also, during each of the three
and six months ended June 30, 1998, the Company recognized $21.1 million,
due in part to certain options which vested immediately upon grant, from a
total of $67.1 million of stock-related expense relating to stock options
issued during such period. The remaining $46.0 million will be recognized
as follows: $4.8 million in each of the third and fourth quarters of 1998,
$19.2 million in 1999, $13.5 million in 2000 and $3.7 million in 2001.
(2) Reflects income taxes on profits earned during the three months ended June
30, 1998 attributable to both United States and other foreign
jurisdictions. A significant portion of the Company's operating losses
have been incurred in non-taxable jurisdictions and therefore these
operating losses cannot be applied to offset future taxable earnings of
the Company.
(3) On May 18, 1998, a portion of the proceeds from the issuance of the Notes
was used to repurchase the 12% Senior Notes Due 2004 ("GTH Senior Notes")
of Global Telesystems Holdings Ltd., an indirect subsidiary of the Company
("GTH"). The Company recognized an extraordinary loss of $19.7 million on
this repurchase, comprising a repurchase premium of approximately $9.8
million and a write-off of approximately $9.9 million of unamortized
deferred financing costs.
(4) The holders of the 14% senior increasing rate redeemable exchangeable
preference shares of GTH (the "GTH Preference Shares") were 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. Effective June 17, 1998,
the Company used proceeds from the Notes to redeem all outstanding GTH
Preference Shares. All dividends prior to the redemption had been paid
through the issuance of additional preference shares and charged against
additional paid-in capital.
(5) As a result of the redemption of the GTH Preference Shares, the Company
incurred a one time $34.1 million charge against Additional Paid-in
Capital. The charge was comprised of: (i) a $15.9 million charge for the
redemption premium and (ii) a write-off of $18.2 million of unamortized
discount and unamortized deferred financing costs.
(6) See the pro forma financial information and the notes thereto on pages 11-
14 for a full description of the adjustments.
(7) The majority of Cash and Restricted Cash is comprised of proceeds from the
issuance of the Notes and funds which have been reserved for the purpose
of funding future interest payable on the Notes.
(8) Construction in Progress and Capacity Available for Sale includes direct
and indirect expenditures for construction of AC-1 and other systems and
is stated at cost. Includes costs incurred under (i) the construction
contracts; (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
and other systems. This amount also includes backhaul capacity available
for sale. Additionally, the Company granted the PCG Warrants to Pacific
Capital Group, Inc. ("PCG"), a shareholder, for the PC-1, MAC and PAC
systems and related rights. The $213.3 million estimated value of the
Common Stock to be issued under the PCG Warrants has been allocated to
Construction in Progress in the amount of $86.8 million and as Investment
in Pacific Crossing Ltd. in the amount of $126.5 million. Such estimated
values will be adjusted to reflect the Price per Share to Public in the
Stock Offerings in the Company's consolidated financial statements for the
three months ending September 30, 1998. Such adjustment is not expected to
be material.
(9) Includes $126.5 million as of June 30, 1998, as described above,
representing the estimated value of the PCG Warrants applicable to Pacific
Crossing Ltd.
(10) Assumes full completion of AC-1, PC-1, MAC and PAC based upon current
Company estimates, including anticipated financing costs. See "Risk
Factors--Risks Related to Completing the Company's Cable Systems" and
"Risk of Error in Forward-Looking Statements."
11
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The impact of the Stock Offerings, the PCG Warrant Conversion, the Advisory
Services Agreement Termination, the TDC Exchange and the exchange by
substantially all of the shareholders of Global Crossing Ltd., LDC, a Cayman
Island limited duration company ("Old GCL"), of equity interests in Old GCL for
Common Stock at a rate of 1.5 shares of Common Stock per share of common stock
of Old GCL (the "Old GCL Exchange") have all been reflected in the pro forma
balance sheet as of June 30, 1998. The pro forma statement of operations data
give effect to recurring items only. Accordingly, the one time charge resulting
from the redemption of the GTH Preference Shares, the one time extraordinary
loss resulting from the repurchase of the GTH Senior Notes and any impact from
the Advisory Services Agreement (including the Termination) have not been
reflected in the pro forma statement of operations data. These transactions are
described in the footnotes to the pro forma data. The "As Adjusted For the Six
Months Ended June 30, 1998" column gives effect to the pro forma adjustments
for the period from January 1, 1998 to June 30, 1998 as if all of the foregoing
transactions had occurred on March 19, 1997. The "As Adjusted For the Period
March 19, 1997 (Date of Inception) to December 31, 1997" column gives effect to
the pro forma adjustments for the period from March 19, 1997 (Date of
Inception) to December 31, 1997 as if such transactions had occurred on March
19, 1997. The "As Adjusted For the Period March 19, 1997 (Date of Inception) to
June 30, 1998" column gives effect to the pro forma adjustments for the period
from March 19, 1997 (Date of Inception) to June 30, 1998 as if such
transactions had occurred on March 19, 1997.
PRO FORMA BALANCE SHEET DATA:
<TABLE>
<CAPTION>
ADJUSTED
AS OF
ADVISORY JUNE 30, 1998
PCG SERVICES OLD PRIOR TO
HISTORICAL AS OF WARRANT AGREEMENT TDC GCL STOCK STOCK
JUNE 30, 1998 CONVERSION(1) TERMINATION(2) EXCHANGE(3) EXCHANGE(4) OFFERINGS OFFERINGS(5)
---------------- ------------- -------------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and restricted
cash.............. $ 541,610,392 $ -- $ -- $ -- $ -- $ 541,610,392 $318,234,000
Other current
assets............ 64,281,303 -- -- -- -- 64,281,303 --
Long term accounts
receivable........ 7,900,000 -- -- -- -- 7,900,000 --
Backhaul capacity
available for
sale.............. 54,738,560 -- -- -- -- 54,738,560 --
Undersea capacity
available for
sale.............. 206,271,310 -- -- -- -- 206,271,310 --
Construction in
progress.......... 518,636,709 17,918,381 -- -- -- 536,555,090 --
Investment in
Pacific Crossing
Ltd............... 126,456,345 26,063,100 -- -- -- 152,519,445 --
Deferred finance
and organizational
costs, net of
accumulated
amortization...... 44,338,405 -- -- -- -- 44,338,405 --
-------------- ----------- ------- ------------ ---------- -------------- ------------
Total Assets....... $1,564,233,024 $43,981,481 $ -- $ -- $ -- $1,608,214,505 $318,234,000
============== =========== ======= ============ ========== ============== ============
Deferred revenue... $ 42,747,611 $ -- $ -- $ -- $ -- $ 42,747,611 $ --
Other current
liabilities....... 98,274,345 -- -- -- -- 98,274,345 --
Long term debt..... 367,048,000 -- -- -- -- 367,048,000 --
Senior notes....... 796,277,203 -- -- -- -- 796,277,203 --
Long term deferred
revenue........... 6,916,667 -- -- -- -- 6,916,667 --
Obligations under
inland service
agreements and
capital leases.... 15,189,947 -- -- -- -- 15,189,947 --
-------------- ----------- ------- ------------ ---------- -------------- ------------
Total Liabilities.. 1,326,453,773 -- -- -- -- 1,326,453,773 --
-------------- ----------- ------- ------------ ---------- -------------- ------------
Commitments(6).....
Shareholders'
Equity:...........
Common Stock(7). 110 118,560 75,000 108,507 1,525,208 1,827,385 189,500
Treasury Stock.. -- -- -- (198,255,724) -- (198,255,724) --
Other
shareholders'
equity......... 397,095,005 43,862,921 (75,000) 198,147,217 (1,525,208) 637,504,935 318,044,500
Accumulated
Deficit........ (159,315,864) -- -- -- -- (159,315,864) --
-------------- ----------- ------- ------------ ---------- -------------- ------------
Total Shareholders'
Equity............ 237,779,251 43,981,481 -- -- -- 281,760,732 318,234,000
-------------- ----------- ------- ------------ ---------- -------------- ------------
Total Liabilities
and Shareholders'
Equity............ $1,564,233,024 $43,981,481 $ -- $ -- $ -- $1,608,214,505 $318,234,000
============== =========== ======= ============ ========== ============== ============
<CAPTION>
ADJUSTED AS OF
JUNE 30, 1998
---------------
<S> <C>
Cash and restricted
cash.............. $ 859,844,392
Other current
assets............ 64,281,303
Long term accounts
receivable........ 7,900,000
Backhaul capacity
available for
sale.............. 54,738,560
Undersea capacity
available for
sale.............. 206,271,310
Construction in
progress.......... 536,555,090
Investment in
Pacific Crossing
Ltd............... 152,519,445
Deferred finance
and organizational
costs, net of
accumulated
amortization...... 44,338,405
---------------
Total Assets....... $1,926,448,505
===============
Deferred revenue... $ 42,747,611
Other current
liabilities....... 98,274,345
Long term debt..... 367,048,000
Senior notes....... 796,277,203
Long term deferred
revenue........... 6,916,667
Obligations under
inland service
agreements and
capital leases.... 15,189,947
---------------
Total Liabilities.. 1,326,453,773
---------------
Commitments(6).....
Shareholders'
Equity:...........
Common Stock(7). 2,016,885
Treasury Stock.. (198,255,724)
Other
shareholders'
equity......... 955,549,435
Accumulated
Deficit........ (159,315,864)
---------------
Total Shareholders'
Equity............ 599,994,732
---------------
Total Liabilities
and Shareholders'
Equity............ $1,926,448,505
===============
</TABLE>
12
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED HISTORICAL AS ADJUSTED
FOR THE FOR THE FOR THE PERIOD FOR THE PERIOD HISTORICAL AS ADJUSTED
SIX MONTHS SIX MONTHS MARCH 19, 1997 MARCH 19, 1997 FOR THE PERIOD FOR THE PERIOD
ENDED ENDED (DATE OF INCEPTION) (DATE OF INCEPTION) MARCH 19, 1997 MARCH 19, 1997
JUNE 30, JUNE 30, TO DECEMBER 31, TO DECEMBER 31, (DATE OF INCEPTION) (DATE OF INCEPTION)
1998 1998(8) 1997 1997(8) TO JUNE 30, 1998 TO JUNE 30, 1998(8)
------------- ------------ ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Sales and Operat-
ing Revenues.... $ 101,255,867 $101,255,867 $ -- $ -- $ 101,255,867 $101,255,867
Expenses(2)(11).. 228,949,069 89,279,729 3,101,708 3,101,708 232,050,777 92,381,437
------------- ------------ ------------ ------------ ------------- ------------
Operating Loss... (127,693,202) 11,976,138 (3,101,708) (3,101,708) (130,794,910) 8,874,430
Other Income (Ex-
pense):
Interest In-
come(9)........ 4,673,436 4,673,436 2,941,352 2,941,352 7,614,788 7,614,788
Interest Ex-
pense(10)...... (7,426,271) (22,692,831) -- (42,030,654) (7,426,271) (64,723,485)
Provision for In-
come Taxes...... (9,000,000) (9,000,000) -- -- (9,000,000) (9,000,000)
------------- ------------ ------------ ------------ ------------- ------------
Net Loss before
Non-Recurring
Charges......... (139,446,037) (15,043,257) (160,356) (42,191,010) (139,606,393) (57,234,267)
Preference Share
Dividends....... (8,306,433) -- (12,689,923) -- (20,996,356) --
------------- ------------ ------------ ------------ ------------- ------------
Net Loss Applica-
ble to Common
Shareholders be-
fore Non-Recur-
ring Charges.... $(147,752,470) $(15,043,257) $(12,850,279) $(42,191,010) $(160,602,749) $(57,234,267)
============= ============ ============ ============ ============= ============
Basic and Diluted
Net Loss per
Common Share
before Non-
Recurring
Charges......... $ (0.89) $ (0.08) $ (0.08) $ (0.21) $ (0.97) $ (0.29)
============= ============ ============ ============ ============= ============
Shares Used in
Computing Basic
and Diluted net
loss per common
share........... 166,062,697 201,577,884 165,441,150 201,113,519 165,642,489 201,297,745
============= ============ ============ ============ ============= ============
</TABLE>
(1) Adjustment for the PCG Warrant Conversion which is to occur immediately
preceding the Stock Offerings. Effective January 21, 1998, Old GCL entered
into a warrant agreement with PCG in connection with Old GCL's acquisition
from PCG of the PC-1, MAC and PAC systems (then under development) and
related rights. The warrants issued under the warrant agreement (the "PCG
Warrants") provided PCG with the right to purchase a total of 18,453,185
Class B shares of Old GCL conditioned on an initial public offering of
shares of Old GCL (or any successor of Old GCL) and the achievement of
certain financial performance levels from cable systems other than AC-1.
In June 1998, the Board of Directors of Old GCL amended the terms of the
PCG Warrants so that the PCG Warrants will become exercisable upon the
successful completion of an initial public offering and eliminated their
financial performance conditions. The Board of Directors of Old GCL has
determined that upon completion of the Stock Offerings, the conditions to
the exercise of the PCG Warrants will have been met. In connection with
the Stock Offerings, Old GCL has amended the terms of these warrants to
convert them into Class B shares and new warrants (the "New PCG Warrants")
based upon the anticipated price per share of Common Stock in the Stock
Offerings (the "PCG Warrant Conversion"). The Company has agreed to assume
the obligations of Old GCL under the New PCG Warrants. See "Certain
Transactions--Transactions with Pacific Capital Group ("PCG") and its
Affiliates--PCG Warrants."
The total estimated value of the PCG Warrant Conversion is approximately
$257.3 million, which is comprised of approximately $213.3 million relating
to the conversion of the PCG Warrants into 11,855,949 Class B shares of Old
GCL and approximately $44.0 million relating to the value of the New PCG
Warrants. Since the PCG Warrants were assumed to be converted to Class B
shares of Old GCL on June 30, 1998, the value of $213.3 million was recorded
in the Company's consolidated financial statements. The New PCG Warrants
granted to purchase the remaining Class B shares of Old GCL are reflected in
this adjustment at the estimated value of $6.67 per warrant for a total
value of $44.0 million, which has been allocated to each of the projects for
which the rights were obtained. The portion of the cost related to MAC and
PAC ($8 million and $10 million, respectively) has been capitalized as
construction in progress. The portion of the cost related to PC-1 ($26
million) has been capitalized and included as part of the Company's
investment in Pacific Crossing Ltd. since Pacific Crossing Ltd. is not
consolidated. Also included in this adjustment is a $118,560
reclassification from additional paid-in capital to common stock to reflect
the actual issuance of shares of Common Stock at a $.01 par value under the
PCG Warrant Conversion. Such estimated values will be adjusted to reflect
the Price per Share to Public in the Stock Offerings in the Company's
consolidated financial statements for the three months ending September 30,
1998. Such adjustment is not expected to be material.
(2) Adjustment for the issuance of Common Stock under the Advisory Services
Agreement Termination, pursuant to which the Advisory Services Agreements
have been terminated. The Advisory Service Agreements had terms of 25
years subject to earlier termination by either party in the event of a
material breach and by PCG Telecom in certain other events. The Advisory
Services Agreements did not contain provisions regarding cancellation fees
or liquidated damages in the event of early termination or breach. The
Advisory Services Agreement Termination was recorded as an increase in
additional paid-in capital and a charge against the statement of
operations in the
13
<PAGE>
amount of $137.7 million. Of this amount, $135 million was determined by
applying the 2% advisory fee to projected revenues for the Company's
systems. The present value of the aggregate advisory fees was then
calculated as $155.5 million, using a discount rate of 12% in respect of
AC-1 and 15% in respect of systems other than AC-1. This amount was
subsequently reduced to $135 million. Both the discount rates and the
ultimate valuation were determined as a result of a negotiation process
including a disinterested director of the Company and the various persons
entitled to fees under the Advisory Services Agreements. The Company has
obtained a fairness opinion from an independent financial advisor in
connection with this transaction. The remaining $2.7 million of the $137.7
million charge reflected the cancellation of $2.7 million advanced by the
Company in respect of amounts expected to be earned under the Advisory
Services Agreements. See "Certain Transactions--Transactions with Pacific
Capital Group ("PCG") and its Affiliates--Advisory Services Agreements."
The adjustment recorded in the pro forma balance sheet data reflects a
$75,000 reclassification from additional paid-in capital to common stock to
record the actual issuance of shares of Common Stock under the Advisory
Services Agreement Termination at a $.01 par value per share.
(3) Adjustment for the repurchase of the Company's shares held by
Telecommunications Development Corporation ("TDC") pursuant to the TDC
Exchange. Prior to the Stock Offerings, the Company will acquire
11,000,686 shares of Common Stock in exchange for 10,850,686 newly-issued
shares of Common Stock, a net acquisition by the Company of 150,000
shares of Common Stock. The Company will record the treasury stock
acquired in the TDC Exchange at its fair value of $198.3 million.
(4) Adjustment for the Old GCL Exchange. See "Description of Capital Stock--
Old GCL Exchange." In connection with the Old GCL Exchange, each holder
of Class D shares of Old GCL will convert such shares into a fraction of
a Class E share of Old GCL, based upon a valuation at the time of such
conversion, together with a warrant to purchase the remaining fraction of
such Class E share. See "Description of Capital Stock--Old GCL Exchange."
This conversion will reduce shares of Old GCL outstanding by 2,696,080.
The holders of Class E shares of Old GCL will then convert such shares
into an equal number of Class B shares. Subsequent to such conversions,
substantially all of the Shareholders of Old GCL will exchange their
equity interests in Old GCL for Common Stock at a rate of 1.5 Shares of
Common Stock per share of common stock of Old GCL. These transactions
collectively result in an adjustment between additional paid-in capital
and common stock of $1,525,208.
The following table shows (i) the shares of Common Stock of Old GCL
outstanding as of June 30, 1998, (ii) the effects on Old GCL shares of the
PCG Warrant Conversion, the Advisory Services Agreement Termination and the
conversions of Class D and Class E shares, (iii) the effect on the Company
of the Old GCL Exchange and (iv) changes in the number of shares of Common
Stock resulting from the TDC Exchange and the Stock Offerings.
<TABLE>
<CAPTION>
OLD GCL
OLD ADVISORY COMMON
GCL AS OF PCG SERVICES CONVERSION CONVERSION STOCK AS OF OLD
COMMON JUNE 30, WARRANT AGREEMENT OF CLASS OF CLASS JUNE 30, GCL TDC STOCK
STOCK 1998 CONVERSION TERMINATION D SHARES E SHARES 1998 EXCHANGE EXCHANGE OFFERINGS
- ---------------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A......... 31,102,950 -- -- -- -- 31,102,950 -- -- --
Class B......... 51,075,000 11,855,949 7,500,000 -- 30,729,620 101,160,569 -- -- --
Class C......... 50,625,000 -- -- -- -- 50,625,000 -- -- --
Class D......... 33,088,200 -- -- (33,088,200) -- -- -- -- --
Class E......... 337,500 -- -- 30,392,120 (30,729,620) -- -- -- --
Company Common
Stock........... -- -- -- -- -- -- 182,888,519 (150,000) 18,950,000
----------- ---------- --------- ----------- ----------- ----------- ----------- -------- ----------
Total........... 166,228,650 11,855,949 7,500,000 (2,696,080) -- 182,888,519 182,888,519 (150,000) 18,950,000
=========== ========== ========= =========== =========== =========== =========== ======== ==========
<CAPTION>
OLD
GCL COMPANY
COMMON PRO FORMA
STOCK JUNE 30, 1998
- ---------------- -------------
<S> <C>
Class A......... --
Class B......... --
Class C......... --
Class D......... --
Class E......... --
Company Common
Stock........... 201,688,519
-------------
Total........... 201,688,519
=============
</TABLE>
(5) Adjustment to reflect the estimated net proceeds of the Stock Offerings
($318.2 million) after deducting underwriting and offering expenses,
assuming a Price to Public per Share of $18.00, the midpoint of the
expected pricing range of the Stock Offerings.
(6) In June and July, 1998, the Company entered into contracts for the
construction of MAC and PAC, respectively, and at the same time obtained
commitment letters to finance, in part, the construction costs. No effect
has been given to the commitment letters in the pro forma balance sheet.
14
<PAGE>
(7)Pro forma common stock of the Company is as follows:
<TABLE>
<CAPTION>
PRO FORMA
AS OF JUNE 30, 1998
-------------------
<S> <C>
201,688,519 shares issued and outstanding, $.01 par
value per share.................................... $2,016,885
</TABLE>
(8) The "As Adjusted" columns give effect to the May 18, 1998 issuance of the
Notes assuming that the 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 to redeem the GTH Preference Shares.
The "As adjusted" columns do not give effect to non-recurring items such as
the $19.9 million extraordinary loss resulting from the repurchase of the
GTH Senior Notes, the $34.1 million one time charge in connection with the
redemption of the GTH Preference Shares or the $139.7 million charge
related to the Advisory Services Agreement Termination.
(9) The Company has assumed that Notes proceeds not used to redeem the GTH
Preference Shares or repurchase GTH Senior Notes were placed in non-
interest bearing accounts and therefore no interest income has been
reflected in the "As adjusted" columns.
(10) The effect on interest expense resulting from the issuance of the 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.
The Company capitalized as construction in progress only the amount of
interest that would be permitted under SFAS 34 had the Notes been
outstanding for the entire period covered on the actual average
qualifying expenditures for such period. The remaining interest cost
attributable to the Notes has been included in the "As adjusted" columns
as interest expense.
The following table presents the calculations used to determine pro forma
interest expense for the periods presented:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MARCH 19, 1997 FOR THE PERIOD
MONTHS ENDED (DATE OF INCEPTION) MARCH 19, 1997
JUNE 30, TO DECEMBER (DATE OF INCEPTION)
1998 31, 1997 TO JUNE 30, 1998
------------ ------------------- -------------------
<S> <C> <C> <C>
TOTAL PRO FORMA INTEREST
COST INCURRED
Principal outstanding on
Notes................... $800,000,000 $800,000,000 $800,000,000
Interest rate............ 9.625% 9.625% 9.625%
------------ ------------ ------------
Total interest cost in-
curred.................. $ 38,500,000 $ 61,386,111 $ 99,886,111
============ ============ ============
TOTAL PRO FORMA INTEREST
CAPITALIZED
Actual average qualifying
expenditures for the
period(A)............... $569,000,000 $278,300,000 $391,640,293
Effective Capitalization
rate.................... 9.53% 9.59% 9.56%
------------ ------------ ------------
Total interest
capitalizable........... $ 27,112,850 $ 20,832,224 $ 47,945,074
Less: interest capital-
ized on existing long (11,305,681) (1,476,767) (12,782,448)
term debt............... ------------ ------------ ------------
Total interest capital- 15,807,169 19,355,457 35,162,626
ized on Notes........... ============ ============ ============
TOTAL PRO FORMA INTEREST
EXPENSE................. $ 22,692,831 $ 42,030,654 $ 64,723,485
============ ============ ============
</TABLE>
- -------
(A) Average qualifying expenditures are taken from actual amounts recorded in
the Company's consolidated financial statements.
(11) During each of the three and six months ended June 30, 1998, the Company
recognized $21.1 million from a total of $67.1 million stock-related
expense relating to stock options issued during such period. The
remaining $46.0 million of stock-related expense will be recognized as
follows: $4.8 million in each of the third and fourth quarters of 1998,
$19.2 million in 1999, $13.5 million in 2000 and $3.7 million in 2001.
15
<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 participating in
the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE RESTRICTED NOTES
The Exchange Notes will be issued in exchange for Restricted Notes only
after timely receipt by the Exchange Agent of such Restricted Notes, a
properly completed and duly executed Letter of Transmittal and all other
required documents. Therefore, holders of Restricted Notes desiring to tender
such Restricted Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. Neither the Exchange Agent nor the Issuer is
under any duty to give notification of defects or irregularities with respect
to tenders of Restricted Notes for exchange. Holders of Restricted Notes who
do not exchange their Restricted Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Restricted Notes as set forth in the legends thereon as a consequence of
the issuance of the Restricted Notes pursuant to exemption from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Restricted Notes may
not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable securities laws of states and other
jurisdictions. In addition, any holder of Restricted Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Restricted Notes, where such Restricted Notes were
acquired by such broker-dealer as a result of market-making activities or any
other trading activities, may be deemed to be an "underwriter" within the
meaning of the Securities Act and must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution," "Description of Notes--Exchange Offer; Registration Rights" and
"The Exchange Offer--Consequences of Failure to Exchange."
LACK OF PUBLIC MARKET FOR THE NOTES
The Exchange Notes are being offered to the holders of the Restricted Notes.
The Restricted Notes were resold by the Initial Purchasers to (i) qualified
institutional buyers pursuant to Rule 144A under the Securities Act and (ii)
qualified buyers outside the United States in reliance upon Regulation S under
the Securities Act. The Restricted Notes are eligible for trading in the
Private Offerings, Resales and Trading through Automated Linkages Market, the
National Association of Securities Dealers' screen based, automated market for
trading of securities eligible for resale under Rule 144A. The Exchange Notes
are new securities for which there currently is no market and the Exchange
Offer is not conditioned upon any minimum or maximum aggregate principal
amount of Restricted Notes being tendered for exchange. Although the Initial
Purchasers are making a market in the Restricted Notes and have advised the
Issuer that they currently intend to make a market in the Exchange Notes, they
are not obligated to do so and may discontinue such market making at any time
without notice. The Issuer does not currently intend to apply for listing of
the Restricted Notes or the Exchange Notes on a national securities exchange
or automated quotation system. Accordingly, no assurance can be given that an
active market will develop for any of the Notes or as to the liquidity of the
trading market for any of the Notes. If a trading market does not develop or
is not maintained, holders of the Notes may experience difficulty in reselling
such Notes or may be unable to sell them at all. If a market for the Notes
develops, any such market may be discontinued at any time. To the extent that
a market for the Notes does develop, the market value of the Notes will depend
upon many factors, including prevailing interest rates, market conditions,
yields on alternative investments, general economic conditions, the Company's
financial condition and results of operations and other conditions.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to the Notes. There can be no assurance that, if a market
for the Notes were to develop, such a market would not be subject to similar
disruptions.
16
<PAGE>
LIMITED OPERATING HISTORY
The Company was organized in March 1997 and was in the development stage
through May 26, 1998, when the United States--United Kingdom segment of AC-1
achieved RFS and began to generate revenues. The Company's financial
information relates principally to a period in which the Company was engaged
in construction and development of AC-1 and, until June 1998, had minimal
revenues and operating costs because the costs of construction had been
capitalized. Despite recognizing approximately $101 million in revenues, the
Company has incurred a net loss applicable to common shareholders of
approximately $214.5 million for the period from March 19, 1997 (date of
inception) through June 30, 1998, due primarily to the Advisory Services
Agreement Termination, awards under the Company's Stock Incentive Plan, the
extraordinary loss on the retirement of the GTH Senior Notes and the
redemption of GTH 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 $556
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;
Realization of Other Revenues," "--Termination of CPAs," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
LEVERAGE
As of June 30, 1998, on a consolidated pro forma basis after giving effect
to the Stock Offerings and the application of the net proceeds therefrom, the
Company would have had $1,517.2 million of total liabilities, including
approximately $1,228.2 million of senior indebtedness, of which $367 million
would have been secured. In addition, the Company has entered into a $850
million non-recourse credit facility with respect to PC-1 (under which $200
million of indebtedness has been incurred as of August 10, 1998), as well as
contractual commitments with respect to MAC and PAC in the amount of $240
million and $310 million, respectively. The Indenture limits, but does not
prohibit, the incurrence of additional indebtedness by the Company. See "--
Ranking of Notes; Holding Company Structure; Dividend Payment Restrictions"
and "Description of Notes--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock."
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
New GCL's operating subsidiaries to pay dividends or to make other payments to
New 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
17
<PAGE>
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 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."
RANKING OF NOTES; HOLDING COMPANY STRUCTURE; DIVIDEND PAYMENT RESTRICTIONS
The Notes are senior obligations of the Issuer and the Guarantors and rank
pari passu in right of payment to all existing and future unsecured senior
indebtedness of the Issuer and the Guarantors. The Notes are not secured by
any asset of the Company (with the exception of the first two interest
payments thereon which will be held in the Escrow Account). Accordingly, the
Notes are effectively subordinated to any secured obligations of the Issuer
and the Guarantors to the extent of the value of the assets securing such
obligation. If the Issuer becomes insolvent or is liquidated, or if payment
under any secured obligation is accelerated, the lenders under such secured
obligation will be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to the terms of the agreement
securing such obligation. Any claims of such lenders with respect to such
assets will be prior to any claim of the holders of the Notes with respect to
such assets. Accordingly, it is possible that there would be no assets
remaining from which claims of the holders of the Notes could be satisfied or
if any such assets remain, such assets might be insufficient to satisfy such
claims fully. In addition, the Issuer's Unrestricted Subsidiaries (which
include those subsidiaries (including intermediate holding companies) that
develop PC-1, MAC, PAC and future cable systems) have not guaranteed the
Issuer's obligations with respect to the Notes. Furthermore, as of the date of
the Indenture, ACL and its subsidiaries are not Guarantors; however, ACL and
its subsidiaries will become Guarantors when such action is permitted by the
terms of the AC-1 Credit Facility or the AC-1 Credit Facility has been
retired. See "Description of Notes--Certain Covenants--Future AC Subsidiary
Guarantees."
In addition, the Issuer is a holding company that conducts substantially all
of its operations through its subsidiaries; therefore, the Notes are
effectively subordinated to all indebtedness and other liabilities (including
trade payables and lease obligations) of the Issuer's subsidiaries that are
not Guarantors. As of June 30, 1998, after giving effect to the Offering and
the application of the net proceeds therefrom, the Issuer's subsidiaries that
are not Guarantors would have had total indebtedness and liabilities
(including trade payables and lease obligations) outstanding of approximately
$518 million, to which the Notes would have been effectively subordinated. See
"Description of Notes--Terms of Notes."
The Company intends to utilize revenues from AC-1 to meet its debt service
obligations on the Notes. Such revenues, however, are subject to significant
existing restrictions at the ACL level pursuant to the AC-1 Credit Facility
which will substantially limit or prohibit the payment of dividends or
distributions to the Issuer until the
AC-1 Credit Facility is retired. See "Description of Certain Indebtedness--AC-
1 Credit Facility." To the extent that the AC-1 Credit Facility limits or
prohibits the payment of dividends from ACL to the Issuer, there will be a
material adverse effect on the ability of the Company to satisfy its debt
service obligations on the Notes.
18
<PAGE>
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.
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
(and, in certain cases, with respect to capacity on 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 CPAs 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."
19
<PAGE>
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 "--Rapid Growth in a Changing Industry;
Pricing Uncertainties" and "Business--Competition."
RELATIONSHIP WITH PRINCIPAL SHAREHOLDERS; CONFLICTS OF INTEREST
As of August 10, 1998, Pacific Capital Group, Inc. ("PCG") had a 26.88%
beneficial ownership interest in New GCL (after giving effect to the Old GCL
Exchange). 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 other officers and directors of New GCL are
affiliated with PCG. In addition, through an affiliate, Canadian Imperial Bank
of Commerce ("CIBC") had a 25.00% beneficial ownership interest in New GCL
(after giving effect to the Old GCL Exchange). An affiliate of CIBC is an
Underwriter in the Stock 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 New GCL are affiliated with CIBC. See
"Management," "Principal and Selling Shareholders" and "Certain Transactions."
Upon completion of the Stock Offerings, PCG and CIBC collectively will
beneficially own 47.18% of the outstanding Common Stock (46.46% 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
20
<PAGE>
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 Stock Offerings, with such
individuals receiving Common Stock as a result of such termination, thereby
increasing their significant equity interests in the Company following the
Stock 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 Stock Offerings, (ii) all shares of Common
Stock to be beneficially owned by such individual immediately following the
Stock 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 Stock Offerings).
<TABLE>
<CAPTION>
COMMON COMMON STOCK STOCK ADVISORY
STOCK OWNED AFTER WARRANTS OPTIONS SERVICES
INVESTOR TO BE SOLD VALUE STOCK OFFERINGS(1) VALUE HELD(2) VALUE(2) HELD(3) VALUE FEES(4)
- -------- ---------- ----------- ------------------ ------------ --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Winnick.... 1,158,636 $20,855,448 46,612,141 $839,018,538 4,526,388 $34,026,470 900,000 $14,700,000 $ 3,191,630
Lodwrick M.
Cook........... -- $ -- 1,720,391 $ 30,967,038 502,779 $ 3,351,860 450,000 $ 7,350,000 $ --
Jack M. Scanlon. -- $ -- -- $ -- -- $ -- 1,800,000 $29,400,000 $ --
Dan J. Cohrs.... -- $ -- -- $ -- -- $ -- 675,000 $ 7,650,000 $ --
David L. Lee.... 324,093 $ 5,833,674 10,060,178 $181,083,204 1,314,741 $ 9,780,395 450,000 $ 7,350,000 $ 481,130
Abbott L. Brown. 243,178 $ 4,377,204 5,663,382 $101,940,876 960,713 $ 6,967,484 450,000 $ 7,350,000 $ 320,754
Barry Porter.... 324,093 $ 5,833,674 9,153,049 $164,754,882 1,286,669 $ 9,511,840 450,000 $ 7,350,000 $ 481,130
James C. Gorton. -- $ -- -- $ -- -- $ -- 750,000 $ 8,500,000 $ --
Jack Finlayson.. -- $ -- -- $ -- -- $ -- 735,000 $ 6,630,000 $ --
K. Eugene
Shutler........ -- $ -- 148,986 $ 2,681,748 -- $ -- 300,000 $ 4,900,000 $ --
Hillel
Weinberger..... -- $ -- 21,330,900 $383,956,200 -- $ -- 60,000 $ 980,000 $ --
Jay R. Bloom.... -- $ -- 48,550,622 $873,911,196 -- $ -- 300,000 $ 4,900,000 $ --
Dean C. Kehler.. -- $ -- 48,550,622 $873,911,196 -- $ -- 300,000 $ 4,900,000 $ --
Jay R. Levine... -- $ -- 48,550,622 $873,911,196 -- $ -- 300,000 $ 4,900,000 $ --
William D.
Phoenix........ -- $ -- 48,550,622 $873,911,196 -- $ -- 300,000 $ 4,900,000 $ --
Bruce Raben..... -- $ -- 48,550,622 $873,911,196 -- $ -- 300,000 $ 4,900,000 $ --
Michael R.
