<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1998
REGISTRATION NO. 333-53393
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GLOBAL CROSSING LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BERMUDA 4813 NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
</TABLE>
---------------
WESSEX HOUSE
45 REID STREET
HAMILTON HM12, BERMUDA
(441) 296-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION
1633 BROADWAY, 23RD FLOOR
NEW YORK, NEW YORK 10019
(212) 479-8200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
D. RHETT BRANDON, ESQ. ROGER KIMMEL, ESQ.
SIMPSON THACHER & BARTLETT LATHAM & WATKINS
425 LEXINGTON AVENUE 885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 455-2000 (212) 906-1200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two prospectus cover pages: one to be
used for a prospectus in connection with a United States and Canadian offering
(the "U.S. Prospectus") and one to be used for a prospectus in connection with
a concurrent international offering (the "International Prospectus"). The
International Prospectus will be identical to the U.S. Prospectus except that
it will have a different front cover page and back cover page and a different
section entitled "Underwriting." The front cover page, back cover page, and
"Underwriting" section to be used in the International Prospectus are located
at the end of the U.S. Prospectus and have been labeled "Alternate Page for
International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 2, 1998
PROSPECTUS
SHARES
GLOBAL CROSSING LTD.
LOGO
COMMON STOCK
--------
Of the shares of Common Stock, par value $.01 per share, offered
hereby (the "Shares"), Shares are being offered by the U.S.
Underwriters (as defined herein) in the United States and Canada (the "U.S.
Offering") and Shares are being offered by the International
Underwriters (as defined herein) in a concurrent international offering outside
the United States and Canada (the "International Offering" and, collectively
with the U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Underwriters (collectively, the
"Underwriters"). The Price to Public and Underwriting Discount per Share will
be identical for the U.S. Offering and the International Offering. See
"Underwriting." The closing of the U.S. Offering and International Offering are
conditioned upon each other.
Of the Shares offered hereby, Shares are being sold by Global
Crossing Ltd., a Bermuda company ("GCL" or the "Issuer" and, together with its
subsidiaries, "Global Crossing" or the "Company"), and Shares are being
sold by certain selling shareholders (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of the Shares by the Selling Shareholders.
Prior to the Offerings, there has been no public market for the Common Stock
of the Issuer. It is currently estimated that the Price to Public will be
between $ and $ per share. See "Underwriting" for information
relating to the factors considered in determining the Price to Public. Upon
completion of the Offerings, purchasers of shares in the Offerings will own
approximately . % (. % if the Underwriters' over-allotment options are
exercised in full) and existing shareholders will own . % (. % if the over-
allotment options are exercised in full) of the outstanding Common Stock. See
"Principal and Selling Shareholders."
Application has been made to have the Common Stock listed on the Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol
"GBLXF" and listed supplementally on the Bermuda Stock Exchange.
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNTS AND COMMISSIONS(1) COMPANY (2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of $ ,payable by the Company.
(3) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to an aggregate of
additional shares of Common Stock at the Price to Public, less
Underwriting Discounts and Commissions, solely to cover over-allotments,
if any. If the Underwriters exercise such options in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
See "Underwriting."
--------
The Shares are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to such Underwriters' right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Shares will be made at the offices of Smith
Barney Inc. at 333 West 34th Street, New York, New York 10001 or through the
facilities of The Depository Trust Company (the "Depository") on or about
, 1998.
--------
Joint Book-Running Managers
SALOMON SMITH BARNEY MERRILL LYNCH & CO. CIBC OPPENHEIMER
MORGAN STANLEY DEAN WITTER DEUTSCHE BANK SECURITIES GOLDMAN, SACHS & CO.
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, EFFECTING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF
A PENALTY BID, DURING AND AFTER THE OFFERINGS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THIS PROSPECTUS HAS BEEN FILED WITH THE REGISTRAR OF COMPANIES IN BERMUDA
PURSUANT TO PART III OF THE COMPANIES ACT, 1981 OF BERMUDA AND THE BERMUDA
MONETARY AUTHORITY ("BMA") HAS GIVEN ITS CONSENT TO THE ISSUE AND TRANSFER OF
UP TO SHARES OF COMMON STOCK. IN ACCEPTING THE PROSPECTUS FOR FILING, THE
REGISTRAR OF COMPANIES ACCEPTS NO RESPONSIBILITY FOR THE FINANCIAL SOUNDNESS
OF ANY PROPOSALS OR FOR THE CORRECTNESS OF ANY STATEMENTS MADE OR OPINIONS
EXPRESSED WITH REGARD TO THEM. APPROVALS OR PERMISSIONS RECEIVED FROM THE BMA
DO NOT CONSTITUTE A GUARANTEE BY THE BMA AS TO THE PERFORMANCE OF THE COMPANY
OR ITS CREDIT WORTHINESS. ACCORDINGLY, IN GIVING SUCH APPROVALS OR
PERMISSIONS, THE BMA SHALL NOT BE LIABLE FOR THE PERFORMANCE OR THE DEFAULT OF
THE COMPANY OR FOR THE CORRECTNESS OF ANY OPINIONS OR STATEMENTS EXPRESSED IN
THIS PROSPECTUS.
THE BERMUDA STOCK EXCHANGE TAKES NO RESPONSIBILITY FOR THE CONTENTS OF THIS
DOCUMENT, MAKES NO REPRESENTATIONS AS TO ITS ACCURACY OR COMPLETENESS AND
EXPRESSLY DISCLAIMS ANY LIABILITY WHATSOEVER FOR ANY LOSS HOWSOEVER ARISING
FROM OR IN RELIANCE UPON ANY PART OF THE CONTENTS OF THIS DOCUMENT.
i
<PAGE>
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Issuer is organized pursuant to the laws of Bermuda. In addition,
certain of the directors and officers of the Issuer reside outside the United
States and a substantial portion of the assets of the Issuer are located
outside the United States. As a result, it may be difficult for investors to
effect service of process within the United States upon such persons or to
realize against them in courts of the United States upon judgments of courts
of the United States predicated upon civil liabilities under the United States
federal securities laws. The Company has been advised by its legal counsel in
Bermuda, Appleby, Spurling & Kempe, that there is doubt as to the enforcement
in Bermuda, in original actions or in actions for enforcement of judgments of
United States courts, of liabilities predicated upon U.S. federal securities
laws, although Bermuda courts will enforce foreign judgments for liquidated
amounts in civil matters subject to certain conditions and exceptions.
----------------
In this Prospectus, references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that include, among
others, statements concerning the Company's plans to effect the design,
construction, and operations of, and sales of capacity on, its planned
telecommunications systems, expectations as to funding its future capital
requirements and other statements of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts. Management cautions the reader that these forward-looking statements
are subject to risks and uncertainties that could cause actual events or
results to differ materially from those expressed or implied by the
statements. The most important factors that could prevent the Company from
achieving its goals include, but are not limited to, failure by the Company
to: (i) complete its systems within currently estimated time frames and
budgets, (ii) sell capacity on its systems, (iii) make a successful transition
from a system development to an operating company and (iv) effectively compete
in the context of a rapidly evolving market characterized by intense price
competition and unpredictable levels of demand for telecommunication capacity.
See "Risk Factors."
ii
<PAGE>
SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial information
appearing elsewhere in this Prospectus. For a discussion of certain factors to
be considered in connection with an investment in the Shares, see "Risk
Factors." Unless the context otherwise requires, the term "Company" means GCL
and all of its direct and indirect subsidiaries. A glossary of relevant terms
used in the telecommunications business is included at the end of this
Prospectus.
THE COMPANY
Global Crossing is the world's first independent provider of global 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 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, Bermuda and the Caribbean; and Pan
American Crossing ("PAC"), a system connecting the western United States,
Central America and the Caribbean. The subsea component of the Global Crossing
Network initially totals approximately 51,000 km. The Company is in the process
of developing several new cable systems and evaluating other business
development opportunities which will complement the Global Crossing Network.
Global Crossing's business is designed to meet the varying needs of the
global carrier market. The Company offers customers the ability to purchase
discrete increments of 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 subsea cable projects and the development or
purchase of additional terrestrial transmission capacity.
In addition to the undersea segments of the Global Crossing Network, the
Company has made and expects to continue to make acquisitions of terrestrial
telecommunications 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 telecommunications markets worldwide. Once completed, the undersea
segments of the Global Crossing Network, in combination with the Company's
investments in terrestrial telecommunications capacity, will form an integrated
worldwide network with multiple access points offering low-cost wholesale
capacity.
1
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN FACTORS RELATING TO
AN INVESTMENT IN THE SHARES. These risk factors include (i) the Company's
limited operating history, (ii) its leverage and substantial future capital
requirements, (iii) risks relating to the completion of the Company's planned
cable systems and the achievement of its sales and marketing objectives and
(iv) the highly competitive nature of the international telecommunications
industry. See "Risk Factors."
MARKET OPPORTUNITY
The Global Crossing Network is being developed to capitalize on certain
trends in the international telecommunications industry:
Rapid Growth of Telecommunications and Internet 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 such as the 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
Internet Service Providers ("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. Several
additional key factors are expected to drive the rapid growth in
telecommunications traffic, including the (i) growth in the use of bandwidth-
intensive applications, such as video conferencing and corporate intranets,
(ii) globalization of commerce and (iii) 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)
privatization activity globally and (ii) the ability of new entrants to
effectively compete. This change in the global competitive landscape is
generating significant demand for broadband telecommunications capacity as
carriers seek to secure sufficient capacity for their expansion plans. As of
April 1998, the ITU estimated that there were 1,000 international carriers,
representing a 186% 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 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 to
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) significant
capital requirements.
Increasing Challenges for Consortia Systems. Historically, the planning and
ownership of undersea cable systems was conducted through large consortia
typically led by the monopoly telecommunications providers. Global Crossing
believes that the consortium approach is becoming far less effective as (i)
carriers increasingly view significant long term capital investments in
capacity to be a suboptimal utilization of resources, (ii) international
deregulation leads to direct competition among consortia members, (iii)
competition from new entrants makes 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.
2
<PAGE>
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 an integrated global network through
ownership of a portfolio of undersea fiber optic systems, combined with
associated terrestrial backhaul capacity, which will offer its customers the
highest quality city-to-city connectivity among approximately 50 of the largest
metropolitan telecommunications markets worldwide at competitive prices. 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 telecommunications capacity, thereby
providing its customers with international city-to-city connectivity 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.
Maintain Position as a Leading Wholesale Service Provider. Global Crossing is
the world's first independent provider of global long distance
telecommunications facilities and services utilizing a network of undersea
digital fiber optic cable systems and associated terrestrial backhaul capacity.
The Company's products are segmented to meet the varying needs of the global
carrier market, with both shore-to-shore and city-to-city capacity. Global
Crossing also offers 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. In certain cases, the Company
will permit the transfer of a portion of unused capacity purchases from one
Global Crossing system to another depending on customers' individual traffic
needs.
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, dense
wavelength division multiplexing ("DWDM") and redundancies of capacity to
ensure instantaneous restoration which the Company believes will (i) provide a
cost advantage over existing alternatives, (ii) make it more reliable than
competing systems, (iii) allow the Company to offer substantially more capacity
than existing cable systems and (iv) enable the capacity of each of the
Company's cable systems to be upgraded rapidly at a fraction of the initial
system cost 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 state-of-the-art facilities, resulting in lower
operating and maintenance costs, and (iii) leveraging the Company's strong
position in the undersea fiber optic facilities market to obtain low-cost
terrestrial connectivity between cable landing stations and major
telecommunications sites.
3
<PAGE>
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's 18 marketing professionals located in the Company's
headquarters in Bermuda and in major cities throughout the world facilitate the
sales of its telecommunications capacity and increase market awareness and name
recognition. In addition, Global Crossing is developing a centralized
operations, administration and maintenance support system to serve the entire
Global Crossing Network, 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 AT&T Submarine Systems Inc. ("SSI"),
overseeing the research and development, engineering, implementation and
integration of SSI'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 Corporation
("GTE"), where he was responsible for corporate development activities,
including mergers and acquisitions and strategic transactions, as well as
strategic planning and competitive analysis. In addition, the Company's system
development team includes several individuals with extensive experience with
major undersea cable and telecommunications industry participants. See
"Management."
THE GLOBAL CROSSING NETWORK
As part of Global Crossing's mission to create an integrated global, high
capacity undersea fiber optic cable network, the 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 developed by Global Crossing, AC-1, MAC and PAC are wholly-
owned projects, while PC-1 is being developed 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
4
<PAGE>
AC-1 is upgradeable to a minimum of 80 Gbps using DWDM technology. The
aggregate costs of AC-1, which are estimated to be approximately $750 million,
have been fully financed prior to the Offerings.
The Company has successfully marketed capacity on AC-1 to licensed
telecommunications providers, including PTTs, established and emerging
telecommunications companies and Internet service providers. As of June 30,
1998, the Company had entered into capacity purchase agreements and other
binding commitments (collectively, "CPAs") with customers providing for
payments to the Company of approximately $550 million. The Company's AC-1
customers now total more than 20 carriers, including Deutsche Telekom,
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 sites in Japan,
providing connectivity to other points in Asia through interconnection with
third party cable systems. PC-1 is designed to operate initially at 80 Gbps of
service capacity and to be upgradeable to a minimum of 160 Gbps, using DWDM
technology.
In April 1998, the Company executed a contract with TSSL for the construction
of PC-1 (the "PC-1 Contract"), which provides for a system completion date of
Summer 2000 at an aggregate cost of approximately $1.2 billion (excluding
potential future upgrades). Equity investments in PC-1 by Global Crossing and
its partners are currently estimated at $400 million (of which at least $200
million will be provided by the Company), with the remaining $800 million
financed through incurrence of non-recourse indebtedness at the PC-1 level. The
contractual commitment for the financing of such indebtedness was obtained on
May 11, 1998.
MID-ATLANTIC CROSSING
MAC is being developed as a 9,300 km two fiber pair self-healing ring that,
upon completion, will connect New York, Bermuda, the Caribbean and Florida.
Global Crossing intends that MAC will be connected to AC-1 via its cable
station in Brookhaven, New York, providing connectivity between Europe, the
eastern United States, Bermuda, and the Caribbean and, through interconnection
with third party cable systems, South America. MAC is being designed to operate
initially at 20 Gbps of service capacity and to be upgradeable to a minimum of
40 Gbps using DWDM technology.
In June 1998, the Company executed a contract with Alcatel Submarine Networks
("Alcatel") for the construction of MAC, which provides for a system completion
date of December 1999 at an aggregate cost of approximately $350 million
(excluding potential future upgrades), of which approximately $110 million will
consist of equity contributions by the Company and $240 million is to be
financed through non-recourse indebtedness at the MAC level. The contractual
commitment for the financing of such indebtedness was obtained on June 26,
1998.
5
<PAGE>
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.
The Company is currently negotiating the engineering and construction
contract for this system. Based upon these negotiations, the Company currently
anticipates that PAC will be completed by February 2000 and will cost
approximately $445 million (excluding potential future upgrades), of which
approximately $160 million will be financed through equity contributions from
the Company and $285 million expected to be financed through non-recourse
indebtedness at the PAC level.
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
telecommunications capacity which complement its core undersea cable business
and which address customer demands for global city-to-city connectivity. The
Company has already entered into contractual arrangements to provide
terrestrial backhaul service between its landing stations in the United States
and the United Kingdom and New York City and London, respectively, as well as
other arrangements to provide backhaul service in Germany and The Netherlands.
In addition, the Company recently entered into an agreement with Qwest
Communications International Inc. ("Qwest") whereby Global Crossing will
receive access to over 25 U.S. metropolitan telecommunications 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.
6
<PAGE>
<TABLE>
<CAPTION>
ORGANIZATION OF THE COMPANY
--------------------
Global Crossing Ltd.
--------------------
-----------------------------
Global Crossing Holdings Ltd.
-----------------------------
<S> <C> <C> <C> <C>
------------------ ---------------- --------------------- --------------------- --------------------
Global Telesystems Pacific Crossing Mid-Atlantic Crossing Pan American Crossing Development and
Holdings Ltd. Holdings Ltd. Holdings Ltd. Holdings Ltd. Marketing Activities
------------------ ---------------- --------------------- --------------------- --------------------
------------------ ---------------- --------------------- ---------------------
AC-1 PC-1 MAC PAC
(Wholly-Owned) (Joint Venture*) (Wholly-Owned) (Wholly-Owned)
------------------ ---------------- --------------------- ---------------------
</TABLE>
* Minimum of 50% 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.
FINANCING PLAN
Of the $750 million in total estimated costs for AC-1, approximately $662
million has been incurred as of May 31, 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 $1,995 million, which is comprised of $1,200 million for PC-1,
$350 million for MAC and $445 million for PAC. The Company has received
proposals and has commenced negotiations or executed documentation regarding
debt financing for such systems which will be non-recourse to the Company other
than with respect to its required equity contribution. Based upon executed debt
financing documentation, equity investments in PC-1 by Global Crossing and its
partners are currently estimated at $400 million (of which at least $200
million will be provided by the Company), with the remaining $800 million of
estimated costs expected to be financed initially through the incurrence of
non-recourse indebtedness at the PC-1 level. With respect to MAC and PAC, based
upon current negotiations, the Company currently anticipates making investments
of $110 million and $160 million, respectively, with the remaining $240 million
and $285 million, respectively, of estimated costs expected to be financed
initially through the incurrence of non-recourse indebtedness at the system
level. With respect to AC-2 and other network expansion opportunities currently
under evaluation by the Company, it is anticipated that additional financing
will be required. Global Crossing has historically been able to secure non-
recourse indebtedness for its systems for at least 65% of system costs and
intends to finance its future expansion opportunities in a similar fashion. The
actual amounts of the Company's future capital requirements will depend on
certain factors including the cost of developing its cable systems, the speed
of developing its systems and the pricing of the Company's services. There can
be no assurance that financing for such systems will be available to the
Company or, if available, that such financing can be obtained on a timely basis
and on acceptable terms. See "Risk Factors--Substantial Future Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
7
<PAGE>
On May 18, 1998, Global Crossing Holdings Ltd. ("GCH"), the direct wholly-
owned subsidiary of GCL, consummated an $800 million private offering (the
"Note Offering") of 9 5/8% Senior Notes Due 2008 (the "GCH Senior Notes"). GCH
utilized approximately $295 million of the net proceeds of the Note Offering to
refinance certain obligations incurred as part of the initial financing of AC-
1. The balance will be utilized to make equity investments in certain of the
Company's systems and for general corporate purposes.
THE OFFERINGS
Common Stock offered by the Company:
U.S. Offering ............ shares
International Offering.... shares
Total (1)................. shares
Common Stock offered by the Selling Shareholders:
U.S. Offering ....... shares
International Offering.... shares
Total ............... shares
Common Stock to be
outstanding after the shares
Offerings (1)(2) ..........
Net Proceeds ............... Approximately $ million (approximately $
million if the Underwriters' over-allotment
options are exercised in full).
Nasdaq National Market GBLXF
symbol......................
Use of Proceeds............. The Company intends to use the net proceeds of
the Offerings as follows: (i) approximately $
to make investments in the Global Crossing
Network, (ii) up to $50 million to make minority
investments in telecommunications and Internet
service providers, (iii) up to $25 million to
fund the Company's proposed investment in Global
Access Limited and (iv) the balance for general
corporate purposes. The Company will receive no
proceeds from the sale of Shares by the Selling
Shareholders. See "Use of Proceeds."
- --------
(1) Does not include up to an aggregate of shares of Common Stock
subject to over-allotment options granted to the U.S. Underwriters and
International Underwriters (see "Underwriting").
(2) After giving effect to the Offerings. Based on shares outstanding as of
, 1998. Does not include: (i) shares of Common Stock
reserved for issuance under the Stock Incentive Plan (see "Management--
Stock Incentive Plan"); (ii) shares of Common Stock reserved for
issuance under the GCL Warrants (see "Description of Capital Stock--
Liquidation of Old GCL"); and (iii) shares of Common Stock reserved
for issuance under the New PCG Warrants (see "Certain Transactions").
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary data presented below under the captions "Statement of Operations
Data" and "Balance Sheet Data" as of December 31, 1997 and for the period from
March 19, 1997 (date of inception) through December 31, 1997 are derived from
the Consolidated Financial Statements of the Company included herein, which
financial statements are prepared in accordance with United States Generally
Accepted Accounting Principles ("U.S. GAAP") and have been audited by Arthur
Andersen & Co., independent public accountants, as indicated in their report
thereon included elsewhere in this Prospectus. The financial data as of and for
the three months ended March 31, 1998 are derived from unaudited interim
financial statements. The unaudited interim financial statements include all
adjustments, consisting of normal recurring accruals, that management considers
necessary for fair presentation of the financial position as of and results of
operations for these interim periods. Results of operations for the interim
periods are not necessarily indicative of the results of operations for a full
year. The operating data presented below are derived from the Company's
records. The Company is in its development stage; accordingly, financial data
presented herein and elsewhere in this Prospectus is not necessarily indicative
of the financial position or results of operations of the Company in the
future. The information set forth below should be read in conjunction with the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and the Consolidated Financial
Statements and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MARCH 19, 1997
THREE MONTHS (DATE OF INCEPTION) TO
ENDED MARCH 31, 1998 DECEMBER 31, 1997
-------------------- ----------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest Income.................... $ 345,834 $ 2,941,352
------------ ------------
Expenses:
Sales and Marketing.............. 784,216 1,366,724
General and Administrative....... 2,614,903 1,695,770
Depreciation and Amortization.... 30,367 39,214
Project Evaluation Costs......... 7,047,044 --
------------ ------------
Total Expenses..................... 10,476,530 3,101,708
------------ ------------
Net Loss........................... (10,130,696) (160,356)
Preference Share Non-Cash
Dividends(1)...................... (4,408,230) (12,689,923)
------------ ------------
Net Loss Applicable to Common
Shareholders...................... $(14,538,926) $(12,850,279)
============ ============
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
AS OF MARCH 31, 1998 1997
------------------------- ------------
AS
HISTORICAL ADJUSTED(2) HISTORICAL
------------ ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets Including Cash and
Restricted Cash(3).................... $ 54,683,167 $ 27,743,838
Total Assets(4)........................ 701,562,521 577,298,723
Long Term Debt and Other
Obligations(5)........................ 472,253,000 332,534,000
GTH Preference Shares(6)............... 95,007,302 90,643,919
Shareholders' Equity:
Common Stock......................... 110 110
Additional Paid-in Capital(7)........ 87,395,845 86,970,845
Deficit Accumulated During the
Development Stage(8)................ (27,389,205) (12,850,279)
------------ ------------
Total Shareholders' Equity............. 60,006,750 74,120,676
------------ ------------
Total Capitalization................... $627,267,052 $497,298,595
============ ============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
--------------
<S> <C>
OPERATING DATA:
Executed CPAs................................................. $550 million
<CAPTION>
ESTIMATED(9)
--------------
<S> <C>
Route Kilometers.............................................. 51,400
Fiber Kilometers.............................................. 345,600
Estimated System Costs
AC-1 ....................................................... $750 million
Other Projects Under Development............................ $1,995 million
Landing Stations.............................................. 14
</TABLE>
- --------
(1) The holders of 14% senior increasing rate redeemable exchangeable
preference shares (the "GTH Preference Shares") of Global Telesystems
Holdings Ltd. ("GTH") are entitled to receive cumulative, compounding
dividends at an initial annual rate of 14%. Preference share dividends
include cumulative 14% dividends and amortization of the discount and
issuance costs. All dividends to date have been paid through the issuance
of additional preference shares. The Company has redeemed all of the
outstanding GTH Preference Shares effective as of June 17, 1998.
(2) As adjusted to reflect the Offerings, the Note Offering and the application
of the net proceeds therefrom.
(3) The majority of restricted cash and cash equivalents appearing in the
"Historical" column are funds which have been reserved for the purpose of
funding future interest payable on GTH's 12% Senior Notes Due 2004 (the
"GTH Senior Notes") and the amount appearing in the "As Adjusted" column
includes additional funds reserved for the purpose of funding future
interest payable on the Note Offering. The Company has applied a portion of
the net proceeds of the Note Offering to repurchase all outstanding GTH
Senior Notes. The amount reflected in the "As Adjusted" column consists of
(i) actual Current Assets, plus (ii) the gross proceeds of the Offerings
and the Note Offering, less (iii) amounts expended in connection with the
tender for the GTH Senior Notes and the redemption of the GTH Preference
Shares, less (iv) the fees and expenses incurred in connection with the
Offerings and the Note Offering.
(4) The amount appearing in the "As Adjusted" column consists of (i) actual
Total Assets, plus (ii) the $ million increase in Current Assets
discussed in footnote (3) above, plus (iii) capitalized fees and expenses
of the Offerings and the Note Offering in an amount of $ million, less
(iv) a write-off of $10.2 million of deferred fees and issue costs
associated with the repurchase of the GTH Senior Notes.
(5) The amount appearing in the "As Adjusted" column consists of (i) actual
Long Term Debt and Long Term Obligations under Inland Services Agreements,
less (ii) the $150 million principal amount of GTH Senior Notes, plus (iii)
the $800 million principal amount of the GCH Senior Notes.
(6) Reflects (i) $100 million of GTH Preference Shares originally issued, plus
(ii) $13.7 million ($9.8 million as of December 31, 1997) of GTH Preference
Shares issued as dividends thereon, less (iii) $18.7 million ($19.2 million
as of December 31, 1997), reflecting the unamortized discount and issue
costs associated therewith. The "As Adjusted" column reflects that all GTH
Preference Shares were redeemed from the net proceeds of the Note Offering.
(7) The amount appearing in the "As Adjusted" column includes a one time charge
in connection with the redemption of the GTH Preference Shares to
Additional Paid-in Capital of approximately $34.8 million on June 17, 1998.
This charge would be comprised of: (i) a $16.1 million charge for the call
premium on the GTH Preference Shares and (ii) a write-off of $18.7 million
of discount and issue costs associated with the GTH Preference Shares
assuming the GTH Preference Shares had been redeemed as of March 31, 1998.
(8) The amount appearing in the "As Adjusted" column includes a one time
extraordinary loss on the repurchase of the GTH Senior Notes of
approximately $20.0 million. This loss would be comprised of: (i) a $9.8
million charge for the tender premium on the GTH Senior Notes and (ii) a
write-off of $10.2 million of deferred fees and issue costs associated with
the GTH Senior Notes assuming the GTH Senior Notes had been repurchased as
of March 31, 1998.
(9) 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."
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully by prospective investors
in evaluating the Company and its business prospects before purchasing the
Shares.
LIMITED OPERATING HISTORY; DEVELOPMENT STAGE COMPANY
The Company was organized in March 1997 and is in the development stage. The
Company's financial information relates to a period in which the Company was
engaged in construction and development of AC-1 and had minimal revenues and
operating costs because the costs of construction have been capitalized. The
Company's operations to date have generated operating losses. The Company had
net losses applicable to common shareholders of approximately $27.4 million
for the period from March 19, 1997 (date of inception) through March 31, 1998,
which consisted primarily of paid in-kind dividends on preference shares.
Global Crossing to date has financed its net losses, debt service, capital
expenditures and other cash needs through the proceeds of sales of common and
preferred equity and the issuance of debt, including non-recourse indebtedness
of ACL. In addition, the Company will require substantial additional capital
in order to carry out its business plan. See "--Substantial Future Capital
Requirements."
The Company's success will substantially depend on sales of capacity upon
its systems. While the Company has been primarily marketing and selling
capacity on AC-1 during its construction period and this activity has resulted
in executed CPAs as of June 30, 1998 to purchase capacity totaling
approximately $550 million, including related sales of terrestrial capacity,
there can be no assurance that the Company will continue to be successful in
selling capacity on AC-1 or its other systems under development. There also
can be no assurance that the Company will be able to realize its business plan
or that such realization will help the Company achieve or sustain operating
profitability or sufficient cash flow to service its indebtedness. See "--
Sales of Capacity; Termination of CPAs," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
LEVERAGE
As of March 31, 1998, on a consolidated pro forma basis after giving effect
to the Offerings, the Note Offering and the application of the net proceeds
therefrom, the Company would have had $1,177.3 million of total liabilities,
including approximately $1,134.9 million of senior indebtedness, of which
$305.5 million would have been secured.
The Company's significant debt burden could have important consequences to
the Company, including, but not limited to, the following: (i) the cash
received from operations may be insufficient to meet the principal and
interest payments on the Company's debt as the same become due; (ii) a
significant portion of the Company's cash flow from operations must be used to
service its debt instead of being used in the Company's business; and (iii)
the Company's flexibility to obtain additional financing in the future may be
impaired by the amount of debt outstanding and the restrictions imposed by the
covenants contained in the debt instruments of the Company. See "Description
of Certain Indebtedness."
The ability of the Company to meet its financial obligations will be subject
to financial, business and other factors, many of which are beyond its
control, such as prevailing economic conditions. In addition, the ability of
GCL's operating subsidiaries to pay dividends or to make other payments to GCL
will be restricted by the terms of various credit arrangements expected to be
entered into by such operating subsidiaries, as well as legal restrictions.
The instruments governing existing and future indebtedness contain, or may
contain, covenants that limit the operating and financial flexibility of the
Company. Failure to generate sufficient cash flow may impair the Company's
ability to obtain additional equity or debt financing or to meet its debt
service requirements. In such circumstances, the Company may be required to
renegotiate the terms of the instruments relating to its long term debt or to
refinance all or a portion thereof. There can be no assurance that the Company
would be able to
11
<PAGE>
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."
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. In addition, the Company has not yet entered into a
definitive supply contract to construct PAC. 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.
12
<PAGE>
TERMINATION OF CPA'S
A purchaser's payment obligation under a CPA for AC-1 terminates with
capacity on any segment other than the United States-United Kingdom segment,
if the RFS date for the full AC-1 system has not occurred by June 30, 1999.
Performance under certain CPAs for AC-1 is also contingent upon the obtaining
and continuance of such approvals, consents, governmental authorizations,
licenses and permits as may be required or reasonably deemed necessary by each
party thereto for performance by such party thereunder and as may be
satisfactory to it. It is expected that CPA's for the Company's other systems
will contain similar provisions. Termination of a substantial number of CPAs
for any of the foregoing reasons would have a material adverse effect on the
Company. See "Business--Sales and Marketing" and "--Summary of Principal Terms
of Standard Contractual Documentation."
COMPETITION
The international telecommunications industry is highly competitive. The
Company faces competition from existing and planned systems along each of its
planned routes and from satellite providers, including existing geosynchronous
satellites and low-earth orbit systems now under construction. On certain
routes, terrestrial cable systems may also compete with the Global Crossing
Network. The Company competes primarily on the basis of price, availability,
transmission quality and reliability, customer service and the location of its
systems. Traditionally, carriers have made substantial long term investments
in ownership of cable capacity, making lower price and superior service less
determinative in convincing such carriers to acquire additional capacity on
the Company's systems than is the case in industries without such long term
relationships. Accordingly, there can be no assurance that the Company will be
able to compete successfully against systems to which prospective customers
have made long term commitments.
The routes underlying Global Crossing's systems are currently served by
several undersea cables as well as satellites. Primary future sources of
competition for the Company may result from, among others, (i) TAT-14, a
transatlantic cable system which is being developed by its consortium members,
(ii) Gemini, a transatlantic cable system being operated and marketed by
WorldCom and Cable & Wireless, (iii) China-US, a transpacific system being
developed as a "private cable system" by fourteen large carriers, including
SBC, MCI, AT&T and Sprint, most of whom have traditionally sponsored
consortium cables and (iv) the Japan-US Cable Network, a transpacific system
being developed by a consortium of major telecommunications carriers including
Worldcom, AT&T, KDD, NTT, Cable & Wireless and GTE. Other regional and global
systems are being considered by developers, including Project Oxygen, a global
system being evaluated by CTR Group, Ltd. The Company believes that the other
planned transatlantic systems would compete directly with AC-1 and the
commitments of the developers of these systems could substantially reduce
these customers' demand for capacity on AC-1. Although the Company believes
that the other planned transpacific systems will not satisfy the demand for
capacity between the United States and Japan and that there is currently
enough demand projected to accommodate all such systems, the other planned
transpacific systems will receive commitments for capacity that PC-1 could
have received in their absence. In addition, the Company may face competition
from existing and planned regional undersea cable systems and satellites on
its MAC and PAC routes, where entrants are vying for purchases from a small
but rapidly growing customer base. See "--Rapidly Changing Industry; Pricing
Uncertainties" and "Business--Competition."
RELATIONSHIP WITH PRINCIPAL SHAREHOLDERS; CONFLICTS OF INTEREST
As of June 30, 1998, Pacific Capital Group, Inc. ("PCG") had a 22.31% equity
interest in GCL (after giving effect to the liquidation of Old GCL). PCG and
its affiliates have entered into certain transactions with the Company in
connection with the development by PCG and its affiliates of several of Global
Crossing's systems, including AC-1, PC-1, PAC and MAC, and the decision by the
Board of Directors of GCL to assume the ongoing development of systems (other
than AC-1) from an affiliate of PCG. PCG and its subsidiaries are controlled
by Mr. Gary Winnick, the Co-Chairman of the Board of Directors of GCL, and
several other officers and directors of GCL are affiliated with PCG. In
addition, CIBC Wood Gundy Capital (SFC) Inc., an affiliate of CIBC, Inc.
("CIBC") had a 27.88% equity interest in GCL (after giving effect to the
liquidation of Old GCL). An affiliate of CIBC is an Underwriter in the
Offerings, and CIBC and its affiliates have also entered into certain
13
<PAGE>
financing transactions with the Company in connection with the development and
construction of the Company's systems. Several members of the Board of
Directors of GCL are affiliated with CIBC. See "Management," "Principal and
Selling Shareholders" and "Certain Transactions."
Upon completion of the Offerings, PCG and CIBC will collectively own . %
of the outstanding Common Stock ( .% assuming the over-allotment option is
exercised in full). Accordingly, PCG and CIBC may be able to determine the
vote on matters submitted to a vote of the Company's stockholders, including
the election of directors.
Certain officers and directors of the Company also serve as officers and
directors of other companies and certain officers and directors of the Company
are active investors in the telecommunications industry. See "Management."
Service as a director or officer of the Company and as a director or officer
of another company could create or appear to create conflicts of interest when
the director or officer is faced with decisions that could have different
implications for the Company and such other company. A conflict of interest
could also exist with respect to allocation of time and attention of persons
who are officers of both the Company and another company. The pursuit of these
other business interests could distract these officers and directors from
pursuing opportunities on behalf of the Company. Such conflicts of interest
could have a material adverse affect on the Company.
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 projected decline in per circuit price
could have a material adverse effect on the Company. There can be no
14
<PAGE>
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.
15
<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
The Company is a development stage company. Accordingly, all statements in
this Prospectus that are not clearly historical in nature are forward-looking.
Examples of such forward-looking statements include the statements concerning
the Company's operations, prospects, size of world telecommunications traffic,
size of addressable market, technological and customer support capabilities,
pricing, potential customers and liquidity and working capital needs,
estimated demand forecasts, and information concerning characteristics of
competing systems. These forward-looking statements are inherently predictive
and speculative and no assurance can be given that any of such statements will
prove to be correct. Actual results and developments may be materially
different from those expressed or implied by such statements. Prospective
investors should carefully review the other risk factors set forth in this
section of this Prospectus for a discussion of certain factors which could
result in any of such forward-looking statements proving to be inaccurate.
16
<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."
FOREIGN PERSONAL HOLDING COMPANY, PASSIVE FOREIGN INVESTMENT COMPANY,
CONTROLLED FOREIGN CORPORATION AND PERSONAL HOLDING COMPANY RULES
It is possible that the Issuer or one of its non-United States subsidiaries
will be classified as a foreign personal holding company (a "FPHC") under the
United States Internal Revenue Code of 1986, as amended (the "Code"). If the
Issuer or one of its non-United States subsidiaries were classified as an
FPHC, all United States Holders (as defined below under "Tax Considerations")
of Common Stock would be required to include in income, as a dividend, their
pro rata share of the Issuer's (or its relevant non-United States
subsidiary's) undistributed FPHC income (generally, taxable income with
certain adjustments). While the Company intends to manage its affairs so as to
attempt to avoid or minimize having income imputed to United States Holders
under these rules, to the extent such management of its affairs is consistent
with its business goals, there can be no assurance that the Company will be
successful in this endeavor.
The Issuer believes that it is not a passive foreign investment company (a
"PFIC") and does not expect to become a PFIC in the future, although there can
be no assurance in this regard. In addition, this belief is based, in part, on
interpretations of existing law that the Issuer believes are reasonable, but
which have not been approved by any taxing authority. If the Issuer were a
PFIC, then each United States Holder of Common Stock would, upon certain
distributions by the Issuer, or upon disposition of the Common Stock at a
gain, be liable to pay tax at the then prevailing rates on ordinary income
plus an interest charge, generally as if the distribution or gain had been
recognized ratably over the United States Holder's holding period (for PFIC
purposes) for the Common Stock, or if a "qualified electing fund" election
were made by a United States Holder of Common Stock, a pro rata share of the
Issuer's ordinary earnings and net capital gain would be required to be
included in such United States Holder's income each year. A United States
Holder may also be able to make a mark to market election. If the mark to
market election is available to a United States Holder, annual increases and
decreases in share value would be included as ordinary income or deducted from
ordinary income by marking-to-market the value of the shares at the close of
each year. See "Tax Considerations."
Furthermore, additional tax considerations would apply if the Issuer or any
of its affiliates were a controlled foreign corporation (a "CFC") or a
personal holding company (a "PHC"). See "Tax Considerations."
DIVIDEND POLICY; RESTRICTION ON PAYMENT OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy." The Company's ability to pay dividends is
limited by certain of its debt instruments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness."
17
<PAGE>
DILUTION
The public offering price is substantially higher than the tangible book
value of the outstanding Common Stock. Purchasers of Shares in the Offerings
will therefore experience immediate and substantial dilution in tangible book
value per share, and existing shareholders of GCL will receive a material
increase in the tangible book value per share of their shares of Common Stock.
The dilution to new investors will be $ per Share (based on the Price to
Public of $ per Share and assuming no exercise of the over-allotment
options granted to the Underwriters). See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
be sustained. The offering price has been determined by negotiations between
the Company and the Underwriters and there can be no assurance that the prices
at which the Common Stock will sell in the public market after the Offerings
will not be lower than the price at which the Common Stock is sold in the
Offerings. See "Underwriting." Historically, the market prices for securities
of emerging companies in the telecommunications industry have been highly
volatile. The trading price of the Common Stock after the Offerings could be
subject to wide fluctuations in response to numerous factors, including, but
not limited to, quarterly variations in operating results, competition,
announcements of technological innovations or new products by the Company or
its competitors, product enhancements by the Company or its competitors,
regulatory changes, any differences in actual results and results expected by
investors and analysts, changes in financial estimates by securities analysts
and other events or factors. In addition, the stock market has experienced
volatility that has affected the market prices of equity securities of many
companies and that often has been unrelated to the operating performance of
such companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings (assuming no exercise of the over-allotment
options granted to the Underwriters), GCL will have shares of
Common Stock outstanding, including Shares of Common Stock offered
hereby and "restricted" shares of Common Stock. The Shares of
Common Stock offered hereby will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), by persons other than "affiliates" of the Company within
the meaning of Rule 144 promulgated under the Securities Act. Holders of
restricted shares generally will be entitled to sell these shares in the
public securities market without registration under the Securities Act to the
extent permitted by Rule 144 (or Rule 145, as applicable) promulgated under
the Securities Act or any exemption under the Securities Act. The restricted
shares generally will be eligible for sale under Rule 144, as currently in
effect, beginning in .
The Company intends to file a registration statement under the Securities
Act after the Offerings to register shares of Common Stock reserved for
issuance under the Stock Incentive Plan, thus permitting the resale of such
shares by non-affiliates upon issuance in the public market without
restriction under the Securities Act. Such registration statement will
automatically become effective immediately upon filing. See "Management--Stock
Incentive Plan."
Subject to certain exceptions, the Company and certain shareholders,
directors and officers of the Company have agreed not to offer, sell, contract
to sell or otherwise dispose of, directly or indirectly, or announce the
offering of any shares of Common Stock, including any such shares beneficially
or indirectly owned or controlled by the Company, or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock,
for 180 days from the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
Sales of a substantial amount of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the market price
of the Common Stock prevailing from time to time in the public market and
could impair the Company's ability to raise additional capital through the
sale of its equity securities. See "Shares Eligible for Future Sale."
18
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offerings are estimated to be approximately
$ (after deducting the Underwriters' discount and estimated Offerings
fees and expenses payable by the Company). The Company intends to use the net
proceeds of the Offerings as follows: (i) approximately $ to make
investments in the Global Crossing Network, (ii) up to $50 million to make
minority investments in telecommunications and Internet service providers,
(iii) up to $25 million to fund the Company's proposed investment in Global
Access Limited and (iv) the balance for general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business." Pending the
application of the net proceeds of the Offerings as described above, the
Company will invest such proceeds in short-term, interest-bearing U.S.
Government securities and certain other short term, investment grade
securities. The Company will receive no proceeds from the sale of the Shares
by the Selling Shareholders. The net proceeds from the sale of the Shares by
the Selling Shareholders will be used by such Selling Shareholders to fund
anticipated income tax liabilities resulting from the Company's acquisition of
the rights to advisory fees payable under the Advisory Services Agreements as
described under "Certain Transactions."
DIVIDEND POLICY
GCL does not anticipate paying dividends in the foreseeable future. The
terms of certain debt instruments of the Company also place limitations on
GCL's ability to pay dividends. Future dividends, if any, will be at the
discretion of the Board of Directors of GCL and will depend upon, among other
things, the Company's operations, capital requirements and surplus, general
financial condition, contractual restrictions and such other factors as the
Board of Directors of GCL may deem relevant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Certain Indebtedness."
DILUTION
At , 1998, the historical net tangible book value of the Company
was $ million or $ per share of Common Stock. "Historical net
tangible book value per share" represents the Company's net worth less
intangible assets of $ million divided by shares of Common
Stock outstanding on , 1998. After giving effect to the sale by the
Company of Shares pursuant to the Offerings and after deducting the
underwriting discount and expenses of the Offerings, the pro forma net
tangible book value of the Company at , 1998, would have been $
million, or $ per share of Common Stock. Such amount represents an
immediate increase in pro forma net tangible book value of $ per share of
Common Stock to the existing stockholder and an immediate dilution to new
investors of $ per share of Common Stock. The following table illustrates
the dilution in pro forma net tangible book value per share to new investors:
<TABLE>
<S> <C>
Public offering price per Share..................................... $
Historical net tangible book value per share at , 1998...... $
Increase in net tangible book value per share attributable to net
proceeds
of the Offerings................................................... $
Pro forma net tangible book value per share after the Offerings..... $
-------
Dilution to new investors........................................... $
=======
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
options to purchase an additional Shares.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the historical
consolidated capitalization of the Company and (ii) the capitalization as
adjusted to reflect the Offerings, the Note Offering and the application of
the net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED(1)
------------ --------------
(UNAUDITED)
<S> <C> <C>
Long Term Debt:
AC-1 Credit Facility(2)...................... $305,508,000 $ 305,508,000
GTH Senior Notes............................. 150,000,000 0
Obligations under Inland Services
Agreements(3)............................... 16,745,000 16,745,000
GCH Senior Notes............................. 0 800,000,000
------------ --------------
Total Long Term Debt....................... 472,253,000 1,122,253,000
------------ --------------
GTH Preference Shares.......................... 95,007,302 0
------------ --------------
Shareholders' Equity:
Common Stock................................. 110
Additional Paid-in Capital................... 87,395,845
Accumulated Deficit During Development Stage. (27,389,205)
------------ --------------
Total Shareholders' Equity................. 60,006,750
------------ --------------
Total Capitalization....................... $627,267,052 $
============ ==============
</TABLE>
- --------
(1) As adjusted to reflect the Offerings, the Note Offering and the
application of the net proceeds therefrom. Losses resulting from the
repurchase of the GTH Senior Notes are reflected in "Accumulated Deficit
During Development Stage" and losses resulting from the redemption of the
GTH Preference Shares are reflected in "Additional Paid-in Capital."
Assuming the repurchase of the GTH Senior Notes occurred as of March 31,
1998, a one time extraordinary loss of approximately $20.0 million would
have been incurred. This loss would have been comprised of: (i) a $9.8
million charge for the tender premium on the GTH Senior Notes and (ii) a
write-off of $10.2 million of deferred fees and issue costs associated
with the GTH Senior Notes. In addition, assuming the redemption of the GTH
Preference Shares, as of March 31, 1998, a one time charge would have been
made against Additional Paid-in Capital of approximately $34.8 million.
This charge would have been comprised of: (i) a $16.1 million charge for
the call premium on the GTH Preference Shares and (ii) a write-off of
$18.7 million of unamortized discount and issue costs associated with the
GTH Preference Shares.
(2) The AC-1 Credit Facility provides non-recourse financing at the ACL level
for the construction and development of AC-1. A total of $482.0 million is
available to be borrowed under this facility, of which $305.5 million was
outstanding as of March 31, 1998. See "Description of Certain
Indebtedness--AC-1 Credit Facility."
(3) Net of the $12.7 million current portion of such obligations.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of December 31, 1997 and for the
period from March 19, 1997 (date of inception) through December 31, 1997 are
derived from the Consolidated Financial Statements of the Company included
herein, which financial statements are prepared in accordance with U.S. GAAP
and have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their report thereon included elsewhere in this
Prospectus. The financial data as of and for the three months ended March 31,
1998 are derived from the Company's unaudited interim financial statements.
The unaudited interim financial statements include all adjustments, consisting
of normal recurring adjustments, that management considers necessary for fair
presentation of the financial position as of March 31, 1998 and results of
operations for this interim period presented. Results of operations for the
interim period is not necessarily indicative of the results of operations for
a full year. The operating data presented below are derived from the Company's
records. The Company is in its development stage; accordingly, financial data
presented herein and elsewhere in this Prospectus is not necessarily
indicative of the financial position or results of operations of the Company
in the future. The information set forth below should be read in conjunction
with the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and the Consolidated
Financial Statements and the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FOR THE PERIOD
THREE MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
MARCH 31, 1998 TO DECEMBER 31, 1997 TO MARCH 31, 1998
-------------- -------------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest Income......... $ 345,834 $ 2,941,352 $ 3,287,186
------------ ------------ ------------
Expenses:
Sales and Marketing... 784,216 1,366,724 2,150,940
General and
Administrative....... 2,614,903 1,695,770 4,310,673
Depreciation and
Amortization......... 30,367 39,214 69,581
Project Evaluation
Costs................ 7,047,044 -- 7,047,044
------------ ------------ ------------
Total Expenses.......... 10,476,530 3,101,708 13,578,238
------------ ------------ ------------
Net Loss................ (10,130,696) (160,356) (10,291,052)
Preference Share Non-
Cash Dividends (1)..... (4,408,230) (12,689,923) (17,098,153)
------------ ------------ ------------
Net Loss Applicable to
Common Shareholders.... $(14,538,926) $(12,850,279) $(27,389,205)
============ ============ ============
Basic net loss per
common share (2)....... $ (0.13) $ (0.12) $ (0.25)
============ ============ ============
Diluted net loss per
common share (2)....... $ (0.11) $ (0.10) $ (0.21)
============ ============ ============
Shares used in computing
basic net loss per
common share........... 110,615,211 110,294,100 110,370,758
============ ============ ============
Shares used in computing
diluted net loss per
common share........... 130,975,251 130,638,084 130,718,575
============ ============ ============
<CAPTION>
AS OF AS OF
MARCH 31, 1998 DECEMBER 31, 1997
-------------------- -------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets Including Cash and
Restricted Cash (3)................... $ 54,683,167 $ 27,743,838
Construction in Progress (4)........... 621,904,402 523,620,864
Deferred Finance and Organization
Costs, Net of Accumulated
Amortization.......................... 24,974,952 25,934,021
------------ ------------
Total Assets........................... $701,562,521 $577,298,723
============ ============
Current Liabilities.................... $ 74,295,469 $ 80,000,128
Long Term Debt......................... 305,508,000 162,325,000
GTH Senior Notes....................... 150,000,000 150,000,000
Obligations Under Inland Services
Agreements (5)........................ 16,745,000 20,209,000
GTH Preference Shares (6).............. 95,007,302 90,643,919
Shareholders' Equity:
Common Stock......................... 110 110
Additional Paid-in Capital........... 87,395,845 86,970,845
Deficit Accumulated During the
Development Stage................... (27,389,205) (12,850,279)
------------ ------------
Total Shareholders' Equity............. 60,006,750 74,120,676
------------ ------------
Total Liabilities and Shareholders'
Equity................................ $701,562,521 $577,298,723
============ ============
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE
30, 1998
------------
<S> <C>
OPERATING DATA:
Executed CPAs...................................................... $550 million
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED(7)
--------------
<S> <C>
Route Kilometers................................................ 51,400
Fiber Kilometers................................................ 345,600
Estimated System Costs
AC-1 .......................................................... $ 750 million
Other Projects Under Development............................... $1,995 million
Landing Stations................................................ 14
</TABLE>
- --------
(1) The holders of GTH Preference Shares are entitled to receive cumulative,
compounding dividends at an initial annual rate of 14%. Preference share
dividends include cumulative 14% dividends and amortization of the
discount and issuance costs. All dividends to date have been paid through
the issuance of additional preference shares. The Company has redeemed all
of the outstanding GTH Preference Shares effective as of June 17, 1998.
(2) Basic net loss per share is computed based on the weighted average number
of shares of Common Stock outstanding. Diluted net loss per share is
computed based on the weighted average number of shares of common stock
outstanding and common stock equivalents including shares issuable under
options and warrants that were issued within one year preceding the
planned Offerings.
(3) The majority of restricted cash and cash equivalents are funds which have
been reserved for the purpose of funding future interest payable on the
GTH Senior Notes. The Company has applied a portion of the net proceeds of
the Note Offering to repurchase all outstanding GTH Senior Notes.
(4) Construction in Progress includes direct and indirect expenditures for
construction of AC-1 and is stated at cost. Capitalized costs include
costs incurred under (i) the AC-1 Contract; (ii) advisory, consulting and
legal fees; (iii) interest (including amortization of debt issuance costs
incurred during the construction phase); and (iv) other costs necessary
for developing AC-1. Costs incurred to acquire backhaul capacity are also
included.
(5) Certain contracts to acquire backhaul capacity require payments over a 25-
year period. The amount shown reflects the present value of such payments,
net of the $12.7 million ($18.1 million as of December 31, 1997) current
portion of such payments, which is included under "Current Liabilities."
(6) Reflects (i) $100 million of GTH Preference Shares originally issued, plus
(ii) $13.7 million ($9.8 million as of December 31, 1997) of GTH
Preference Shares issued as dividends thereon, less (iii) $18.7 million
($19.2 million as of December 31, 1997), reflecting the unamortized
discount and issue costs associated therewith. The Company has redeemed
all of the outstanding GTH Preference Shares effective as of June 17,
1998.
(7) 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."
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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 telecommunications traffic. The Company
commenced operations in March 1997, when it entered into a fixed price
contract with Tyco Submarine Systems Ltd. ("TSSL", formerly AT&T Submarine
Systems, Inc.) for the design, development, construction and installation of
AC-1 and obtained commitments for AC-1's initial financing. AC-1, the first of
Global Crossing's planned fiber optic cable systems, is designed to be a four
fiber pair system connecting (i) the United States to the United Kingdom, (ii)
the United Kingdom to The Netherlands and Germany, (iii) The Netherlands to
Germany and (iv) Germany to the United States. The first segment of AC-1, the
United States to United Kingdom route, was completed and commenced operations
on May 26, 1998. The Company currently anticipates that the full AC-1 system
will be completed and commence operations by February 1999. See "Risk
Factors--Risks Related to Completing the Company's Cable Systems."