Steed.......... -- $ -- 16,591,109 $298,639,962 368,353 $ 3,523,910 60,000 $ 980,000 $ 194,696
<CAPTION>
TOTAL
INVESTOR VALUE(5)
- -------- ------------
<S> <C>
Gary Winnick.... $911,792,086
Lodwrick M.
Cook........... $ 41,668,898
Jack M. Scanlon. $ 29,400,000
Dan J. Cohrs.... $ 7,650,000
David L. Lee.... $204,528,403
Abbott L. Brown. $120,956,318
Barry Porter.... $187,931,526
James C. Gorton. $ 8,500,000
Jack Finlayson.. $ 6,630,000
K. Eugene
Shutler........ $ 7,581,748
Hillel
Weinberger..... $384,936,200
Jay R. Bloom.... $878,811,196
Dean C. Kehler.. $878,811,196
Jay R. Levine... $878,811,196
William D.
Phoenix........ $878,811,196
Bruce Raben..... $878,811,196
Michael R.
Steed.......... $303,338,568
</TABLE>
- --------
(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 48,550,622 shares of Common Stock owned beneficially by CIBC, an
affiliate of their employer, CIBC Oppenheimer Corp. ("CIBC Oppenheimer").
The amount shown for Mr. Steed includes 16,591,109 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) Includes New PCG Warrants and GCL Warrants. The value of warrants held is
presented based upon a value of $6.67 per New PCG Warrant and $9.57 per
GCL Warrant, the value assigned to such warrants by the Company based upon
independent appraisals.
(3) 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 August 10, 1998 and
options in respect of 5,120,000 shares are exercisable, subject to various
conditions, following vesting on various dates through July 2001. The
amounts shown for Messrs. Bloom, Kehler, Levine, Phoenix and Raben include
options in respect of 300,000 shares of Common Stock owned beneficially by
CIBC.
(4) 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 Stock 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
21
<PAGE>
the basis of the Price to Public per Share payable in the Stock 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 Stock 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>
(5) The amounts shown give effect to the Old GCL Exchange, Advisory Services
Agreement Termination and TDC Exchange. Amounts under "Warrants Held"
include New PCG Warrants and GCL Warrants. See "Principal and Selling
Shareholders," "Certain Transactions" and "Description of Capital Stock--
Old GCL Exchange."
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 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
22
<PAGE>
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.
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.
23
<PAGE>
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 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
Until May 26, 1998, the Company was 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.
24
<PAGE>
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."
COVENANT RESTRICTIONS
The Indenture imposes certain operating and financial restrictions on the
Issuer and its Restricted Subsidiaries; however, the Issuer's Unrestricted
Subsidiaries (which will include those subsidiaries that develop PC-1, MAC,
PAC and future cable systems) will not be subject to such restrictions. Such
restrictions will affect, and in many respects significantly limit or
prohibit, among other things, the ability of the Issuer and its Restricted
Subsidiaries to incur additional indebtedness, repay indebtedness (including
the Notes) prior to stated maturities, sell assets, make investments, engage
in transactions with shareholders and affiliates, issue capital stock, create
liens or engage in mergers or acquisitions. These restrictions could also
limit the ability of the Issuer and its Restricted Subsidiaries to effect
future financings, make needed capital expenditures, withstand a future
downturn in the Company's business or the economy in general, or otherwise
conduct necessary corporate activities. The Issuer's and its Restricted
Subsidiaries' ability to comply with the covenants and restrictions contained
in the Indenture may be affected by events beyond their control, including
prevailing economic and financial concerns. A failure by the Issuer or any of
its Restricted Subsidiaries to comply with these restrictions could lead to a
default under the terms of the Notes notwithstanding the ability of the Issuer
and its Restricted Subsidiaries to meet their debt service obligations. In the
event of a default, holders of the Notes could elect to declare all such
indebtedness to be due and payable together with accrued and unpaid interest.
In such event, a significant portion of the other indebtedness of the Issuer
or any of its subsidiaries may become immediately due and payable and there
can be no assurance that the Issuer and its Restricted Subsidiaries would be
able to make such payments or borrow sufficient funds from alternative sources
to make any such payment. See "Description of Notes--Certain Covenants."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Indenture requires the Issuer to make an offer to purchase the Notes
upon the occurrence of a Change of Control at a purchase price equal to 101%
of the principal amount thereof, plus accrued interest to the date of
purchase. Prior to commencing such an offer to purchase, the Company would be
required to (i) repay in full all indebtedness of the Company that would
prohibit the purchase of the Notes or (ii) obtain any requisite consent to
permit the purchase. If the Company is unable to repay all of such
indebtedness or is unable to obtain the necessary consents, the Issuer will be
unable to offer to purchase the Notes and such failure will constitute an
event of default under the Indenture. There can be no assurance that the
Company will have sufficient funds available at the time of any Change of
Control to make any debt payment (including purchases of Notes) as described
above. See "Description of Notes--Repurchase at the Option of Holders--Change
of Control."
FRAUDULENT CONVEYANCE MATTERS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Issuer or any Guarantor, at the time it incurred the indebtedness evidenced by
25
<PAGE>
the Notes or by its Guarantee, (i) (a) was or is insolvent or rendered
insolvent by reason of such occurrence or (b) was or is engaged in a business
or transaction for which the assets remaining with the Issuer or such
Guarantor constituted unreasonably small capital or (c) intended or intends to
incur, or believed or believes that it would incur, debts beyond its ability
to pay such debts as they mature, and (ii) the Issuer, or such Guarantor
received or receives less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, then the Notes and the
Guarantees, and any pledge or other security interest securing such
indebtedness, could be voided, or claims in respect of the Notes or the
Guarantees could be subordinated to all other debts of the Issuer or such
Guarantor, as the case may be. In addition, the payment of interest and
principal by the Issuer pursuant to the Notes or the payment of amounts by a
Guarantor pursuant to a Guarantee could be voided and required to be returned
to the person making such payment, or to a fund for the benefit of the
creditors of the Issuer or such Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Issuer or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the saleable value of all of its assets at a fair valuation or if
the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature or (ii)
it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Issuer and each Guarantor believes that, after giving
effect to the indebtedness incurred in connection with the Offering, it will
not be insolvent, will not have unreasonably small capital for the business in
which it is engaged and will not incur debts beyond its ability to pay such
debts as they mature. There can be no assurance, however, as to what standard
a court would apply in making such determinations or that a court would agree
with the Issuer's or the Guarantors' conclusions in this regard.
USE OF PROCEEDS
The Issuer will not receive any proceeds from the Exchange Offer.
26
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1998 (i) the historical
consolidated capitalization of the Company and (ii) the capitalization as
adjusted to reflect the Stock Offerings and the application of the net
proceeds therefrom, the TDC Exchange, the Advisory Services Agreement
Termination, the Old GCL Exchange and the PCG Warrant Conversion. 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 JUNE 30, 1998
------------------------------
ACTUAL AS ADJUSTED(1)
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Long Term Debt:
AC-1 Credit Facility(2)................... $ 367,048,000 $ 367,048,000
Long Term Deferred Revenue................ 6,916,667 6,916,667
Obligations under Inland Services
Agreements(3)............................ 7,628,050 7,628,050
Obligations under Capital Leases(4)....... 7,561,897 7,561,897
9 5/8% Senior Notes due 2008(5)........... 796,277,203 796,277,203
-------------- --------------
Total Long Term Debt.................... 1,185,431,817 1,185,431,817
-------------- --------------
Shareholders' Equity:
Common Stock.............................. 110 2,016,885
Treasury Stock............................ -- (198,255,724)
Additional Paid-in Capital................ 397,095,005 955,549,435
Accumulated Deficit....................... (159,315,864) (159,315,864)
-------------- --------------
Total Shareholders' Equity.............. 237,779,251 599,994,732
-------------- --------------
Total Capitalization.................... $1,423,211,068 $1,785,426,549
============== ==============
</TABLE>
- --------
(1) As adjusted to reflect the Stock Offerings, the TDC Exchange, the Advisory
Services Agreement Termination, the Old GCL Exchange and the PCG Warrant
Conversion. For detailed information on these adjustments, see the
footnotes to the pro forma financial information presented on pages 12-15.
(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 $367.0 million was
outstanding as of June 30, 1998. See "Description of Certain
Indebtedness--AC-1 Credit Facility."
(3) Net of the $43.5 million current portion of such obligations.
(4) Net of the $6.2 million current portion of such obligations.
(5) The Notes provide funds for refinancing corporate indebtedness and
investments in the Company's PC-1, MAC and PAC systems.
27
<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 and six months ended
June 30, 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 June
30, 1998 and results of operations for the interim periods presented. 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 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
MARCH 19, 1997
SIX MONTHS (DATE OF INCEPTION)
THREE MONTHS ENDED ENDED TO DECEMBER 31,
JUNE 30, 1998 JUNE 30, 1998 1997
------------------ ------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Sales and Operating
Revenues............... $ 101,255,867 $ 101,255,867 $ --
------------- ------------- ------------
Expenses:
Cost of Capacity Sold. 41,200,229 41,200,229 --
Operating,
Administrative and 183,705,088 187,748,840 3,101,708
Other (1)............ ------------- ------------- ------------
224,905,317 228,949,069 3,101,708
------------- ------------- ------------
Operating Loss.......... (123,649,450) (127,693,202) (3,101,708)
Other Income (Expense):
Interest Income....... 4,327,602 4,673,436 2,941,352
Interest Expense...... (7,403,037) (7,426,271) --
Provision for Income
Taxes (2).............. (9,000,000) (9,000,000) --
Extraordinary Loss on (19,709,471) (19,709,471) --
Retirement of Debt (3). ------------- ------------- ------------
Net Loss................ (155,434,356) (159,155,508) (160,356)
Preference Share Non-
Cash Dividends (4)..... (3,898,203) (8,306,433) (12,689,923)
Redemption of Preference (34,140,067) (34,140,067) --
Shares (5)............. ------------- ------------- ------------
Net Loss Applicable to $(193,472,626) $(201,602,008) $(12,850,279)
Common Shareholders.... ============= ============= ============
Basic and Diluted Net
Loss per Common Share
before Extraordinary $ (1.05) $ (1.10) $ (0.08)
Item................... ============= ============= ============
Net loss per Common
Share on Extraordinary $ (0.12) $ (0.12) $ --
Item................... ============= ============= ============
Basic and Diluted Net
Loss per Common Share $ (1.17) $ (1.22) $ (0.08)
(6).................... ============= ============= ============
Shares used in Computing
Basic and Diluted Net 166,194,035 166,062,697 165,441,150
Loss per Common Share.. ============= ============= ============
OTHER FINANCIAL DATA:
Ratio of Earnings to
Fixed Charges (13)..... -- -- --
Pro Forma Ratio of Earn-
ings to Fixed Charges
(14)................... -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Current Assets Including Cash and Restricted
Cash (7).................................... $ 605,891,695 $ 27,743,838
Long Term Accounts Receivable................ 7,900,000 --
Construction in Progress and Capacity
Available for Sale (8)...................... 779,646,579 518,518,509
Investment in Pacific Crossing Ltd. (9)...... 126,456,345 --
Deferred Finance and Organization Costs, Net 44,338,405 25,934,021
of Accumulated Amortization................. -------------- ------------
$1,564,233,024 $572,196,368
============== ============
Current Liabilities.......................... $ 141,021,956 $ 92,097,773
Long Term Debt............................... 367,048,000 162,325,000
Senior Notes................................. 796,277,203 150,000,000
Long Term Deferred Revenue................... 6,916,667 --
Obligations Under Inland Service Agreements
and Capital Leases (10)..................... 15,189,947 3,009,000
GTH Preference Shares (11)................... -- 90,643,919
Shareholders' Equity.........................
Common Stock............................... 110 110
Other Shareholders' Equity................. 397,095,005 74,280,922
Accumulated Deficit........................ (159,315,864) (160,356)
-------------- ------------
Total Shareholders' Equity................... 237,779,251 74,120,676
-------------- ------------
Total Liabilities and Shareholders' Equity... $1,564,233,024 $572,196,368
============== ============
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE
30, 1998
------------
<S> <C>
OPERATING DATA:
Executed CPAs...................................................... $556 million
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED(12)
--------------
<S> <C>
Route Kilometers............................................... 51,300
Fiber Kilometers............................................... 345,200
Estimated System Costs (excluding potential future upgrades and
amounts capitalized with respect to the PCG Warrants)
AC-1 ......................................................... $ 750 million
Other Systems Under Development............................... $2,025 million
Landing Stations............................................... 14
</TABLE>
- --------
(1) Includes a charge for the Advisory Services Agreement Termination on June
30, 1998. See "Certain Transactions." The Company acquired 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 has recorded a non-recurring
charge in the approximate amount of $137.7 million. Also, during each of
the three and six months ended June 30, 1998, the Company recognized
$21.1 million from a total of $67.1 million of stock-related expense
relating to stock options issued during such period. The remaining $46.0
million will be recognized as follows: $4.8 million in each of the third
and fourth quarters of 1998, $19.2 million in 1999, $13.5 million in 2000
and $3.7 million in 2001.
(2) Reflects income taxes on profits earned during the three months ended
June 30, 1998 attributable to both United States and foreign
jurisdictions. A significant portion of the Company's operating losses
have been incurred in non-taxable jurisdictions and therefore these
operating losses cannot be applied to future taxable earnings of the
Company.
(3) On May 18, 1998, a portion of the proceeds from the issuance of the Notes
was used to repurchase the GTH Senior Notes. The Company recognized an
extraordinary loss of $19.7 million on repurchase comprising a premium of
approximately $9.8 million and a write-off of approximately $9.9 million
of unamortized deferred financing costs.
(4) The holders of GTH Preference Shares were 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. Effective June 17, 1998, the Company used
proceeds from the Notes to redeem all outstanding GTH Preference Shares.
All dividends prior to the redemption had been paid through the issuance
of additional preference shares and charged against additional paid-
in capital.
(5) As a result of the redemption of the GTH Preference Shares, the Company
incurred a one-time $34.1 million charge recorded against Additional
Paid-in Capital. The charge was comprised of: (i) a $15.9 million charge
for the redemption premium and (ii) a write-off of $18.2 of unamortized
discount and unamortized deferred financing costs.
(6) 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.
(7) The majority of Cash and Restricted Cash is comprised of proceeds from
the issuance of the Notes and funds which have been reserved for the
purpose of funding future interest payable on the Notes.
(8) Construction in Progress and Capacity Available for Sale includes direct
and indirect expenditures for construction of AC-1 and other Systems and
is stated at cost. Includes 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. This amount
also includes backhaul capacity available for sale. Additionally, the
Company granted the PCG Warrants to PCG, a shareholder, for the PC-1, MAC
and PAC systems and related rights. The $213.3 million estimated value of
the Common Stock to be issued under the PCG Warrants has been recorded as
Construction in Progress in the amount of $86.8 million and Investment in
Pacific Crossing Ltd. in the amount of $126.5 million. Such estimated
values will be adjusted to reflect the Price per Share to Public in the
Stock Offerings in the Company's financial statements for the three
months ending September 30, 1998. Such adjustment is not expected to be
material.
29
<PAGE>
(9) Includes $126.5 million as of June 30, 1998, as described above,
representing the estimated value of the PCG Warrants applicable to
Pacific Crossing Ltd.
(10) Certain contracts to acquire backhaul capacity and certain capital leases
require payments over a 25-year period. The amount shown reflects the
present value of such payments, net of the $49.7 million ($30.2 million
as of December 31, 1997) current portion of such payments, which is
included under "Current Liabilities."
(11) The December 31, 1997 amount is comprised of (i) $100 million of GTH
Preference Shares originally issued, plus (ii) $9.8 million of GTH
Preference Shares issued as dividends thereon, less (iii) $19.2 million
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.
(12) 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."
(13) For the purposes of this computation, earnings are defined as income
(loss) before income taxes plus fixed charges. Fixed charges consist of
interest expense (including amortization of deferred debt issuance costs)
and the portion of rental expense that is representative of the interest
factor (deemed to be one-third of minimum operating lease rentals). As a
result of losses incurred for the periods presented, earnings were
insufficient to cover fixed charges by $140 million, $154 million and $10
million, for the three months ended June 30, 1998, six months ended June
30, 1998, and for the period March 19, 1997 (date of inception) to
December 31, 1997.
(14) For the purposes of this pro-forma computation, earnings are defined as
income (loss) before income taxes plus fixed charges. Fixed charges
consist of interest expense (including amortization of deferred debt
issuance costs) and the portion of rental expense that is representative
of the interest factor (deemed to be one-third of minimum operating lease
rentals). This computation gives effect to the May 18, 1998 issuance of
the Notes assuming that the Notes had been issued at the beginning of
each of the periods presented. As a result of losses incurred for the
periods presented, earnings were insufficient to cover fixed charges by
$143 million, $169 million and $52 million, for the three months ended
June 30, 1998, six months ended June 30, 1998, and for the period March
19, 1997 (date of inception) to December 31, 1997.
30
<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."
Until May 26, 1998, the Company was a development stage company and 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 and PC-1 credit facilities and the execution of
financing commitments with respect to MAC and PAC, (iv) the construction and
activation of the United States to United Kingdom segment of AC-1 and (v) the
execution of over $500 million of CPAs. Effective May 26, 1998, the United
States--United Kingdom segment of AC-1 achieved RFS and the Company began
recognizing revenue from the sale of capacity. Accordingly, the Company is no
longer a development stage company.
On March 18, 1998, Old GCL formed a wholly-owned subsidiary, New GCL, a
Bermuda company, and contributed its investment in GTH to New GCL. On April
30, 1998, New GCL formed a wholly-owned subsidiary, GCH, a Bermuda company.
New GCL contributed its investment in GTH to GCH upon its formation. Prior to
the Stock Offerings, substantially all of the shareholders of Old GCL will
exchange their equity interests in Old GCL for Common Stock of New GCL.
31
<PAGE>
The Company, together with other partners, formed a joint venture company,
Pacific Crossing Ltd. ("PCL"), which on April 21, 1998 entered into a contract
with TSSL to construct the PC-1 cable system. The estimated cost of the PC-1
system is approximately $1.2 billion (excluding potential future upgrades) and
will be financed through a $400 million equity contribution by the joint
venture partners and through borrowings under the credit facility discussed
below. PC-1 is an undersea fiber optic cable system connecting California,
Washington and two landing sites in Japan. The Company has approximately a 58%
economic interest in PCL, represented by a 50% direct voting interest in PCL
and, through an equity ownership interest in one of the other joint venture
partners, a further 8% economic (but not voting) interest. The Company's
funding commitment in respect of the $400 million of equity in PCL totals $231
million, which is proportional to its economic interest. PCL has obtained an
$850 million senior secured, non-recourse credit facility from certain lenders
to finance the remaining construction costs of the PC-1 system. Prior to
obtaining such financing, PCL borrowed approximately $104 million under a
promissory note from the underwriters of the $850 million credit facility to
make the initial payments on the PC-1 construction contract. The $850 million
credit facility has been used to repay the $104 million promissory note. The
Company accounts for its investment in PCL on an equity basis.
Effective June 2, 1998, the Company, through its wholly-owned subsidiary
Mid-Atlantic Crossing Ltd. ("MACL"), 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. The estimated costs of
the MAC system of approximately $350 million (excluding potential future
upgrades and amounts capitalized with respect to the PCG Warrants) will be
financed through a $110 million equity contribution and through borrowings
under a non-recourse credit facility. On June 26, 1998, MACL entered into a
commitment letter to obtain $240 million of non-recourse indebtedness.
Effective July 21, 1998, the Company, through its wholly owned subsidiary
Pan American Crossing Ltd. ("PACL"), entered into a contract with TSSL to
construct PAC, an undersea fiber optic cable system connecting California with
two landing sites in Mexico, Panama and the Caribbean. The estimated costs of
the PAC system of approximately $475 million (excluding potential future
upgrades and amounts capitalized with respect to the PCG Warrants) will be
financed through a $165 million equity contribution and through borrowings
under a non-recourse credit facility. On July 21, 1998, PACL entered into a
commitment letter to obtain $310 million of non-recourse indebtedness.
Sales of capacity by the Company on its cable systems are effected through
Capacity Purchase Agreements ("CPAs") 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 backhaul 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 CPAs and ICPAs generally provide for a cash deposit upon execution,
followed by full payment upon activation of the related capacity pursuant to
the terms of the CPA.
The Company's basic pricing structure currently provides for volume-based
discounts to its customers as well as discounts for early purchases on a
particular system. Customers are generally provided options in their CPAs to
purchase additional capacity in 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.
REVENUES
Revenues from CPAs and ICPAs are recognized in the period during which (i)
the purchaser obtains the right to use the capacity, which can only be
suspended following a failure of the purchaser to pay the full purchase price
or fulfill its contractual obligations, (ii) the purchaser becomes obligated
to pay OA&M costs and (iii) the segment of the system related to the capacity
purchased is ready for service.
32
<PAGE>
CPAs for capacity that do not meet the Company's revenue recognition policy
are not recorded in the Company's consolidated financial statements.
Since the RFS date for the United States--United Kingdom segment of AC-1,
which occurred on May 26, 1998, the Company's revenues have been comprised
principally of revenues from sales of cable capacity on AC-1 and the sale of
associated backhaul capacity.
Pursuant to the CPAs, the Company bills its customers for operations, direct
administration and maintenance costs incurred, plus 10%, subject to certain
annual maximum amounts.
COST OF CAPACITY SOLD; CONSTRUCTION IN PROGRESS; CAPACITY AVAILABLE FOR SALE
Construction costs incurred with respect to each segment of a system are
reflected as "Construction in Progress" in the Company's consolidated balance
sheet until a segment becomes operational, at which time such costs are
reflected as Capacity Available For Sale. Capacity Available For Sale is
recorded at the lower of cost or fair value less cost to sell and is charged
to Cost of Capacity Sold in the period the related revenues are recognized.
Fair value of capacity is derived from a third party consultant's market study
of expected sales of capacity.
The Company capitalizes the cost of acquiring backhaul capacity and records
in Backhaul Capacity Available for Sale amounts equal to the present value of
future payments associated with the acquisition of such backhaul capacity
(excluding from such payments amounts attributable to operations and
maintenance costs).
Construction in Progress includes direct expenditures for construction of
systems, including advisory, consulting and legal fees, interest during
construction and amortized debt issuance costs incurred during the
construction phase.
Amounts charged to Cost of Capacity Sold are calculated based on the ratio
of capacity revenues recognized in a period to total expected capacity
revenues over the life of the system, multiplied by the total cost to
construct the system. Management's forecast of revenues expected over the life
of the system will be supported by an independent consultant's forecast.
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 Capacity Sold. These adjustments will be recorded on a
prospective basis over future periods commencing with the period when
management revises its estimate. The cost to acquire backhaul capacity is
charged to Cost of Capacity Sold in the period during which the related
revenues are recognized.
OPERATING EXPENSES
In addition to Cost of Capacity Sold, the Company's operating expenses
principally comprise sales and marketing, operations and maintenance, general
and administrative and network development costs. Costs relating to the
Company's evaluation of possible additional systems are expensed as incurred.
RESULTS OF OPERATIONS FOR THE PERIOD FROM MARCH 19, 1997 (DATE OF INCEPTION)
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 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,
$0.1 related to network development and approximately $1.6 million was
attributable to general and administrative expenses.
33
<PAGE>
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
19,852,950 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. See "Certain Transactions--Transactions Regarding Class A
Shares of Old GCL."
The Company utilized a portion of the net proceeds from the 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 JUNE 30, 1998 AND JUNE 30,
1997
Revenues
Through June 30, 1998, the Company had executed CPAs totalling approximately
$556 million. Of that amount, the Company recognized revenues of subsea and
backhaul capacity on AC-1 of $100.9 million for the three months ended June
30, 1998, in addition to revenues from operation and maintenance services of
$0.4 million. The remaining $455 million has not yet been reflected in the
financial statements primarily because either the segment has not reached RFS
or the purchaser has not obtained the right to use the capacity. As of June
30, 1998, the Company had entered into CPAs with 22 international
telecommunications carriers and had sold approximately 19% of the minimum
projected sales capacity of 512 circuits on the AC-1 system. There were no
revenues in the three months ended June 30, 1997, as the Company was in its
development stage. As of June 30, 1998, the Company recorded an allowance for
doubtful accounts in the amount of $1.0 million.
Expenses
Cost of Capacity Sold. For the three months ended June 30, 1998, the Company
recognized $41.2 million in costs of capacity sold, resulting in a gross
profit on capacity sales of 59%. The Company calculates cost of capacity sold
for AC-1 as previously described based on the ratio of the period's actual
revenue to total expected revenues given a minimum projected sales capacity of
512 circuits. This calculation of cost of sales matches costs with the
relative sales value of each sale. Cost of capacity sold also includes the
cost of backhaul capacity sold during the three months ended June 30, 1998 of
approximately $9 million. There were no sales or related costs recognized in
the three months ended June 30, 1997.
Operation and Maintenance. The Company incurred OA&M costs on the United
States-United Kingdom segment of AC-1 in the amount of $2.4 million during the
three months ended June 30, 1998. 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.
Termination of Advisory Services Agreement with PCG Telecom. In connection
with the development and construction of AC-1, ACL entered into an advisory
services agreement with an affiliate of the Company
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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 has
agreed 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 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 incurred a charge of
$137.7 million, reflected in the statement of operations for the three month
period ended June 30, 1998. In addition, the Company recognized approximately
$2 million of advisory fees incurred prior to termination of the contract. See
"Certain Transactions." Upon the consummation of this transaction, all
obligations of the Company and ACL in respect of the advisory services
agreements will be terminated.
Sales and Marketing. During the three months ended June 30, 1998, the
Company recognized sales and marketing expenses of $6.5 million, including
commissions of $4.1 million incurred on the capacity sales recognized during
this period. During the three months ended June 30, 1997, the Company incurred
sales and marketing costs of approximately $40,000.
Network Development. The Company incurred network development costs during
the three months ended June 30, 1998 in the amount of $4.3 million relating to
the development of possible new systems. No such costs were incurred during
the three months ended June 30, 1997.
General and Administrative. General and administrative expenses totaled $6.5
million during the three months ended June 30, 1998, comprised principally of
salaries, employee benefits and recruiting fees reflecting the Company's
staffing for multiple systems; travel; insurance costs and rent expenses.
During the three months ended June 30, 1997, the Company incurred general and
administrative costs of approximately $50,000.
Stock-Related Expense. On April 3, 1998 and June 12, 1998, the Board of
Directors of Old GCL approved the issuance of options relating to 5,557,500
shares of common stock of Old GCL and 3,352,950 shares of common stock of Old
GCL, respectively, under the Company's Stock Incentive Plan. The options
granted on April 3, 1998 have exercise prices of $1.67 per share and the
options granted on June 12, 1998 have exercise prices of $6.67 per share and
generally have three-year vesting periods and ten-year expiration periods.
During the three months ended June 30, 1998, the Company recorded $67.1
million of unearned compensation, which is being recognized as an expense over
the vesting period of the options. Of this amount, the Company recognized
approximately $21.1 million of compensation expense during the three months
ended June 30, 1998 for the options issued in April and June, certain of which
vested immediately upon issuance, since the exercise price was less than the
estimated fair market value of the stock on the date of grant. Additionally,
$1.6 million in stock-related expense was recorded in respect of shares issued
during the period.
Interest Expense and Interest Income
During the three months ended June 30, 1998, the Company incurred $21.3
million in interest costs, including the amortization of debt discount and
expense. Of this amount, the Company capitalized interest to construction in
progress of $13.9 million and expensed $7.4 million. The Company's accounting
policy, in accordance with SFAS 34, provides for capitalization of interest to
construction in progress until such time as a segment reaches its Ready-for-
Service ("RFS") date. Accordingly, all interest costs were capitalized in the
three months ended June 30, 1997.
Interest income of $4.3 million and $1.3 million in the three months ended
June 30, 1998 and 1997, respectively, represents earnings on restricted cash,
cash raised from financing, and on CPA and ICPA deposits.
Provision for Income Taxes
The income tax provision of $9 million for the three months ended June 30,
1998 provides for taxes on profits earned from subsea and backhaul capacity
sales and OA&M revenues in certain jurisdictions where the Company is deemed
to have a taxable presence. The Company has incurred operating losses which
relate to non-taxable jurisdictions and therefore operating losses incurred to
date cannot be applied against future taxable earnings. Accordingly, no tax
provision or deferred tax benefit was recorded in 1997.
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Extraordinary Item; Preference Share Dividends
On May 18, 1998, the Issuer issued $800 million of the Notes for the purpose
of repurchasing the GTH Senior Notes, redeeming the GTH Preference Shares,
repaying in full amounts drawn under a $200 million senior bridge facility
(the "Global Crossing Bridge Facility") and financing new projects. The
Company recognized an extraordinary loss of $19.7 million upon the repurchase
of the GTH Senior Notes on May 18, 1998, comprised of a repurchase premium of
approximately $9.8 million payable to repurchase the GTH Senior Notes and a
write-off of approximately $9.9 million of unamortized deferred financing
costs. The redemption of the GTH Preference Shares occurred on June 17, 1998
and resulted in a $34.1 million charge against additional paid-in capital,
comprised of approximately a $15.9 million redemption premium and $18.2
million of unamortized discount and deferred financing costs on the GTH
Preference Shares on the date of the redemption. The redemption premium and
write-off of unamortized discount and issuance costs on the GTH Preference
Shares are treated as a deduction to arrive at net loss applicable to common
shareholders in the consolidated statement of operations.
The GTH Preference Shares accrued compounding dividends at an annual rate of
14%. During the three months ended June 30, 1998, the Company recorded
preference share dividends of approximately $3.9 million. This amount is
comprised of $3.5 million in paid-in-kind dividends, $0.3 million in
amortization of the discount on issuance and $0.1 million in amortization of
issuance costs. Preference share dividends for the three months ended June 30,
1997 were approximately $4.0 million comprised of $3.5 million in paid-in-kind
dividends, $0.3 million in amortization of the discount on issuance and $0.2
million in amortization of issuance costs. On June 17, 1998, the Company
redeemed the GTH Preference Shares as stated above.
Net Loss and Net Loss Applicable to Common Shareholders
The Company incurred a net loss of $155.4 million for the three months ended
June 30, 1998, compared to net income of $1.2 million in the three months
ended June 30, 1997. The loss for the three months ended June 30, 1998
reflects an extraordinary loss on retirement of GTH Senior Notes of $19.7
million and a non-recurring charge of $137.7 million relating to the
termination of its Advisory Services Agreement. The Company's net income
before these items would have been $2.0 million.
Net Loss Applicable to Common Shareholders during the three months ended
June 30, 1998 of $193.5 million reflects preference share dividends of $3.9
million and the redemption of GTH Preference Shares of $34.1 million. During
the three months ended June 30, 1997 the Company incurred a Net Loss
Applicable to Common Shareholders of $2.8 million after preference share
dividends of $4.0 million.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND THE PERIOD
FROM MARCH 19, 1997 (DATE OF INCEPTION) TO JUNE 30, 1997
Revenues
Through June 30, 1998, the Company had signed CPAs totalling approximately
$556 million. Of that amount, the Company recognized revenues of subsea and
backhaul capacity on AC-1 of $100.9 million for the six months ended June 30,
1998, in addition to revenues from operation and maintenance services of $0.4
million. The remaining $455 million has not yet been reflected in the
financial statements primarily because either the segment has not reached RFS
or the purchaser has not obtained the right to use the capacity. As of June
30, 1998, the Company had entered into CPAs with 22 international
telecommunications carriers and had sold approximately 19% of the minimum
projected sales capacity of 512 circuits on the AC-1 system. There were no
revenues in the period from March 19, 1997 (date of inception) to June 30,
1997, as the Company was in its development stage. As of June 30, 1998, the
Company recorded an allowance for doubtful accounts in the amount of $1.0
million.
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Expenses
Cost of Capacity Sold. For the six months ended June 30, 1998, the Company
recognized $41.2 million in costs of capacity sold, resulting in a gross
profit on capacity sales of 59%. The Company calculates cost of capacity sold
for AC-1 as previously described based on the ratio of the period's actual
revenue to total expected revenues given a minimum projected sales capacity of
512 circuits. This calculation of cost of sales matches costs with the
relative sales value of each sale. Cost of capacity sold also includes the
cost of backhaul capacity sold during the six months ended June 30, 1998 of
approximately $9 million. There were no sales or related costs recognized for
the period from March 19, 1997 (date of inception) to June 30, 1997.
Operation and Maintenance. The Company incurred OA&M costs on the United
States-United Kingdom segment of AC-1 in the amount of $2.4 million during the
six months ended June 30, 1998. The Company has entered into the AC-1 OA&M
Agreement with TSSL relating to operations, administration and maintenance of
AC-1 and related backhaul capacity. 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.
Termination of Advisory Services Agreement with PCG Telecom. 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 has agreed 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 of $135 million and the cancellation of approximately $2.7
million owed to the Company under a related advance agreement. This charge of
$137.7 million is reflected in the statement of operations for the six month
period ended June 30, 1998. In addition, the Company recognized approximately
$2 million of advisory fees incurred prior to termination of the contract. See
"Certain Transactions." Upon the consummation of this transaction, all
obligations of the Company and ACL in respect of the advisory services
agreements will be terminated.
Sales and Marketing. During the six months ended June 30, 1998, the Company
recognized sales and marketing expenses of $7.3 million, including commissions
of $4.1 million incurred on the capacity sales recognized during this period.
During the period from March 19, 1997 (date of inception) to June 30, 1997,
the Company incurred sales and marketing costs of approximately $40,000.
Network Development. The Company incurred network development costs during
the six months ended June 30, 1998 in the amount of $4.3 million relating to
the development of possible new systems. No such costs were incurred during
the period from March 19, 1997 (date of inception) to June 30, 1997.
General and Administrative. General and administrative expenses totaled $9.1
million during the six months ended June 30, 1998, comprised principally of
salaries, employee benefits and recruiting fees reflecting the Company's
staffing for multiple systems; travel; insurance costs and rent expenses.
During the period from March 19, 1997 (date of inception) to June 30, 1997,
the Company incurred general and administrative costs of approximately
$50,000.
Stock-Related Expense. On January 21, 1998, April 3, 1998 and June 12, 1998,
the Board of Directors of Old GCL approved the issuance of options relating to
4,231,500, 5,557,500 and 3,352,950 shares of common stock of Old GCL,
respectively, under the Company's Stock Incentive Plan. The options granted on
January 21, 1998 and April 3, 1998 have exercise prices of $1.67 per share and
the options granted on June 12, 1998 have exercise prices of $6.67 per share
and generally have three-year vesting periods and ten-year expiration periods.
During the six months ended June 30, 1998, the Company recorded $67.1 million
of unearned compensation which is being recognized as an expense over the
vesting period of the options. Of this amount the Company recognized
approximately $21.1 million of compensation expense during the six months
ended June 30, 1998 for the options issued in April and June, certain of which
vested upon issuance, since the exercise price was less
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than the estimated fair market value of the stock on the date of grant. During
the six months ended June 30, 1998, the Company also recorded stock-related
expense of $2.3 million relating to shares issued during this period. The
Company's Stock Incentive Plan commenced on January 21, 1998 and therefore no
issuances were made during the period from March 19, 1997 (date of inception)
to June 30, 1997.
Interest Expense and Interest Income
During the six months ended June 30, 1998, the Company incurred $31.8
million in interest costs, including the amortization of debt discount and
expense. Of this amount, the Company capitalized interest to construction in
progress of $24.4 million and expensed $7.4 million. The Company's accounting
policy, in accordance with SFAS 34, provides for capitalization of interest to
construction in progress until such time as a segment reaches its Ready-for-
Service ("RFS") date. Accordingly, all interest costs were capitalized in the
period from March 19, 1997 (date of inception) to June 30, 1997.
Interest income of $4.7 million and $1.3 million in the six months ended
June 30, 1998 and during the period from March 19, 1997 (date of inception) to
June 30, 1997, respectively, represents earnings on restricted cash, cash
raised from financing, and on CPA and ICPA deposits.
Provision for Income Taxes
The income tax provision of $9 million for the six months ended June 30,
1998 provides for taxes on profits earned from subsea and backhaul capacity
sales and OA&M revenues in certain jurisdictions where the Company is deemed
to have a taxable presence. The Company has incurred operating losses which
relate to non-taxable jurisdictions and therefore operating losses incurred to
date cannot be applied against future taxable earnings. Accordingly, no tax
provision or deferred tax benefit was recorded in 1997.
Extraordinary Item; Preference Share Dividends
On May 18, 1998, the Issuer issued $800 million of the Notes for the purpose
of repurchasing the GTH Senior Notes, redeeming the GTH Preference Shares,
repaying amounts drawn under the Global Crossing Bridge Facility and financing
new projects. The Company recognized an extraordinary loss of $19.7 million
upon the repurchase of the GTH Senior Notes on May 18, 1998, comprised of a
premium of approximately $9.8 million payable to repurchase the GTH Senior
Notes and a write-off of approximately $9.9 million of unamortized deferred
financing costs. The redemption of the GTH Preference Shares occurred on June
17, 1998 and resulted in a $34.1 million charge against additional paid-in
capital, comprised of approximately a $15.9 million redemption premium and
$18.2 million of unamortized discount and issuance cost on the GTH Preference
Shares on the date of the redemption. The redemption premium and write-off of
unamortized discount and issuance costs on the GTH Preference Shares are
treated as a deduction to arrive at net loss applicable to common shareholders
in the consolidated statement of operations.
The GTH Preference Shares accrued compounding dividends at an annual rate of
14%. During the six months ended June 30, 1998, the Company recorded
preference share dividends of approximately $8.3 million. This amount is
comprised of $7.3 million in paid-in-kind dividends, $0.6 million in
amortization of the discount on issuance and $0.4 million in amortization of
issuance costs. Preference share dividends for the period from March 19, 1997
(date of inception) to June 30, 1997 were $4.2 million comprised of $3.7
million paid-in-kind dividends, $0.3 million in amortization of the discount
on issuance and $0.2 million in amortization of issuance costs. On June 17,
1998, the Company redeemed the GTH Preference Shares as stated above.
Net Loss and Net Loss Applicable to Common Shareholders
The Company incurred a net loss of $159.2 million for the six months ended
June 30, 1998, compared to net income of $1.2 million in the period from March
19, 1997 (date of inception) to June 30, 1997. The loss for the six months
ended June 30, 1998 reflects an extraordinary loss on retirement of GTH Senior
Notes of $19.7 million and a non-recurring charge of $137.7 million relating
to the termination of its Advisory Services Agreement. The Company's net loss
before these items would have been $1.8 million.
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Net Loss Applicable to Common Shareholders during the six months ended June
30, 1998 of $201.6 million also reflects preference share dividends of $8.3
million and the redemption of GTH Preference Shares of $34.1 million. During
the period from March 19, 1997 (date of inception) to June 30, 1997, the
Company incurred a Net Loss Applicable to Common Shareholders of $3.0 million
after preference share dividends of $4.2 million.
BALANCE SHEET AS OF JUNE 30, 1998
The Company's investment in Construction in Progress, Capacity Available for
Sale, Backhaul Capacity Available for Sale and Investment in PCL totaled
approximately $906 million as at June 30, 1998.
In June 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 Stock Offerings. 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 of Old GCL 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, 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 Stock
Offerings, it is expected that the holders of the PCG Warrants will exercise
their warrants to acquire Class B shares of Old GCL 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.
The Company has accounted for the PCG Warrants based upon the value of the
cashless conversion as of June 30, 1998 using the current estimated per share
valuation at the expected conversion date multiplied by the number of Class B
shares of Old GCL estimated to be converted in exchange for the PCG Warrants.
The Company has recorded an increase in its Investment in PCL in the amount of
approximately $126.5 million and an increase in Construction in Progress for
PAC and MAC in the amounts of approximately $49.9 million and $36.9 million,
respectively, with a corresponding increase of approximately $213.3 million in
Additional Paid-in-Capital. The $213.3 million was allocated on a pro rata
basis to the three projects according to the estimated cost of each system.
The Company's accounting for the PCG Warrants is pursuant to Emerging Issues
Task Force 96-18, "Accounting for Equity Instruments with Variable Terms that
are Issued for Consideration other than Employee Services under FASB Statement
No. 123" ("EITF 96-18"). 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 Stock Offerings were probable at that date. The $213.3 million value
attributed to the PCG Warrants as of June 30, 1998 will be adjusted to the
actual value on the date of the Stock Offerings based upon the Price per Share
to Public in the Stock Offerings. Such adjustment is not expected to be
material.
The Company will give accounting recognition for the New PCG Warrants on the
date these warrants are issued, which is expected to be the date of the Stock
Offerings. The Company estimates the value of each New PCG Warrant at $6.67
based on an independent valuation assuming a Price to Public Per Share of the
Stock Offerings of $18.00 per share. Assuming all of the PCG Warrants are
converted as of June 30, 1998, the New PCG Warrants would have a total value
of $44 million. Upon the issuance of the New PCG Warrants, the Company will
record the actual value of the New PCG Warrants at the date of the Stock
Offerings (based upon the Price per Share to Public in the Stock Offerings)
and the total value will be allocated to the investment in PCL and total
contract costs with a corresponding increase in Additional Paid-in-Capital.
During the six months ended June 30, 1998, the Company paid fees of $7.0
million to PCG, a shareholder of the Company, relating to system evaluation
costs incurred by PCG. This amount was treated as a dividend and charged
against additional paid-in-capital.
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
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to major metropolitan areas. As of June 30, 1998 and December 31, 1997,
respectively, the Company had incurred approximately $724 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 $64 million and $195 million, respectively, of capital
expenditures under the AC-1 Contract in connection with the completion of AC-
1. Backhaul capacity purchases are recorded at the present value of future
payments (excluding from such payments amounts attributable to operations and
maintenance) required to be made by the Company for such capacity.
The total cost of AC-1 is estimated at approximately $750 million, excluding
purchases of backhaul capacity and potential future upgrades but 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 June 30, 1998, the Company had borrowed $162 million and
$367 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, the Issuer consummated the $800 million Offering of the
Notes. The Company has utilized (or will utilize) the net proceeds of the
Offering (i) to purchase all of the $150 million outstanding GTH Senior Notes,
(ii) to redeem all of the $100 million outstanding GTH Preference Shares,
(iii) to repay in full the $67.2 million outstanding under 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 Notes.
Cash provided by operating activities was approximately $37.4 million for
the six months ended June 30, 1998 and $5.1 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 was approximately $456.3 million for
the six months ended June 30, 1998 and 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 was approximately $191.1 million and
$429.0 million for the six months ended June 30, 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 but excluding potential future upgrades and amounts capitalized with
respect to the PCG Warrants. The Company expects to use approximately $315
million of the net proceeds from the 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. The Company utilized a portion of the net proceeds from the
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 July 30, 1998, the Company entered into a credit agreement for the
$850 million non-recourse project debt financing of PC-1 (including $50
million for the initial upgrade of the PC-1
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system). Effective June 26, 1998, the Company entered into a commitment letter
for the $240 million non-recourse project debt financing of MAC. Effective
July 21, 1998, the Company entered into a commitment letter for $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 approximately $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 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.
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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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Restricted Notes were issued and sold by the Issuer to the Initial
Purchasers on May 18, 1998 pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Restricted Notes in reliance on Rule 144A
and other exemptions from registration under the Securities Act. The Issuer,
the Guarantors and the Initial Purchasers also entered into the Registration
Agreement pursuant to which the Issuer agreed, with respect to the Restricted
Notes, to (i) cause to be filed, on or prior to 90 days after the Closing
Date, the Exchange Offer Registration Statement with the Commission under the
Securities Act concerning the Exchange Offer, and (ii) (a) use its reasonable
best efforts to cause such Exchange Offer Registration Statement to be
declared effective by the Commission on or prior to 150 days after the Closing
Date and (b) cause the Exchange Offer to remain open for the minimum period
required by applicable federal and state securities laws; provided, however,
that in no event shall such period be less than 20 days. The Exchange Offer is
intended to satisfy the Issuer's and Guarantors' exchange offer obligations
under the Registration Agreement.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Restricted Notes, where such Restricted Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING RESTRICTED NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Restricted Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1998; provided, however, that if the Issuer, in
its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended, provided it may not be extended beyond
, 1998.
As of the date of this Prospectus, an aggregate principal amount of $800
million in Restricted Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1998 to all
holders of Restricted Notes known to the Issuer. The Issuer's obligation to
accept Restricted Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions as set forth in this section under "--Certain Conditions
to the Exchange Offer."
Restricted Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Restricted Notes, by giving oral
or written notice of such extension to the holders thereof as described below.
During any such extension, all Restricted Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Issuer. The Issuer also expressly reserves the right to maintain an offer to
exchange Restricted Notes not tendered on or prior to the Expiration Date
pursuant to the Exchange Offer and accept for exchange any or all Restricted
Notes properly tendered on or prior to the Expiration Date in accordance with
the terms of the Exchange Offer and the Registration Agreement. Any Restricted
Notes not accepted for exchange for any reason will be returned without
expense to the tendering holder thereof as soon as practicable after the
expiration or termination of the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Restricted Notes not theretofore
accepted for exchange, upon the occurrence of any of the events specified
under "--Certain Conditions to the Exchange Offer." The Issuer will give oral
or written notice of
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any extension, amendment, non-acceptance or termination to the holders of the
Restricted Notes as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING RESTRICTED NOTES
The tender to the Issuer of Restricted Notes by a holder thereof as set
forth below and the acceptance thereof by the Issuer will constitute a binding
agreement between the tendering holder and the Issuer upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to
tender Restricted Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent, at the address set forth below under "--Exchange Agent" on or
prior to the Expiration Date. In addition, either (i) certificates for such
Restricted Notes must be received by the Exchange Agent along with the Letter
of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Restricted Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date.
THE METHOD OF DELIVERY OF RESTRICTED NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR RESTRICTED
NOTES SHOULD BE SENT TO THE ISSUER. FOR INSTRUCTIONS ON TENDERING RESTRICTED
NOTES HELD THROUGH POSITIONS AT CEDEL OR EUROCLEAR, SEE "--RESTRICTED NOTES
HELD THROUGH CEDEL OR EUROCLEAR."
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Restricted Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Restricted Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by a
firm which is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the
United States (collectively, "Eligible Institutions"). If Restricted Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Restricted Notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Issuer in its sole
discretion, duly executed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Restricted Notes tendered for exchange will be
determined by the Issuer in its sole discretion, which determination shall be
final and binding. The Issuer reserves the absolute right to reject any and
all tenders of any particular Restricted Notes not properly tendered or to not
accept any particular Restricted Notes which acceptance might, in the judgment
of the Issuer or its counsel, be unlawful. The Issuer also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Restricted Notes either before or after
the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender Restricted Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Restricted Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the
Issuer shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Restricted Notes for exchange
must be cured within such reasonable
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period of time as the Issuer shall determine. Neither the Issuer, the
Guarantors, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Restricted Notes, for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal, any Restricted Notes, bond powers or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Issuer, proper evidence satisfactory to the Issuer of
their authority to so act must be submitted.
By tendering, each holder will represent to the Issuer, among other things,
(i) that it is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Issuer, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable, (ii) that it is acquiring the Exchange Notes in the
ordinary course of its business and (iii) at the time of the consummation of
the Exchange Offer it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Restricted Notes that were
acquired as a result of market-making activities or other trading activities,
the holder may be deemed to be an "underwriter" within the meaning of the
Securities Act and is required to acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
the holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Restricted Notes and whose Restricted Notes
are not immediately available or who cannot deliver their Restricted Notes or
any other documents required by the Letter of Transmittal to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date (or
complete the procedure for book-entry transfer on a timely basis), may tender
their Restricted Notes according to the guaranteed delivery procedures set
forth in the Letter of Transmittal. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution and a Notice of
Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such holder, (ii) on or prior to the Expiration Date, the Exchange Agent
must have received from the holder and the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder, the certificate number or numbers of the tendered Restricted Notes,
and the principal amount of tendered Restricted Notes, stating that the tender
is being made thereby and guaranteeing that, within five business days after
the Expiration Date, the tendered Restricted Notes or a Book-Entry
Confirmation, as the case may be, a duly executed Letter of Transmittal or
facsimile thereof and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) such properly
completed and executed Letter of Transmittal and all documents required by the
Letter of Transmittal and the tendered Restricted Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, are received by the
Exchange Agent within five business days after the Expiration Date.
ACCEPTANCE OF RESTRICTED NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Restricted
Notes properly tendered and will issue the Exchange Notes promptly after
acceptance of the Restricted Notes. See "--Certain Conditions to the Exchange
Offer." For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted properly tendered Restricted Notes for exchange when, as and if the
Issuer has given oral or written notice thereof to the Exchange Agent, with
written confirmation of any oral notice to be given promptly thereafter.
For each Restricted Note accepted for exchange, the holder of such
Restricted Note will receive an Exchange Note having a principal amount equal
to that of the surrendered Restricted Note. Restricted Notes accepted for
exchange will cease to accrue interest from the date of consummation of the
Exchange Offer.
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Holders of Restricted Notes whose Restricted Notes are accepted for exchange
will not receive any payment in respect of accrued interest on such Restricted
Notes otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer.
In all cases, issuance of Exchange Notes for Restricted Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Restricted Notes
or a timely Book-Entry Confirmation of such Restricted Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Restricted Notes are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer or if Restricted Notes are
submitted for a greater principal amount than the holder desired to exchange,
such unaccepted or non-exchanged Restricted Notes will be returned without
expense to the tendering holder thereof (or, in the case of Restricted Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry procedures described below,
such non-exchanged Restricted Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as soon as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Restricted Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Restricted Notes by causing
the Book-Entry Transfer Facility to transfer such Restricted Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Restricted Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "--Exchange
Agent" on or prior to the Expiration Date.
RESTRICTED NOTES HELD THROUGH CEDEL OR EUROCLEAR
In case of Restricted Notes held through Cedel or Euroclear, holders of such
Restricted Notes wishing to tender such Restricted Notes for exchange pursuant
to the Exchange Offer must send instructions to Cedel or Euroclear, as the
case may be, to block the Restricted Notes in such holder's account at Cedel
or Euroclear. In addition, such holder of Restricted Notes must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal to the Exchange Agent.
WITHDRAWAL RIGHTS
Tenders of Restricted Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "--Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Restricted Notes to be
withdrawn, identify the Restricted Notes to be withdrawn (including the
principal amount of such Restricted Notes), and (where certificates for
Restricted Notes have been transmitted) specify the name in which such
Restricted Notes are registered, if different from that of the withdrawing
holder. If certificates for Restricted Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Restricted Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Restricted Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Issuer, whose determination shall be final and binding on
all parties. Any Restricted Notes so withdrawn will be deemed not to
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have been validly tendered for exchange for purposes of the Exchange Offer.
Any Restricted Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost
to such holder (or, in the case of Restricted Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such
Restricted Notes will be credited to an account maintained with such Book-
Entry Transfer Facility) as soon as practicable after withdrawal, rejection of
tender or expiration or termination of the Exchange Offer. Properly withdrawn
Restricted Notes may be retendered by following one of the procedures
described under "--Procedures for Tendering Restricted Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Restricted Notes and may terminate, extend or amend the Exchange
Offer, if at any time before the Expiration Date, the Issuer determines that
the Exchange Offer violates applicable law, any applicable interpretation of
the staff of the Commission or any order of any governmental agency or court
of competent jurisdiction.
The Issuer expressly reserves the right, upon the occurrence of any of the
conditions of the Exchange Offer specified above, to amend or terminate the
Exchange Offer, and not to accept for exchange any Restricted Notes not
theretofore accepted for exchange. The Issuer will give oral or written notice
of any extension, amendment, non-acceptance or termination to the holders of
the Restricted Notes as promptly as practicable, such notice in the case of
any extension to be issued no later than 9:00 a.m., New York time, on the next
business day after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, the Issuer will not accept for exchange any Restricted Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Restricted Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
By Hand Delivery
Mail or Overnight Courier:
United States Trust
Company of New York
114 West 47th Street - 25th Floor
New York, New York 10036
Attention: Cynthia Chaney
BY FACSIMILE:
(212) 852-1626
CONFIRM BY TELEPHONE:
(212) 852-1661
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer and paid by the Issuer are estimated in the aggregate to be
approximately $ .
TRANSFER TAXES
Holders who tender their Restricted Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that if holders
instruct the Issuer to deliver to, register or issue Exchange Notes in the
name of, or request that Restricted Notes not tendered or not accepted in the
Exchange Offer be delivered to, registered or issued in the name of, any
person other than the registered holder, or if tendered Restricted Notes are
registered in the name of any person other than the person signing the Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
transfer of Restricted Notes to the Issuer or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other person) will be payable by the tendering
holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Restricted Notes who do not exchange their Restricted Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Restricted Notes as set forth in the
legends thereon as a consequence of the issuance of the Restricted Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. Accordingly, such Restricted Notes may only be offered, sold,
pledged or otherwise transferred (i) to the Company, (ii) pursuant to a
registration statement that has been declared effective under the Securities
Act, (iii) for so long as the Notes are eligible for resale pursuant to Rule
144A, to a person it reasonably believes is a QIB that purchases for its own
account or for the account of a QIB to whom notice is given that the transfer
is being made in reliance on Rule 144A, (iv) pursuant to offers and sales that
occur outside the United States within the meaning of Regulation S under the
Securities Act, (v) to an Institutional Accredited Investor purchasing for its
own account or for the account of such Institutional Accredited Investor, in
each case in a minimum principal amount of the Notes of $250,000 or (vi)
pursuant to any other available exemption from the registration requirements
of the Securities Act, subject in each of the foregoing cases to any
requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their control.
The Issuer does not anticipate that it will register the Restricted Notes
under the Securities Act. See "Plan of Distribution" and "Risk Factors--
Consequences of Failure to Exchange Restricted Notes." Based upon no-action
letters issued by the staff of the Commission to third parties, the Issuer
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Restricted Notes would in general be freely transferable after
the Exchange Offer without further registration under the Securities Act if
the holder of the Exchange Notes represents (i) that it is not an "affiliate,"
as defined in Rule 405 under the Securities Act, of the Issuer, (ii) that it
is acquiring the Exchange Notes in the ordinary course of its business and
(iii) that it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes; provided that, in the case of broker-dealers, a prospectus
meeting the requirements of the Securities Act is delivered as required.
However, the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Holders of Restricted Notes wishing to
accept the Exchange Offer must represent to the Issuer that such conditions
have been met. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer,
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where it acquired the Restricted Notes exchanged for such Exchange Notes for
its own account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Restricted Notes where such Restricted Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Issuer has agreed that, for a period of one year after
consummation of the Exchange Offer, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. A broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act, and will be bound by the provisions of the Registration
Agreement (including certain indemnification and contribution rights and
obligations).
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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 51,300 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.
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
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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 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
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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. 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."
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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. Excludes the costs of potential
future upgrades and any amount capitalized with respect to the PCG
Warrants. 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 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 (excluding potential future upgrades), 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
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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 $556 million and $108 million of payments
(including deposits) had been received in respect thereof. These CPAs
represent approximately 19% of the minimum projected sales capacity of 512
circuits on the AC-1 system. The balance of these payments is scheduled to be
collected over the next four years. The Company's AC-1 customers now total
more than 22 international telecommunications carriers, including 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. Equity investments in
PC-1 by Global Crossing and its partners are currently estimated at $400
million (of which $231 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 credit agreement for the financing of such
indebtedness was executed on July 30, 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 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
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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 and amounts capitalized with
respect to the PCG Warrants), 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
and amounts capitalized with respect to the PCG Warrants), 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 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.
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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 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.
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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 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
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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;
Realization of Other Revenues" and "--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 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
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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 June 30,
1998, the Company was committed under the AC-1 OA&M Agreement to make payments
totalling approximately $261 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").
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."
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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 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."
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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 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 82 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
directors and executive officers of New GCL.
Prior to the Stock Offerings, New 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....... 41 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, General Counsel and Secretary
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 Stock Offerings
GARY WINNICK--Mr. Winnick, founder of Global Crossing, has been Co-Chairman
of the Board of New 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 New 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.
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JACK M. SCANLON--Mr. Scanlon has been Chief Executive Officer and a director
of New 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 New 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 New 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 New 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 New 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 New GCL effective July 15, 1998 and Secretary of New GCL effective August
9, 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 New 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 New 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.
JAY R. BLOOM--Mr. Bloom, a director of New 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
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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 New 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 New 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 New 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 New 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 New 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. Mr. Steed serves as a director of The Lewis & Clark Snake
River Beverage Company. 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.
WILLIAM E. CONWAY--Mr. Conway is a nominee for director for New 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
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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 New 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 New 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.
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
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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 New 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 MBA 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.
66
<PAGE>
OPTION GRANTS AND OPTION VALUES
The table below sets forth information as of August 10, 1998 concerning
options granted since January 1, 1998 to principal officers of the Company.
Options representing a total of 9,967,500 shares of Common Stock have been
issued to officers or directors of the Company at exercise prices ranging from
$1.67 per share to the price of the Stock Offerings.
<TABLE>
<CAPTION>
GRANT
DATE
INDIVIDUAL GRANTS VALUE(1)
---------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT
OPTIONS GRANTED TO EXERCISE OR DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (#) FISCAL YEAR ($/SHARE) DATE VALUE($)
---- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gary Winnick............ 900,000 7.45% 1.67 03/31/07 14,700,000
Co-Chairman of the
Board
Jack Scanlon............ 1,800,000 14.89% 1.67 04/01/08 29,400,000
Chief Executive Officer
Bill Carter............. 1,500,000 12.41% 1.67 10/27/07 24,500,000
President, Global
Crossing Development
Co.
James Gorton............ 750,000 6.21% 6.67 06/12/08 8,500,000
Senior Vice President
and General Counsel
Jack Finlayson.......... 585,000 4.84% 6.67 06/12/08 6,630,000
President, Global
Crossing International,
Ltd. 150,000 1.24% (2) 06/12/08 --
</TABLE>
- --------
(1) Based upon difference between exercise price and midpoint of expected
pricing range of the Stock Offerings.
(2) Exercise price will equal the price of the Stock Offerings.
The table below sets forth information as of August 10, 1998 concerning
exercises of stock options by the individuals named above for the current year
and the value of such individuals' unexercised options based upon the midpoint
of the expected pricing range of the Stock Offerings.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS(#) OPTIONS($)
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 Stock 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 New GCL's outstanding
securities as of July 15, 1998, New GCL, any trustee or other fiduciary
holding securities under an employee benefit plan of New GCL, or any company
owned, directly or indirectly, by the shareholders
67
<PAGE>
of New GCL in substantially the same proportions as their ownership of stock
of New GCL) becomes the beneficial owner (as defined under Rule 13d-3 under
the Exchange Act) of securities of New GCL (a) in excess of the interest held
by the existing shareholders of New GCL as of July 15, 1998 and (b)
representing 30% or more of the combined voting power of New 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 Incentive 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 New GCL approve any transaction under which New GCL is merged
or consolidated with any other company, other than a merger or consolidation
which would result in shareholders of New GCL immediately prior thereto
continuing to own more than 65% of the combined voting power of the voting
securities of New GCL or such surviving entity; or (iv) the shareholders of
New GCL approve a plan of complete liquidation of the company or an agreement
for the sale or disposition by New GCL of all or substantially all of New
GCL's assets, other than the liquidation of New GCL into a wholly-owned
subsidiary.
New GCL has entered into an employment agreement, dated as of April 1, 1998,
with Mr. Jack Scanlon, providing for Mr. Scanlon's employment as New GCL's
Chief Executive Officer for a term of two years and continuing thereafter for
successive two-year terms unless either New 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. 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 New 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 New GCL to purchase up to 450,000 shares of Common
Stock held by him at $13.33 per share. New GCL has agreed to make similar
arrangements available to Mr. Cohrs with respect to 150,000 shares 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.
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 New 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 New GCL's
internal accounting controls; (v) review New GCL's insurance program; and (vi)
perform any other duties and functions required by any organization under
which New GCL's securities may be listed. Messrs. Kehler, Weinberger and Brown
are the current members of the Audit Committee. Following the Equity
Offerings, New GCL will reconstitute the Audit Committee so that it will be
comprised of three members of New 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 New GCL recommendations with
respect to (i) compensation of officers and other key employees of New 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.
68
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table and the accompanying footnotes set forth, as of August
10, 1998, certain information regarding the beneficial ownership of the common
stock of New GCL ("Common Stock") by (i) each person or entity who is known to
New GCL to own beneficially five percent or more of New GCL's voting Common
Stock, (ii) each of New GCL's directors and executive officers and (iii) all
directors and executive officers of New GCL as a group. To the knowledge of
New 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 NUMBER OF PERCENTAGE
OF SHARES PRIOR TO PRIOR TO SHARES TO SHARES AFTER AFTER
BENEFICIAL OWNER STOCK OFFERINGS(1) STOCK OFFERINGS BE SOLD STOCK OFFERINGS STOCK OFFERINGS
---------------- ------------------ --------------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Pacific Capital Group,
Inc.(2) ............... 52,297,165 26.88% 1,158,636 51,138,529 23.95%
150 El Camino Drive,
Suite 204
Beverly Hills,
California 90212
Canadian Imperial Bank
of Commerce(3)......... 48,625,622 25.00% -- 48,625,622 22.78%
161 Bay Street, 8th
Floor--BCE Place
P.P. Box 500
M5J258
Toronto, Canada
Continental Casualty
Company(4)............. 20,037,585 10.30% -- 20,037,585 9.39%
CNA Plaza, Floor 23
South
Chicago, Illinois 60685
MRCo, Inc. (5).......... 16,959,462 8.72% -- 16,959,462 7.94%
111 Massachusetts
Avenue NW
Washington, DC 20001
Gary Winnick(6)......... 52,597,165 27.04% 1,158,636 51,438,529 24.09%
Lodwrick M. Cook(7)..... 2,373,170 1.22% -- 2,373,170 1.11%
Jack M. Scanlon(8)...... 450,000 * -- 450,000 *
Dan J. Cohrs(9)......... 225,000 * -- 225,000 *
David L. Lee(10)........ 11,849,012 6.09% 324,093 11,524,919 5.40%
Abbott L. Brown(11)(12). 7,017,273 3.61% 243,178 6,774,095 3.17%
Barry Porter(13)........ 10,913,811 5.61% 324,093 10,589,718 4.96%
James C. Gorton(14)..... 187,500 * -- 187,500 *
Jack Finlayson(15)...... 292,500 * -- 292,500 *
K. Eugene
Shutler(12)(16)........ 248,986 * -- 248,986 *
Hillel Weinberger(17)... 21,345,900 10.97% -- 21,345,900 10.00%
Jay R. Bloom(18)........ 48,625,622 25.00% -- 48,625,622 22.78%
Dean C. Kehler(18)...... 48,625,622 25.00% -- 48,625,622 22.78%
Jay R. Levine(18)(19)... 48,625,622 25.00% -- 48,625,622 22.78%
William P.
Phoenix(18)(19)........ 48,625,622 25.00% -- 48,625,622 22.78%
Bruce Raben(18)(19)..... 48,625,622 25.00% -- 48,625,622 22.78%
Michael R. Steed(20).... 16,974,462 8.73% -- 16,974,462 7.95%
William E. Conway(21)... 15,000 * -- 15,000 *
Toshiaki Ogasawara(21).. 15,000 * -- 15,000 *
Geoffrey J.W. Kent(21).. 15,000 * -- 15,000 *
All Directors and
Executive Officers as a
Group.................. 173,145,383 89.01% 2,050,000 171,095,383 80.14%
</TABLE>
- --------
* Percentage of shares beneficially owned does not exceed one percent.
(1) As of August 10, 1998, after giving effect to the Old GCL Exchange, 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 2,500,500 shares of Common Stock would have been issuable upon
the exercise of options within 60 days of August 10, 1998; an additional
2,696,074 shares of Common Stock would have been issuable upon the
exercise of
69
<PAGE>
the GCL Warrants (effective upon the Stock 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 Stock 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 Stock
Offerings. Amounts appearing in the foregoing table include (i) all shares
of Common Stock outstanding as of August 10, 1998, (ii) all shares of
Common Stock issuable upon the exercise of options within 60 days of
August 10, 1998 and (iii) all shares of Common Stock issuable upon the
exercise of the GCL Warrants and New PCG Warrants.
(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 3,198,612 shares of Common Stock issuable upon the exercise of
New PCG Warrants.
(3) Includes 75,000 shares of Common Stock issuable upon the exercise of
options within 60 days of August 10, 1998 granted to the members of the
Board of Directors affiliated with CIBC.
(4) 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 Stock Offerings.
(5) Includes 368,353 shares of Common Stock issuable upon the exercise of GCL
Warrants.
(6) 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 August 10, 1998.
(7) Includes 502,779 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 August 10, 1998.
(8) Includes 450,000 shares of Common Stock issuable upon the exercise of
options within 60 days of August 10, 1998.
(9) Includes 225,000 shares of Common Stock issuable upon exercise of options
within 60 days of August 10, 1998.
(10) 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 August 10, 1998. Includes 964,584
shares of Common Stock issuable upon the exercise of New PCG Warrants.
(11) 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 August 10, 1998. Includes
766,668 shares of Common Stock issuable upon the exercise of New PCG
Warrants.
(12) 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.
(13) 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 August 10, 1998. Includes 23,557 shares of Common Stock
issuable upon the exercise of GCL Warrants and 964,584 shares of Common
Stock issuable upon the exercise of New PCG Warrants.
(14) Includes 187,500 shares of Common Stock issuable upon exercise of options
within 60 days of August 10, 1998.
70
<PAGE>
(15) Includes 292,500 shares of Common Stock issuable upon exercise of options
within 60 days of August 10, 1998.
(16) Includes 100,000 shares of Common Stock issuable upon the exercise of
options within 60 days of August 10, 1998.
(17) 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 August 10, 1998.
(18) 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.
(19) Beneficial ownership of all shares of Common Stock indicated is
disclaimed.
(20) 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 August 10,
1998. Includes 368,353 shares of Common Stock issuable upon the exercise
of GCL Warrants.
(21) Includes 15,000 shares of Common Stock issuable upon the exercise of
options within 60 days of August 10, 1998. Effective immediately prior to
the Stock Offerings.
71
<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 New 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 New GCL, and certain other officers and
directors of New 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 New 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
72
<PAGE>
of shares 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 "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 approximately $137.7 million
which has been reflected in its statement of operations for the period ended
June 30, 1998. Of this amount, $135 million was determined by applying the 2%
advisory fee to projected revenues for the Company's systems. The present
value of the aggregate advisory fees was then calculated at $155.5 million,
using a discount rate of 12% in respect of AC-1 and 15% in respect of systems
other than AC-1. This amount was subsequently reduced to $135 million. Both
the discount rates and the ultimate valuation were determined as a result of a
negotiation process including a disinterested director of the Company and the
various persons entitled to fees under the Advisory Services Agreements. 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(1) 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>
- --------
(1) Based upon the midpoint of expected pricing range of the Stock Offerings.
The net proceeds from the sale of the Shares being offered by the Selling
Shareholders in the Stock 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")
providing PCG with the right to purchase (i) 9,226,592 of Old GCL's Class B
Shares for an aggregate purchase price of $50,000,000; (ii) an additional
4,613,297 of Old GCL's Class B Shares for an aggregate purchase price of
$31,250,000; and (iii) an additional 4,613,297 of Old GCL's Class B Shares for
an aggregate purchase price of $37,500,000. 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 systems (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)
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<PAGE>
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.
The Board of Directors of Old GCL has determined that upon the successful
completion of the Stock 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 Stock Offerings. The New PCG Warrants will
terminate five years from the date of issuance. Prior to the Stock Offerings,
PCG will convert the PCG Warrants in such manner into Class B Shares and New
PCG Warrants, utilizing the anticipated price of the Stock Offerings as the
current per share valuation for such purposes, with the Company assuming the
obligations of Old GCL under the New PCG Warrants (the "PCG Warrant
Conversion"). Upon the PCG Warrant Conversion, Messrs. Winnick, Cook, Brown,
Lee and Porter will transfer 100,000, 25,000, 25,000, 25,000 and 25,000 New
PCG Warrants, respectively, to Nelson S. Zand, an employee of PCG.