The Company, since its inception, has been involved in the planning,
financing, marketing, organization, development, design and construction of
the AC-1 system. In addition, the Company has been engaged in the planning,
developing and financing of the three other planned systems currently under
active development by the Company (PC-1, MAC and PAC). The Company has also
achieved a number of significant milestones, including (i) the recruitment of
experienced professionals in undersea cable and telecommunications operations,
(ii) the signing of construction contracts on AC-1, PC-1 and MAC, (iii) the
execution of the AC-1 Credit Facility and the execution of financing
commitments with respect to PC-1 and MAC and (iv) the construction and
activation of the United States to United Kingdom segment of AC-1.
Sales of capacity by the Company on its cable systems are effected through
Capacity Purchase Agreements pursuant to which the Company's customers obtain
an indefeasible right of use ("IRU") for a certain number of circuits. Each
IRU entitles the customer to the use of the related capacity for a period
ending 25 years after the RFS date for the related system. Global Crossing
also sells capacity on terrestrial cables through Inland Capacity Purchase
Agreements ("ICPAs"), linking certain of the Company's landing stations with
major cities in order to provide city-to-city connectivity to its customers.
This backhaul capacity, which is purchased by the Company through Inland
Services Agreements ("ISAs") from the owners of terrestrial cable systems, is
resold by the Company to its customers through ICPAs.
The Company's basic pricing structure currently provides for volume-based
discounts to its customers. Customers are generally provided options in their
capacity purchase agreements to purchase additional capacity in 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.
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In connection with the development and construction of AC-1, ACL entered
into an advisory services agreement with an affiliate of the Company providing
for the payment by the Company of an advisory fee of 2.0% of the gross
revenues of ACL. The Company's Board of Directors also approved similar
advisory fees and authorized the Company to enter into similar agreements in
respect of other cable systems developed by the Company. The Company intends
to acquire the rights of the persons entitled to the fees payable under these
agreements in consideration for the issuance by the Company of Common Stock
having an aggregate value (determined on the basis of the Price to Public per
Share payable in the Offerings) which the Company currently anticipates will
be in the range of $125 million to $145 million. As a result of this
transaction, the Company anticipates that it will incur a charge of $125
million to $145 million which will be reflected in its financial statements
for the period ended June 30, 1998. See "Certain Transactions." Upon the
consummation of this transaction, all of the obligations of the Company and
ACL in respect of these advisory services agreements will be terminated.
REVENUES
Prior to the RFS date for the United States to United Kingdom segment of AC-
1, the Company had no revenues and had interest income on restricted cash,
cash raised from financing, cash on CPA deposits and cash on ICPA deposits. As
of June 30, 1998, the Company had entered into CPAs with customers for
capacity on AC-1 providing for payments to the Company of an aggregate of at
least $550 million and had received aggregate payments (including deposits)
from customers of $100 million. Cash deposits have been recorded as unearned
revenue prior to activating the capacity sold pursuant to the related CPA.
Most deposits are refundable if the AC-1 system RFS date does not occur prior
to June 30, 1999. See "Business--Summary of Principal Terms of Standard
Contractual Documentation."
Since the RFS date for the United States to United Kingdom segment of AC-1,
which occurred on May 26, 1998, the Company's revenues have been principally
comprised of revenues from sales of cable capacity on AC-1 and the sale of
backhaul capacity. Revenues from the sale of capacity on the Company's systems
and from the sale of backhaul capacity are recognized in the period during
which (i) the purchaser obtains the right to use the capacity, which can only
be suspended by a failure of the purchaser to pay the full purchase price or
fulfill its contractual obligations and (ii) the purchaser is obligated to pay
OA&M costs.
COST OF SALES; CAPACITY AVAILABLE FOR SALE
Cable construction costs incurred with respect to each segment of AC-1,
reflected as "Construction in Progress" in the Company's consolidated December
31, 1997 balance sheet, will be reflected as capacity
available for sale at the date such segment becomes operational. Capacity
available for sale will be recorded at the lower of cost or fair value less
cost to sell and will be charged to cost of sales in the period the related
revenues are recognized.
Capacity available for sale will be charged to cost of sales as revenues
from sales of capacity are recognized. The amount charged to cost of sales in
any period related to AC-1 capacity will be calculated based on the ratio of
AC-1 capacity revenues recognized in the period to total expected AC-1
capacity revenues over the life of the system, multiplied by the total cost
incurred to construct AC-1. The Company plans to use the same accounting
policy for its other planned cable systems. The cost to acquire backhaul
capacity will be charged to cost of sales in the period during which the
related revenues are recognized. Changes in management's estimate of the
expected revenues to be derived from sales of a cable system's capacity will
result in adjustments to the calculations of cost of sales. These adjustments
will be recorded on a prospective basis over future periods commencing with
the period when management revises its estimate.
OPERATING EXPENSES
In addition to cost of sales, the Company's operating expenses will
principally comprise sales and marketing, operating and maintenance and
general and administrative costs. Costs relating to the Company's evaluation
of possible additional systems will be expensed as incurred.
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.
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CONSTRUCTION IN PROGRESS
Construction in progress includes direct and indirect expenditures for
construction of AC-1 and is stated at cost. These expenditures include costs
incurred under the AC-1 Contract; advisory, consulting and legal fees;
interest and amortized debt issuance costs incurred during the construction
phase; and other costs necessary for construction of AC-1. Additionally, the
Company has capitalized the cost of acquiring backhaul capacity. The Company
has recorded in "Construction in Progress" amounts for backhaul capacity equal
to the present value of future payments associated with the acquisition of
such backhaul capacity.
RESULTS OF OPERATIONS FOR THE PERIOD FROM MARCH 19, 1997 TO DECEMBER 31, 1997
Interest Income. Pursuant to the purchase agreement relating to the sale of
its outstanding $150 million GTH Senior Notes, the Company was required to
maintain certain amounts in restricted cash and cash equivalents accounts to
fund future semi-annual interest payments on such notes. Interest income
earned on this balance, together with interest income earned on cash raised
from financing and cash on CPA deposits, totalled approximately $2.9 million
for the period from March 19, 1997 to December 31, 1997. The Company utilized
a portion of the net proceeds from the Note Offering to repurchase the GTH
Senior Notes. See "--Liquidity and Capital Resources."
Expenses. During the period ended December 31, 1997, the Company incurred
expenses of $3.1 million. Of this amount, approximately $1.4 million was
attributable to sales and marketing expenses, relating principally to AC-1,
and approximately $1.7 million was attributable to general and administrative
expenses.
GTH Preference Share Dividends. The GTH Preference Shares accrued
compounding dividends at an annual rate of 14%. During the period ended
December 31, 1997, the Company recorded preference share dividends of
approximately $12.7 million. This amount is comprised of $11.1 million in
paid-in-kind ("PIK") dividends, $1.0 million in amortization of the discount
on issuance and $0.6 million in amortization of issuance costs. The $11.1
million in PIK dividends includes $1.3 million accrued but unpaid as of
December 31, 1997.
In connection with the issuance of the GTH Preference Shares, the initial
purchaser thereof had the right to distribute to purchasers from it of the GTH
Preference Shares shares of Class A common stock of Global Crossing Ltd., LDC
("Old GCL") for no additional consideration. Shares of Class A common stock
not distributed by the initial purchaser were allocated pro rata to the
initial Class B and Class C shareholders.The Company has recorded the
$13,235,000 estimated fair value of such shares as a discount in the carrying
value of the GTH Preference Shares, which discount is being amortized over the
term of such shares. The Class A, Class B and Class C shares will be cancelled
in connection with the liquidation of Old GCL which is to occur concurrently
with the Offerings.
The Company utilized a portion of the net proceeds from the Note Offering to
redeem the GTH Preference Shares effective June 17, 1998. See "--Liquidity and
Capital Resources."
Net Loss and Net Loss Applicable to Common Shareholders. During the period
ended December 31, 1997, the Company had a net loss applicable to common
shareholders of $12.9 million, resulting primarily from the $12.7 million of
dividends on the GTH Preference Shares described above.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
For the three months ended March 31, 1998, the Company had revenues of
approximately $0.3 million, consisting entirely of interest income, and net
loss applicable to common shareholders of approximately $14.5 million.
During this period, the Company incurred approximately $0.8 million of sales
and marketing expenses; $2.6 million of general and administrative expenses;
$7.0 million of project evaluation costs relating to new cable systems; and
approximately $4.4 million of PIK dividends, including amortization of both
the discount on issuance and issuance costs. The increase in sales and
marketing and general and administration expenses reflects the continuing
growth in number of employees during the development stage. The number of the
Company's employees has increased from 9 as of December 31, 1997 to 38 as of
March 31, 1998. The Company also issued
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options on 1,821,000 shares of Common Stock at an exercise price of $2.50 per
share in January 1998. No compensation expense was recorded related to these
options since the estimated fair value of the options on the date of grant did
not exceed the exercise price.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital expenditure requirements involve the
construction of undersea cable systems, the related landing stations, and
certain investments in backhaul capacity to connect the landing stations to
major metropolitan areas. As of March 31, 1998 and December 31, 1997,
respectively, the Company had incurred approximately $622 million and $524
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 $195 million and $134 million, respectively, of capital
expenditures under the AC-1 Contract in connection with the completion of AC-
1. Amounts attributable to purchases of backhaul capacity represent the
present value of future payments required to be made by the Company for such
capacity.
The total cost of AC-1 is estimated at approximately $750 million, including
financing costs capitalized during the period AC-1 is under construction. All
future costs with respect to AC-1 will be fully financed with the remaining
availability under the AC-1 Credit Facility. AC-1 was initially financed
through (i) the $482 million AC-1 Credit Facility; (ii) $150 million of GTH
Senior Notes; (iii) $100 million of GTH Preference Shares; and (iv) $75
million of GCL common equity. See "Description of Certain Indebtedness." As of
December 31, 1997 and March 31, 1998, respectively, the Company had borrowed
$162 million and $306 million, respectively, under the AC-1 Credit Facility.
The Company's principal source of liquidity through those dates was the AC-1
Credit Facility.
On May 18, 1998, GCH consummated an $800 million private offering of 9 5/8
Senior Notes Due 2008 (the "Note Offering"). The Company has utilized (or will
utilize) the net proceeds of the Note Offering (i) to purchase all of the $150
million outstanding GTH Senior Notes, (ii) to redeem all of the $100 million
outstanding GTH Preference Shares, (iii) to repay in full the $67.2 million
outstanding under the $200 million senior bridge loan facility of GCH (the
"Global Crossing Bridge Facility"), (iv) to make $315 million of equity
investments in certain of the Company's systems and (v) for general corporate
purposes, including $74 million to fund a one-year interest reserve on the GCH
Senior Notes.
Cash provided by operating activities was approximately $1.3 million for the
quarter ended March 31, 1998 and $5.4 million for the period from March 19,
1997 (date of inception) to December 31, 1997 and principally represents cash
received on deposits on signed CPAs plus interest income received, less sales
and marketing and general and administrative expenses paid.
Cash provided by financing activities of $129.5 million for the quarter
ended March 31, 1998 primarily represents borrowings under the AC-1 Credit
Facility and the Global Crossing Bridge Facility net of the increase in
proceeds on borrowings held in restricted cash and cash equivalents. Cash
provided by financing activities of $425.1 million for the period from March
19, 1997 (date of inception) to December 31, 1997 principally relates to net
proceeds from the issuance of common stock, preference shares and senior
notes, and borrowings under the AC-1 Credit Facility less finance and
organization costs paid, less an increase in proceeds on borrowings held in
restricted cash and cash equivalents.
Cash used in investing activities of $129.4 million and $429.0 million for
the quarter ended March 31, 1998 and the period from March 19, 1997 (date of
inception) to December 31, 1997, respectively, represents cash paid for
construction in progress.
The Company is currently actively developing three additional systems, PC-1,
MAC and PAC. The Company currently estimates that the costs of constructing
these systems will total approximately $1,995 million, including financing
costs. The Company expects to use approximately $315 million of the net
proceeds from the Note Offering to fund initial investments in PC-1, MAC and
PAC. In order to finance certain initial costs relating to the development of
these systems, the Company has obtained additional financing. During the first
quarter of 1998, the Company, acting through GCL, entered into the $200
million Global Crossing Bridge Facility with a syndicate of banks led by CIBC.
At March 31, 1998, approximately $12.1 million of borrowings were
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outstanding under the Global Crossing Bridge Facility. The Company utilized a
portion of the net proceeds from the Note Offering to repay such borrowings
and terminate the remaining commitments under the Global Crossing Bridge
Facility. The Company expects that the additional capital required to finance
these cable systems will be raised through a combination of commercial bank
borrowings, non-recourse project financings, and public and private offerings
of debt and equity securities. Effective May 11, 1998, the Company entered
into a commitment letter with three financial institutions (CIBC Inc.,
Deutsche Bank AG, an affiliate of Deutsche Bank Securities Inc., and Goldman
Sachs Credit Partners, L.P., an affiliate of Goldman, Sachs and Co.) for the
$850 million non-recourse project debt financing of PC-1 (including $50
million for the initial upgrade of the PC-1 system) and effective June 26,
1998, the Company entered into a commitment letter with two financial
institutions (CIBC Inc. and Deutsche Bank AG) for the $240 million non-
recourse project debt financing of MAC. There can be no assurance that the
Company will be successful in raising additional capital at all or on terms
acceptable to the Company. See "Risk Factors--Substantial Future Capital
Requirements" and "Risk Factors--Risks Related to Completing the Company's
Cable Systems."
Because the Company's cost of developing and constructing its systems, as
well as operating its business, will depend on a variety of factors (including
the Company's ability to successfully negotiate construction supply contracts
at favorable prices, the ability of the Company to generate sufficient sales
to customers, changes in the competitive environment of the markets served by
the Company, the estimated levels of participation by the Company's joint
venture partners, and changes in technology), actual costs and revenues will
vary from expected amounts, possibly materially, and such variations will
likely impact the Company's future capital requirements. The development of
additional systems which may be pursued by the Company will lead to additional
future capital requirements.
As of April 21, 1998, a supply contract (the "PC-1 Contract") was entered
into with TSSL to construct PC-1. The PC-1 Contract contains construction
payments totaling $1.0 billion to be made by Global Crossing and its joint
venture partners. On June 2, 1998, the Company entered into a supply contract
(the "MAC Contract") with Alcatel to construct MAC. The Company has not yet
entered into a definitive supply contract to construct PAC. See "Risk
Factors--Substantial Future Capital Requirements" and "Risk Factors--Risk of
Error in Forward-Looking Statements."
INCOME TAXES
Since the Company recognized no income through March 31, 1998, no income tax
provision has been reflected in the consolidated financial statements.
FOREIGN CURRENCY EXPOSURE
All of the Company's sales and substantially all of its expenditures are
denominated in U.S. dollars. Monetary assets and liabilities denominated in
foreign currencies at year end are translated into U.S. dollars at the rate of
exchange at that date. Resulting gains or losses on exchange are recorded in
the statement of operations.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
YEAR 2000 COMPLIANCE
The Company believes that its computer information systems will enable it to
process transactions relating to Year 2000 and beyond and that its computer
systems relating to AC-1 will be Year 2000 compliant. The Company has received
assurances from TSSL and Lucent Technologies regarding Year 2000 compliance
status of these suppliers with respect to AC-1, but does not currently have
such information regarding its customers. In the event that any of the
Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
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BUSINESS
Global Crossing is the world's first independent provider of global 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, Central America and the Caribbean. The subsea
component of this initial network totals approximately 51,000 km. The Company
is in the process of developing several new cable systems and evaluating other
business development opportunities which will complement the Global Crossing
Network.
Global Crossing's business is designed to meet the varying needs of the
global carrier market. The Company offers customers the ability to purchase
discrete increments of 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 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 subsea cable projects, as well as proposals
to develop or purchase additional terrestrial transmission 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
telecommunications 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
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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 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 May 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 addition, 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 to the undersea segments of the Global Crossing Network, the
Company has made and expects to continue to make acquisitions of terrestrial
telecommunications 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 telecommunications markets worldwide. Once completed, the
undersea segments of the Global Crossing Network, in combination with the
Company's investments in terrestrial telecommunications 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 Telecommunications and Internet 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 such as the 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 April 1998, the
ITU estimated that there were 1,000 international carriers, representing a
186% 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 been a corresponding growth in the number of new
transport facilities, especially in the undersea cable industry.
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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 an integrated global network through
ownership of a portfolio of undersea fiber optic systems, combined with
associated terrestrial backhaul capacity, which will offer its customers the
highest quality city-to-city connectivity among approximately 50 of the
largest metropolitan telecommunications markets worldwide at competitive
prices. 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 telecommunications 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
telecommunications 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."
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Maintain Position as a Leading Wholesale Service Provider. Global Crossing
is the world's first independent provider of global long distance
telecommunications facilities and services utilizing a network of undersea
digital fiber optic cable systems and associated terrestrial backhaul
capacity. The Company's products are segmented to meet the varying needs of
the global carrier market, with shore-to-shore capacity offered to major
carriers that have their own terrestrial backhaul capacity and city-to-city
capacity provided to other customers that require such service. Global
Crossing also offers carriers, through wholesale channels, a combination of
volume-based purchasing flexibility, typically according to a tiered scale
with various incentive levels, and volume discounts for purchases of capacity
on one cable system based upon purchases previously made on the Company's
other systems. In certain cases, the Company will permit the transfer of a
portion of unused capacity purchases from one Global Crossing system to
another depending on customers' individual traffic needs. 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 SSI'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
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President and Chief Planning and Development Officer at GTE, where he was
responsible for corporate development activities, including mergers and
acquisitions and strategic transactions, as well as strategic planning and
competitive analysis. In addition, the Company's system development team
includes several individuals with extensive experience with major undersea
cable and telecommunications industry participants. See "Management."
THE GLOBAL CROSSING NETWORK
As part of Global Crossing's mission to create an integrated global, high
capacity undersea fiber optic cable network, the Global Crossing Network is
being engineered and constructed to connect the two most heavily trafficked
international corridors in the world via AC-1 (United States to Europe) and
PC-1 (United States to Asia). Global Crossing plans to interconnect these
systems with two north-south systems (MAC and PAC), directly connecting
Bermuda, the Caribbean, Central America and, through unaffiliated cable
systems, South America. Of the four undersea fiber optic cable systems
currently being actively developed by Global Crossing, AC-1, MAC and PAC are
wholly-owned projects by the Company, while PC-1 is being developed 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 445 February 2000 Wholly-Owned
------
$2,745
======
</TABLE>
- --------
(1) Includes anticipated financing costs. The amount indicated under
"Estimated System Cost" is: (i) for AC-1, PC-1 and MAC, in accordance with
executed supply and financing documents; and (ii) for PAC, based upon
current management estimates and current negotiations regarding supply and
financing arrangements. 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) For AC-1, PC-1 and MAC, based upon executed supply and financing
documents. For PAC, based upon management estimates and current
negotiations regarding supply and financing arrangements. 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.
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<PAGE>
The aggregate costs of AC-1, which are estimated to be approximately $750
million, have been fully financed prior to the Offerings. In addition to the
AC-1 Contract with TSSL for construction of the system, Global Crossing has
entered into other contracts with TSSL pursuant to which TSSL will provide
operations, administration and maintenance services for the system.
The Company has successfully marketed capacity on AC-1 to licensed
telecommunications providers, including PTTs, established and emerging
telecommunications companies and Internet service providers. Sales of capacity
on AC-1 and related backhaul commenced in October 1997 and, as of June 30,
1998, the Company had entered into CPAs with customers providing for payments
to the Company of approximately $550 million and $100 million of payments
(including deposits) had been received in respect thereof. These CPAs
represent approximately 37% of the initial capacity of AC-1 prior to upgrades.
The balance of these payments is scheduled to be collected over the next four
years. The Company's AC-1 customers include Deutsche Telekom, Teleglobe,
Swisscom, PTT Telecom BV, Telia AB and a number of emerging telecommunications
companies. The Company generally grants customers who have entered into CPAs
options to acquire further capacity on AC-1. The amount of such capacity
depends upon a number of factors, including upgrades to AC-1, future prices
for AC-1 capacity and the amount of unsold capacity on AC-1 at certain dates
after the AC-1 system RFS date. In addition, the Company has received as of
June 30, 1998 non-binding indications of interest from customers pursuant to
memoranda of understanding ("MOUs") that would, if converted into CPAs,
provide for payments to the Company of approximately $90 million. The timing
of payments by purchasers under CPAs generally depends on when service
commences on the segment or segments of AC-1 on which capacity is acquired.
All of the foregoing payment amounts assume the completion of the related
segment prior to specified dates falling after the scheduled RFS date for that
segment. There can be no assurance that any MOUs will be converted into CPAs
or that the final form of any CPA will contain the same capacity purchase or
payment provisions as the related MOU.
Based upon its current expectations regarding sales of capacity on AC-1, the
Company believes that it will develop and eventually construct AC-2, an
additional four fiber pair cable connecting the United States to Europe. When
combined with AC-1, AC-2 would double the capacity that Global Crossing would
be able to offer customers on the transatlantic route. There can be no
assurance that the Company will ultimately elect to proceed with AC-2 or that
such system will help the Company achieve and sustain operating profitability.
PACIFIC CROSSING
PC-1, the Company's first undersea fiber optic cable in the Pacific region,
is being developed as a 21,000 km four fiber pair self-healing ring that, upon
completion, will connect California, Washington and two landing sites in
Japan, providing connectivity to other points in Asia through interconnection
with other third party cable systems. PC-1 is designed to operate initially at
80 Gbps of service capacity and to be upgradeable to a minimum of 160 Gbps,
using DWDM technology.
In April 1998, the Company executed the PC-1 Contract with TSSL for the
construction of PC-1, which provides for a system completion date of Summer
2000 at an aggregate cost of approximately $1.2 billion (excluding potential
future upgrades). Equity investments in PC-1 by Global Crossing and its
partners are currently estimated at $400 million (of which at least $200
million will be provided by the Company), with the remaining $800 million
financed through incurrence of non-recourse indebtedness at the PC-1 level.
The contractual commitment for the financing of such indebtedness was obtained
on May 11, 1998.
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.
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<PAGE>
Global Crossing has entered into a non-binding agreement in principle with
TeleBermuda International Limited ("TBI"), the second international carrier in
Bermuda, pursuant to which Global Crossing is negotiating to acquire from TBI
the now operational BUS-1 undersea cable which connects Bermuda to New Jersey,
in exchange for cash and certain capacity on AC-1. If such transaction is
consummated, the BUS-1 cable will be incorporated into MAC, with its northern
landing site moved from New Jersey to Brookhaven, New York.
In June 1998, the Company executed a contract with Alcatel Submarine
Networks ("Alcatel") for the construction of MAC, which provides for a system
completion date of December 1999 at an aggregate cost of approximately $350
million (excluding potential future upgrades), of which approximately $110
million will consist of equity contributions by the Company and $240 million
is to be financed through non-recourse indebtedness at the MAC level. The
contractual commitment for the financing of such indebtedness was obtained on
June 26, 1998.
PAN AMERICAN CROSSING
PAC is being developed as a 7,000 km two fiber pair cable that, upon
completion, will connect California, Mexico, Panama and the 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.
The Company is currently negotiating the engineering and construction
contract for this system. Based upon these negotiations, the Company believes
that PAC will be constructed by February 2000 and will cost approximately $445
million (excluding potential future upgrades), with $160 million financed
through equity contributions from the Company and $285 million expected to be
financed through non-recourse indebtedness at the PAC level.
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
telecommunications 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 telecommunications 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
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
34
<PAGE>
development (including planned upgrades). To address such demand, the Company
plans to evaluate and, as appropriate, build additional systems on such
routes. It is anticipated that such systems, where possible, would be restored
on the existing systems and would achieve further cost efficiencies through
the use of existing landing stations.
Terrestrial Backhaul Opportunities. The Company is reviewing opportunities
to build terrestrial backhaul networks connecting 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 in 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.
35
<PAGE>
With respect to PAC, which does not employ self-healing ring technology, the
Company is exploring options to enter into restoration arrangements with
terrestrial fiber optic cable operators to protect against system traffic
interruptions. The Company may also enter into similar arrangements to protect
against catastrophic system malfunction on its other cable systems.
SALES AND MARKETING
The Company markets capacity on its systems to licensed telecommunications
providers, including PTTs, established and emerging telecommunications
companies and Internet service providers. 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 tele- 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)
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<PAGE>
in order to better educate potential customers about AC-1 and Global
Crossing's other planned cable systems. To date, the Company has hosted three
such meetings, with the most recent event attracting 200 attendees
representing over 75 companies. Attendees of such meetings have been
affiliated with both existing and prospective customers and have represented a
variety of sectors of the telecommunications industry. Ongoing, the Company
intends to organize at least one major international conference per year in
order to provide updated information on the Global Crossing Network. The
Company also intends to host regional project information meetings focusing on
a particular cable system, with such meetings scheduled to precede the
anticipated commercial operation date for such system.
The Company intends to reinforce customer awareness through a variety of
marketing campaigns, including its Global Crossing international conferences
and regional marketing events, participation in key industry and user group
conferences, speaking engagements, press conferences and promotional
campaigns. In addition, Global Crossing expects its marketing team to
periodically visit current and prospective customers to obtain a greater
understanding of the individual needs of such customers.
SUMMARY OF PRINCIPAL TERMS OF STANDARD CONTRACTUAL DOCUMENTATION
Capacity Purchase Agreements (CPAs)
In general, a CPA provides for the sale of capacity by the Company on an IRU
basis, whereby the purchaser owns a unit of capacity for the remaining design
life of a particular system. The term of a CPA is 25 years from the RFS date
for the system on which capacity is being acquired, which is the entire useful
life of the system. Upon execution of a CPA prior to a segment RFS date, the
Company generally receives 10% of the purchase price immediately, with the
balance of the purchase price due to the Company upon the applicable RFS date
for that segment. A limited number of CPAs provide for payment of the purchase
price in installments over two to three year periods. Each purchaser under a
CPA is required to pay its allocated share of the cost of operating,
maintaining and repairing the system. A purchaser's payment obligation under a
CPA shall generally terminate with respect to any purchased capacity on AC-1
other than the United States-United Kingdom segment (and, in some cases, with
respect to purchased capacity on the United States-United Kingdom segment), if
the RFS date for the AC-1 system has not occurred by June 30, 1999.
Performance under CPAs is also contingent upon the obtaining and continuance
of such approvals, consents, governmental authorizations, licenses and permits
as may be required or reasonably deemed necessary by each party thereto for
performance by such party thereunder and as may be satisfactory to it. The
obligations of purchasers under certain CPAs are additionally contingent upon
the execution of related ICPAs. See "Risk Factors--Sales of Capacity;
Termination of CPAs."
Additionally, each purchaser acquiring capacity on AC-1 prior to the system
RFS date is granted the right to receive additional capacity ("residual
capacity") at no additional cost upon the date which is 12 1/2 years after the
RFS date for the system. Furthermore, neither party is liable to the other for
consequential, incidental, indirect or special damages sustained by reason of
(i) any failure in or breakdown on the system or the facilities 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 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.
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Inland Capacity Purchase Agreements (ICPAs)
The Company has entered into ICPAs with some of its customers. Under an
ICPA, the Company provides the customer with a portion of the backhaul
capacity it purchased from owners of terrestrial cable systems under ISAs. The
term of each ICPA is 25 years from the RFS date for the particular system.
Upon execution of an ICPA, the Company generally receives 10% of the purchase
price immediately, with the balance due no later than the RFS date for the
particular segment. A purchaser's payment obligation under an ICPA generally
shall terminate with respect to any purchased capacity on AC-1 other than the
United States-United Kingdom segment (and, in some cases, with respect to
purchased capacity on the United States-United Kingdom segment), if the RFS
Date for the AC-1 system has not occurred by June 30, 1999. Unlike a CPA, the
purchaser under an ICPA is generally not required to make any additional
payments for costs associated with operating, maintaining and repairing the
backhaul capacity in which the IRU is granted. Neither party is liable to the
other for consequential, incidental, indirect or special damages sustained (i)
by reason of any failure of any inland carrier to perform the terms and
conditions of any ISA to which it is a party or (ii) for any interruption of
service, whatever the cause and however long it shall last. Each ICPA is
subject to an arbitration clause. An ICPA may be supported by a corresponding
parent guarantee from the purchaser.
OPERATIONS, ADMINISTRATION AND MAINTENANCE SUPPORT
Pursuant to the AC-1 OA&M Agreement, TSSL will provide operations,
administration and maintenance support on behalf of AC-1 for a term of eight
years following the commencement of commercial operations. As of December 31,
1997, the Company was committed under the AC-1 OA&M Agreement to make payments
totalling approximately $263 million. Such agreement is extendible at the
option of the Company for two additional periods of 8.5 years each. For AC-1,
TSSL's network operations center is designed to ensure the overall ongoing
monitoring of the system's operation, maintenance and control systems. The
network management equipment located at the Brookhaven, New York landing
station provides fault management, security management, configuration
management and performance management, while undersea network management
equipment located at all landing stations provides system level monitoring of
the undersea terminating equipment. The full integration of these control
elements allows the AC-1 cable system to be "self-diagnostic," with such
control elements facilitating localization and repair in the event of the
occurrence of a system fault.
In addition, Global Crossing is separately developing a worldwide
operations, administration and maintenance support system to serve each of its
cable systems (exclusive of AC-1 for the initial term of the TSSL OA&M
Agreement). Such support will be handled through three co-located work centers
currently anticipated to be located in Bermuda: a customer care center
("CCC"), network operations center ("NOC") and technical support center
("TSC").
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
38
<PAGE>
existing geosynchronous satellites and low-earth orbit systems now under
construction. The Company competes primarily on the basis of price,
availability, transmission quality and reliability, customer service and the
location of its systems. Traditionally, carriers have made long term
investments in ownership of cable capacity, making lower price and superior
service less determinative in convincing such carriers to acquire additional
capacity on the Company's systems than is the case in industries without such
long-term relationships. See "Risk Factors--Competition."
Existing and Planned Cable Systems
The routes addressed by Global Crossing's planned systems are currently
served by several undersea cables as well as satellites. Currently, there are
several fiber optic transatlantic cable systems, each of which will compete
directly with AC-1. Primary future sources of transatlantic competition for
the Company may result from, among others, (i) TAT-14, a transatlantic cable
system which is being developed by its consortium members, including British
Telecom, AT&T, France Telecom and Deutsche Telekom, and (ii) Gemini, a
transatlantic cable system being operated and marketed by WorldCom and Cable &
Wireless. The Company believes that such other cable systems will compete
directly with AC-1 and the commitments of the developers and other carriers on
these systems could substantially reduce demand for capacity on AC-1.
Similarly, there are several cable systems currently operating between the
United States and Asia, the route to be served by PC-1. Competition in the
transpacific market may result from, among others, (i) China-US, a
transpacific system being developed as a "private cable system" by fourteen
large carriers, including SBC, MCI, AT&T and Sprint, most of whom have
traditionally sponsored consortium cables and (ii) a transpacific system being
developed by a consortium of major telecommunications carriers, including
Worldcom, AT&T, KDD, NTT, Cable & Wireless and GTE. Although the Company
believes that such other cable systems will not satisfy the demand for
capacity between the United States and Japan and that there is currently
enough demand projected to accommodate all such systems, such other cable
systems will receive commitments for capacity that PC-1 could have received in
their absence.
Other regional and global systems are being considered by developers,
including Project Oxygen, a global system being evaluated by CTR Group, Ltd.
In addition, the Company may face competition from existing and planned
regional systems and satellites on its MAC and PAC routes, where entrants are
vying for purchases from a small but rapidly growing customer base.
Satellite Transmission
When comparing cable transmission against satellite transmission, the
Company believes that cable has a distinct advantage with respect to latency
(i.e., transmission delay) and voice quality. Cable transmission has a 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, SpaceWay and
Celestri, 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. 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
39
<PAGE>
suppliers who have focused primarily on regional routes or non-repeatered
systems. TSSL is completing construction of AC-1 and, together with KDD SCS
(as a subcontractor), is responsible for design and installation of PC-1.
Alcatel is responsible for design and construction of MAC. See "Risk Factors--
Dependence on Third Parties."
PROPERTIES
The Company leases executive and administrative offices at its worldwide
headquarters at Wessex House, 45 Reid Street, Hamilton HM12 Bermuda. The
Company owns a cable station in Brookhaven, New York and a cable station in
White Sands, United Kingdom. The Company leases cable station space in Sylt,
Germany and cable station space in Beverwijk, The Netherlands. Such leases run
for the anticipated 25-year term of AC-1. The Company also leases office space
in Los Angeles, Morristown, New Jersey, Dallas, London and San Francisco.
REGULATION
The Company, in the ordinary course of development, construction and
operation of its fiber optic cable systems, will be required to obtain and
maintain various permits, licenses and other authorizations in both the United
States and in foreign jurisdictions where its cables land, and will be subject
to applicable telecommunications regulations in such jurisdictions. In
particular, submarine cable landing or similar licenses will be required in
many of the jurisdictions where Global Crossing's planned systems will land.
With respect to AC-1, an undersea cable landing license (the "AC-1 Landing
License") and a subsequent modification have been obtained from the United
States Federal Communications Commission ("FCC"), which license permits AC-1
to land in the United States at the Brookhaven, New York landing site and to
operate between the United States, the United Kingdom, The Netherlands and
Germany. The AC-1 Landing License authorizes the Company to provide capacity
on a private carriage basis, and AC-1 is not presently regulated by the FCC as
a common carrier. Global Crossing has obtained landing licenses similar to the
AC-1 Landing License in each of the other jurisdictions where the AC-1 cable
system will land and where such licenses are required. With respect to each of
the Company's cable systems other than AC-1, the Company anticipates both
filing applications for cable landing licenses with the FCC (and, where
necessary, foreign regulatory agencies) and seeking private carriage status
for these systems as well. These licenses are typically issued for a term of
years (in the case of the FCC-issued cable landing license, 25 years), and are
subject to renewal. United States law (and the law of several foreign
jurisdictions, as well) limits foreign ownership, direct or indirect, of
entities holding cable landing licenses, although the FCC has progressively
relaxed to the rules to examine only those foreign holders that are affiliated
with a foreign telecommunications carrier that has market power in the
destination country. More recently, in order to implement a multilateral World
Trade Organization agreement, the FCC adopted regulations that presumptively
permit unlimited foreign ownership by nationals of countries that are party to
that agreement. See "Risk Factors--Government Regulation."
Construction of each of the Company's cable systems also requires the
acquisition and maintenance of various permits and licenses in the ordinary
course of business. Pursuant to its construction contracts for AC-1 and PC-1,
TSSL is contractually obligated to obtain and maintain all such licenses and
permits. Although Global Crossing intends that the construction contracts for
each of the Company's other planned cable systems will impose the burden of
acquiring and maintaining construction licenses and permits on the contractor
for each of such systems, there can be no assurance that such contractor will
successfully obtain such permits and licenses. See "Risk Factors--Risks
Related to Completing the Company's Cable Systems."
EMPLOYEES
As of June 30, 1998, the Company had approximately 75 employees. The Company
considers its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company is not presently subject to any legal claims or proceedings.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
directors and executive officers of GCL.
Prior to the Offerings, GCL will amend and restate its Bye-Laws (the "Bye-
Laws") to provide for a Board of Directors consisting of 16 members divided
into three classes with terms of three years each. Mr. Brown, Mr. Porter, Mr.
Kehler, 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. Phoenix, Mr. Weinberger, Mr. Steed and Mr. Ogasawara
will be elected as Class C Directors, with a term expiring in 2001. The form
of Amended and Restated Bye-Laws is an exhibit to the Registration Statement
of which this Prospectus is a part.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gary Winnick.......... 50 Co-Chairman of the Board and Director
Lodwrick Cook......... 70 Co-Chairman of the Board and Director
Jack M. Scanlon....... 56 Chief Executive Officer and Director
David L. Lee.......... 49 President, Chief Operating Officer and Director
Barry Porter.......... 40 Senior Vice President and Director
Abbott L. Brown....... 54 Senior Vice President and Director
Dan J. Cohrs.......... 45 Senior Vice President and Chief Financial Officer
K. Eugene Shutler..... 60 Senior Vice President
James C. Gorton....... 36 Senior Vice President and General Counsel
Hillel Weinberger..... 44 Director
Jay R. Bloom.......... 42 Director
Dean C. Kehler........ 41 Director
Jay R. Levine......... 41 Director
William D. Phoenix.... 41 Director
Bruce Raben........... 44 Director
Michael R. Steed...... 48 Director
William E. Conway..... 48 Director*
Toshiaki Ogasawara.... 67 Director*
Geoffrey J.W. Kent.... 56 Director*
</TABLE>
- --------
* Effective immediately prior to Offerings
GARY WINNICK--Mr. Winnick, founder of Global Crossing, has been Co-Chairman
of the Board of GCL since January 1998 and, prior thereto, was Chairman of the
Board since the inception of the Company in March 1997. Mr. Winnick is the
founder and has been the Chairman and Chief Executive Officer of Pacific
Capital Group since its inception, having been in the principal equity
investment and merchant banking business since 1985. Mr. Winnick holds a BA in
Economics and Business Management from C.W. Post College.
LODWRICK M. COOK--Mr. Cook has been Co-Chairman of the Board of GCL since
January 1998 and Vice Chairman, Managing Director of PCG since 1997. Prior to
joining PCG, Mr. Cook spent 39 years at Atlantic Richfield Co., serving as
President and Chief Executive Officer from 1985 to 1995 and as Chairman of the
Board of Directors from 1986 to 1995, when he became Chairman Emeritus. Mr.
Cook is also a member of the Board
41
<PAGE>
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.
JACK M. SCANLON--Mr. Scanlon has been Chief Executive Officer and a director
of GCL since April 1998. Prior to joining the Company, Mr. Scanlon was
President and General Manager of the Cellular Networks and Space Sector of
Motorola Inc. and had been affiliated with Motorola Inc. since 1990. Mr.
Scanlon was Chief Operating Officer of Cambridge Technology Group from 1988 to
1990 and, prior thereto, spent 24 years with AT&T Corp. and Bell Laboratories,
rising to Group Vice President at AT&T Corp. Mr. Scanlon received his BS
degree from the University of Toronto and a MS degree in electrical
engineering from Cornell University.
DAVID L. LEE--Mr. Lee has been President and Chief Operating Officer and a
director of GCL since the inception of the Company in March 1997. He has also
been a managing director of PCG since 1989. Prior to joining PCG, Mr. Lee was
Group Vice President of Finance and Acquisitions at TRW Information Systems
Group. Mr. Lee is a graduate of McGill University and holds a PhD. in Physics
and Economics from the California Institute of Technology.
BARRY PORTER--Mr. Porter is Senior Vice President, Corporate Development and
a director of GCL. Mr. Porter has been a director of the Company since 1997
and has also been a managing director of PCG since 1993. From 1986 to 1993,
Mr. Porter was affiliated with Bear, Stearns & Co. Inc., rising to a Senior
Managing Director in the investment banking department. Mr. Porter received
his JD and MBA degrees from the University of California (Berkeley) and his BS
degree from The Wharton School.
ABBOTT L. BROWN--Mr. Brown is Senior Vice President, Corporate Affairs and a
director of GCL. Mr. Brown has been a director of the Company since 1997 and
has also been a managing director and Chief Financial Officer of PCG since
1994. From 1990 through 1994, Mr. Brown was Executive Vice President, Chief
Financial Officer and a member of the board of directors of Sony Pictures
Entertainment Inc., a wholly-owned subsidiary of Sony Corporation. Prior
thereto, Mr. Brown was a partner in the international accounting firm of Price
Waterhouse LLP. Mr. Brown holds a BS degree from Lehigh University and is a
Certified Public Accountant.
DAN J. COHRS--Mr. Cohrs has been Senior Vice President and Chief Financial
Officer of GCL since May 18, 1998. From 1993 to 1998, Mr. Cohrs was affiliated
with GTE Corporation, rising to the position of Vice President and Chief
Planning and Development Officer in 1997. From 1990 to 1993, he was at
Northwest Airlines and prior to leaving Northwest Airlines served as Vice
President of International Finance (Tokyo, Japan); from 1986 to 1990, he was
at the Marriott Corporation and served in such capacities as Vice President of
Financial Planning and Acquisitions and Vice President of Project Finance; and
from 1983 to 1986, he was a Strategy and Financial Consultant at Marakon
Associates. Mr. Cohrs received his BS degree from Michigan State University in
Engineering and his PhD degree from Cornell University in Economics, Finance
and Public Policy.
K. EUGENE SHUTLER--Mr. Shutler is a Senior Vice President of GCL and is also
President of ACL. From 1996 to 1997, Mr. Shutler served as Chairman of the
Board and Chief Executive Officer of Styles On Video, Inc. Prior thereto, Mr.
Shutler was Executive Vice President, General Counsel and a Director of MGM
Grand, Inc. from 1991 to 1995; a member of the Los Angeles law firm of Troy
and Gould from 1983 to 1991; and Vice President/General Counsel of Republic
Corporation, Continental Aircraft Services (Continental Airlines) and Caesars
World, Inc. Mr. Shutler holds a BA degree from the University of Pennsylvania
and an LLB degree from Yale Law School.
JAMES C. GORTON--Mr. Gorton will become Senior Vice President and General
Counsel of GCL effective July 15, 1998. From 1994 to 1998, Mr. Gorton was a
member of the New York law firm Simpson Thacher & Bartlett and had been
associated with the firm since 1986. Mr. Gorton holds a BA degree from
Columbia College and a JD degree from New York University School of Law.
HILLEL WEINBERGER--Mr. Weinberger, a director of GCL since June 1997, has
been a Senior Vice President of Loews/CNA Holdings Corp. since 1988. Prior
thereto, Mr. Weinberger was a Senior Vice President of Presidential Life from
1982 to 1988. Mr. Weinberger serves as director to News Communications Inc.
42
<PAGE>
JAY R. BLOOM--Mr. Bloom, a director of GCL since the Company's inception in
March 1997, is a managing director of CIBC Oppenheimer Corp. ("CIBC
Oppenheimer"), co-head of its High Yield Group and co-head of CIBC World
Markets High Yield Merchant Banking Funds. Mr. Bloom also serves on the board
of directors of Heating Oil Partners, L.P., Consolidated Advisers Limited,
L.L.C. and Morris Material Handling, Inc. Prior to joining CIBC Oppenheimer in
August 1995, Mr. Bloom was a founder and managing director of The Argosy Group
L.P. From 1984 to 1990, Mr. Bloom was a managing director in the Mergers and
Acquisitions Group of Drexel Burnham Lambert Incorporated. Mr. Bloom was an
investment banker associated with Lehman Brothers Kuhn Loeb Incorporated from
1982 to 1984 and, from 1981 to 1982, practiced law at Paul Weiss Rifkind
Wharton & Garrison in New York. Mr. Bloom received his BS and MBA degrees from
Cornell University and his JD degree from Columbia University School of Law.
DEAN C. KEHLER--Mr. Kehler, a director of GCL since the Company's inception,
is a managing director of CIBC Oppenheimer and co-head of its High Yield
Group. In addition, he is a member of CIBC's Investment Committee and co-head
of CIBC World Markets High Yield Merchant Banking Funds. Prior to joining CIBC
Oppenheimer in 1995, Mr. Kehler was a founder and managing director of The
Argosy Group. From 1985 to 1990, Mr. Kehler was a managing director in the
Mergers and Acquisitions Group, Co-Head of Merchant Banking and a member of
the Corporate Finance Executive Committee of Drexel Burnham Lambert
Incorporated. Mr. Kehler serves on the board of directors of Booth Creek
Group, Inc., Telebanc Financial Corporation and Heating Oil Partners, L.P.
From 1979 to 1985, Mr. Kehler was an investment banker at Lehman Brothers. Mr.
Kehler received his BS degree from The Wharton School.
JAY R. LEVINE--Mr. Levine, a director of GCL since the Company's inception,
is a managing director of CIBC Oppenheimer, and manages the CIBC World Markets
High Yield Merchant Banking Funds. Prior to joining CIBC Oppenheimer in May,
1997, Mr. Levine was President of PPMJ Inc., a private consulting firm, from
September 1996 to April 1997 that advised its clients on private equity
investments. From August 1990 to June 1996, Mr. Levine was a senior executive
in the Morningside and Springfield Group, Inc., a private investment company.
Mr. Levine serves as a director of Aircraft Service International Group,
Consolidated Advisers Limited, L.L.C., Heating Oil Partners, L.P. and Talton
Holdings, Inc. Mr. Levine received a BS degree from Syracuse University, a JD
degree from Tulane University and an LLM in Taxation from New York University.
WILLIAM P. PHOENIX--Mr. Phoenix, a director of GCL since its inception, is a
managing director of CIBC Oppenheimer and co-head of Credit Capital Markets.
Prior to joining CIBC Oppenheimer in 1995, Mr. Phoenix had been the Managing
Director of the Canadian Imperial Bank of Commerce since 1982. Mr. Phoenix
serves as a director of the Electrolux Corporation. Mr. Phoenix received his
BA degree from the University of Western Ontario and his MBA degree from the
University of Toronto.
BRUCE RABEN--Mr. Raben, a director of GCL since its inception, is a managing
director of CIBC Oppenheimer. Prior to joining CIBC Oppenheimer in January
1996, Mr. Raben was a founder, managing director and co-head of the Corporate
Finance Department of Jefferies & Co., Inc. since 1990. Mr. Raben serves as a
director of Optical Security, Inc., Talton Holdings, Inc., Terex Corporation
and Equity Marketing, Inc. Mr. Raben received his MBA degree from Columbia
Business School and his AB degree from Vassar College.
MICHAEL R. STEED--Mr. Steed, a director of GCL since its inception, is
Senior Vice President of Investments for the Union Labor Life Insurance
Company, ULLICO Inc. ("ULLICO") and its Family of Companies and President of
Trust Fund Advisors, ULLICO's investment management subsidiary. Mr. Steed
joined ULLICO in November 1992 after serving seven years as President and
Founder of A.F.I.C. Group, Ltd., a financial and investment consulting firm.
From 1983 to 1985, Mr. Steed was the Executive Director of the Democratic
National Committee. He received his JD degree from Loyola University School of
Law in Los Angeles and his BA degree from Loyola Marymount University in Los
Angeles.
43
<PAGE>
WILLIAM E. CONWAY--Mr. Conway is a nominee for director for GCL. Mr. Conway
has been a managing director of The Carlyle Group since 1987. Mr. Conway was
Senior Vice President and Chief Financial Officer of MCI Communications
Corporation from 1984 until he jointly founded The Carlyle Group in August
1987. Mr. Conway serves as director to GTS Duratek, Inc., Nextel
Communications, Inc. and Hownet International Corporation. Mr. Conway received
his BA degree from Dartmouth College and his MBA in Finance from Chicago
Graduate School of Business.
TOSHIAKI OGASAWARA--Mr. Ogasawara is a nominee for director for GCL. Mr.
Ogasawara has been Chairman and Publisher of The Japan Times, Limited since
1985 and President and Representative Director of Nifco Inc since 1967. Mr.
Ogasawara serves as Chairman and Representative Director for FM Inter-Wave,
Inc. and Simmons Co. Ltd.
GEOFFREY J.W. KENT--Mr. Kent is a nominee for director for GCL. Mr. Kent is
Chairman and Chief Executive Officer of the Abercrombie & Kent Group of
companies and has been associated with the company since 1967.
ADDITIONAL MANAGEMENT
Global Crossing's management team utilizes additional executives with
extensive experience in the telecommunications industry and the undersea cable
sector, including the following individuals:
WILLIAM B. CARTER, JR. is President of Global Crossing Development Co. and
the Company's Senior executive in charge of development. Prior to joining the
Company, Mr. Carter spent 30 years with AT&T, where he headed up the
International Facilities Planning (both cable and satellite) and served as
President and Chief Executive Officer for SSI and as Director of International
Network Operations for AT&T. During Mr. Carter's tenure, SSI had the leading
worldwide market share in the undersea cable industry, with an average market
share of 35-50%. Mr. Carter is a member of the World Telecommunications
Advisory Council to the International Telecommunications Union (ITU) and
Senior Advisory Council to the U.S. government on communications and economic
development. Mr. Carter received a BEE degree from Georgia Institute of
Technology and has completed the advanced program for senior managers at MIT's
Sloan School.
JACK FINLAYSON--Mr. Finlayson has been President of Global Crossing
International, Ltd. since June 1998. Prior to joining the Company, Mr.
Finlayson was corporate vice president and general manager of Motorola Inc.'s
Asia Pacific Cellular Infrastructure group, where he was responsible for
managing the wireless infrastructure business, and had been affiliated with
Motorola Inc. since 1994. Prior to joining Motorola Inc., Mr. Finlayson was
employed by AT&T, where he was sales vice president of Business Network Sales
for the southeastern United States. Mr. Finlayson has more than 17 years
experience in the telecommunications field. Mr. Finlayson received his BS
degree in marketing from LaSalle University and holds an MBA degree in
information management from St. Joseph's University.
S. WALLACE DAWSON, JR., Senior Vice President of Operations of Global
Crossing Development Co., worked at SSI for 29 years, where he had overall
delivery responsibility for the implementation of all submarine cable
projects. Prior thereto, he held various positions at AT&T, where his work
centered on specialized equipment design for military and commercial undersea
cable systems and development of various network services. Mr. Dawson holds a
BEE degree from the University of Virginia, and an MSEE degree from Duke
University. He also completed the Advanced Management Program at INSEAD,
Fountainbleu, France.
HAROLD D. GROSSNICKLE, Managing Director of Global Crossing Development Co.,
is responsible for directing the operations, administration and maintenance of
the Global Crossing Network. Mr. Grossnickle has 28 years of experience in the
telecommunications industry, including over 24 years at AT&T and AT&T
Paradyne, where he served as a vice president of network management systems
and services. Mr. Grossnickle received his BS from Iowa State University and
his MBA from the University of Missouri.
44
<PAGE>
PATRICK JOGGERST is Vice President of Global Sales & Marketing of Global
Crossing International Ltd. and the Company's Senior executive in charge of
sales. Prior to joining the Company, Mr. Joggerst served as Managing Director
for the Americas Region at TSSL. His 17-year tenure at AT&T included positions
with several departments, including international services operations,
organizational development/human resources, and communications products and
service sales. Mr. Joggerst graduated from Georgetown University's School of
Foreign Service.
IAN MCLEAN--Mr. McLean is Vice President of GCL and also serves as Chief
Financial Officer of ACL. Prior to joining the Company in September, 1997, Mr.
McLean was Chief Financial Officer and Systems Information Officer at Price
Waterhouse, Bermuda from 1994 to 1997; Chief Financial Officer for Horizons
Limited from 1992 to 1994; Deputy Manager, Corporate Trust at Bank of Bermuda
Limited from 1988 to 1992 and Vice President of Finance for the Baillargeon
Group from 1985 to 1988. Mr. McLean is a Canadian Chartered Accountant and
holds a Bba degree from Bishop's University and a graduate diploma in
accountancy from McGill University.
WILLIAM T. RICHARDS is Vice President of Operations of ACL. Mr. Richards was
employed at British Telecommunications for seven years, most recently as
Manager of Subsea Projects & Consultancies, and served as Independent Engineer
on the FLAG system. Prior to his position at British Telecommunications, he
served as Business Development Manager at Dowty Magnetics. Mr. Richards
received his BFc (Hons.) degree from City University of London.
LISA DADOURIS, Director of Business Development of Global Crossing
Development Co., spent 12 years at AT&T and Lucent Technologies, where she
held a number of positions in business development, marketing and finance,
including Chief Financial Officer for Local Service in the northeast United
States and Director of Manufacturing Planning for Lucent. Ms. Dadouris
graduated from Wake Forest University with a BS in business, and received her
MBA in accounting from Fuqua School of Business at Duke University.
MOOL SINGHI is Director of Network Planning of Global Crossing Development
Co. Prior to joining the Company, Mr. Singhi served as the Director of Market
Planning at TSSL. Mr. Singhi spent 27 years at AT&T, where he held various key
positions in manufacturing, finance, engineering, operations and international
network planning. Mr. Singhi received a bachelor's degree in mechanical
engineering and a master's degree in operations research and industrial
engineering from the University of Buffalo.