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 3,198,612 $128,027,702
David L. Lee.......................... 1,778,392 964,584 38,441,616
Barry Porter.......................... 1,778,392 964,584 38,441,616
Abbott L. Brown....................... 1,422,712 766,668 30,719,936
Lodwrick M. Cook...................... 948,474 502,779 20,424,392
Nelson S. Zand........................ 0 200,000 1,333,333
---------- --------- ------------
Total............................... 11,855,949 6,597,227 $257,388,595
========== ========= ============
</TABLE>
- --------
(1) Based upon a price per share of Common Stock of $18.00 (the midpoint of
the expected pricing range for the Stock Offerings) and the Company's
estimated value, based upon independent appraisals, of $6.67 per warrant.
See "Pro Forma Financial Information."
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.
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<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 $7.0 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 New GCL, and
another shareholder of New 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, which was repaid and
terminated on May 18, 1998; (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 Notes; (iv) CIBC Oppenheimer
was an Initial Purchaser in connection with the issuance by the Issuer of its
$800 million Notes; (v) CIBC, Inc. and other banks entered into a credit
agreement with the Company, effective July 30, 1998, for the $850 million non-
recourse project debt financing of PC-1; (vi) CIBC, Inc. and other lenders
issued a $104 million loan to Pacific Crossing Ltd. to make the initial
payments with respect to the PC-1 construction contract, which was repaid and
terminated on July 30, 1998, 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. Bloom, 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.
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<PAGE>
TRANSACTIONS WITH TELECOMMUNICATIONS DEVELOPMENT CORPORATION
Prior to the Stock Offerings and after giving effect to the Old GCL
Exchange, Telecommunications Development Corporation, a Cayman Islands
corporation ("TDC"), will own 11,000,686 shares of Common Stock, as well as
307,670 GCL Warrants. See "Description of Capital Stock--Old GCL Exchange."
TDC was formed in 1996 for the purpose of making investments in start-up
telecommunications companies and one of the companies in which TDC invested
was Old GCL. 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 "Unaffiliated Shareholders"). TDC has
informed the Company that, in connection with the Stock Offerings, it is
undergoing a reorganization to facilitate the ability of Unaffiliated
Shareholders to sell Common Stock in the open market following the Offerings.
In connection with this reorganization, TDC proposed a transaction (the "TDC
Exchange") pursuant to which the Company will acquire the 11,000,686 shares of
Common Stock owned by TDC in exchange for 10,850,686 newly-issued shares of
Common Stock (assuming a Price to Public per Share in the Stock Offerings of
$18.00). The TDC Exchange is intended to enable TDC to achieve the
reorganization without the incurrence of gain for tax purposes. Following the
TDC Exchange, 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"). The TDC Exchange was approved by a
committee of disinterested members of the Company's Board of Directors. The
benefit to the Company from the TDC Exchange is that it will have effectively
acquired 150,000 shares of Common Stock for no cost. The Company anticipates
that, following the TDC Exchange and TDC Liquidation, shares of Common Stock
and GCL Warrants originally held by TDC will be issued to the following
persons in the following amounts:
<TABLE>
<CAPTION>
COMMON GCL
NAME STOCK WARRANTS VALUE (1)
---- ---------- -------- ------------
<S> <C> <C> <C>
Gary Winnick............................. 2,392,140 69,365 $ 43,722,122
David L. Lee............................. 2,707,890 79,325 49,500,896
Barry Porter............................. 810,646 23,557 14,816,990
Abbott L. Brown.......................... 270,215 7,852 4,938,987
Non-affiliates........................... 4,669,795 127,571 85,276,739
---------- ------- ------------
Total.................................. 10,850,686 307,670 $198,255,724
========== ======= ============
</TABLE>
- --------
(1) Based upon a price per share of Common Stock of $18.00 (the midpoint of
the expected pricing range for the Stock Offerings) and the Company's
estimated value, based upon an independent appraisal, of $9.57 per
warrant.
TRANSACTIONS REGARDING CLASS A SHARES OF OLD GCL
The Class A common stock of Old GCL was issued in connection with the sale
by Old GCL of the GTH Preference Shares and was offered for nominal or no
consideration as an inducement to purchase the GTH Preference Shares. The
holders of Old GCL's Class B and Class C common stock agreed to the dilutive
effects of issuing the Class A stock on the understanding that Class A stock
not ultimately needed in connection with the sale of the GTH Preference Shares
would be transferred to the holders of the Class B and Class C common stock on
a pro rata basis. Of the 31,102,950 shares of Class A Common Stock issued by
Old GCL, 11,250,000 shares were sold to purchasers of the GTH Preference
Shares at a price of $.67 per Class A share. The remaining 19,852,950 shares
were issued to an affiliate of CIBC Wood Gundy Securities Corporation ("CIBC
Securities"), the placement agent for the offering of the GTH Preference
Shares. This affiliate of CIBC Securities transferred 14,696,150 Class A
shares to purchasers from it of the GTH Preference Shares for no additional
consideration and retained the remaining 5,161,800 Class A shares and CIBC
Securities retained a substantial ownership interest in the GTH Preference
Shares. The holders of the Old GCL Class B and Class C shares took the
position that, consistent with their understanding regarding the disposition
of Class A shares not needed in connection with sales by CIBC Securities of
the GTH Preference Shares, the Class A shares retained by its affiliate should
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<PAGE>
be transferred to the holders of Old GCL's Class B and Class C shares.
Accordingly, such affiliate of CIBC Securities retained 2,580,900 of the Class
A shares based upon its ownership of Class C shares and transferred the
remaining 2,580,899 Class A shares as follows:
<TABLE>
<CAPTION>
CLASS A
NAME SHARES VALUE (1)
---- --------- -----------
<S> <C> <C>
Gary Winnick(2)................. 1,122,213 $20,199,834
MRCo, Inc. ..................... 611,769 11,011,842
Telecommunications Development
Corporation.................... 382,356 6,882,408
PCG Telecom LDC................. 170,148 3,062,664
Barry Porter(3)................. 130,000 2,340,000
David L. Lee(4)................. 95,589 1,720,602
Abbott L. Brown(5).............. 68,824 1,238,832
--------- -----------
Total......................... 2,580,899 $46,456,182
========= ===========
</TABLE>
- --------
(1) Based upon the number of shares of Common Stock to be received pursuant to
the Old GCL Exchange multiplied by $18.00 (the midpoint of the expected
pricing range for the Stock Offerings).
(2) Shares indicated for Gary Winnick were acquired by GKW Unified Holdings,
LLC, which is managed by PCG.
(3) Shares indicated for Barry Porter were acquired by Galenight Corp., of
which Mr. Porter is sole shareholder.
(4) Shares indicated for David L. Lee were acquired by San Pasqual Corp., of
which Mr. Lee and his family are the sole shareholders.
(5) 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.
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<PAGE>
DESCRIPTION OF NOTES
GENERAL
The terms of the Exchange Notes are identical in all material respects to
those of the Restricted Notes, except for certain transfer restrictions and
registration rights relating to the Restricted Notes and except for certain
interest provisions related to such registration rights. The Exchange Notes
will be issued pursuant to the Indenture, dated as of May 18, 1998 (the
"Indenture"), between the Company and United States Trust Company of New York,
as trustee (the "Trustee") governing the Restricted Notes. The terms of the
Exchange Notes will include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The Exchange Notes will be subject to all such
terms, and Holders of Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified
in its entirety by reference to the Indenture, including the definitions
therein of certain terms used below. Copies of the form of Indenture, Escrow
Agreement and Registration Agreement are available as set forth below under
"--Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." For
purposes of this summary, the term "Company" refers only to Global Crossing
Holdings Ltd. and not to any of its Subsidiaries, GCL or New GCL.
As of the date of the Indenture, all of the Guarantors (except for GCL and
New GCL) and all of the AC Subsidiaries are Restricted Subsidiaries. Also as
of the date of the Indenture, all of the PC-1 Subsidiaries, MAC Subsidiaries
and PAC Subsidiaries are Unrestricted Subsidiaries. Under certain
circumstances, the Company will be able to designate existing or future
Subsidiaries (excluding the AC Subsidiaries) as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants contained in the Indenture and will not be Guarantors.
TERMS OF NOTES
The Exchange Notes will be general unsecured obligations of the Company and
will rank pari passu in right of payment with all existing and future
unsecured senior Indebtedness of the Company. The Exchange Notes will rank
senior in right of payment to all subordinated Indebtedness of the Company
that may be issued in the future, if any.
The Company conducts substantially all of its operations through its
Subsidiaries and, therefore, the Company is dependent on the cash flow of its
Subsidiaries to meet its obligations, including its obligations with respect
to the Notes. The Notes will be effectively subordinated to all Indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of the Company's Subsidiaries that are not Guarantors. Any right
of the Company to receive assets of any of its Subsidiaries that are not
Guarantors upon the latter's liquidation or reorganization (and the consequent
right of the Holders of the Notes to participate in those assets) will be
effectively subordinated to the claims of that Subsidiary's creditors, except
to the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary that is senior to that held by the Company. As of June 30, 1998, on
a pro forma basis after giving effect to the Offering and the application of
the net proceeds therefrom, the Company's Subsidiaries that are not Guarantors
would have had approximately $518 million of Indebtedness and other
liabilities (including trade payables and lease obligations) outstanding, to
which the Notes would have been effectively subordinated. See "Risk Factors--
Ranking of Notes; Holding Company Structure; Dividend Payment Restrictions."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $800.0 million
and will mature on May 15, 2008. Interest on the Notes will accrue at the rate
of 9 5/8% per annum and will be payable semi-annually in arrears on May 15 and
November 15, commencing on November 15, 1998, to Holders of record on the
immediately preceding May 1 and November 1. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from the date of original issuance. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. Principal,
premium, if any, and interest on the
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<PAGE>
Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest on the Notes may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes; provided that all payments of principal, premium, if any,
and interest on Notes the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued in denominations of $1,000 and integral multiples
thereof. The Trustee initially will be Paying Agent and Registrar under the
Indenture, and the Company may act as Paying Agent or Registrar under the
Indenture.
The Company's obligation to pay interest on the Notes on November 15, 1998
and May 15, 1999 will be secured by funds held by United States Trust Company
of New York, as escrow agent (the "Escrow Agent") under an agreement between
the Company and the Escrow Agent (the "Escrow and Disbursement Agreement").
The Company has deposited with the Escrow Agent in the escrow account (the
"Escrow Account") an amount of cash or U.S. Government Securities, that,
together with the proceeds from the investment thereof, will be sufficient to
pay when due the first two interest payments on the Notes. Following the
second interest payment on the Notes, any amounts remaining in the Escrow
Account will be released to the Company and will thereafter remain subject to
the applicable provisions of the Indenture.
GUARANTEES
The Company's payment obligations with respect to the Notes will be jointly
and severally guaranteed (the "Guarantees") by the Guarantors. Each of the
Guarantors will receive a fee from the Company as consideration for its
Guarantee, and the obligations of each Guarantor under its Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
See "Risk Factors--Fraudulent Conveyance Matters."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person
(whether or not affiliated with such Guarantor) unless: (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all of the
obligations of such Guarantor (pursuant to a supplemental indenture in form
and substance reasonably satisfactory to the Trustee) under the Notes, the
Indenture, the Escrow and Disbursement Agreement and the Registration
Agreement; and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. The provisions of this covenant will not
be applicable to a sale, assignment, transfer, conveyance or other disposition
of assets between or among such Guarantor and any other Guarantor or the
Company.
The Indenture provides that, in the event of a sale or other disposition of
all of the assets of any Guarantor (except for GCL or New GCL), by way of
merger, consolidation or otherwise, or a sale or other disposition of all of
the capital stock of any Guarantor (except for GCL or New GCL), then such
Guarantor (in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all of the capital stock of such
Guarantor) or the Person acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture. See "--Repurchase at the Option of
Holders--Asset Sales."
The Indenture also provides that the Guarantee of GCL may be terminated by
GCL immediately prior to any liquidation or dissolution of GCL in connection
with an initial public offering of Capital Stock of New GCL.
OPTIONAL REDEMPTION
Except as set forth below and under "--Optional Tax Redemption," the Notes
are not redeemable at the Company's option prior to May 15, 2003. Thereafter,
the Notes are subject to redemption at any time at the
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<PAGE>
option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on May 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003................................... 104.813%
2004................................... 103.208%
2005................................... 101.604%
2006 and thereafter.................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to May 15, 2001, the
Company may, on any one or more occasions, redeem up to 25% of the aggregate
principal amount of Notes originally issued pursuant to the Indenture at a
redemption price of 109.625% of the principal amount thereof, plus accrued and
unpaid interest thereon to the redemption date, with the net cash proceeds
received from one or more Equity Offerings made by the Company, GCL or New GCL
(to the extent such net cash proceeds received by GCL or New GCL were
contributed to the Company as common equity capital); provided that at least
75% of the aggregate principal amount of Notes originally issued pursuant to
the Indenture remain outstanding immediately after the occurrence of any such
redemption. The Company may make any such redemption upon not less than 30 nor
more than 60 days' notice (but in no event more than 90 days after the closing
of the related Equity Offering). Any such notice may be given prior to the
completion of the related Equity Offering and any such redemption may, at the
Company's discretion, be subject to the satisfaction of one or more conditions
precedent, including, but not limited to, the completion of the related Equity
Offering.
In addition, at any time prior to May 15, 2003, the Notes may also be
redeemed at the option of the Company, in whole but not in part, upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60
days' prior notice (but in no event may any such redemption occur more than 90
days after the occurrence of such Change of Control) mailed by first-class
mail to each Holder's registered address, at a redemption price equal to 100%
of the principal amount thereof plus the Applicable Premium as of, and accrued
and unpaid interest, if any, to, the date of redemption (the "Redemption
Date").
"Applicable Premium" means, with respect to any Note on any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note or (ii) the
excess of (A) the present value at such Redemption Date of (1) the redemption
price of such Note at May 15, 2003 (such redemption price being set forth in
the table above) plus (2) all required interest payments due on such Note
through May 15, 2003 (excluding accrued but unpaid interest), computed using a
discount rate equal to the Treasury Rate plus 50 basis points over (B) the
principal amount of such Note, if greater.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as
of such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the period from the Redemption Date to May 15, 2003;
provided, however, that if the period from the Redemption Date to May 15, 2003
is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall
be used.
OPTIONAL TAX REDEMPTION
The Notes are subject to redemption at the option of the Company or a
successor corporation at any time, in whole but not in part, upon not less
than 30 nor more than 60 days' notice, at a redemption price equal to the
principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date if, as a result of any change in or amendment to the laws or
any regulations or ruling promulgated thereunder of (x) Bermuda or
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<PAGE>
any political subdivision or governmental authority thereof or therein having
the power to tax, (y) any jurisdiction, other than the United States, from or
through which payment on the Notes is made by the Company or a successor
corporation, or its paying agent in its capacity as such or any political
subdivision or governmental authority thereof or therein having the power to
tax or (z) any other jurisdiction, other than the United States, in which the
Company or a successor corporation is organized, or any political subdivision
or governmental authority thereof or therein having the power to tax, or any
change in the official application or interpretation of such laws, regulations
or rulings, or any change in the official application or interpretation of, or
any execution of or amendment to, any treaty or treaties affecting taxation to
which such jurisdiction (or such political subdivision or taxing authority) is
a party (a "Change in Tax Law"), which becomes effective on or after the date
of this Prospectus, the Company or a successor corporation is or would be
required on the next succeeding interest payment date to pay Additional
Amounts with respect to the Notes (as described under "--Payment of Additional
Amounts"), and the payment of such Additional Amounts cannot be avoided by the
use of any reasonable measures available to the Company or a successor
corporation.
In addition, the Notes are subject to redemption at the option of the
Company at any time, in whole but not in part, upon not less than 30 nor more
than 60 days' notice, at a redemption price equal to the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, if
the Person formed by a consolidation or amalgamation of the Company or into
which the Company is merged or to which the Company conveys, transfers or
leases its properties and assets substantially as an entirety is required, as
a consequence of such consolidation, amalgamation, merger, conveyance,
transfer or lease and as a consequence of a Change in Tax Law occurring after
the date of such consolidation, amalgamation, merger, conveyance, transfer or
lease, to pay Additional Amounts in respect of any tax, assessment or
governmental charge imposed on any Holder of Notes.
PAYMENT OF ADDITIONAL AMOUNTS
If any deduction or withholding for any present or future taxes, assessments
or other governmental charges of (x) Bermuda or any political subdivision or
governmental authority thereof or therein having power to tax, (y) any
jurisdiction, other than the United States, from or through which payment on
the Notes is made by the Company or a successor corporation, or its paying
agent in its capacity as such or any political subdivision or governmental
authority thereof or therein having the power to tax or (z) any other
jurisdiction, other than the United States, in which the Company or a
successor corporation is organized, or any political subdivision or
governmental authority thereof or therein having the power to tax shall at any
time be required by such jurisdiction (or any such political subdivision or
taxing authority) in respect of any amounts to be paid by the Company or a
successor corporation under the Notes, the Company or a successor corporation
will pay to each Holder of Notes as additional interest, such additional
amounts ("Additional Amounts") as may be necessary in order that the net
amounts paid to such holder of such Notes who, with respect to any such tax,
assessment or other governmental charge, is not resident in, or a citizen of,
such jurisdiction, after such deduction or withholding, shall be not less than
the amount specified in such Notes to which such Holder is entitled; provided,
however, that the Company or a successor corporation shall not be required to
make any payment of Additional Amounts for or on account of:
(i) Any tax, assessment or other governmental charge that would not have
been imposed but for (a) the existence of any present or former connection
between such Holder (or between a fiduciary, settlor, beneficiary, member
or shareholder of, or possessor of a power over, such Holder, if such
Holder is an estate, trust, partnership, limited liability company or
corporation) and the taxing jurisdiction or any political subdivision or
territory or possession thereof or area subject to its jurisdiction,
including, without limitation, such Holder (or such fiduciary, settlor,
beneficiary, member, shareholder or possessor) being or having been a
citizen or resident thereof or being or having been present or engaged in a
trade or business therein or having or having had a permanent establishment
therein, (b) the presentation of a Note (where presentation is required)
for payment on a date more than 30 days after (x) the date on which such
payment became due and payable or (y) the date on which payment thereof is
duly provided for, whichever occurs later, or (c)
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the presentation of a Note for payment in Bermuda or any political
subdivision thereof or therein, unless such Note could not have been
presented for payment elsewhere;
(ii) Any estate, inheritance, gift, sales, transfer, personal property or
similar tax, assessment or other governmental charge;
(iii) Any tax, assessment or other governmental charge that is payable
otherwise than by withholding from payment of principal of, premium, if
any, or any interest on the Notes;
(iv) Any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the Holder or the beneficial owner of
the Note to comply with a request of the Company addressed to the Holder
(a) to provide information, documents or other evidence concerning the
nationality, residence or identity of the Holder or such beneficial owner
or (b) to make and deliver any declaration or other similar claim (other
than a claim for refund of a tax, assessment or other governmental charge
withheld by the Company) or satisfy any information or reporting
requirements, which, in the case of (a) or (b), is required or imposed by a
statute, treaty, regulation or administrative practice of the taxing
jurisdiction as a precondition to exemption from all or part of such tax,
assessment or other governmental charge; or
(v) Any combination of items (i), (ii), (iii) and (iv) above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any premium or interest on, any Note to any Holder who is a
fiduciary or partnership or limited liability company or other than the sole
beneficial owner of such payment to the extent such payment would be required
by the laws of (x) Bermuda or any political subdivision or governmental
authority thereof or therein having the power to tax, (y) any jurisdiction,
other than the United States, from or through which payment on the Notes is
made by the Company or a successor corporation, or its paying agent in its
capacity as such or any political subdivision or governmental authority
thereof or therein having the power to tax or (z) any other jurisdiction,
other than the United States, in which the Company or a successor corporation
is organized, or any political subdivision or governmental authority thereof
or therein having the power to tax to be included in the income for tax
purposes of a beneficiary or settlor with respect to such fiduciary or a
member of such partnership, limited liability company or beneficial owner who
would not have been entitled to such Additional Amounts had it been the Holder
of such Note.
The Company shall provide the Trustee with the official acknowledgment of
the relevant taxing authority (or, if such acknowledgment is not available, a
certified copy thereof) evidencing the payment of the withholding taxes, if
any, by the Company. Copies of such documentation shall be made available to
the Holders of the Notes or the Paying Agent, as applicable, upon request
therefor.
All references in this Prospectus to principal of, premium, if any, and
interest on the Notes shall include any Additional Amounts payable by the
Company in respect of such principal, such premium, if any, and such interest.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are then listed, or, if the Notes are not so then listed, on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days prior to the redemption date to each Holder of Notes
to be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. Notes called for redemption will
become due on the date fixed for redemption. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption.
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MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company will not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to purchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase price in cash
(the "Change of Control Payment") equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon to the date of
purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date); provided,
however, that the Company shall not be obligated to repurchase Notes pursuant
to this covenant in the event that it has exercised its rights to redeem all
of the Notes as described above under "--Optional Redemption." Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to purchase Notes on the date specified in such notice,
which date shall be no earlier than 30 and no later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date"), in accordance
with the procedures required by the Indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws and regulations are applicable in connection with the purchase of Notes
as a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with any of the provisions of this
covenant, the Company will comply with the applicable securities laws and
regulations and will be deemed not to have breached its obligations under this
covenant by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail or deliver to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail or deliver (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company purchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction. The Company's ability to purchase
Notes upon a Change of Control may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any such required purchases. See "Risk
Factors--Purchase of Notes Upon a Change of Control."
The Company will not be required to make a Change of Control Offer upon the
occurrence of a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control
Offer made by the Company, and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
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Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, consummate any Asset Sale, unless (i) the Company
(or such Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by the Board of Directors (including as to the value
of all noncash consideration) and set forth in an Officer's Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor is
in the form of cash and/or Cash Equivalents, and (iii) the Net Proceeds
received by the Company (or such Restricted Subsidiary, as the case may be)
from such Asset Sale are applied within 360 days following the receipt of such
Net Proceeds (a) first, to the extent the Company (or such Restricted
Subsidiary, as the case may be) elects, to the redemption or repurchase of
outstanding Indebtedness incurred pursuant to clauses (d) and (e) of the
second paragraph set forth below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and (b) second, to the extent of
the balance of such Net Proceeds after application as described in (a) above
and to the extent the Company (or such Restricted Subsidiary, as the case may
be) elects, to reinvest, or enter into a legally binding agreement to
reinvest, such Net Proceeds (or any portion thereof) in assets that are used
or useful in a Permitted Business. The balance of such Net Proceeds, after the
application of such Net Proceeds as described in the immediately preceding
clauses (a) and (b), shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $15.0 million
(taking into account income earned on such Excess Proceeds), the Company will
be required to make an offer to all Holders of Notes and pari passu
Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount
of Notes and pari passu Indebtedness that may be purchased out of the Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase, in accordance with the procedures set forth in the Indenture and
the agreements governing such pari passu Indebtedness. To the extent that any
Excess Proceeds remain after consummation of an Asset Sale Offer, the Company
may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes and pari passu
Indebtedness tendered into such Asset Sale Offer surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero for purposes of the first sentence of this paragraph.
The amount of (x) any liabilities (as shown on the Company's (or such
Restricted Subsidiary's, as the case may be) most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to an
agreement that releases the Company or any Restricted Subsidiary from all
liability in respect thereof, (y) Indebtedness of any Restricted Subsidiary
that is no longer a Restricted Subsidiary as a result of such Asset Sale, to
the extent that the Company and each other Restricted Subsidiary are released
from any guarantee of payment of the principal amount of such Indebtedness in
connection with such Asset Sale and (z) any securities, notes or other
obligations received by the Company (or such Restricted Subsidiary, as the
case may be) from such transferee that are contemporaneously (subject to
ordinary settlement periods) converted by the Company (or such Restricted
Subsidiary, as the case may be) into cash and/or Cash Equivalents (to the
extent of the cash and/or Cash Equivalents received), will be deemed to be
cash and/or Cash Equivalents for purposes of this provision.
CERTAIN COVENANTS
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company or any of
its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or a Restricted
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or
retire for value (including, without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests
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of the Company or any direct or indirect parent of the Company (other than any
such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes, except a payment of interest
or principal at Stated Maturity; or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless:
(a) at the time of and after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to either
clause (i) or (ii) of the first paragraph of the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (vi), (vii), (viii), (ix) (but only
to the extent that such Restricted Payments are reflected as an expense on
the income statement of GCL or New GCL, as applicable) and (x) of the next
succeeding paragraph), is less than the sum, without duplication, of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) beginning on the last day of the fiscal quarter
immediately preceding the date of the Indenture and ending on the last day
of the fiscal quarter immediately preceding the date of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds and the fair market value (as determined in good faith by the
Board of Directors) of property or assets received by the Company since the
date of the Indenture as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus the
amount of cash or the fair market value (as determined above) of property
or assets received by the Company or any Restricted Subsidiary upon such
conversion or exchange, plus (iii) the aggregate amount equal to the net
reduction in Investments in Unrestricted Subsidiaries resulting from (x)
dividends, distributions, interest payments, return of capital, repayments
of Investments or other transfers of assets to the Company or any
Restricted Subsidiary from any Unrestricted Subsidiary, (y) proceeds
realized by the Company or any Restricted Subsidiary upon the sale of such
Investment to a Person other than GCL, New GCL, the Company or any
Subsidiary of the Company, or (z) the redesignation of any Unrestricted
Subsidiary as a Restricted Subsidiary, not to exceed in the case of any of
the immediately preceding clauses (x), (y) or (z) the aggregate amount of
Restricted Investments made by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary after the date of the Indenture, plus (iv) to
the extent that any Restricted Investment that was made after the date of
the Indenture is sold for cash or otherwise liquidated or repaid for cash,
the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment; provided, however, that
amounts determined pursuant to subclauses (x) and (y) of clause (iii) or
clause (iv) shall exclude amounts arising from the reallocation of an
Investment made in accordance with the provisions described below in clause
(vi) of the immediate following paragraph.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the foregoing provisions;
(ii) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); provided that the amount of
any such net cash proceeds that are
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utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(iii) the defeasance, redemption, retirement, repurchase or other acquisition
of subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of its Equity Interests on
a pro rata basis; (v) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any of its
Restricted Subsidiaries held by any member of the Company's or such Restricted
Subsidiary's management; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$5.0 million in any twelve-month period (with unused amounts being carried
over to succeeding twelve-month periods, subject to a maximum of $10.0 million
in any twelve-month period); (vi) Investments in Project Subsidiaries made
with a portion of the net proceeds of the Offering in an aggregate amount not
to exceed $315 million made within one year of the date of the Indenture, or a
reallocation of any such Investments to the extent of any reduction of such
Investment during such one-year period resulting from an investment by any
third party (including, without limitation, pursuant to a Joint Venture) in
the formation of such Project Subsidiary, provided that such reallocation is
made within one year from the date of such third party Investment; (vii)
Investments in Project Subsidiaries made with the net cash proceeds received
from an Equity Offering made by the Company, GCL or New GCL (but only to the
extent such net cash proceeds received by GCL or New GCL were contributed to
the Company as common equity capital); provided that the amount of any such
net cash proceeds that are utilized for any such Investment shall be excluded
from clause (c)(ii) of the preceding paragraph; (viii) Investments in GTH of
amounts necessary to effect the redemption of the outstanding GTH Preference
Shares in accordance with the terms thereof; (ix) the payment of any dividend
or the making of any distribution to GCL or New GCL by the Company or any
Restricted Subsidiary to pay or permit GCL or New GCL to pay any GCL Expenses
or any Related Taxes; (x) any payments made pursuant to an incurrence of
Indebtedness pursuant to clause (1) of the covenant described below under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(xi) other Restricted Payments in an aggregate amount not to exceed $5.0
million prior to an Initial Public Offering or $10.0 million subsequent to an
Initial Public Offering.
The Board of Directors may not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made (other than the amount required to capitalize such Subsidiary in
connection with its organization)) as an Unrestricted Subsidiary (a
"Designation") unless: (i) no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such Designation;
(ii) the Company would, immediately after giving effect to such Designation,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to either clause (i) or (ii) of the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock" and (iii) the Company would not be prohibited under the
Indenture from making an Investment at the time of such Designation (assuming
the effectiveness of such Designation for purposes of clauses (a) and (b) of
the first paragraph of this covenant) in an amount equal to the fair market
value of the net Investment of the Company or any other Restricted Subsidiary
in such Subsidiary on such date; provided, however, that in no event will
Atlantic Crossing be transferred to or held by an Unrestricted Subsidiary.
In the event of any such Designation, all outstanding Investments owned by
the Company and its Restricted Subsidiaries in the Subsidiary so designated
will be deemed to be an Investment made as of the time of such Designation and
will reduce the amount available for Restricted Payments under the first
paragraph of this covenant or Permitted Investments, as applicable. All such
outstanding Investments will be deemed to constitute Restricted Payments in an
amount equal to the fair market value of such Investments at the time of such
Designation.
The Indenture further provides that a Designation may be revoked (a
"Revocation") by a resolution of the Board of Directors delivered to the
Trustee, provided that Company will not make any Revocation unless: (i) no
Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such Designation; and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately following
such Revocation would, if incurred at such time, have been permitted to be
incurred at such time for all purposes under the Indenture.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or (such
Restricted Subsidiary, as the case may be) pursuant to the Restricted Payment.
The fair market value of any asset(s) or securities that are required to be
valued by this covenant shall be determined in good faith by the Board of
Directors (such determination to be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $15.0 million).
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and the Company will not issue any Disqualified Stock and will not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock and its Restricted
Subsidiaries that are Guarantors may incur Indebtedness or issue Disqualified
Stock if either:
(i) the Consolidated Leverage Ratio at the end of the Company's most
recently ended fiscal quarter for which a consolidated balance sheet of the
Company is available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued
would have been less than 5.5 to 1 (prior to May 15, 2001), or 5.0 to 1.0
(subsequent to May 15, 2001), determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
as the case may be, at the beginning of the four fiscal quarters ended on
the date of such consolidated balance sheet; or
(ii) the Consolidated Capital Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been less than 2.5 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom) as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period.
Notwithstanding the foregoing, the provisions of the paragraph set forth
above will not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Indebtedness"):
(a) The incurrence by the Company of Indebtedness represented by the
Notes and the Exchange Notes;
(b) The incurrence by the Company or any of its Restricted Subsidiaries
of Existing Indebtedness;
(c) The incurrence of Indebtedness by the Company to any Wholly Owned
Restricted Subsidiary or Indebtedness of any Restricted Subsidiary to the
Company or any Wholly Owned Restricted Subsidiary (but only for so long as
such Indebtedness is held by the Company or such Wholly Owned Restricted
Subsidiary);
(d) The incurrence by the AC Subsidiaries of Indebtedness under the AC-1
Credit Facility in an aggregate principal amount not to exceed $500.0
million at any time outstanding, less the aggregate amount of all
repayments, mandatory or optional (including any repayments made pursuant
to clause (m) of this paragraph, but excluding any repayments of revolving
credit borrowings thereunder, provided that the maximum amount of revolving
credit Indebtedness permitted to be incurred under this clause shall not
exceed $10.0 million at any time outstanding), made by the Company or any
of its Restricted Subsidiaries thereunder since the date of the Indenture;
(e) The incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness pursuant to the construction of extensions or upgrades of
Atlantic Crossing, including AC-2, not to exceed $150.0 million at any time
outstanding, less the aggregate amount of all repayments, mandatory or
optional (including any repayments made pursuant to clause (m) of this
paragraph, but excluding any repayments of
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revolving credit borrowings thereunder, provided that the maximum amount of
revolving credit Indebtedness permitted to be incurred under this clause
shall not exceed $10.0 million at any time outstanding), made by the
Company or any of its Restricted Subsidiaries thereunder; provided that
such Indebtedness is incurred for the purpose of financing all or any part
of the cost of construction of such planned extensions or upgrades of
Atlantic Crossing;
(f) The incurrence by the Company or any of its Restricted Subsidiaries
of Capital Lease Obligations (other than leases of backhaul services),
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $25.0 million at any time outstanding;
(g) The incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness pursuant to acquisitions of backhaul capacity made in the
ordinary course of business;
(h) The incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest or foreign currency exchange rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of the Indenture
to be outstanding;
(i) The incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness of a Restricted Subsidiary incurred and outstanding on the
date on which such Restricted Subsidiary was acquired by the Company;
provided, however, that at the time such Restricted Subsidiary is acquired
by the Company (giving effect to such acquisition), the Company would have
been able to incur $1.00 of additional Indebtedness pursuant to the
immediately preceding paragraph;
(j) The incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (a), (b), (d), (e),
(f), (i), (k), (l) or (n) of this paragraph;
(k) The incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness not otherwise permitted to be incurred pursuant
to this paragraph in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (k), not to exceed $25.0 million;
(l) The incurrence by the Company or any of its Restricted Subsidiaries
that are Guarantors of Indebtedness to finance the construction of AC-2,
provided that such Indebtedness is expressly subordinated to the Notes and
the Stated Maturity and Weighted Average Life to Maturity of such
Indebtedness is not less than the Stated Maturity and Weighted Average Life
to Maturity of the Notes and, provided further, that such Indebtedness is
incurred for the purpose of financing all or any part of the cost of
construction of AC-2;
(m) The incurrence of Indebtedness by a Receivables Entity in a Qualified
Receivables Transaction, provided that the proceeds thereof are applied to
the repayment of Indebtedness permitted to be incurred by clause (d) or (e)
of this paragraph;
(n) The incurrence by any Project Subsidiary that is a Restricted
Subsidiary of the Company (excluding the AC Subsidiaries) of Purchase Money
Indebtedness, provided that the amount of such Purchase Money Indebtedness
does not exceed 80% of the cost of construction, installation, acquisition,
lease, development or improvement of assets used in the business of such
Restricted Subsidiary;
(o) Letters of Credit in an aggregate principal amount not to exceed
$70.0 million at any time outstanding, provided that such Letters of Credit
are cash collateralized by a portion of the net proceeds received from the
sale of the Notes; and
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(p) The guarantee by the Company or any of its Restricted Subsidiaries
that are Guarantors of Indebtedness of the Company or any Restricted
Subsidiary of the Company that was permitted to be incurred by another
provision of this covenant.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, incur any Indebtedness (including Permitted Indebtedness) that is
contractually subordinated in right of payment to any other Indebtedness of
the Company or such Restricted Subsidiary unless such Indebtedness is also
contractually subordinated in right of payment to the Notes on substantially
identical terms; provided, however, that no Indebtedness of the Company shall
be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Company solely by virtue of being unsecured.
Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind (other than Permitted Liens) upon any of their
property or assets, now owned or hereafter acquired, unless all payments due
under the Indenture and the Notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligations are no
longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries. However, the foregoing
restrictions will not apply to encumbrances or restrictions existing under or
by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the AC-1 Credit Facility as in effect as of the date of the
Indenture, (c) Indebtedness incurred in accordance with clause (e) of the
second paragraph of the covenant set forth above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock," provided that any
such encumbrances or restrictions contained in the agreements governing such
Indebtedness do not encumber or restrict the ability of any Restricted
Subsidiary of the Company to make any payments (as described in clauses (i)
through (iii) above) in an amount sufficient for the Company to make the
timely payment of interest on the Notes, (d) Indebtedness incurred in
accordance with clauses (m) or (n) of the second paragraph of the covenant set
forth above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock," provided that such encumbrances or restrictions are
customary with respect to such types of Indebtedness (as determined in good
faith by the Chief Financial Officer of the Company), (e) the Indenture, the
Notes and the Exchange Notes, (f) applicable law, (g) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of
its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided, that in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (h) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (i) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (j) any
agreement for the sale or other disposition of a Restricted Subsidiary that
restricts distributions by that Restricted Subsidiary pending its sale or
other disposition, (k) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained
in the agreements governing the Indebtedness being refinanced, (l) Liens
securing Indebtedness otherwise permitted to
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be incurred pursuant to the provisions of the covenant described above under
the caption "--Liens" that limit the right of the Company or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien, (m)
provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered into
in the ordinary course of business and (n) restrictions on cash or other
deposits or net worth imposed by customers under contracts entered into in the
ordinary course of business.
Certain restrictions under the AC-1 Credit Facility will substantially limit
the payment of dividends or distributions to the Company until the AC-1 Credit
Facility is retired. See "Risk Factors--Ranking of Notes; Holding Company
Structure; Dividend Payment Restrictions" and "Description of Certain
Indebtedness--AC-1 Credit Facility."
Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that the Company
or any of its Restricted Subsidiaries may enter into a sale and leaseback
transaction if (i) the Company (or such Restricted Subsidiary, as the case may
be) could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
either of the Consolidated Leverage Ratio or Consolidated Capital Ratio tests
set forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant described
above under the caption "--Liens," (ii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is treated as an Asset Sale, and
the Company applies the proceeds of such transaction in compliance with, the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales."
Merger, Consolidation, or Sale of Assets
The Company may not, directly or indirectly, consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
its properties or assets, in one or more related transactions, to another
Person unless: (i) the Company is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia,
or Bermuda; (ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale,
assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Registration Agreement,
the Notes, the Exchange Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except
in the case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the Person formed by or surviving
any such consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, immediately after such transaction and
after giving pro forma effect thereto and any related financing transactions
as if the same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to either clause (i) or (ii) of the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock." The Indenture also provides that the Company may not,
directly or indirectly, lease all or substantially all of its properties or
assets, in one or more related transactions, to any other Person. The
provisions of this covenant will not be applicable to a sale, assignment,
transfer, conveyance or other disposition of assets between or among the
Company and its Wholly Owned Restricted Subsidiaries and any of the
Guarantors.
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Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are not materially less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $15.0 million, the Company delivers to the Trustee
a resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction is approved by a majority of the disinterested
members of the Board of Directors and an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view is
obtained from an accounting, appraisal or investment banking firm of national
standing. Notwithstanding the foregoing, the following items shall not be
deemed to be Affiliate Transactions: (i) (a) the entering into, maintaining or
performance of any employment contract, collective bargaining agreement,
benefit plan, program or arrangement, related trust agreement or any other
similar arrangement for or with any employee, officer or director heretofore
or hereafter entered into in the ordinary course of business, including
vacation, health, insurance, deferred compensation, retirement, savings or
other similar plans, (b) the payment of compensation, performance of
indemnification or contribution obligations, or an issuance, grant or award of
stock, options, or other equity-related interests or other securities, to
employees, officers or directors in the ordinary course of business, (c) any
transaction with an officer or director in the ordinary course of business not
involving more than $100,000 in any one case, or (d) Management Advances and
payments in respect thereof, (ii) transactions between or among the Company
and/or its Restricted Subsidiaries or any Receivables Entity, (iii) payment of
reasonable directors fees, (iv) any sale or other issuance of Equity Interests
(other than Disqualified Stock) of the Company, (v) Affiliate Transactions in
effect or approved by the Board of Directors on the date of the Indenture,
including any amendments thereto (provided that the terms of such amendments
are not materially less favorable to the Company than the terms of such
agreement prior to such amendment), (vi) transactions with respect to capacity
between the Company or any Restricted Subsidiary and any Unrestricted
Subsidiary or other Affiliate and joint sales and marketing pursuant to an
agreement or agreements between the Company or any Restricted Subsidiary and
any Unrestricted Subsidiary or other Affiliate (provided that in the case of
this clause (vi), such agreements are on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that could have
been obtained at the time of such transaction in an arm's-length transaction
with an unrelated third party or, in the case of a transaction with an
Unrestricted Subsidiary, are either (x) entered into in connection with a
transaction involving the selection by a customer of cable system capacity
entered into in the ordinary course of business or (y) involve the provision
by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary of
sales and marketing services, operations, administration and maintenance
services or development services for which the Company or such Restricted
Subsidiary receives a fair rate of return (as determined by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee)
above its expenses of providing such services; and (vii) Restricted Payments
that are permitted by the covenant described above under the caption "--
Restricted Payments."
Issuances and Sales of Equity Interests in Wholly Owned Restricted
Subsidiaries
The Company (i) will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of the Company to
any Person (other than the Company or a Wholly Owned Restricted Subsidiary of
the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Equity Interests in such Wholly Owned Restricted
Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant
described above under the caption "--Repurchase at the Option of Holders--
Asset Sales," and (ii) will not permit any Wholly Owned Restricted Subsidiary
of the
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Company to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company.
Future AC Subsidiary Guarantees
The Company will cause each of the AC Subsidiaries to become a Guarantor
(other than GTH, which will be a Guarantor as of the date of the Indenture)
and execute a Supplemental Indenture and deliver an Opinion of Counsel, in
accordance with the terms of the Indenture, in each case when such action is
permitted under the terms of the AC-1 Credit Facility or the AC-1 Credit
Facility has been retired.
Additional Restricted Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries shall acquire or create
another Restricted Subsidiary after the date of the Indenture, then such newly
acquired or created Restricted Subsidiary shall become a Guarantor and execute
a Supplemental Indenture and deliver an Opinion of Counsel, in accordance with
the terms of the Indenture.
Business Activities
The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage in any business other than a Permitted Business.
Payments for Consent
Neither the Company nor any of its Restricted Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend such
terms or provisions of the Indenture or the Notes in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company and the Guarantors will furnish
to the Trustee and the Holders of the Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company and the Guarantors were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its consolidated
Subsidiaries and, with respect to the annual information only, a report
thereon by the Company's and the Guarantors' certified independent
accountants, and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company and the Guarantors were
required to file such reports, in each case within the time periods specified
in the Commission's rules and regulations. In addition, following the
consummation of the Exchange Offer, whether or not required by the rules and
regulations of the Commission, the Company and the Guarantors will file a copy
of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. The Company and the Guarantors will be deemed to have satisfied
such requirements if GCL or New GCL files and provides reports, documents and
information of the types otherwise so required by the Commission, in each case
within the applicable time periods, and the Company and the Guarantors are not
required by the Commission to file such reports, documents and information
separately under the applicable rules and regulations of the Commission
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(after giving effect to any exemptive relief) because of the filings by GCL or
New GCL. Furthermore, the Company and the Guarantors will agree that, for so
long as any Notes remain outstanding (and regardless of the immediately
preceding sentence), they will furnish to the Holders of the Notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following will constitute an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in the payment when due of the principal of, or premium,
if any, on, the Notes; (iii) failure by the Company or any of its Restricted
Subsidiaries to comply with the provisions described above under the captions
"--Change of Control," "--Asset Sales," "--Restricted Payments" or "--
Incurrence of Indebtedness and Issuance of Preferred Stock"; (iv) failure by
the Company or any of its Restricted Subsidiaries for 60 days after notice to
comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the Issue Date, which default results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness or the maturity of which has been so accelerated,
aggregates $15.0 million or more; (vi) failure by the Company or any of its
Restricted Subsidiaries to pay final judgments not subject to appeal
aggregating in excess of $15.0 million (net of applicable insurance coverage
which is acknowledged in writing by the insurer), which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) except as permitted
by the Indenture, any Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect (other than in the case of GCL as the result of the liquidation or
dissolution of GCL in connection with an initial public offering of Capital
Stock of New GCL) or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Guarantee; (viii)
certain events of bankruptcy or insolvency with respect to the Company or any
of its Restricted Subsidiaries; and (ix) failure by GCL or New GCL, upon an
Initial Public Offering, to contribute the net proceeds received thereby to
the Company as common equity capital within 30 days of the receipt of such net
proceeds.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Restricted
Subsidiary that is a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal of,
premium, if any, or interest on, the Notes) if it determines that withholding
notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium also
will become immediately due and payable, to the extent permitted by law, upon
the acceleration of the Notes. If an Event of Default occurs prior to May 15,
2003 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to May 15, 2003, then the premium specified in
the Indenture also will become immediately due and payable, to the extent
permitted by law, upon the acceleration of the Notes.
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The Holders of a majority in aggregate principal amount of the then
outstanding Notes by notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of principal of, premium, if any, or interest on, the
Notes.
The Company will be required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company will be required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS OR
SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, will have any liability for any obligations of the Company with
respect to the Notes or the Indenture, or for any claim based on, or in
respect or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note will waive and release any and all such liability.
Such waiver and release are part of the consideration for issuance of the
Notes. Such waiver may not be effective to waive liabilities under federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture will be discharged and cancelled upon the delivery by the
Company to the Trustee for cancellation of all the Notes or upon irrevocable
deposit with the Trustee, within not more than one year prior to the
redemption of the Notes, or when the Notes are to be called for redemption
within one year under arrangements satisfactory to the Trustee, of funds
sufficient for the payment or redemption of all the Notes. In addition, the
Indenture will provide that the Company may, at its option and at any time,
elect to have all of its obligations discharged with respect to the
outstanding Notes ("Legal Defeasance"), except for: (i) the rights of Holders
of outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due from
the trust referred to below; (ii) the Company's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust; (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith; and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have its obligations released with respect to certain
covenants that are contained in the Indenture ("Covenant Defeasance") and,
thereafter, any omission to comply with such obligations will not constitute a
Default or Event of Default. In the event Covenant Defeasance occurs, certain
events (but not including non-payment, bankruptcy, receivership,
rehabilitation or insolvency events) described under "--Events of Default"
will no longer constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit, or cause to be deposited, with the Trustee,
in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes on the stated maturity thereof or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or since the Issue Date,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance, and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company must deliver
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to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance, and such Holders will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company must deliver to the Trustee
an opinion of counsel in the United States reasonably acceptable to the
Trustee to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights and
remedies generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Notes over other creditors of the
Company, or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; (viii) the Company must deliver to the
Trustee an opinion of counsel in Bermuda reasonably acceptable to the Trustee
to the effect that the Holders of the outstanding Notes will not be adversely
affected under Bermuda law; and (ix) the Company must deliver to the Trustee
an Officers' Certificate and an opinion of counsel in the United States
reasonably acceptable to the Trustee, each stating that all conditions
precedent provided for or relating to Legal Defeasance or Covenant Defeasance,
as applicable, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the procedures
set forth in the Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents, and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company will not be
required to transfer or exchange any Note selected for redemption. Also, the
Company will not be required to transfer or exchange any Note for a period of
15 days before (i) a selection of Notes to be redeemed, (ii) an interest
payment date or (iii) the mailing of notice of a Change of Control Offer or
Asset Sale Offer. The registered Holder of a Note will be treated as the owner
of it for all purposes under the Indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the then outstanding Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, such an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal or change the fixed maturity
of any Note, or alter the redemption provisions of the Notes (other than
redemption provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders"); (iii) reduce the rate of, or
change the time for, payment of interest on any Note; (iv) waive a Default or
Event of Default in the payment of principal of, premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders
of at least a majority in aggregate principal amount thereof and a waiver of
the payment default that resulted from such acceleration); (v) make any Note
payable in money other than that stated in the Notes; (vi) make any change
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in the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of the Notes to receive payments of principal of, premium,
if any, or interest on the Notes; (vii) waive a redemption payment with
respect to any Note (other than a payment required by one of the covenants
described above under the caption "--Repurchase at the Option of Holders"); or
(viii) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest, it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue, or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. In case an Event of Default shall occur (which shall not
be cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent person in the conduct of their own affairs.
Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by and
construed in accordance with the laws of the State of New York.
The Company and the Guarantors will submit to the jurisdiction of the U.S.
federal and New York state courts located in the Borough of Manhattan, City
and State of New York for purposes of all legal actions and proceedings
instituted in connection with the Notes and the Indenture. The Company has
appointed CT Corporation System as its authorized agent upon which process may
be served in any such action. See "Service of Process and Enforcement of
Liabilities."
CURRENCY INDEMNITY
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company and the Guarantors under or in connection with the
Notes, including damages. Any account received or recovered in a currency
other than dollars (whether as a result of, or the enforcement of, a judgment
or order of a court of any jurisdiction, in the liquidation, dissolution or
other winding-up of the affairs of the Company or the Guarantors or otherwise)
by any Holder of a Note in respect of any sum expressed to be due to it from
the Company or the Guarantors shall only constitute a discharge to the Company
and the Guarantors to the extent of the dollar amount which the recipient is
able to purchase with the amount so received or recovered in that other
currency on the date of that receipt or recovery (or, if it is not practicable
to make that purchase on that date, on the first date on which it is
practicable to do so). If that dollar amount is less than the dollar amount
expressed to be due
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to the recipient under any Note, the Company and the Guarantors shall
indemnify it against any loss sustained by it as a result. In any event, the
Company and the Guarantors shall indemnify the recipient against the cost of
making any such purchase. For the purposes of this paragraph, it will be
sufficient for the Holder of a Note to certify in a satisfactory manner
(indicating the sources of information used) that it would have suffered a
loss had an actual purchase of dollars been made with the amount so received
in that other currency on the date of receipt or recovery (or, if a purchase
of dollars on such date had not been practicable, on the first date on which
it would have been practicable, it being required that the need for a change
of date be certified in the manner mentioned above). These indemnities
constitute a separate and independent obligation from the Company's and the
Guarantors' other obligations, shall give rise to a separate and independent
cause of action, shall apply irrespective of any indulgence granted by any
Holder of a Note and shall constitute in full force and effect despite any
other judgment, order, claim or proof for a liquidated amount in respect of
any sum due under any Note.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture,
Escrow Agreement and Registration Rights Agreement, without charge, by writing
to Global Crossing Holdings, Ltd., 45 Reid Street, Wessex House, Hamilton,
HM12 Bermuda; Attention: K. Eugene Shutler.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"AC-1 Credit Facility" means that certain Credit Agreement, dated as of June
27, 1997 and amended as of December 15, 1997, between ACL and the lenders
named therein.
"AC" or "Atlantic Crossing" means the four fiber pair, self healing ring,
fiber optic submarine cable system known as "Atlantic Crossing" or "AC-1"
which will provide direct telecommunications service between the United States
and Northern Europe with landing stations in the United States, United
Kingdom, The Netherlands and Germany, and all extensions and upgrades thereto.
"ACL" means Atlantic Crossing Ltd., a Bermuda company.
"AC Subsidiaries" means GTH and all of its direct and indirect Subsidiaries.
"AC-2" means the planned fiber optic submarine cable system known as "AC-2"
which will provide direct telecommunications service between the United States
and Europe.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified 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.
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"Asset Sale" means (i) the sale, lease, transfer, conveyance or other
disposition of any assets or rights (including, without limitation, by way of
a sale and leaseback) other than sales of inventory in the ordinary course of
business and other than any sale, lease, transfer, conveyance or other
disposition of capacity on any cable system owned, controlled or operated by
the Company or any Restricted Subsidiary or of telecommunications capacity or
transmission rights acquired by the Company or any Restricted Subsidiary for
use in a Permitted Business (provided that the sale, lease, transfer,
conveyance or other disposition of all or substantially all of the assets of
the Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "--
Repurchase at the Option of Holders--Change of Control" and/or the provisions
described above under the caption "--Certain Covenants--Merger, Consolidation
or Sale of Assets" and not by the provisions of the Asset Sale covenant), and
(ii) the issue or sale by the Company or any of its Restricted Subsidiaries of
Equity Interests of its Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $25.0 million or (b) for net
proceeds in excess of $25.0 million. Notwithstanding the foregoing, the
following items shall not be deemed to be Asset Sales: (i) a transfer of
assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly
Owned Restricted Subsidiary to the Company or to another Wholly Owned
Restricted Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments,"
(iv) a transfer of assets by the Company or a Restricted Subsidiary in
connection with a Qualified Receivables Transaction, and (v) a disposition of
obsolete or worn out equipment or equipment that is no longer useful in the
conduct of a Permitted Business and that is disposed of in the ordinary course
of business.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the board of directors or other governing body of
the Company or, if the Company is owned or managed by a single entity, the
board of directors or other governing body of such entity, or, in either case,
any committee thereof duly authorized to act on behalf of such board or
governing body.
"Board Resolution" means a duly authorized resolution of the Board of
Directors.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500 million
and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and
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in each case maturing within six months after the date of acquisition and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i)-(v) of this definition.
"Change of Control" means the occurrence of any of the following: (i) prior
to the first public offering of Voting Stock of the Company, GCL or New GCL,
the Permitted Holders cease to be the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in
calculating the beneficial ownership of any particular "person," such "person"
shall be deemed to have beneficial ownership of all securities that such
person has the right to acquire, whether such right is currently exercisable
or is exercisable only upon the occurrence of a subsequent condition),
directly or indirectly, of at least a majority of the Voting Stock (measured
by voting power rather than number of shares) of the Company, GCL or New GCL,
(ii) following the first public offering of Voting Stock of the Company, GCL
or New GCL, any "person" (as such term is unused in Section 13(d)(3) of the
Exchange Act), other than a Permitted Holder, is or becomes the beneficial
owner, directly or indirectly, of 35% or more of the Voting Stock (measured by
voting power rather than number of shares) of the Company, GCL or New GCL, and
the Permitted Holders own, in the aggregate, a lesser percentage of the total
Voting Stock (measured by voting power rather than by number of shares) of the
Company, GCL or New GCL than such person and do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of the Company, GCL or New GCL (for the
purposes of this clause, such other person shall be deemed to "beneficially
own" any Voting Stock of a specified corporation held by a parent corporation
if such other person beneficially owns, directly or indirectly, more than 35%
of the Voting Stock (measured by voting power rather than by number of shares)
of such parent corporation and the Permitted Holders beneficially own,
directly or indirectly, in the aggregate a lesser percentage of Voting Stock
(measured by voting power rather than by number of shares) of such parent
corporation and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of such parent corporation), (iii) during any period of two
consecutive years, Continuing Directors cease for any reason to constitute a
majority of the Board of Directors of the Company, GCL or New GCL, (iv) the
Company, GCL or New GCL consolidates or merges with or into any other Person,
other than a consolidation or merger (a) of the Company into GCL or New GCL,
GCL or New GCL into the Company, or the Company, GCL or New GCL into a Wholly
Owned Restricted Subsidiary of the Company or (b) pursuant to a transaction in
which the outstanding Voting Stock of the Company, GCL or New GCL is changed
into or exchanged for cash, securities or other property with the effect that
the beneficial owners of the outstanding Voting Stock of the Company, GCL or
New GCL, respectively, immediately prior to such transaction, beneficially
own, directly or indirectly, more than 35% of the Voting Stock (measured by
voting power rather than number of shares) of the surviving corporation
immediately following such transaction or (v) the sale, transfer, conveyance
or other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the assets of
GCL or New GCL or the Company and its Restricted Subsidiaries taken as a whole
to any person other than a Wholly Owned Restricted Subsidiary of the Company
or a Permitted Holder or a person more than 50% of the Voting Stock (measured
by voting power rather than by number of shares) of which is owned, directly
or indirectly, following such transaction or transactions by the Permitted
Holders; provided, however, that sales, transfers, conveyances or other
dispositions in the ordinary course of business of capacity on cable systems
owned, controlled or operated by the Company or any Restricted Subsidiary or
of telecommunications capacity or transmission rights acquired by the Company
or any Restricted Subsidiary for use in its business, including, without
limitation. for sale, lease, transfer, conveyance or other disposition to any
customer of the Company or any Restricted Subsidiary shall not be deemed a
disposition of assets for purposes of this clause (v).
The definition of a Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of GCL or New GCL or the Company and its
Restricted Subsidiaries taken as a whole, as such phrase is used in the
Revised Model Business Corporation Act. Although there is a developing body of
case law interpreting the phrase "substantially all," there is no precise
established definition of such phrase under applicable law. Accordingly, the
ability of a Holder of Notes to require the Company to purchase such Notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of GCL or New GCL or the Company and its Restricted
Subsidiaries taken as a whole to another Person or group may be uncertain.
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"Consolidated Capital Ratio" means, with respect to the Company as of any
date, the ratio of (i) the aggregate consolidated principal amount of
Indebtedness of the Company and its Restricted Subsidiaries then outstanding
to (ii) the Consolidated Net Worth of the Company and its Restricted
Subsidiaries as of such date, in each case as shown on the consolidated
balance sheet of the Company in accordance with GAAP.
"Consolidated Cash Flow" means, with respect to the Company for any period,
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period plus, to the extent that any of the following items were deducted
or added in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss (less any gain) plus any net loss (less any gain) realized
in connection with any Asset Sale, plus (ii) provision for taxes based on
income or profits of the Company and its Restricted Subsidiaries for such
period, plus (iii) consolidated interest expense of the Company and its
Restricted Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of Letter of Credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), plus
(iv) depreciation, amortization (including amortization of goodwill and other
intangibles and the amount of capacity available for sale (other than for
backhaul capacity) charged to cost of sales), but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of the
Company and its Restricted Subsidiaries for such period, minus (v) non-cash
items increasing such Consolidated Net Income for such period (other than
items that were accrued in the ordinary course of business), in each case, on
a consolidated basis and determined in accordance with GAAP. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash expenses of, a Restricted
Subsidiary of the Company shall be added to Consolidated Net Income to compute
Consolidated Cash Flow of the Company only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements (excluding the AC-1
Credit Facility, to which this provision shall not apply), instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Restricted Subsidiary or its shareholders.
"Consolidated Leverage Ratio" means, with respect to the Company, as of any
date, the ratio of (i) the aggregate consolidated principal amount of
Indebtedness of the Company and its Restricted Subsidiaries then outstanding
to (ii) the Consolidated Cash Flow of the Company and its Restricted
Subsidiaries.
"Consolidated Net Income" means, with respect to the Company for any period,
the aggregate of the Net Income of the Company and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Restricted Subsidiary
that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the Company or a Wholly Owned Restricted Subsidiary thereof by such Restricted
Subsidiary, (ii) the Net Income of any Restricted Subsidiary shall be excluded
to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement (excluding the AC-1 Credit Facility, to which
this clause (ii) shall not apply), instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its shareholders, except that the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend, (iii) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition shall be excluded,
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(iv) the equity of the Company or any Restricted Subsidiary in the net income
of any Unrestricted Subsidiary shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Unrestricted Subsidiary during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (but not in excess of the
amount of the Net Income of such Unrestricted Subsidiary for such period) and
(v) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to the Company as of any date,
the sum of (i) the consolidated equity of the common shareholders of the
Company and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on the Company's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by the Company upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by the Company or a
consolidated Restricted Subsidiary of the Company, (y) all investments as of
such date in unconsolidated Restricted Subsidiaries and in Persons that are
not Restricted Subsidiaries (except, in each case, Permitted Investments), and
(z) all unamortized debt discount and expense and unamortized deferred charges
as of such date, all of the foregoing determined in accordance with GAAP.
"Consolidated Tangible Assets" means the total amount of assets (less
applicable reserves and other properly deductible items) which under generally
accepted accounting principles would be included on a consolidated balance
sheet of the Company and its Restricted Subsidiaries after deducting therefrom
all goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, which in each case under generally
accepted accounting principles would be included on such consolidated balance
sheet.
"Continuing Directors" means individuals who at the beginning of the period
of determination constituted the Board of Directors of the Company, GCL or New
GCL, as the case may be, together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders
of the Company, GCL or New GCL, as the case may be, was approved by a vote of
at least a majority of the directors of the Company, GCL or New GCL, as the
case may be, then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved or is designee of any one of the Permitted Holders or any combination
thereof or was nominated or elected by any such Permitted Holder(s) or any of
their designees.
"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or beneficiary.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering for cash by GCL, New GCL or the Company
of its common stock, or options, warrants or rights to acquire such common
stock.
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"GCL" means Global Crossing Ltd., LDC, a Cayman Islands company limited by
shares.
"GCL Expenses" means (i) costs (including all professional fees and
expenses) incurred by GCL or New GCL to comply with its reporting obligations
under federal or state laws or under the Indenture, including any reports
filed with respect to the Securities Act, the Exchange Act or the respective
rules and regulations promulgated thereunder, (ii) indemnification obligations
of GCL or New GCL owing to directors, officers, employees or other Persons
under its charter or by-laws or pursuant to written agreements with any such
Person, (iii) fees and expenses payable by GCL or New GCL in connection with
the issuance of the Notes and the Exchange Notes, (iv) other operational
expenses of GCL or New GCL incurred in the ordinary course of business and (v)
expenses incurred by GCL or New GCL in connection with any public offering of
Capital Stock or Indebtedness (x) where the net proceeds of such offering are
intended to be received by or contributed or loaned to the Company or a
Restricted Subsidiary, or (y) in a prorated amount of such expenses in
proportion to the amount of such net proceeds intended to be so received,
contributed or loaned, or (z) otherwise on an interim basis prior to
completion of such offering so long as GCL or New GCL shall cause the amount
of such expenses to be repaid to the Company or the relevant Restricted
Subsidiary out of the proceeds of such offering promptly if completed.
"GTH" means Global Telesystems Holdings Ltd., a Bermuda company.
"GTH Preference Shares" means the Senior Increasing Rate Redeemable
Exchangeable Preference Shares of GTH.
"Government Securities" means securities that are (a) direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentally thereof) of
the payment of which the full faith and credit of the United States of America
is pledged, (b) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America or (c) obligations of a Person the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America, which, in each case, are not callable or
redeemable at the issuer's option.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of (i) New GCL, GTH, Global Crossing International,
Ltd., Global Crossing Development Co., Global Crossing Holdings U.K. Ltd.,
Global Crossing Marketing U.K. Ltd. and Global Crossing Marketing USA Inc.,
and (ii) any other Restricted Subsidiary of the Company that executes a
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under any Interest Rate Agreement or Currency Agreement.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Initial Public Offering" means, as applicable, an initial public offering
of common stock by the Company, GCL or New GCL that results in gross cash
proceeds to the Company, GCL or New GCL, as applicable, of at least $200.0
million.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate
option agreement, interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement to which such Person is a party or beneficiary.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to directors, officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or
would be classified as investments on a balance sheet prepared in accordance
with GAAP. If the Company or any of its Restricted Subsidiaries sells or
otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company or such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of in an amount determined
as provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Letters of Credit" means one or more irrevocable direct pay letters of
credit issued by a bank or other financial institution to support the payment
of equity obligations of the Company to its Project Subsidiaries.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in, and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"MAC Subsidiaries" means Mid-Atlantic Crossing Holdings Ltd., a Bermuda
company, and all of its direct and indirect Subsidiaries.
"Management Advances" means loans or advances made to directors, officers or
employees of GCL or New GCL, the Company or any Restricted Subsidiary (i) in
respect of travel, entertainment or moving-related
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expenses incurred in the ordinary course of business, (ii) in respect of
moving-related expenses incurred in connection with any closing or
consolidation of any facility, or (iii) in the ordinary course of business not
exceeding $2.5 million in the aggregate at any time outstanding.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions made pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary gain or loss,
together with any related provision for taxes on such extraordinary gain or
loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"New GCL" means Global Crossing Ltd., a Bermuda company.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its Stated Maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means any Co-Chairman of the Board, the President, the Chief
Executive Officer, the Chief Operating Officer, the Chief Financial Officer,
any Senior Vice President, any Vice President, the Treasurer or the Secretary
of the Company.
"Officers Certificate" means a certificate signed by two Officers.
"PAC Subsidiaries" means Pan American Crossing Holdings Ltd., a Bermuda
company, and all of its direct and indirect Subsidiaries.
"PC-1 Subsidiaries" means Pacific Crossing Holdings Ltd., a Bermuda company,
and all of its direct and indirect Subsidiaries.
"Permitted Business" means any business that is the same as or related,
ancillary or complementary to any of the businesses of the Company or any of
its Restricted Subsidiaries on the date of the Indenture.
"Permitted Holder" means Pacific Capital Group, Inc. and CIBC Oppenheimer
Corp., and their respective Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is engaged in a
Permitted Business; (b) any Investment in Cash Equivalents; (c)
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any Investment by the Company or any of its Restricted Subsidiaries in a
Person, if as a result of such Investment (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company that is engaged in a Permitted Business; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; (f) other Investments in any
Project Subsidiary having an aggregate fair market value (measured on the date
each such Investment was made and without giving effect to subsequent changes
in value), when taken together with all other Investments made pursuant to
this clause (f) that are at the time outstanding, not to exceed $10.0 million;
and (g) any Investment made in a Receivables Entity in a Qualified Receivables
Transaction.
"Permitted Liens" means (i) Liens to secure Indebtedness permitted by
clauses (d), (e), (m) and (n) of the second paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock" covering only the assets acquired with such Indebtedness;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person
existing at the time such Person is merged with or into or consolidated with
the Company or any of its Restricted Subsidiaries; provided that such Liens
were in existence prior to the contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person merged into or
consolidated with the Company or such Restricted Subsidiary; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any of
its Restricted Subsidiaries, provided that such Liens were in existence prior
to the contemplation of such acquisition; (v) Liens to secure the performance
of statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the date of the Indenture; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (viii) Liens incurred in the ordinary course of business
of the Company or any of its Restricted Subsidiaries with respect to
obligations that do not exceed $5.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary; and (ix)
Liens not otherwise permitted by the foregoing clauses (i) through (viii)
securing Indebtedness in an aggregate amount not to exceed 10% of the
Company's Consolidated Tangible Assets.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is expressly subordinated in right of payment to, the
Notes on terms at least as favorable to the Holders of the Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company, a Restricted Subsidiary that
is a Guarantor or the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
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"Person" means any individual, corporation, partnership, joint venture,
limited liability company, incorporated or unincorporated association, joint-
stock company, trust, unincorporated organization or government or other
agency or political subdivision thereof or other entity of any kind.
"Project Subsidiary" means any of the AC Subsidiaries, PC-1 Subsidiaries,
MAC Subsidiaries or PAC Subsidiaries, and any other Subsidiary of the Company
formed to develop, own and operate undersea fiber optic telecommunications
cable systems.
"Purchase Money Indebtedness" means Indebtedness (including Acquired Debt
and Capital Lease Obligations, mortgage financings and purchase money
obligations) incurred for the purpose of financing all or any part of the cost
of construction, installation, acquisition, lease, development or improvement
of any assets used or useful in a Permitted Business, including any related
notes, guarantees, collateral documents, instruments and agreements executed
in connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any of its Subsidiaries may
sell, convey or otherwise transfer to (a) a Receivables Entity (in the case of
a transfer by the Company or any of its Subsidiaries) and (b) any other Person
(in the case of a transfer by a Receivables Entity), or may grant a security
interest in, any receivables (whether now existing or arising in the future)
of the Company or any of its Subsidiaries, and any assets related thereto
including, without limitation, all collateral securing such receivables, all
contracts and all guarantees or other obligations in respect of such
receivables, and the proceeds of such receivables.
"Receivables Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company may make
an Investment and to which the Company or any Subsidiary of the Company
transfers receivables and related assets) which engages in no activities other
than in connection with the financing of receivables and which is designated
by the Board of Directors (as provided below) as a Receivables Entity, (a) no
portion of the Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any Subsidiary of the Company
(excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization Undertakings),
(ii) is recourse to or obligates the Company or any Subsidiary of the Company
in any way other than pursuant to Standard Securitization Undertakings or
(iii) subjects any property or asset of the Company or any Subsidiary of the
Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any Subsidiary of the
Company has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons that are not Affiliates
of the Company, other than fees payable in the ordinary course of business in
connection with servicing receivables, and (c) to which neither the Company
nor any Subsidiary of the Company has any obligation to maintain or preserve
such entity's financial condition or cause such entity to achieve certain
levels of operating results. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the resolution of the Board of Directors giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing conditions.