CHARLES D. HOGAN, Director of Operations of Asia Systems of Global Crossing
Development Co., spent 42 years at AT&T, serving as Regional Managing
Developer of AT&T's General Departments. Immediately prior to joining the
Company, Mr Hogan was based in Hong Kong where he was responsible for the
planning of international digital lightwave undersea cables for AT&T in the
Asia/Pacific region, including the planned China-United States cable system.
JOHN MERCOGLIANO, Vice President of Sales and Marketing of Global Crossing
International Ltd., has over 19 years of experience in the telecommunications
industry. Prior to joining the Company, Mr. Mercogliano was employed as Vice
President-Europe of Bell Atlantic Network Systems (Bermuda) Ltd., where he was
responsible for developing strategies and directing sales and marketing
opportunities in the FLAG European region. Mr. Mercogliano received his B.A.
degree from New York University and his M.B.A. from Pace University.
COMPENSATION
Total compensation paid or accrued to the executive officers of GCL and its
consolidated subsidiaries as a group during the fiscal year ended December 31,
1997 was $155,409. Directors of GCL and its consolidated subsidiaries do not
receive compensation, except as officers or employees of GCL or its
consolidated subsidiaries.
45
<PAGE>
OPTION GRANTS AND OPTION VALUES
The table below sets forth information concerning options granted since
January 1, 1998 to principal officers of the Company. Options representing a
total of 6,565,000 shares of Common Stock have been issued to officers or
directors of the Company at exercise prices ranging from $2.50 per share to
the price of the Offerings.
<TABLE>
<CAPTION>
GRANT
DATE
INDIVIDUAL GRANTS VALUE(1)
---------------------------------------------- --------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT
OPTIONS GRANTED TO EXERCISE OR DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (#) FISCAL YEAR ($/SHARE) DATE VALUE($)
---- ---------- ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Jack Scanlon............ 1,200,000 15.65% 2.50 04/01/08
Chief Executive Officer
Gary Winnick............ 600,000 7.82% 2.50 03/31/07
Co-Chairman of the
Board
Bill Carter............. 1,000,000 13.04% 2.50 10/27/07
President, Global
Crossing Development
Co.
James Gorton............ 500,000 6.52% 10.00 06/12/08
Senior Vice President
and General Counsel
Jack Finlayson.......... 390,000 5.09% 10.00 06/12/08
President, Global
Crossing International,
Ltd. 100,000 1.30% (2) 06/12/08
</TABLE>
- --------
(1) Based upon midpoint of expected pricing range of the Offerings.
(2) Exercise price will equal the price of the Offerings.
The table below sets forth information concerning exercises of stock options
by the individuals named above for the current year and the value of such
individuals' unexercised options based upon the midpoint of the expected
pricing range of the Offerings.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS(#) OPTIONS($)
SHARES VALUE --------------- ----------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- --------------- ----------------
<S> <C> <C> <C> <C>
Jack Scanlon............. -- -- 300,000/900,000
Chief Executive Officer
Gary Winnick............. -- -- 200,000/400,000
Co-Chairman of the Board
Bill Carter.............. -- -- 0/1,000,000
President, Global
Crossing Development Co.
James Gorton............. -- -- 125,000/375,000
Senior Vice President
and General Counsel
Jack Finlayson........... -- -- 195,000/295,000
President, Global
Crossing International,
Ltd.
</TABLE>
- --------
(1) Based upon midpoint of expected pricing range of the Offerings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The 1998 Global Crossing Ltd. Stock Incentive Plan (the "Stock Incentive
Plan") provides that, upon a "change in control," certain of the awards
granted under the Stock Incentive Plan will vest immediately. A "change in
control" is defined under the Stock Incentive Plan as the occurrence of any of
the following: (i) any Person (other than a Person holding securities
representing 10% or more of the combined voting power of GCL's outstanding
securities as of July 15, 1998, GCL, any trustee or other fiduciary holding
securities under an employee benefit plan of GCL, or any company owned,
directly or indirectly, by the shareholders of GCL in
46
<PAGE>
substantially the same proportions as their ownership of stock of GCL) becomes
the beneficial owner (as defined under Rule 13d-3 under the Exchange Act) of
securities of GCL (a) in excess of the interest held by the existing
shareholders of GCL as of July 15, 1998 and (b) representing 30% or more of
the combined voting power of GCL's then outstanding securities; (ii) during
any period of 24 months, individuals who at the beginning of such period
constitute the board of directors and any new director (other than those
directors who meet certain exceptions specified in the Stock Option Plan)
whose election was approved in advance by a vote of at least two-thirds of the
directors then still in office, cease for any reason to constitute at least a
majority of the board of directors; (iii) the shareholders of GCL approve any
transaction under which GCL is merged or consolidated with any other company,
other than a merger or consolidation which would result in shareholders of GCL
immediately prior thereto continuing to own more than 65% of the combined
voting power of the voting securities of GCL or such surviving entity; or (iv)
the shareholders of GCL approve a plan of complete liquidation of the company
or an agreement for the sale or disposition by GCL of all or substantially all
of GCL's assets, other than the liquidation of GCL into a wholly-owned
subsidiary.
GCL has entered into an employment agreement, dated as of April 1, 1998,
with Mr. Jack Scanlon, providing for Mr. Scanlon's employment as GCL's Chief
Executive Officer for a term of two years and continuing thereafter for
successive two-year terms unless either GCL or Mr. Scanlon provides at least
three months' notice in advance of the expiration of the current term. In
connection with such agreement, Mr. Scanlon was issued an option to purchase a
total of 1,200,000 shares of Common Stock at an exercise price of $2.50 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 GCL. Upon a "change of control", as defined in the Stock Incentive Plan,
or any other "non-fault" termination as defined in Mr. Scanlon's employment
agreement, vesting of all of such options shall immediately occur and Mr.
Scanlon shall be entitled to terminate the agreement and receive a lump sum
payment equal to the sum of two times Mr. Scanlon's then annual base salary
and bonus. In the event that a public offering of Common Stock or a reasonably
equivalent opportunity to liquidate stock does not occur within three years of
the commencement of Mr. Scanlon's employment, Mr. Scanlon may require GCL to
purchase up to 300,000 shares of Common Stock held by him at $20.00 per share.
GCL has agreed to make similar arrangements available to Mr. Cohrs with
respect to 100,000 shares of Common Stock after three years of employment. Mr.
Finlayson has the option to sell 100,000 shares of Common Stock to the Company
at $20.00 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 GCL management and the independent public accountants the
plans for, and scope of, the audit procedures to be utilized and results of
audits; (iii) approve the professional services provided by the independent
public accountants; (iv) review the adequacy and effectiveness of GCL's
internal accounting controls; (v) review GCL's insurance program; and (vi)
perform any other duties and functions required by any organization under
which GCL's securities may be listed. Messrs. Kehler, Weinberger and Brown are
the current members of the Audit Committee. Following the Offerings, GCL will
reconstitute the Audit Committee so that it will be comprised of three members
of GCL's Board of Directors, at least two of which will be independent
directors.
Compensation Committee. The purpose of the Compensation Committee is to
establish and submit to the Board of Directors of GCL recommendations with
respect to (i) compensation of officers and other key employees of GCL and
(ii) awards to be made under the Stock Incentive Plan. Messrs. Cook, Steed and
Levine are the current members of the Compensation Committee.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table and the accompanying footnotes set forth, as of June 30,
1998, certain information regarding the beneficial ownership of the common
stock of GCL ("Common Stock") by (i) each person or entity who is known to GCL
to own beneficially five percent or more of GCL's voting Common Stock, (ii)
each of GCL's directors and executive officers and (iii) all directors and
executive officers of GCL as a group. To the knowledge of GCL, each such
stockholder has sole voting and investment power with respect to the shares
shown, unless otherwise noted. For a summary of the principal terms of the
Common Stock, see "Description of Capital Stock."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
-------------------------------------------
NUMBER PERCENTAGE NUMBER OF PERCENTAGE
OF PRIOR TO SHARES TO AFTER
BENEFICIAL OWNER SHARES(1) OFFERINGS BE SOLD OFFERINGS
---------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
CIBC Wood Gundy Capital (SFC)
Inc. ............................ 31,273,500 27.88%
161 Bay Street, 8th Floor--BCE
Place
P.P. Box 500
M5J258
Toronto, Canada
Pacific Capital Group, Inc.(2) ... 25,034,342 22.31%
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Continental Casualty Company(3)... 13,980,490 12.46%
CNA Plaza, Floor 23 South
Chicago, Illinois 60685
MRCo, Inc. ....................... 11,048,346 9.85%
111 Massachusetts Avenue NW
Washington, DC 20001
Telecommunications Development
Corporation...................... 7,538,904 6.72 %
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Gary Winnick(4)................... 32,773,246 29.21%
Lodwrick M. Cook.................. 300,000 *
Jack M. Scanlon(5)................ 300,000 *
Dan J. Cohrs(6)................... 150,000 *
David L. Lee(7)(8)................ 11,110,230 9.90%
Abbott L. Brown(8)(9)(10)......... 2,552,112 2.27%
Barry Porter(8)(11)............... 4,249,867 3.79%
James C. Gorton(12)............... 125,000 *
Jack Finlayson(13)................ 195,000 *
K. Eugene Shutler(10)............. 99,312 *
Hillel Weinberger(14)(15)......... 14,852,700 13.24%
Jay R. Bloom(15)(16).............. 31,283,500 27.88%
Dean C. Kehler(15)(16)............ 31,283,500 27.88%
Jay R. Levine(15)(16)............. 31,283,500 27.88%
William P. Phoenix(15)(16)........ 31,283,500 27.88%
Bruce Raben(15)(16)............... 31,283,500 27.88%
Michael R. Steed(15)(17).......... 11,058,346 9.86%
William E. Conway(18)............. 10,000 *
Toshiaki Ogasawara(18)............ 10,000 *
Geoffrey J.W. Kent(18)............ 10,000 *
All Directors and Executive
Officers as a Group.............. 101,580,409 90.54%
</TABLE>
- --------
* Percentage of shares beneficially owned does not exceed one percent.
(1) As of June 30, 1998, after giving effect to the liquidation of Old GCL
and the distribution of shares of Common Stock therefrom, 110,819,100
shares of Common Stock would have been issued and outstanding. An
additional 1,370,000 shares of Common Stock would have been issuable upon
the exercise of options within 60 days of June 30, 1998.
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<PAGE>
(2) Includes 25,024,342 shares of Common Stock 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.
(3) Includes 5,598,500 shares of Common Stock owned by Continental Casualty
Corporation and 622,100 shares of Common Stock held by Continental
Casualty Corp. Designated High Yield, for which Continental Casualty
Corporation holds sole voting and investment power. Includes 7,759,890
shares of Common Stock to be acquired prior to the Offerings.
(4) Includes all shares of Common Stock owned by Telecommunications
Development Corporation, of which Mr. Winnick is a Director, 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 200,000 shares
of Common Stock issuable upon the exercise of options within 60 days of
June 30, 1998.
(5) Includes 300,000 shares of Common Stock issuable upon the exercise of
options within 60 days of June 30, 1998.
(6) Includes 150,000 shares of Common Stock issuable upon exercise of options
within 60 days of June 30, 1998.
(7) Includes all shares of Common Stock owned by Telecommunications
Development Corporation, of which Mr. Lee is Chairman, and all shares of
Common Stock owned by San Pasqual Corp., of which Mr. Lee is the sole
shareholder.
(8) Includes 100,000 shares of Common Stock issuable upon the exercise of
options within 60 days of June 30, 1998.
(9) Includes all 2,427,283 shares of Common Stock owned by Ridgestone Corp.,
of which Mr. Brown's family and a related trust are the sole
shareholders. Does not include shares of Common Stock owned by
Telecommunications Development Corporation, of which Ridgestone Corp. is
a shareholder.
(10) 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 24,829 shares to Mr.
Brown and 99,312 shares to Mr. Shutler.
(11) Includes all 4,149,867 shares of Common Stock owned by Galenight Corp.,
of which Mr. Porter is the sole shareholder. Does not include shares of
Common Stock owned by Telecommunications Development Corporation, of
which Mr. Porter is a shareholder.
(12) Includes 125,000 shares of Common Stock issuable upon exercise of options
within 60 days of June 30, 1998.
(13) Includes 195,000 shares of Common Stock issuable upon exercise of options
within 60 days of June 30, 1998.
(14) Includes all shares of Common Stock owned by Continental Casualty
Company, an affiliate of Loews/CNA Holdings Corp., of which Mr.
Weinberger is an officer. Includes 862,210 shares of Common Stock,
consisting of 700,000 shares to be held by Global Crossing Trust 1998, of
which Mr. Weinberger is a trustee and 162,210 shares to be held by a
partnership of which Mr. Weinberger is a managing partner.
(15) Includes 10,000 shares of Common Stock issuable upon the exercise of
options within 60 days of June 30, 1998.
(16) Includes all shares of Common Stock owned by CIBC Wood Gundy Capital
(SFC) Inc. Messrs. Bloom, Kehler, Levine, Phoenix and Raben are all
affiliated with CIBC Oppenheimer Corp., an affiliate of CIBC Wood Gundy
Capital (SFC) Inc.
(17) 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.
(18) Includes 10,000 Shares of Common Stock issuable upon the exercise of
options within 60 days of June 30, 1998. Effective immediately prior to
Offerings.
49
<PAGE>
CERTAIN TRANSACTIONS
GENERAL
The Company has entered into certain transactions described below with
entities affiliated with the Company, its officers and directors.
TRANSACTIONS WITH PACIFIC CAPITAL GROUP (PCG) AND ITS AFFILIATES
PCG and its affiliates, including PCG Telecom Services LLC ("PCG Telecom")
and Ocean Systems International LLC ("OSI"), have entered into certain
transactions with the Company described below in connection with the
development by PCG and its affiliates of several of Global Crossing's systems,
including AC-1, PC-1, PAC and MAC, and the decision by the Board of Directors
of GCL to assume the ongoing development of systems (other than AC-1) from
OSI. Revenue from the Company comprises the sole source of revenues for PCG
Telecom. PCG and its affiliates are controlled by Mr. Gary Winnick, the Co-
Chairman of the Board of Directors of GCL, and certain other officers and
directors of GCL are affiliated with PCG, including Messrs. Cook, Lee, Porter
and Brown. See "Management" and "Principal and Selling Shareholders."
Advisory Services Agreements. ACL has entered into an Advisory Services
Agreement, dated as of March 25, 1997 (as amended, the "AC-1 Advisory
Agreement"), with PCG Telecom with respect to AC-1, under which PCG Telecom is
entitled to an advisory fee of 2.0% of the gross revenues of ACL. The Board of
Directors of GCL has agreed that each other direct subsidiary of GCL shall
from time to time enter into, or cause each of its subsidiaries to enter into,
similar Advisory Services Agreements (together with the AC-1 Advisory
Agreement, the "Advisory Services Agreements") with PCG Telecom, providing for
an advisory services fee of 2% of such subsidiary's gross revenues (not double
counting any portion of intercompany revenues on which the advisory services
fee has already been calculated). The aggregate amount of all advisory fees
payable under the Advisory Services Agreements shall be reduced by the amount,
if any, by which principals of PCG receive cash compensation (as opposed to
reimbursement of expenses) from the Company other than cash compensation paid
to such principals in their capacities as officers or directors of the Company
as approved by the Board of Directors. In addition, until the earlier of (i)
the date GCL has a public equity market value in excess of $1.5 billion and
(ii) March 25, 2002 (such earlier date, the "Deferred Fee Payment Date"), the
aggregate cumulative amount of the fees paid under the Advisory Services
Agreements in respect of the calendar years prior to and including each
calendar year set forth below shall not exceed the amounts set forth below,
with any excess being deferred and paid (together with interest thereon at a
rate per annum equal to LIBOR) on the Deferred Fee Payment Date: 1998--$10
million; 1999--$20 million; 2000--$30 million; and 2001--$40 million.
Amounts payable under the AC-1 Advisory Agreement are to be divided annually
in the following manner: 90% of the initial $5 million in advisory services
fees is retained by PCG Telecom, 5% of the initial $5 million in advisory
service fees is payable to Union Labor Life Insurance Company ("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.
50
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The Company intends to acquire the rights to advisory fees payable under the
Advisory Services Agreements in consideration for the issuance to the persons
entitled to receive such fees of shares of Common Stock having an aggregate
value (determined on the basis of the Price to Public per Share payable in the
Offerings) which the Company currently anticipates will be in the range of
$125 million to $145 million. 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 is obtaining a
fairness opinion from an independent financial advisor in connection with this
transaction. As a result of this transaction, the Company anticipates that it
will incur a charge of $125 million to $145 million which will be reflected in
its financial statements for the period ended June 30, 1998. The Company
anticipates that the shares of Common Stock to be issued in connection with
the termination of the Advisory Services Agreements will be issued to the
following persons in the following amounts:
<TABLE>
<CAPTION>
RECIPIENT NUMBER OF SHARES
--------- ----------------
<S> <C>
Gary Winnick (including PCG and PCG
Telecom)............................. .
CIBC.................................. .
ULLICO................................ .
Lodwrick M. Cook...................... .
Abbott L. Brown....................... .
David L. Lee.......................... .
Barry Porter.......................... .
---
.
===
</TABLE>
The net proceeds from the sale of the Shares being offered by the Selling
Stockholders in the Offerings are to be used by such Selling Stockholders to
fund anticipated income tax liabilities resulting from this transaction. See
"Principal and Selling Stockholders."
PCG Warrants. Old GCL and PCG entered into a warrant agreement, dated as of
January 21, 1998 (the "PCG Warrant Agreement"), pursuant to which Old GCL
issued PCG three separate warrants (collectively, the "PCG Warrants")
permitting PCG to purchase (i) 6,151,061 of Old GCL's Class B Shares for an
aggregate purchase price of $50,000,000; (ii) an additional 3,075,531 of Old
GCL's Class B Shares for an aggregate purchase price of $31,250,000; and (iii)
an additional 3,075,531 of Old GCL's Class B Shares for an aggregate purchase
price of $37,500,000. 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. The exercise of each of the PCG
Warrants is conditioned upon (i) an initial public offering of shares of Old
GCL (or any successor thereto), underwritten by an investment banking firm of
national reputation (as determined by a majority of the Board of Directors of
Old GCL) from which Old GCL shall have received at least $50,000,000 in net
proceeds, (ii) the investment by Old GCL in the aggregate of at least
$500,000,000 of Net Attributable Capital (as defined below) in cable systems
other than AC-1 and (iii) the generation in the aggregate by cable systems
other than AC-1 of at least $100,000,000 in Net Attributable Revenues (as
defined below). For purposes of the PCG Warrant Agreement, with respect to any
cable system, (i) "Net Attributable Capital" means the aggregate debt and
equity capitalization of such system multiplied by the percentage ownership of
Old GCL (directly or indirectly) in such system, and (ii) "Net Attributable
Revenues" means the net revenues of such system multiplied by the percentage
ownership interest of Old GCL (directly or indirectly) in such system. Rights
under each of the PCG Warrants has been divided amongst Messrs. Winnick, Cook,
Brown, Lee and Porter in the following percentages: 50%, 8%, 12%, 15% and 15%,
respectively.
The Board of Directors of Old GCL has determined that upon the successful
completion of the Offerings the conditions precedent to exercising the PCG
Warrants will have been met and therefore the PCG Warrants have been deemed
exercisable. The Board of Directors of Old GCL has also amended the terms of
the PCG
51
<PAGE>
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 current share per valuation.
Prior to the Offerings, PCG will convert the PCG Warrants in such manner into
Class B Shares and New PCG Warrants, with GCL assuming the obligations of Old
GCL under the New PCG Warrants and Old GCL being liquidated and dissolved.
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 Company also intends to enter into agreements (collectively, the
"Advance Agreements") with PCG and/or its subsidiaries to advance to PCG
and/or its subsidiaries an amount equal to 1.0% of the purchase price payable
under signed capacity purchase agreements in respect of other Global Crossing
cable systems, such advance to be secured by a pledge of the fees payable
under the applicable Advisory Services Agreements. Such advances shall be
repayable from PCG's interest in such fees.
Assignment of Rights. As part of the consideration for the assumption by the
Company of the rights of OSI to the ongoing development of cable systems, in
the first quarter of 1998 the Company paid PCG $6.5 million for costs incurred
by PCG to such date in connection with such development.
Arrangement Fees. Additionally, during 1997, $7,250,000 in fees were paid to
PCG and certain of its key executives, who are shareholders of GCL, and
another shareholder of GCL for services provided in respect of arranging the
AC-1 Credit Facility, the GTH Senior Notes and GTH Preference Shares.
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 was the arranger and initial lender under the $200
million Global Crossing Bridge Facility; (ii) CIBC is one of the lead agents
under the $482 million AC-1 Credit Facility, (iii) CIBC Wood Gundy Securities
Corp., an affiliate of CIBC, acted as exclusive placement agent for the
issuance by GTH of its $100 million outstanding GTH Preference Shares and the
issuance by GTH of its $150 million outstanding GTH Senior Note; (iv) CIBC
Oppenheimer Corp. was an Initial Purchaser in connection with the issuance by
GCH of its $800 million GCH Senior Notes; (v) CIBC and other banks entered
into a commitment letter with the Company, effective May 11, 1998, for the
$850 million non-recourse project debt financing of PC-1; (vi) CIBC and other
lenders issued a $50.5 million loan to Pacific Crossing Ltd., a wholly-owned
subsidiary of the Company, to make the initial payment with respect to the
financing of PC-1; and (vii) CIBC 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 for an aggregate purchase price of $25.6
52
<PAGE>
million. Worldport also executed an MOU to purchase capacity on PC-1, PAC and
MAC. This transaction 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. Certain officers and directors of the
Company, including Mr. Winnick, Mr. Cook, Mr. Scanlon, Mr. Lee, Mr. Porter,
Mr. Brown, Mr. Raben, Mr. Levine, Mr. Kehler and Mr. Steed, have direct or
indirect equity ownership positions in Worldport aggregating approximately 10%
of the current common stock of Worldport. 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
ULLICO, 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.
TRANSACTIONS WITH TELECOMMUNICATIONS DEVELOPMENT COMPANY
Prior to the Offerings, the Company will purchase, at a discount, all of the
shares of Common Stock of the Company and related warrants held by
Telecommunications Development Company ("TDC") in exchange for newly issued
shares of Common Stock and related warrants. Upon consummation of such
transaction, TDC will distribute all of the shares of Common Stock and related
warrants owned by it to the holders of its preferred and common stock and then
liquidate. Mr. Lee is the Chairman and Mr. Winnick is a director of TDC, a
Cayman Islands corporation. Affiliates of Messrs. Lee, Winnick, Brown and
Porter own a majority of the outstanding common stock of TDC and approximately
29% of the outstanding preferred stock of TDC.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the constituent
documents of GCL and each of its subsidiaries.
LIQUIDATION OF OLD GCL
As of the date hereof, all 1,200,000 shares of common stock of GCL are held
by Global Crossing Ltd., LDC, a Cayman Islands company ("Old GCL"). Prior to
the Offerings, GCL will declare a stock dividend to Old GCL so that the number
of outstanding shares of GCL and Old GCL will be equivalent. Pursuant to the
terms of the Articles of Association of Old GCL, each holder of Class D and
Class E shares of Old GCL will have its shares converted into Class B shares
of Old GCL, with such Class D shareholders also receiving warrants ("GCL
Warrants") to purchase shares of Common Stock of GCL at an exercise price
equal to the market valuation of the Common Stock at the time of liquidation.
Old GCL will then declare a dividend to its shareholders of one share of
Common Stock of GCL for each share held of common stock of Old GCL.
Immediately subsequent to such dividend, Old GCL will be liquidated and each
of the Class A, Class B, Class C, Class D and Class E shares will be
cancelled.
GCL
General. Pursuant to its Memorandum of Association, the authorized share
capital of GCL is $12,000, divided into 1,200,000 shares of par value $.01
each. As of the date hereof, all of such shares were issued and outstanding
and held by Old GCL. Prior to the Offerings, GCL will amend and restate its
Memorandum of Association to increase its authorized share capital to consist
of 600,000,000 shares of Common Stock. The form of Amended and Restated
Memorandum of Association is an exhibit to the Registration Statement of which
this Prospectus is a part.
Voting and Transfer Restrictions. Following the adoption of the Amended and
Restated Bye-Laws of the Company immediately prior to the Offerings, each
share of Common Stock will have one vote, except that if, and so long as, the
Controlled Shares (as defined below) of any person constitute more than 9.5%
(or, in the case of CIBC and certain of its affiliates, collectively, 35%) of
the voting power of the outstanding shares, including the Common Stock, of the
Company (an "Over-the-Threshold Common Stockholder"), the voting rights with
respect to the Controlled Shares owned by such person will be limited, in the
aggregate, to a voting power of 9.5%, pursuant to a formula set forth in the
Bye-Laws. The votes that could be cast by Over-the-Threshold Common
Stockholders but for the restrictions on voting rights described above will be
allocated to the other holders of Common Stock, pro rata based upon the number
of shares of Common Stock held by all other holders of Common Stock, subject
only to the further limitation that no stockholder allocated any such voting
rights may exceed the applicable limitation set forth above as a result of
such allocation. "Controlled Shares" includes, among other things, all shares
of Common Stock that a person is deemed (i) to own directly, indirectly or
constructively pursuant to Section 958 of the Code or (ii) to beneficially own
directly or indirectly as a result of the possession of sole or shared voting
power within the meaning of Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder.
The Bye-Laws also provide that any transfer of shares of Common Stock (or
any interest therein) that results in a person (other than PCG, GKW Unified
Holdings, LLC, CIBC, Continental Casualty Company or MRCo, Inc. or their
affiliates or certain lenders to any of them) beneficially owning (within the
meaning of Section 13(d) of the Exchange Act), directly or indirectly,
Controlled Shares in excess of the Maximum Percentage (as defined below) of
the outstanding shares of Common Stock without the approval of a majority of
the members of the Board of Directors and stockholders holding at least 75% of
the votes that may be cast by all holders of Common Stock (after giving effect
to the voting limitations outlined above) shall not be registered in the share
register of the Company and shall be void and of no effect. "Maximum
Percentage" means (x) in the case of a natural person, 5%, and (y) in the case
of any person (other than a natural person) or any group (as used in Section
13(d) of the Exchange Act), 9.5%.
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Amendments to 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.
These voting reallocation and transfer restrictions could make it difficult
for any person or group of persons acting in concert (other than certain
existing owners) to acquire control of the Company.
Distributions. Holders of Common Stock will be treated equally with respect
to all distributions to shareholders of GCL.
GCL STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
The Company, PCG, GKW Unified Holdings, LLC, CIBC, Continental Casualty
Company, MRCo, Inc. and certain other stockholders of the Company (including
certain of the Company's officers and directors and their affiliates)
(collectively, the "Existing Holders") have entered into a Stockholders
Agreement and a Registration Rights Agreement, each of which has been filed as
an exhibit to the Registration Statement of which this Prospectus constitutes
a part.
Under the Stockholders Agreement, the Company has been granted a right of
first refusal on certain private transfers by the Existing Stockholders during
the first two years after the consummation of the Offerings. In addition,
certain of the Existing Stockholders have tag-along rights on each other in
the event of private transfers, subject to the exceptions set forth in the
Stockholders Agreement. Such tag-along rights permit a stockholder to
participate, on the same terms and conditions, in certain transfers of shares
by other stockholders. So long as Gary Winnick, PCG and GKW Unified Holdings,
LLC 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 stockholder of the Company, shall not have voted in favor of or
given consent with respect to such transaction and beneficially owns the
Common Stock as to which appraisal is sought immediately prior to consummation
of the transaction.
Pursuant to the Registration Rights Agreement, the Existing Holders have
certain demand and piggyback registration rights and receive indemnification
and, in certain circumstances, expense reimbursement from the Company in
connection with such registration.
CAPITAL STOCK OF SUBSIDIARIES
GCL owns, directly or indirectly, 100% of the capital stock of each of its
subsidiaries, except for the PC-1 joint venture entity, in which it will have
approximately a 58% economic interest. See "Business--Pacific Crossing."
TRANSFER AGENT AND REGISTRAR FOR COMMON STOCK
The transfer agent and registrar for the Common Stock is
.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common
Stock. Sales of a substantial amount of Common Stock in the public market, or
the perception that such sales may occur, could adversely affect the market
price of the Common Stock prevailing from time to time in the public market
and could impair the Company's ability to raise additional capital through the
sale of its equity securities in the future.
Upon completion of the Offerings, assuming no exercise of the over-allotment
options granted to the Underwriters, the Company will have shares
of Common Stock outstanding, including Shares of Common Stock
offered hereby and restricted shares of Common Stock. The
restricted shares of Common Stock generally will be eligible for sale under
Rule 144 as currently in effect, beginning in .
The Shares offered hereby will be freely tradable without restriction or
further registration under the Securities Act by persons other than affiliates
of the Company within the meaning of Rule 144 promulgated under the Securities
Act. The holders of restricted shares generally will be entitled to sell these
shares in the public securities market without registration under the
Securities Act to the extent permitted by Rule 144 (or Rule 145, as
applicable) promulgated under the Securities Act or any exemption under the
Securities Act.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the
Company or any affiliate of the Company, as that term is defined under the
Securities Act, the holder is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of 1% of the
then-outstanding shares of Common Stock or the average weekly trading volume
of shares of Common Stock on all exchanges and reported through the automated
quotation system of a registered securities association during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain restrictions
on the manner of sales, notice requirements and the availability for current
public information about the Company. If two years have elapsed since the date
of acquisition of restricted shares from the Company or from any affiliate of
the Company, and the holder thereof is deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale, such person would
be entitled to sell such Common Stock in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Stock
Incentive Plan, thus permitting the resale of such shares by non-affiliates
upon issuance in the public market without restriction under the Securities
Act. Such registration statement will automatically become effective
immediately upon filing.
Subject to certain exceptions, the Company, the Selling Shareholders and
certain other shareholders, directors and officers of the Company have agreed
not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or announce the offering of any shares of Common Stock, including
any such shares beneficially or indirectly owned or controlled by the Company,
the Selling Shareholders or such other shareholders, or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock
for 180 days from the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
GCH SENIOR NOTES
On May 18, 1998, GCH, the direct wholly-owned subsidiary of the Issuer,
issued and sold the GCH Senior Notes in the aggregate principal amount of
$800.0 million to a group of institutional investors in a private transaction
not subject to the registration requirements under the Securities Act. The GCH
Senior Notes are guaranteed by the Issuer and certain subsidiaries of GCH. The
Indenture for the GCH Senior Notes contains certain covenants that, among
other things, limit the ability of GCH and certain of its subsidiaries (the
"Restricted Subsidiaries") to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase capital
stock or subordinated indebtedness, create certain liens, enter into certain
transactions with affiliates, sell assets of GCH or its Restricted
Subsidiaries, issue or sell capital stock of GCH's Restricted Subsidiaries or
enter into certain mergers and consolidations. In addition, under certain
limited circumstances, GCH will be required to offer to purchase the GCH
Senior Notes at a price equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the date of purchase, with the excess proceeds
of certain asset sales. In the event of a Change of Control (as defined in the
Indenture), holders of the GCH Senior Notes will have the right to require GCH
to purchase all of their GCH Senior Notes at a price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest. The
Indenture relating to the GCH Senior Notes is an exhibit to the Registration
Statement of which this Prospectus is a part.
The Company entered into a Registration Agreement dated May 18, 1998 (the
"Registration Agreement") with the initial purchasers of the GCH Senior Notes
(the "Initial Purchasers") for the benefit of the holders of the GCH Senior
Notes. Pursuant to the Registration Agreement, GCH agreed, for the benefit of
the holders, that it will, at its cost, (a) file a registration statement (the
"Exchange Offer Registration Statement") with the Commission with respect to a
registered offer (the "Exchange Offer") to exchange the GCH Senior Notes for a
series of notes (the "New Notes") with terms identical in all material
respects to the GCH Senior Notes (except that the New Notes will not contain
terms with respect to registration rights or transfer restrictions) or (b) in
lieu of the Exchange Offer Registration Statement, file a shelf registration
statement (the "Shelf Registration Statement") with respect to registration of
resales of the GCH Senior Notes. If (i) the Exchange Offer Registration
Statement has not been filed with the Commission within 90 days after May 18,
1998 (the "Closing Date") or declared effective within 150 days after the
Closing Date, or the Exchange Offer has not been consummated within 180 days
after the Closing Date or (ii) in lieu thereof, the Shelf Registration
Statement has not been filed with the Commission on or prior to 30 days after
such filing obligation arises or declared effective within 90 days after such
obligation arises or (iii) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement has been declared effective, as
the case may be, it thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of GCH Senior Notes or New
Notes in accordance with and during the periods specified in the Registration
Agreement (each such event referred to in clauses (i) through (iii), a
"Registration Default"), additional interest ("Special Interest") will accrue
on the GCH Senior Notes and the New Notes (in addition to the stated interest
on the GCH Senior Notes and the New Notes) from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Special Interest will accrue
and be payable semiannually at a rate of 0.50% per annum during the 90-day
period immediately following the occurrence of any Registration Default and
shall increase by 0.25% per annum at the end of each subsequent 90-day period,
but in no event shall such rates exceed 1.00% per annum in the aggregate
regardless of the number of Registration Defaults. The Registration Agreement
relating to the GCH Senior Notes is an exhibit to the Registration Statement
of which this Prospectus is a part.
AC-1 CREDIT FACILITY
ACL is the borrower under the $482.0 million senior secured AC-1 Credit
Facility, comprised of a $472.0 million term loan facility and a $10.0 million
working capital facility, with certain commercial lending institutions and
CIBC and Deutsche Bank AG, New York Branch as lead agents for the lenders. The
AC-1 Credit Facility is secured by pledges of the stock of ACL and its
subsidiaries (and other entities holding landing licenses
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or AC-1 assets) and security interests in the assets and revenues of ACL and
its subsidiaries and is being used to provide financing for a portion of AC-1.
A portion of the AC-1 Credit Facility is available only to pay interest on the
loans prior to the AC-1 RFS date, and a portion is available to issue letters
of credit to the contractor of AC-1. The loans under the AC-1 Credit Facility
will amortize in eight semi-annual installments, commencing on the first
initial principal payment date (which shall be May 31 or November 30) to occur
more than two months after the commercial operation date (anticipated to occur
in February 1999), with 15% of the principal amount to be amortized in the
first year, 25% in the second year, 30% in the third year and 30% in the
fourth year. Borrowings bear interest at an adjustable rate based on the
adjusted base rate or LIBOR plus an applicable margin. The facility also
requires mandatory prepayments to be made from, among other things, 50% of
excess cash flow, 50% of net cash proceeds of any equity offering of ACL and
100% of net cash proceeds of any permitted debt offerings of ACL or its
immediate parent, permitted asset sales or insurance proceeds. As of March 31,
1998, a total of $305.5 million in indebtedness (to which the Notes would be
effectively subordinated) was outstanding under the AC-1 Credit Facility.
The AC-1 Credit Facility contains covenants that, among other things,
restrict ACL's use of the term loan proceeds to the financing of AC-1 and the
payment of fees and expenses directly thereto and the use of the working
capital facility proceeds to AC-1 costs and for working capital purposes and
limit ACL's ability to make certain dividends, distributions or investments
and mergers. The facility generally only permits dividends or distributions
with respect to a portion of ACL's excess cash flow, but severely restricts
the payment of other dividends or distributions to GCL. The AC-1 Credit
Facility contains certain financial covenants relating to minimum sales of
capacity on AC-1 and ratio of EBITDA to interest expense, the failure to
comply with which would cause all excess cash flow to be applied to the
lenders under the AC-1 Credit Facility for such period. The AC-1 Credit
Facility contains certain events of default including, among other things,
failure to pay amounts when due, failure to comply with covenants and
insolvency. An event of default shall also occur upon the occurrence of
certain failures in connection with AC-1. Upon the occurrence of an event of
default, the AC-1 Credit Facility permits the lenders to declare all
outstanding borrowings to be immediately due and payable and to proceed
against the collateral. In addition, the AC-1 Credit Facility prescribes the
order by which proceeds from the sale of AC-1 capacity shall be applied, both
prior to and after the commencement of commercial operations, and requires ACL
to maintain certain reserve accounts. As a result of the foregoing, the
ability of ACL to use and distribute revenue is severely restricted so long as
the AC-1 Credit Facility remains in existence.
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TAX CONSIDERATIONS
TAXATION OF THE COMPANY
The Company believes that a significant portion of its income will not be
subject to tax in Bermuda, which currently has no corporate income tax, or
other countries in which the Issuer or its affiliates conduct activities or in
which customers of the Company are located, including the United States.
However, this belief is based upon the anticipated nature and conduct of the
business of the Company, which may change, and upon the Company's
understanding of its position under the tax laws of the various countries in
which the Company has assets or conducts activities, which position is subject
to review and possible challenge by taxing authorities and to possible changes
in law (which may have retroactive effect). The extent to which certain taxing
jurisdictions may require the Company to pay tax or to make payments in lieu
of tax cannot be determined in advance. In addition, the operations of and
payments due to the Company may be affected by changes in taxation, including
retroactive tax claims or assessments of withholding on amounts payable to the
Company or other taxes assessed at the source, in excess of the taxation
anticipated by the Company based on business contacts and practices of the
Company and the current tax regimes. There can be no assurance that these
factors will not have a material adverse effect on the Company.
United States Federal Income Tax Considerations
The Issuer and its non-United States subsidiaries will be subject to United
States federal income tax at regular corporate rates (and to United States
branch profits tax) on their income that is effectively connected with the
conduct of a trade or business within the United States, and will be required
to file federal income tax returns reflecting that income. The Company intends
to conduct its operations so as to reduce the amount of its effectively
connected income. However, no assurance can be given that the Internal Revenue
Service (the "IRS") will agree with the positions taken by the Company in this
regard. Moreover, the United States subsidiaries of the Issuer will be subject
to United States federal income tax on their worldwide income regardless of
its source (subject to reduction by allowable foreign tax credits), and
distributions by such United States subsidiaries to the Issuer or its foreign
subsidiaries generally will be subject to United States withholding.
Bermuda Tax Considerations
Under current Bermuda law, the Company is not subject to tax on income or
capital gains. Furthermore, the Company has obtained from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 (as
amended), an undertaking that, in the event that Bermuda enacts any
legislation imposing tax computed on profits, income, any capital asset, gain
or appreciation, or any tax in the nature of estate duty or inheritance tax,
then the imposition of such tax will not be applicable to the Company or to
any of its operations, or the shares, capital or Common Stock of the Company,
until March 28, 2016. This undertaking does not, however, prevent the
imposition of property taxes on any company owning real property or leasehold
interests in Bermuda.
TAXATION OF STOCKHOLDERS
In the opinion of Simpson Thacher & Bartlett, special United States federal
income tax counsel to the Company, the summary set forth below under "Taxation
of Stockholders--United States Federal Income Tax Considerations" accurately
describes certain material United States federal income tax consequences that
may be relevant to the purchase, ownership and disposition of the Common
Stock. In the opinion of Appleby, Spurling & Kempe, special Bermuda tax
counsel to the Company, the summary set forth below under "Taxation of
Stockholders--Bermuda Tax Considerations" accurately describes certain
material Bermuda tax consequences that may be relevant to the purchase,
ownership and disposition of the Common Stock. Unless otherwise stated, the
discussion below deals only with Common Stock held as capital assets by United
States Holders (as defined below) who purchase the Common Stock upon original
issuance at its original offering price. The discussion does not deal with all
possible tax consequences relating to an investment in the Common Stock
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to deal with the tax consequences applicable to all categories of investors,
some of which (such as dealers in securities, insurance companies and tax-
exempt entities) may be subject to special rules. In particular, the
discussion does not address the tax consequences under state, local or other
national (e.g., non-United States, non-Bermuda) tax laws. Accordingly, each
prospective investor should consult its own tax advisor regarding the
particular tax consequences to it of an investment in the Common Stock. The
following discussion is based upon laws, regulations and relevant
interpretations thereof in effect as of the date of this Prospectus, all of
which are subject to change, possibly retroactively.
Bermuda Tax Considerations
Under current Bermuda law, no income, withholding or other taxes or stamp or
other duties are imposed upon the issue, transfer or sale of the Common Stock
or on any payments thereunder. See "Taxation of the Company--Bermuda Tax
Considerations" for a description of the undertaking on taxes obtained by the
Company from the Minister of Finance of Bermuda.
United States Federal Income Tax Considerations
The following is a summary of certain material United States federal income
tax considerations that apply to the acquisition, ownership and disposition of
Common Stock by United States Holders (as defined below) as and does not
purport of the date hereof. This summary deals only with Common Stock that is
held as a capital asset by a United States Holder, and does not address tax
considerations applicable to United States Holders that may be subject to
special tax rules, such as dealers or traders in securities, financial
institutions, insurance companies, tax-exempt entities, United States Holders
that hold Common Stock as part of a straddle, conversion transaction,
constructive sale or other arrangement involving more than one position,
United States Holders that have a principal place of business or "tax home"
outside the United States or United States Holders whose functional currency
is not the United States dollar. In addition, the summary generally does not
address the tax consequences to United States Holders that own (or are deemed
for United States federal income tax purposes to own, pursuant to complex
attribution and constructive ownership rules) 10% or more of the voting stock
of the Issuer or any of its non-United States subsidiaries ("10%
Shareholders"). 10% Shareholders are advised to consult their own tax advisors
regarding the tax considerations incident to an investment in Common Stock.
The discussion below is based upon the provisions of the Code, and
regulations, rulings and judicial decisions thereunder as of the date hereof;
any such authority may be repealed, revoked or modified, perhaps with
retroactive effect, so as to result in United States federal income tax
consequences different from those discussed below.
THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE COMMON STOCK.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
TAX CONSEQUENCES OF AN INVESTMENT IN THE COMMON STOCK, INCLUDING THE
APPLICATION TO THEIR PARTICULAR SITUATIONS OF THE TAX CONSIDERATIONS DISCUSSED
BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN OR OTHER FEDERAL
TAX LAWS. THE STATEMENTS OF UNITED STATES FEDERAL INCOME TAX LAW SET OUT BELOW
ARE BASED ON THE LAWS IN FORCE AND INTERPRETATIONS THEREOF AS OF THE DATE OF
THIS PROSPECTUS, AND ARE SUBJECT TO ANY CHANGES OCCURRING AFTER THAT DATE.
As used herein, a "United States Holder" of Common Stock means a holder that
is (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust which is subject to the supervision of a court within the United
States and the control of a United States person as described in section
7701(a)(30) of the Code.
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Taxation of Dividends
The gross amount of dividends paid to United States Holders of Common Stock
will be treated as dividend income to such United States Holders, to the
extent paid out of current or accumulated earnings and profits, as determined
under United States federal income tax principles. Such income will be
includible in the gross income of a United States Holder as ordinary income on
the day received by the United States Holder. Such dividends will not be
eligible for the dividends received deduction allowed to corporations under
the Code. Subject to the PFIC rules described below, to the extent that the
amount of any distribution exceeds the Issuer's current and accumulated
earnings and profits for a taxable year, the distribution will first be
treated as a tax-free return of capital, causing a reduction in the adjusted
basis of the Common Stock (thereby increasing the amount of gain, or
decreasing the amount of loss, to be recognized by the United States Holder on
a subsequent disposition of the Common Stock), and the balance in excess of
adjusted basis will be taxed as capital gain. The Issuer does not anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy."
For so long as the Issuer is a "United States-owned foreign corporation,"
distributions with respect to the Common Stock that are taxable as dividends
generally will be treated for United States foreign tax credit purposes as
either (i) foreign source "passive income" (or, in the case of certain United
States Holders, foreign source "financial services income") or (ii) United
States source income, in proportion to the earnings and profits of the Issuer
in the year of such distribution allocable to foreign and United States
sources, respectively. For this purpose, the Issuer will be treated as a
United States-owned foreign corporation so long as stock representing 50% or
more of the voting power or value of the Issuer is owned, directly or
indirectly, by United States Holders.
Taxation of Capital Gains
For United States federal income tax purposes, a United States Holder will
recognize taxable gain or loss on any sale or exchange of Common Stock in an
amount equal to the difference between the amount realized for the Common
Stock and the United States Holder's adjusted basis in the Common Stock.
Subject to the PFIC and CFC rules discussed below, such gain or loss will be
capital gain or loss. Capital gain of individuals derived with respect to
capital assets held for more than one year is eligible for reduced rates of
taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. Any gain recognized
by a United States Holder generally will be treated as United States source
income. It is presently unclear whether any loss realized by a United States
Holder will be treated as United States or foreign source.
Passive Foreign Investment Company
The Issuer believes that it is not a PFIC and does not expect to become a
PFIC in the future for United States federal income tax purposes, although
there can be no assurance in this regard. This conclusion is a factual
determination made annually and thus is subject to change. In addition, it is
based, in part, on interpretations of existing law that the Issuer believes
are reasonable, but which have not been approved by any taxing authority.
In general, the Issuer will be a PFIC with respect to a United States Holder
if, for any taxable year in which the United States Holder held Common Stock,
either (i) at least 75% of the gross income of the Issuer for the taxable year
is passive income or (ii) at least 50% of the value (determined on the basis
of a quarterly average) of the Issuer's assets is attributable to assets that
produce or are held for the production of passive income. For this purpose,
passive income generally includes dividends, interest, royalties, rents (other
than rents and royalties derived in the active conduct of a trade or business
and not derived from a related person), annuities and gains from assets that
produce passive income. If the Issuer owns (directly or indirectly) at least
25% by value of the stock of another corporation, the Issuer will be treated
for purposes of the PFIC tests as owning its proportionate share of the assets
of the other corporation, and as receiving directly its proportionate share of
the other corporation's income. If the Issuer is classified as a PFIC in any
year with respect to which a United States person is a shareholder, the Issuer
generally will continue to be treated as a PFIC with respect to such
shareholder in all succeeding years, regardless of whether it continues to
meet the income or asset test described above, subject to certain possible
shareholder elections that may apply in certain circumstances.
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If the Issuer is treated as a PFIC, unless a United States Holder makes a
"QEF election" or a "mark to market election," each as described below:
1. Distributions made by the Issuer during a taxable year to a United
States Holder with respect to Common Stock that are "excess distributions"
(defined generally as the excess of the amount received with respect to the
Common Stock in any taxable year over 125% of the average received in the
shorter of either the three previous years or the United States Holder's
holding period before the taxable year) must be allocated ratably to each
day of the United States Holder's holding period. The amounts allocated to
the current taxable year and to taxable years prior to the first year in
which the Issuer was classified as a PFIC are included as ordinary income
in the United States Holder's gross income for that current year. The
amount allocated to each other prior taxable year is taxed as ordinary
income at the highest rate in effect for the United States Holder in that
prior year and the tax is subject to an interest charge at the rate
applicable to deficiencies in income taxes.
2. The entire amount of any gain realized upon the sale or other
disposition (including for these purposes a pledge) of Common Stock will be
treated as an excess distribution made in the year of sale or other
disposition and as a consequence will be treated as ordinary income and, to
the extent allocated to years prior to the year of sale or disposition,
will be subject to the interest charge described above. In addition, United
States Holders who acquire their Common Stock from decedents generally will
not receive a "stepped-up" basis in such Common Stock. Instead, such United
States Holders will have a tax basis equal to the lower of the fair market
value of such Common Stock or the decedent's basis.
The special PFIC tax rules described above will not apply to a United States
Holder if the United States Holder elects to have the Issuer treated as a
"qualified electing fund" (a "QEF election") and the Issuer provides certain
information to United States Holders. If the Issuer is treated as a PFIC, it
intends to notify United States Holders and to provide to United States
Holders such information as may be required to make such QEF election
effective.
A United States Holder that makes a QEF election will be taxable currently
on its pro rata share of the Issuer's ordinary earnings and net capital gain
(at ordinary income and capital gain rates, respectively) for each taxable
year of the Issuer during which it is treated as a PFIC, regardless of whether
or not distributions were received. The United States Holder's basis in the
Common Stock will be increased to reflect taxed but undistributed income.
Distributions of income that had previously been taxed will result in a
corresponding reduction of basis in the Common Stock and will not be taxed
again as a distribution to the United States Holder.
Alternatively, a United States Holder of stock in a PFIC that is treated as
"marketable stock" may make a mark to market election. A United States Holder
that makes such an election will not be subject to the PFIC rules described
above. Instead, in general, an electing United States Holder will include in
each year as ordinary income the excess, if any, of the fair market value of
such stock at the end of the taxable year over its adjusted basis and will be
permitted an ordinary loss in respect of the excess, if any, of the adjusted
basis of such stock over its fair market value at the end of the taxable year
(but only to the extent of the net amount previously included in income as a
result of the mark to market election). The electing United States Holder's
basis in the stock will be adjusted to reflect any such income or loss
amounts. Any gain or loss on the sale of the Common Stock will be ordinary
income or loss (except that such loss will be ordinary loss only to the extent
of the previously included net mark to market gain). The mark to market
election is only available with respect to stock that is regularly traded on
certain United States exchanges and other exchanges designated by the United
States Treasury. The meaning of the term "regularly traded," for purposes of
the mark to market election, is unclear.
A United States Holder who owns Common Stock during any year that the Issuer
is a PFIC must file IRS Form 8621. United States Holders are urged to consult
their tax advisors concerning the United States federal income tax
consequences of holding Common Stock of the Issuer if it is a PFIC, including
the advisability and availability of making any of the foregoing elections.
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Foreign Personal Holding Company
If the Issuer or one of its non-United States subsidiaries were classified
as an FPHC, all United States Holders (including certain indirect holders),
regardless of their percentage ownership, would be required to include in
income, as a dividend, their pro rata share of the Issuer's (or its relevant
non-United States subsidiary's) undistributed FPHC income (generally, taxable
income with certain adjustments) if they were holders on the last day of the
Issuer's taxable year (or if earlier, the last day on which the Issuer
satisfied the shareholder test). In addition, if the Issuer were classified as
an FPHC, United States Holders who acquire their Common Stock from decedents
would not receive a "stepped-up" basis in such Common Stock. Instead, such
United States Holders would have a tax basis equal to the lower of the fair
market value of such Common Stock or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) at any time
during the corporation's taxable year, five or fewer individuals, who are
United States citizens or residents, directly or indirectly own more than 50%
of the corporation's stock (by either voting power or value) (the "shareholder
test") and (ii) the corporation receives at least 60% of its gross income (50%
after the initial year of qualification), as adjusted, for the taxable year
from certain passive sources (the "income test"). It is possible that the
shareholder test will be met after the Offering. It is also possible that the
Issuer or one of its non-United States subsidiaries would meet the income test
in a given year and would be treated as an FPHC. The Company intends to manage
its affairs so as to attempt to avoid or minimize having income imputed to its
United States Holders under these rules, to the extent such management of its
affairs is consistent with its business goals, although there can be no
assurance in this regard.
Personal Holding Company
A corporation classified as a PHC is subject to a 39.6% tax on its
undistributed PHC income. Foreign corporations (such as the Issuer) determine
their liability for PHC tax by considering only (i) gross income derived from
United States sources and (ii) gross income that is effectively connected with
a United States trade or business. A corporation will be classified as a PHC
if (i) at any time during the last half of the corporation's taxable year,
five or fewer individuals own more than 50% of the corporation's stock (by
value) directly or indirectly and (ii) the corporation receives at least 60%
of its gross income, as adjusted, from certain passive sources. However, if a
corporation is an FPHC or a PFIC, it cannot be a PHC. It is possible that the
Issuer could meet the PHC shareholder test in a given taxable year. It is also
possible that the Issuer or one of its non-United States subsidiaries would
meet the income test in a given year and would be treated as a PHC. The
Company intends to manage its affairs so as to attempt to avoid or minimize
the imposition of the PHC tax, to the extent such management of its affairs is
consistent with its business goals, although there can be no assurance in this
regard.
Controlled Foreign Corporations
If 10% Shareholders (as defined above) own, in the aggregate, more than 50%
(measured by voting power or value) of the shares of the Issuer or any of its
non-United States corporate subsidiaries (directly, indirectly, or by
attribution), the Issuer or any such non-United States subsidiary would be a
CFC. If characterized as CFCs, then a portion of the undistributed income of
the Issuer and its non-United States subsidiaries may be includible in the
taxable income of 10% Shareholders of those entities, and a portion of the
gain recognized by such 10% Shareholders on the disposition of their shares in
the Issuer (which could otherwise qualify for capital gains treatment) may be
converted into ordinary dividend income. It is possible that the Issuer and
its non-United States corporate subsidiaries may be CFCs or may become CFCs in
the future. However, as discussed above, CFC status generally only has
potentially adverse consequences to 10% Shareholders.