"Related Taxes" means any taxes, charges or assessments, including, but not
limited to, sales, use, transfer, rental, ad valorem, value-added, stamp,
property, consumption, franchise, license, capital, net worth, gross receipts,
excise, occupancy, intangibles or similar taxes, charges or assessments (other
than taxes measured by income and withholding imposed on payments made by GCL
or New GCL required to be paid by GCL or New GCL by virtue of its being
incorporated or having Capital Stock outstanding (but not by virtue of owning
stock or other equity interests of any corporation or other entity other than
the Company or any of its Subsidiaries), or being a holding company parent of
the Company of receiving dividends from or other distributions in respect of
the Capital Stock of the Company, or having guaranteed any obligations of the
Company of any Subsidiary
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thereof, or having made any payment in respect of any of the items for which
the Company is permitted to make payments to GCL or New GCL pursuant to the
covenant described above under "--Certain Covenants--Restricted Payments,"
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. As of the date of the
Indenture, all of the Guarantors (except for GCL) and AC Subsidiaries will be
Restricted Subsidiaries; provided, however, that at no time may the AC
Subsidiaries or any successor to any of them or any entities that provide
extensions, upgrades or additions to AC-1 (including AC-2) be designated as
Unrestricted Subsidiaries.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in securitization of receivables
transactions.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company (other
than the AC Subsidiaries or any successor to any of them) that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels of operating
results; and (c) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall
be evidenced by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and
was permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary,
it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the
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caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
As of the date of the Indenture, all of the PC-1 Subsidiaries, MAC
Subsidiaries and PAC Subsidiaries are Unrestricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
All Exchange Notes will be represented by permanent Global Notes in fully
registered form without coupons (the "Global Notes"), which will be deposited
with the Trustee as custodian for DTC and registered in the name of DTC or of
a nominee of DTC.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York Banking Law, (iii) a member
of the Federal Reserve System, (iv) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (v) a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry charges to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain
other organizations. Indirect access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Investors who are not Participants may beneficially own securities held by or
on behalf of DTC only through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
issuance of a Global Note, DTC will credit, on its internal system, the
principal amount of Exchange Notes of the individual beneficial interests
represented by such Global Note to the respective accounts of persons who have
accounts with such depository and (ii) ownership of beneficial interests in
such Global Notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC (with respect to interests of
Participants) and the records of Participants and Indirect Participants (with
respect to interests of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an
interest in
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Notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee
thereunder. Accordingly, each holder owning a beneficial interest in a Global
Note must rely on the procedures of DTC and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a
holder of Notes under the Indenture or such Global Note. The Company
understands that under existing industry practice, in the event that the
Company requests any action of holders of Notes, or a holder that is an owner
of a beneficial interest in a Global Note desires to take any action that DTC,
as the holder of such Global Note, is entitled to take, DTC would authorize
the Participants to take such action and the Participants would authorize
holders owning through such Participants to take such action or would
otherwise act upon the instruction of such holders. Neither the Company nor
the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date
will be payable by the Trustee to or at the direction of DTC or its nominee in
its capacity as the registered holder of the Global Note representing such
Notes under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names the Notes, including the
Global Notes, are registered as the owners thereof for the purpose of
receiving payment thereon and for any and all other purposes whatsoever.
Accordingly, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global Note (including principal, premium, if any,
liquidated damages, if any, and interest). Payments by the Participants and
the Indirect Participants to the owners of beneficial interests in a Global
Note will be governed by standing instructions and customary industry practice
and will be the responsibility of the Participants or the Indirect
Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the
case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. Cash received in
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Euroclear or Cedel as a result of sales of interest in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received for value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC, Euroclear or Cedel or their respective
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in definitive form under the Indenture or (iii) upon the occurrence
of certain other events as provided in the Indenture, then, upon surrender by
DTC of the Global Notes, certificated Notes will be issued to each person that
DTC identifies as the beneficial owner of the Notes represented by the Global
Notes. Upon any such issuance, the Trustee is required to register such
certificated Notes in the name of such person or persons (or the nominee of
any thereof) and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners
of the related Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the Notes to be issued).
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Agreement pursuant to which the Company agreed, for the benefit
of the holders of the Restricted Notes, that the Company will, at its cost,
(i) cause to be filed, on or prior to 90 days after the Closing Date, the
Exchange Offer Registration Statement with the Commission under the Securities
Act concerning the Exchange Offer, and (ii) (a) use its reasonable best
efforts to cause such Exchange Offer Registration Statement to be declared
effective by the Commission on or prior to 150 days after the Closing Date and
(b) cause the Exchange Offer to remain open for the minimum period required by
applicable federal and state securities laws, provided, however, that in no
event shall such period be less than 20 days. For each Restricted Note
surrendered to the Company and accepted for exchange pursuant to the Exchange
Offer, the holder of such Restricted Note will receive an Exchange Note having
a principal amount equal to that of the surrendered Restricted Note.
Based upon no-action letters issued by the staff of the Commission to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Restricted Notes would in general be freely
transferable after the Exchange Offer without further registration under the
Securities Act if the holder of the Exchange Notes represents (i) that it is
not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company, (ii) that it is acquiring the Exchange Notes in the ordinary course
of its business and (iii) that it has no arrangement or understanding with any
person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes; provided that, in the case of broker-
dealers, a prospectus meeting the requirements of the Securities Act be
delivered as required. However, the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. Holders of Restricted Notes
wishing to accept the Exchange Offer must represent to the Company
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that such conditions have been met. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer, where it acquired
the Restricted Notes exchanged for such Exchange Notes for its own account as
a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with the resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in
exchange for Restricted Notes where such Restricted Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of one year after
consummation of the Exchange Offer, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. A broker-dealer
that delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act, and will be bound by the provisions of the Registration
Agreement (including certain indemnification and contribution rights and
obligations).
A holder of Restricted Notes (other than certain specified holders) who
wishes to exchange such Restricted Notes for Exchange Notes in the Exchange
Offer will be required to represent that any Exchange Notes to be received by
it will be acquired in the ordinary course of its business, and that at the
time of the commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 under the Securities Act,
or if it is an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) if any Holder of Restricted Securities shall notify the Company
within 20 business days following the consummation of the Exchange Offer that
(A) such holder was prohibited by law or Commission policy from participating
in the Exchange Offer or (B) such holder may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such holders or
(C) such holder is a broker-dealer and holds Notes acquired directly from the
Company or any of its affiliates, then the Company will, at its cost, (a) file
a shelf registration statement (the "Shelf Registration Statement") covering
resales of the Restricted Notes or the Exchange Notes, as the case may be, (b)
use its reasonable best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act and (c) use its reasonable best
efforts to keep the Shelf Registration Statement effective until two years
after its effective date or such shorter period ending when all resales of
Restricted Notes or Exchange Notes covered by such Shelf Registration
Statement have been made. A holder selling such Restricted Notes or Exchange
Notes pursuant to the Shelf Registration Statement generally would be required
to be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Registration Agreement which are
applicable to such holder (including certain indemnification obligations).
If (a) the Company and the Guarantors fail to file any of the Registration
Statements required by the Registration Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for
such effectiveness, or (c) the Company and the Guarantors fail to consummate
the Registered Exchange Offer within 180 business days of the Closing Date
with respect to the Exchange Offer Registration Statement, or (d) any
Registration Statement required by the Registration Agreement is declared
effective but thereafter ceases to be effective or usable in connection with
its intended purpose (each such event referred to in clause (a) through (d)
above a "Registration Default"), then the Company and the Guarantors will pay
to each holder of the Restricted Notes affected thereby Special Interest which
will accrue and be payable semi-annually on the Notes and the Exchange Notes
(in addition to the stated interest on the Notes and the Exchange Notes) from
and including the date such Registration Default occurs to, but excluding the
date on which the applicable Registration Statement is filed or
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is declared effective, the Registered Exchange Offer is consummated, or the
applicable Registration Statement is again declare effective or made usable.
During the time that Special Interest is accruing continuously, the rate of
such Special Interest shall be 0.50% per annum during the first 90-day period
and shall increase by 0.25% per annum for each subsequent 90-day period, but
in no event shall such rate exceed 1.0% per annum in the aggregate regardless
of the number of Registration Defaults. If, after the cure of all Registration
Defaults then in effect, there is a subsequent Registration Default, the rate
of Special Interest for such subsequent Registration Default shall initially
be 0.50% regardless of the Special Interest rate in effect with respect to any
prior Registration Default a the time of the cure of such Registration
Default.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus constitutes a part.
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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 New GCL and each of its subsidiaries.
OLD GCL EXCHANGE
As of the date hereof, all shares of common stock of the Company are held by
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
New GCL's Stock Incentive Plan that was established at such time.
Prior to the Stock Offerings, GCL will declare a stock dividend to Old GCL
so that Old GCL will hold 1.5 shares of common stock of New GCL for each share
of common stock of Old GCL outstanding. Pursuant to the terms of the Articles
of Association of Old GCL, prior to the Stock 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 Stock Offerings.
Immediately subsequent to such transactions and prior to the Stock
Offerings, each shareholder of Old GCL (other than CIBC) will agree with Old
GCL to exchange their interests in Old GCL for shares of Common Stock of New
GCL held by Old GCL at a rate of 1.5 shares of Common Stock of New GCL per
share of common stock of Old GCL. CIBC will not participate in the Old GCL
Exchange and will continue to maintain its beneficial ownership position in
New GCL through Old GCL. Subsequent to the Old GCL Exchange, each previous
shareholder of Old GCL will hold an equal proportionate interest in New GCL,
with Old GCL becoming wholly-owned by CIBC.
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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 Old GCL Exchange and the number of shares of Common Stock to be
transferred in connection with the Old GCL Exchange:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------------- --------------------- --------------------- -------------------------------
NEW GCL NEW GCL NEW GCL NEW GCL GCL
OLD GCL SHARES OLD GCL SHARES OLD GCL SHARES OLD GCL SHARES WARRANTS
NAME SHARES RECEIVED SHARES RECEIVED SHARES RECEIVED SHARES(2) RECEIVED RECEIVED
- ---------------- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Canadian
Imperial Bank of
Commerce(3)..... 1,720,600 2,580,900 0 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 2,965,223 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(3). 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
Dean C.
Kehler(3)....... 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
Jay R.
Levine(3)....... 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
William P.
Phoenix(3)...... 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
Bruce Raben(3).. 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(1)
----------------
GCL
OLD GCL SHARES
NAME SHARES RECEIVED
- ----------------- ------- --------
<S> <C> <C>
Canadian
Imperial Bank of
Commerce(3)..... 50,000 75,000
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(3). 50,000 75,000
Dean C.
Kehler(3)....... 50,000 75,000
Jay R.
Levine(3)....... 50,000 75,000
William P.
Phoenix(3)...... 50,000 75,000
Bruce Raben(3).. 50,000 75,000
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>
- -------
(1) Includes shares of Common Stock issuable upon the exercise of stock
options which are exercisable within 60 days of August 10, 1998.
(2) 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."
(3) Amounts appearing under "New GCL Shares Received", other than Class E
shares, will be held through Old GCL, which will be wholly-owned by CIBC
after the Old GCL Exchange.
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NEW GCL
General. Pursuant to its Memorandum of Association, the authorized share
capital of New GCL is $6,000,000, divided into 600,000,000 shares of par value
$.01 each. Prior to the Old GCL Exchange, all 182,738,519 of the outstanding
shares of Common Stock of New GCL will be held by Old GCL.
Voting and Transfer Restrictions. Following the adoption of the Amended and
Restated Bye-Laws of the Company immediately prior to the Stock 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, under certain
circumstances 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 New 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
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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.
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 Stock 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
New 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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DESCRIPTION OF CERTAIN INDEBTEDNESS
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, an affiliate of Deutsche Bank
Securities Inc., 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 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 June 30, 1998, a total of $367 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 New 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 NOTEHOLDERS
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 Notes 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 United States federal income tax
considerations that apply to the acquisition, ownership and disposition of
Notes by United States Holders (as defined below) as of the date hereof.
118
<PAGE>
Although the following summary does not purport to describe all of the tax
considerations that may be relevant to a prospective purchaser of Notes, such
summary describes the material United States federal income tax consequences
to a United States Holder. No assurance can be given that the conclusions set
out below would be
sustained by a court if challenged by the IRS. This summary deals only with
Notes that are held as capital assets by United States Holders that purchase
Notes at their "issue price" pursuant to their original issue, 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 Notes as a part of a straddle, conversion
transaction, constructive sale or other arrangement involving more than one
position, United States Holders that own (or are deemed for United States tax
purposes to own) 10% or more of the total combined voting power of all classes
of voting stock of the Company, 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. The
discussion below assumes that the Notes will not be issued with more than a de
minimus amount of "original issue discount" and that Special Interest will not
become payable on the Notes.
The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended (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 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 NOTES.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION TO
THEIR PARTICULAR SITUATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL
AS THE APPLICATION OF STATE, LOCAL OR FOREIGN 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 OFFERING MEMORANDUM,
AND ARE SUBJECT TO ANY CHANGES OCCURRING AFTER THAT DATE.
As used herein, a "United States Holder" of a Note 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.
Payment of Interest. Interest on a Note will be taxable to a United States
Holder as ordinary income at the time that such interest accrues or is
received, in accordance with the United States Holder's regular method of
accounting for federal income tax purposes.
Certain Payments under Registration Agreement. The occurrence of certain
enumerated events described under "Exchange Offer; Registration Rights" will
cause Special Interest to be payable to the holders of Notes in the manner
described therein. However, the Company intends to take the position that the
mere possibility that such Special Interest may become payable on the Notes
will not affect the amount of interest income includible by a United States
Holder of a Note and will not cause the Notes to be issued with original issue
discount or to be treated as contingent payment debt instruments. For these
purposes, the Company's determination that the Notes are not issued with
original issue discount is binding on all United States Holders unless a
United States Holder explicitly discloses in the proper manner to the Service
that its determination is different. If Special Interest in fact becomes
payable on the Notes, then the Special Interest should be includible in income
by United States Holders as ordinary income.
Sale, Exchange or Retirement of the Notes. A United States Holder's tax
basis in a Note generally will be its cost. A United States Holder generally
will recognize gain or loss on the sale, exchange or retirement of a
119
<PAGE>
Note in an amount equal to the difference between the amount realized on the
sale, exchange or retirement (excluding amounts received in respect of accrued
interest) and the adjusted tax basis of the Note. Gain or loss recognized on
the sale, exchange or retirement of a Note (excluding amounts received in
respect of accrued
interest, which will be taxable as ordinary income) generally will be treated
as capital gain or loss. Generally, capital gains of individuals derived in
respect of capital assets held for more than one year are eligible for reduced
rates of taxation. The deductibility of capital losses is subject to
limitations.
The exchange of the Notes for the Exchange Notes in the Exchange Offer, see
"Exchange Offer; Registration Rights," will not constitute a taxable event to
United States Holders. Consequently, (i) no gain or loss will be realized by a
United States Holder upon receipt of an Exchange Note; (ii) the holding period
of the Exchange Note will include the holding period of the Note exchanged
therefor; and (iii) the adjusted tax basis of the Exchange Note will be the
same as the adjusted tax basis of the Note exchanged therefor immediately
before the exchange.
Information Reporting and Backup Withholding. In general, information
reporting requirements will apply to certain payments of principal and
interest on a Note, and to the payment of the proceeds of the sale of a Note,
to United States Holders other than certain exempt recipients (such as
corporations). Backup withholding at a 31% rate will apply to such payments if
the United States Holder fails to provide its taxpayer identification number
or certification of foreign or other exempt status or fails to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
credit against the United States Holder's U.S. federal income tax liability
and may entitle such Holder to a refund, provided that the required
information is furnished to the IRS.
120
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for
Restricted Notes where such Restricted Notes were acquired as a result of
market-making activities or other trading activities.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Issuer has agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the Restricted
Notes) other than commissions or concessions of any brokers or dealers and
will indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Exchange Notes
have been passed upon for the Issuer by Simpson Thacher & Bartlett, New York,
New York. Simpson Thacher & Bartlett will rely, as to matters of Bermuda law,
on the opinion of Appleby, Spurling & Kempe, Hamilton, Bermuda.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen & Co.,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Issuer and the Guarantors have filed with the commission a Registration
Statement on Form S-4 (together with all amendments, exhibits schedules and
supplements thereto, the "Registration Statement") under the Securities Act
with respect to the Exchange Notes being offered hereby. This Prospectus,
which forms a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Issuer and the Exchange Notes, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and,
where such contract or other document is an exhibit to the Registration
Statement,
121
<PAGE>
each such statement is qualified by the provisions in such exhibit, to which
reference is hereby made. New GCL is subject to the informational requirements
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act")
and, in accordance therewith, is required to file reports and other
information with the Commission. The Issuer and the Guarantors (other than New
GCL) are not currently subject to the informational requirements of the
Exchange Act. As a result of the offering of the Exchange Notes, the Issuer
and the Guarantors will become subject to the informational requirements of
the Exchange Act, and, in accordance therewith, will file reports and other
information with the Commission unless and until an exemption from such
requirement is obtained. The Registration Statement, such reports and other
information can be inspected and copied at the Public Reference Section of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549 and at regional public reference facilities maintained
by the Commission located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material, including copies of all or any
portion of the Registration Statement, can be obtained from the Public
Reference Section of the Commission at prescribed rates. Such material may
also be accessed electronically by means of the Commission's home page on the
Internet (http:/www.sec.gov).
So long as the Issuer and the Guarantors are subject to the periodic
reporting requirements of the Exchange Act, they are required to furnish the
information required to be filed with the Commission to the Trustee and the
holders of the Notes. The Issuer and the Guarantors have agreed that, even if
they are not required under the Exchange Act to furnish such information to
the Commission, they will nonetheless continue to furnish information that
would be required to be furnished by the Issuer and the Guarantors by Section
13 of the Exchange Act, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Issuer's certified independent
accountants to the Trustee and the holders of the Notes as if they were
subject to such periodic reporting requirements. The Issuer and the Guarantors
will be deemed to have satisfied such requirements if New GCL files and
provides reports, documents and information of the types otherwise so required
by the Commission, in each case within the applicable time periods, and the
Issuer and the Guarantors are not required by the Commission to file such
reports, documents and information separately under the applicable rules and
regulations of the Commission (after giving effect to any exemptive relief)
because of the filings by New GCL.
122
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants............................. F-2
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997................................................... F-3
Consolidated Statements of Operations for the three months ended June
30, 1998 (unaudited) and June 30, 1997 (unaudited), for the six
months ended June 30, 1998 (unaudited), for the period from March
19, 1997 (Date of Inception) to June 30, 1997 (unaudited) and for
the period from March 19, 1997 (Date of Inception) to December 31,
1997.............................................................. F-4
Consolidated Statements of Shareholders' Equity for the six months
ended June 30, 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 six months ended June
30, 1998 (unaudited), for the period from March 19, 1997 (Date of
Inception) to June 30, 1997 (unaudited) and for the period from
March 19, 1997 (Date of Inception) to December 31, 1997........... F-6, F-7
Notes to Consolidated Financial Statements........................... F-8
</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
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................ $ 304,125,205 $ 1,452,684
Accounts receivable, net of allowance for
doubtful accounts of $1,012,117......... 33,954,617 --
Interest receivable...................... 1,979,573 123,000
Other assets and prepaid costs........... 28,347,113 892,958
Restricted cash and cash equivalents..... 237,485,187 25,275,196
-------------- ------------
605,891,695 27,743,838
Long term accounts receivable.............. 7,900,000 --
Backhaul capacity available for sale....... 54,738,560 21,200,000
Undersea capacity available for sale....... 206,271,310 --
Construction in progress................... 518,636,709 497,318,509
Investment in Pacific Crossing Ltd. ....... 126,456,345 --
Deferred finance and organization costs,
net of accumulated amortization of
$3,994,076 ($2,246,857 as of December 31,
1997)..................................... 44,338,405 25,934,021
-------------- ------------
$1,564,233,024 $572,196,368
============== ============
LIABILITIES:
Current liabilities:
Accrued construction costs............... $ 21,688,211 $ 52,003,875
Accounts payable and accrued liabilities. 8,520,395 1,658,399
Accrued interest and preference share
dividends............................... 9,361,111 2,921,854
Deferred revenue......................... 42,747,611 5,325,000
Income taxes payable..................... 9,000,000 --
Current portion of obligations under
inland services agreements.............. 43,489,498 17,891,000
Current portion of obligations under
capital leases.......................... 6,215,130 12,297,645
-------------- ------------
141,021,956 92,097,773
Long term debt............................. 367,048,000 162,325,000
Senior notes............................... 796,277,203 150,000,000
Long term deferred revenue................. 6,916,667 --
Obligations under inland services
agreements................................ 7,628,050 3,009,000
Obligations under capital leases........... 7,561,897 --
-------------- ------------
Total liabilities........................ 1,326,453,773 407,431,773
-------------- ------------
COMMITMENTS
MANDATORILY REDEEMABLE PREFERENCE SHARES
(109,830 shares as of December 31, 1997,
$1,000 preference liquidation preference
per share (net of unamortized discount and
issuance costs of $12,223,993 and
$6,962,407 respectively)).................. -- 90,643,919
-------------- ------------
SHAREHOLDERS' EQUITY:
Class A common stock, 31,102,950 shares
issued (31,102,950 as of December 31,
1997)..................................... 20 20
Class B common stock, 51,075,000 shares
issued (50,625,000 as of December 31,
1997)..................................... 34 34
Class C common stock, 50,625,000 shares
issued (50,625,000 as of December 31,
1997)..................................... 34 34
Class D common stock, 33,088,200 shares
issued, convertible to Class E shares
(33,088,200 as of December 31, 1997)...... 22 22
Class E common stock, 337,500 shares
issued (nil as of December 31, 1997)...... -- * --
Other shareholders' equity................. 397,095,005 74,280,922
Accumulated deficit........................ (159,315,864) (160,356)
-------------- ------------
237,779,251 74,120,676
-------------- ------------
$1,564,233,024 $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
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
THREE MONTHS THREE MONTHS SIX MONTHS FROM MARCH 19, 1997 FROM MARCH 19, 1997
ENDED ENDED ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 TO JUNE 30, 1997 TO DECEMBER 31, 1997
------------- ------------- ------------- ------------------- --------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES AND OPERATING
REVENUES............... $ 101,255,867 $ -- $ 101,255,867 $ -- $ --
------------- ----------- ------------- ----------- ------------
EXPENSES:
Cost of capacity sold.. 41,200,229 -- 41,200,229 -- --
Operations and
maintenance........... 2,470,000 -- 2,470,000 -- --
Sales and marketing.... 6,528,780 40,235 7,312,995 40,235 1,366,724
Network development.... 4,314,183 -- 4,314,183 -- 78,000
General and
administrative........ 6,507,671 50,204 9,099,341 50,204 1,617,770
Termination of
advisory services
agreement............. 139,669,340 -- 139,669,340 -- --
Stock related expense.. 22,760,170 -- 23,397,670 -- --
Provision for doubtful
accounts.............. 1,012,117 -- 1,012,117 -- --
Depreciation and
amortization.......... 442,827 51,623 473,194 51,623 39,214
------------- ----------- ------------- ----------- ------------
224,905,317 142,062 228,949,069 142,062 3,101,708
------------- ----------- ------------- ----------- ------------
OPERATING LOSS.......... (123,649,450) (142,062) (127,693,202) (142,062) (3,101,708)
OTHER INTEREST INCOME
(EXPENSE):
Interest income........ 4,327,602 1,347,512 4,673,436 1,347,512 2,941,352
Interest expense....... (7,403,037) -- (7,426,271) -- --
------------- ----------- ------------- ----------- ------------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM..... (126,724,885) 1,205,450 (130,446,037) 1,205,450 (160,356)
Provision for income
taxes................. (9,000,000) -- (9,000,000) -- --
------------- ----------- ------------- ----------- ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... (135,724,885) 1,205,450 (139,446,037) 1,205,450 (160,356)
Extraordinary loss on
retirement of senior
notes................. (19,709,471) -- (19,709,471) -- --
------------- ----------- ------------- ----------- ------------
NET INCOME (LOSS)....... (155,434,356) 1,205,450 (159,155,508) 1,205,450 (160,356)
Preference share
dividends............. (3,898,203) (4,041,664) (8,306,433) (4,236,108) (12,689,923)
Redemption of
preference shares..... (34,140,067) -- (34,140,067) -- --
------------- ----------- ------------- ----------- ------------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS.... $(193,472,626) $(2,836,214) $(201,602,008) $(3,030,658) $(12,850,279)
============= =========== ============= =========== ============
LOSS PER COMMON SHARE
Net loss before
extraordinary item:
Basic and diluted.... $ (1.05) $ (0.02) $ (1.10) $ (0.02) $ (0.08)
============= =========== ============= =========== ============
Extraordinary item..... $ (0.12) $ -- $ (0.12) $ -- $ --
============= =========== ============= =========== ============
Net loss applicable to
common shareholders:
Basic and diluted.... $ (1.17) $ (0.02) $ (1.22) $ (0.02) $ (0.08)
============= =========== ============= =========== ============
Shares used in computing
basic and diluted net
loss per share......... 166,194,035 165,441,150 166,062,697 165,441,150 165,441,150
============= =========== ============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND FOR THE PERIOD FROM
MARCH 19, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
OTHER SHAREHOLDERS'
COMMON STOCK EQUITY
--------------------- --------------------------
ADDITIONAL TOTAL
PAID-IN UNEARNED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT(1) CAPITAL COMPENSATION DEFICIT EQUITY
----------- --------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Class A
common stock for cash
on March 25, 1997...... 11,250,000 $ 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......... 19,852,950 13 13,234,987 -- -- 13,235,000(2)
Issuance of Class B
common stock for cash
on March 25, 1997...... 50,625,000 34 31,249,966 -- -- 31,250,000
Issuance of Class C
common stock for cash
on March 25, 1997...... 50,625,000 34 33,749,966 -- -- 33,750,000
Issuance of Class D
common stock for cash
to certain Class B
shareholders on
March 25, 1997......... 33,088,200 22 2,499,978 -- -- 2,500,000
Costs incurred related
to the issuance of
common stock........... -- -- (1,264,045) -- -- (1,264,045)
Preference share
dividends.............. -- -- (12,689,923) -- -- (12,689,923)
Net loss for the period. -- -- -- -- (160,356) (160,356)
----------- ---- ------------ ------------ ------------- -------------
Balance, December 31,
1997................... 165,441,150 110 74,280,922 -- (160,356) 74,120,676
----------- ---- ------------ ------------ ------------- -------------
Issuance of Class B
common stock for cash
on January 21, 1998.... 450,000 -- * 750,000 -- -- 750,000
Issuance of Class E
common stock for cash
on January 21, 1998.... 187,500 -- * 312,500 -- -- 312,500
Issuance of Class E
common stock for cash
on April 22, 1998...... 150,000 -- * 1,725,179 -- -- 1,725,179
Cash reimbursement to
certain shareholders... -- -- (7,047,044) -- -- (7,047,044)
Unearned compensation... -- -- 67,130,700 (67,130,700) -- --
Compensation expense.... -- -- -- 21,134,991 -- 21,134,991
PCG Warrants to be
converted to common
stock.................. -- -- 213,384,957 -- -- 213,384,957
Common stock to be
issued in exchange for
termination of advisory
services agreement..... -- -- 135,000,000 -- -- 135,000,000
Preference share
dividends.............. -- -- (8,306,433) -- -- (8,306,433)
Redemption of preference
shares................. -- -- (34,140,067) -- -- (34,140,067)
Net loss for the six
months ended June 30,
1998................... -- -- -- -- (159,155,508) (159,155,508)
----------- ---- ------------ ------------ ------------- -------------
Balance, June 30, 1998.. 166,228,650 $110 $443,090,714 $(45,995,709) $(159,315,864) $ 237,779,251
=========== ==== ============ ============ ============= =============
</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
11,250,000 Class A shares.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
SIX MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
JUNE 30, TO JUNE 30, TO DECEMBER 31,
1998 1997 1997
------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss applicable to
common shareholders... $(201,602,008) $ (3,030,658) $ (12,850,279)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation and
amortization.......... 473,194 51,623 39,214
Provision for doubtful
accounts.............. 1,012,117 -- --
Termination of advisory
services agreement ... 135,000,000 -- --
Stock related expenses. 23,397,670 -- --
Preference share
dividends............. 8,306,433 4,236,108 12,689,923
Redemption of
preference shares..... 34,140,067 -- --
Extraordinary loss on
retirement of debt.... 19,709,471 -- --
Increase in accounts
receivable............ (42,866,734) -- --
Increase in interest
receivable............ (1,856,573) (246,449) (123,000)
Increase in backhaul
capacity available for
sale.................. (33,538,560) -- (21,200,000)
Increase in other
assets and prepaid
costs................. (27,454,155) (216,355) (909,015)
Undersea Capacity
available for sale
transferred from
construction in
progress.............. 238,554,078 -- --
Increase in undersea
capacity available for
sale.................. (206,271,310) -- --
Increase in deferred
revenue............... 44,339,278 -- 5,325,000
Increase in income tax
payable............... 9,000,000 -- --
Increase in accounts
payable and accrued
liabilities........... 6,861,996 1,991,377 1,248,133
Increase in obligations
under inland service
agreements............ 30,217,548 -- 20,900,000
------------- ------------- -------------
Net cash provided by
operating activities. 37,422,512 2,785,646 5,119,976
------------- ------------- -------------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Finance and
organization costs
incurred.............. (31,773,003) (25,320,533) (28,180,878)
Preference share
issuance costs........ -- (7,487,343) (7,529,651)
Costs related to
issuance of common
stock................. -- (1,264,045) (1,264,045)
Cash reimbursement to
certain shareholders.. (7,047,044) -- --
Proceeds from issuance
of common stock and
additional paid-in
capital............... 525,000 75,000,000 75,000,000
Proceeds from issuance
of preference shares.. -- 100,000,000 100,000,000
Redemption of
preference shares..... (134,371,773) -- --
Proceeds from long term
debt.................. 204,723,000 9,250,000 162,325,000
Proceeds from issuance
of senior notes....... 796,232,000 75,000,000 150,000,000
Retirement of senior
notes................. (159,750,000) -- --
Increase in restricted
cash and cash
equivalents........... (212,209,991) (77,354,396) (25,275,196)
------------- ------------- -------------
Net cash provided by
financing activities. 456,328,189 147,823,683 425,075,230
------------- ------------- -------------
CASH FLOWS USED IN
INVESTING ACTIVITIES:
Cash paid for
construction in
progress and capacity
available for sale.... (191,072,180) (147,597,810) (428,742,522)
Investment in Pacific
Crossing Ltd.......... (6,000) -- --
------------- ------------- -------------
Net cash used in
investing activities. (191,078,180) (147,597,810) (428,742,522)
------------- ------------- -------------
NET INCREASE IN CASH.... 302,672,521 3,011,519 1,452,684
CASH, beginning of
period................. 1,452,684 -- --
------------- ------------- -------------
CASH, end of period..... $ 304,125,205 $ 3,011,519 $ 1,452,684
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
SIX MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
JUNE 30, TO JUNE 30, TO DECEMBER 31,
1998 1997 1997
------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SUPPLEMENTAL INFORMATION
ON NON-CASH INVESTING
ACTIVITIES:
Costs incurred for
construction in
progress and capacity
available for sale.... $ 259,872,278 $186,994,677 $497,318,509
Decrease (increase) in
accrued construction
costs................. 30,315,664 (39,396,867) (52,003,875)
Increase in accrued
interest on senior
notes................. (7,720,611) -- (1,640,500)
Increase in accrued
liabilities........... -- -- (410,267)
Amortization of
deferred finance
costs................. (2,981,157) -- (2,223,700)
Increase in obligations
under capital leases.. (1,479,382) -- (12,297,645)
Conversion of PCG
Warrants.............. (86,934,612) -- --
------------- ------------ ------------
Cash paid for
construction in
progress and capacity
available for sale.... $ 191,072,180 $147,597,810 $428,742,522
============= ============ ============
SUPPLEMENTAL INFORMATION
ON NON-CASH FINANCING
ACTIVITIES:
Class A common stock
distributed to holders
of preference shares
reflected as a
discount.............. $ -- $ -- $ 13,235,000
============= ============ ============
SUPPLEMENTAL INFORMATION
ON NON-CASH INVESTING
ACTIVITIES:
Investment in Pacific
Crossing Ltd. ........ $ 126,456,345 $ -- $ --
Conversion of PCG
Warrants.............. (126,450,345) -- --
------------- ------------ ------------
$ 6,000 $ -- $ --
============= ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid and
capitalized........... $ 18,060,320 $ -- $ 8,136,267
============= ============ ============
Interest paid (net of
capitalized interest). $ 23,234 $ -- $ --
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 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.
GCL entered into a joint venture, Pacific Crossing Ltd., ("PCL") for
purposes of constructing and operating PC-1, an undersea fiber optic cable
ring system connecting California, Washington and two landing sites in Japan
(see Note 3).
Mid-Atlantic Crossing Ltd., a wholly-owned subsidiary of GCL, entered into a
contract with Alcatel Submarine Networks on June 2, 1998 for the construction
of MAC, an undersea fiber optic cable ring connecting New York, the Caribbean
and Florida at a total cost of $350 million. Mid-Atlantic Crossing Ltd. is in
the process of incorporating companies in each country in which the cable will
land in order to own the portion of the cable system located in each country
and the related territorial waters. To finance, in part, the construction of
MAC, the Company signed a commitment letter to obtain $240 million of senior
secured non-recourse indebtedness.
Effective July 21, 1998, the Company through its wholly-owned subsidiary Pan
American Crossing Ltd., entered into a contract with Tyco Submarine Systems
Ltd. ("TSSL"), formerly AT&T Submarine Systems, Inc. for the construction of
PAC, an undersea fiber optic cable system connecting California, Mexico and
Panama at a total cost of $475 million. To finance, in part, the construction
of PAC, Pan American Crossing Ltd. signed a commitment letter to obtain $310
million of non-recourse indebtedness on July 21, 1998.
To finance construction of ACL's undersea fiber optic cable ring, GCL issued
$75 million of common stock and Global Telesystems Holdings Ltd. ("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 TSSL 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 26, 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
F-8
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 United States territory
to which TSSL retains title until such time as GT Landing Corp., a United
States 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 United States assets governed by this IRU
includes 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
United States and the landing license.
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. The Company's
CPAs provide that the AC-1 System will have self-healing ring capability,
whether or not a CPA relates only to a segment of the System. Self-healing
capability enables capacity on the segment of the System to be instantaneously
restored either on the System's other segments or within the same segment in
the event of interruption so that the same point-to-point connectivity is
maintained.
Customers who purchase AC-1 capacity prior to the System RFS date will be
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 unsold 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 IRUs 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 since these IRUs represent leases as
defined under Statement of Financial Accounting Standards No. 13, "Accounting
for Leases" ("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
F-9
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 operating,
administration 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 annual maximum amounts per circuit purchased of $250,000
per transatlantic circuit and $50,000 per European circuit. 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 based on the
prior year's actual costs, 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.
Shares of common stock of GCL outstanding have been restated to reflect the
equivalent number of shares of New GCL that will be issued in connection with
the Old GCL Exchange as described in "Description of Capital Stock."