In order to attempt to prevent any United States person from being a 10%
Shareholder of the Issuer, the Bye-Laws of the Issuer generally provide, among
other things, that no holder of Common Stock (or any group of holders through
whom ownership may be attributed to another holder by the constructive
ownership or attribution rules of Section 958 of the Code) will be allowed to
cast votes with respect to more than 9.5% of the
63
<PAGE>
Common Stock, and certain restrictions have been placed on the transferability
of shares. There can be no assurance that these limitations will prevent the
characterization of the Issuer (or any of its non-United States subsidiaries)
as a CFC or of any United States Holder as a 10% Shareholder. However, a
United States Holder that owns directly less than 10% of the Common Stock
generally will not be treated as a 10% Shareholder unless it is attributed
Common Stock owned by other shareholders.
Taxation of Non-United States Holders
For United States federal income tax purposes, a non-United States Holder
generally will not be subject to tax or withholding on distributions made with
respect to, and gains realized from the disposition of, Common Stock unless
such distributions and gains are attributable to an office or fixed place of
business maintained by such non-United States Holder in the United States.
Information Reporting and Backup Withholding
United States Holders
In general, information reporting requirements will apply to dividends in
respect of the Common Stock or the proceeds received on the sale, exchange, or
redemption of the Common Stock paid within the United States (and in certain
cases, outside of the United States) to United States Holders other than
certain exempt recipients (such as corporations), and a 31% backup withholding
may apply to such amounts if the United States Holder fails to provide an
accurate taxpayer identification number or to report dividends required to be
shown on its United States federal income tax returns. The amount of any
backup withholding from a payment to a United States Holder will be allowable
as a refund or credit against the United States Holder's United States federal
income tax liability, provided that the required information or appropriate
claim for refund is furnished to the IRS.
Non-United States Holders
Under current law, United States information reporting requirements and
backup withholding generally will not apply to dividends paid to a non-United
States Holder at an address outside the United States (unless the payor has
knowledge that the payee is a United States person). However, under recently
finalized United States Treasury regulations effective for payments made after
December 31, 1999, a non-United States Holder will generally be subject to
backup withholding unless applicable certification requirements are met.
As a general matter, information reporting and backup withholding will not
apply to a payment of the proceeds of a sale of Common Stock effected outside
the United States by a foreign office of a non-United States Holder. However,
payment of the proceeds of a sale of Common Stock within the United States or
conducted through certain United States related financial intermediaries is
subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that it is a non-United
States Holder (and the payor does not have actual knowledge that the
beneficial owner is a United States person) or the holder otherwise
establishes an exemption.
The amount of any backup withholding from a payment to a non-United States
Holder will be allowable as a refund or credit against such non-United States
Holder's United States federal income tax liability, provided that the
required information or appropriate claim for refund is furnished to the IRS.
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company, the Selling Shareholders and the U.S. Underwriters (the
"U.S. Underwriting Agreement"), the Company and the Selling Shareholders have
agreed to sell to each of the U.S. Underwriters named below (the "U.S.
Underwriters"), and each of the U.S. Underwriters, for whom Smith Barney Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC Oppenheimer Corp.,
Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc. and Goldman,
Sachs & Co. are acting as the representatives (the "U.S. Representatives"),
has severally agreed to purchase the number of Shares set forth opposite its
name below:
<TABLE>
<CAPTION>
UNDERWRITING
U.S. UNDERWRITERS COMMITMENT
----------------- ------------
<S> <C>
Smith Barney Inc. ............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
CIBC Oppenheimer Corp. .......................................
Morgan Stanley & Co. Incorporated.............................
Deutsche Bank Securities Inc. ................................
Goldman, Sachs & Co. .........................................
Total.......................................................
=========
</TABLE>
The Company and the Selling Shareholders have been advised by the U.S.
Representatives that the several U.S. Underwriters initially propose to offer
such Shares to the public at the Price to Public set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $ per Share. The U.S. Underwriters may allow, and such dealers
may re-allow, a concession not in excess of $ per Share to other dealers.
After the Offerings, the Price to Public and such concessions may be changed.
The Company has granted to the U.S. Underwriters and the international
underwriters (the "International Underwriters" and, collectively with the U.S.
Underwriters, the "Underwriters") options, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to
additional shares of Common Stock from the Company at the Price to Public less
the Underwriting Discount, solely to cover over-allotments. To the extent that
the U.S. Underwriters and the International Underwriters exercise such
options, each of the U.S. Underwriters and the International Underwriters, as
the case may be, will be committed, subject to certain conditions, to purchase
a number of option shares proportionate to such U.S. Underwriter's or
International Underwriter's initial commitment.
The Company and the Selling Shareholders have entered into an International
Underwriting Agreement with the International Underwriters named therein, for
whom Smith Barney Inc., Merrill Lynch International, CIBC Oppenheimer Corp.,
Morgan Stanley & Co. International Limited, Deutsche Bank AG (London Branch)
and Goldman Sachs International are acting as the representatives (the
"International Representatives" and, together with the U.S. Representatives,
the "Representatives"), providing for the concurrent offer and sale of
Shares (in addition to the shares covered by the over-allotment
options described above) outside the United States and Canada. Both the U.S.
Underwriting Agreement and the International Underwriting Agreement provide
that the obligations of the U.S. Underwriters and the International
Underwriters are such that if any of the Shares are purchased by the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement, or by the
International Underwriters pursuant to the International Underwriting
Agreement, all the Shares agreed to be purchased by either the U.S.
Underwriters or the International Underwriters, as the case may be, pursuant
to their respective agreements must be so purchased. The Price to Public and
Underwriting Discount per Share for the U.S. Offering and the International
Offering will be identical. The closing of the International Offering is a
condition to the closing of the U.S. Offering and the closing of the U.S.
Offering is a condition to the closing of the International Offering.
65
<PAGE>
Each U.S. Underwriter has severally agreed that, as part of the distribution
of the Shares offered by the U.S. Underwriters, (i) it is not
purchasing any Shares for the account of anyone other than a United States or
Canadian Person, (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute this Prospectus to any person
outside of the United States or Canada, or to anyone other than a United
States or Canadian Person and (iii) any dealer to whom it may sell any Shares
will represent that it is not purchasing for the account of anyone other than
a United States or Canadian Person and agree that it will not offer or resell,
directly or indirectly, any Shares outside of the United States or Canada, or
to anyone other than
a United States or Canadian Person or to any other dealer who does not so
represent and agree. Each International Underwriter has severally agreed that,
as part of the distribution of the Shares offered by the
International Underwriters, (i) it is not purchasing any Shares for the
account of any United States or Canadian Person, (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any Shares or
distribute any Prospectus relating to the International Offering to any person
in the United States or Canada, or to any United States or Canadian Person and
(iii) any dealer to whom it may sell any Shares will represent that it is not
purchasing for the account of any United States or Canadian Person and agree
that it will not offer or resell, directly or indirectly, any Shares in the
United States or Canada, or to any United States or Canadian Person or to any
other dealer who does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S.
Underwriters and International Underwriters. "United States or Canadian
Person" means any person who is a national or resident of the United States or
Canada, any corporation, partnership or other entity created or organized in
or under the laws of the United States or Canada or of any political
subdivision thereof, and any estate or trust the income of which is subject to
United States or Canadian federal income taxation, regardless of its source
(other than any non-United States or non-Canadian branch of any United States
or Canadian Person), and includes any United States or Canadian branch of a
person other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of Shares as may be mutually agreed.
The price of any Shares so sold shall be the Price to Public, less an amount
not greater than the concession to securities dealers. To the extent that
there are sales between the U.S. Underwriters and the International
Underwriters pursuant to the Agreement Between U.S. Underwriters and
International Underwriters, the number of Shares initially available for sale
by the U.S. Underwriters or by the International Underwriters may be more or
less than the amount specified on the cover page of this Prospectus.
Any offer of the Shares in Canada will be made only pursuant to an exemption
from the prospectus filing requirement and an exemption from the dealer
registration requirement (where such an exemption is not available, offers
shall be made only by a registered dealer) in the relevant Canadian
jurisdiction where such offer is made.
The U.S. Underwriting Agreement provides that the Company will indemnify the
U.S. Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters may be required to make in respect thereof.
Subject to certain exceptions, the Company, its parent, the Selling
Shareholders and certain other directors and officers of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of, directly
or indirectly, or announce the offering of any shares of Common Stock,
including any such shares beneficially or indirectly owned or controlled by
the Company, the Selling Shareholders, respectively or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock,
for 180 days from the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
At the Company's request, the U.S. Underwriters have reserved up to
shares of Common Stock (the "Directed Shares") for sale at the Price to Public
to persons who are directors, officers or employees of, or otherwise
associated with, the Company and its affiliates and who have advised the
Company of their desire to purchase such Shares. The number of Shares of
Common Stock available for sale to the general public will be
66
<PAGE>
reduced to the extent of sales of Directed Shares to any of the persons for
whom they have been reserved. Any Shares not so purchased will be offered by
the U.S. Underwriters on the same basis as all other Shares offered hereby.
In connection with the Offerings and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Shares than the total amount shown
on the list of Underwriters and participations which appears above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the shares at levels above those which might otherwise prevail in the
open market. Such transactions may include placing bids for the Shares or
effecting purchases of the Shares for the purpose of pegging, fixing or
maintaining the price of the Shares or for the purpose of reducing a syndicate
short position created in connection with the offering. A syndicate short
position may be covered by exercise of the option described above in lieu of
or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Representatives purchase Shares in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Shares in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any
such activities, if commenced, may be discontinued at any time.
Prior to the Offerings, there has been no public market for the Common
Stock. The Price to Public was determined by negotiations between the Company,
the Selling Shareholders and the Representatives. Among the factors considered
in determining the Price to Public were prevailing market conditions, the
market values of publicly traded companies that the Underwriters believed to
be somewhat comparable to the Company, the demand for the Shares and for
similar securities of publicly traded companies that the Underwriters believed
to be somewhat comparable to the Company, the future prospects of the Company
and its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and other factors
deemed relevant. There can be no assurance that the prices at which the Shares
will sell in the public market after the Offerings will not be lower than the
Price to Public.
The Underwriters and certain of their affiliates have provided and may in
the future provide investment banking and other financial services to the
Company and certain of its affiliates for which they receive customary fees.
Affiliates of CIBC Oppenheimer have engaged in certain related-party
transactions with the Company, including as a lender under the AC-1 Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Principal and
Selling Shareholders," "Certain Transactions" and "Description of Certain
Indebtedness."
Under Rule 2720 ("Rule 2720") of the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD"), the Company is considered an
affiliate of CIBC Oppenheimer Corp. The Offerings are being conducted in
accordance with Rule 2720, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's equity
securities, the public offering price per share can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards
("QIU"). In accordance with this requirement, Smith Barney Inc. has assumed
the responsibilities of acting as QIU and will recommend a public offering
price for the Common Stock in compliance with the requirements of Rule 2720.
In connection with the Offerings, Smith Barney Inc. is performing due
diligence investigations and reviewing and participating in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms
a part. Smith Barney Inc. will receive no compensation for its services as
QIU.
67
<PAGE>
LEGAL MATTERS
The validity of the Common Stock will be passed upon by the Company's
counsel, Appleby, Spurling & Kempe, Hamilton, Bermuda. Certain legal matters
under United States and New York law with respect to the Shares offered hereby
will be passed upon for the Company by Simpson Thacher & Bartlett, New York,
New York, and for the Underwriters by Latham & Watkins, New York, New York.
Simpson Thacher & Bartlett and Latham & Watkins will rely, as to matters of
Bermuda law, on the opinion of Appleby, Spurling & Kempe, Hamilton, Bermuda.
EXPERTS
The financial statements of the Company for the period from March 19, 1997
(date of inception) to December 31, 1997, included in this Prospectus have
been audited by Arthur Andersen & Co., independent public accountants, as
indicated in their report with respect thereto included herein.
AVAILABLE INFORMATION
The Company is not currently subject to the information requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the Offerings, GCL will be required to file reports and other
information with the Securities and Exchange Commission (the "Commission")
pursuant to the informational requirements of the Exchange Act. GCL intends to
furnish its stockholders with Annual Reports containing Consolidated Financial
Statements audited by independent certified public accountants and with
quarterly reports containing unaudited financial information for each of the
first three quarters of each year.
GCL has filed with the Commission a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered hereby. As permitted by the rules and regulations of
the Commission, this Prospectus, which is a part of the Registration
Statement, omits certain information, exhibits, schedules and undertakings set
forth in the Registration Statement. For further information pertaining to the
Company and the securities offered hereby, reference is made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents or provisions of any documents
referred to herein are not necessarily complete, and in each instance,
reference is made to the copy of the document filed as an exhibit to the
Registration Statement. GCL will issue annual and quarterly reports. Annual
reports will include audited financial statements prepared in accordance with
accounting principles generally accepted in the United States and a report of
its independent auditors with respect to the examination of such financial
statements. In addition, GCL will issue to its securityholders such other
unaudited quarterly or other interim reports as it deems appropriate.
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
the Registration Statement may be obtained from the Commission at prescribed
rates from the Public Reference Section of the Commission at such address, and
at the Commission's regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov.
68
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December
31, 1997................................................................. F-3
Consolidated Statements of Operations for the three months ended March 31,
1998 (unaudited), for the period from March 19, 1997 (Date of
Inception) to March 31, 1997 (unaudited) and for the period from March
19, 1997 to December 31, 1997.......................................... F-4
Consolidated Statements of Shareholders' Equity for the three months ended
March 31, 1998 (unaudited) and for the period from March 19, 1997 (Date
of Inception) to December 31, 1997..................................... F-5
Consolidated Statements of Cash Flows for the three months ended March 31,
1998 (unaudited), for the period from March 19, 1997 (Date of
Inception) to March 31, 1997 (unaudited) and for the period from March
19, 1997 to December 31, 1997.......................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Global Crossing Ltd., LDC:
We have audited the accompanying consolidated balance sheet of Global
Crossing Ltd., LDC (a Cayman Islands company in its development stage) and
subsidiaries as of December 31, 1997, and the related consolidated statements
of operations, shareholders' equity and cash flows for the period from March
19, 1997 (date of inception) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Crossing Ltd., LDC
and subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for the period from March 19, 1997 (date of inception) to
December 31, 1997, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen & Co.
Hamilton, Bermuda
May 14, 1998
F-2
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash....................................... $ 2,737,743 $ 1,452,684
Interest receivable........................ 85,000 123,000
Value added tax recoverable................ 8,470,341 --
Other assets and prepaid costs............. 4,209,636 892,958
Restricted cash and cash equivalents....... 39,180,447 25,275,196
------------ ------------
54,683,167 27,743,838
Construction in progress..................... 621,904,402 523,620,864
Deferred finance and organization costs, net
of accumulated amortization of $3,453,283
($2,246,857 as of December 31, 1997)........ 24,974,952 25,934,021
------------ ------------
$701,562,521 $577,298,723
============ ============
LIABILITIES:
Current liabilities:
Accrued construction costs................. $ 23,732,932 $ 52,003,875
Accounts payable and accrued liabilities... 4,041,649 1,658,399
Accrued dividends on preference shares..... 1,326,201 1,281,354
Accrued interest on Senior Notes........... 6,002,000 1,640,500
Unearned revenue........................... 14,550,000 5,325,000
Short term borrowings...................... 11,929,750 --
Current portion of obligations under inland
services agreements....................... 12,712,937 18,091,000
------------ ------------
74,295,469 80,000,128
Long term debt............................... 305,508,000 162,325,000
Senior Notes................................. 150,000,000 150,000,000
Obligations under inland services
agreements.................................. 16,745,000 20,209,000
------------ ------------
Total liabilities.......................... 546,548,469 412,534,128
------------ ------------
COMMITMENTS
MANDATORILY REDEEMABLE PREFERENCE SHARES,
113,674 shares (109,830 as of December 31,
1997), $1,000 liquidation preference per
share (net of unamortized discount on
issuance of $11,893,118 ($12,223,993 as of
December 31, 1997) and net of unamortized
issued costs of $6,773,960 ($6,962,407 as of
December 31, 1997)).......................... 95,007,302 90,643,919
------------ ------------
SHAREHOLDERS' EQUITY:
Class A common stock, 20,735,300 shares
issued (20,735,300 as of December 31,
1997)....................................... 20 20
Class B common stock, 34,050,000 shares
issued (33,750,000 as of December 31,
1997)....................................... 34 34
Class C common stock, 33,750,000 shares
issued (33,750,000 as of December 31, 1997)
shares issued............................... 34 34
Class D common stock, 22,058,800 shares
issued, convertible to Class E shares
(22,058,800 as of December 31, 1997)........ 22 22
Class E common stock, 125,000 shares issued
(nil as of December 31, 1997)............... -- * --
Additional paid-in capital................... 87,395,845 86,970,845
Deficit accumulated during the development
stage....................................... (27,389,205) (12,850,279)
------------ ------------
60,006,750 74,120,676
------------ ------------
$701,562,521 $577,298,723
============ ============
</TABLE>
- --------
*Amount less than $1.
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
THREE MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
MARCH 31, 1998 TO MARCH 31, 1997 TO DECEMBER 31, 1997
-------------- ------------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME......... $ 345,834 $ -- $ 2,941,352
------------ ----------- ------------
EXPENSES:
Sales and marketing... 784,216 -- 1,366,724
General and
administrative....... 2,614,903 -- 1,695,770
Depreciation and
amortization......... 30,367 -- 39,214
Project evaluation
costs................ 7,047,044 --
------------ ----------- ------------
10,476,530 -- 3,101,708
------------ ----------- ------------
NET LOSS................ (10,130,696) -- (160,356)
PREFERENCE SHARE
DIVIDENDS.............. (4,408,230) (194,444) (12,689,923)
------------ ----------- ------------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS.... $(14,538,926) $ (194,444) $(12,850,279)
============ =========== ============
Basic and diluted net
loss per common share.. $ (0.13) $ -- * $ (0.12)
============ =========== ============
Shares used in computing
basic and diluted net
loss per common share.. 110,615,211 110,294,100 110,294,100
============ =========== ============
</TABLE>
*Amount less than $(0.01)
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND FOR THE PERIOD FROM
MARCH 19, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT(1) CAPITAL DEFICIT EQUITY
----------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of Class A
common stock for cash
on March 25, 1997...... 7,500,000 $ 7 $ 7,499,993 $ -- $ 7,500,000
Class A common stock
distributed for nil
consideration to the
holders of preference
shares on
March 25, 1997......... 13,235,300 13 13,234,987 -- 13,235,000(2)
Issuance of Class B
common stock for cash
on March 25, 1997...... 33,750,000 34 31,249,966 -- 31,250,000
Issuance of Class C
common stock for cash
on March 25, 1997...... 33,750,000 34 33,749,966 -- 33,750,000
Issuance of Class D
common stock for cash
to certain Class B
shareholders on
March 25, 1997......... 22,058,800 22 2,499,978 -- 2,500,000
Finance costs incurred
related to the issuance
of common stock........ -- -- (1,264,045) -- (1,264,045)
Net loss applicable to
common shareholders for
the period............. -- -- -- (12,850,279) (12,850,279)
----------- ---- ----------- ------------ ------------
Balance, December 31,
1997................... 110,294,100 110 86,970,845 (12,850,279) 74,120,676
----------- ---- ----------- ------------ ------------
Issuance of Class B
common stock for cash
on January 21, 1998.... 300,000 -- * 300,000 -- 300,000
Issuance of Class E
common stock for cash
on January 21, 1998.... 125,000 -- * 125,000 -- 125,000
Net loss applicable to
common shareholders for
the three months ended
March 31, 1998......... -- -- -- (14,538,926) (14,538,926)
----------- ---- ----------- ------------ ------------
Balance, March 31, 1998. 110,719,100 $110 $87,395,845 $(27,389,205) $ 60,006,750
=========== ==== =========== ============ ============
</TABLE>
- --------
*Amount less than $1.
(1)Amount per share less than $1.
(2)Per Note 7, value was determined based on the $1 per share paid for the
Class A shares.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
THREE MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
MARCH 31, TO MARCH 31, TO DECEMBER 31,
1998 1997 1997
------------ ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss applicable to
common shareholders.... $(14,538,926) $ (194,444) $ (12,850,279)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation and
amortization......... 30,367 -- 39,214
Preference share
dividends............ 4,408,230 194,444 12,689,923
Decrease (increase) in
interest receivable.. 38,000 -- (123,000)
Increase in other
assets and prepaid
costs................ (3,323,902) -- (909,015)
Increase in value
added tax
recoverable.......... (8,470,341) -- --
Increase in unearned
revenue.............. 9,225,000 -- 5,325,000
Increase in accounts
payable and accrued
liabilities.......... 1,956,567 25,000 1,248,133
Increase in short term
borrowings........... 11,929,750 -- --
------------ ------------- -------------
Net cash provided by
operating
activities......... 1,254,745 25,000 5,419,976
------------ ------------- -------------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Finance and
organization costs
incurred............... (247,357) (16,661,358) (28,180,878)
Preference share
issuance costs......... -- -- (7,529,651)
Finance costs related
to issuance of common
stock.................. -- -- (1,264,045)
Proceeds from issuance
of common stock and
additional paid-in
capital................ 425,000 75,000,000 75,000,000
Proceeds from issuance
of preference shares... -- 100,000,000 100,000,000
Proceeds from long term
debt................... 143,183,000 -- 162,325,000
Proceeds from issuance
of Senior Notes........ -- -- 150,000,000
Increase in restricted
cash and cash
equivalents............ (13,905,251) (124,887,205) (25,275,196)
------------ ------------- -------------
Net cash provided by
financing
activities......... 129,455,392 33,451,437 425,075,230
------------ ------------- -------------
CASH FLOWS USED IN
INVESTING ACTIVITY:
Cash paid for
construction in
progress............... (129,425,078) (31,112,795) (429,042,522)
------------ ------------- -------------
NET INCREASE IN CASH..... 1,285,059 2,363,642 1,452,684
CASH, beginning of
period.................. 1,452,684 -- --
------------ ------------- -------------
CASH, end of period...... $ 2,737,743 $ 2,363,642 $ 1,452,684
============ ============= =============
SUPPLEMENTAL INFORMATION
ON NON-CASH INVESTING
ACTIVITIES:
Costs incurred for
construction in
progress............... $ 98,283,538 $ 31,112,795 $ 523,620,864
Decrease (increase) in
accrued construction
costs.................. 28,270,943 -- (52,003,875)
Increase in accrued
interest on Senior
Notes.................. (4,361,500) -- (1,640,500)
Increase in accrued
liabilities............ (426,683) -- (410,267)
Amortization of
deferred finance
costs.................. (1,183,283) -- (2,223,700)
Decrease (increase) in
obligations under
inland services
agreements............. 8,842,063 -- (38,300,000)
------------ ------------- -------------
Cash paid for
construction in
progress............. $129,425,078 $ 31,112,795 $ 429,042,522
============ ============= =============
SUPPLEMENTAL INFORMATION
ON NON-CASH FINANCING
ACTIVITY:
Class A common stock
distributed to holders
of preference shares
reflected as a
discount............... $ -- $ 13,235,000 $ 13,235,000
============ ============= =============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid and
capitalized............ $ 4,445,632 $ -- $ --
============ ============= =============
Interest paid (net of
capitalized interest).. $ 23,234 $ -- $ --
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 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.
During the three months ended March 31, 1998, GCL began to develop three
additional undersea fiber optic cable systems: Pacific Crossing, Mid-Atlantic
Crossing and Pan American Crossing. Subsequent to March 31, 1998, GCL
incorporated additional companies to own and operate these additional cable
systems (see Note 15).
To finance construction of ACL's undersea fiber optic cable ring, GCL issued
$75 million of common stock and Global Telesystems Holdings Limited ("GTH"),
an indirect wholly-owned subsidiary of GCL, and the parent of ACL, issued $100
million of preference shares and sold $150 million of Senior Notes. These
proceeds, together with a $482 million credit facility are being used to pay
for construction costs, financing fees and other related costs. Together GCL
and its subsidiaries are defined as the Company.
ACL has entered into a fixed price contract (the "Contract") with Tyco
Submarine Systems Ltd. ("TSSL"), formerly AT&T Submarine Systems, Inc., for
the development, design, construction and installation of a four fiber pair,
fiber optic cable system connecting (i) the United States to the United
Kingdom, (ii) the United Kingdom to the Netherlands and Germany, (iii) the
Netherlands to Germany and (iv) Germany to the United States (collectively,
"AC-1" or the "System"). AT&T Corp. has provided ACL with a guarantee in
respect of TSSL's obligations under the Contract. Assuming that construction
of AC-1 progresses according to the Contract schedule, the System will be
accepted by ACL and made available for commercial service on February 22, 1999
(the "System RFS date"). Certain segments of the System are expected to be
completed in advance of the System RFS date. The United States to the United
Kingdom segment was ready for service on May 31, 1998 and the Germany to the
United States segment is expected to be ready for service on November 30,
1998. Once ACL formally accepts each segment of the System, the segment
becomes ready for service and the ownership of the segment assets transfers to
ACL and its subsidiaries. The only exception to this transfer of ownership is
in respect of the segment assets located in U.S. territory to which TSSL
retains title until such time as GT Landing Corp., a U.S. subsidiary of ACL,
exercises its purchase option. Pursuant to the Contract, GT Landing Corp. was
granted an indefeasible right of use ("IRU") by TSSL to these assets along
with a purchase option to purchase for $10,000 all rights and title to these
assets. This IRU effectively transfers ownership by granting the IRU holder,
GT Landing Corp., all the risks and rewards of ownership. The U.S. assets
governed by this IRU include all landing station assets (with the exception of
the building and land), fiber optic cable located in the U.S. 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.
F-7
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED
(EXPRESSED IN U.S. DOLLARS)
ACL has entered into contracts, called Inland Services Agreements, to obtain
IRU's 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 the 25 year period and as a result
accepts all of the rights and risks of ownership. The Company then sells this
Backhaul Capacity under separate CPAs ("Backhaul CPAs") 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 the IRU entitles the customer to use the Backhaul Capacity for a
period ending 25 years after the System RFS date.
ACL has entered into an Operations, Administration and Maintenance ("OA&M")
agreement with TSSL whereby TSSL is obligated to provide operating,
administration and maintenance functions to AC-1. The administration functions
include but are not limited to the provision of billing information and annual
expense budgets. The operations and maintenance functions include but are not
limited to the management and maintenance of a Network Operating Center,
assumption of ship costs and any related ship repair costs, obtaining and
renewing all permits to operate, administer and maintain the System, 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.
Under CPAs that ACL has entered into with its customers, ACL is obliged to
use commercially reasonable efforts to cause the System to be maintained in
efficient working order and in accordance with industry standards. In exchange
for the operation and maintenance services provided by ACL the customers are
obligated for the term of the IRU to pay for their allocable share of the costs
for operating, maintaining and repairing 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. Their share of the costs will be 110% of ACL's OA&M costs allocated to
the customers based on their pro-rata share of capacity subject to 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 multiplied by 110% of actual OA&M
costs incurred. These OA&M costs are billed to customers quarterly in advance,
are non-refundable and should a customer fail to make an OA&M payment, ACL may
suspend all rights to capacity granted under the IRU.
ACL originally entered into a Sales Agency Agreement with TSSL whereby TSSL
was responsible for the marketing and sale of capacity of the System and
received commissions on sales proceeds received at rates that varied as certain
cumulative revenue levels were reached. Effective March 5, 1998, the Company
entered into a commissions sharing agreement with TSSL whereby GCL assumed
primary responsibility for the marketing and sale of capacity of the System and
will share a percentage of commissions payable to TSSL under the Sales Agency
Agreement as consideration for assuming primary responsibility for the sales
effort and marketing of the Company's projects. The Sales Agency Agreement with
TSSL will terminate on March 25, 2002 with an option to extend it until March
25, 2005.
On January 21, 1998, GCL effected a 100 for 1 stock split of each of the
Class A, B, C and D common stock and undesignated stock and amended the par
value of each share of common stock from $.0001 per share
F-8
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
to $.000001 per share. All share information presented in the consolidated
financial statements, including these notes, gives effect to the stock split.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The significant accounting policies are
summarized as follows:
a) Principles of Consolidation
These consolidated financial statements include the accounts of Global
Crossing Ltd., LDC and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.
b) Development Stage Company
The Company is in its development stage, having completed various studies and
vendor selection for AC-1. Currently, landing stations are under construction,
submersible plant and cable is being manufactured and cable-laying operations
are underway. The Company will begin recognizing revenues from signed CPAs upon
the ready for service date of May 31, 1998 for the United States to the United
Kingdom segment and all aspects of the System will be ready for commercial
service by February 22, 1999. In addition, the Company is in the initial stages
of developing three other undersea fiber optic cable systems.
Successful future operations are subject to several risks, including the
ability of the Company to ensure the successful, timely and cost-effective
completion of AC-1 and other cable systems as well as to successfully market
and generate significant revenue from the sale of capacity of the System. ACL
may encounter problems, delays and expenses, many of which may be beyond its
control. There can be no assurance that the cable systems will be completed
within the time frame and costs set out in the Contract and that capacity sales
will meet expectations, or that substantial delays would not adversely affect
ACL's achievement of profitable operations.
c) Cash and Cash Equivalents
The Company considers short-term highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents include cash in banks and short-term
money market deposits with a maturity of one month.
d) Sales, Cost of Sales Recognition and Unearned Revenue
As of March 31, 1998, the Company had entered into signed CPAs totaling
approximately $280 million (approximately $141 million as of December 31,
1997).
F-9
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 separate CPAs to sell Backhaul Capacity. Both
AC-1 and Backhaul Capacity CPAs grant the customer an indefeasible right of use
of capacity for the life of the cable which is 25 years from the ready for
service date.
Revenues from the sale of AC-1 capacity and backhaul capacity are recognized
in the period that the rights and obligations of ownership transfer to the
purchaser, which occurs when (1) the purchaser obtains the right to use the
capacity, which can only be suspended by a failure of the purchaser to pay the
full purchase price or fulfill its contractual obligations, (2) the purchaser
is obligated to pay OA&M costs and (3) the segment of the System related to the
capacity purchased is available for service. Customers who have entered into
CPAs for AC-1 capacity to date have paid deposits toward the purchase price and
such amounts are reflected as unearned revenue in the accompanying consolidated
balance sheet. Certain CPAs require a refund of these deposits should the
System RFS date occurs after June 30, 1999.
Costs incurred on each segment of the System, currently reflected as
construction in progress in the accompanying consolidated balance sheet, will
be recorded as capacity available for sale at the date each segment of the
System becomes operational. AC-1 capacity and Backhaul capacity available for
sale will be recorded at the lower of cost or fair value less costs to sell and
will be charged to costs of sales in the period the related revenues are
recognized. Fair value of AC-1 capacity will be derived from a third party
consultant's market study of expected sales of capacity.
The AC-1 System has been designed to include the ability to upgrade the
System in the future enabling the Company to increase the initial design
capacity of 40 Gb/s or 256 circuits available for sale. Of the design capacity,
only half is available for sale with the other half used for restoration.
The amount charged to cost of sales in any period relating to System capacity
will be calculated based on the ratio of System capacity revenues recognized in
the period to total expected System capacity revenues over the life of the
System multiplied by the total costs incurred to construct the System. This
calculation of the cost of sales amount matches costs with the relative value
of each sale to total expected revenues. Until the entire System is completed,
for purposes of calculating cost of sales, the total System costs incurred will
include an estimate of remaining costs to be incurred to complete the entire
System. Backhaul Capacity sold to customers is acquired from third party
capacity providers generally when needed to fulfill the Company's commitments
under Backhaul Capacity 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 business plan for AC-1 estimates that in order to achieve a satisfactory
return on investment the sales level would have to be based on capacity of at
least 80 Gb/s. In the period the Company first recognizes revenue on the
System, the estimate of total expected revenues to be derived from sales over
the life of the System, for purposes of the cost of sales calculation, will be
based on the minimum capacity sales level required under the business plan
which for AC-1 is 80 Gb/s. The Company intends to purchase an upgrade to
increase
F-10
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
available capacity to 80 Gb/s. In the period the Company commits to purchase a
further upgrade, the total expected revenues and cost of the upgrade used in
the cost of sales calculation will change to take into account the further
increase in System capacity beyond the 80 Gb/s. The total expected revenues
used by the Company in its cost of sales calculation will always be limited by
total sales forecasted by a third party consultant which will be updated on an
annual basis. Based on the current third party consultant's sales forecast,
the Company expects to sell all of the capacity available from the 80 Gb/s.
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.
OA&M billings are recognized over the quarter to which they relate. On an
annual basis the actual OA&M costs incurred by the Company will be accumulated
and an adjustment will be made to true up actual billings to 110% of actual
costs, provided specified limits have not been reached. This adjustment will
be recorded in the period in which the adjustment is made.
e) Commissions and Advisory Services Fees
The Company becomes obligated for both commissions and advisory fees under
the Advisory Services Agreement ("ASA") upon the receipt of cash from CPAs and
Backhaul CPAs. 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 ASA, the
Company pays Pacific Capital Group, Inc. ("PCG") 2% of capacity sales for
advisory services performed; however payment to PCG is fully contingent upon
the receipt of cash from the CPAs by the Company. While advisory fees are paid
for services provided, the Company's accounting policy reflects the terms of
the agreement which states that the fees are not incurred until the revenues
are earned and recognized. See Note 12 and Note 15 for further discussion of
the terms of the ASA.
f) Construction in Progress
Construction in progress includes direct expenditures for construction of
the System and is stated at cost. Capitalized costs include costs incurred
under the Contract, advisory, consulting and legal fees, interest and
F-11
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 related to the
evaluation of new projects incurred prior to the date development of the cable
system becomes probable are expensed as incurred. During the three months
ended March 31, 1998, the Company expensed approximately $7 million paid to a
subsidiary of PCG, a shareholder of GCL, for such project evaluation costs
relating to certain new projects that are described in Note 15.
Additionally, the cost of acquiring Backhaul Capacity under Inland Services
Agreements has been capitalized in construction in progress. Under these
agreements the Company is required to pay an up-front non-recurring charge
plus, in certain cases, monthly recurring charges over the period the capacity
is provided. The Company has capitalized the present value of these total
future payments in construction in progress and has recorded an equal amount
as an obligation under Inland Services Agreements in the accompanying
consolidated balance sheets (see Note 5). Additionally, the Company has
included in construction in progress the minimum lease payments related to the
IRU held by GT Landing Corp.
Total interest costs incurred for the three months ended March 31, 1998 was
$8,830,367 of which $8,807,133 was capitalized to construction in progress and
total interest costs incurred for the period from inception to December 31,
1997 was $9,776,767 of which $9,776,767 was capitalized to construction in
progress.
g) Deferred Finance and Organization Costs
Costs incurred to obtain financing for the System through the issuance of
Senior Notes and long term debt have been reflected as an asset in the
accompanying consolidated balance sheets. Costs incurred to obtain financing
for the System through the issuance of common stock and preference shares,
respectively, have been reflected as a reduction in the carrying value of the
issued common and preference shares. The financing costs relating to the debt
are amortized over the term of the related debt agreements. Offering costs
related to the issuance of preference shares are amortized through the
mandatory redemption date of April 1, 2007. The preference shares were issued
at a discount, as explained in Note 7, which is also being amortized through
the mandatory redemption date. During the construction period of the System,
the amortized portion of deferred financing costs relating to the Senior Notes
and the long term debt are included in construction in progress as a component
of interest capitalized. The amortized portion of the deferred financing costs
relating to the preference shares is included as a component of preference
share dividends. Deferred organization costs, which include legal and
professional fees incurred to bring GCL, GTH and ACL into legal existence, are
amortized to expense over a period of five years.
h) Translation of Foreign Currencies
Transactions in foreign currencies are translated into U.S. dollars at the
rate of exchange prevailing at the date of each transaction. Monetary assets
and liabilities denominated in foreign currencies at year end are translated
into U.S. dollars at the rate of exchange at that date. Resulting gains or
losses on exchange are recorded as other income or loss in the statement of
operations.
F-12
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
i) Stock Option Plan
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
and, accordingly, recognizes compensation expense for stock option grants to
the extent that the estimated fair value of the stock exceeds the exercise
price of the option at the measurement date. The compensation expense is
charged against operations ratably over the vesting period of the options.
Disclosures will be made in the consolidated financial statements of future
periods in accordance with Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (See Note 9).
j) Interest Rate Derivatives
The Company uses derivative financial instruments for the purpose of reducing
its exposure to adverse fluctuations in interest rates. The Company does not
utilize derivative financial instruments for trading or other speculative
purposes. The counterparty to these instruments is CIBC. The Company is exposed
to credit loss in the event of nonperformance by this counterparty.
As discussed in Note 5, effective December 31, 1997, the Company entered into
an interest rate swap agreement to hedge its exposure to interest rates on its
long term debt. The net cash amounts paid or received on the agreement are
accrued and recognized as an adjustment to interest expense on the related
debt.
For interest rate derivatives to qualify for hedge accounting, the debt
instrument being hedged must expose the Company to interest rate risk and, at
the inception of the derivative instrument and throughout the period the
derivative is held, there must be a high correlation of changes in the market
value of the derivative and interest expense of the hedged item. Gains and
losses on interest rate derivatives and other derivative instruments which do
not meet this criteria would be recorded in the statement of operations.
If an interest rate derivative instrument were to terminate or be replaced by
another instrument and no longer qualify as a hedge instrument, then it would
be marked to market and carried on the balance sheet at fair value.
k) Interim Financial Information
The unaudited financial statements as of March 31, 1998, and for the three
months ended March 31, 1998 and for the period from March 19, 1997 (date of
inception) to March 31, 1997 include, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for the fair presentation of such financial statements.
l) Net loss per Share
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted net loss per share is computed
using the weighted average number of shares of common stock outstanding and
common stock equivalents including shares issuable under options and warrants
that are dilutive using the treasury stock method.
F-13
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
The following table sets forth the computation of basic and diluted net loss
per share:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FOR THE THREE MARCH 19, MARCH 19,
MONTHS ENDED 1997 (DATE OF 1997 (DATE OF
MARCH 31, INCEPTION) TO INCEPTION) TO
1998 MARCH 31, 1997 DECEMBER 31, 1997
------------- -------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Numerator:
Net loss applicable to common
shareholders.................. $ (14,538,926) $ (194,444) $ (12,850,279)
Denominator:
Denominator for basic and
diluted net loss per share:... 110,615,211 110,294,100 110,294,100
------------- ------------ -------------
Basic and diluted net loss per
share applicable to common
shareholders.................. $ (0.13) $ --* $ (0.12)
</TABLE>
Subsequent to March 31, 1998, the Company issued additional options which
have not been included in the above net loss per share calculations. See Note
15 for further discussions of stock options.
- --------
* Amount less than $(0.01)
m) Pending Accounting Standard
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standard 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.
Management does not expect the impact of the adoption of these statements on
the Company's financial position or results of operations to be material.
The American Institute of Certified Public Accountants (AICPA) recently
issued Statement of Position 98-5 Reporting on the Cost of Start-Up Activities
(SOP 98-5). SOP 98-5 is effective for periods beginning after December 15,
1998. Management does not expect the impact of the adoption of this SOP on the
Company's financial position or results of operations to be material.
3. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents comprises approximately $20 million as
of March 31, 1998 and December 31, 1997 reserved for purposes of funding future
interest payable on Senior Notes, approximately $15 million as of March 31,
1998 ($5 million as of December 31, 1997) in funds received from CPAs signed to
date that may be used only in accordance with the terms of the long term debt
agreement and approximately $4 million as of March 31, 1998 (nil as of December
31, 1997) restricted for purchases of Backhaul Capacity.
F-14
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
4. SHORT TERM BORROWINGS
Effective March 24, 1998, GCL obtained a $200 million secured revolving
credit promissory note ("Bridge Facility") from CIBC and other lenders to fund
development of the new undersea fiber optic cable systems discussed further in
Note 15 and advances on the ASA. All amounts borrowed under the Bridge Facility
are due and payable on June 24, 1998 and bear interest at a floating rate of
LIBOR plus 2.5%. As of March 31, 1998, the Company had borrowings of
approximately $12 million under the Bridge Facility. The Bridge Facility is
secured by pledges of the common stock of all existing and future direct
subsidiaries of GCL. (See Note 15).
5. LONG TERM DEBT AND OBLIGATIONS UNDER INLAND SERVICES AGREEMENTS
On June 27, 1997, ACL entered into a $410 million aggregate senior secured
limited recourse loan facility (the "Credit Facility") with a group of banks
led by CIBC and Deutsche Bank AG, for the construction and financing costs of
AC-1. On December 15, 1997, the Credit Facility was amended to increase it to
$482 million comprised of a $472 million multiple draw down term loan facility
(the "Term Facility") and a $10 million working capital facility (the "Working
Capital Facility") for the purpose of extending the System to include, among
other things, a Netherlands landing site. The Credit Facility is secured by
pledges of the stock of ACL and its subsidiaries and security interests in its
assets and revenues. As of March 31, 1998, ACL had borrowed $305,508,000
($162,325,000 as of December 31, 1997) under the Credit Facility.
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 based on a Base
rate, defined as 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 loan balance
outstanding 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, as defined by the terms of the Credit Facility, to the
mandatory prepayment of the remaining outstanding balance under the Credit
Facility. Excess Cash Flows is defined under the terms of the Credit Facility
as all cash revenue received during the period by ACL after payment of OA&M
expenses ASA fees, commissions earned under the Sales Agency Agreement, and
transfers to certain reserve accounts. The Credit Facility also requires
mandatory prepayments to be made from 50% of net cash proceeds of any equity
offering of ACL and 100% of net cash proceeds from permitted debt offerings by
ACL or GTH. Optional prepayments may be made at any time without premium or
penalty. All revenues received prior to the System RFS date are used to fund
certain reserve accounts, as defined by the Credit Facility, and thereafter
applied against the borrowings under the Credit Facility and the Senior Notes
as determined by the Credit Facility agreement.
F-15
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 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 March 31, 1998, all borrowings under the Credit Facility are
Eurodollar Loans with $7,800,000 ($500,000 as of December 31, 1997) drawn down
under the Working Capital Facility and $297,708,000 ($161,825,000 as of
December 31, 1997) drawn down under the Term Facility. ACL has incurred
interest costs, including amortization of deferred financing costs, of
$5,554,697 for the three months ended March 31, 1998 ($4,246,616 for the
period from inception through December 31, 1997). These costs have been
capitalized and included in construction in progress in the accompanying
consolidated balance sheets. Effective December 31, 1997, ACL entered into an
interest rate swap transaction based on one month LIBOR to minimize its
exposure to increases in interest rates on its borrowings. The swap
transaction was amended on February 2, 1998 and currently fixes ACL's floating
interest rate at 5.7825% on a notional amount of borrowings ranging between
$200 million and $310 million until January 31, 1999.
As described in Note 1, ACL has purchased Backhaul Capacity. Certain
contracts to purchase Backhaul Capacity require payments over a 25 year
period. As of March 31, 1998, the present value of these payments has been
recorded as obligations under Inland Services Agreements in the accompanying
consolidated balance sheets in the amount of $29,457,937 ($38,300,000 as of
December 31, 1997).
As of March 31, 1998, future minimum payments, in the aggregate for the nine
months ended December 31, 1998 and for the four succeeding years, under these
Inland Services Agreements are as follows:
<TABLE>
<S> <C>
For the nine months ended December 31, 1998...................... $ 9,248,937
1999............................................................. 4,900,000
2000............................................................. 1,670,000
2001............................................................. 1,717,000
2002............................................................. 1,766,000
Thereafter until 2021............................................ 47,997,000
-----------
Total minimum payments......................................... $67,298,937
===========
</TABLE>
6. SENIOR NOTES
The 12% senior notes due March 31, 2004 with a face value of $150 million
("Senior Notes") are general unsecured obligations of GTH and will rank senior
to any future subordinated indebtedness of GTH and pari passu in right of
payment with any future unsecured senior indebtedness of GTH. The Senior Notes
bear an initial interest rate of 12% per annum. Interest is payable semi-
annually in arrears on each June 1 and December 1. If the Senior Notes are not
repaid by April 1, 2000, the interest rate will increase by 0.5% on April 1,
2000 and by an additional 0.5% on each subsequent April 1, until repaid. If
the interest rate exceeds 15% per annum (the interest rate payable increases
by 2% upon any event of default) GTH may, at its option, cause such interest
in excess of 15% to be paid in additional senior notes. GTH has incurred
interest costs, including amortization
F-16
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
of deferred financing costs, of $4,930,282 for the three months ended March 31,
1998 ($9,013,534 for the period ended December 31, 1997), which has been
capitalized and included in construction in progress in the accompanying
consolidated balance sheets.
As described in Note 5, revenues received prior to the System RFS date are
used to fund certain reserve accounts which are then applied against borrowings
under the Credit Facility and the Senior Notes as determined by the Credit
Facility agreement. Additionally, GTH will on each June 1 and December 1,
commencing on the first such date to occur more than 90 days after the System
RFS date, apply an amount equal to 50% of ACL's Excess Cash Flow (as defined in
Note 5), to redeem the Senior Notes at face value, plus accrued interest to the
date of repurchase. The Senior Notes are redeemable at the option of GTH, at
redemption prices starting at 106% of the face value beginning April 1, 2000,
declining to 103% in 2001, and 100% in 2002 and 2003, plus accrued interest.
The Senior Notes agreement imposes certain limitations on the ability of GTH
and its subsidiaries to, among other things, (i) incur additional indebtedness
including senior indebtedness and (ii) pay certain dividends and make certain
other restricted payments and investments.
7. MANDATORILY REDEEMABLE PREFERENCE SHARES
The authorized preference shares consist of 500,000 shares at a liquidation
preference of $1,000 per share. Effective March 25, 1997, 100,000 shares were
issued for $100 million in cash and as of March 31, 1998, 113,674 shares
(109,830 shares as of December 31, 1997) were issued and outstanding.
The holders of preference shares are entitled to receive cumulative,
compounding dividends at an initial annual rate of 14% of the $1,000
liquidation preference per share. If the preference shares are not redeemed on
or prior to April 1, 2001, the annual dividend rate will increase by 0.5% per
annum (the dividend rate payable increases by 2% upon any event of default)
thereafter, subject to a maximum annual dividend rate of 20%. At the option of
GTH, accrued dividends may be paid in cash or paid by issuing additional
preference shares (i.e. pay-in-kind) until April 1, 2002, at which time they
must be paid in cash. However, if the dividend rate exceeds 15% per annum, GTH
may cause dividends in excess of 15% to be paid in additional preference
shares. Dividends paid in additional preference shares are payable on a
quarterly basis and cash dividends are payable on a semi-annual basis. All
dividends declared to date have been paid in additional preference shares. The
preference shares rank senior to all common stock with respect to dividend
rights, rights of redemption or rights on liquidation and senior to any future
preferred stock. The preference shares are non-voting unless GTH fails to pay a
dividend, fails to make a mandatory redemption or upon a change in control,
fails to make an offer to purchase the preference shares at 101%, at which time
the holders of a majority of the preference shares will be entitled to elect
one to two directors. In the event that any preference shares are still
outstanding on April 1, 2001, the holders thereof will receive warrants to
purchase shares of Class A common stock of GCL at an exercise price of $.01 per
share, up to a maximum of 46,440 shares of GCL common stock.
The preference shares have a mandatory redemption on April 1, 2007 at their
liquidation preference. In addition, the preference shares will be redeemed out
of ACL's Excess Cash Flows (as described in Note 5) after
F-17
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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.
During the three months ended March 31, 1998, dividends approximating $3.9
million ($9.8 million for the period from inception through December 31, 1997)
were paid by issuing additional preference shares and a further $1.3 million
($1.3 million as of December 31, 1997) in dividends were accrued as of March
31, 1998.
Preference share dividends included the following:
<TABLE>
<CAPTION>
THREE FOR THE PERIOD
MONTHS MARCH 19, 1997
ENDED MARCH (DATE OF INCEPTION)
31, TO DECEMBER 31,
1998 1997
----------- -------------------
(UNAUDITED)
<S> <C> <C>
Preference share dividends................ $3,888,908 $11,111,672
Amortization of discount on preference
shares................................... 330,875 1,011,007
Amortization of preference share issuance
costs.................................... 188,447 567,244
---------- -----------
$4,408,230 $12,689,923
========== ===========
</TABLE>
In connection with the issuance of the preference shares, the holders of
preference shares purchased an aggregate of 7,500,000 shares of GCL's Class A
common stock for total proceeds of $7.5 million. Additionally, in connection
with the issuance of the preference shares, the initial purchaser of the
preference shares received 13,235,300 shares of GCL's Class A common stock for
no additional consideration representing 15% of the aggregate number of GCL's
Class A, B and C shares outstanding, after giving effect to the issuance. The
initial purchaser had the right to distribute these Class A shares to
purchasers of the preference shares from the initial purchaser. Shares of this
Class A common stock not distributed by the initial purchaser and were
allocated pro rata to the initial Class B and Class C shareholders. The
Company has reflected the $13,235,000 estimated fair value of the GCL's Class
A common stock as a discount in the carrying value of the preference shares.
The fair value of the 13,235,300 shares of GCL's Class A common stock
distributed to preference shareholders was based on the $1 per share paid by
the holders of preference shares for the 7,500,000 GCL's Class A shares
purchased for cash.
F-18
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
<TABLE>
<S> <C> <C>
Common Stock:
Authorized:
1,000,000,000 Class A common stock of $.000001
par value
1,000,000,000 Class B common stock of $.000001
par value
1,000,000,000 Class C common stock of $.000001
par value
3,000,000,000 Class D common stock of $.000001
par value
1,000,000,000 Class E common stock of $.000001
par value
43,000,000,000 undesignated common stock of
$.000001 par value
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Issued and Outstanding as of March 31, 1998:
20,735,300 Class A shares (20,735,300 as of
December 31, 1997)........................... $20 $20
34,050,000 Class B shares (33,750,000 as of
December 31, 1997)........................... 34 34
33,750,000 Class C shares (33,750,000 as of
December 31, 1997)........................... 34 34
22,058,800 Class D shares (22,058,800 as of
December 31, 1997)........................... 22 22
125,000 Class E shares (nil as of December 31,
1997)........................................ -- * --
</TABLE>
- --------
* Amount less than $1.
As discussed in Note 1, on January 21, 1998, GCL effected a 100 for 1 stock
split of each of the Class A, B, C and D common stock and undesignated stock
and amended the par value of each share of common stock from $.0001 per share
to $.000001 per share. Class A shares, Class B shares and Class C shares all
have voting rights. On March 25, 1997, GCL issued 7,500,000 Class A shares,
33,750,000 Class B shares, 33,750,000 Class C shares for $1 per share,
resulting in aggregate proceeds of $75 million. As discussed in Note 7, in
addition to the 7,500,000 Class A shares issued to the preference shareholders
for cash, in connection with the issuance of the preference shares, a total of
13,235,300 Class A shares were distributed to the initial preference
shareholder representing 15% of the aggregate number of Class A, B and C shares
outstanding. In addition, warrants to acquire a maximum of 46,440 shares of
common stock of GCL were issued into escrow for the benefit of the holders of
preference shares. All or a portion of the warrants may be exercised at a price
of $.01 per share if the preference shares are outstanding on April 1, 2001.
Effective January 21, 1998, GCL authorized 1,000,000,000 of new Class E non-
voting shares.
Certain of the Class B shareholders were issued a total of 22,058,800 Class D
shares. Of the $33,750,000 of proceeds received from the issuance of Class B
shares, $2,500,000 was allocated to the Class D shares representing the
estimated fair value of the Class D shares based on an independent valuation.
Class D shares are non-voting shares which carry special preference rights on
the cash distributions made by GCL. Class D shareholders will receive 10% of
cash distributions to common shareholders once the internal rate of return to
Class C shareholders exceeds 10%, and then increasing to 20% of cash
distributions to common shareholders once the internal rate of return to Class
C shareholders exceeds 30%. Effective January 21, 1998, Class D share rights
were amended such that Class D shareholders now have the option to convert each
Class D share into one
F-19
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Class E share upon payment to GCL of $2.20 per share or are entitled to a
fraction of a Class E share based upon a valuation at the time of such
conversion, together with a warrant to purchase the remaining fraction of such
Class E share at an exercise price based upon such market valuation.
During the three months ended March 31, 1998, the Company issued, at a price
of $1 per share, 300,000 Class B shares and 125,000 Class E shares to employees
of GCL resulting in an increase in shareholders' equity of $425,000.
9. STOCK OPTION PLAN
On January 21, 1998, GCL adopted the 1998 Stock Incentive Plan ("the Plan")
which provides for the granting of non-qualified stock options to key officers
and employees of GCL at the discretion of the compensation committee or Board
of Directors. As of March 31, 1998, the maximum number of shares of common
stock which may be issued under the Plan was 8,303,933 shares of Class E common
stock. Generally, options vest equally over a period of three years and expire
ten years from the date of grant.
The following table summarizes the transactions of the company's stock option
plans for the three months ended March 31, 1998:
<TABLE>
<CAPTION>
NUMBER
WEIGHTED EXERCISABLE WEIGHTED
NUMBER OF AVERAGE AS AT AVERAGE
OPTIONS EXERCISE MARCH 31, REMAINING
OUTSTANDING PRICE 1998 LIFE
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Options outstanding as of December
31, 1997........................... -- -- -- --
Options granted on January 21, 1998. 2,821,000 $2.50 -- 10 years
Forfeited........................... (1,000,000) $2.50 -- 10 years
Options outstanding as of March 31,
1998............................... 1,821,000 $2.50 -- 10 years
</TABLE>
During the three month period ended March 31, 1998, no options had expired or
were exercised.
As permitted by SFAS 123, the Company has chosen to account for stock options
under APB 25 and accordingly no compensation expense has been recognized as of
March 31, 1998 since the estimated fair value of the stock on the date the
options were granted (January 21, 1998) did not exceed the exercise price. Had
compensation cost for the Company's stock-based compensation plans been
determined consistent with the SFAS 123 fair value approach, the impact on the
Company's loss applicable to common shareholders and loss per share would be as
follows:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH
31, 1998
------------
(UNAUDITED)
<S> <C>
Net loss applicable to common shareholders:
As reported.................................................... $(14,538,926)
Pro forma...................................................... (14,670,874)
Basic and diluted net loss per share:
As reported.................................................... $ (0.13)
Pro forma...................................................... (0.13)
</TABLE>
F-20
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
The fair value of options for purposes of the SFAS 123 disclosure is
estimated on the date of grant using the minimum value method with the
following weighted average assumptions: no dividend yield, risk-free interest
rates of 5.45% and an average expected life of 4 years. The estimated fair
value of the options granted on January 21, 1998 was $0.49 per share.
10. FORMATION OF GLOBAL CROSSING HOLDINGS LTD.
On March 18, 1998, GCL formed a wholly-owned subsidiary, Global Crossing
Ltd. (New GCL), a Bermuda company, and contributed its investment in GTH to
New GCL. New GCL is currently in the process of forming a wholly-owned
subsidiary, to be named Global Crossing Holdings Ltd. (GCH), a Bermuda
company. New GCL will contribute, among other things, its investment in GTH to
GCH upon its formation. It is the Company's intent to liquidate GCL
concurrently with the initial public offering of New GCL.
Because GCL and New GCL are entities under common control, the transfer by
GCL to New GCL of its investment in GTH was accounted for similar to a pooling
of interests. The anticipated transfer of New GCL's investment in GTH to GCH
will also be accounted for similar to a pooling of interests. Accordingly, the
summarized financial information of GCH presented below reflects the accounts
of GTH and its subsidiaries retroactive to inception of GTH (March 24, 1997).
GCL, New GCL and GTH will each provide a guarantee of the senior unsecured
notes to be issued by GCH as discussed under the Refinancing heading of Note
15. Additionally, Global Crossing International, Inc. ("GCI"), a wholly-owned
subsidiary of GCH that provides marketing and development services to GCL,
along with its wholly-owned subsidiaries will also provide guarantees of the
senior unsecured notes to be issued by GCH. All guarantees will be full,
unconditional, joint and several.
F-21
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
SUMMARIZED FINANCIAL INFORMATION OF GCH AND GUARANTORS:
($ AMOUNTS IN '000S)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATION GCL
GCL GCH SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
AS OF MARCH 31, 1998 -------- -------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 340 $ 2,182 $ 22,919 $ 29,581 $ (339) $ 54,683
Construction in pro-
gress.................. -- -- 13,944 607,961 -- 621,905
Investment in subsidi-
ary.................... 59,541 69,164 275,878 -- (404,583) --
Deferred finance costs,
net.................... 228 148 10,189 14,389 21 24,975
Current liabilities..... 102 11,953 8,759 53,800 (318) 74,296
Long term debt.......... -- -- -- 305,508 -- 305,508
Senior Notes............ -- -- 150,000 -- -- 150,000
Obligations under Inland
Service Agreements..... -- -- -- 16,745 -- 16,745
Mandatorily redeemable
preference shares...... -- -- 95,007 -- -- 95,007
Shareholders' equity.... $ 60,007 $ 59,541 $ 69,164 $275,878 $(404,583) $ 60,007
FOR THE THREE MONTHS
ENDED
MARCH 31, 1998
Interest income......... $ -- $ -- $ 230 $ 116 $ -- $ 346
Operating expenses...... 128 23 9,190 1,136 -- 10,477
-------- -------- -------- -------- --------- --------
Net loss................ (128) (23) (8,960) (1,020) -- (10,131)
Equity in loss from sub-
sidiary................ (14,411) (14,388) (1,020) -- 29,819 --
Preference share divi-
dends.................. -- -- (4,408) -- -- (4,408)
-------- -------- -------- -------- --------- --------
Net loss applicable to
common shareholders.... $(14,539) $(14,411) $(14,388) $ (1,020) $ 29,819 $(14,539)
======== ======== ======== ======== ========= ========
AS OF DECEMBER 31, 1997
Current assets.......... $ 33 $ 12 $ 21,307 $ 6,597 $ (205) $ 27,744
Construction in
progress............... -- -- 9,014 514,607 -- 523,621
Investment in
subsidiary............. 73,952 73,940 276,897 -- (424,789) --
Deferred finance costs,
net.................... 208 -- 10,619 15,107 -- 25,934
Current liabilities..... 72 -- 3,253 76,880 (205) 80,000
Long term debt.......... -- -- -- 162,325 -- 162,325
Senior Notes............ -- -- 150,000 -- -- 150,000
Obligations under Inland
Service Agreements..... -- -- -- 20,209 -- 20,209
Mandatorily redeemable
preference shares...... -- -- 90,644 -- -- 90,644
Shareholders' equity.... $ 74,121 $ 73,952 $ 73,940 $276,897 $(424,789) $ 74,121
</TABLE>
F-22
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED
(EXPRESSED IN U.S. DOLLARS)
SUMMARIZED FINANCIAL INFORMATION OF GCH AND GUARANTORS (CONTINUED):
($ AMOUNTS IN '000S)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATION GCL
GCL GCH SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- -------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD FROM
MARCH 19, 1997 TO
DECEMBER 31, 1997
Interest income......... $ -- $ -- $ 556 $2,385 $ -- $ 2,941
Operating expenses...... 42 -- 200 2,859 -- 3,101
-------- -------- -------- ------ ------- --------
Net income (loss)....... (42) -- 356 (474) -- (160)
Equity in loss of
subsidiary............. (12,808) (12,808) (474) -- 26,090
Preference share
dividends.............. -- -- (12,690) -- -- (12,690)
-------- -------- -------- ------ ------- --------
Net loss applicable to
common shareholders.... $(12,850) $(12,808) $(12,808) $ (474) $26,090 $(12,850)
======== ======== ======== ====== ======= ========
</TABLE>
11. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Restricted cash and cash
equivalents............ $ 39,180,447 $ 39,180,447 $ 25,275,196 $ 25,275,196
Short term borrowings... (11,929,750) (11,929,750) -- --
Long term debt and
obligations under
Inland Services
Agreements............. (334,965,937) (334,965,937) (200,625,000) (200,625,000)
Preference shares....... (95,007,302) (95,007,302) (90,643,919) (90,643,919)
Senior Notes............ (150,000,000) (150,000,000) (150,000,000) (150,000,000)
Interest rate swap
transaction............ -- (321,070) -- (115,115)
</TABLE>
Restricted cash and cash The carrying amount of restricted cash and
equivalents................... cash equivalents is a reasonable estimate of
fair value as the balances include amounts
held in banks and money market deposits with
a short-term maturity.
Short term borrowings.......... The carrying value of short term borrowings
approximates fair value as the borrowings are
repayable within three months.
Long term debt and obligations
under Inland Services The Credit Facility is a special financing
Agreements.................... 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 are recorded at
their present value using a weighted average
interest rate of the Credit Facility, prefer-
ence shares, and Senior Notes.
F-23
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 System, the
interest rates provided under the existing
Senior Notes arrangement are the best esti-
mate of current market rates available for
financing with similar terms.
Interest rate swap The interest rate swap transaction is "zero
transaction................... cost" meaning that the cost of acquiring the
transaction is embedded in the fixed interest
rate paid. As the transaction is accounted
for as a hedge against interest rate fluctua-
tions on the long term debt there is no car-
rying value. The fair value is a mid-market
valuation provided by CIBC.
12. RELATED PARTY TRANSACTIONS
ACL has entered into an Advisory Services Agreement ("ASA") with PCG
Telecom, an affiliate of Pacific Capital Group, Inc., 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 2% of
the cash received from the Company's gross revenues, subject to certain
restrictions, with the first such payment occurring at the System RFS date.
Advances on fees payable under the ASA are being paid to PCG Telecom at a rate
of 1% on signed CPAs and Backhaul CPAs until the System RFS date and are
secured by amounts payable under the ASA . Approximately $2 million had been
advanced to PCG Telecom as of March 31, 1998 and is reflected in other assets
and prepaid costs in the accompanying consolidated balance sheets. A minimal
portion of the fees under the ASA are paid to PCG Telecom and then further
allocated by PCG Telecom to MRCO, Inc. and PCG both of which are shareholders
of GCL.
Effective January 21, 1998, GCL entered into a warrant agreement under which
PCG was issued three separate warrants permitting PCG to purchase (i)
6,151,061 of GCL's Class B shares for an aggregate price of $50,000,000; (ii)
an additional 3,075,531 of the GCL's Class B shares for an aggregate price of
$31,250,000; and (iii) an additional 3,075,531 of GCL's Class B shares for an
aggregate price of $37,500,000. These warrants are intended to entitle PCG to
acquire, in addition to their ownership, 10% of the issue stock of GCL, as of
the date these warrants were issued. Exercise of these warrants is contingent
upon an initial public offering of GCL shares and the achievement of certain
performance levels in the new projects undertaken by the Company. See further
discussion of warrants in Note 15.
$7,250,000 in fees were paid to PCG and certain of its key executives, who
are shareholders of GCL, and another shareholder for services provided in
respect of obtaining the Credit Facility, Senior Notes and preference share
financing. Of the fees paid, $5,523,775 was allocated to the Credit Facility
and Senior Notes and recorded as deferred finance costs, $986,725 was
allocated to the preference shares and recorded as a reduction in the carrying
value of the preference shares and $739,500 was recorded as common stock
issuance costs and is included in the approximately $1.3 million which is
reflected as a reduction in additional paid-in capital.
GCL has paid CIBC and affiliates ("CIBC"), a shareholder, approximately $25
million in fees related to the financing obtained under the Senior Notes,
Credit Facility, and the issuance of preference shares. Of the fees
F-24
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
incurred, approximately $6.2 million related to underwriting and commitment
fees pertaining to the issuance of the preference shares and were recorded as
a reduction in the carrying value of the preference shares, approximately $9.2
million related to underwriting, commitment and advisory fees in connection
with the issuance of the Senior Notes and approximately $9.6 million related
to fees associated with obtaining the Credit Facility which were recorded as
deferred finance costs. As of March 31, 1998 CIBC held 17,218 outstanding
preference shares (25,636 as of December 31, 1997), and $9 million in Senior
Notes. CIBC is also a member of the syndicate funding the Credit Facility
under which GCL has borrowings of $305,508,000 ($162,325,000 as of December
31, 1997), as of March 31, 1998 and has been paid interest and other related
fees in the amount of approximately $9.8 million ($4.2 million as of December
31, 1997).
13. TAXES
Since the Company has not recognized any income to date, no tax provision
has been reflected in the consolidated financial statements and
correspondingly no deferred tax liability has been recorded in accordance with
SFAS 109. The Company has incurred operating losses which relate almost
entirely to non-taxable jurisdictions and therefore operating losses incurred
to date cannot be applied against future taxable earnings of the Company and
therefore, have not been recorded as deferred tax assets in accordance with
SFAS 109.
14. COMMITMENTS
As of March 31, 1998, ACL was committed under its contract with TSSL for
future construction costs totaling approximately $112 million ($195 million as
of December 31, 1997) and is committed under the OA&M contract with TSSL to
quarterly payments totaling approximately $260 million ($263 million as of
December 31, 1997) over the next eight years. The Company is committed to
paying TSSL commissions ranging from 4% to 7% on revenues received.
GCL and its subsidiaries have commitments under various operating leases
primarily relating to its office facility in Bermuda as well as floor space
and conduit leases in the Netherlands and Germany. Rent expense for operating
leases was $41,309 since inception and $26,556 for the three months ended
March 31, 1998. The leases in the Netherlands and Germany are generally for a
period of 25 years. Estimated future minimum lease payments on all operating
leases are approximately as follows:
<TABLE>
<S> <C>
For the nine months ended December 31, 1998................. $ 1,158,000
1999........................................................ 1,594,000
2000........................................................ 1,621,000
2001........................................................ 1,647,000
2002........................................................ 1,346,000
Thereafter.................................................. 16,004,000
</TABLE>
15. SUBSEQUENT EVENTS
New projects
Effective April 21, 1998, GCL, through its wholly-owned subsidiary, GCT
Pacific Holdings Ltd., which was incorporated on April 1, 1998, entered into a
contract with TSSL to construct a cable system project, PC-1,
F-25
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
for a contract price of approximately $1 billion. PC-1 is an undersea fiber
optic cable system connecting California, Washington and two landing sites in
Japan. PC-1 is owned and operated by Pacific Crossing Ltd., a joint venture
company. The Company has a 58% economic interest in PC-1 represented by a 50%
direct voting interest in PC-1 and a further 8% economic interest in PC-1
through one of the joint venture partners. The Company's funding commitment,
which is proportional to the interest, aggregates $231 million pursuant to
existing agreements. The Company presently intends to follow the equity method
of accounting for its investments in PC-1. The Company's partners have agreed
that the Company is to perform the OA&M function although the definitive
agreement has not been finalized. The terms of a final OA&M agreement, taken
together with a Sales Agency Agreement which the Company has with PC-1 and
possible related changes to the joint venture shareholders agreement, may
result in the Company consolidating the financial statements of PC-1 with the
Company. To finance construction of PC-1, Pacific Crossing Ltd. has signed a
commitment to obtain a $850 million senior secured, limited recourse, credit
facility from CIBC and other lenders, comprised of a $475 million seven year
term loan, a $325 million eight year term loan and a $50 million seven year
working capital revolving credit facility. GCL has borrowed approximately $50
million from the Bridge Facility to place in escrow as security for a $50.5
million promissory note issued by CIBC and other lenders to be used by Pacific
Crossing Ltd. to make the initial payment on the PC-1 construction contract.
Upon the funding of the $850 million credit facility a portion of the facility
will be used to repay the $50.5 million promissory note.
Effective June 2, 1998, GCL, through its wholly-owned subsidiary Mid-
Atlantic Crossing Ltd., entered into a contract with Alcatel Submarine
Networks for the construction of MAC, an undersea fiber optic cable system
connecting New York, the Caribbean, Bermuda and Florida. On May 29, 1998, Mid-
Atlantic Crossing Ltd. signed a commitment to obtain a $260 million senior
secured, limited recourse, loan facility from CIBC and other lenders comprised
of a $240 million term loan and a $20 million working capital loan.
Backhaul Capacity Purchases
During April 1998, the Company signed several Inland Services Agreements to
Purchase Backhaul Capacity. In accordance with Note 2(f), the Company will
capitalize the approximately $26 million present value of future payments
under these agreements as part of construction in progress in the accompanying
consolidated balance sheets.
Stock options
On April 3, 1998 and June 12, 1998, the Board of Directors approved the
issuance of 3,665,000 options and 2,235,000 options, respectively, under the
Plan. The April 3, 1998 shares have exercise prices of $2.50 per share and the
June 12, 1998 shares have exercise prices of $10 per share generally with a
three year vesting period and a ten year expiration. Beginning in the quarter
ended June 1998, the Company will recognize compensation expense for the
options issued in April and June since the exercise is less than the fair
value of the stock on the date of grant. The estimated fair value of the
options granted in April is $5 per share and the estimated fair value of the
options granted in June is being determined by a third party appraiser.
Refinancing
On May 18, 1998, GCH issued $800 million of senior unsecured notes for the
purpose of purchasing the Senior Notes, redeeming the outstanding preference
shares, repaying amounts drawn under the Bridge Facility,
F-26
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
and financing the new projects. The Company recognized an extraordinary loss
on refinancing on May 18, 1998 comprising a premium of approximately $9.8
million payable to repurchase the Senior Notes and a write-off of
approximately $10.2 of unamortized deferred financing costs. The redemption of
the preference shares occurred on June 17, 1998 and resulted in a charge
against additional paid-in capital comprising approximately a $16.1 million
redemption premium and $18.7 million of unamortized discount and issuance cost
on the preference shares on the date of the redemption. The redemption premium
and write off of unamortized discount and issuance costs on the preference
shares will be treated as a deduction to arrive at net loss applicable to
common shareholders in the consolidated statement of operations. Furthermore,
upon the redemption of the preference shares, the warrants attached to the
preference shares as described in Note 7 have expired. Pursuant to the senior
unsecured notes agreement GCL, New GCL and several of GCH's wholly-owned
subsidiaries provided guarantees of these notes as described in Note 10, and
additionally, these same guarantors along with ACL and its subsidiaries are
restricted in respect of, among other things, the ability to pay dividends.
The table below summarizes the pro forma financial information giving effect
to the above refinancing.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
---------------
AS ADJUSTED(2)
---------------
<S> <C>
BALANCE SHEET DATA:
Current Assets Including Cash and Restricted Cash(1)..... $ 511,565,555
Total Assets(2).......................................... 1,182,590,606
Long Term Debt and Other Obligations(3).................. 1,122,253,000
GTH Preference Shares(4) --
Shareholders' Equity:
Common stock........................................... 110
Additional Paid-in Capital(5).......................... 52,628,796
Deficit Accumulated During the Development stage(6).... (47,328,708)
---------------
Total Shareholders' Equity............................... 5,300,198
---------------
Total capitalization..................................... $1, 127,553,198
===============
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
THREE MONTHS FROM MARCH 19, 1997
ENDED (DATE OF INCEPTION) TO
MARCH 31, 1998 DECEMBER 31, 1997
-------------- ----------------------
<S> <C> <C>
Net Loss Applicable to Common Sharehold-
er...................................... $(14,538,926) $(12,850,274)
Pro Forma Net Loss(7).................... (69,245,588) (68,103,711)
Earnings Per Share....................... (0.13) (0.12)
Pro Forma Earnings Per Share(7).......... $ (0.63) $ (0.62)
</TABLE>
- --------
(1) The amount reflected in the "As Adjusted" column consists of (i) actual
Current Assets, plus (ii) the gross proceeds of the Note Offering, less
(iii) amounts expended in connection with the tender for the GTH Senior
Notes and the redemption of the GTH Preference Shares, less (iv) the fees
and expenses incurred in connection with the Note Offering.
F-27
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
(2) The amount appearing in the "As Adjusted" column consists of (i) actual
Total Assets, plus (ii) the increase in Current Assets discussed in
footnote (1) above, plus (iii) capitalized fees and expenses
of the Note Offering in an amount of $34.3 million, less (iv) a write-off of
$10.2 million of deferred fees and issue costs associated with the
repurchase of the GTH Senior Notes.
(3) The amount appearing in the "As Adjusted" column consists of (i) actual
Long Term Debt and Long Term Obligations under Inland Services Agreements,
less (ii) the $150 million principal amount of GTH Senior Notes, plus (iii)
the $800 million principal amount of the GCH Senior Notes.
(4) The "As Adjusted" column reflects that all GTH Preference Shares were
redeemed from the net proceeds of the Note Offering.
(5) The amount appearing in the "As Adjusted" column includes a one time charge
in connection with the redemption of the GTH Preference Shares to
Additional Paid-in Capital of approximately $34.8 million on June 17, 1998.
This charge would be comprised of: (i) a $16.1 million charge for the call
premium on the GTH Preference Shares and (ii) a write-off of $18.7 million
of discount and issue costs associated with the GTH Preference Shares
assuming the GTH Preference Shares had been redeemed as of March 31, 1998.
(6) The amount appearing in the "As Adjusted" column includes a one time
extraordinary loss on the repurchase of the GTH Senior Notes of
approximately $20.0 million. This loss would be comprised of: (i) a $9.8
million charge for the tender premium on the GTH Senior Notes and (ii) a
write-off of $10.2 million of deferred fees and issue costs associated with
the GTH Senior Notes assuming the GTH Senior Notes had been repurchased as
of March 31, 1998.
(7) Pro Forma amounts reflect the effect of the refinancing described on the
previous page.
PCG WARRANTS
The Board of Directors of Old GCL has determined that upon the successful
completion of the Offerings the conditions precedent to exercising the PCG
Warrants will have been met and therefore the PCG Warrants have been deemed
exercisable. The Board of Directors of Old GCL has also amended the terms of
the PCG Warrants to give each holder the option to convert each share under
warrant into a fraction of a Class B Share based upon the ratio of the value at
the time of conversion less the exercise price of the warrant divided by the
value at the time of conversion multiplied by the 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 based upon such market
valuation. Prior to the Offerings, PCG will convert the PCG Warrants in such
manner into Class B Shares and New PCG Warrants, with GCL assuming the
obligations of Old GCL under the New PCG Warrants and Old GCL being liquidated
and dissolved.
The Company's accounting for the PCG warrants is pursuant to EIFF 96-18,
"Accounting for Equity Instruments with Variable Terms that Are Issued for
Consideration Other Than Employee Services under FASB Statement No. 123."
Accordingly, no accounting recognition was made on the date of grant or as of
March 31, 1998 since it was not considered probable that the options would be
exercised based on the status of new cable system projects and sales of
revenues on those projects and since no decision had yet been made with respect
to proceeding with an IPO.
The Company intends to account for the value of the PCG warrants in June 1998
when it became probable that the warrants would be exercised based on an
estimate of the value the warrants will have on the IPO date
F-28
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND FOR THE PERIOD
FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
which is the measurement date. The Company intends to record the value of the
warrants as a component of construction in progress since the warrants were
granted in exchange for PCG's rights to construct and operate other cable
systems under development. Accordingly, the value of the warrants represents
the value of the Pacific Crossing and 3 other cable projects that are under
development. Furthermore in June 1998, the Board amended the terms of the PCG
Warrants to enable the warrant holders to convert the warrants to Class E
share upon the date of the initial public offering.
TRANSACTION WITH WORLDPORT
On April 7, 1998, the Company signed a CPA with Worldport Communications,
Inc. ("Worldport"), to acquire capacity on AC-1 for an aggregate purchase
price of $25.6 million. This transaction occurred in the ordinary course of
business of the Company and on terms and conditions no less favorable to the
Company than in its other CPAs. Certain officers and directors of the Company,
have direct or indirect equity ownership positions in Worldport, aggregating
approximately 10% of the current common stock of Worldport.
ADVISORY SERVICE AGREEMENT
Effective June 30, 1998, the Company intends to acquire the rights of the
individuals entitled to fees payable under the ASA in consideration for the
issuance by the Company of common stock having an aggregate value which the
Company currently anticipates will be in the range of $125 million to $145
million. The aggregate value of the common stock, representing the cost of
buying out the rights to the ASA fees will be recorded as an expense in the
Company's financial statements for the period June 30, 1998.
F-29
<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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Service of Process and Enforcement of Liabilities......................... ii
Information Regarding Forward-Looking Statements.......................... ii
Summary................................................................... 1
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 19
Capitalization............................................................ 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 28
Management................................................................ 41
Principal and Selling Shareholders........................................ 48
Certain Transactions...................................................... 50
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Description of Certain Indebtedness....................................... 57
Tax Considerations........................................................ 59
Underwriting.............................................................. 65
Legal Matters............................................................. 68
Experts................................................................... 68
Available Information..................................................... 68
Index to Consolidated Financial Statements................................ F-1
Glossary of Certain Defined Terms......................................... GL-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
GLOBAL CROSSING LTD.
COMMON STOCK
LOGO GLOBAL CROSSING
-------
PROSPECTUS
DATED , 1998
-------
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
CIBC OPPENHEIMER
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANK SECURITIES
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JULY 2, 1998
PROSPECTUS
SHARES
GLOBAL CROSSING LTD.
LOGO
COMMON STOCK
--------
Of the shares of Common Stock, par value $.01 per share, offered
hereby (the "Shares"), Shares are being offered by the U.S.
Underwriters (as defined herein) in the United States and Canada (the "U.S.
Offering") and Shares are being offered by the International
Underwriters (as defined herein) in a concurrent international offering outside
the United States and Canada (the "International Offering" and, collectively
with the U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Underwriters (collectively, the
"Underwriters"). The Price to Public and Underwriting Discount per Share will
be identical for the U.S. Offering and the International Offering. See
"Underwriting." The closing of the U.S. Offering and International Offering are
conditioned upon each other.
Of the Shares offered hereby, Shares are being sold by Global
Crossing Ltd., a Bermuda company ("GCL" or the "Issuer" and, together with its
subsidiaries, "Global Crossing" or the "Company"), and Shares are being
sold by certain selling shareholders (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of the Shares by the Selling Shareholders.
Prior to the Offerings, there has been no public market for the Common Stock
of the Issuer. It is currently estimated that the Price to Public will be
between $ and $ per share. See "Underwriting" for information
relating to the factors considered in determining the Price to Public. Upon
completion of the Offerings, purchasers of Shares in the Offerings will own
approximately % ( % if the Underwriters' over-allotment options are
exercised in full) and existing shareholders will own % ( % if the over-
allotment options are exercised in full) of the outstanding Common Stock. See
"Principal and Selling Shareholders."
Application has been made to have the Common Stock listed on the Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol
"GBLXF" and listed supplementally on the Bermuda Stock Exchange.
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNTS AND COMMISSIONS(1) COMPANY (2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------------------------------------------------
Total(3) $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of $ payable by the Company.
(3) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to an aggregate of
additional shares of Common Stock at the Price to Public, less
Underwriting Discounts and Commissions, solely to cover over-allotments,
if any. If the Underwriters exercise such options in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
See "Underwriting."
--------
The Shares are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to such Underwriters' right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Shares will be made at the offices of Smith
Barney Inc. at 333 West 34th Street, New York, New York 10001 or through the
facilities of The Depository Trust Company (the "Depository") on or about
, 1998.
--------
Joint Book-Running Managers
SALOMON SMITH BARNEY INTERNATIONAL MERRILL LYNCH INTERNATIONAL CIBC OPPENHEIMER
MORGAN STANLEY DEAN WITTER DEUTSCHE BANK GOLDMAN SACHS INTERNATIONAL
The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company, the Selling Shareholders and the International Underwriters
(the "International Underwriting Agreement"), the Company and the Selling
Shareholders have agreed to sell to each of the International Underwriters
named below (the "International Underwriters"), and each of the International
Underwriters, for whom Smith Barney Inc., Merrill Lynch International, CIBC
Oppenheimer Corp., Morgan Stanley & Co. International Limited, Deutsche Bank
AG (London Branch) and Goldman Sachs International are acting as the
representatives (the "International Representatives"), has severally agreed to
purchase the number of Shares set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITING
INTERNATIONAL UNDERWRITERS COMMITMENT
-------------------------- ------------
<S> <C>
Smith Barney Inc.................................................
Merrill Lynch International......................................
CIBC Oppenheimer Corp. ..........................................
Morgan Stanley & Co. International Limited.......................
Deutsche Bank AG (London Branch).................................
Goldman Sachs International......................................
-----
Total..........................................................
=====
</TABLE>
The Company and the Selling Shareholders have been advised by the
International Representatives that the several International Underwriters
initially propose to offer such Shares to the public at the Price to Public
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per Share. The International
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $. per Share to other dealers. After the Offerings, the Price to
Public and such concessions may be changed.
The Company and the Selling Shareholders have granted to the International
Underwriters and the U.S. underwriters (the "U.S. Underwriters" and,
collectively with the International Underwriters, the "Underwriters") options,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to additional shares of Common Stock from the Company at the
Price to Public less the Underwriting Discount, solely to cover over-
allotments. To the extent that the International Underwriters and the U.S.
Underwriters exercise such options, each of the International Underwriters and
the U.S. Underwriters, as the case may be, will be committed, subject to
certain conditions, to purchase a number of option shares proportionate to
such International Underwriter's or U.S. Underwriter's initial commitment.
The Company has entered into a U.S. Underwriting Agreement with the U.S.
Underwriters named therein, for whom Smith Barney Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, CIBC Oppenheimer Corp., Morgan Stanley & Co.
Incorporated, Deutsche Bank Securities Inc. and Goldman, Sachs & Co. are
acting as the representatives (the "U.S. Representatives" and, together with
the International Representatives, the "Representatives") providing for the
concurrent offer and sale of Shares (in addition to the shares covered by
the over-allotment options described above) in the United States and Canada.
Both the International Underwriting Agreement and the U.S. Underwriting
Agreement provide that the obligations of the International Underwriters and
the U.S. Underwriters are such that if any of the Shares are purchased by the
International Underwriters pursuant to the International Underwriting
Agreement, or by the U.S. Underwriters pursuant to the U.S. Underwriting
Agreement, all the Shares agreed to be purchased by either the International
Underwriters or the U.S. Underwriters, as the case may be, pursuant to their
respective agreements must be so purchased. The Price to Public and
Underwriting Discount per Share for the International Offering and the U.S.
Offering will be identical. The closing of the U.S. Offering is a condition to
the closing of the International Offering and the closing of the International
Offering is a condition to the closing of the U.S. Offering.
65
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Each International Underwriter has severally agreed, that, as part of the
distribution of the Shares offered by the International Underwriters, (i)
it is not purchasing any Shares for the account of any United States or
Canadian Person, (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or
distribute this Prospectus to any person in the United States or Canada, or to
any United States or Canadian Person and (iii) any dealer to whom it may sell
any Shares will represent that it is not purchasing for the account of any
United States or Canadian Person and agree that it will not offer or resell,
directly or indirectly, any Shares in the United States or Canada, or to any
United States or Canadian Person or to any other dealer who does not so
represent and agree. Each U.S. Underwriter has severally agreed that, as part
of the distribution of the Shares by the U.S. Underwriters, (i) it is not
purchasing any Shares for the account of anyone other than a United States or
Canadian Person, (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute any Prospectus relating to
the U.S. Offering to any person outside of the United States or Canada, or to
anyone other than a United States or Canadian Person and (iii) any dealer to
whom it may sell any Shares will represent that it is not purchasing for the
account of anyone other than a United States or Canadian Person and agree that
it will not offer or resell, directly or indirectly, any Shares outside of the
United States or Canada, or to anyone other than a United States or Canadian
Person or to any other dealer who does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S.
Underwriters and International Underwriters. "United States or Canadian
Person" means any person who is a national or resident of the United States or
Canada, any corporation, partnership or other entity created or organized in
or under the laws of the United States or Canada or of any political
subdivision thereof, and any estate or trust the income of which is subject to
United States or Canadian federal income taxation, regardless of its source
(other than any non-United States or non-Canadian branch of any United States
or Canadian Person), and includes any United States or Canadian branch of a
person other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of Shares as may be mutually agreed.
The price of any Shares so sold shall be the Price to Public, less an amount
not greater than the concession to securities dealers. To the extent that
there are sales between the International Underwriters and the U.S.
Underwriters pursuant to the Agreement Between U.S. Underwriters and
International Underwriters, the number of Shares initially available for sale
by the International Underwriters or by the U.S. Underwriters may be more or
less than the amount specified on the cover page of this Prospectus.
Each International Underwriter has severally represented and agreed that (i)
it has not offered or sold and, prior to the expiry of six months from the
closing date of the Offerings, will not offer or sell in the United Kingdom
any Shares other than to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (whether as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted in and will not result in an offer to the public
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on, and
will only issue or pass on, to any person in the United Kingdom any document
received by it in connection with the issue of the Shares to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995, or is a person to whom
the document may otherwise lawfully be issued or passed on.
Purchasers of the Shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the Price to Public set forth in the cover page
hereof.
66
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The International Underwriting Agreement provides that the Company will
indemnify the International Underwriters against certain liabilities and
expenses, including liabilities under the Securities Act, or contribute to
payments the International Underwriters may be required to make in respect
thereof.
Subject to certain exceptions, the Company, its parent, the Selling
Shareholders and other certain directors and officers of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of, directly
or indirectly, or announce the offering of any shares of Common Stock,
including any such shares beneficially or indirectly owned or controlled by
the Company, the Selling Shareholders, respectively or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock,
for 180 days from the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
At the Company's request, the U.S. Underwriters have reserved up to
shares of Common Stock (the "Directed Shares") for sale at the Price to Public
to persons who are directors, officers or employees of, or otherwise
associated with, the Company and its affiliates and who have advised the
Company of their desire to purchase such Shares. The number of Shares of
Common Stock available for sale to the general public will be reduced to the
extent of sales of Directed Shares to any of the persons for whom they have
been reserved. Any Shares not so purchased will be offered by the U.S.
Underwriters on the same basis as all other Shares offered hereby.
In connection with the Offerings and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Shares than the total amount shown
on the list of Underwriters and participations which appears above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the shares at levels above those which might otherwise prevail in the
open market. Such transactions may include placing bids for the Shares or
effecting purchases of the Shares for the purpose of pegging, fixing or
maintaining the price of the Shares or for the purpose of reducing a syndicate
short position created in connection with the offering. A syndicate short
position may be covered by exercise of the option described above in lieu of
or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Representatives purchase Shares in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Shares in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any
such activities, if commenced, may be discontinued at any time.
Prior to the Offerings, there has been no public market for the Common
Stock. The Price to Public was determined by negotiations between the Company,
the Selling Shareholders and the Representatives. Among the factors considered
in determining the Price to Public were prevailing market conditions, the
market values of publicly traded companies that the Underwriters believed to
be somewhat comparable to the Company, the demand for the Shares and for
similar securities of publicly traded companies that the Underwriters believed
to be somewhat comparable to the Company, the future prospects of the Company
and its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and other factors
deemed relevant. There can be no assurance that the prices at which the Shares
will sell in the public market after the Offerings will not be lower than the
Price to Public.
The Underwriters and certain of their affiliates have provided and may in
the future provide investment banking and other financial services to the
Company and certain of its affiliates for which they receive customary fees.
Affiliates of CIBC Oppenheimer have engaged in certain related-party
transactions with the Company, including as a lender under the AC-1 Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Principal and
Selling Shareholders," "Certain Transactions," and "Description of Certain
Indebtedness."
67
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Under Rule 2720 ("Rule 2720") of the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD"), the Company is considered an
affiliate of CIBC Oppenheimer Corp. The Offerings are being conducted in
accordance with Rule 2720, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's equity
securities, the public offering price per share can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards
("QIU"). In accordance with this requirement, Smith Barney Inc. has assumed
the responsibilities of acting as QIU and will recommend a public offering
price for the Common Stock in compliance with the requirements of Rule 2720.
In connection with the Offerings, Smith Barney Inc. is performing due
diligence investigations and reviewing and participating in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms
a part. Smith Barney Inc. will receive no compensation for its services as
QIU.
68
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Service of Process and Enforcement of Liabilities......................... ii
Information Regarding Forward-Looking Statements.......................... ii
Summary................................................................... 1
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 19
Capitalization............................................................ 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 28
Management................................................................ 41
Principal and Selling Shareholders........................................ 48
Certain Transactions...................................................... 50
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Description of Certain Indebtedness....................................... 57
Tax Considerations........................................................ 59
Underwriting.............................................................. 65
Legal Matters............................................................. 68
Experts................................................................... 68
Available Information..................................................... 68
Index to Consolidated Financial Statements................................ F-1
Glossary of Certain Defined Terms......................................... GL-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
GLOBAL CROSSING LTD.
COMMON STOCK
LOGO GLOBAL CROSSING
-------
PROSPECTUS
DATED , 1998
-------
SALOMON SMITH BARNEY
INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
CIBC OPPENHEIMER
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANK
GOLDMAN SACHS INTERNATIONAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows:
<TABLE>
<S> <C>
SEC registration fee............................................. $90,910
NASD filing fee.................................................. $30,500
NASDAQ National Market listing fee............................... $95,000
Bermuda Stock Exchange listing fee*.............................. $
Printing and engraving expenses*................................. $
Legal fees and expenses*......................................... $
Accounting fees and expenses*.................................... $
Blue Sky fees and expenses*...................................... $
Transfer agent and registrar fees*............................... $
Miscellaneous*................................................... $
Total........................................................
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
No provision is made in Bermuda statutory law for indemnification of
officers and directors.
The Bye-laws of the registrant provide for indemnification of the
registrant's officers and directors against all liabilities, loss, damage or
expense incurred or suffered by such party as an officer or director of the
registrant; provided that such indemnification shall not extend to any matter
which would render it void pursuant to the Companies Acts as in effect from
time to time in Bermuda.
The Underwriting Agreements provide for indemnification of directors and
officers of the registrant by the Underwriters against certain liabilities.
The directors and officers of the Company are covered by directors' and
officers' insurance policies maintained by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
registrant has issued the following securities that were not registered under
the Securities Act of 1933, as amended (the "Securities Act"):
(a) $800,000,000 aggregate principal amount of 9-5/8% Senior Notes Due
2008 (the "GCH Senior Notes") issued by the registrant's wholly-owned
subsidiary, Global Crossing Holdings, Ltd. and sold to each of Salomon
Brothers Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC
Oppenheimer Corp., Morgan Stanley & Co. Incorporated and Deutsche Bank
Securities Inc. (formerly known as Deutsche Morgan Grenfell Inc.) (the
"Initial Purchasers"), at an aggregate discount from par value of 3.322%.
The Notes have been resold by the Initial Purchasers only to institutional
investors that are "qualified institutional buyers" within the meaning of
Rule 144A under the Securities Act or pursuant to Regulation S under the
Securities Act; and
(b) the issuance, upon formation of the registrant, of 1,200,000 shares
of its Common Stock, at its par value of $.01 per share, to its sole
stockholder.
Such issuances were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
transactions by an issuer not involving any public offering or the rules and
regulations thereunder. All of such shares of Common Stock are deemed
restricted securities within the meaning of Rule 144 under the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
1.1** Form of Underwriting Agreement
1.2** Form of Agreement Between U.S. and International Underwriters
3.1 Memorandum of Association of the Registrant, dated March 5, 1998
3.2 Bye-laws of the Registrant, dated March 18, 1997
3.3** Form of Amended and Restated Memorandum of Association of the
Registrant
3.4** Form of Amended and Restated Bye-laws of the Registrant
4.1** Form of Certificate for Common Stock
4.2 Indenture, dated as of May 18, 1998, between Global Crossing
Holdings Ltd. and United States Trust Company of New York, as
Trustee
4.3 Registration Agreement, dated as of May 18, 1998, among the
registrant, Global Crossing Holdings Ltd. and the other parties
named therein
4.4** Form of Registration Rights Agreement among the Registrant and the
investors named therein
4.5 Credit Agreement, dated as of June 27, 1997 (the "Credit
Agreement"), among Global Telesystems Ltd., various financial
institutions names therein, Deutsche Bank AG, New York Branch and
Canadian Imperial Bank of Commerce, as Lead Agents, Deutsche Bank
AG, New York Branch, as Administrative Agent, Canadian Imperial
Bank of Commerce, as Syndication Agent, Documentation Agent and
the Issuing Bank and Deutsche Morgan Grenfell Inc. and CIBC Gundy
Securities Corp, as Arrangers
4.6 First Amendment and Consent, dated as of December 15, 1997, to
Credit Agreement, among Global Telesystems Ltd., the lenders named
therein, Deutsche Bank AG, New York Branch and Canadian Imperial
Bank of Commerce, as Lead Agents, Deutsche Bank AG, New York
Branch, as Administrative Agent, Canadian Imperial Bank of
Commerce, as Syndication Agent, Documentation Agent and the
Issuing Bank and Deutsche Morgan Grenfell Inc. and CIBC Gundy
Securities Corp, as Arrangers
4.7 Form of Amended and Restated Stockholders' Agreement among GCT
Pacific Holdings, Ltd., SCS (Bermuda) Ltd., Marubeni Pacific Cable
Limited and Pacific Crossing Ltd.
5.1 Opinion of Appleby, Spurling & Kempe as to the legality of the
Shares being registered
8.1 Opinion of Simpson Thacher & Bartlett as to tax matters relating
to the Shares being registered
8.2 Opinion of Appleby, Spurling & Kempe as to tax matters relating to
the Shares being registered
9.1** Form of Stockholders Agreement among the Registrant and the
investors named therein
10.1 Form of 1998 Global Crossing Ltd. Stock Incentive Plan
10.2*** Project Development and Construction Contract, dated March 18,
1997, among AT&T Submarine Systems, Inc. and Global Telesystems
Ltd
10.3*** Project Development and Construction Contract, dated as of April
21, 1998, among Tyco Submarine Systems, Ltd. and GCT Pacific
Holdings, 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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.6 First Amendment, dated as of June 27, 1997, to the Advisory
Services Agreement, dated as of March 25, 1997, among Global
Telesystems Ltd. and PCG Telecom Services LLC
21.1 Subsidiaries of the Registrant
23.1 Consent of Appleby Spurling & Kempe (included in the opinions
filed as Exhibit 5.1 and Exhibit 8.2)
23.2 Consent of Arthur Andersen & Co.
23.3 Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 8.1)
24.1* Power of Attorney (included on signature page II-4 of the original
filing of Registration Statement on Form S-1)
27.1* Financial Data Schedule
99.1 Consent of Nominee Director
99.2 Consent of Nominee Director
99.3 Consent of Nominee Director
</TABLE>
--------
* Filed with original filing on Form S-1
** To be filed by amendment
*** Portions have been omitted pursuant to a request for confidential
treatment
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificate in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York on July 2, 1998.
Global Crossing Ltd.
/s/ John M. Scanlon
By __________________________________
NAME: JOHN M. SCANLON
TITLE: CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the registration statement has been signed on July 2, 1998
by or on behalf of the following persons in the capacities indicated with the
registrant.
SIGNATURE TITLE
Co-Chairman of the Board and
/*/ Director
-------------------------------------
Gary Winnick
Co-Chairman of the Board and
/*/ Director
-------------------------------------
Lodwrick Cook
/s/ John M. Scanlon Chief Executive Officer and Director
-------------------------------------
John M. Scanlon
President, Chief Operating Officer
/*/ and Director
-------------------------------------
David Lee
Senior Vice President and Director
/*/
-------------------------------------
Barry Porter
Senior Vice President and Director
/*/
-------------------------------------
Abbott Brown
Senior Vice President and Chief
/*/ Financial Officer
-------------------------------------
Dan J. Cohrs
Director
/*/
-------------------------------------
Hillel Weinberger
II-4
<PAGE>
SIGNATURE TITLE
Director
/*/
------------------------------------
Jay Bloom
Director
/*/
------------------------------------
Dean Kehler
Director
/*/
------------------------------------
Jay Levine
Director
/*/
------------------------------------
William Phoenix
Director
/*/
------------------------------------
Bruce Raben
Director
/*/
------------------------------------
Michael Steed
/s/ John M. Scanlon Authorized Representative in the
------------------------------------ United States
John M. Scanlon
* By Power of Attorney
/s/ John M. Scanlon Attorney-in-Fact
------------------------------------
John M. Scanlon
II-5
<PAGE>
APPENDIX DESCRIBING GRAPHIC MATERIAL
PURSUANT TO RULE 304 OF REGULATION S-T
Inside Front cover
Beginning clockwise from top left corner.
Picture 1.
Picture of assorted European currency on top of newspaper background.
Caption below picture says "cost effective".
Picture 2.
Picture of face of a clock with hands featured prominently. Caption
below picture says "reliable".
Picture 3.
Picture of fiber optic cables. Caption below picture says
"connectivity".
Picture 4.
Picture of hand holding cellular telephone.
Picture 5.
Picture of globe with focus on the North Atlantic Ocean. Caption in
picture says "global".
Gatefold
Map of world indicating the Company's network of undersea fiber optic
cables linking the continents and indicating terrestrial capacity acquired from
third parties.
The descriptive caption in the top left corner of the map reads: "The
Global Crossing Network will be initially comprised of: Atlantic Crossing, which
commenced service on the United States to United Kingdom segment in May 1998;
Mid-Atlantic Crossing, scheduled to commence service in November 1999; Pan-
American Crossing, scheduled to commence service in February 2000; and Pacific
Crossing, scheduled to commence initial service in March 2000."
<PAGE>
2
Inside Back Cover
Beginning clockwise in top left corner.
Picture 1.
Fiber optic cable being loaded into water from cable laying ship.
Picture 2.
Woman verifying computer equipment in landing station.
Picture 3.
Cable-laying vessel on high seas.
Picture 4.
Manufacturing process of optical repeater being worked on by five
technicians.
Picture 5.
Fiber optic cable being loaded into water from cable laying ship
(different angle than in Picture 1).
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
1.1** Form of Underwriting Agreement
1.2** Form of Agreement Between U.S. and International Underwriters
3.1 Memorandum of Association of the Registrant, dated March 5,
1998
3.2 Bye-laws of the registrant, dated March 18, 1997
3.3** Form of Amended and Restated Memorandum of Association of the
Registrant
3.4** Form of Amended and Restated Bye-laws of the Registrant
4.1** Form of Certificate for Common Stock
4.2 Indenture, dated as of May 18, 1998, between Global Crossing
Holdings Ltd. and United States Trust Company of New York, as
Trustee
4.3 Registration Agreement, dated as of May 18, 1998, among the
Registrant, Global Crossing Holdings Ltd. and the other parties
named therein
4.4** Form of Registration Rights Agreement among the Registrant and
the investors named therein
4.5 Credit Agreement, dated as of June 27, 1997 (the "Credit
Agreement"), among Global Telesystems Ltd., various financial
institutions names therein, Deutsche Bank AG, New York Branch
and Canadian Imperial Bank of Commerce, as Lead Agents,
Deutsche Bank AG, New York Branch, as Administrative Agent,
Canadian Imperial Bank of Commerce, as Syndication Agent,
Documentation Agent and the Issuing Bank and Deutsche Morgan
Grenfell Inc. and CIBC Gundy Securities Corp, as Arrangers
4.6 First Amendment and Consent, dated as of December 15, 1997, to
Credit Agreement, among Global Telesystems Ltd., the lenders
named therein, Deutsche Bank AG, New York Branch and Canadian
Imperial Bank of Commerce, as Lead Agents, Deutsche Bank AG,
New York Branch, as Administrative Agent, Canadian Imperial
Bank of Commerce, as Syndication Agent, Documentation Agent and
the Issuing Bank and Deutsche Morgan Grenfell Inc. and CIBC
Gundy Securities Corp, as Arrangers
4.7 Form of Amended and Restated Stockholders' Agreement among GCT
Pacific Holdings, Ltd., SCS(Bermuda) Ltd., Marubeni Pacific
Cable Limited and Pacific Crossing Ltd.
5.1 Opinion of Appleby, Spurling & Kempe as to the legality of the
Shares being registered
8.1 Opinion of Simpson Thacher & Bartlett as to tax matters
relating to the Shares being registered
8.2 Opinion of Appleby, Spurling & Kempe as to tax matters relating
to the Shares being registered
9.1** Form of Stockholders' Agreement among the Registrant and the
investors named therein
10.1 Form of 1998 Global Crossing Ltd. Stock Incentive Plan
10.2*** Project Development and Construction Contract, dated March 18,
1997, among AT&T Submarine Systems, Inc. and Global Telesystems
Ltd
10.3*** Project Development and Construction Contract, dated as of
April 21, 1998, among Tyco Submarine Systems, Ltd. and GCT
Pacific Holdings, 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
10.6 First Amendment, dated as of June 27, 1997, to the Advisory
Services Agreement, dated as of March 25, 1997, among Global
Telesystems Ltd. and PCG Telecom Services LLC
21.1 Subsidiaries of the Registrant
23.1 Consent of Appleby Spurling & Kempe (included in the opinions
filed as Exhibit 5.1 and Exhibit 8.2)
23.2 Consent of Arthur Andersen & Co.
23.3 Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 8.1)
24.1* Power of Attorney (included on signature page II-4 of the
original filing of Registration Statement on Form S-1)
27.1* Financial Data Schedule
99.1 Consent of Nominee Director
99.2 Consent of Nominee Director
99.3 Consent of Nominee Director
</TABLE>
- --------
* Filed with original filing on Form S-1
** To be filed by amendment
*** Portions have been omitted pursuant to a request for confidential treatment
2
<PAGE>
EXHIBIT 3.1
FORM NO. 2
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(SECTION 7(1) AND (2))
MEMORANDUM OF ASSOCIATION
OF
Global Crossing Holdings Ltd.
(hereinafter referred to as "the Company")
- --------------------------------------------------------------------------------
1. The liability of the members of the Company is limited to the amount (if any)
for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(YES/NO) SUBSCRIBED
Jill Virgil-Smith
Cedar House, 41 Cedar Avenue
Hamilton, HM 12, Bermuda. Yes British 1
Ruby L. Rawlins
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda. Yes British 1
Judith Morgan-Swan
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda. Yes British 1
Rachael M. Lathan
Cedar House, 41 Cedar Avenue
<PAGE>
Hamilton HM 12,
Bermuda. Yes British 1
===========
===========
BERMUDA
do hereby respectively agree to take such number of shares of the Company as
may be allotted to us respectively by the provisional directors of the
Company, not exceeding the number of shares for which we have respectively
subscribed, and to satisfy such calls as may be made by the directors,
provisional directors or promoters of the Company in respect of the shares
allotted to us respectively.
<PAGE>
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company has power to hold land situate in Bermuda not exceeding in all,
including the following parcels-
Not Applicable
5. The authorised share capital of the Company is $12,000.00 divided into shares
of one cent each. The minimum subscribed share capital of the Company is
$12,000.00 in United States currency.