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
F-10
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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, as well as 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 GCL and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated. Investment in PCL, in which GCL does not exercise control, has
been accounted for using the equity method.
b) Development Stage Company
The Company was in its development stage until May 26, 1998 when the United
States to United Kingdom segment of the AC-1 system was placed into service
and the Company began generating significant revenues. All aspects of the AC-1
System are scheduled to be ready for commercial service by February 22, 1999.
Currently, construction of the Company's other undersea fiber optic cable
systems are underway.
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. GCL
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 that capacity sales will meet expectations, or that
substantial delays would not adversely affect GCL'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 and Deferred Revenue
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 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 following a failure of the purchaser to
pay the full purchase price
F-11
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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
have been included as deferred 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. The Company's CPAs provide that the
AC-1 system will have self-healing ring capability, whether or not a customer
purchases capacity on a single segment of the system. Substantially all of the
Company's customers to date for its AC-1 System have assumed the risk of full
ring completion. In a limited number of CPAs, customers who have purchased
capacity on the United States to United Kingdom segment prior to the date the
full AC-1 ring is operational have contractually required full self-healing
ring capability as a legal condition subsequent which, if not satisfied, would
enable them to terminate the CPA and require the Company to refund capacity
payments. Payments received relating to these CPAs will be included in
deferred revenue on the consolidated balance sheet until such time as the full
self-healing ring is operative.
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.
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
value of each sale relative 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 calculation of cost of underseas sales will be based on a total system
cost and revenue forecast that includes both the initial system cost and the
cost of system upgrades that management has the intent and ability to
complete, provided the need for such upgrades is supported by a consultant's
independent revenue forecast.
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. The business plan for the investment in AC-1 indicated a
minimum capacity sales level of 512 circuits and management currently has both
the intent and ability to upgrade the system to that level. This is
demonstrated by the fact that (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
F-12
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 512 circuits
available for sale, which includes the initial upgrade.
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.
Undersea and backhaul OA&M revenues are recognized in the period the
services are provided. On an annual basis the actual undersea OA&M costs
incurred by the Company will be accumulated and an adjustment will be made to
true up actual undersea OA&M revenues so that they equal 110% of actual costs
incurred, provided specified contractual 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 PCG Telecom Services LLC ("PCG Telecom")
and its affiliates 2% of revenues for advisory services performed and under
the Sales Agency Agreement pays TSSL a commission based on a percentage of
capacity revenues. See Note 12 for discussion of the termination of the ASA.
f) Backhaul Capacity Available For Sale
The cost of acquiring Backhaul Capacity under Inland Service Agreements has
been capitalized to backhaul capacity available for sale. 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 OA&M costs) in backhaul capacity available for sale and
has recorded an equal amount as an obligation under Inland Services Agreements
in the
F-13
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
accompanying consolidated balance sheets (see Note 5). The related OA&M costs
will be expensed in the period the services are provided.
g) 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.
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 United States and minimum lease payments related to leases of
buildings and conduits in Germany and Netherlands described further in Note 5.
Interest costs incurred which includes the amortization of deferred finance
fees and the issuance discount, ("interest cost") are capitalized to
construction in progress in accordance with Statement of Financial Accounting
Standards No. 34, "Capitalization of Interest Costs" ("SFAS 34"). Total
interest cost incurred and interest capitalized to construction in progress
during the periods were:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 19, 1997
(DATE OF
THREE MONTHS ENDED SIX MONTHS ENDED INCEPTION) TO
JUNE 30, 1998 JUNE 30, 1998 DECEMBER 31, 1997
------------------ ---------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Interest cost incurred... $21,312,645 $31,828,147 $9,776,767
=========== =========== ==========
Interest cost capitalized
to construction in
progress................ $13,909,608 $24,401,876 $9,776,767
=========== =========== ==========
</TABLE>
No interest costs were incurred as of June 30, 1997.
h) 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 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 were being amortized
on a straight line basis through the mandatory redemption date of April 1,
2007. The issuance discount, as explained in Note 7, was also being amortized
through the mandatory redemption date. On June 17, 1998 the preference shares
were redeemed at which time the remaining balance of unamortized discount and
offering costs was charged against additional paid-in capital. 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 or recorded as
interest expense in accordance with SFAS 34. The amortized portion of the
deferred financing costs relating to the preference shares is included as a
component of preference share dividends. Deferred
F-14
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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.
i) Translation of Foreign Currencies
Transactions in foreign currencies are translated into United States 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 United States 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.
j) 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"
("APB 25"), and, accordingly, recognizes compensation expense for stock option
grants to the extent that the estimated fair value of the stock exceeds the
exercise price of the option at the measurement date. The compensation expense
is charged against operations ratably over the vesting period of the options.
Disclosures will be made in the consolidated financial statements of future
periods in accordance with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), (see Note 9).
k) 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
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.
l) Interim Financial Information
The unaudited financial statements as of June 30, 1998, and for the three
months and six months ended June 30, 1998, for the three months ended June 30,
1997 and for the period from March 19, 1997 (date of
F-15
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
inception) to June 30, 1997 include, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for the fair presentation of such financial statements.
m) 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 is a reconciliation of the numerator and the denominator of
the basic and diluted net loss per share:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
THREE MONTHS THREE MONTHS SIX MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED ENDED ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 TO JUNE 30, 1997 TO DECEMBER 31, 1997
-------------- ------------- -------------- ------------------- --------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic and Diluted
Net income (loss)
before extraordinary
item.................. $ (135,724,885) $ 1,205,450 $ (139,446,037) $ 1,205,450 $ (160,356)
Preference share
dividends............. (3,898,203) (4,041,664) (8,306,433) (4,236,108) (12,689,923)
Redemption of
preference shares..... (34,140,067) -- (34,140,067) -- --
-------------- ------------ -------------- ------------ ------------
Net loss applicable to
common shareholders
before extraordinary
item.................. $(173,763,155) $ (2,836,214) $(181,892,537) $ (3,030,658) $(12,850,279)
============== ============ ============== ============ ============
Weighted average shares
outstanding........... 166,194,035 165,441,150 166,062,697 165,441,150 165,441,150
============== ============ ============== ============ ============
Basic and diluted net
loss per common share
before extraordinary
item................... $ (1.05) $ (0.02) $ (1.10) $ (0.02) $ (0.08)
============== ============ ============== ============ ============
</TABLE>
n) Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). The Company recognizes current and deferred income tax assets and
liabilities based upon all events that have been recognized in the
consolidated financial statements. Deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases
of assets and liabilities. A deferred tax liability or asset is recorded using
the enacted tax rates expected to apply to taxable income in the period in
which the deferred tax liability or asset is expected to be settled or
realized. Future tax benefits attributable to these differences, if any, are
recognized to the extent that realization of such benefits is more likely than
not.
o) Pending and New Accounting Standards
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards 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
F-16
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
statements due to the adoption of SFAS 130 in the first six months 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 Financial Accounting Standards Board has also recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") which is effective for
periods beginning after June 15, 1999. Management does not expect the impact
of the adoption of SFAS 133 on the Company's financial position or results of
operations to be material.
The American Institute of Certified Public Accountants 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 SOP 98-5 on the
Company's financial position or results of operations to be material.
p) Reclassifications
Certain reclassifications have been made to the December 31, 1997
consolidated financial statements to conform with the presentation as of June
30, 1998.
3. INVESTMENT IN PACIFIC CROSSING LTD.
On April 9, 1998, a wholly-owned subsidiary of GCL entered into a joint
venture to construct a cable system project, PC-1. PC-1 is owned and operated
by PCL. The Company has an economic interest in PCL represented by a 50%
direct voting interest and, through one of the joint venture partners, owns a
further 8% economic non-voting interest. PCL entered into a contract on April
21, 1998 with TSSL to construct PC-1 for a total price of approximately $1.2
billion, which will be financed through a $400 million equity contribution by
the joint venture partners and an $850 million credit facility. On July 30,
1998, an $850 million aggregate senior secured non-recourse loan facility
("the PCL Credit Facility") was executed, for the construction and financing
costs of PC-1. The PCL Credit Facility is comprised of an $840 million
multiple drawdown term loan facility and a $10 million working capital
facility. On July 30, 1998, an initial drawdown was made on the term loan
facility to repay the $104 million promissory note used for initial
construction costs on PC-1 as well as fees incurred to secure the credit
facility. The Company also placed $231 million into a restricted cash
collateral account on July 30, 1998 to satisfy its equity funding commitment
for its 58% joint venture economic interest in PCL. This amount will be
accounted for as an equity investment in the joint venture.
The investment in Pacific Crossing Ltd. is comprised of the following items:
<TABLE>
<S> <C>
Equity investment in PCL.................................... $ 6,000
PC-1 development costs...................................... 126,450,345
------------
Investment in Pacific Crossing Ltd. ........................ $126,456,345
============
</TABLE>
The PC-1 development costs represent the estimated value of the PCG Warrants
as of June 30, 1998 which were granted to PCG in exchange for the PC-1 system
and related rights. In connection with the formation of PCL, the Company
agreed to make available to PCL the consideration received by the Company in
connection with the grant of the PCG Warrants, in addition to the $231 million
cash investment made by the Company. See Note 12.
F-17
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
4. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents comprises approximately $78 million as
of June 30, 1998 ($nil as of December 31, 1997) for the collateralization of
the promissory note used to make the initial payments on the PC-1
construction, $74 million as of June 30, 1998 ($20 million as of December 31,
1997) reserved for purposes of funding future interest payable on senior
notes, approximately $72 million as of June 30, 1998 ($5 million as of
December 31, 1997) in funds received pursuant to CPAs that may be used only in
accordance with the terms of the long term debt agreement and approximately
$14 million as of June 30, 1998 ($nil as of December 31, 1997) restricted for
purchases of Backhaul Capacity.
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
non-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 June 30, 1998, ACL had borrowed $367,048,000
($162,325,000 as of December 31, 1997) under the Credit Facility.
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 Old Senior
Notes as determined by the Credit Facility agreement.
F-18
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 June 30, 1998, all borrowings under the Credit Facility were
Eurodollar Loans and were drawn down under the Term Facility. As of December
31, 1997, $500,000 was borrowed under the Working Capital Facility and
$161,825,000 was borrowed under the Term Facility. 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
United States. 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 June
30, 1998, the present value of the payments under the IRU recorded as an
obligation under capital leases is $5,660,619 ($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 June 30, 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 $8,116,408 ($ nil as of December 31, 1997.)
Contracts to purchase Backhaul Capacity have a duration of 25 years from
System RFS which represents more than 75 percent of the economic life of the
asset being purchased. Certain of these contracts require payments over the 25
year period. As of June 30, 1998, the present value of the payments under
these contracts (excluding amounts attributable to operations and maintenance)
has been recorded as obligations under Inland Services Agreements in the
accompanying consolidated balance sheets in the amount of $51,117,547
($20,900,000 as of December 31, 1997).
At June 30, 1998 future minimum payments, in the aggregate for the six
months ending 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 six months ending December 31, 1998.................... $ 39,138,000
1999........................................................... 23,069,000
2000........................................................... 7,057,000
2001........................................................... 4,692,000
2002........................................................... 4,847,000
Thereafter until 2024.......................................... 152,083,000
------------
Total minimum lease payments................................... 230,886,000
Less: Amount representing maintenance payments................. 138,515,331
------------
92,370,669
Less: Amount representing interest............................. 27,476,095
------------
Present value of net minimum lease payments.................... $ 64,894,574
============
</TABLE>
F-19
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
6. SENIOR NOTES
New Senior Notes
The 9 5/8% senior notes due May 15, 2008 with a face value of $800 million
("New Senior Notes") are general unsecured obligations of Global Crossing
Holdings Ltd. ("GCH"), a wholly owned subsidiary of GCL and will rank senior
to any future subordinated indebtedness of GCH and pari passu in right of
payment with any future unsecured senior indebtedness of GCH. GCH has set
aside $74 million to fund the first two interest payments. Interest is payable
semi-annually in arrears on each May 15 and November 15 commencing on November
15, 1998. The New Senior Notes are redeemable at the option of GCH on May 15,
2003 at 104.813%, May 15, 2004 at 103.208%, on May 15, 2005 at 101.604% and on
May 15, 2006 and on May 15 thereafter at par. The New Senior Notes are
redeemable at the option of the Holder only upon the occurrence of a change in
control in GCL. The New Senior Notes agreement imposes certain limitations on
the ability of GCH 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.
Old Senior Notes
The 12% senior notes due March 31, 2004 with a face value of $150 million
("Old 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 Old
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 Old
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.
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 Old 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 Old Senior Notes at face value, plus
accrued interest to the date of repurchase. The Old 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).
On May 18, 1998, a portion of the proceeds from the issuance of the New
Senior Notes was used to repurchase the Old Senior Notes. The Company
recognized an extraordinary loss of $19.7 million on repurchase comprising a
premium of approximately $9.8 million and a write-off of approximately $9.9
million of unamortized deferred financing costs.
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 June 30, 1998, nil shares (109,830
shares as of December 31, 1997) were issued and outstanding.
F-20
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 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.
In connection with the issuance of the preference shares, the holders of
preference shares purchased an aggregate of 11,250,000 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 19,852,950 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 19,852,950 shares of GCL's Class A common stock
distributed to preference shareholders was based on the $.67 per share paid by
the holders of preference shares for the 11,250,000 GCL's Class A shares
purchased for cash.
On June 17, 1998, proceeds from the issuance of the New Senior Notes were
used to redeem the preference shares. The redemption of the preference shares
resulted in a charge against additional paid-in capital comprised
F-21
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
of approximately a $15.9 million redemption premium and $18.2 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 were treated as a deduction to
arrive at the 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 expired.
Preference share dividends included the following:
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD
PERIOD FROM
FROM MARCH 19,
MARCH 19, 1997 (DATE
SIX 1997 (DATE OF
MONTHS OF INCEPTION)
THREE MONTHS THREE MONTHS ENDED INCEPTION) TO
ENDED JUNE ENDED JUNE JUNE 30, TO JUNE 30, DECEMBER 31,
30, 1998 30, 1997 1998 1997 1997
------------ ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Preference share
dividends.............. $3,448,123 $3,500,001 $7,337,031 $3,694,445 $11,111,672
Amortization of discount
on preference shares... 286,759 349,257 617,634 349,257 1,011,007
Amortization of
preference share
issuance costs......... 163,321 192,406 351,768 192,406 567,244
---------- ---------- ---------- ---------- -----------
$3,898,203 $4,041,664 $8,306,433 $4,236,108 $12,689,923
========== ========== ========== ========== ===========
</TABLE>
8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
<TABLE>
<CAPTION>
<S> <C> <C>
Common Stock:
Authorized:
1,000,000,000 Class A common stock of $.00000067 par
value
1,000,000,000 Class B common stock of $.00000067 par
value
1,000,000,000 Class C common stock of $.00000067 par
value
3,000,000,000 Class D common stock of $.00000067 par
value
1,000,000,000 Class E common stock of $.00000067 par
value
43,000,000,000 undesignated common stock of $.00000067
par value
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Issued and Outstanding as of June 30, 1998:
31,102,950 Class A shares (31,102,950 as of December 31,
1997).................................................. $20 $20
51,075,000 Class B shares (50,625,000 as of December 31,
1997).................................................. 34 34
50,625,000 Class C shares (50,625,000 as of December 31,
1997).................................................. 34 34
33,088,200 Class D shares (33,088,200 as of December 31,
1997).................................................. 22 22
337,500 Class E shares (nil as of December 31, 1997).... -- * --
</TABLE>
- --------
* Amount less than $1.
F-22
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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. Shares of common stock of GCL outstanding have been
restated to reflect the equivalent number of shares of New GCL that will be
issued in the Old GCL Exchange as discussed in "Description of Capital Stock".
Class A shares, Class B shares and Class C shares all have voting rights. On
March 25, 1997, GCL issued 11,250,000 Class A shares, 50,625,000 Class B
shares, 50,625,000 Class C shares for $.67 per share, resulting in aggregate
proceeds of $75 million. As discussed in Note 7, in addition to the 11,250,000
Class A shares issued to the preference shareholders for cash, in connection
with the issuance of the preference shares, a total of 19,852,950 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 33,088,200 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 $1.47 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. By granting to holders of the Class D shares an option to
convert such shares into Class E shares, the Company obtained effective
assurance that it could effect a change to a corporate structure in the event
of a major equity event, such as a merger or other business combination or in
the event of an IPO by GCL's wholly-owned subsidiary, New GCL, see Note 10, of
its common stock, since the holders of the Class D shares would need to
exercise their options in order to participate directly in benefits of a
merger or acquisition of GCL or in order to obtain the benefits of any trading
market for the common stock of GCL; no trading market was expected to develop
for the Class D shares. The grant of the options to Class D shareholders
represents an equity transaction since the Company granted these shareholders
amended share rights in the form of options with new warrants. As an equity
transaction, the fair value of the option would be recorded as an increase in
additional paid-in capital and a corresponding charge against retained
earnings, but since the Company has an accumulated deficit, the charge would
be made against additional paid in capital which would have no impact on the
consolidated financial statements. The Company will account for the new
warrants as an equity transaction on the date the warrants are issued, which
is expected to be the IPO date. The accounting would increase additional paid
in capital and a charge to retained earnings to the extent the Company has
retained earnings on that date, or against additional paid in capital if the
Company does not have retained earnings.
F-23
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
During the six months ended June 30, 1998, the Company issued, at a price of
$.67 per share, 450,000 Class B shares and 337,500 Class E shares. Since the
estimated fair value of shares exceeded the issue price, the Company increased
stock related expense and shareholders' equity by $1,625,179 and $2,162,679 in
the three and six months ended June 30, 1998, respectively.
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 June 30, 1998, the maximum number of shares of common
stock which may be issued under the Plan was 16,607,865 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 six months ended June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED NUMBER
NUMBER OF AVERAGE EXERCISABLE
OPTIONS EXERCISE AS AT
OUTSTANDING PRICE JUNE 30, 1998
----------- -------- -------------
<S> <C> <C> <C>
Options outstanding as of December 31,
1997.................................. -- -- --
Options granted on January 21, 1998.... 4,231,500 $1.67 --
Options granted April 3, 1998.......... 5,557,500 1.67 1,305,000
Options granted June 12, 1998.......... 3,352,950 6.67 831,251
Options forfeited...................... (1,563,000) 1.67 --
---------- ----- ---------
Options outstanding as of June 30,
1998.................................. 11,578,950 $3.01 2,136,251
========== ===== =========
</TABLE>
The weighted average remaining life of the options outstanding as of June
30, 1998 is 9.5 years. During the three month and six month periods ended June
30, 1998, no options had expired or were exercised. Of the options granted on
April 3, 1998 and June 12, 1998, there were 90,000 options and 370,500
options, respectively, which had an exercise price equal to the IPO price.
Since the IPO price was unknown as of June 30, 1998, these options were not
considered in the weighted average exercise price computations.
During the three months ended June 30, 1998, the Company recorded $67.1
million of unearned compensation ($5.3 million of which relates to the put
rights described below) which is being recognized as an expense over the
vesting period of the options. Of this amount, the Company recognized $21.1
million of compensation expense ($0.3 million of which relates to the employee
rights described below) during the three months and six months ended June 30,
1998, for the options issued in April and June, certain of which vested
immediately, since the exercise price was less than the estimated fair value
of the stock on the dates of grant. The remaining $46.0 million will be
recognized in the amounts of $4.8 million in each of the third and fourth
quarters of 1998, $19.2 million in 1999, $13.5 million in 2000 and $3.7
million in 2001. No compensation expense was recognized in respect of the
January 21, 1998 option grant since the estimated fair value of the stock, on
that date did not exceed the exercise price. Certain employees have the right,
after three years of employment, to require the Company to purchase up to
600,000 shares of common stock held by them for $13.33
F-24
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
per share, if the Company has not completed an IPO of its stock by that time
and one employee has the option to sell 150,000 shares of stock to the Company
at $13.33 per share for a period of two years from the grant date.
On August 9, 1998, the Company granted options to purchase 507,750 shares
under the Plan at a exercise price equal to the IPO price. Such options
generally have a three year vesting period and expire ten years from the date
of grant.
As permitted by SFAS 123, the Company has chosen to account for employee
stock options under APB 25 and is recognizing compensation expense over the
vesting period to the extent that the estimated fair value of the stock on the
date the options were granted exceeded the exercise price on the dates of
grant. 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 FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net loss applicable to common shareholders:
As reported.................................... $(193,472,626) $(201,602,008)
Pro forma...................................... $(195,220,089) $(203,496,876)
Basic and diluted net loss per share:
As reported.................................... $ (1.17) $ (1.22)
Pro forma...................................... $ (1.17) $ (1.23)
</TABLE>
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 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, April 3, and June 12, 1998 were $0.49, $11.40
and $15.90 respectively.
10. FORMATION OF GLOBAL CROSSING HOLDINGS LTD.
On March 18, 1998, GCL formed a wholly-owned subsidiary, New GCL, a Bermuda
company, and contributed its investment in GTH to New GCL. On April 30, 1998,
New GCL formed a wholly-owned subsidiary GCH, a Bermuda company. New GCL
contributed its investment in GTH to GCH upon its formation.
Because GCL, New GCL and GCH are entities under common control, the
transfers by GCL to New GCL and New GCL to GCH were accounted for similar to
pooling of interests. Accordingly, the summarized financial information of GCH
presented below reflects the accounts of GTH and its subsidiaries retroactive
to inception of GTH (March 24, 1997). GCL, New GCL and GTH each provide a
guarantee of the New Senior Notes described in Note 6. Additionally, Global
Crossing International, Inc. ("GCI"), a wholly-owned subsidiary of GCH that
provides marketing and development services to GCL, along with its wholly-
owned subsidiaries also provide guarantees of the New Senior Notes. All
guarantees are full, unconditional, joint and several. Separate financial
statements of each subsidiary guarantor have not been provided because they
would not be material to investors.
F-25
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
SUMMARIZED FINANCIAL INFORMATION OF GCH AND GUARANTORS:
($ AMOUNTS IN '000S)
(UNAUDITED)
<TABLE>
<CAPTION>
NEW GUARANTOR NON-GUARANTOR CONSOLIDATING ELIMINATION GCL
GCL GCL GCH SUBSIDIARIES SUBSIDIARIES ENTRIES ENTRIES CONSOLIDATED
AS OF JUNE 30, 1998 -------- -------- -------- ------------ ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets......... $ 782 $ 47 $376,479 $ 15,736 $226,192 $ -- $ (13,344) $ 605,892
Long term accounts
receivable............ -- -- -- -- 7,900 -- -- 7,900
Senior notes........... -- -- 150,000 -- -- -- (150,000) --
Backhaul capacity
available for sale.... -- -- -- -- 54,739 -- -- 54,739
Capacity available for
sale.................. -- -- -- -- 201,328 4,943 -- 206,271
Construction in
progress.............. -- -- -- -- 418,793 99,988 (144) 518,637
Investment in
subsidiary............ 46,038 46,022 294,399 341,201 -- -- (727,660) --
Investment in Pacific
Crossing Ltd.......... -- -- -- -- 6 126,450 -- 126,456
Deferred finance costs,
net................... 190 171 30,904 9,816 13,074 -- (9,816) 44,339
-------- -------- -------- -------- -------- --------- --------- ----------
Total assets........... $ 47,010 $ 46,240 $851,782 $366,753 $922,032 $ 231,381 $(900,964) $1,564,234
======== ======== ======== ======== ======== ========= ========= ==========
Current liabilities.... $ 989 $ 202 $ 9,483 $ 3,149 $128,876 $ 11,668 $ (13,344) $ 141,023
Long term debt......... -- -- -- -- 367,048 -- -- 367,048
Senior notes........... -- -- 796,277 150,000 -- -- (150,000) 796,277
Long term deferred
revenue............... -- -- -- -- 6,917 -- -- 6,917
Obligations under
inland service
agreements............ -- -- -- -- 7,628 -- -- 7,628
Obligations under
capital leases........ -- -- -- -- 7,562 -- -- 7,562
Shareholders' equity... 46,021 46,038 46,022 213,604 404,001 219,713 (737,620) 237,779
-------- -------- -------- -------- -------- --------- --------- ----------
Total liabilities and
shareholders' equity.. $ 47,010 $ 46,240 $851,782 $366,753 $922,032 $ 231,381 $(900,964) $1,564,234
======== ======== ======== ======== ======== ========= ========= ==========
- -------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
Sales and operating
revenue............... $ -- $ -- $ -- $ -- $101,256 $ -- $ -- $ 101,256
Operating expenses..... 1,009 284 3,346 16,774 53,518 154,018 -- 228,949
-------- -------- -------- -------- -------- --------- --------- ----------
Operating income
(loss)................ (1,009) (284) (3,346) (16,774) 47,738 (154,018) -- (127,693)
Other income (expense),
net................... -- -- (2,643) (1,103) 993 -- (2,753)
Provision for income
taxes................. -- -- -- -- -- (9,000) -- (9,000)
Extraordinary loss..... -- -- (9,750) -- -- (9,960) -- (19,710)
-------- -------- -------- -------- -------- --------- --------- ----------
Net income (loss)...... (1,009) (284) (15,739) (17,877) 48,731 (172,978) -- (159,156)
Equity in gain (loss)
from subsidiary....... (27,615) (27,331) (11,592) 48,407 -- -- 18,131 --
Preference share
dividends............. -- -- -- (8,306) -- -- -- (8,306)
Premium on redemption
of preference shares.. -- -- -- (34,140) -- -- -- (34,140)
-------- -------- -------- -------- -------- --------- --------- ----------
Net income (loss)
applicable to common
shareholders.......... $(28,624) $(27,615) $(27,331) $(11,916) $ 48,731 $(172,978) $ 18,131 $ (201,602)
======== ======== ======== ======== ======== ========= ========= ==========
</TABLE>
F-26
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
SUMMARIZED FINANCIAL INFORMATION OF GCH AND GUARANTORS (CONTINUED):
($ AMOUNTS IN '000S)
<TABLE>
<CAPTION>
NEW GUARANTOR NON-GUARANTOR ELIMINATION GCL
GCL GCL GCH SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- -------- -------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Current assets.......... $ 33 $ 12 $ 12 $ 21,307 $ 6,597 $ (217) $ 27,744
Backhaul capacity
available for sale..... -- -- -- -- 21,200 -- 21,200
Construction in
progress............... -- -- -- 9,014 488,305 -- 497,319
Investment in
subsidiary............. 73,964 73,952 73,940 276,897 -- (498,753) --
Deferred finance costs,
net.................... 208 -- -- 10,619 15,107 -- 25,934
-------- -------- -------- -------- -------- --------- --------
Total assets............ $ 74,205 $ 73,964 $ 73,952 $317,837 $531,209 $(498,970) $572,197
======== ======== ======== ======== ======== ========= ========
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.... 74,133 73,964 73,952 73,940 276,897 (498,765) 74,121
-------- -------- -------- -------- -------- --------- --------
Total liabilities and
shareholders' equity... $ 74,205 $ 73,964 $ 73,952 $317,837 $531,209 $(498,970) $572,197
======== ======== ======== ======== ======== ========= ========
- -----------------------------------------------------------------------------------------------------------
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) (12,808) (474) -- 38,898 --
Preference share
dividends.............. -- -- -- (12,690) -- -- (12,690)
-------- -------- -------- -------- -------- --------- --------
Net loss applicable to
common shareholders.... $(12,850) $(12,808) $(12,808) $(12,808) $ (474) $ 38,898 $(12,850)
======== ======== ======== ======== ======== ========= ========
</TABLE>
11. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash, restricted cash
and cash equivalents... $ 541,610,392 $ 541,610,392 $ 26,727,880 $ 26,727,880
Current portion of
obligations under
Inland Services
Agreements and capital
leases................. (49,704,628) (49,704,628) (30,188,645) (30,188,645)
Long term debt,
obligations under
Inland Services
Agreements
and capital leases..... (382,237,947) (382,237,947) (165,334,000) (165,334,000)
Preference shares....... -- - (90,643,919) (90,643,919)
Senior notes............ (796,277,203) (796,277,203) (150,000,000) (150,000,000)
Interest rate swap
transaction............ -- (115,344) -- (115,115)
</TABLE>
F-27
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
The carrying amount of restricted cash and
Cash, restricted cash and cash cash equivalents is a reasonable estimate of
equivalents................... fair value as the balances include amounts
held in banks and money market deposits with
a short-term maturity.
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.
Preference shares.............. Since the preference shares are a special fi-
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 Systems, 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.
The interest rate swap transaction is "zero
Interest rate swap cost" meaning that the cost of acquiring the
transaction................... 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
Advisory Services Agreement
ACL has entered into the ASA with PCG Telecom, an affiliate of Pacific
Capital Group, Inc. ("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 gross revenues
of the Company, 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.
Fees paid under the ASA to PCG Telecom are shared amongst ULLICO, Inc., PCG,
CIBC, and Messrs. Winnick, Cook, Brown, Lee and Porter, all of whom are
shareholders of GCL. The Advisory Service Agreements ("ASA") which were
terminated effective on June 30, 1998 had terms of 25 years subject to
termination, however, the ASA did not contain provisions regarding
cancellation fees or liquidated damages in the event of termination or breach.
The Advisory Services Agreement Termination was recorded in the consolidated
financial statements as an increase in additional paid-in capital and a charge
against the statement of operations in the amount of $137.7 million. The
$137.7 million is comprised of a $135 million settlement of the fees that
would have been payable and the cancellation of approximately $2.7 million
owed to the Company under a related advance agreement. The $135 million amount
was calculated by applying the 2% advisory services fee to projected future
revenues and discounting the amount relating to AC-1 revenues by 12% and the
amount relating to all other system's revenues by 15%. The result of this
calculation was $155.5 million, which amount was subsequently reduced to $135
million. Both the discount rates and the ultimate valuation were determined as
a result of a negotiation process including a disinterested director of the
Company and the various persons entitled to fees under the ASA. The Company
has obtained a fairness opinion from an independent financial advisor in
connection with this transaction.
F-28
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
PCG Warrants
Prior to January 21, 1998, PCG and its affiliates had commenced development
of systems other than AC-1, namely PC-1, MAC and PAC. Through January 21,
1998, such development included assembling a management team, negotiating with
potential suppliers, partners, financing sources, obtaining preliminary market
and feasibility studies and developing technical requirements. On January 21,
1998, the Board determined that it was in the Company's best interests to
pursue these new systems, obtain the results of the work and the employees
then within the scope of activity of PCG and broaden the goals, objectives and
business plan of the Company. In consideration of PCG transferring the results
of its activities and becoming limited in its future activities in fiber optic
telecommunications other than through the Company, the Board approved and the
shareholders subsequently approved the transaction whereby PCG received
approximately $7 million representing PCG's costs related thereto and GCL
entered into a warrant agreement ("PCG Warrants") under which PCG was issued
three separate warrants permitting PCG to purchase (i) 9,226,592 of GCL's
Class B shares for an aggregate price of $50,000,000; (ii) an additional
4,613,297 of the GCL's Class B shares for an aggregate price of $31,250,000;
and (iii) an additional 4,613,297 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.
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 IPO
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, "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 "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.
In June, 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 IPO and eliminated conditions (ii) and (iii) above. Further
to this amendment, 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 18,453,185 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.
F-29
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
The Company has accounted for the PCG Warrants by assuming the cashless
conversion took place as of June 30, 1998 using the current estimated per
share valuation at the expected conversion date, multiplied by the number of
Class B shares estimated to be converted in exchange for the PCG Warrants. The
resulting value under this calculation is approximately $213.3 million which
has been allocated to the new systems acquired in exchange for the PCG
Warrants. In connection with the formation of PCL, the Company agreed to make
available to PCL the consideration received by the Company in connection with
the grant of the PCG Warrants, in addition to the $231 million cash investment
made by the Company. See Note 3. Therefore, the Company recorded an increase
in its investment in PCL in the amount of approximately $126.5 million and an
increase in construction in progress for PAC and MAC in the amounts of
approximately $49.9 million and $36.9 million, respectively, with a
corresponding increase of $213.3 million in additional paid in capital. The
$213.3 million was allocated on a pro rata basis to the three projects
according to the estimated cost of each system. The Company's accounting for
the PCG Warrants is pursuant to Emerging Issues Task Force 96-18, "Accounting
for Equity Instruments with Variable Terms that are Issued for Consideration
other than Employee Services under FASB Statement No. 123" ("EITF 96-18").
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 level 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 $213.3 million value attributed to the PCG Warrants
as of June 30, 1998 will be adjusted to the actual value on the actual date of
the IPO based upon the Price per Share to Public in the Offerings. Such
adjustment is not expected to be material.
The Company will give accounting recognition for the New PCG Warrants on the
date these warrants are issued, which is the date of the IPO. The Company has
estimated the value of each of the New PCG Warrants at $6.67 based on an
independent valuation assuming an IPO price of $18 per share. Assuming a
cashless conversion, as of June 30, 1998 the New PCG Warrants would have a
total value of approximately $44 million. Upon the issuance of the New PCG
Warrants the Company will record the actual value of the New PCG Warrants in a
manner similar to that described above whereby the total value will be
allocated to the investment in PCL, MAC and PAC based on their relative total
contract costs.
Other transactions
$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 Old 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. CIBC is a member of the syndicate funding the Credit
F-30
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Facility under which GCL has borrowings of $367,048,000 ($162,325,000 as of
December 31, 1997), as of June 30, 1998 and has been paid interest and other
related fees in the amount of approximately $19 million as of June 30, 1998
($4.2 million as of December 31, 1997). CIBC is also one of the initial
purchasers of the New Senior Notes and received a $5,817,425 commitment and
structuring fee as well as portion of the $24,750,000 underwriting fee paid to
the initial purchasers.
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.
The Board of Directors authorized, that immediately prior to the IPO, the
Company will purchase all common shares owned by Telecommunications
Development Corporation ("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 benefited the Company since 150,000 fewer
shares were outstanding after the repurchase without any cost to the Company.
The transaction will be accounted for as the acquisition of treasury stock and
will be recorded at the fair value of the consideration given.
13. TAXES
The Company accounts for income taxes in accordance with SFAS 109. The
components of income tax expense are as follows:
<TABLE>
<CAPTION>
THREE
MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- ----------------
(UNAUDITED)
<S> <C> <C>
Current
U.S. .......................................... $8,000,000 $8,000,000
Other foreign.................................. 1,000,000 1,000,000
---------- ----------
Total income tax expense....................... $9,000,000 $9,000,000
---------- ----------
</TABLE>
Bermuda does not impose a statutory income tax and consequently the
provision for income taxes recorded relates to income earned in taxable
jurisdictions. There are no significant temporary differences between
accounting and taxable income.
Since the Company has not recognized any income in periods prior to April 1,
1998, no tax provision has been reflected in those periods. Operating losses
incurred in those periods relate almost entirely to non-taxable jurisdictions
and therefore these operating losses cannot be applied to future taxable
earnings of the Company. Therefore the Company has not recorded any deferred
tax asset as a result of such losses in accordance with SFAS 109.
F-31
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998,
FOR THE THREE MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 19,
1997
(DATE OF INCEPTION) TO JUNE 30, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
14. COMMITMENTS
As of June 30, 1998, ACL was committed under its contract with TSSL for
future construction costs totaling approximately $64 million ($195 million as
of December 31, 1997) and is committed under the OA&M contract with TSSL to
quarterly payments, over the next eight years, totaling approximately $261
million ($263 million as of December 31, 1997).
ACL is committed to paying TSSL commissions ranging from 4% to 7% on
revenues received until 2002, subject to certain reductions. As of June 30,
1998, Mid Atlantic Crossing Ltd. was committed under its contract with Alcatel
Submarine Networks for future construction costs totaling approximately $180
million and as of July 21, 1998 Pan American Crossing Ltd. was committed under
its contract with TSSL for future construction costs totaling approximately
$335 million.
GCL and its subsidiaries have commitments under various operating leases
primarily relating to its office facility in Bermuda. Rent expense for
operating leases $26,556 and $361,354 for the three and six months ended June
30, 1998. Estimated future minimum lease payments on all operating leases are
approximately as follows:
<TABLE>
<S> <C>
For the six months ended December 31, 1998................... $ 438,000
1999......................................................... 953,000
2000......................................................... 963,000
2001......................................................... 971,000
2002......................................................... 652,000
Thereafter................................................... 1,910,000
</TABLE>
F-32
<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. 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......................... i
Information Regarding Forward-Looking Statements.......................... i
Summary................................................................... 1
Risk Factors.............................................................. 16
Use of Proceeds........................................................... 26
Capitalization............................................................ 27
Selected Consolidated Financial Data...................................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
The Exchange Offer........................................................ 42
Business.................................................................. 49
Management................................................................ 62
Principal and Selling Shareholders........................................ 69
Certain Transactions...................................................... 72
Description of Notes...................................................... 78
Description of Capital Stock.............................................. 113
Description of Certain Indebtedness....................................... 117
Tax Considerations........................................................ 118
Plan of Distribution...................................................... 121
Legal Matters............................................................. 121
Experts................................................................... 121
Available Information..................................................... 121
Index to Consolidated Financial Statements................................ F-1
Glossary of Certain Defined Terms......................................... GL-1
</TABLE>
UNTIL , 1998 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, 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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EXCHANGE OFFER
GLOBAL CROSSING HOLDINGS LTD.
9 5/8% SENIOR NOTES DUE 2008
LOGO GLOBAL CROSSING
-------
PROSPECTUS
DATED , 1998
-------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. 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 directors and officers of the Company are covered by directors' and
officers' insurance policies maintained by the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1** Certificate of Incorporation of Global Crossing Holdings Ltd.
3.2** Bye-laws of Global Crossing Holdings Ltd.
3.3** Certificate of Incorporation of Global Crossing Ltd., LDC
3.4** Memorandum & Articles of Association of Global Crossing Ltd., LDC
3.5* Certificate of Incorporation of Global Crossing Ltd.
3.6* Bye-Laws of Global Crossing Ltd.
3.7* Certificate of Incorporation of Change of Name of Global Crossing
Ltd.
3.8* Memorandum of Increase of Share Capital
3.9* Form of Amended and Restated Bye-laws of Global Crossing Ltd.
3.10** Certificate of Incorporation of Global Telesystems Holdings Ltd.
3.11** By-laws of Global Telesystems Holdings Ltd.
3.12** Certificate of Incorporation of Global Crossing International Ltd.
3.13** By-laws of Global Crossing International Ltd.
3.14** Certificate of Incorporation of Global Crossing Holdings U.K. Ltd.
3.15** Memorandum of Association and Articles of Association of Global
Crossing Holdings U.K. Ltd.
3.16** Certificate of Incorporation of Global Crossing Marketing U.K.
Ltd.
3.17** Memorandum of Association and Articles of Association of Global
Crossing Marketing U.K. Ltd.
3.18** Certificate of Incorporation of Global Crossing Marketing U.S.A.
Inc.
3.19** By-laws of Global Crossing Marketing U.S.A. Inc.
3.20** Certificate of Incorporation of Global Crossing Development Co.
3.21** By-laws of Global Crossing Development Co.
4.1* Form of Certificate for Common Stock
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
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
5.2** Opinion of Simpson Thacher & Bartlett as to the legality of 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
12.1** Statement regarding Computation of Ratio of Earnings to Fixed
Charges
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
21.1* Subsidiaries of the Registrant
23.1** Consent of Appleby Spurling & Kempe (included in the opinion
filed as Exhibit 5.1)
23.2 Consent of Arthur Andersen & Co.
23.3** Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 5.2)
24.1 Power of Attorney of Global Crossing Holdings Ltd. (included on
signature page II-4 of this Registration Statement on Form S-4)
24.2 Power of Attorney of Global Crossing Ltd., LDC (included on
signature page II-7 of this Registration Statement on Form S-4)
24.3 Power of Attorney of Global Crossing Ltd. (included on signature
page II-10 of this Registration Statement on Form S-4)
24.4 Power of Attorney of Global Telesystems Holdings Ltd. (included
on signature page II-13 of this Registration Statement on Form
S-4)
24.5 Power of Attorney of Global Crossing International Ltd.
(included on signature page II-16 of this Registration Statement
on Form S-4)
24.6 Power of Attorney of Global Crossing Holdings U.K. Ltd.
(included on signature page II-19 of this Registration Statement
on Form S-4)
24.7 Power of Attorney of Global Crossing Marketing U.K. Ltd.
(included on signature page II-21 of this Registration Statement
on Form S-4)
24.8 Power of Attorney of Global Crossing Marketing U.S.A. Inc.
(included on signature page II-23 of this Registration Statement
on Form S-4)
24.9 Power of Attorney of Global Crossing Development Co. (included
on signature page II-24 of this Registration Statement on Form
S-4)
25.1 Form T-1 Statement of Eligibility under Trust Indenture Act of
1939 of United States Trust Company of New York, as Trustee
27.1* Financial Data Schedule
99.1 Consent of Nominee Director
99.2 Consent of Nominee Director
99.3 Consent of Nominee Director
</TABLE>
--------
* Incorporated by reference to Global Crossing Ltd. Registration
Statement on Form S-1 (File No. 333-53393)
** To be filed by amendment
(b) Financial Statement Schedules
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) 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 indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective Amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of Prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of an included in the registration statement when
it became effective.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at 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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 13, 1998.
Global Crossing Holdings Ltd.
/s/ John M. Scanlon
By __________________________________
NAME: JOHN M. SCANLON
TITLE: CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING HOLDINGS LTD. (the "Issuer"),
in his capacity as set forth below, hereby constitutes and appoints GARY
WINNICK, LODWRICK COOK, JOHN M. SCANLON, ABBOTT BROWN, DAN J. COHRS and K.
EUGENE SHUTLER, and each of them, his true and lawful attorney and agent, to
do any and all acts and all things and to execute any and all instruments
which said attorney and agent may deem necessary or desirable to enable the
Issuer to comply with the Securities Act of 1933, as amended (the "Act"), and
any rules, regulations and requirements of the Securities and Exchange
Commission thereunder, in connection with the registration under the Act of
exchange notes of the Issuer (the "Notes"), including, without limitation, the
power and authority to sign the name of each of the undersigned in the
capacities indicated below to the Registration Statement on Form S-4 to be
filed with the Securities and Exchange Commission with respect to such Notes,
to any and all amendments or supplements to such Registration Statement,
whether such amendments or supplements are filed before or after the effective
date of such Registration Statement, to any related Registration Statement
filed pursuant to Rule 462 under the Act, and to any and all instruments or
documents filed as part of or in connection with such Registration Statement
or any and all amendments thereto, whether such amendments are filed before or
after the effective date of such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that such attorney and agent
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ Gary Winnick Co-Chairman of the Board and
------------------------------------- Director
Gary Winnick
/s/ Lodwrick Cook Co-Chairman of the Board and
------------------------------------- Director
Lodwrick Cook
/s/ John M. Scanlon Chief Executive Officer and Director
-------------------------------------
John M. Scanlon
II-5
<PAGE>
SIGNATURE TITLE
/s/ David Lee President, Chief Operating Officer
------------------------------------- and Director
David Lee
/s/ Barry Porter Senior Vice President and Director
-------------------------------------
Barry Porter
/s/ Abbott Brown Senior Vice President and Director
-------------------------------------
Abbott Brown
/s/ Dan J. Cohrs Senior Vice President and Chief
------------------------------------- Financial Officer
Dan J. Cohrs
/s/ Hillel Weinberger Director
-------------------------------------
Hillel Weinberger
/s/ Jay Bloom Director
-------------------------------------
Jay Bloom
/s/ Dean Kehler Director
-------------------------------------
Dean Kehler
/s/ Jay Levine Director
-------------------------------------
Jay Levine
/s/ William Phoenix Director
-------------------------------------
William Phoenix
/s/ Bruce Raben Director
-------------------------------------
Bruce Raben
/s/ Michael Steed Director
-------------------------------------
Michael Steed
II-6
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below in the City of Los Angeles, State
of California on August 13, 1998 by the undersigned as the duly authorized
representative of the registrant in the United States.
/s/ John M. Scanlon
-------------------------------------
JOHN M. SCANLON
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 13, 1998.
Global Crossing Ltd.
/s/ John M. Scanlon
By __________________________________
NAME: JOHN M. SCANLON
TITLE: CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING LTD., LDC ("Guarantor"), in
his capacity as set forth below, hereby constitutes and appoints GARY WINNICK,
LODWRICK COOK, JOHN M. SCANLON, ABBOTT BROWN, DAN J. COHRS and K. EUGENE
SHUTLER, and each of them, his true and lawful attorney and agent, to do any
and all acts and all things and to execute any and all instruments which said
attorney and agent may deem necessary or desirable to enable Guarantor to
comply with the Securities Act of 1933, as amended (the "Act"), and any rules,
regulations and requirements of the Securities and Exchange Commission
thereunder, in connection with the registration under the Act of exchange
notes of Global Crossing Holdings Ltd. (the "Notes"), including, without
limitation, the power and authority to sign the name of each of the
undersigned in the capacities indicated below to the Registration Statement on
Form S-4 to be filed with the Securities and Exchange Commission with respect
to such Notes, to any and all amendments or supplements to such Registration
Statement, whether such amendments or supplements are filed before or after
the effective date of such Registration Statement, to any related Registration
Statement filed pursuant to Rule 462 under the Act, and to any and all
instruments or documents filed as part of or in connection with such
Registration Statement or any and all amendments thereto, whether such
amendments are filed before or after the effective date of such Registration
Statement; and each of the undersigned hereby ratifies and confirms all that
such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ Gary Winnick Co-Chairman of the Board and
------------------------------------- Director
Gary Winnick
/s/ Lodwrick Cook Co-Chairman of the Board and
------------------------------------- Director
Lodwrick Cook
/s/ John M. Scanlon Chief Executive Officer and Director
-------------------------------------
John M. Scanlon
II-8
<PAGE>
SIGNATURE TITLE
/s/ David Lee President, Chief Operating Officer
------------------------------------- and Director
David Lee
/s/ Barry Porter Senior Vice President and Director
-------------------------------------
Barry Porter
/s/ Abbott Brown Senior Vice President and Director
-------------------------------------
Abbott Brown
/s/ Dan J. Cohrs Senior Vice President and Chief
------------------------------------- Financial Officer
Dan J. Cohrs
/s/ Hillel Weinberger Director
-------------------------------------
Hillel Weinberger
/s/ Jay Bloom Director
-------------------------------------
Jay Bloom
/s/ Dean Kehler Director
-------------------------------------
Dean Kehler
/s/ Jay Levine Director
-------------------------------------
Jay Levine
/s/ William Phoenix Director
-------------------------------------
William Phoenix
/s/ Bruce Raben Director
-------------------------------------
Bruce Raben
/s/ Michael Steed Director
-------------------------------------
Michael Steed
II-9
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below in the City of Los Angeles, State
of California on August 13, 1998 by the undersigned as the duly authorized
representative of the registrant in the United States.
/s/ John M. Scanlon
-------------------------------------
JOHN M. SCANLON
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on August 13, 1998.
Global Crossing Ltd.
/s/ John M. Scanlon
By: _________________________________
NAME: JOHN M. SCANLON
TITLE: CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING LTD. ("Guarantor"), in his
capacity as set forth below, hereby constitutes and appoints GARY WINNICK,
LODWRICK COOK, JOHN M. SCANLON, ABBOTT BROWN, DAN J. COHRS and K. EUGENE
SHUTLER, and each of them, his true and lawful attorney and agent, to do any
and all acts and all things and to execute any and all instruments which said
attorney and agent may deem necessary or desirable to enable Guarantor to
comply with the Securities Act of 1933, as amended (the "Act"), and any rules,
regulations and requirements of the Securities and Exchange Commission
thereunder, in connection with the registration under the Act of exchange
notes of Global Crossing Holdings Ltd. (the "Notes"), including, without
limitation, the power and authority to sign the name of each of the
undersigned in the capacities indicated below to the Registration Statement on
Form S-4 to be filed with the Securities and Exchange Commission with respect
to such Notes, to any and all amendments or supplements to such Registration
Statement, whether such amendments or supplements are filed before or after
the effective date of such Registration Statement, to any related Registration
Statement filed pursuant to Rule 462 under the Act, and to any and all
instruments or documents filed as part of or in connection with such
Registration Statement or any and all amendments thereto, whether such
amendments are filed before or after the effective date of such Registration
Statement; and each of the undersigned hereby ratifies and confirms all that
such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
SIGNATURE TITLE
/s/ Gary Winnick Co-Chairman of the Board and
------------------------------------- Director
Gary Winnick
/s/ Lodwrick Cook Co-Chairman of the Board and
------------------------------------- Director
Lodwrick Cook
/s/ John M. Scanlon Chief Executive Officer and Director
-------------------------------------
John M. Scanlon
II-11
<PAGE>
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ David Lee President, Chief Operating Officer
------------------------------------- and Director
David Lee
/s/ Barry Porter Senior Vice President and Director
-------------------------------------
Barry Porter
/s/ Abbott Brown Senior Vice President and Director
-------------------------------------
Abbott Brown
/s/ Dan J. Cohrs Senior Vice President and Chief
------------------------------------- Financial Officer
Dan J. Cohrs
/s/ Hillel Weinberger Director
-------------------------------------
Hillel Weinberger
/s/ Jay Bloom Director
-------------------------------------
Jay Bloom
/s/ Dean Kehler Director
-------------------------------------
Dean Kehler
/s/ Jay Levine Director
-------------------------------------
Jay Levine
/s/ William Phoenix Director
-------------------------------------
William Phoenix
/s/ Bruce Raben Director
-------------------------------------
Bruce Raben
/s/ Michael Steed Director
-------------------------------------
Michael Steed
II-12
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below in the City of Los Angeles, State
of California on August 13, 1998 by the undersigned as the duly authorized
representative of the registrant in the United States.
/s/ John M. Scanlon
-------------------------------------
John M. Scanlon
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda on
August 13, 1998.
Global Telesystems Holdings Ltd.
/s/ K. Eugene Shutler
By __________________________________
NAME: K. EUGENE SHUTLER
TITLE: PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL TELESYSTEMS HOLDINGS LTD.
("Guarantor"), in his capacity as set forth below, hereby constitutes and
appoints GARY WINNICK, LODWRICK COOK, JOHN M. SCANLON, ABBOTT BROWN, ROBERT
KLUG and K. EUGENE SHUTLER, and each of them, his true and lawful attorney and
agent, to do any and all acts and all things and to execute any and all
instruments which said attorney and agent may deem necessary or desirable to
enable Guarantor to comply with the Securities Act of 1933, as amended (the
"Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission thereunder, in connection with the registration under the
Act of exchange notes of Global Crossing Holdings Ltd. (the "Notes"),
including, without limitation, the power and authority to sign the name of
each of the undersigned in the capacities indicated below to the Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
with respect to such Notes, to any and all amendments or supplements to such
Registration Statement, whether such amendments or supplements are filed
before or after the effective date of such Registration Statement, to any
related Registration Statement filed pursuant to Rule 462 under the Act, and
to any and all instruments or documents filed as part of or in connection with
such Registration Statement or any and all amendments thereto, whether such
amendments are filed before or after the effective date of such Registration
Statement; and each of the undersigned hereby ratifies and confirms all that
such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ Gary Winnick Co-Chairman of the Board and
------------------------------------- Director
Gary Winnick
/s/ Lodwrick Cook Co-Chairman of the Board and
------------------------------------- Director
Lodwrick Cook
/s/ K. Eugene Shutler President and Executive Director
-------------------------------------
K. Eugene Shutler
II-14
<PAGE>
SIGNATURE TITLE
/s/ Ian McLean Chief Financial Officer and Director
-------------------------------------
Ian McLean
/s/ Robert Klug Controller
-------------------------------------
Robert Klug
/s/ John M. Scanlon Director
-------------------------------------
John M. Scanlon
/s/ Barry Porter Director
-------------------------------------
Barry Porter
/s/ Abbott Brown Director
-------------------------------------
Abbott Brown
/s/ David Lee Director
-------------------------------------
David Lee
/s/ Hillel Weinberger Director
-------------------------------------
Hillel Weinberger
/s/ Jay Bloom Director
-------------------------------------
Jay Bloom
/s/ Dean Kehler Director
-------------------------------------
Dean Kehler
/s/ Jay Levine Director
-------------------------------------
Jay Levine
/s/ William Phoenix Director
-------------------------------------
William Phoenix
/s/ Bruce Raben Director
-------------------------------------
Bruce Raben
/s/ Michael Steed Director
-------------------------------------
Michael Steed
II-15
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below in the City of Los Angeles, State
of California on August 13, 1998 by the undersigned as the duly authorized
representative of the registrant in the United States.
/s/ John M. Scanlon
-------------------------------------
JOHN M. SCANLON
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda, on
August 13, 1998.
Global Crossing International Ltd.
/s/ K. Eugene Shutler
By __________________________________
NAME: K. EUGENE SHUTLER
TITLE: PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING INTERNATIONAL LTD.
("Guarantor"), in his capacity as set forth below, hereby constitutes and
appoints GARY WINNICK, LODWRICK COOK, JOHN M. SCANLON, ABBOTT BROWN, ROBERT
KLUG and K. EUGENE SHUTLER, and each of them, his true and lawful attorney and
agent, to do any and all acts and all things and to execute any and all
instruments which said attorney and agent may deem necessary or desirable to
enable Guarantor to comply with the Securities Act of 1933, as amended (the
"Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission thereunder, in connection with the registration under the
Act of exchange notes of Global Crossing Holdings Ltd. (the "Notes"),
including, without limitation, the power and authority to sign the name of
each of the undersigned in the capacities indicated below to the Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
with respect to such Notes, to any and all amendments or supplements to such
Registration Statement, whether such amendments or supplements are filed
before or after the effective date of such Registration Statement, to any
related Registration Statement filed pursuant to Rule 462 under the Act, and
to any and all instruments or documents filed as part of or in connection with
such Registration Statement or any and all amendments thereto, whether such
amendments are filed before or after the effective date of such Registration
Statement; and each of the undersigned hereby ratifies and confirms all that
such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ Gary Winnick Co-Chairman of the Board and
------------------------------------- Director
Gary Winnick
/s/ Lodwrick Cook Co-Chairman of the Board and
------------------------------------- Director
Lodwrick Cook
/s/ K. Eugene Shutler President and Director
-------------------------------------
K. Eugene Shutler
II-17
<PAGE>
SIGNATURE TITLE
/s/ Ian McLean Chief Financial Officer
-------------------------------------
Ian McLean
/s/ Robert Klug Controller
-------------------------------------
Robert Klug
/s/ John M. Scanlon Director
-------------------------------------
John M. Scanlon
/s/ Barry Porter Director
-------------------------------------
Barry Porter
/s/ Abbott Brown Director
-------------------------------------
Abbott Brown
/s/ David Lee Director
-------------------------------------
David Lee
/s/ Hillel Weinberger Director
-------------------------------------
Hillel Weinberger
/s/ Jay Bloom Director
-------------------------------------
Jay Bloom
/s/ Dean Kehler Director
-------------------------------------
Dean Kehler
/s/ Jay Levine Director
-------------------------------------
Jay Levine
/s/ William Phoenix Director
-------------------------------------
William Phoenix
/s/ Bruce Raben Director
-------------------------------------
Bruce Raben
/s/ Michael Steed Director
-------------------------------------
Michael Steed
II-18
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below in the City of Los Angeles, State
of California on August 13, 1998 by the undersigned as the duly authorized
representative of the registrant in the United States.
/s/ John M. Scanlon
-------------------------------------
JOHN M. SCANLON
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda, on
August 13, 1998.
GLOBAL CROSSING HOLDINGS U.K. LTD.
/s/ K. Eugene Shutler
By: _________________________________
NAME: K. EUGENE SHUTLER
TITLE: DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING HOLDINGS U.K. LTD.
("Guarantor"), in his capacity as set forth below, hereby constitutes and
appoints K. EUGENE SHUTLER and IAN MCLEAN, and each of them, his true and
lawful attorney and agent, to do any and all acts and all things and to
execute any and all instruments which said attorney and agent may deem
necessary or desirable to enable Guarantor to comply with the Securities Act
of 1933, as amended (the "Act"), and any rules, regulations and requirements
of the Securities and Exchange Commission thereunder, in connection with the
registration under the Act of exchange notes of Global Crossing Holdings Ltd.
(the "Notes"), including, without limitation, the power and authority to sign
the name of each of the undersigned in the capacities indicated below to the
Registration Statement on Form S-4 to be filed with the Securities and
Exchange Commission with respect to such Notes, to any and all amendments or
supplements to such Registration Statement, whether such amendments or
supplements are filed before or after the effective date of such Registration
Statement, to any related Registration Statement filed pursuant to Rule 462
under the Act, and to any and all instruments or documents filed as part of or
in connection with such Registration Statement or any and all amendments
thereto, whether such amendments are filed before or after the effective date
of such Registration Statement; and each of the undersigned hereby ratifies
and confirms all that such attorney and agent shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
SIGNATURE TITLE
/s/ K. Eugene Shutler Director
- -------------------------------------
K. Eugene Shutler
/s/ Ian McLean Secretary and Director
- -------------------------------------
Ian McLean
II-20
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below in the City of Los Angeles, State
of California on August 13, 1998 by the undersigned as the duly authorized
representative of the registrant in the United States.
/s/ John M. Scanlon
-------------------------------------
John M. Scanlon
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda, on
August 13, 1998.
Global Crossing Marketing U.K. LTD
/s/ K. Eugene Shutler
By __________________________________
NAME: K. EUGENE SHUTLER
TITLE: DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING MARKETING U.K. LTD.
("Guarantor"), in his capacity as set forth below, hereby constitutes and
appoints K. EUGENE SHUTLER and IAN MCLEAN, and each of them, his true and
lawful attorney and agent, to do any and all acts and all things and to
execute any and all instruments which said attorney and agent may deem
necessary or desirable to enable Guarantor to comply with the Securities Act
of 1933, as amended (the "Act"), and any rules, regulations and requirements
of the Securities and Exchange Commission thereunder, in connection with the
registration under the Act of exchange notes of Global Crossing Holdings Ltd.
(the "Notes"), including, without limitation, the power and authority to sign
the name of each of the undersigned in the capacities indicated below to the
Registration Statement on Form S-4 to be filed with the Securities and
Exchange Commission with respect to such Notes, to any and all amendments or
supplements to such Registration Statement, whether such amendments or
supplements are filed before or after the effective date of such Registration
Statement, to any related Registration Statement filed pursuant to Rule 462
under the Act, and to any and all instruments or documents filed as part of or
in connection with such Registration Statement or any and all amendments
thereto, whether such amendments are filed before or after the effective date
of such Registration Statement; and each of the undersigned hereby ratifies
and confirms all that such attorney and agent shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ K. Eugene Shutler Director
-------------------------------------
K. Eugene Shutler
/s/ Ian McLean Secretary and Director
-------------------------------------
Ian McLean
II-22
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below in the City of Los Angeles, State
of California on August 13, 1998 by the undersigned as the duly authorized
representative of the registrant in the United States.
/s/ John M. Scanlon
-------------------------------------
John M. Scanlon
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda, on
August 13, 1998.
Global Crossing Marketing U.S.A.
INC.
/s/ K. Eugene Shutler
By __________________________________
NAME: K. EUGENE SHUTLER
TITLE: PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING MARKETING USA INC.
("Guarantor"), in his capacity as set forth below, hereby constitutes and
appoints K. EUGENE SHUTLER and IAN MCLEAN, and each of them, his true and
lawful attorney and agent, to do any and all acts and all things and to
execute any and all instruments which said attorney and agent may deem
necessary or desirable to enable Guarantor to comply with the Securities Act
of 1933, as amended (the "Act"), and any rules, regulations and requirements
of the Securities and Exchange Commission thereunder, in connection with the
registration under the Act of exchange notes of Global Crossing Holdings Ltd.
(the "Notes"), including, without limitation, the power and authority to sign
the name of each of the undersigned in the capacities indicated below to the
Registration Statement on Form S-4 to be filed with the Securities and
Exchange Commission with respect to such Notes, to any and all amendments or
supplements to such Registration Statement, whether such amendments or
supplements are filed before or after the effective date of such Registration
Statement, to any related Registration Statement filed pursuant to Rule 462
under the Act, and to any and all instruments or documents filed as part of or
in connection with such Registration Statement or any and all amendments
thereto, whether such amendments are filed before or after the effective date
of such Registration Statement; and each of the undersigned hereby ratifies
and confirms all that such attorney and agent shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ K. Eugene Shutler President, Secretary and Director
-------------------------------------
K. Eugene Shutler
/s/ Ian McLean Vice President, Treasurer and
------------------------------------- Director
Ian McLean
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Morristown, State of New Jersey, on August 13, 1998.
Global Crossing Development Co.
/s/ William Carter
By __________________________________
NAME: WILLIAM CARTER
TITLE: PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being an
officer or director, or both, of GLOBAL CROSSING DEVELOPMENT CO.
("Guarantor"), in his capacity as set forth below, hereby constitutes and
appoints GARY WINNICK, LODWRICK COOK, ABBOTT BROWN and WILLIAM CARTER, and
each of them, his true and lawful attorney and agent, to do any and all acts
and all things and to execute any and all instruments which said attorney and
agent may deem necessary or desirable to enable Guarantor to comply with the
Securities Act of 1933, as amended (the "Act"), and any rules, regulations and
requirements of the Securities and Exchange Commission thereunder, in
connection with the registration under the Act of exchange notes of Global
Crossing Holdings Ltd. (the "Notes"), including, without limitation, the power
and authority to sign the name of each of the undersigned in the capacities
indicated below to the Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission with respect to such Notes, to any and all
amendments or supplements to such Registration Statement, whether such
amendments or supplements are filed before or after the effective date of such
Registration Statement, to any related Registration Statement filed pursuant
to Rule 462 under the Act, and to any and all instruments or documents filed
as part of or in connection with such Registration Statement or any and all
amendments thereto, whether such amendments are filed before or after the
effective date of such Registration Statement; and each of the undersigned
hereby ratifies and confirms all that such attorney and agent shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on August 13, 1998 by or on behalf of
the following persons in the capacities indicated with the registrant.
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE
/s/ William Carter President
-------------------------------------
William Carter
/s/ Abbott Brown Chief Financial Officer and Director
-------------------------------------
Abbott Brown
/s/ Lodwrick Cook Director
-------------------------------------
Lodwrick Cook
/s/ Gary Winnick Director
-------------------------------------
Gary Winnick
II-25
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
3.1** Certificate of Incorporation of Global Crossing Holdings Ltd.
3.2** Bye-laws of Global Crossing Holdings Ltd.
3.3** Certificate of Incorporation of Global Crossing Ltd., LDC
3.4** Memorandum & Articles of Association of Global Crossing Ltd.,
LDC
3.5* Certificate of Incorporation of Global Crossing Ltd.
3.6* Bye-Laws of Global Crossing Ltd.
3.7* Certificate of Incorporation of Change of Name of Global
Crossing Ltd.
3.8* Memorandum of Increase of Share Capital
3.9* Form of Amended and Restated Bye-laws of Global Crossing Ltd.
3.10** Certificate of Incorporation of Global Telesystems Holdings
Ltd.
3.11** By-laws of Global Telesystems Holdings Ltd.
3.12** Certificate of Incorporation of Global Crossing International
Ltd.
3.13** By-laws of Global Crossing International Ltd.
3.14** Certificate of Incorporation of Global Crossing Holdings U.K.
Ltd.
3.15** Memorandum of Association and Articles of Association of Global
Crossing Holdings U.K. Ltd.
3.16** Certificate of Incorporation of Global Crossing Marketing U.K.
Ltd.
3.17** Memorandum of Association and Articles of Association of Global
Crossing Marketing U.K. Ltd.
3.18** Certificate of Incorporation of Global Crossing Marketing
U.S.A. Inc.
3.19** By-laws of Global Crossing Marketing U.S.A. Inc.
3.20** Certificate of Incorporation of Global Crossing Development Co.
3.21** By-laws of Global Crossing Development Co.
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
5.2** Opinion of Simpson Thacher & Bartlett as to the legality of 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
12.1** Statement regarding Computation of Ratio of Earnings to Fixed
Charges
21.1* Subsidiaries of the Registrant
23.1** Consent of Appleby Spurling & Kempe (included in the opinion
filed as Exhibit 5.1)
23.2 Consent of Arthur Andersen & Co.
23.3** Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 5.2)
24.1 Power of Attorney of Global Crossing Holdings Ltd. (included on
signature page II-4 of this Registration Statement on Form S-4)
24.2 Power of Attorney of Global Crossing Ltd., LDC (included on
signature page II-7 of this Registration Statement on Form S-4)
24.3 Power of Attorney of Global Crossing Ltd. (included on
signature page II-10 of this Registration Statement on Form S-
4)
24.4 Power of Attorney of Global Telesystems Holdings Ltd. (included
on signature page II-13 of this Registration Statement on Form
S-4)
24.5 Power of Attorney of Global Crossing International Ltd.
(included on signature page II-16 of this Registration
Statement on Form S-4)
24.6 Power of Attorney of Global Crossing Holdings U.K. Ltd.
(included on signature page II-19 of this Registration
Statement on Form S-4)
24.7 Power of Attorney of Global Crossing Marketing U.K. Ltd.
(included on signature page II-21 of this Registration
Statement on Form S-4)
24.8 Power of Attorney of Global Crossing Marketing U.S.A. Inc.
(included on signature page II-23 of this Registration
Statement on Form S-4)
24.9 Power of Attorney of Global Crossing Development Co. (included
on signature page II-24 of this Registration Statement on Form
S-4)
25.1 Form T-1 Statement of Eligibility under Trust Indenture Act of
1939 of United States Trust Company of New York, as Trustee
27.1* Financial Data Schedule
99.1 Consent of Nominee Director
99.2 Consent of Nominee Director
99.3 Consent of Nominee Director
</TABLE>
- --------
* Incorporated by reference to Global Crossing Ltd. Registration Statement on
Form S-1 (File No. 333-53393)
** To be filed by amendment
2
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report (and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN & Co.
Hamilton, Bermuda
August 14, 1998
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
--------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I. R. S. Employer
if not a U. S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
---------------------------
Global Crossing Holdings Ltd.
(Exact name of OBLIGOR as specified in its charter)
Bermuda 98-0186828
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
---------------------------
Wessex House HM12
45 Reid Street (Zip code)
Hamilton, Bermuda
(Address of principal executive offices)
---------------------------
9-5/8% Senior Notes due 2008
(Title of the indenture securities)
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Global Crossing Holdings Ltd. currently is not in default. Accordingly,
responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form
T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form T-
1 filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form T-
1 filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
====
As of August 13, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
--------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 13th day
of August 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Cynthia Chaney
------------------
Cynthia Chaney
Assistant Vice President
CC/kk
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/Gerard F. Ganey
------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
-------------
($ IN THOUSANDS)
ASSETS
- ------
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
----------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
----------
Total Assets $2,919,930
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,646,049
----------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
----------
Total Liabilities $2,745,347
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
----------
TOTAL STOCKHOLDER'S EQUITY 174,583
----------
Total Liabilities and
STOCKHOLDER'S EQUITY $2,919,930
==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
July 31, 1998
<PAGE>
Exhibit 99.1
------------
August 10, 1998
Global Crossing Holdings Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Ladies and Gentlemen:
I hereby consent to the reference to me and of my becoming a Director
of Global Crossing Holdings Ltd. In the Registration Statement of Form S-4 of
Global Crossing Holdings Ltd. to be filed with the Securities and Exchange
Commission.
Sincerely yours,
/s/ Geoffrey J.W. Kent
----------------------
Geoffrey J.W. Kent
<PAGE>
Exhibit 99.2
------------
August 10, 1998
Global Crossing Holdings Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Ladies and Gentlemen:
I hereby consent to the reference to me and of my becoming a Director
of Global Crossing Holdings Ltd. In the Registration Statement of Form S-4 of
Global Crossing Holdings Ltd. to be filed with the Securities and Exchange
Commission.
Sincerely yours,
/s/ William E. Conway
----------------------
William E. Conway
<PAGE>
Exhibit 99.3
------------
August 10, 1998
Global Crossing Holdings Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Ladies and Gentlemen:
I hereby consent to the reference to me and of my becoming a Director
of Global Crossing Holdings Ltd. In the Registration Statement of Form S-4 of
Global Crossing Holdings Ltd. to be filed with the Securities and Exchange
Commission.
Sincerely yours,
/s/ Toshiaki Ogasawara
-----------------------
Toshiaki Ogasawara