6. The objects for which the Company is formed and incorporated are -
See Attached
<PAGE>
7. The Company has the powers set out in the Schedule annexed hereto.
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof-
<PAGE>
THE COMPANIES ACT
SECOND SCHEDULE
(SECTION 11(2))
A company may by reference include in its memorandum any of the following
objects, that is to say the business of -
(a) insurance and re-insurance of all kinds;
(b) packaging of goods of all kinds;
(c) buying, selling and dealing in goods of all kinds;
(d) designing and manufacturing of goods of all kinds;
(e) mining and quarrying and exploration for metals, minerals, fossil fuels and
precious stones of all kinds and their preparation for sale or use;
(f) exploring for, the drilling for, the moving, transporting and refining
petroleum and hydrocarbon products including oil and oil products;
(g) scientific research including the improvement, discovery and development of
processes, inventions, patents and designs and the construction,
maintenance and operation of laboratories and research centres;
(h) land, sea and air undertakings including the land, ship and air carriage of
passengers, mails and goods of all kinds;
(i) ships and aircraft owners, managers, operators, agents, builders and
repairers;
(j) acquiring, owning, selling, chartering, repairing or dealing in ships and
aircraft;
(k) travel agents, freight contractors and forwarding agents;
(l) dock owners, wharfingers, warehousemen;
(m) ship chandlers and dealing in rope, canvas oil and ship stores of all
kinds;
(n) all forms of engineering;
(o) developing, operating, advising or acting as technical consultants to any
other enterprise or business;
(p) farmers, livestock breeders and keepers, graziers, butchers, tanners and
processors of and dealers in all kinds of live and dead stock, wool, hides,
tallow, grain, vegetables and other produce;
(q) acquiring by purchase or otherwise and holding as an investment inventions,
patents, trade marks, trade names, trade secrets, designs and the like;
<PAGE>
(r) buying, selling, hiring, letting and dealing in conveyances of any sort;
(s) employing, providing, hiring out and acting as agent for artists, actors,
entertainers of all sorts, authors, composers, producers, directors,
engineers and experts or specialists of any kind; and
(t) to acquire by purchase or otherwise hold, sell, dispose of and deal in real
property situated outside Bermuda and in personal property of all kinds
wheresoever situated;
to enter into any guarantee, contract of indemnity or suretyship and to assure,
support or secure with or without consideration or benefit the performance of
any obligations of any person or persons and to guarantee the fidelity of
individuals filling or about to fill situations of trust or confidence.
<PAGE>
(i) To carry on business as a holding company and to acquire and hold
shares, stocks, debenture stock, bonds, mortgages, obligations and securities of
any kind issued or guaranteed by any company, corporation or undertaking of
whatever nature and wherever constituted or carrying on business, and shares,
stock, debentures, debenture stock, bonds, obligations and other securities
issued or guaranteed by any government, sovereign ruler, commissioners, trust,
local authority or other public body, whether in Bermuda or elsewhere, and to
vary, transpose, dispose of or otherwise deal with from time to time as may be
considered expedient any of the Company's investments for the time being;
(ii) To acquire any such shares and other securities as are mentioned in
the preceding paragraph by subscription, syndicate participation, tender,
purchase, exchange or otherwise and to subscribe for the same, either
conditionally or otherwise, and to guarantee the subscription thereof and to
exercise and enforce all rights and powers conferred by or incident to the
ownership thereof;
(iii) To co-ordinate the administration, policies, management,
supervision, control, research, planning, trading and any and all other
activities of, and to act as financial advisers and consultants to, any company
or companies now or hereafter incorporated or acquired which may be or may
become a Group Company (which expression, in this and the next following
paragraph, means a company, wherever incorporated, which is or becomes a holding
company or a subsidiary of, or affiliated with, the Company within the meanings
respectively assigned to those terms in The Companies Act 1981) or, with the
prior written approval of the Minister of Finance, to any company or companies
now or hereafter incorporated or acquired with which the Company may be or may
become associated;
(iv) To provide financing and financial investment, management and advisory
services to any Group Company, which shall include but not be limited to
granting or providing credit and financial accommodation, lending and making
advances with or without interest to any Group Company and lending to or
depositing with any bank funds or other assets to provide security (by way of
mortgage, charge, pledge, lien or otherwise) for loans or other forms of
financing granted to such Group Company by such bank:
Provided that the Company shall not be deemed to have the power to act
as executor or administrator, or as trustee, except in connection with the issue
of bonds and debentures by the Company or any Group Company or in connection
with a pension scheme for the benefit of employees or former employees of the
Company or a Group Company or their respective predecessors, or the dependants
or connections of such employees or former employees;
(v) As set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the
Second Schedule to The Companies Act 1981.
<PAGE>
THE SCHEDULE
(REFERRED TO IN CLAUSE 7 OF THE MEMORANDUM OF ASSOCIATION)
----------------------------------------------------------
(a) To borrow and raise money in any currency or currencies and to secure or
discharge any debt or obligation in any manner and in particular (without
prejudice to the generality of the foregoing) by mortgages of or charges
upon all or any part of the undertaking, property and assets (present and
future) and uncalled capital of the company or by the creation and issue of
securities;
(b) To enter into any guarantee, contract of indemnity or suretyship and in
particular (without prejudice to the generality of the foregoing) to
guarantee, support or secure, with or without consideration, whether by
personal obligation or by mortgaging or charging all or any part of the
undertaking, property and assets (present and future) and uncalled capital
of the company or by both such methods or in any other manner, the
performance of any obligations or commitments of, and the repayment or
payment of the principal amounts of and any premiums, interest, dividends
and other moneys payable on or in respect of any securities or liabilities
of, any person, including (without prejudice to the generality of the
foregoing) any company which is for the time being a subsidiary or a
holding company of the company or another subsidiary of a holding company
of the company or otherwise associated with the company;
(c) To accept, draw, make, create, issue, execute, discount, endorse, negotiate
and deal in bills of exchange, promissory notes, and other instruments and
securities, whether negotiable or otherwise;
(d) To sell, exchange, mortgage, charge, let on rent, share of profit, royalty
or otherwise, grant licences, easements, options, servitudes and other
rights over, and in any other manner deal with or dispose of, all or any
part of the undertaking, property and assets (present and future) of the
company for any consideration and in particular (without prejudice to the
generality of the foregoing) for any securities;
(e) To issue and allot securities of the company for cash or in payment or part
payment for any real or personal property purchased or otherwise acquired
by the company or any services rendered to the company or as security for
any obligation or amount (even if less than the nominal amount of such
securities) or for any other purpose;
(f) To grant pensions, annuities, or other allowances, including allowances on
death, to any directors, officers or employees or former directors,
officers or employees of the company or any company which at any time is
or was a subsidiary or a holding company or another subsidiary of a holding
company of the company or otherwise associated with the company or of any
predecessor in business of any of them, and to the relations, connections
or dependants of any such persons, and to other persons whose service or
services have directly or indirectly been of benefit to the company or whom
the company considers have any moral claim on the company or to their
relations connections or dependants, and to establish or support any
associations, institutions, clubs, schools, building and housing schemes,
funds and trusts, and to make payment towards insurance or other
arrangements likely to benefit any such persons or otherwise advance the
interests of the company or of its members or for any national, charitable,
benevolent, educational, social, public, general or useful object;
(g) Subject to the provisions of Section 42 of the Companies Act 1981, to issue
preference shares which at the option of the holders thereof are to be
liable to be redeemed;
<PAGE>
(h) To purchase its own shares in accordance with the provisions of Section 42A
of the Companies Act 1981.
<PAGE>
(Subscribers) (Witnesses)
SUBSCRIBED this 5th day of March
, 1998
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
<PAGE>
STAMP DUTY (To be affixed)
Not Applicable
<PAGE>
THE COMPANIES ACT
FIRST SCHEDULE (SECTION 11(1))
A company limited by shares, or other company having a share capital, may
exercise all or any of the following powers subject to any provision of law or
its memorandum -
(1) [repealed by 1992:51]
(2) to acquire or undertake the whole or any part of the business, property and
liabilities of any person carrying on any business that the company is
authorized to carry on;
(3) to apply for, register, purchase, lease, acquire, hold, use, control,
licence, sell, assign or dispose of patents, patent rights, copyrights,
trade marks, formulae, licences, inventions, processes, distinctive marks
and similar rights;
(4) to enter into partnership or into any arrangement for sharing of profits,
union of interests, co-operation, joint venture, reciprocal concession or
otherwise with any person carrying on or engaged in or about to carry on or
engage in any business or transaction that the company is authorized to
carry on or engage in or any business or transaction capable of being
conducted so as to benefit the company;
(5) to take or otherwise acquire and hold securities in any other body
corporate having objects altogether or in part similar to those of the
company or carrying on any business capable of being conducted so as to
benefit the company;
(6) subject to section 96 to lend money to any employee or to any person having
dealings with the company or with whom the company proposes to have
dealings or to any other body corporate any of whose shares are held by the
company;
(7) to apply for, secure or acquire by grant, legislative enactment,
assignment, transfer, purchase or otherwise and to exercise, carry out and
enjoy any charter, licence, power, authority, franchise, concession, right
or privilege, that any government or authority or any body corporate or
other public body may be empowered to grant, and to pay for, aid in and
contribute toward carrying it into effect and to assume any liabilities or
obligations incidental thereto;
(8) to establish and support or aid in the establishment and support of
associations, institutions, funds or trusts for the benefit of employees or
former employees of the company or its predecessors, or the dependants or
connections of such employees or former employees, and grant pensions and
allowances, and make payments towards insurance or for any object similar
to those set forth in this paragraph, and to subscribe or guarantee money
for charitable, benevolent, educational or religious objects or for any
exhibition or for any public, general or useful objects;
<PAGE>
(9) to promote any company for the purpose of acquiring or taking over any of
the property and liabilities of the company or for any other purpose that
may benefit the company;
(10) to purchase, lease, take in exchange, hire or otherwise acquire any
personal property and any rights or privileges that the company considers
necessary or convenient for the purposes of its business;
(11) to construct, maintain, alter, renovate and demolish any buildings or works
necessary or convenient for its objects;
(12) to take land in Bermuda by way of lease or letting agreement for a term not
exceeding twenty-one years, being land bona fide required for the purposes
of the business of the company and with the consent of the Minister granted
in his discretion to take land in Bermuda by way of lease or letting
agreement for a similar period in order to provide accommodation or
recreational facilities for its officers and employees and when no longer
necessary for any of the above purposes to terminate or transfer the lease
or letting agreement;
(13) except to the extent, if any, as may be otherwise expressly provided in its
incorporating Act or memorandum and subject to this Act every company shall
have power to invest the moneys of the Company by way of mortgage of real
or personal property of every description in Bermuda or elsewhere and to
sell, exchange, vary, or dispose of such mortgage as the company shall from
time to time determine;
(14) to construct, improve, maintain, work, manage, carry out or control any
roads, ways, tramways, branches or sidings, bridges, reservoirs,
watercourses, wharves, factories, warehouses, electric works, shops, stores
and other works and conveniences that may advance the interests of the
company and contribute to, subsidize or otherwise assist or take part in
the construction, improvement, maintenance, working, management, carrying
out or control thereof;
(15) to raise and assist in raising money for, and aid by way of bonus, loan,
promise, endorsement, guarantee or otherwise, any person and guarantee the
performance or fulfilment of any contracts or obligations of any person,
and in particular guarantee the payment of the principal of and interest on
the debt obligations of any such person;
(16) to borrow or raise or secure the payment of money in such manner as the
company may think fit;
(17) to draw, make, accept, endorse, discount, execute and issue bills of
exchange, promissory notes, bills of lading, warrants and other negotiable
or transferable instruments;
(18) when properly authorized to do so, to sell, lease, exchange or otherwise
dispose of the undertaking of the company or any part thereof as an
entirety or substantially as an entirety for
<PAGE>
such consideration as the company thinks fit;
(19) to sell, improve, manage, develop, exchange, lease, dispose of, turn to
account or otherwise deal with the property of the company in the ordinary
course of its business;
(20) to adopt such means of making known the products of the company as may seem
expedient, and in particular by advertising, by purchase and exhibition of
works of art or interest, by publication of books and periodicals and by
granting prizes and rewards and making donations;
(21) to cause the company to be registered and recognized in any foreign
jurisdiction, and designate persons therein according to the laws of that
foreign jurisdiction or to represent the company and to accept service for
and on behalf of the company of any process or suit;
(22) to allot and issue fully-paid shares of the company in payment or part
payment of any property purchased or otherwise acquired by the company or
for any past services performed for the company;
(23) to distribute among the members of the company in cash, kind, specie or
otherwise as may be resolved, by way of dividend, bonus or in any other
manner considered advisable, any property of the company, but not so as to
decrease the capital of the company unless the distribution is made for the
purpose of enabling the company to be dissolved or the distribution, apart
from this paragraph, would be otherwise lawful;
(24) to establish agencies and branches;
(25) to take or hold mortgages, hypothecs, liens and charges to secure payment
of the purchase price, or of any unpaid balance of the purchase price, of
any part of the property of the company of whatsoever kind sold by the
company, or for any money due to the company from purchasers and others and
to sell or otherwise dispose of any such mortgage, hypothec, lien or
charge;
(26) to pay all costs and expenses of or incidental to the incorporation and
organization of the company;
(27) to invest and deal with the moneys of the company not immediately required
for the objects of the company in such manner as may be determined;
(28) to do any of the things authorized by this Schedule and all things
authorized by its memorandum as principals, agents, contractors, trustees
or otherwise, and either alone or in conjunction with others;
(29) to do all such other things as are incidental or conducive to the
attainment of the objects
<PAGE>
and the exercise of the powers of the company.
Every company may exercise its powers beyond the boundaries of Bermuda to the
extent to which the laws in force where the powers are sought to be exercised
permit.
<PAGE>
EXHIBIT 3.2
B Y E - L A W S
of
GLOBAL CROSSING HOLDINGS LTD.
I HEREBY CERTIFY that the within written Bye-Laws are a true copy of the Bye-
Laws of
GLOBAL CROSSING HOLDINGS LTD.
as subscribed by the subscribers to the Memorandum of Association and approved
at the Statutory meeting of the above Company on the 18/th/ March, 1998.
Assistant Secretary
Prepared by
Messrs Appleby Spurling & Kempe
Cedar House
41 Cedar Avenue
Hamilton, Bermuda
<PAGE>
I N D E X
---------
BYE-LAW SUBJECT PAGE
- ------- ------- ----
1 Interpretation 1-3
2 Registered Office 3
3,4 Share Rights 3,4
5,6 Modification of Rights 4
7-9 Shares 5
10-12 Certificates 5,6
13-15 Lien 6,7
16-21 Calls on Shares 7,8
22-28 Forfeiture of Shares 9,10
29 Register of Shareholders 11
30 Register of Directors and Officers 11
31-34 Transfer of Shares 11,12
35-38 Transmission of Shares 13,14
39-41 Increase of Capital 14,15
42,43 Alteration of Capital 15,16
44,45 Reduction of Capital 16
46 General Meetings and Written Resolutions 16,17
47,48 Notice of General Meetings 17,18
49-55 Proceedings at General Meetings 18-20
56-67 Voting 21-23
68-73 Proxies and Corporate Representatives 24-26
74-76 Appointment and Removal of Directors 26,27
BYE-LAW SUBJECT PAGE
- ------- ------- -----
77 Resignation and Disqualification of Directors 27
78-80 Alternate Directors 27,28
81 Directors' Fees and Additional
Remuneration and Expenses 28,29
82 Directors' Interests 29,30
83-87 Powers and Duties of the Board 30-32
88-90 Delegation of the Board's Powers 32,33
91-99 Proceedings of the Board 33-36
100 Officers 36
101 Minutes 36,37
<PAGE>
102,103 Secretary and Resident Representative 37
104 The Seal 37,38
105-111 Dividends and Other Payments 38-40
112 Reserves 41
113,114 Capitalization of Profits 41,42
115 Record Dates 42
116-118 Accounting Records 42,43
119 Audit 43
120-122 Service of Notices and Other Documents 43,44
123 Winding Up 45
124-128 Indemnity 45-47
129 Amalgamation 47
130 Continuation 48
131 Alteration of Bye-Laws 48
<PAGE>
B Y E - L A W S
of
GLOBAL CROSSING HOLDINGS LTD.
INTERPRETATION
1. (1) In these Bye-Laws unless the context otherwise requires -
"BERMUDA" means the Islands of Bermuda;
"BOARD" means the Board of Directors of the Company or the Directors present
at a meeting of Directors at which there is a quorum;
"THE COMPANIES ACTS" means every Bermuda statute from time to time in force
concerning companies insofar as the same applies to the Company;
"COMPANY" means the company incorporated in Bermuda under the name of Global
Crossing Holdings Ltd.
on the 18/th/ day of March, 1998 ;
"OFFICER" means a person appointed by the Board pursuant to Bye-Law 100 of
these Bye-Laws and shall not include an auditor of the Company;
"PAID UP" means paid up or credited as paid up;
"REGISTER" means the Register of Shareholders of the Company;
"REGISTERED OFFICE" means the registered office for the time being of the
Company;
"RESIDENT REPRESENTATIVE" means the individual (or, if permitted in accordance
with the Companies Acts, the company) appointed to perform the duties of
resident representative set out in the Companies Acts and includes any assistant
or deputy Resident Representative appointed by the Board to perform any of the
duties of the Resident Representative;
"RESOLUTION" means a resolution of the Shareholders or, where required, of a
separate class or separate classes of Shareholders, adopted either in general
meeting or by written resolution, in accordance with the provisions of these
Bye-Laws;
"SEAL" means the common seal of the Company and includes any duplicate
thereof;
"SECRETARY" includes a temporary or assistant or deputy Secretary and any
person appointed by the Board to perform any of the duties of the Secretary;
"SHAREHOLDER" means a shareholder or member of the Company;
"THESE BYE-LAWS" means these Bye-Laws in their present form or as from time to
time amended;
(2) For the purposes of these Bye-Laws a corporation shall be deemed to be
present in person if its representative duly authorised pursuant to the
Companies Acts is present;
(3) Words importing only the singular number include the plural number and
vice versa;
(4) Words importing only the masculine gender include the feminine and neuter
genders respectively;
(5) Words importing persons include companies or associations or bodies of
persons, whether corporate or un-incorporate;
(6) Reference to writing shall include typewriting, printing, lithography,
photography and other
<PAGE>
modes of representing or reproducing words in a legible
and non-transitory form;
(7) Any words or expressions defined in the Companies Acts in force at the
date when these Bye-Laws or any part thereof are adopted shall bear the same
meaning in these Bye-Laws or such part (as the case may be).
REGISTERED OFFICE
2. The Registered Office shall be at such place in Bermuda as the Board shall
from time to time appoint.
SHARE RIGHTS
3. Subject to any special rights conferred on the holders of any share or
class of shares, any share in the Company may be issued with or have attached
thereto such preferred, deferred, qualified or other special rights or such
restrictions, whether in regard to dividend, voting, return of capital or
otherwise, as the Company may by Resolution determine or, if there has not been
any such determination or so far as the same shall not make specific provision,
as the Board may determine.
4. (1) Subject to the Companies Acts, any preference shares may, with the
sanction of a resolution of the Board, be issued on terms:
(a) that they are to be redeemed on the happening of a specified event
or on a given date; and/or,
(b) that they are liable to be redeemed at the option of the Company;
and/or,
(c) if authorised by the memorandum/incorporating act of the Company,
that they are liable to be redeemed at the option of the holder.
The terms and manner of redemption shall be provided for in such resolution
of the Board and shall be attached to but shall not form part of these Bye-Laws.
(2) The Board may, at its discretion and without the sanction of a
Resolution authorise the purchase by the Company of its own shares upon such
terms as the Board may in its discretion determine PROVIDED ALWAYS that such
purchase is effected in accordance with the provisions of the Companies Acts.
MODIFICATION OF RIGHTS
5. Subject to the Companies Acts, all or any of the special rights for the
time being attached to any class of shares for the time being issued may from
time to time (whether or not the Company is being wound up) be altered or
abrogated with the consent in writing of the holders of not less than seventy
five percent of the issued shares of that class or with the sanction of a
Resolution passed at a separate general meeting of the holders of such shares
voting in person or by proxy. To any such separate general meeting, all the
provisions of these Bye-Laws as to general meetings of the Company shall mutatis
mutandis apply, but so that the necessary quorum shall be two or more persons
holding or representing by proxy any of the shares of the relevant class, that
every holder of shares of the relevant class shall be entitled on a poll to one
vote for every such share held by him and that any holder of shares of the
relevant class present in person
2
<PAGE>
or by proxy may demand a poll; provided, however, that if the Company or a class
of Shareholders shall have only one Shareholder, one Shareholder present in
person or by proxy shall constitute the necessary quorum.
6. The special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise expressly provided in the rights attaching to
or the terms of issue of such shares, be deemed to be altered by the creation or
issue of further shares ranking pari passu therewith.
SHARES
7. Subject to the provisions of these Bye-Laws, the unissued shares of the
Company (whether forming part of the original capital or any increased capital)
shall be at the disposal of the Board, which may offer, allot, grant options
over or otherwise dispose of them to such persons, at such times and for such
consideration and upon such terms and conditions as the Board may determine.
8. The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by law.
9. Except as ordered by a court of competent jurisdiction or as required by
law, no person shall be recognised by the Company as holding any share upon
trust and the Company shall not be bound by or required in any way to recognise
(even when having notice thereof) any equitable, contingent, future or partial
interest in any share or any interest in any fractional part of a share or
(except only as otherwise provided in these Bye-Laws, or by law) any other right
in respect of any share except an absolute right to the entirety thereof in the
registered holder.
CERTIFICATES
10. The preparation, issue and delivery of certificates shall be governed by
the Companies Acts. In the case of a share held jointly by several persons,
delivery of a certificate to one of several joint holders shall be sufficient
delivery to all.
11. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and to
payment of the costs and out of pocket expenses of the Company in investigating
such evidence and preparing such indemnity as the Board may think fit and, in
case of defacement, on delivery of the old certificate to the Company.
12. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other like
documents) shall, except to the extent that the terms and conditions for the
time being relating thereto otherwise provide, be issued under the Seal. The
Board may by resolution determine, either generally or in any particular case,
that any signatures on any such certificates need not be autographic but may be
affixed to such certificates by some mechanical means or may be printed thereon
or that such certificates need not be signed by any persons.
3
<PAGE>
LIEN
13. The Company shall have a first and paramount lien on every share (not being
a fully paid share) for all moneys, whether presently payable or not, called or
payable, at a date fixed by or in accordance with the terms of issue of such
share in respect of such share, and the Company shall also have a first and
paramount lien on every share (other than a fully paid share) standing
registered in the name of a Shareholder, whether singly or jointly with any
other person, for all the debts and liabilities of such Shareholder or his
estate to the Company, whether the same shall have been incurred before or after
notice to the Company of any interest of any person other than such Shareholder,
and whether the time for the payment or discharge of the same shall have
actually arrived or not, and notwithstanding that the same are joint debts or
liabilities of such Shareholder or his estate and any other person, whether a
Shareholder or not. The Company's lien on a share shall extend to all dividends
payable thereon. The Board may at any time, either generally or in any
particular case, waive any lien that has arisen or declare any share to be
wholly or in part exempt from the provisions of this Bye-Law.
14. The Company may sell, in such manner as the Board may think fit, any share
on which the Company has a lien but no sale shall be made unless some sum in
respect of which the lien exists is presently payable nor until the expiration
of fourteen days after a notice in writing, stating and demanding payment of the
sum presently payable and giving notice of the intention to sell in default of
such payment, has been served on the holder for the time being of the share.
15. The net proceeds of sale by the Company of any shares on which it has a
lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is presently
payable, and any residue shall (subject to a like lien for debts or liabilities
not presently payable as existed upon the share prior to the sale) be paid to
the person who was the holder of the share immediately before such sale. For
giving effect to any such sale the Board may authorise some person to transfer
the share sold to the purchaser thereof. The purchaser shall be registered as
the holder of the share and he shall not be bound to see to the application of
the purchase money, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings relating to the sale.
CALLS ON SHARES
16. The Board may from time to time make calls upon the Shareholders in respect
of any moneys unpaid on their shares (whether on account of the par value of the
shares or by way of premium) and not by the terms of issue thereof made payable
at a date fixed by or in accordance with such terms of issue, and each
Shareholder shall (subject to the Company serving upon him at least fourteen
days notice specifying the time or times and place of payment) pay to the
Company at the time or times and place so specified the amount called on his
shares. A call may be revoked or postponed as the Board may determine.
17. A call may be made payable by instalments and shall be deemed to have been
made at the time when the resolution of the Board authorising the call was
passed.
4
<PAGE>
18. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
19. If a sum called in respect of the share shall not be paid before or on the
day appointed for payment thereof the person from whom the sum is due shall pay
interest on the sum from the day appointed for the payment thereof to the time
of actual payment at such rate as the Board may determine, but the Board shall
be at liberty to waive payment of such interest wholly or in part.
20. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of issue,
whether on account of the nominal amount of the share or by way of premium,
shall for all the purposes of these Bye-Laws be deemed to be a call duly made,
notified and payable on the date on which, by the terms of issue, the same
becomes payable and, in case of non-payment, all the relevant provisions of
these Bye-Laws as to payment of interest, forfeiture or otherwise shall apply as
if such sum had become payable by virtue of a call duly made and notified.
21. The Board may on the issue of shares differentiate between the allottees or
holders as to the amount of calls to be paid and the times of payment.
FORFEITURE OF SHARES
22. If a Shareholder fails to pay any call or instalment of a call on the day
appointed for payment thereof, the Board may at any time thereafter during such
time as any part of such call or instalment remains unpaid serve a notice on him
requiring payment of so much of the call or instalment as is unpaid, together
with any interest which may have accrued.
23. The notice shall name a further day (not being less than 14 days from the
date of the notice) on or before which, and the place where, the payment
required by the notice is to be made and shall state that, in the event of non-
payment on or before the day and at the place appointed, the shares in respect
of which such call is made or instalment is payable will be liable to be
forfeited. The Board may accept the surrender of any share liable to be
forfeited hereunder and, in such case, references in these Bye-Laws to
forfeiture shall include surrender.
24. If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which such notice has been given may at any time
thereafter, before payment of all calls or instalments and interest due in
respect thereof has been made, be forfeited by a resolution of the Board to that
effect. Such forfeiture shall include all dividends declared in respect of the
forfeited shares and not actually paid before the forfeiture.
25. When any share has been forfeited, notice of the forfeiture shall be served
upon the person who was before forfeiture the holder of the share; but no
forfeiture shall be in any manner invalidated by any omission or neglect to give
such notice as aforesaid.
26. A forfeited share shall be deemed to be the property of the Company and may
be sold,
5
<PAGE>
re-offered or otherwise disposed of either to the person who was, before
forfeiture, the holder thereof or entitled thereto or to any other person upon
such terms and in such manner as the Board shall think fit, and at any time
before a sale, re-allotment or disposition the forfeiture may be cancelled on
such terms as the Board may think fit.
27. A person whose shares have been forfeited shall thereupon cease to be a
Shareholder in respect of the forfeited shares but shall, notwithstanding the
forfeiture, remain liable to pay to the Company all moneys which at the date of
forfeiture were presently payable by him to the Company in respect of the shares
with interest thereon at such rate as the Board may determine from the date of
forfeiture until payment, and the Company may enforce payment without being
under any obligation to make any allowance for the value of the shares
forfeited.
28. An affidavit in writing that the deponent is a Director of the Company or
the Secretary and that a share has been duly forfeited on the date stated in the
affidavit shall be conclusive evidence of the facts therein stated as against
all persons claiming to be entitled to the share. The Company may receive the
consideration (if any) given for the share on the sale, re-allotment or
disposition thereof and the Board may authorise some person to transfer the
share to the person to whom the same is sold, re-allotted or disposed of, and he
shall thereupon be registered as the holder of the share and shall not be bound
to see to the application of the purchase money (if any) nor shall his title to
the share be affected by any irregularity or invalidity in the proceedings
relating to the forfeiture, sale, re-allotment or disposal of the share.
REGISTER OF SHAREHOLDERS
29. The Secretary shall establish and maintain the Register at the Registered
Office in the manner prescribed by the Companies Acts. Unless the Board
otherwise determines, the Register shall be open to inspection in the manner
prescribed by the Companies Acts between 10.00 a.m. and 12.00 noon on every
working day. Unless the Board so determines, no Shareholder or intending
Shareholder shall be entitled to have entered in the Register any indication of
any trust or any equitable, contingent, future or partial interest in any share
or any interest in any fractional part of a share and if any such entry exists
or is permitted by the Board it shall not be deemed to abrogate any of the
provisions of Bye-Law 9.
REGISTER OF DIRECTORS AND OFFICERS
30. The Secretary shall establish and maintain a register of the Directors and
Officers of the Company as required by the Companies Acts. The register of
Directors and Officers shall be open to inspection in the manner prescribed by
the Companies Acts between 10:00 a.m. and 12:00 noon on every working day.
TRANSFER OF SHARES
31. Subject to the Companies Acts and to such of the restrictions contained in
these Bye-Laws as may be applicable, any Shareholder may transfer all or any of
his shares by an instrument of transfer in the usual common form or in any other
form which the Board may approve.
6
<PAGE>
32. The instrument of transfer of a share shall be signed by or on behalf of
the transferor and where any share is not fully-paid, the transferee and the
transferor shall be deemed to remain the holder of the share until the name of
the transferee is entered in the Register in respect thereof. All instruments
of transfer when registered may be retained by the Company. The Board may, in
its absolute discretion and without assigning any reason therefor, decline to
register any transfer of any share which is not a fully-paid share. The Board
may also decline to register any transfer unless:-
(1) the instrument of transfer is duly stamped and lodged with the Company,
accompanied by the certificate for the shares to which it relates, and such
other evidence as the Board may reasonably require to show the right of the
transferor to make the transfer,
(2) the instrument of transfer is in respect of only one class of share,
(3) where applicable, the permission of the Bermuda Monetary Authority with
respect thereto has been obtained.
Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under this Bye-
Law and Bye-Laws 31 and 33.
33. If the Board declines to register a transfer it shall, within three months
after the date on which the instrument of transfer was lodged, send to the
transferee notice of such refusal.
34. No fee shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage, power of
attorney, distringas or stop notice, order of court or other instrument relating
to or affecting the title to any share, or otherwise making an entry in the
Register relating to any share.
TRANSMISSION OF SHARES
35. In the case of the death of a Shareholder, the survivor or survivors, where
the deceased was a joint holder, and the estate representative, where he was
sole holder, shall be the only person recognised by the Company as having any
title to his shares; but nothing herein contained shall release the estate of a
deceased holder (whether the sole or joint) from any liability in respect of any
share held by him solely or jointly with other persons. For the purpose of this
Bye-Law, estate representative means the person to whom probate or letters of
administration has or have been granted in Bermuda or, failing any such person,
such other person as the Board may in its absolute discretion determine to be
the person recognised by the Company for the purpose of this Bye-Law.
36. Any person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law may, subject as
hereafter provided and upon such evidence being produced as may from time to
time be required by the Board as to his entitlement, either be registered
himself as the holder of the share or elect to have some person nominated by him
registered as the transferee thereof. If the person so becoming entitled elects
to be registered himself, he shall deliver or send to the Company a notice in
writing signed by him stating that he so elects. If he shall elect to have his
nominee registered, he shall signify his election by signing an instrument of
transfer of such share in favour of his nominee. All the limitations,
restrictions and provisions of these Bye-Laws relating to the right to transfer
and the
7
<PAGE>
registration of transfer of shares shall be applicable to any such notice or
instrument of transfer as aforesaid as if the death of the Shareholder or other
event giving rise to the transmission had not occurred and the notice or
instrument of transfer was an instrument of transfer signed by such Shareholder.
37. A person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board as to
his entitlement) be entitled to receive and may give a discharge for any
dividends or other moneys payable in respect of the share, but he shall not be
entitled in respect of the share to receive notices of or to attend or vote at
general meetings of the Company or, save as aforesaid, to exercise in respect of
the share any of the rights or privileges of a Shareholder until he shall have
become registered as the holder thereof. The Board may at any time give notice
requiring such person to elect either to be registered himself or to transfer
the share and, if the notice is not complied with within sixty days, the Board
may thereafter withhold payment of all dividends and other moneys payable in
respect of the shares until the requirements of the notice have been complied
with.
38. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under Bye-Laws
35, 36 and 37.
INCREASE OF CAPITAL
39. The Company may from time to time increase its capital by such sum to be
divided into shares of such par value as the Company by Resolution shall
prescribe.
40. The Company may, by the Resolution increasing the capital, direct that the
new shares or any of them shall be offered in the first instance either at par
or at a premium or (subject to the provisions of the Companies Acts) at a
discount to all the holders for the time being of shares of any class or classes
in proportion to the number of such shares held by them respectively or make any
other provision as to the issue of the new shares.
41. The new shares shall be subject to all the provisions of these Bye-Laws
with reference to lien, the payment of calls, forfeiture, transfer, transmission
and otherwise.
ALTERATION OF CAPITAL
42. The Company may from time to time by Resolution:-
(1) divide its shares into several classes and attach thereto respectively
any preferential, deferred, qualified or special rights, privileges or
conditions;
(2) consolidate and divide all or any of its share capital into shares of
larger par value than its existing shares;
(3) sub-divide its shares or any of them into shares of smaller par value
than is fixed by its memorandum, so, however, that in the sub-division the
proportion between the amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in the case of the share from which
the reduced share is derived;
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(4) make provision for the issue and allotment of shares which do not carry
any voting rights;
(5) cancel shares which, at the date of the passing of the Resolution in
that behalf, have not been taken or agreed to be taken by any person, and
diminish the amount of its share capital by the amount of the shares so
cancelled; and
(6) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation, or
sub-division under this Bye-Law, the Board may settle the same as it thinks
expedient and, in particular, may arrange for the sale of the shares
representing fractions and the distribution of the net proceeds of sale in due
proportion amongst the Shareholders who would have been entitled to the
fractions, and for this purpose the Board may authorise some person to transfer
the shares representing fractions to the purchaser thereof, who shall not be
bound to see to the application of the purchase money nor shall his title to the
shares be affected by any irregularity or invalidity in the proceedings relating
to the sale.
43. Subject to the Companies Acts and to any confirmation or consent required
by law or these Bye-Laws, the Company may by Resolution from time to time
convert any preference shares into redeemable preference shares.
REDUCTION OF CAPITAL
44. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to time by
Resolution authorise the reduction of its issued share capital or any share
premium or contributed surplus account in any manner.
45. In relation to any such reduction, the Company may by Resolution determine
the terms upon which such reduction is to be effected including in the case of a
reduction of part only of a class of shares, those shares to be affected.
GENERAL MEETINGS AND WRITTEN RESOLUTIONS
46. (1) The Board shall convene and the Company shall hold general meetings as
Annual General Meetings in accordance with the requirements of the Companies
Acts at such times and places as the Board shall appoint. The Board may,
whenever it thinks fit, and shall, when required by the Companies Acts, convene
general meetings other than Annual General Meetings which shall be called
Special General Meetings.
(2) Except in the case of the removal of auditors or Directors, anything
which may be done by Resolution may, without a meeting and without any previous
notice being required, be done by Resolution in writing, signed by all of the
Shareholders or any class thereof or their proxies, or in the case of a
Shareholder that is a corporation (whether or not a company within the meaning
of the Companies Acts) on behalf of such Shareholder, being all of the
Shareholders of the Company or any class thereof who at the date of the
Resolution in writing would be entitled to attend a meeting and vote on the
Resolution. Such Resolution in writing may be signed in as many counterparts as
may be necessary.
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(3) For the purposes of this Bye-Law, the date of the Resolution in writing
is the date when the Resolution is signed by, or on behalf of, the last
Shareholder to sign and any reference in any enactment to the date of passing of
a Resolution is, in relation to a Resolution in writing made in accordance with
this section, a reference to such date.
(4) A Resolution in writing made in accordance with this Bye-Law is as
valid as if it had been passed by the Company in general meeting or, if
applicable, by a meeting of the relevant class of Shareholders of the Company,
as the case may be. A Resolution in writing made in accordance with this
section shall constitute minutes for the purposes of the Companies Acts and
these Bye-Laws.
NOTICE OF GENERAL MEETINGS
47. An Annual General Meeting shall be called by not less than 5 days
notice in writing and a Special General Meeting shall be called by not less than
5 days notice in writing. The notice shall be exclusive of the day on which
it is served or deemed to be served and of the day for which it is given, and
shall specify the place, day and time of the meeting, and, the nature of the
business to be considered. Notice of every general meeting shall be given in
any manner permitted by Bye-Laws 120 and 121 to all Shareholders other than such
as, under the provisions of these Bye-Laws or the terms of issue of the shares
they hold, are not entitled to receive such notice from the Company and to any
Director or Resident Representative who or which has delivered a written notice
upon the Registered Office requiring that such notice be sent to him or it.
Notwithstanding that a meeting of the Company is called by shorter notice
than that specified in this Bye-Law, it shall be deemed to have been duly called
if it is so agreed:-
(1) in the case of a meeting called as an Annual General Meeting, by all
the Shareholders entitled to attend and vote thereat;
(2) in the case of any other meeting, by a majority in number of the
Shareholders having the right to attend and vote at the meeting, being a
majority together holding not less than 95 percent in nominal value of the
shares giving that right.
48. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission to
send such instrument of proxy to, or the non-receipt of notice of a meeting or
such instrument of proxy by, any person entitled to receive such notice shall
not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
49. No business shall be transacted at any general meeting unless a quorum is
present when the meeting proceeds to business, but the absence of a quorum shall
not preclude the appointment, choice or election of a chairman which shall not
be treated as part of the business of the meeting. Save as otherwise provided
by these Bye-Laws, at least two Shareholders present in person or by proxy and
entitled to vote shall be a quorum for all purposes; provided, however, that if
the Company or a class of Shareholders shall have only one Shareholder, one
Shareholder present in person or by proxy shall constitute the necessary quorum.
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50. If within five minutes (or such longer time as the chairman of the meeting
may determine to wait) after the time appointed for the meeting, a quorum is not
present, the meeting, if convened on the requisition of Shareholders, shall be
dissolved. In any other case, it shall stand adjourned to such other day and
such other time and place as the chairman of the meeting may determine and at
such adjourned meeting two Shareholders present in person or by proxy shall be a
quorum provided that if the Company or a class of Shareholders shall have only
one Shareholder, one Shareholder present in person or by proxy shall constitute
the necessary quorum. The Company shall give not less than 5 days notice of
any meeting adjourned through want of a quorum and such notice shall state that
the sole Shareholder or, if more than one, two Shareholders present in person or
by proxy (whatever the number of shares held by them) shall be a quorum.
51. A meeting of the Shareholders or any class thereof may be held by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
52. Each Director upon giving the notice referred to in Bye-Law 47 above, and
the Resident Representative, if any, shall be entitled to attend and speak at
any general meeting of the Company.
53. The Chairman (if any) of the Board or, in his absence, the President shall
preside as chairman at every general meeting. If there is no such Chairman or
President, or if at any meeting neither the Chairman nor the President is
present within five minutes after the time appointed for holding the meeting, or
if neither of them is willing to act as chairman, the Directors present shall
choose one of their number to act or if one Director only is present he shall
preside as chairman if willing to act. If no Director is present, or if each of
the Directors present declines to take the chair, the persons present and
entitled to vote on a poll shall elect one of their number to be chairman.
54. The chairman of the meeting may, with the consent of any meeting at which a
quorum is present (and shall if so directed by the meeting), adjourn the meeting
from time to time and from place to place but no business shall be transacted at
any adjourned meeting except business which might lawfully have been transacted
at the meeting from which the adjournment took place. When a meeting is
adjourned for three months or more, notice of the adjourned meeting shall be
given as in the case of an original meeting.
55. Save as expressly provided by these Bye-Laws, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
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VOTING
56. Save where a greater majority is required by the Companies Acts or these
Bye-Laws, any question proposed for consideration at any general meeting shall
be decided on by a simple majority of votes cast.
57. At any general meeting, a Resolution put to the vote of the meeting shall
be decided on a show of hands unless (before or on the declaration of the result
of the show of hands or on the withdrawal of any other demand for a poll) a poll
is demanded by:-
(1) the chairman of the meeting; or
(2) at least three Shareholders present in person or represented by proxy;
or
(3) any Shareholder or Shareholders present in person or represented by
proxy and holding between them not less than one tenth of the total voting
rights of all the Shareholders having the right to vote at such meeting; or
(4) a Shareholder or Shareholders present in person or represented by proxy
holding shares conferring the right to vote at such meeting, being shares on
which an aggregate sum has been paid up equal to not less than one tenth of the
total sum paid up on all such shares conferring such right.
The demand for a poll may be withdrawn by the person or any of the persons
making it at any time prior to the declaration of the result. Unless a poll is
so demanded and the demand is not withdrawn, a declaration by the chairman that
a Resolution has, on a show of hands, been carried or carried unanimously or by
a particular majority or not carried by a particular majority or lost shall be
final and conclusive, and an entry to that effect in the minute book of the
Company shall be conclusive evidence of the fact without proof of the number or
proportion of votes recorded for or against such Resolution.
58. If a poll is duly demanded, the result of the poll shall be deemed to be
the Resolution of the meeting at which the poll is demanded.
59. A poll demanded on the election of a chairman, or on a question of
adjournment, shall be taken forthwith. A poll demanded on any other question
shall be taken in such manner and either forthwith or at such time (being not
later than three months after the date of the demand) and place as the chairman
shall direct. It shall not be necessary (unless the chairman otherwise directs)
for notice to be given of a poll.
60. The demand for a poll shall not prevent the continuance of a meeting for
the transaction of any business other than the question on which the poll has
been demanded and it may be withdrawn at any time before the close of the
meeting or the taking of the poll, whichever is the earlier.
61. On a poll, votes may be cast either personally or by proxy.
62. A person entitled to more than one vote on a poll need not use all his
votes or cast all the votes he uses in the same way.
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63. In the case of an equality of votes at a general meeting, whether on a show
of hands or on a poll, the chairman of such meeting shall not be entitled to a
second or casting vote and the resolution shall fail.
64. In the case of joint holders of a share, the vote of the senior who tenders
a vote, whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders, and for this purpose seniority shall be
determined by the order in which the names stand in the Register in respect of
the joint holding.
65. A Shareholder who is a patient for any purpose of any statute or applicable
law relating to mental health or in respect of whom an order has been made by
any Court having jurisdiction for the protection or management of the affairs of
persons incapable of managing their own affairs may vote, whether on a show of
hands or on a poll, by his receiver, committee, curator bonis or other person in
the nature of a receiver, committee or curator bonis appointed by such Court and
such receiver, committee, curator bonis or other person may vote on a poll by
proxy, and may otherwise act and be treated as such Shareholder for the purpose
of general meetings.
66. No Shareholder shall, unless the Board otherwise determines, be entitled to
vote at any general meeting unless all calls or other sums presently payable by
him in respect of shares in the Company have been paid.
67. If;
(1) any objection shall be raised to the qualification of any voter; or,
(2) any votes have been counted which ought not to have been counted or
which might have been rejected; or,
(3) any votes are not counted which ought to have been counted,
the objection or error shall not vitiate the decision of the meeting or
adjourned meeting on any Resolution unless the same is raised or pointed out at
the meeting or, as the case may be, the adjourned meeting at which the vote
objected to is given or tendered or at which the error occurs. Any objection or
error shall be referred to the chairman of the meeting and shall only vitiate
the decision of the meeting on any Resolution if the chairman decides that the
same may have affected the decision of the meeting. The decision of the
chairman on such matters shall be final and conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
68. The instrument appointing a proxy shall be in writing under the hand of the
appointor or of his attorney authorised by him in writing or, if the appointor
is a corporation, either under its seal or under the hand of an officer,
attorney or other person authorised to sign the same.
69. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office a proxy or (if a
corporation) an authorisation and such proxy or authorisation shall be valid for
all general meetings and adjournments thereof or, Resolutions in writing, as the
case may be, until notice of revocation is received at the Registered Office.
Where a standing proxy or authorisation exists, its operation shall be deemed to
have been
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suspended at any general meeting or adjournment thereof at which the Shareholder
is present or in respect to which the Shareholder has specially appointed a
proxy or representative. The Board may from time to time require such evidence
as it shall deem necessary as to the due execution and continuing validity of
any such standing proxy or authorisation and the operation of any such standing
proxy or authorisation shall be deemed to be suspended until such time as the
Board determines that it has received the requested evidence or other evidence
satisfactory to it.
70. Subject to Bye-Law 69, the instrument appointing a proxy together with such
other evidence as to its due execution as the Board may from time to time
require, shall be delivered at the Registered Office (or at such place as may be
specified in the notice convening the meeting or in any notice of any
adjournment or, in either case or the case of a written Resolution, in any
document sent therewith) prior to the holding of the relevant meeting or
adjourned meeting at which the person named in the instrument proposes to vote
or, in the case of a poll taken subsequently to the date of a meeting or
adjourned meeting, before the time appointed for the taking of the poll, or, in
the case of a written Resolution, prior to the effective date of the written
Resolution and in default the instrument of proxy shall not be treated as valid.
71. Instruments of proxy shall be in any common form or in such other form as
the Board may approve and the Board may, if it thinks fit, send out with the
notice of any meeting or any written Resolution forms of instruments of proxy
for use at that meeting or in connection with that written Resolution. The
instrument of proxy shall be deemed to confer authority to demand or join in
demanding a poll and to vote on any amendment of a written Resolution or
amendment of a Resolution put to the meeting for which it is given as the proxy
thinks fit. The instrument of proxy shall unless the contrary is stated therein
be valid as well for any adjournment of the meeting as for the meeting to which
it relates.
72. A vote given in accordance with the terms of an instrument of proxy shall
be valid notwithstanding the previous death or unsoundness of mind of the
principal, or revocation of the instrument of proxy or of the authority under
which it was executed, provided that no intimation in writing of such death,
insanity or revocation shall have been received by the Company at the Registered
Office (or such other place as may be specified for the delivery of instruments
of proxy in the notice convening the meeting or other documents sent therewith)
one hour at least before the commencement of the meeting or adjourned meeting,
or the taking of the poll, or the day before the effective date of any written
Resolution at which the instrument of proxy is used.
73. Subject to the Companies Acts, the Board may at its discretion waive any of
the provisions of these Bye-Laws related to proxies or authorisations and, in
particular, may accept such verbal or other assurances as it thinks fit as to
the right of any person to attend and vote on behalf of any Shareholder at
general meetings or to sign written Resolutions.
APPOINTMENT AND REMOVAL OF DIRECTORS
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74. The number of Directors shall be such number not less than two as the
Company by Resolution may from time to time determine and, subject to the
Companies Acts and these Bye-Laws, the Directors shall serve until re-elected or
their successors are appointed at the next Annual General Meeting. All
Directors, upon election or appointment, must provide written acceptance of
their appointment, in such form as the Board may think fit, by notice in writing
to the Registered Office within thirty days of their appointment.
75. The Company shall at the Annual General Meeting and may by Resolution
determine the minimum and the maximum number of Directors and may by Resolution
determine that one or more vacancies in the Board shall be deemed casual
vacancies for the purposes of these Bye-Laws. Without prejudice to the power of
the Company by Resolution in pursuance of any of the provisions of these Bye-
Laws to appoint any person to be a Director, the Board, so long as a quorum of
Directors remains in office, shall have power at any time and from time to time
to appoint any individual to be a Director so as to fill a casual vacancy.
76. The Company may in a Special General Meeting called for that purpose remove
a Director provided notice of any such meeting shall be served upon the Director
concerned not less than 14 days before the meeting and he shall be entitled to
be heard at that meeting. Any vacancy created by the removal of a Director at a
Special General Meeting may be filled at the Meeting by the election of another
Director in his place or, in the absence of any such election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
77. The office of a Director shall be vacated upon the happening of any of the
following events:
(1) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
(2) if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the Board resolves
that his office is vacated;
(3) if he becomes bankrupt under the laws of any country or compounds with
his creditors;
(4) if he is prohibited by law from being a Director;
(5) if he ceases to be a Director by virtue of the Companies Acts or is
removed from office pursuant to these Bye-Laws.
ALTERNATE DIRECTORS
78. A Director may appoint and remove his own Alternate Director. Any
appointment or removal of an Alternate Director by a Director shall be effected
by depositing a notice of appointment or removal with the Secretary at the
Registered Office, signed by such Director, and such appointment or removal
shall become effective on the date of receipt by the Secretary. Any Alternate
Director may be removed by resolution of the Board. Subject as aforesaid, the
office of Alternate Director shall continue until the next annual election of
Directors or, if earlier, the date on which the relevant Director ceases to be a
Director. An Alternate Director may also be
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a Director in his own right and may act as alternate to more than one Director.
79. An Alternate Director shall be entitled to receive notices of all meetings
of Directors, to attend, be counted in the quorum and vote at any such meeting
at which any Director to whom he is alternate is not personally present, and
generally to perform all the functions of any Director to whom he is alternate
in his absence.
80. Every person acting as an Alternate Director shall (except as regards
powers to appoint an alternate and remuneration) be subject in all respects to
the provisions of these Bye-Laws relating to Directors and shall alone be
responsible to the Company for his acts and defaults and shall not be deemed to
be the agent of or for any Director for whom he is alternate. An Alternate
Director may be paid expenses and shall be entitled to be indemnified by the
Company to the same extent mutatis mutandis as if he were a Director. Every
person acting as an Alternate Director shall have one vote for each Director for
whom he acts as alternate (in addition to his own vote if he is also a
Director). The signature of an Alternate Director to any resolution in writing
of the Board or a committee of the Board shall, unless the terms of his
appointment provides to the contrary, be as effective as the signature of the
Director or Directors to whom he is alternate.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
81. The amount, if any, of Directors' fees shall from time to time be
determined by the Company by Resolution and in the absence of a determination to
the contrary such fees shall be deemed to accrue from day to day. Each Director
may be paid his reasonable travel, hotel and incidental expenses in attending
and returning from meetings of the Board or committees constituted pursuant to
these Bye-Laws or general meetings and shall be paid all expenses properly and
reasonably incurred by him in the conduct of the Company's business or in the
discharge of his duties as a Director. Any Director who, by request, goes or
resides abroad for any purposes of the Company or who performs services which in
the opinion of the Board go beyond the ordinary duties of a Director may be paid
such extra remuneration (whether by way of salary, commission, participation in
profits or otherwise) as the Board may determine, and such extra remuneration
shall be in addition to any remuneration provided for by or pursuant to any
other Bye-Law.
DIRECTORS' INTERESTS
82. (1) A Director may hold any other office or place of profit with the
Company (except that of auditor) in conjunction with his office of Director for
such period and upon such terms as the Board may determine, and may be paid such
extra remuneration therefor (whether by way of salary, commission, participation
in profits or otherwise) as the Board may determine, and such extra remuneration
shall be in addition to any remuneration provided for by or pursuant to any
other Bye-Law.
(2) A Director may act by himself or his firm in a professional capacity
for the Company (otherwise than as auditor) and he or his firm shall be entitled
to remuneration for professional services as if he were not a Director.
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(3) Subject to the provisions of the Companies Acts, a Director may
notwithstanding his office be a party to, or otherwise interested in, any
transaction or arrangement with the Company or in which the Company is otherwise
interested; and be a director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested in, any body
corporate promoted by the Company or in which the Company is interested. The
Board may also cause the voting power conferred by the shares in any other
company held or owned by the Company to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof in favour of any
resolution appointing the Directors or any of them to be directors or officers
of such other company, or voting or providing for the payment of remuneration to
the directors or officers of such other company.
(4) So long as, where it is necessary, he declares the nature of his
interest at the first opportunity at a meeting of the Board or by writing to the
Directors as required by the Companies Acts, a Director shall not by reason of
his office be accountable to the Company for any benefit which he derives from
any office or employment to which these Bye-Laws allow him to be appointed or
from any transaction or arrangement in which these Bye-Laws allow him to be
interested, and no such transaction or arrangement shall be liable to be avoided
on the ground of any interest or benefit.
(5) Subject to the Companies Acts and any further disclosure required
thereby, a general notice to the Directors by a Director or Officer declaring
that he is a director or officer or has an interest in a person and is to be
regarded as interested in any transaction or arrangement made with that person,
shall be a sufficient declaration of interest in relation to any transaction or
arrangement so made.
POWERS AND DUTIES OF THE BOARD
83. Subject to the provisions of the Companies Acts and these Bye-Laws and to
any directions given by the Company by Resolution, the Board shall manage the
business of the Company and may pay all expenses incurred in promoting and
incorporating the Company and may exercise all the powers of the Company. No
alteration of these Bye-Laws and no such direction shall invalidate any prior
act of the Board which would have been valid if that alteration had not been
made or that direction had not been given. The powers given by this Bye-Law
shall not be limited by any special power given to the Board by these Bye-Laws
and a meeting of the Board at which a quorum is present shall be competent to
exercise all the powers, authorities and discretions for the time being vested
in or exercisable by the Board.
84. The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and to issue debentures
and other securities, whether outright or as collateral security for any debt,
liability or obligation of the Company or of any other persons.
85. All cheques, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all receipts for
money paid to the Company shall be signed, drawn, accepted, endorsed or
otherwise executed, as the case may be, in such manner as the Board shall from
time to time by resolution determine.
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86. The Board on behalf of the Company may provide benefits, whether by the
payment of gratuities or pensions or otherwise, for any person including any
Director or former Director who has held any executive office or employment with
the Company or with any body corporate which is or has been a subsidiary or
affiliate of the Company or a predecessor in the business of the Company or of
any such subsidiary or affiliate, and to any member of his family or any person
who is or was dependent on him, and may contribute to any fund and pay premiums
for the purchase or provision of any such gratuity, pension or other benefit, or
for the insurance of any such person.
87. The Board may from time to time appoint one or more of its body to be a
managing director, joint managing director or an assistant managing director or
to hold any other employment or executive office with the Company for such
period and upon such terms as the Board may determine and may revoke or
terminate any such appointments. Any such revocation or termination as
aforesaid shall be without prejudice to any claim for damages that such Director
may have against the Company or the Company may have against such Director for
any breach of any contract of service between him and the Company which may be
involved in such revocation or termination. Any person so appointed shall
receive such remuneration (if any) (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine, and either in
addition to or in lieu of his remuneration as a Director.
DELEGATION OF THE BOARD'S POWERS
88. The Board may by power of attorney appoint any company, firm or person or
any fluctuating body of persons, whether nominated directly or indirectly by the
Board, to be the attorney or attorneys of the Company for such purposes and with
such powers, authorities and discretions (not exceeding those vested in or
exercisable by the Board under these Bye-Laws) and for such period and subject
to such conditions as it may think fit, and any such power of attorney may
contain such provisions for the protection and convenience of persons dealing
with any such attorney and of such attorney as the Board may think fit, and may
also authorise any such attorney to sub-delegate all or any of the powers,
authorities and discretions vested in him.
89. The Board may entrust to and confer upon any Director, Officer or, without
prejudice to the provisions of Bye-Law 90, other individual any of the powers
exercisable by it upon such terms and conditions with such restrictions as it
thinks fit, and either collaterally with, or to the exclusion of, its own
powers, and may from time to time revoke or vary all or any of such powers but
no person dealing in good faith and without notice of such revocation or
variation shall be affected thereby.
90. The Board may delegate any of its powers, authorities and discretions to
committees, consisting of such person or persons (whether a member or members of
its body or not) as it thinks fit. Any committee so formed shall, in the
exercise of the powers, authorities and discretions so delegated, and in
conducting its proceedings conform to any regulations which may be imposed upon
it by the Board. If no regulations are imposed by the Board the proceedings of
a committee with two or more members shall be, as far as is practicable,
governed by the Bye-Laws regulating the proceedings of the Board.
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PROCEEDINGS OF THE BOARD
91. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any meeting shall
be determined by a majority of votes. In the case of an equality of votes the
motion shall be deemed to have been lost. A Director may, and the Secretary on
the requisition of a Director shall, at any time summon a meeting of the Board.
92. Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent to him by
post, cable, telex, telecopier or other mode of representing or reproducing
words in a legible and non-transitory form at his last known address or any
other address given by him to the Company for this purpose. A Director may
retrospectively waive the requirement for notice of any meeting by consenting in
writing to the business conducted at the meeting.
93. (1) The quorum necessary for the transaction of the business of the Board
may be fixed by the Board and, unless so fixed at any other number, shall be two
individuals. Any Director who ceases to be a Director at a meeting of the Board
may continue to be present and to act as a Director and be counted in the quorum
until the termination of the meeting if no other Director objects and if
otherwise a quorum of Directors would not be present.
(2) A Director who to his knowledge is in any way, whether directly or
indirectly, interested in a contract or proposed contract, transaction or
arrangement with the Company and has complied with the provisions of the
Companies Acts and these Bye-Laws with regard to disclosure of his interest
shall be entitled to vote in respect of any contract, transaction or arrangement
in which he is so interested and if he shall do so his vote shall be counted,
and he shall be taken into account in ascertaining whether a quorum is present.
(3) The Resident Representative shall, upon delivering written notice of an
address for the purposes of receipt of notice, to the Registered Office, be
entitled to receive notice of, attend and be heard at, and to receive minutes of
all meetings of the Board.
94. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no such
quorum remains, the continuing Directors or a sole continuing Director may act
only for the purpose of calling a general meeting.
95. The Chairman (or President) or, in his absence, the Deputy Chairman (or
Vice-President), shall preside as chairman at every meeting of the Board. If at
any meeting the Chairman or Deputy Chairman (or the President or Vice-President)
is not present within five minutes after the time appointed for holding the
meeting, or is not willing to act as chairman, the Directors present may choose
one of their number to be chairman of the meeting.
96. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these Bye-Laws for
regulating the meetings and proceedings of the Board so far as the same are
applicable and are not superseded by any regulations imposed by the Board.
19
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97. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the members of a
committee for the time being shall be as valid and effectual as a resolution
passed at a meeting of the Board or, as the case may be, of such committee duly
called and constituted. Such resolution may be contained in one document or in
several documents in the like form each signed by one or more of the Directors
or members of the committee concerned.
98. A meeting of the Board or a committee appointed by the Board may be held by
means of such telephone, electronic or other communication facilities as permit
all persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
99. All acts done by the Board or by any committee or by any person acting as a
Director or member of a committee or any person duly authorised by the Board or
any committee, shall, notwithstanding that it is afterwards discovered that
there was some defect in the appointment of any member of the Board or such
committee or person acting as aforesaid or that they or any of them were
disqualified or had vacated their office, be as valid as if every such person
had been duly appointed and was qualified and had continued to be a Director,
member of such committee or person so authorised.
OFFICERS
100. The Officers of the Company shall include a President and a Vice-President
or a Chairman and a Deputy Chairman who shall be Directors and shall be elected
by the Board as soon as possible after the statutory meeting and each Annual
General Meeting. In addition, the Board may appoint any person whether or not
he is a Director to hold such office as the Board may from time to time
determine. Any person elected or appointed pursuant to this Bye-Law shall hold
office for such period and upon such terms as the Board may determine and the
Board may revoke or terminate any such election or appointment. Any such
revocation or termination shall be without prejudice to any claim for damages
that such Officer may have against the Company or the Company may have against
such Officer for any breach of any contract of service between him and the
Company which may be involved in such revocation or termination. Save as
provided in the Companies Acts or these Bye-Laws, the powers and duties of the
Officers of the Company shall be such (if any) as are determined from time to
time by the Board.
MINUTES
101. The Board shall cause minutes to be made and books kept for the purpose of
recording -
(1) all appointments of Officers made by the Board;
(2) the names of the Directors and other persons (if any) present at each
meeting of the Board and of any committee;
(3) of all proceedings at meetings of the Company, of the holders of any
class of shares in the Company, of the Board and of committees appointed by the
Board or the Shareholders;
20
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(4) of all proceedings of its managers (if any).
Shareholders shall only be entitled to see the Register of Directors and
Officers, the Register, the financial information provided for in Bye-Law 118
and the minutes of meetings of the Shareholders of the Company.
SECRETARY AND RESIDENT REPRESENTATIVE
102. The Secretary (including one or more deputy or assistant secretaries) and,
if required, the Resident Representative, shall be appointed by the Board at
such remuneration (if any) and upon such terms as it may think fit and any
Secretary and Resident Representative so appointed may be removed by the Board.
The duties of the Secretary and the duties of the Resident Representative shall
be those prescribed by the Companies Acts together with such other duties as
shall from time to time be prescribed by the Board.
103. A provision of the Companies Acts or these Bye-Laws requiring or
authorising a thing to be done by or to a Director and the Secretary shall not
be satisfied by its being done by or to the same person acting both as Director
and as, or in the place of, the Secretary.
THE SEAL
104. (1) The Seal shall consist of a circular metal device with the name of the
Company around the outer margin thereof and the country and year of
incorporation across the centre thereof. Should the Seal not have been received
at the Registered Office in such form at the date of adoption of this Bye-Law
then, pending such receipt, any document requiring to be sealed with the Seal
shall be sealed by affixing a red wafer seal to the document with the name of
the Company, and the country and year of incorporation type written across the
centre thereof.
(2) The Board shall provide for the custody of every Seal. A Seal shall
only be used by authority of the Board or of a committee constituted by the
Board. Subject to these Bye-laws, any instrument to which a Seal is affixed
shall be signed by either two Directors, or by the Secretary and one Director,
or by the Secretary or by any one person whether or not a Director or Officer,
who has been authorised either generally or specifically to affirm the use of a
Seal; provided that the Secretary or a Director may affix a Seal over his
signature alone to authenticate copies of these Bye-Laws, the minutes of any
meeting or any other documents requiring authentication
DIVIDENDS AND OTHER PAYMENTS
105. The Board may from time to time declare dividends or distributions out of
contributed surplus to be paid to the Shareholders according to their rights and
interests including such interim dividends as appear to the Board to be
justified by the position of the Company. The Board, in its discretion, may
determine that any dividend shall be paid in cash or shall be satisfied, subject
to Bye-Law 113, in paying up in full shares in the Company to be issued to the
Shareholders credited as fully paid or partly paid or partly in one way and
partly the other. The Board may also pay any fixed cash dividend which is
payable on any shares of the Company half yearly or on such other dates,
whenever the position of the Company, in the opinion of the
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Board, justifies such payment.
106. Except insofar as the rights attaching to, or the terms of issue of, any
share otherwise provide:-
(1) all dividends or distributions out of contributed surplus may be
declared and paid according to the amounts paid up on the shares in respect of
which the dividend or distribution is paid, and an amount paid up on a share in
advance of calls may be treated for the purpose of this Bye-Law as paid-up on
the share;
(2) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts paid-up on the shares
during any portion or portions of the period in respect of which the dividend or
distribution is paid.
107. The Board may deduct from any dividend, distribution or other moneys
payable to a Shareholder by the Company on or in respect of any shares all sums
of money (if any) presently payable by him to the Company on account of calls or
otherwise in respect of shares of the Company.
108. No dividend, distribution or other moneys payable by the Company on or in
respect of any share shall bear interest against the Company.
109. Any dividend, distribution or interest, or part thereof payable in cash,
or any other sum payable in cash to the holder of shares may be paid by cheque
or warrant sent through the post addressed to the holder at his address in the
Register or, in the case of joint holders, addressed to the holder whose name
stands first in the Register in respect of the shares at his registered address
as appearing in the Register or addressed to such person at such address as the
holder or joint holders may in writing direct. Every such cheque or warrant
shall, unless the holder or joint holders otherwise direct, be made payable to
the order of the holder or, in the case of joint holders, to the order of the
holder whose name stands first in the Register in respect of such shares, and
shall be sent at his or their risk and payment of the cheque or warrant by the
bank on which it is drawn shall constitute a good discharge to the Company. Any
one of two or more joint holders may give effectual receipts for any dividends,
distributions or other moneys payable or property distributable in respect of
the shares held by such joint holders.
110. Any dividend or distribution out of contributed surplus unclaimed for a
period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the payment
by the Board of any unclaimed dividend, distribution, interest or other sum
payable on or in respect of the share into a separate account shall not
constitute the Company a trustee in respect thereof.
111. The Board may also, in addition to its other powers, direct payment or
satisfaction of any dividend or distribution out of contributed surplus wholly
or in part by the distribution of specific assets, and in particular of paid-up
shares or debentures of any other company, and where any difficulty arises in
regard to such distribution or dividend the Board may settle it as it thinks
expedient, and in particular, may authorise any person to sell and transfer any
fractions or may ignore fractions altogether, and may fix the value for
distribution or dividend purposes of any
22
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such specific assets and may determine that cash payments shall be made to any
Shareholders upon the footing of the values so fixed in order to secure equality
of distribution and may vest any such specific assets in trustees as may seem
expedient to the Board provided that such dividend or distribution may not be
satisfied by the distribution of any partly paid shares or debentures of any
company without the sanction of a Resolution.
RESERVES
112. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks proper
as reserves which shall, at the discretion of the Board, be applicable for any
purpose of the Company and pending such application may, also at such
discretion, either be employed in the business of the Company or be invested in
such investments as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any sums which it may
think it prudent not to distribute.
CAPITALIZATION OF PROFITS
113. The Board may, from time to time resolve to capitalise all or any part of
any amount for the time being standing to the credit of any reserve or fund
which is available for distribution or to the credit of any share premium
account and accordingly that such amount be set free for distribution amongst
the Shareholders or any class of Shareholders who would be entitled thereto if
distributed by way of dividend and in the same proportions, on the footing that
the same be not paid in cash but be applied either in or towards paying up
amounts for the time being unpaid on any shares in the Company held by such
Shareholders respectively or in payment up in full of unissued shares,
debentures or other obligations of the Company, to be allotted and distributed
credited as fully paid amongst such Shareholders, or partly in one way and
partly in the other, provided that for the purpose of this Bye-Law, a share
premium account may be applied only in paying up of unissued shares to be issued
to such Shareholders credited as fully paid and provided further that any sum
standing to the credit of a share premium account may only be applied in
crediting as fully paid shares of the same class as that from which the relevant
share premium was derived.
114. Where any difficulty arises in regard to any distribution under the last
preceding Bye-Law, the Board may settle the same as it thinks expedient and, in
particular, may authorise any person to sell and transfer any fractions or may
resolve that the distribution should be as nearly as may be practicable in the
correct proportion but not exactly so or may ignore fractions altogether, and
may determine that cash payments should be made to any Shareholders in order to
adjust the rights of all parties, as may seem expedient to the Board. The Board
may appoint any person to sign on behalf of the persons entitled to participate
in the distribution any contract necessary or desirable for giving effect
thereto and such appointment shall be effective and binding upon the
Shareholders.
RECORD DATES
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115. Notwithstanding any other provisions of these Bye-Laws, the Company may by
Resolution or the Board may fix any date as the record date for any dividend,
distribution, allotment or issue and for the purpose of identifying the persons
entitled to receive notices of general meetings. Any such record date may be on
or at any time before or after any date on which such dividend, distribution,
allotment or issue is declared, paid or made or such notice is despatched.
ACCOUNTING RECORDS
116. The Board shall cause to be kept accounting records sufficient to give a
true and fair view of the state of the Company's affairs and to show and explain
its transactions, in accordance with the Companies Acts.
117. The records of account shall be kept at the Registered Office or at such
other place or places as the Board thinks fit, and shall at all times be open to
inspection by the Directors: PROVIDED that if the records of account are kept at
some place outside Bermuda, there shall be kept at an office of the Company in
Bermuda such records as will enable the Directors to ascertain with reasonable
accuracy the financial position of the Company at the end of each three month
period. No Shareholder (other than an Officer of the Company) shall have any
right to inspect any accounting record or book or document of the Company except
as conferred by law or authorised by the Board or by Resolution.
118. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which is to be
laid before the Company in general meeting, together with a copy of the
auditors' report, shall be sent to each person entitled thereto in accordance
with the requirements of the Companies Acts.
AUDIT
119. Save and to the extent that an audit is waived in the manner permitted by
the Companies Acts, auditors shall be appointed and their duties regulated in
accordance with the Companies Acts, any other applicable law and such
requirements not inconsistent with the Companies Acts as the Board may from time
to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
120. Any notice or other document (including a share certificate) may be served
on or delivered to any Shareholder by the Company either personally or by
sending it through the post (by airmail where applicable) in a pre-paid letter
addressed to such Shareholder at his address as appearing in the Register or by
delivering it to or leaving it at such registered address. In the case of joint
holders of a share, service or delivery of any notice or other document on or to
one of the joint holders shall for all purposes be deemed as sufficient service
on or delivery to all the joint holders. Any notice or other document if sent
by post shall be deemed to have been served or delivered seven days after it was
put in the post, and in proving such service or delivery, it shall be sufficient
to prove that the notice or document was properly addressed, stamped and put in
the post.
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121. Any notice of a general meeting of the Company shall be deemed to be duly
given to a Shareholder, or other person entitled to it, if it is sent to him by
cable, telex, telecopier or other mode of representing or reproducing words in a
legible and non-transitory form at his address as appearing in the Register or
any other address given by him to the Company for this purpose. Any such notice
shall be deemed to have been served twenty-four hours after its despatch.
122. Any notice or other document delivered, sent or given to a Shareholder in
any manner permitted by these Bye-Laws shall, notwithstanding that such
Shareholder is then dead or bankrupt or that any other event has occurred, and
whether or not the Company has notice of the death or bankruptcy or other event,
be deemed to have been duly served or delivered in respect of any share
registered in the name of such Shareholder as sole or joint holder unless his
name shall, at the time of the service or delivery of the notice or document,
have been removed from the Register as the holder of the share, and such service
or delivery shall for all purposes be deemed as sufficient service or delivery
of such notice or document on all persons interested (whether jointly with or as
claiming through or under him) in the share.
WINDING UP
123. If the Company shall be wound up, the liquidator may, with the sanction of
a Resolution of the Company and any other sanction required by the Companies
Acts, divide amongst the Shareholders in specie or kind the whole or any part of
the assets of the Company (whether they shall consist of property of the same
kind or not) and may for such purposes set such values as he deems fair upon any
property to be divided as aforesaid and may determine how such division shall be
carried out as between the Shareholders or different classes of Shareholders.
The liquidator may, with the like sanction, vest the whole or any part of such
assets in trustees upon such trust for the benefit of the contributories as the
liquidator, with the like sanction, shall think fit, but so that no Shareholder
shall be compelled to accept any shares or other assets upon which there is any
liability.
INDEMNITY
124. Subject to the proviso below, every Director, Officer of the Company and
member of a committee constituted under Bye-Law 90 and any Resident
Representative shall be indemnified out of the funds of the Company against all
liabilities, loss, damage or expense (including but not limited to liabilities
under contract, tort and statute or any applicable foreign law or regulation and
all reasonable legal and other costs and expenses properly payable) incurred or
suffered by him as such Director, Officer, committee member or Resident
Representative and the indemnity contained in this Bye-Law shall extend to any
person acting as a Director, Officer, committee member or Resident
Representative in the reasonable belief that he has been so appointed or elected
notwithstanding any defect in such appointment or election PROVIDED ALWAYS that
the indemnity contained in this Bye-Law shall not extend to any matter which
would render it void pursuant to the Companies Acts.
125. Every Director, Officer, member of a committee duly constituted under Bye-
Law 90 or Resident Representative of the Company shall be indemnified out of the
funds of the Company
25
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against all liabilities incurred by him as such Director, Officer, committee
member or Resident Representative in defending any proceedings, whether civil or
criminal, in which judgement is given in his favour, or in which he is
acquitted, or in connection with any application under the Companies Acts in
which relief from liability is granted to him by the court.
126. To the extent that any Director, Officer, member of a committee duly
constituted under Bye-Law 90 or Resident Representative is entitled to claim an
indemnity pursuant to these Bye-Laws in respect of amounts paid or discharged by
him, the relative indemnity shall take effect as an obligation of the Company to
reimburse the person making such payment or effecting such discharge.
127. Each Shareholder and the Company agree to waive any claim or right of
action he or it may at any time have, whether individually or by or in the right
of the Company, against any Director, Officer, or member of a committee duly
constituted under Bye-Law 90 on account of any action taken by such Director,
Officer, or member of a committee or the failure of such Director, Officer, or
member of a committee to take any action in the performance of his duties with
or for the Company PROVIDED HOWEVER that such waiver shall not apply to any
claims or rights of action arising out of the fraud of such Director, Officer,
or member of a committee duly constituted under Bye-Law 90 or to recover any
gain, personal profit or advantage to which such Director, Officer, or member of
a committee duly constituted under Bye-Law 90 is not legally entitled.
Subject to the Companies Acts, expenses incurred in defending any civil or
criminal action or proceeding for which indemnification is required pursuant to
Bye-Laws 124 and 125 shall be paid by the Company in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified pursuant
to Bye-Laws 124 and 125.
Each Shareholder of the Company, by virtue of its acquisition and continued
holding of a share, shall be deemed to have acknowledged and agreed that the
advances of funds may be made by the Company as aforesaid, and when made by the
Company under this Bye-Law 128 are made to meet expenditures incurred for the
purpose of enabling such Director, Officer, or member of a committee duly
constituted under Bye-Law 90 to properly perform his or her duties as an officer
of the Company.
AMALGAMATION
129. Any resolution proposed for consideration at any general meeting to approve
the amalgamation of the Company with any other company, wherever incorporated,
shall require the approval of a simple majority of votes cast at such meeting
and the quorum for such meeting shall be that required in Bye-Law 49 and a poll
may be demanded in respect of such resolution in accordance with the provisions
of Bye-Law 57.
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CONTINUATION
130. Subject to the Companies Act, the Board may approve the discontinuation of
the Company in Bermuda and the continuation of the Company in a jurisdiction
outside Bermuda. The Board, having resolved to approve the discontinuation of
the Company, may further resolve not to proceed with any application to
discontinue the Company in Bermuda or may vary such application as it sees fit.
ALTERATION OF BYE-LAWS
131. These Bye-Laws may be amended from time to time in the manner provided for
in the Companies Acts.
27
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EXHIBIT 4.2
EXECUTION COPY
================================================================================
GLOBAL CROSSING HOLDINGS LTD.
$800,000,000
SERIES A AND SERIES B
9-5/8% SENIOR NOTES DUE 2008
INDENTURE
------------------------------
Dated as of May 18, 1998
------------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
______________
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310 (a)(1)................................................. 7.10
(a)(2)..................................................... 7.10
(a)(3)..................................................... N.A.
(a)(4)..................................................... N.A.
(a)(5)..................................................... 7.10
(b)........................................................ 7.10
(c)........................................................ N.A.
311(a)..................................................... 7.11
(b)........................................................ 7.11
(i)(c)..................................................... N.A.
312 (a).................................................... 2.05
(b)........................................................ 12.03
(c)........................................................ 12.03
313(a)..................................................... 7.06
(b)(2)..................................................... 7.07
(c)........................................................ 7.06; 12.02
(d)........................................................ 7.06
314(a)..................................................... 4.03; 12.02
(c)(1)..................................................... 12.04
(c)(2)..................................................... 12.04
(c)(3)..................................................... N.A.
(e)........................................................ 12.05
(f)........................................................ N.A.
315 (a).................................................... 7.01
(b)........................................................ 7.05; 12.02
(A)(c)..................................................... 7.01
(d)........................................................ 7.01
(e)........................................................ 6.11
316 (a)(last sentence)..................................... 2.09
(a)(1)(A).................................................. 6.05
(a)(1)(B).................................................. 6.04
(a)(2)..................................................... N.A.
(b)........................................................ 6.07
(c)........................................................ 2.12
317 (a)(1)................................................. 6.08
(a)(2)..................................................... 6.09
(b)........................................................ 2.04
318 (a).................................................... 12.01
(b)........................................................ N.A.
(c)........................................................ 12.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE........................................1
Section 1.01. Definitions.................................................................1
Section 1.02. Other Definitions..........................................................18
Section 1.03. Trust Indenture Act Definitions............................................19
Section 1.04. Rules of Construction......................................................19
ARTICLE 2. THE NOTES........................................................................19
Section 2.01. Form and Dating............................................................19
Section 2.02. Execution and Authentication...............................................21
Section 2.03. Registrar and Paying Agent.................................................21
Section 2.04. Paying Agent to Hold Money in Trust........................................22
Section 2.05. Holder Lists...............................................................22
Section 2.06. Transfer and Exchange......................................................22
Section 2.07. Replacement Notes..........................................................34
Section 2.08. Outstanding Notes..........................................................34
Section 2.09. Treasury Notes.............................................................35
Section 2.10. Temporary Notes............................................................35
Section 2.11. Cancellation...............................................................35
Section 2.12. Defaulted Interest.........................................................35
Section 2.13. CUSIP Numbers..............................................................36
ARTICLE 3. REDEMPTION AND PREPAYMENT........................................................36
Section 3.01. Notices to Trustee.........................................................36
Section 3.02. Selection of Notes to Be Redeemed..........................................36
</TABLE>
I
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<TABLE>
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Section 3.03. Notice of Redemption.......................................................36
Section 3.04. Effect of Notice of Redemption.............................................37
Section 3.05. Deposit of Redemption Price................................................37
Section 3.06. Notes Redeemed in Part.....................................................38
Section 3.07. Optional Redemption........................................................38
Section 3.08. Optional Tax Redemption....................................................39
Section 3.09. Payment of Additional Amounts..............................................39
Section 3.10. Mandatory Redemption.......................................................41
Section 3.11. Offer to Purchase by Application of Excess Proceeds........................41
ARTICLE 4. COVENANTS........................................................................43
Section 4.01. Payment of Notes...........................................................43
Section 4.02. Maintenance of Office or Agency............................................43
Section 4.03. Reports....................................................................44
Section 4.04. Compliance Certificate.....................................................44
Section 4.05. Taxes......................................................................45
Section 4.06. Stay, Extension and Usury Laws.............................................45
Section 4.07. Restricted Payments........................................................45
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries................................................................48
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.................49
Section 4.10. Asset Sales................................................................52
Section 4.11. Transactions with Affiliates...............................................53
Section 4.12. Liens......................................................................54
Section 4.13. Sale and Leaseback Transactions..........................................54
Section 4.14. Corporate Existence........................................................54
</TABLE>
II
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<TABLE>
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Section 4.15. Offer to Repurchase Upon Change of Control.................................54
Section 4.16. Business Activities........................................................55
Section 4.17. Future AC Subsidiary Guarantees............................................55
Section 4.18. Additional Restricted Subsidiary Guarantees................................56
Section 4.19. Issuances and Sales of Equity Interests in Wholly Owned Restricted
Subsidiaries................................................................56
Section 4.20. Payments For Consent.......................................................56
Section 4.21. Money for Payments to Be Held In Trust.....................................56
ARTICLE 5. SUCCESSORS.......................................................................58
Section 5.01. Merger, Consolidation, or Sale of Assets...................................58
Section 5.02. Successor Corporation Substituted..........................................58
ARTICLE 6. DEFAULTS AND REMEDIES............................................................59
Section 6.01. Events of Default..........................................................59
Section 6.02. Acceleration...............................................................60
Section 6.03. Other Remedies.............................................................61
Section 6.04. Waiver of Past Defaults....................................................61
Section 6.05. Control by Majority........................................................61
Section 6.06. Limitation on Suits........................................................61
Section 6.07. Rights of Holders of Notes to Receive Payment..............................62
Section 6.08. Collection Suit by Trustee.................................................62
Section 6.09. Trustee May File Proofs of Claim...........................................62
Section 6.10. Priorities.................................................................63
Section 6.11. Undertaking for Costs......................................................63
ARTICLE 7. TRUSTEE..........................................................................63
Section 7.01. Duties of Trustee..........................................................63
</TABLE>
III
<PAGE>
<TABLE>
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Section 7.02. Rights of Trustee..........................................................64
Section 7.03. Individual Rights of Trustee...............................................65
Section 7.04. Trustee's Disclaimer.......................................................65
Section 7.05. Notice of Defaults.........................................................65
Section 7.06. Reports by Trustee to Holders of the Notes.................................65
Section 7.07. Compensation and Indemnity.................................................66
Section 7.08. Replacement of Trustee.....................................................67
Section 7.09. Successor Trustee by Merger, etc...........................................67
Section 7.10. Eligibility; Disqualification..............................................68
Section 7.11. Preferential Collection of Claims Against Company..........................68
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.........................................68
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance...................68
Section 8.02. Legal Defeasance and Discharge.............................................68
Section 8.03. Covenant Defeasance........................................................69
Section 8.04. Conditions to Legal or Covenant Defeasance.................................69
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions....................................................70
Section 8.06. Repayment to Company.......................................................71
Section 8.07. Reinstatement..............................................................71
Section 8.08. Survival...................................................................71
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.................................................72
Section 9.01. Without Consent of Holders of Notes........................................72
Section 9.02. With Consent of Holders of Notes...........................................72
Section 9.03. Compliance with Trust Indenture Act........................................74
Section 9.04. Revocation and Effect of Consents..........................................74
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IV
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Section 9.05. Notation on or Exchange of Notes...........................................74
Section 9.06. Trustee to Sign Amendments, etc............................................74
ARTICLE 10. GUARANTEES......................................................................75
Section 10.01. Guarantee.................................................................75
Section 10.02. Limitation on Guarantor Liability.........................................76
Section 10.03. Execution and Delivery of Guarantee.......................................76
Section 10.04. Guarantors May Consolidate, etc., on Certain Terms........................76
Section 10.05. Releases Following Sale of Assets.........................................77
ARTICLE 11. SATISFACTION AND DISCHARGE......................................................78
Section 11.01. Satisfaction and Discharge of Indenture...................................78
Section 11.02. Application of Trust Money................................................78
ARTICLE 12. MISCELLANEOUS...................................................................79
Section 12.01. Trust Indenture Act Controls..............................................79
Section 12.02. Notices...................................................................79
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.............80
Section 12.04. Certificate and Opinion as to Conditions Precedent........................80
Section 12.05. Statements Required in Certificate or Opinion.............................81
Section 12.06. Rules by Trustee and Agents...............................................81
Section 12.07. No Personal Liability of Directors, Officers, Employees and
Shareholders................................................................81
Section 12.08. Governing Law.............................................................81
Section 12.09. Currency Indemnity........................................................82
Section 12.10. Consent to Jurisdiction and Service.......................................82
Section 12.11. No Adverse Interpretation of Other Agreements.............................83
Section 12.12. Successors................................................................83
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Section 12.13. Severability..............................................................83
Section 12.14. Counterpart Originals.....................................................83
Section 12.15. Table of Contents, Headings, etc..........................................83
</TABLE>
EXHIBITS
Exhibit A-1 FORM OF NOTE
Exhibit A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
Exhibit E FORM OF NOTATION OF GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
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INDENTURE dated as of May 18, 1998 by and among Global Crossing
Holdings Ltd., a Bermuda company (the "Company"), the Guarantors (as herein
defined) and United States Trust Company of New York, as trustee (the
"Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 9-5/8% Series A Senior Notes due 2008 (the "Series A Notes") and the 9-5/8%
Series B Senior Notes due 2008 (the "Series B Notes" and, together with the
Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"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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"Agent" means any Registrar, Paying Agent or co-registrar.
"all or substantially all" shall have the meaning given such phrase in
the Revised Model Business Corporation Act.
"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 in Section 3.07 hereof) 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 and such Redemption Rate plus
50 basis points over (B) the principal amount of such Note, if greater.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and CEDEL that apply to such transfer or
exchange.
"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 shall be governed by the provisions
of Section 5.01 hereof and not by the provisions of Section 4.10 hereof), 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 Section 4.07 hereof, (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).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law or any similar provisions of Bermuda law for the relief of debtors.
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"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.
"Business Day" means any day other than a Legal Holiday.
"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 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.
"CEDEL" means CEDEL Bank, SA.
"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)
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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.
"Company" means Global Crossing Holdings Ltd., and any and all
successors thereto.
"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
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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,
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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, (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 twelve
months after the acquisition of such business) subsequent to the date hereof 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.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
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"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.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
-----------
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"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 Section 4.07 hereof.
"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.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Series B Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
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"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the AC-1 Credit Facility)
in existence on the date hereof, 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 hereof.
"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 this 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 Series A Notes and the Series B 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.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A-1 or A-2 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
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2.06(d)(ii) or 2.06(f) hereof.
"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
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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) GCL (until such time, if any, 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), New GCL, GTH, Global Crossing International, Ltd., Global
Crossing Holdings U.K. Ltd., Global Crossing Marketing U.K. Ltd., Global
Crossing Development Co. 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 this Indenture, and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under any Interest Rate Agreement or Currency
Agreement.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note in the form of Exhibit A-1
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hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"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.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"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.
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"Initial Purchaser" shall have the meaning assigned to such term in
the Offering Memorandum.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"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 Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"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.
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"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 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.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum, dated May 13,
1998, pursuant to which the Series A Notes were offered and sold.
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"Officer" means, with respect to the Company or any Guarantor, any Co-
Chairman of the Board, President, Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, Senior Vice President, Vice President,
Treasurer or Secretary of such Person.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"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.
"Participant" means, with respect to the Depositary, Euroclear or
CEDEL, a Person who has an account with the Depositary, Euroclear or CEDEL,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and CEDEL).
"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 hereof.
"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) 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 Section 4.10 hereof; (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 Section 4.09 hereof 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
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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 hereof; (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.
"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.
"Preferred Stock," of any person, means Capital Stock of such Person
of any class or series (however designated) that ranks prior, as to payment of
dividends or as to the distribution of assets
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<PAGE>
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class or series of such Person.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"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.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"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.
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"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 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 under Section 4.07
hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
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Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
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deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
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"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary. As of the date hereof,
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.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"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 Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Special Interest" means all special interest then owing pursuant to
Section 5 of the Registration Rights Agreement.
"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).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
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"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.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note in the form
of Exhibit A-1 attached hereto that bears the Global Note Legend and that has
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the "Schedule of Exchanges of Interests in the Global Note" attached thereto,
and that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"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 under Section 4.07 hereof. 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 this 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 Section 4.09 hereof, 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 Section 4.09 hereof,
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 hereof,
all of the PC-1 Subsidiaries, MAC Subsidiaries and PAC Subsidiaries are
Unrestricted Subsidiaries.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
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"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.
Section 1.02. Other Definitions.
Defined in
Term Section
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"Additional Amounts" 3.09
"Affiliate Transaction" 4.11
"Asset Sale Offer" 4.10
"Authentication Order" 2.02
"Change in Tax Law" 3.08
"Change of Control Offer" 4.15
"Change of Control Payment" 4.15
"Change of Control Payment Date" 4.15
"Covenant Defeasance" 8.03
"Designation" 4.07
"Event of Default" 6.01
"Excess Proceeds" 4.10
"incur" 4.09
"Legal Defeasance" 8.02
"Offer Amount" 3.11
"Offer Period" 3.11
"Paying Agent" 2.03
"Permitted Indebtedness" 4.09
"Purchase Date" 3.11
"Redemption Date" 3.07
"Registrar" 2.03
"Restricted Payments" 4.07
"Revocation" 4.07
18
<PAGE>
Section 1.03. Trust Indenture Act Definitions
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating.
(a) General.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibits A-1 and A-2 hereto. The Notes may have
------------ ---
notations, legends or endorsements required
19
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by law, stock exchange rule or usage or agreements to which the Company is
subject. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) Global Notes.
Notes issued in global form shall be substantially in the form of
Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon
- ------------ ---
and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A-1 attached hereto (but without the Global Note Legend thereon and
- -----------
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the Note
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
(c) Temporary Global Notes.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, at its New York office, as custodian for the Depositary, and registered
in the name of the Depositary or the nominee of the Depositary for the accounts
of designated agents holding on behalf of Euroclear or CEDEL Bank, duly executed
by the Company and authenticated by the Trustee as hereinafter provided. The
Restricted Period shall be terminated upon the receipt by the Trustee of (i) a
written certificate from the Depositary, together with copies of certificates
from Euroclear and CEDEL Bank certifying that they have received certification
of non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Note (except to the extent of any
beneficial owners thereof who acquired an interest therein during the Restricted
Period pursuant to another exemption from registration under the Securities Act
and who will take delivery of a beneficial ownership interest in a 144A Global
Note or an IAI Global Note bearing a Private Placement Legend, all as
contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate
from the Company. Following the termination of the Restricted Period,
beneficial interests in the Regulation S Temporary Global Note shall be
exchanged for beneficial interests in Regulation S Permanent Global Notes
pursuant to the Applicable Procedures. Simultaneously with the authentication
of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation
S Temporary Global Note. The aggregate principal amount of the Regulation S
Temporary Global Note and the Regulation S Permanent Global Notes may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee, as the case may be, in connection
with transfers of interest as hereinafter provided.
20
<PAGE>
(d) Euroclear and CEDEL Procedures Applicable.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of CEDEL Bank" and "Customer Handbook" of CEDEL Bank shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Note and the Regulation S Permanent Global Notes that are held by
Participants through Euroclear or CEDEL Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers (an "Authentication Order"), authenticate Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture. If the Company fails to appoint or maintain another entity
as Registrar or Paying Agent, the Trustee shall act as such. The Company or any
of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
21
<PAGE>
The Trustee is authorized to enter into a letter of representations
with DTC in the form provided to the Trustee by the Company and to act in
accordance with such letter.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Special Interest, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes.
A Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary, by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, the Depositary or any such
nominee to a successor Depositary or a nominee of such successor Depositary.
All Global Notes will be exchanged by the Company for Definitive Notes if (i)
the Company delivers to the Trustee notice from the Depositary that it is
unwilling or unable to continue to act as Depositary or that it is no longer a
clearing agency registered under the Exchange Act and, in either case, a
successor Depositary is not appointed by the Company within 120 days after the
date of such notice from the Depositary or (ii) the Company in its sole
discretion determines that the Global Notes (in whole but not in part) should be
exchanged for Definitive Notes and delivers a written notice to such effect to
the Trustee; provided that in no event shall the Regulation S Temporary Global
Note be exchanged by the Company for Definitive Notes prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of any
certificates determined by the Company to be required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be
22
<PAGE>
exchanged for another Note other than as provided in this Section 2.06(a),
however, beneficial interests in a Global Note may be transferred and exchanged
as provided in Section 2.06(b),(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note. Beneficial
interests in any Restricted Global Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in the same Restricted
Global Note in accordance with the transfer restrictions set forth in the
Private Placement Legend; provided, however, that prior to the expiration of
the Restricted Period, transfers of beneficial interests in the Temporary
Regulation S Global Note may not be made to a U.S. Person or for the account
or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial
interests in any Unrestricted Global Note may be transferred to Persons who
take delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note. No written orders or instructions shall be required to be
delivered to the Registrar to effect the transfers described in this Section
2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in Global
Notes. In connection with all transfers and exchanges of beneficial interests
that are not subject to Section 2.06(b)(i) above, the transferor of such
beneficial interest must deliver to the Depositary either (A) (1) a written
order from a Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to credit
or cause to be credited a beneficial interest in another Global Note in an
amount equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures containing
information regarding the Participant account to be credited with such
increase or (B) (1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a Definitive Note in
an amount equal to the beneficial interest to be transferred or exchanged and
(2) instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Definitive Note shall be
registered to effect the transfer or exchange referred to in (1) above,
provided that in no event shall Definitive Notes be issued upon the transfer
or exchange of beneficial interests in the Regulation S Temporary Global Note
prior to (x) the expiration of the Restricted Period and (y) the receipt by
the Registrar of any certificates determined by the Company to be required
pursuant to Rule 903 under the Securities Act. Upon consummation of an
Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the
requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in the
Letter of Transmittal delivered by the Holder of such beneficial interests in
the Restricted Global Notes. Upon satisfaction of all of the requirements for
transfer or exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities Act, the
Trustee shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h) hereof.
23
<PAGE>
(iii) Transfer of Beneficial Interests to Another Restricted Global Note.
A beneficial interest in any Restricted Global Note may be transferred to a
Person who takes delivery thereof in the form of a beneficial interest in
another Restricted Global Note if the transfer complies with the requirements
of Section 2.06(b)(ii) above and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial
interest in the 144A Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the certifications
---------
in item (1) thereof;
(B) if the transferee will take delivery in the form of a beneficial
interest in the Regulation S Temporary Global Note or the Regulation S
Global Note, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (2) thereof;
---------
and
(C) if the transferee will take delivery in the form of a beneficial
interest in the IAI Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the certifications
---------
and certificates and Opinion of Counsel required by item (3) thereof, if
applicable.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted Global
Note for Beneficial Interests in the Unrestricted Global Note. A beneficial
interest in any Restricted Global Note may be exchanged by any holder thereof
for a beneficial interest in an Unrestricted Global Note or transferred to a
Person who takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note if the exchange or transfer complies with the
requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the holder
of the beneficial interest to be transferred, in the case of an exchange,
or the transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal or via the Depositary's book-entry system that it
is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Restricted Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a certificate from such holder in
the form of Exhibit C hereto, including the certifications in item (1)(a)
---------
thereof; or
24
<PAGE>
(2) if the holder of such beneficial interest in a Restricted Global
Note proposes to transfer such beneficial interest to a Person who shall
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
---------
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Restricted Definitive Note, then, upon
receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Restricted
Definitive Note, a certificate from such holder in the form of Exhibit C
---------
hereto, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S.
Person in an offshore transaction in accordance with Rule 903 or Rule
904, a certificate to the effect set forth in Exhibit B hereto, including
---------
the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an
exemption from the registration requirements of the Securities Act in
accordance with Rule 144, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a) thereof;
25
<PAGE>
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed
in subparagraphs (B) through (D) above, a certificate to the effect set
forth in Exhibit B hereto, including the certifications, certificates and
---------
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the Company or
any of its Subsidiaries, a certificate to the effect set forth in Exhibit
-------
B hereto, including the certifications in item (3)(b) thereof; or
-
(G) if such beneficial interest is being transferred pursuant to an
effective registration statement under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the certifications
---------
in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
make available for delivery such Definitive Notes to the Persons in whose
names such Notes are so registered. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c)(i) shall bear the Private Placement Legend and shall be
subject to all restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial
interest in the Regulation S Temporary Global Note may not be exchanged for a
Definitive Note or transferred to a Person who takes delivery thereof in the
form of a Definitive Note prior to (x) the expiration of the Restricted Period
and (y) the receipt by the Registrar of any certificates determined by the
Company to be required pursuant to Rule 903(c)(3)(ii)(B) under the Securities
Act, except in the case of a transfer pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 903 or Rule
904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive Note
or may transfer such beneficial interest to a Person who takes delivery
thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the holder
of such beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable Letter
of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
26
<PAGE>
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Restricted Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Definitive Note
that does not bear the Private Placement Legend, a certificate from such
holder in the form of Exhibit C hereto, including the certifications in
---------
item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a Restricted Global
Note proposes to transfer such beneficial interest to a Person who shall
take delivery thereof in the form of a Definitive Note that does not bear
the Private Placement Legend, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
---------
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute
and the Trustee shall authenticate and make available for delivery to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect Participant.
The Trustee shall make available for delivery such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or to
transfer such Restricted Definitive Notes to a Person who takes delivery
27
<PAGE>
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note,
a certificate from such Holder in the form of Exhibit C hereto, including
---------
the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB
in accordance with Rule 144A, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1) thereof;
---------
(C) if such Restricted Definitive Note is being transferred to a Non-
U.S. Person in an offshore transaction in accordance with Rule 903 or
Rule 904, a certificate to the effect set forth in Exhibit B hereto,
---------
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant
to an exemption from the registration requirements of the Securities Act
in accordance with Rule 144, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a) thereof;
---------
(E) if such Restricted Definitive Note is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed
in subparagraphs (B) through (D) above, a certificate to the effect set
forth in Exhibit B hereto, including the certifications, certificates and
---------
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (3)(b) thereof;
---------
or
(G) if such Restricted Definitive Note is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
---------
certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, in the case of clause (c) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted
Global Notes. A Holder of a Restricted Definitive Note may exchange such Note
for a beneficial interest in an Unrestricted Global Note or transfer such
Restricted Definitive Note to a Person who takes delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the
Holder, in the case of an
28
<PAGE>
exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a broker-dealer, (2)
a Person participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Restricted Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to exchange such
Notes for a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit C hereto, including the
---------
certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to transfer such
Notes to a Person who shall take delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note, a certificate from
such Holder in the form of Exhibit B hereto, including the certifications
---------
in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note or
transfer such Definitive Notes to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note at any time.
Upon receipt of a request for such an exchange or transfer, the Trustee shall
cancel the applicable Unrestricted Definitive Note and increase or cause to be
increased the aggregate principal amount of one of the Unrestricted Global
Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest in a Global Note is effected pursuant to subparagraphs
(ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has
not yet been issued, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of Definitive Notes so transferred.
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(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of
transfer or exchange, the requesting Holder shall present or surrender to the
Registrar the Definitive Notes duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing. In addition, the
requesting Holder shall provide any additional certifications, documents and
information, as applicable, required pursuant to the following provisions of
this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name of
Persons who take delivery thereof in the form of a Restricted Definitive Note
if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A, then the
transferor must deliver a certificate in the form of Exhibit B hereto,
---------
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904,
then the transferor must deliver a certificate in the form of Exhibit B
---------
hereto, including the certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption from
the registration requirements of the Securities Act, then the transferor
must deliver a certificate in the form of Exhibit B hereto, including the
---------
certifications, certificates and Opinion of Counsel required by item (3)
thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the
Holder, in the case of an exchange, or the transferee, in the case of a
transfer, certifies in the applicable Letter of Transmittal that it is
not (1) a broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as defined in
Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) any such transfer is effected by a Restricted Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance with
the Registration Rights Agreement; or
(D) the Registrar receives the following:
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<PAGE>
(1) if the Holder of such Restricted Definitive Notes proposes to
exchange such Notes for an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit C hereto, including the certifications
---------
in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the form
of an Unrestricted Definitive Note, a certificate from such Holder in the
form of Exhibit B hereto, including the certifications in item (4) thereof;
---------
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests, an Opinion of Counsel in form reasonably acceptable to the
Company to the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A
Holder of Unrestricted Definitive Notes may transfer such Notes to a Person
who takes delivery thereof in the form of an Unrestricted Definitive Note.
Upon receipt of a request to register such a transfer, the Registrar shall
register the Unrestricted Definitive Notes pursuant to the instructions from
the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance with the
Registration Rights Agreement, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of the beneficial interests in the
Restricted Global Notes tendered for acceptance by Persons that certify in the
applicable Letters of Transmittal or via the Depositary's book-entry system that
(x) they are not broker-dealers, (y) they are not participating in a
distribution of the Exchange Notes and (z) they are not affiliates (as defined
in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and
(ii) Definitive Notes in an aggregate principal amount equal to the principal
amount of the Restricted Definitive Notes accepted for exchange in the Exchange
Offer. Concurrently with the issuance of such Notes, the Trustee shall cause
the aggregate principal amount of the applicable Restricted Global Notes to be
reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and make available for delivery to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the appropriate
principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global Note
and each Definitive Note (and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend in substantially the
following form:
31
<PAGE>
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER
JURISDICTIONS."
(B) Notwithstanding the foregoing, any Global Note or Definitive Note
issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii),
(d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes
issued in exchange therefor or substitution thereof) shall not bear the
Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a)
OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE
FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS
GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER
NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL
BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes.
32
<PAGE>
At such time as all beneficial interests in a particular Global Note
have been exchanged for Definitive Notes or a particular Global Note has been
redeemed, repurchased or canceled in whole and not in part, each such Global
Note shall be returned to or retained and canceled by the Trustee in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for or transferred to a Person
who will take delivery thereof in the form of a beneficial interest in another
Global Note or for Definitive Notes, the principal amount of Notes represented
by such Global Note shall be reduced accordingly and an endorsement shall be
made on such Global Note by the Trustee or by the Depositary at the direction of
the Trustee to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
shall be increased accordingly and an endorsement shall be made on such Global
Note by the Trustee or by the Depositary at the direction of the Trustee to
reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Global Notes and Definitive Notes
upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial interest
in a Global Note or to a Holder of a Definitive Note for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.11, 4.10,
4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of or
exchange any Note selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any registration of
transfer or exchange of Global Notes or Definitive Notes shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Global Notes or Definitive Notes
surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the opening
of business 15 days before the day of the mailing of notice of redemption
under Section 3.02 hereof and ending at the close of business on such day, (B)
to register the transfer of or to exchange any Note so selected for redemption
in whole or in part, except the unredeemed portion of any Note being redeemed
in part or (c) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person in
whose name any Note is registered as the absolute owner of such Note for the
purpose of receiving payment of principal of and interest on such Notes and
for all other purposes, and none of the Trustee, any Agent or the Company
shall be affected by notice to the contrary.
33
<PAGE>
(vii) The Trustee shall authenticate Global Notes and Definitive Notes in
accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel required
to be submitted to the Registrar pursuant to this Section 2.06 to effect a
registration of transfer or exchange may be submitted by facsimile.
(ix) Each Holder of a Note agrees to indemnify the Trustee and the
Registrar against any liability that may result from the transfer, exchange or
assignment of such Holder's Note in violation of any provision of this
Indenture and/or applicable United States federal or state securities law.
(x) Neither the Trustee nor the Registrar shall have any obligation or duty
to monitor, determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Note (including any transfers between or
among Participants or beneficial owners of interests in any Global Note) other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly
required by the terms of, this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
Section 2.07. Replacement Notes
If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section
3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser or protected purchaser.
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<PAGE>
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Notes
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirements of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it
has paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment date
for such defaulted interest. At least 15 days before the special record date,
the Company (or, upon the written request of the
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Company, the Trustee in the name and at the expense of the Company) shall mail
or cause to be mailed to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
Section 2.13. CUSIP Numbers.
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of
redemption as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Notes, and any such redemption shall not be affected by any defect in or the
omission of such numbers. The Company will promptly notify the Trustee of any
change in the CUSIP numbers.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed, (iv) the redemption price and (v) the CUSIP
numbers of the Notes to be redeemed.
Section 3.02. Selection of Notes to Be Redeemed
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption
Subject to the provisions of Section 3.11 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
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<PAGE>
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant to
which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of the
CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price
Prior to 10 a.m. on the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note
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was registered at the close of business on such record date. If any Note called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall be
paid on the unpaid principal, from the redemption date until such principal is
paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in Sections 3.07(b) and (c) below and in
Section 3.08 hereof, the Notes shall not be redeemable at the Company's option
prior to May 15, 2003. Thereafter, the Notes shall be subject to redemption at
any time or from time to time at the 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:
Percentage of
Principal
Year Amount
---- -------------
2003...................................... 104.813%
2004...................................... 103.208%
2005...................................... 101.604%
2006 and thereafter....................... 100.000%
(b) 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 this 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 this
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.
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(c) 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").
(d) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Optional Tax Redemption
The Notes will be 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 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 May 13, 1998, 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 Section 3.09 hereof), 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 will be 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.
Section 3.09. 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
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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:
(a) Any tax, assessment or other governmental charge that would not have
been imposed but for (i) 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, (ii) 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 (iii) 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;
(b) Any estate, inheritance, gift, sales, transfer, personal property or
similar tax, assessment or other governmental charge;
(c) 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;
(d) 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 (i) to
provide information, documents or other evidence concerning the nationality,
residence or identity of the Holder or such beneficial owner or (ii) 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 (i) or
(ii), 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
(e) Any combination of items (a), (b), (c) and (d) 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
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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 Indenture 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.
Section 3.10. Mandatory Redemption.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
Section 3.11. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an Asset Sale Offer, it shall follow the procedures
specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale
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Offer shall be made to all Holders. The notice, which shall govern the terms of
the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section 3.11
and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain
open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue to
accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may only elect to have all of such Note purchased and may not elect
to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any Asset
Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by Holders
exceeds the Offer Amount, the Company shall select the Notes to be purchased on
a pro rata basis (with such adjustments as may be deemed appropriate by the
Company so that only Notes in denominations of $1,000, or integral multiples
thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer).
On or before 10:00 a.m. on the Purchase Date, the Company shall, to
the extent lawful, accept for payment, on a pro rata basis to the extent
necessary, the Offer Amount or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.11. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount
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equal to any unpurchased portion of the Note surrendered. Any Note not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale Offer
on the Purchase Date.
Other than as specifically provided in this Section 3.11, any purchase
pursuant to this Section 3.11 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest and Special Interest, if any, on the Notes on the dates and
in the manner provided in the Notes. Principal, premium, if any, and interest
and Special Interest, if any, shall be considered paid on the date due if the
Paying Agent, if other than the Company or a Subsidiary thereof, holds as of
10:00 a.m. Eastern Time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest and Special Interest, if any, then due.
The Company shall pay all Special Interest, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Special Interest (without regard to any applicable grace period) at the same
rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
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Section 4.03. Reports.
(a) Whether or not required by the rules and regulations of the SEC, 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 SEC 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 SEC 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 SEC's rules and regulations (with
the exception of the quarterly financial information that would be required to
be contained in a filing with the SEC on Form 10-Q for the three months ended
March 31, 1998, which will be required to be furnished on or prior to May 31,
1998). In addition, following the consummation of the Exchange Offer
contemplated by the Registration Rights Agreement, whether or not required by
the rules and regulations of the SEC, the Company and the Guarantors will file a
copy of all such information and reports with the SEC for public availability
within the time periods specified in the SEC's rules and regulations (unless the
SEC will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. The Company and the
Guarantors shall 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 SEC, in each case within the applicable time periods, and the
Company and the Guarantors are not required by the SEC to file such reports,
documents and information separately under the applicable rules and regulations
of the SEC (after giving effect to any exemptive relief) because of the filings
by GCL or New GCL. The Company shall at all times comply with TIA (S) 314(a).
(b) For so long as any Series A Notes remain outstanding (and regardless of
the penultimate sentence of paragraph (a) above), the Company and the Guarantors
shall furnish to the Holders 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.
Section 4.04. Compliance Certificate.
(a) The Company and each Guarantor shall deliver to the Trustee (to the
extent that such Guarantor is so required under the TIA), within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto. For
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purposes of this paragraph, such compliance shall be determined without regard
to any period of grace or requirement of notice provided under this Indenture.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) hereof shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding, deliver
to the Trustee, forthwith upon any Officer becoming aware of any Default or
Event of Default, an Officers' Certificate specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Company and each of the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each of the Guarantors (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall 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 of the Company or any direct or
indirect parent of the Company (other than any such Equity Interests owned by
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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 Section 4.09 hereof; 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 hereof (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 hereof 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 hereof
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 hereof,
plus (iv) to the extent that any Restricted Investment that was made after the
date hereof 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
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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 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
the amount identified in the Offering Memorandum under the caption "Use of
Proceeds" as `Investments in Cable Systems Under Development' made within one
year of the date hereof, 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 (i) of Section 4.09 hereof; 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 Section 4.09 hereof and
(iii) the Company would not be prohibited under this 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
Section 4.07) 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
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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.
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 this Indenture.
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).
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual 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 shall not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date hereof,
(b) the AC-1 Credit Facility as in effect as of the date hereof, (c)
Indebtedness incurred in accordance with clause (e) of Section 4.09 hereof,
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 Section 4.09
hereof, 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) this Indenture and the 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 this 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
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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 be incurred pursuant to the provisions of
Section 4.12 hereof 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.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall 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 shall not issue any Disqualified Stock and shall 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;
(b) The incurrence by the Company or any of its Restricted
Subsidiaries of Existing Indebtedness;
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(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 hereof;
(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 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 this 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 this
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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
(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
Section 4.09.
The Company shall not, and shall 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.
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Section 4.10. Asset Sales
The Company shall not, and shall 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 of Section 4.09 hereof 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 Article 3 of this
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 this 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.
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To the extent that the provisions of any securities laws or
regulations conflict with the Asset Sale provisions of this Indenture, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the Asset Sale
provisions of this Indenture by virtue thereof.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall 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 hereof, 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
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in an Officers' Certificate delivered to the Trustee) above its expenses of
providing such services; and (vii) Restricted Payments that are permitted by
Section 4.07 hereof.
Section 4.12. Liens.
The Company shall not, and shall 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 this 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.
Section 4.13. Sale and Leaseback Transactions.
The Company shall not, and shall 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 section 4.09 hereof and (b) incurred a Lien
to secure such Indebtedness pursuant to Section 4.12 hereof, (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, Section
4.10 hereof.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
(a) 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
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covenant in the event that it has exercised its rights to redeem all of the
Notes as described in Section 3.07 hereof. 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 this 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 Section 4.15, 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.
(b) 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.
(c) Notwithstanding anything to the contrary in this Section 4.15, the
Company shall 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 this Section 4.15, and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
Section 4.16. Business Activities.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any business other than a Permitted Business.
Section 4.17. Future AC Subsidiary Guarantees.
The Company shall cause each of the AC Subsidiaries to become a
Guarantor (other than GTH, which is a Guarantor as of the date of this
Indenture) and execute a supplemental indenture in the form attached as Exhibit
F hereto and deliver an Opinion of Counsel, in accordance with the terms of this
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.
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Section 4.18. Additional Restricted Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries shall acquire or
create another Restricted Subsidiary after the date of this 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 hereof.
Section 4.19. Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries.
The Company (i) shall not, and shall 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 Section 4.10 hereof, and (ii) shall
not permit any Wholly Owned Restricted Subsidiary of the 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.
Section 4.20. Payments For Consent.
Neither the Company nor any of its Restricted Subsidiaries shall,
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 this 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 this Indenture or the Notes in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
Section 4.21. Money for Payments to Be Held In Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal, premium, interest or Special
Interest, if any, with respect to the Notes, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal,
premium, interest or Special Interest, if any, so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal, premium, interest
or Special Interest, if any, with respect to the Notes, deposit with a Paying
Agent a sum in same day funds (or New York Clearing House funds if such deposit
is made prior to the date on which such deposit is required to be made)
sufficient to pay the principal, premium, interest or Special Interest, if any,
so becoming due (or at the option of the Company, payment of interest may be
mailed by check to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments with
respect to Notes represented by one or more permanent global Notes will be paid
by wire transfer of
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immediately available funds to the account of the Depository Trust Company or
any successor thereto) such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium, interest or Special Interest, if
any, and (unless such Paying Agent is the Trustee) the Company will promptly
notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of, premium,
if any, or interest on Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed of
as herein provided;
(b) give the Trustee notice of any default by the Company (or any other
obligor upon the Notes) in the making of any payment of principal, premium,
interest or Special Interest, if any;
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with the
provisions of this Indenture relating to the duties, rights and obligations of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal, premium, interest or
Special Interest, if any, with respect to a Note and remaining unclaimed for two
years after such principal, premium, if any, or interest has become due and
payable shall be paid to the Company at the request of the Company or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, shall at
the expense of the Company cause notice to be promptly sent to each Holder that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such notification any unclaimed
balance of such money then remaining will be repaid to the Company.
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ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company shall 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 Rights Agreement, the Notes and this
Indenture pursuant to a supplemental indenture in a form and substance
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 Section 4.09 hereof. The Company shall 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.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
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ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
"Event of Defaults" are:
(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 Sections 4.07, 4.09, 4.10 or 4.15;
(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 this
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 date of this Indenture, 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 this 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) the Company or any of its Restricted Subsidiaries:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
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(e) generally is not paying its debts as they become due;
(ix) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any of its Restricted
Subsidiaries;
(b) appoints a custodian of the Company or any of its Restricted
Subsidiaries or for all or substantially all of the property of the Company or
any of its Restricted Subsidiaries; or
(c) orders the liquidation of the Company or any of its Restricted
Subsidiaries;
and the order or decree remains unstayed and in effect for 60 consecutive
days; and
(x) 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.
Section 6.02. Acceleration.
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, if an Event of Default specified in clause (viii) or (ix) of Section
6.01 hereof occurs with respect to the Company, any of its Restricted
Subsidiaries that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary, all outstanding Notes shall be due and payable immediately without
further action or notice. The Holders of a majority in aggregate principal
amount of the then outstanding Notes by written notice to the Trustee may on
behalf of all of the Holders rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal, interest or premium that has
become due solely because of the acceleration) have been cured or waived.
If an Event of Default occurs 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 Section 3.07 hereof,
then, upon acceleration of the Notes, an equivalent premium shall also become
and be immediately due and payable, to the extent permitted by law, anything in
this Indenture or in the Notes to the contrary notwithstanding. 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 such date, then,
upon acceleration of the Notes, an additional premium shall also become and be
immediately due and payable in an amount, for each of the years beginning on May
15 of the years set forth below, as set forth below (expressed as a percentage
of the aggregate principal amount to the date of payment that would otherwise be
due but for the provisions of this sentence):
YEAR PERCENTAGE
---- ----------
1998.......................... 109.625%
1999.......................... 108.662%
2000.......................... 107.700%
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2001.......................... 106.738%
2002.......................... 105.775%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest and Special Interest, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than 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 an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Special Interest, if any, or interest
on, the Notes (including in connection with an offer to purchase). Upon any
such waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
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(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Special
Interest, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(i) or (ii) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Special Interest, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to participate as a member, voting or otherwise, of
any official committee of creditors appointed in such matter and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization,
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arrangement, adjustment or composition affecting the Notes or the rights of any
Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Special Interest, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Special Interest, if any, and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and
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(ii) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture (but need not confirm or investigate the
accuracy of mathematical calculations or other facts stated therein or
otherwise verify the contents thereof).
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or expense
including reasonable attorneys' fees that might be incurred by it in compliance
with such request or direction.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document. The
Trustee shall receive and retain financial reports and statements of the Company
as provided herein, but it shall have no duty to review or analyze such reports
or statements to determine compliance with convenants or other obligations of
the Company.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel of its selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
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(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
(a) The Trustee shall not be deemed to have notice of any Default or Event
of Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee, and such
notice references the Notes and this Indenture.
(b) If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA (S) 313(a) (but if no event described
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in TIA (S) 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA (S) 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
parties shall agree from time to time. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld or
delayed.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(viii) or (ix) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.
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Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
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Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all of its obligations
under such Notes and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) 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; (b) 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; (c) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith; and (d) the Legal Defeasance provisions of this Indenture. Subject
to compliance with this Article 8, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
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Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each Guarantor shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
released from their respective obligations under the covenants contained in
Article 5 and in Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15,
4.16, 4.17, 4.18, 4.19 and 4.20 hereof with respect to the outstanding Notes on
and after the date the conditions set forth in Section 8.04 are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01 hereof, but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, Sections 6.01(iii) through
6.01(vii) hereof and 6.01(x) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) 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;
(b) 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;
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(c) in the case of Covenant Defeasance, the Company must deliver 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;
(d) 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;
(e) 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 this 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;
(f) 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;
(g) 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;
(h) 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
(i) 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.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
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The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, interest
or Special Interest, if any, on any Note and remaining unclaimed for two years
after such principal, and premium, if any, or interest has become due and
payable shall be paid to the Company on its request or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as a secured creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
Section 8.08. Survival.
The Trustee's rights under this Article 8 shall survive termination of
this Indenture.
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ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 hereof, the Company, the Guarantors and
the Trustee may amend or supplement this Indenture, the Guarantees or the Notes
without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company's or any Guarantor's
obligations to the Holders of the Notes by a successor to the Company or a
Guarantor pursuant to Article 5 or Article 10 hereof;
(d) to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA; or
(f) to allow any Guarantor to execute a supplemental indenture and/or a
Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company, a
Guarantor (with respect to a Guarantee or the Indenture to which it is a party)
and the Trustee may amend or supplement this Indenture (including Section 3.11,
4.10 and 4.15 hereof), the Notes and the Guarantees with the consent of the
Holders of at least a majority in principal amount of the then outstanding Notes
then outstanding voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Notes or the Guarantees may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes
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voting as a single class (including consents obtained in connection with a
tender offer or exchange offer for, or purchase of, the Notes).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental indenture
unless such amended or supplemental indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding voting as a single class may waive compliance in a particular
instance by the Company with any provision of this Indenture or the Notes.
However, without the consent of each Holder affected, an amendment or waiver
under this Section 9.02 may not (with respect to any Notes held by a non-
consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter or waive any of the provisions with respect to the redemption of the
Notes, other than provisions relating to Sections 3.11 or 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of or
premium or Special Interest, 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 of the then outstanding Notes and a waiver of the
payment default that resulted from such acceleration;
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to waivers
of past Defaults or the rights of Holders of Notes to receive payments of
principal of or premium, interest or Special Interest, if any, on the Notes;
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(g) waive a redemption payment with respect to any Note, other than a
payment required by Section 3.11 or 4.15 hereof;
(h) make any change in the foregoing amendment and waiver provisions.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental indenture that complies with the TIA as
then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon an Officer's Certificate and an Opinion
of Counsel stating that the execution of such amended or supplemental indenture
is authorized or permitted by this Indenture and that such amendment is the
legal, valid and binding obligation of the Company and any Guarantors,
enforceable against them in accordance with their terms, subject to customary
exceptions, and complies with the provisions hereof (including Section 9.03).
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ARTICLE 10.
GUARANTEES
Section 10.01. Guarantee.
Subject to this Article 10, each of the Guarantors hereby, jointly and
severally, unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Company hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that this Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company, the Guarantors or any custodian, trustee, liquidator or
other similar official acting in relation to either the Company or the
Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6 hereof, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of this Guarantee. The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Guarantee.
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Section 10.02. Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby
confirms that it is the intention of all such parties that the Guarantee of such
Guarantor not constitute a fraudulent transfer or conveyance for purposes of
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law to the extent applicable to any
Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and
the Guarantors hereby irrevocably agree that the obligations of such Guarantor
under its Guarantee and this Article 10 shall be limited to the maximum amount
as will, after giving effect to such maximum amount and all other contingent and
fixed liabilities of such Guarantor that are relevant under such laws, and after
giving effect to any collections from, rights to receive contribution from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under this Article 10, result in the
obligations of such Guarantor under its Guarantee not constituting a fraudulent
transfer or conveyance.
Section 10.03. Execution and Delivery of Guarantee.
To evidence its Guarantee set forth in Section 10.01, each Guarantor
hereby agrees that a notation of such Guarantee substantially in the form
included in Exhibit E shall be endorsed by an Officer of such Guarantor on each
---------
Note authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of such Guarantor by an Officer thereof.
Each Guarantor hereby agrees that its Guarantee set forth in Section
10.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.
If an Officer whose signature is on this Indenture or on the Guarantee
no longer holds that office at the time the Trustee authenticates the Note on
which a Guarantee is endorsed, the Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of the Guarantors.
When permitted under the terms of the AC-1 Credit Facility or when the
AC-1 Credit Facility has been retired, if required by Section 4.17 hereof, the
Company shall cause each of the AC Subsidiaries (other than GTH, which is a
Guarantor as of the date of this Indenture) to execute supplemental indentures
to this Indenture and Guarantees in accordance with Section 4.17 hereof, and
this Article 10, to the extent applicable.
In the event that the Company creates or acquires any new Restricted
Subsidiaries subsequent to the date of this Indenture, if required by Section
4.18 hereof, the Company shall cause such Restricted Subsidiaries to execute
supplemental indentures to this Indenture and Guarantees in accordance with
Section 4.18 hereof, and this Article 10, to the extent applicable.
Section 10.04. Guarantors May Consolidate, etc., on Certain Terms.
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:
(a) subject to Section 10.05 hereof, the Person formed by or surviving
any such consolidation or merger (if other than a Guarantor or the Company)
unconditionally assumes all the
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obligations of such Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Notes, this
Indenture, the Registration Rights Agreement and the Guarantee on the terms set
forth herein or therein; and
(b) immediately after giving effect to such transaction, no Default or
Event of Default exists.
In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the
Guarantee endorsed upon the Notes and the due and punctual performance of all of
the covenants and conditions of this Indenture to be performed by the Guarantor,
such successor Person shall succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as a Guarantor. Such successor
Person thereupon may cause to be signed any or all of the Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All the
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Guarantees had
been issued at the date of the execution hereof.
Notwithstanding clauses (a) and (b) above, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of a
Guarantor with or into the Company or another Guarantor, or shall prevent any
sale or conveyance of the property of a Guarantor as an entirety or
substantially as an entirety to the Company or another Guarantor.
Section 10.05. Releases Following Sale of Assets.
In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially 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 this Indenture, including without limitation Section 4.10 hereof.
Upon delivery by the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made by
the Company in accordance with the applicable provisions of this Indenture,
including without limitation Section 4.10 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Guarantor
from its obligations under its Guarantee.
Any Guarantor not released from its obligations under its Guarantee
shall remain liable for the full amount of principal of and interest on the
Notes and for the other obligations of any Guarantor under this Indenture as
provided in this Article 10.
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ARTICLE 11.
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall be discharged and will cease to be of further
effect as to all Notes issued hereunder, when either
(a) all such Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to such Trustee for
cancellation have become due and payable by reason of the making
of a notice of redemption or otherwise or will become due and
payable within one year and the Company or a Guarantor, has
irrevocably deposited or caused to be deposited with such Trustee
as trust funds in trust an amount of money sufficient to pay and
discharge the entire Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation for principal, premium,
accrued interest and Special Interest, if any, to the date of
maturity or redemption;
(ii) no Default or Event of Default with respect to this Indenture or
the Notes shall have occurred and be continuing on the date of
such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the
Company or a Guarantor, is a party or by which the Company or a
Guarantor is bound;
(iii) the Company or a Guarantor has paid or caused to be paid all sums
payable by it under this Indenture; and
(iv) the Company has delivered irrevocable instructions to the Trustee
under this Indenture to apply the deposited money toward the
payment of such Notes at maturity or the redemption date, as the
case may be.
In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Section 11.02. Application of Trust Money
Subject to the provisions of the last paragraph of Section 4.19
hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to Persons entitled thereto, of the principal (and premium, if any),
interest and Special Interest, if any, for whose payment such money has been
deposited with the Trustee.
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If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 hereof by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though such deposit had occurred pursuant to
Section 11.01 hereof; provided that if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or
Government Securities held by the Trustee or Paying Agent.
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control.
Section 12.02. Notices.
Any notice or communication by the Company, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company and/or any Guarantor:
Global Crossing Holdings Ltd.
Wessex House
45 Reid Street
Hamilton HM 12
Telecopier No.: (441) 296-8606
Attention: Secretary of the Company
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier No.: (212) 455-2502
Attention: D. Rhett Brandon, Esq.
If to the Trustee:
United States Trust Company of New York
114 West 47th Street - 25th Floor
New York, New York 10036
Telecopier No.:(212) 852-1626
Attention: Cynthia Chaney
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<PAGE>
With a copy to:
Winston & Strawn
200 Park Avenue
New York, NY 10166
Telecopier No.:(212) 294-4700
Attention: Jeffrey H. Elkin, Esq.
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it except that any notice or communication to the Trustee shall be
deemed to have been duly given to the Trustee when received at the Corporate
Trust Office of the Trustee.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, except with respect to the initial
authentication of Notes on the date of this Indenture, the Company shall furnish
to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion
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<PAGE>
of the signers, all conditions precedent and covenants, if any, provided for in
this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has or
they have made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees and
Shareholders.
No past, present or future director, officer, employee, incorporator
or shareholder of the Company or any Guarantor, as such, shall have any
liability for any obligations of the Company or such Guarantor under the Notes,
the Subsidiary Guarantees, this Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
Section 12.08. Governing Law.
THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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Section 12.09. 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 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.
Section 12.10. Consent to Jurisdiction and Service.
To the fullest extent permitted by applicable law, the Company and
each of the Guarantors hereby irrevocably submit to the jurisdiction of any
Federal or State court located in the Borough of Manhattan in The City of New
York, New York in any suit, action or proceeding based on or arising out of or
relating to this Agreement or any Notes or Exchange Notes, and irrevocably agree
that all claims in respect of such suit or proceeding may be determined in any
such court. The Company and each of the Guarantors irrevocably waive, to the
fullest extent permitted by law, any objection which they may have to the laying
of the venue of any such suit, action or proceeding brought in such a court and
any claim that any suit, action or proceeding brought in such a court has been
brought in an inconvenient forum. The Company and each of the Guarantors agree
that final judgment in any such suit, action or proceeding brought in such a
court shall be conclusive and binding upon the Company and each such Guarantor
and may be enforced in the courts of Bermuda (or any other courts to the
jurisdiction of which the Company or such Guarantor is subject) by a suit upon
such judgment, provided that service of process is effected upon the Company or
--------
such Guarantor in the manner specified herein or as otherwise permitted by law.
The Company and each of the Guarantors hereby irrevocably designate and appoint
CT Corporation System, 1633 Broadway - 23rd Floor, New York, New York (the
"Process Agent"), as the authorized agent of the Company and each such Guarantor
upon whom process may be served in any such suit or proceeding, it being
understood that the designation and appointment of the Process Agent as such
authorized agent shall become effective immediately without any further action
on the part of the Company or any Guarantor. The Company and each of the
Guarantors hereby represent to each Initial Purchaser that they have notified
the Process Agent of such designation and appointment and that the Process Agent
has accepted the same in writing. The Company and each of the Guarantors
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<PAGE>
hereby irrevocably authorize and direct the Process Agent to accept such
service. The Company and each of the Guarantors further agree that service of
process upon the Process Agent and written notice of said service to the Company
mailed by prepaid registered first class mail or delivered to the Process Agent
at its principal office, shall be deemed in every respect effective service of
process upon the Company and each Guarantor in any such suit or proceeding.
Nothing herein shall affect the right of any Initial Purchaser or any person
controlling any Initial Purchaser to serve process in any other matter permitted
by law. The Company and each of the Guarantors further agree to take any and all
action, including the execution and filing of any and all such documents and
instruments as may be necessary to continue such designation and appointment of
the Process Agent in full force and effect so long as the Company or any
Guarantor has any outstanding obligations under this Agreement, the Notes, the
Exchange Notes or the Indenture. To the extent that the Company or any Guarantor
has or hereafter may acquire any immunity from jurisdiction of any court or from
any legal process (whether through service of note, attachment prior to
judgment, attachment in aid of execution, executor or otherwise) with respect to
itself or its property, the Company and each such Guarantor hereby irrevocably
waive such immunity in respect of their respective obligations under this
Agreement, to the extent permitted by law.
Section 12.11. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 12.12. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
Section 12.13. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.14. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 12.15. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Indenture signature pages(s) follow]
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<PAGE>
[Indenture signature pages(s)]
Dated as of May 18, 1998
Global Crossing Holdings Ltd.
By: /s/ Ian McLean
----------------------------
Name: Ian McLean
Title:
Guarantors:
Global Crossing Ltd., LDC
By:
----------------------------
Name:
Title:
Global Crossing Ltd.
By:
----------------------------
Name:
Title:
Global Telesystems Holdings Ltd.
By: /s/ Ian McLean
----------------------------
Name: Ian McLean
Title:
<PAGE>
[Indenture signature pages(s)]
Dated as of May 18, 1998
GLOBAL CROSSING HOLDINGS LTD.
BY:
--------------------------
Name:
Title:
Guarantors:
GLOBAL CROSSING LTD., LDC
BY: /s/
--------------------------
Name:
Title:
GLOBAL CROSSING LTD.
BY: /s/
--------------------------
Name:
Title:
GLOBAL TELESYSTEMS HOLDINGS LTD.
BY:
--------------------------
Name:
Title:
<PAGE>
Global Crossing International, Ltd.
By: /s/ Cameron Adderley
-------------------------------
Name: Cameron Adderley
Title:
Global Crossing Holdings U.K. Ltd.
By: /s/ Ian McLean
-------------------------------
Name: Ian McLean
Title:
Global Crossing Marketing U.K. Ltd.
By: /s/ Ian McLean
-------------------------------
Name: Ian McLean
Title:
Global Crossing Development Co.
By:
-------------------------------
Name:
Title:
Global Crossing Marketing USA Inc.
By: /s/ Ian McLean
-------------------------------
Name: Ian McLean
Title:
<PAGE>
Global Crossing International, Ltd.
By:
-------------------------------
Name:
Title:
Global Crossing Holdings U.K. Ltd.
By:
-------------------------------
Name:
Title:
Global Crossing Marketing U.K. Ltd.
By:
-------------------------------
Name:
Title:
Global Crossing Development Co.
By: /s/
-------------------------------
Name:
Title:
Global Crossing Marketing USA Inc.
By:
-------------------------------
Name:
Title:
<PAGE>
United States Trust Company of New York,
as Trustee
By: /s/ James D. Nesci
-----------------------------
Name: JAMES D. NESCI
Title: Assistant Vice President
<PAGE>
EXHIBIT 4.3
================================================================================
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
Dated as of May 18, 1998
by and among
Global Crossing Holdings Ltd.
and the Guarantors named herein
and
Salomon Brothers Inc
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
CIBC Oppenheimer Corp.
Deutsche Morgan Grenfell Inc.
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May 18, 1998, by and among Global Crossing Holdings Ltd., a
Bermuda company (the "Company"), Global Crossing Ltd., LDC, a Cayman Islands
company, Global Crossing Ltd., a Bermuda company, Global Telesystems Holdings
Ltd., a Bermuda company, Global Crossing International, Ltd., a Bermuda company,
Global Crossing Holdings U.K. Ltd., a United Kingdom company, Global Crossing
Marketing U.K. Ltd., a United Kingdom company, Global Crossing Development Co.,
a Delaware corporation and Global Crossing Marketing USA Inc., a Delaware
corporation (each, a "Guarantor" and, collectively, the "Guarantors"), and
Salomon Brothers Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC
Oppenheimer Corp., Morgan Stanley & Co. Incorporated and Deutsche Morgan
Grenfell Inc. (each, an "Initial Purchaser" and, collectively, the "Initial
Purchasers"), each of whom has agreed to purchase the Company's 9-5/8% Senior
Notes (including the guarantees thereof by the Guarantors) due 2008 (the
"Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated as of
May 13, 1998, (the "Purchase Agreement"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 6 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Indenture, dated as of May 18,
1998, by and among the Company, the Guarantors and United States Trust Company
of New York, as Trustee, relating to the Notes and the Exchange Notes (as
defined below) (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Certificated Securities: Definitive Notes, as defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange
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Offer Registration Statement relating to the Exchange Notes to be issued in the
Exchange Offer, (b) the maintenance of such Exchange Offer Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the period required pursuant to Section 3(b) hereof and
(c) the delivery by the Company to the Registrar under the Indenture of Exchange
Notes in the same aggregate principal amount as the aggregate principal amount
of Notes tendered by Holders thereof pursuant to the Exchange Offer.
Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The Company's 9-5/8% Series B Senior Notes (including
the guarantees thereof by the Guarantors) due 2008 to be issued pursuant to the
Indenture, either (i) in the Exchange Offer or (ii) as contemplated by Section 4
hereof.
Exchange Offer: The exchange and issuance by the Company of a principal
amount of Exchange Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of Notes
that are tendered by such Holders in connection with such exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers propose
to sell the Notes to certain "qualified institutional buyers," as such term is
defined in Rule 144A under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Exchange Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii)
2
<PAGE>
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
Restricted Broker-Dealer: Any Broker-Dealer that holds Exchange Notes
that were acquired in the Exchange Offer in exchange for Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Notes acquired directly from
the Company or any of its affiliates).
Rule 144: Rule 144 promulgated under the Act.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb),
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer by a
person other than a Broker-Dealer for an Exchange Note, (b) the date on which
such Note is effectively registered under the Act and disposed of in accordance
with a Shelf Registration Statement, (c) the date, following the date on which
such Note is exchanged for an Exchange Note by a Broker-Dealer in the Exchange
Offer, on which such Exchange Note is sold to a purchaser who receives from such
Broker-Dealer on or prior to the date of such sale a copy of the Prospectus
contained in the Exchange Offer Registration Statement, (d) the date on which
such Note is distributed to the public pursuant to Rule 144 under the Act or (e)
the date on which such Note is eligible for resale pursuant to Rule 144 without
volume restriction.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law or Commission policy (after the procedures set forth in Section
6(a)(i) below have been complied with), the Company and the Guarantors shall (i)
cause the Exchange Offer Registration Statement to be filed with the Commission
as soon as practicable after the Closing Date (the "Exchange Offer Filing
Date"), but in no event later than 90 days after the Closing Date (such 90th day
being the "Filing Deadline"), (ii) use their reasonable best efforts to cause
such Exchange Offer Registration Statement to become effective at the earliest
practicable time, but in no event later than 150 days after the Closing Date
(such 150th day being referred to herein as
3
<PAGE>
the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause it to become effective, (B) file, if
applicable, a post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the Exchange Notes to be offered in exchange for
the Notes that are Transfer Restricted Securities and to permit resales of
Exchange Notes by Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their reasonable best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Exchange Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their reasonable best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 180 days
after the Closing Date.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company),
may exchange such Transfer Restricted Securities pursuant to the Exchange Offer;
however, such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with any resales of any Exchange Notes
received by such Broker-Dealer in the Exchange Offer and that the Prospectus
contained in the Exchange Offer Registration Statement may be used to satisfy
such prospectus delivery requirement. Such "Plan of Distribution" section shall
also contain all other information with respect to such sales by such
Broker-Dealers that the Commission may require in order to permit such sales
pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Securities held by
any such Broker-Dealer, except to the extent required by the Commission.
To the extent necessary to ensure that the Exchange Offer Registration
Statement is available for resales of Exchange Notes or Transfer Restricted
Securities by Broker-Dealers that were acquired for the account of such
Broker-Dealers as a result of market-making activities or
4
<PAGE>
other trading activities (other than Exchange Notes or Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company),
the Company and the Guarantors agree to use their respective best efforts to
keep the Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 6(c) hereof
and in conformity with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer is
Consummated, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been sold
pursuant thereto. The Company and the Guarantors shall promptly provide
sufficient copies of the latest version of such Prospectus to such Broker-
Dealers promptly upon request at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law or Commission policy (after the Company and the Guarantors have
complied with the procedures set forth in Section 6(a)(i) below) or (ii) if any
Holder of Transfer 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 Holder or (C) such Holder is a
Broker-Dealer and holds Notes acquired directly from the Company or any of its
Affiliates, then the Company and the Guarantors shall:
(x) use their reasonable best efforts to cause to be filed, on or prior
to 30 days after the earlier of (i) the date on which the Company determines
that the Exchange Offer Registration Statement cannot be filed as a result of
clause (a)(i) above and (ii) the date on which the Company receives the notice
specified in clause (a) (ii) above (such earlier date being referred to herein
as the "Filing Deadline"), a shelf registration statement pursuant to Rule 415
under the Act (which may be an amendment to the Exchange Offer Registration
Statement (the "Shelf Registration Statement")), relating to all Transfer
Restricted Securities, and
(y) use their reasonable best efforts to cause such Shelf Registration
Statement to become effective on or prior to 90 days after the Filing Deadline
(such 90th day the "Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law, then the filing of
the Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Company
shall remain obligated to meet the Effectiveness Deadline set forth in clause
(y).
5
<PAGE>
The Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented and amended as required by, and subject to
the provisions of, Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(c)(i)) following
the date on which such Shelf Registration Statement first becomes effective
under the Act, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been sold
pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. Each selling Holder
agrees to promptly furnish additional information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading.
SECTION 5. SPECIAL INTEREST
If (i) any Registration Statement required by this Agreement is not so
filed on or prior to the applicable Filing Deadline, (ii) any such Registration
Statement has not been declared effective by the Commission on or prior to the
applicable Effectiveness Deadline, (iii) the Exchange Offer has not been
Consummated within 180 days after the Closing Date or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company and the Guarantors hereby jointly
and severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby interest ("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 (1) the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement) is filed, in the case of (i) above, (2) the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
is declared effective, in the case of (ii) above, (3) the Exchange Offer is
Consummated, in the case of (iii) above, or (4) a post-effective amendment to
the Registration Statement or an additional Registration Statement is filed that
causes the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement) to again be declared effective or made usable, in
the case of (iv) above. During the time that Special Interest is accruing
continuously, the rate of such Special Interest shall be
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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
1.00% 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 Special Interest rate for such
subsequent Registration Default shall initially be 0.25%, regardless of the
Special Interest rate in effect with respect to any prior Registration Default
at the time of the cure of such Registration Default. All accrued Special
Interest shall be paid to the Holders entitled thereto, in the manner provided
for the payment of interest in the Indenture, as more fully set forth in the
Indenture and the Notes. All obligations of the Company and the Guarantors set
forth in this paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations with respect to
such Transfer Restricted Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall comply with all applicable
provisions of Section 6(c) below, shall use their respective best efforts to
effect such exchange and to permit the resale of Exchange Notes by
Broker-Dealers that tendered in the Exchange Offer Notes that such Broker-Dealer
acquired for its own account as a result of its market making activities or
other trading activities (other than Notes acquired directly from the Company or
any of its Affiliates) being sold in accordance with the intended method or
methods of distribution thereof, and shall comply with all of the following
provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company and the Guarantors
hereby agree to seek a no-action letter or other favorable decision from
the Commission, including oral advice from the staff of the Commission,
allowing the Company and the Guarantors to Consummate an Exchange Offer
for such Transfer Restricted Securities. The Company and the Guarantors
hereby agree to pursue the issuance of such a decision to the Commission
staff level but shall not be required to take commercially unreasonable
action to effect a change of Commission policy. In connection with the
foregoing, the Company and the Guarantors hereby agree to take all such
other actions as may be requested by the Commission or otherwise
required in connection with the issuance of such decision, including
without limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
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(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer,
a written representation to the Company and the Guarantors (which may be
contained in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is not an
Affiliate of the Company or any Guarantor, (B) it is not engaged in, and
does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the Exchange Notes
to be issued in the Exchange Offer and (C) it is acquiring the Exchange
Notes in its ordinary course of business. Each Holder using the Exchange
Offer to participate in a distribution of the Exchange Notes hereby
acknowledges and agrees that, if the resales are of Exchange Notes
obtained by such Holder in exchange for Notes acquired directly from the
Company or an Affiliate thereof, it (1) could not, under Commission
policy as in effect on the date of this Agreement, rely on the position
of the Commission enunciated in Morgan Stanley and Co., Inc. (available
June 5, 1991) and Exxon Capital Holdings Corporation (available May 13,
1988), as interpreted in the Commission's letter to Shearman & Sterling
dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security
holder information required by Item 507 or 508, as applicable, of
Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantors
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available
May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and, if applicable, any no-action letter obtained pursuant to
clause (i) above, (B) including a representation that neither the
Company nor any Guarantor has entered into any arrangement or
understanding with any Person to distribute the Exchange Notes to be
received in the Exchange Offer and that, to the best of the Company's
and each Guarantor's information and belief, each Holder participating
in the Exchange Offer is acquiring the Exchange Notes in its ordinary
course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes received
in the Exchange Offer and (C) any other undertaking or representation
required by the Commission as set forth in any no-action letter obtained
pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their respective best efforts to
effect such registration to permit the sale of
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the Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof (as indicated in the information
furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto
the Company and the Guarantors will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company and the Guarantors shall
file promptly an appropriate amendment to such Registration Statement
curing such defect, and, if Commission review is required, use their
respective best efforts to cause such amendment to be declared effective
as soon as reasonably practicable thereafter.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as
may be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may
be, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been
exchanged or sold or until such Transfer Restricted Securities no longer
constitute Transfer Restricted Securities or are no longer outstanding;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise the selling Holders promptly and, if requested by
such Persons, confirm such advice in writing, (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed,
and, with respect to any applicable Registration Statement or any
post-effective amendment thereto, when the same has become effective,
(B) of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any
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<PAGE>
state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, or (D)
of the existence of any fact or the happening of any event that makes
any statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to
make the statements therein not misleading, or that requires the making
of any additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement,
or any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company and the Guarantors shall use
their respective best efforts to obtain the withdrawal or lifting of
such order at the earliest practicable time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(v) furnish to the Initial Purchaser(s) and each selling Holder
named in any Registration Statement or Prospectus in connection with
such sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference, if
requested by such person), which documents will be subject to the review
and comment of such Holders in connection with such sale, if any, for a
period of at least five Business Days, and the Company will not file any
such Registration Statement or Prospectus or any amendment or supplement
to any such Registration Statement or Prospectus (including all such
documents incorporated by reference, if requested by such person) to
which the selling Holders of the Transfer Restricted Securities covered
by such Registration Statement in connection with such sale, if any,
shall reasonably object within five Business Days after the receipt
thereof. A selling Holder shall be deemed to have reasonably objected to
such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
if requested by any selling Holders
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<PAGE>
within five Business Days after receipt of notification thereof from the
Company, provide copies of such document to such selling Holders in
connection with such sale, if any, make the Company's and the
Guarantors' representatives available for discussion of such document
and other customary due diligence matters, and include such information
in such document prior to the filing thereof as such selling Holders may
reasonably request;
(vii) make available at reasonable times for inspection by the
selling Holders participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such
selling Holders, all financial and other records, pertinent corporate
documents of the Company and the Guarantors and cause the Company's and
the Guarantors' officers, directors and employees to supply all
information reasonably requested by any such selling Holder, attorney or
accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness;
(viii) if requested by any selling Holders in connection with
such sale, if any, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(ix) furnish to each selling Holder in connection with such sale,
if any, without charge, at least one copy of the Registration Statement,
as first filed with the Commission, and of each amendment thereto,
including all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(x) deliver to each selling Holder, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons reasonably may request;
the Company and the Guarantors hereby consent to the use (in accordance
with law) of the Prospectus and any amendment or supplement thereto by
each of the selling Holders in connection with the offering and the sale
of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any applicable
Registration Statement contemplated by this Agreement, all to such
extent as may be reasonably acceptable to the Company and the Guarantors
and as may be reasonably requested by any Holder of Transfer Restricted
Securities in connection with any sale or resale
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<PAGE>
pursuant to any applicable Registration Statement contemplated by this
Agreement and in such connection, the Company and the Guarantors shall:
(A) upon request of any selling Holder, furnish (or in the case
of paragraphs (2) and (3), use their respective best efforts to cause
to be furnished) to each selling Holder, upon the effectiveness of
the Shelf Registration Statement or upon Consummation of the Exchange
Offer, as the case may be:
(1) a certificate, dated such date, signed on behalf of
the Company and each Guarantor by (x) the Chief Executive
Officer, President or any Vice President and (y) a principal
financial or accounting officer of the Company and such
Guarantor, confirming, as of the date thereof, the matters set
forth in paragraph (e) of Section 6 of the Purchase Agreement and
such other similar matters as the selling Holders may reasonably
request;
(2) opinions, dated such date, of counsel for the Company
and the Guarantors covering matters similar to those set forth in
paragraphs (a), (b), (c) and (d) of Section 6 of the Purchase
Agreement and such other matters as the selling Holders may
reasonably request, and in any event including a statement to the
effect that certain such counsel has participated in conferences
with officers and other representatives of the Company and the
Guarantors and representatives of the independent public
accountants for the Company and the Guarantors at which the
contents of such Registration Statement and the related
prospectus were discussed, although such counsel has not
independently verified the accuracy, completeness or fairness of
such statements; and that such counsel advises that, on the basis
of the foregoing, no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the
case of the Exchange Offer Registration Statement, as of the date
of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included
in any Registration Statement contemplated by this Agreement or
the related Prospectus; and
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(3) a customary comfort letter, dated such date, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 6(i) of the Purchase
Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with clause (A) above and with any customary conditions contained in
the any agreement entered into by the Company and the Guarantors
pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may reasonably request and do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; provided, however,
that neither the Company nor any Guarantor shall be required to register
or qualify as a foreign corporation where it is not now so qualified or
to take any action that would subject it to the service of process in
suits or to taxation, other than as to matters and transactions relating
to the Registration Statement, in any jurisdiction where it is not now
so subject;
(xiii) issue, upon the request of any Holder of Notes covered by
any Shelf Registration Statement contemplated by this Agreement,
Exchange Notes having an aggregate principal amount equal to the
aggregate principal amount of Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such Exchange
Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Exchange Notes, as the case may be; in return, the
Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders to facilitate
the timely preparation and delivery of certificates representing
Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities
in such denominations (which denominations shall be of $1,000 and
integral multiples thereof) and such names as the selling Holders may
request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xv) use their respective best efforts to cause the disposition
of the Transfer Restricted Securities covered by the Registration
Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to
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enable the seller or sellers thereof to consummate the disposition of
such Transfer Restricted Securities, subject to the proviso contained in
clause (xii) above;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee
under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company ;
(xvii) otherwise use their respective best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to Holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 under the Act (which need
not be audited) covering a twelve-month period beginning after the
effective date of the Registration Statement (as such term is defined in
paragraph (c) of Rule 158 under the Act);
(xviii) make appropriate officers of the Company available to the
selling Holders for meetings with prospective purchasers of the Transfer
Restricted Securities; and
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with
the terms of the TIA; and execute and use their respective best efforts
to cause the Trustee to execute all documents that may be required to
effect such changes and all other forms and documents required to be
filed with the Commission to enable such Indenture to be so qualified in
a timely manner; and
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension
Notice"), such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
(i) such Holder has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in
writing by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus (in each case, the "Recommencement Date"). Each
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (ii) deliver to the Company
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(at the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of the Suspension Notice. In
the event the Company shall deliver a Suspension Notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement shall be borne by the Company
and the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses; (ii) all fees and expenses of compliance with federal securities
and state securities or Blue Sky laws; (iii) all expenses of printing (including
printing certificates for the Exchange Notes to be issued in the Exchange Offer
and printing of Prospectuses), messenger and delivery services and telephone;
(iv) all fees and disbursements of counsel for the Company, the Guarantor(s)
and, in accordance with Section 7(b) below, the Holders of Transfer Restricted
Securities; (v) all fees and disbursements of independent certified public
accountants of the Company and the Guarantors (including the expenses of any
special audit and comfort letters required by or incident to such performance);
and (vi) fees and expenses of the Trustee and any exchange agent in the Exchange
Offer, including the fees and expenses of each of their counsel.
The Company and the Guarantors will, in any event, bear their respective
internal expenses (including, without limitation, all salaries and expenses of
their respective officers and employees performing legal or accounting duties),
the expenses of any annual audit and the fees and expenses of any Person,
including special experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Latham & Watkins, unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION.
(a) Each of the Company and the Guarantors agrees to indemnify
and hold harmless (i) each Holder, (ii) the directors, officers, employees and
agents of each Holder and
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(iii) each person who controls any Holder within the meaning of either the
Securities Act or the Exchange Act (any person referred to in clause (i), (ii)
or (iii) may hereinafter be referred to as an "Indemnified Holder") against any
and all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Securities Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus or any information provided by the Company
to any Holder or prospective purchaser of Series B Notes, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agree to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company and the
Guarantors will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission (i) made
in any Registration Statement, preliminary prospectus or Prospectus, or in any
amendment thereof or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by any Holder specifically for
inclusion therein or (ii) made in any preliminary prospectus, if such untrue
statement or omission or alleged omission made in such preliminary prospectus is
eliminated or remedied in the Prospectus relating to it (as amended or
supplemented, as applicable) and a copy of such Prospectus shall not have been
furnished to the person alleging such loss, claim, damage or liability as
required under applicable law. This indemnity agreement will be in addition to
any liability which the Company and the Guarantors may otherwise have.
(b) Each Holder of Transfer Restricted Securities severally
agrees to indemnify and hold harmless the Company, the Guarantors, their
respective directors, officers, employees and agents and each person who
controls the Company or any of the Guarantors within the meaning of either the
Securities Act or the Exchange Act, to the same extent as the foregoing
indemnity from the Company and each of the Guarantors to each of the Indemnified
Holders, but only with reference to written information relating to such
Indemnified Holder furnished to the Company by such Indemnified Holder
specifically for inclusion in any Registration Statement, preliminary prospectus
or Prospectus (or in any amendment or supplement thereto). This indemnity
agreement will be in addition to any liability which any Indemnified Holder may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture
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by the indemnifying party of substantial rights and defenses and (ii) will not,
in any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the indemnifying party's expense
to represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be responsible
for the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all indemnified parties, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm for the Indemnified
Holder and such control persons shall be designated in writing by a majority of
the Indemnified Holders and any such separate firm of the Company, its
directors, its officers and such control persons of the Company shall be
designated in writing by the Company. An indemnifying party will not, without
the prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 8 is unavailable to hold harmless an indemnified party for
any reason, the Company, the Guarantors and the Holders agree to contribute to
the aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company or one or more of the Guarantors
and one or more of the Holders may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantors, on the one hand, and by the Indemnified Holders, on the other hand,
from the sale of Transfer Restricted Securities; provided, however, that in no
case shall any Holder (except as may be provided in any agreement
17
<PAGE>
among the Holders relating to the sale of its Transfer Restricted Securities) be
responsible for any amount in excess of the amount by which the total received
by such Holder with respect to its sale of Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the amount paid to
such Holder for such Transfer Restricted Securities plus (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. If the
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Company and the Guarantors and the Indemnified Holder shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Guarantors,
on the one hand, and of the Indemnified Holder, on the other hand, in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by either the Company or the Guarantors, or the Holders and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, the Guarantors
and each Holder agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls a Holder within the meaning of either the Securities
Act or the Exchange Act and each director, officer, employee and agent of a
Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company or any Guarantor within the meaning of either
the Securities Act or the Exchange Act and each officer and director of the
Company or any Guarantor shall have the same rights to contribution as the
Company and the Guarantors, subject in each case to the applicable terms and
conditions of this paragraph (d). The remedies provided in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
SECTION 9. RULE 144A
The Company and each Guarantor hereby agrees with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which the Company or such Guarantor is not subject to Section 13 or
15(d) of the Securities Exchange Act, to make available, upon request of any
Holder of Transfer Restricted Securities, to any Holder or beneficial owner of
Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A.
18
<PAGE>
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree that
any failure by the Company and/or any Guarantor to comply with their respective
obligations under Sections 3 and 4 hereof may result in material irreparable
injury to the Initial Purchasers or the Holders for which there is no adequate
remedy at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, any Initial Purchaser or
any Holder may obtain such relief as may be required to specifically enforce the
Company's and the Guarantors' obligations under Sections 3 and 4 hereof. The
Company and the Guarantors further agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
shall, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted to the holders of the Company's and the
Guarantors' securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of the Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities (excluding Transfer Restricted Securities held by
the Company of its Affiliates). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer or registered pursuant to the Shelf Registration and that does not affect,
directly or indirectly, the rights of other Holders whose securities are not
being tendered pursuant to such Exchange Offer or registered pursuant to the
Shelf Registration may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities subject to such Exchange
Offer or such Shelf Registration, as applicable.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
19
<PAGE>
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
(ii) if to the Company and the Guarantors:
Global Crossing Holdings Ltd.
Wessex House
45 Reid Street
Hamilton HM12 Bermuda
Telecopier No.: (441) 296-8606
Attention: Secretary of the Company
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Telecopier No.: (212) 455-2502
Attention: D. Rhett Brandon, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto,
including, without limitation, and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Transfer Restricted Securities in violation of the terms hereof or of the
Purchase Agreement or the Indenture. If any transferee of any Holder shall
acquire Transfer Restricted Securities in any manner, whether by operation of
law or otherwise, such Transfer Restricted Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities, such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
20
<PAGE>
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(l) Consent to Jurisdiction and Service. To the fullest extent permitted
by applicable law, the Company and each of the Guarantors hereby irrevocably
submit to the jurisdiction of any Federal or State court located in the Borough
of Manhattan in The City of New York, New York in any suit, action or proceeding
based on or arising out of or relating to this Agreement or any Notes or
Exchange Notes, and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in any such court. The Company and each of the
Guarantors irrevocably waive, to the fullest extent permitted by law, any
objection which they may have to the laying of the venue of any such suit,
action or proceeding brought in such a court and any claim that any suit, action
or proceeding brought in such a court has been brought in an inconvenient forum.
The Company and each of the Guarantors agree that final judgment in any such
suit, action or proceeding brought in such a court shall be conclusive and
binding upon the Company and each such Guarantor and may be enforced in the
courts of Bermuda (or any other courts to the jurisdiction of which the Company
or such Guarantor is subject) by a suit upon such judgment, provided that
service of process is effected upon the Company or such Guarantor in the manner
specified herein or as otherwise permitted by law. The Company and each of the
Guarantors hereby irrevocably designate and appoint CT Corporation System, 1633
Broadway - 23rd Floor, New York, New York (the "Process Agent"), as the
authorized agent of the Company and each such Guarantor upon whom process may be
served in any such suit or proceeding, it being understood that the designation
and appointment of the Process Agent as such authorized agent shall become
effective immediately without any further action on the part of the Company or
any Guarantor. The Company and each of the Guarantors hereby represent to each
Initial Purchaser that they have notified the Process Agent of such designation
and appointment and that the Process Agent has accepted the same in writing. The
Company and each of the Guarantors hereby irrevocably authorize and direct the
Process Agent to accept such service. The Company and each of the Guarantors
further agree that service of process upon the Process Agent and
21
<PAGE>
written notice of said service to the Company mailed by prepaid registered first
class mail or delivered to the Process Agent at its principal office, shall be
deemed in every respect effective service of process upon the Company and each
Guarantor in any such suit or proceeding. Nothing herein shall affect the right
of any Initial Purchaser or any person controlling any Initial Purchaser to
serve process in any other matter permitted by law. The Company and each of the
Guarantors further agree to take any and all action, including the execution and
filing of any and all such documents and instruments as may be necessary to
continue such designation and appointment of the Process Agent in full force and
effect so long as the Company or any Guarantor has any outstanding obligations
under this Agreement, the Notes, the Exchange Notes or the Indenture. To the
extent that the Company or any Guarantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service of note, attachment prior to judgment, attachment in aid of
execution, executor or otherwise) with respect to itself or its property, the
Company and each such Guarantor hereby irrevocably waive such immunity in
respect of their respective obligations under this Agreement, to the extent
permitted by law.
[Registration Rights Agreement Signature Pages Follow]
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Global Crossing Holdings Ltd.
By /s/ Ian McLean
-------------------------------------
Name: Ian McLean
Title:
Guarantors:
Global Crossing Ltd., LDC
By /s/ Abbot Brown
-------------------------------------
Name: Abbot Brown
Title:
Global Crossing Ltd.
By /s/ Abbot Brown
-------------------------------------
Name: Abbot Brown
Title:
<PAGE>
Global Telesystems Holdings Ltd.
By /s/ Ian McLean
--------------------------------------
Name: Ian McLean
Title:
Global Crossing International, Ltd.
By /s/ Cameron Adderley
--------------------------------------
Name: Cameron Adderley
Title:
Global Crossing Holdings U.K. Ltd.
By /s/ Ian McLean
--------------------------------------
Name: Ian McLean
Title:
Global Crossing Marketing U.K. Ltd.
By /s/ Ian McLean
--------------------------------------
Name: Ian McLean
Title:
<PAGE>
Global Crossing Development Co.
By /s/ Abbott Brown
------------------------------------
Name: Abbott Brown
Title:
Global Crossing Marketing USA Inc.
By /s/ Ian McLean
------------------------------------
Name: Ian McLean
Title:
<PAGE>
INITIAL PURCHASERS:
Salomon Brothers Inc
By /s/ Lynn Atkinson
--------------------------
Name: Lynn Atkinson
Title: Associate
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By /s/ Lisa Graig
--------------------------
Name: Lisa Graig
Title: Authorized Signatory
CIBC Oppenheimer Corp.
By /s/ Neal Thomas
--------------------------
Name: Neal Thomas
Title:
<PAGE>
Morgan Stanley & Co. Incorporated
By *
---------------------------
Name:
Title:
Deutsche Morgan Grenfell Inc.
By *
---------------------------
Name:
Title: Managing Director
By /s/ R. Scott Flieger
---------------------------
Name: R. Scott Flieger
Title: Director
<PAGE>
EXHIBIT 4.5
EXECUTION COPY
================================================================================
CREDIT AGREEMENT,
dated as of
June 27, 1997,
among
GLOBAL TELESYSTEMS LTD.,
as the Borrower,
VARIOUS FINANCIAL INSTITUTIONS,
as the Lenders,
DEUTSCHE BANK AG, NEW YORK BRANCH, and
CANADIAN IMPERIAL BANK OF COMMERCE,
as the Lead Agents,
DEUTSCHE BANK AG, NEW YORK BRANCH,
as the Administrative Agent,
and
CANADIAN IMPERIAL BANK OF COMMERCE,
as the Syndication Agent, the Documentation
Agent and the Issuing Bank.
----------------------------------
DEUTSCHE MORGAN GRENFELL INC. and
CIBC WOOD GUNDY SECURITIES CORP.,
as the Arrangers.
----------------------------------
Construction, Working Capital and Term Financing of the
Atlantic Crossing Fiber-optic Submarine Cable System.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE IDEFINITION
<S> <C> <C>
SECTION 1.01. Defined Terms.................................................................2
SECTION 1.02. Classification of Loans and Borrowings.......................................35
SECTION 1.03. Terms Generally..............................................................35
SECTION 1.04. Accounting Terms; GAAP.......................................................36
ARTICLE IITHE COMMITMENTS
SECTION 2.01. Commitments. ................................................................36
SECTION 2.02. Loans and Borrowings.........................................................36
SECTION 2.03. Requests for Borrowings......................................................37
SECTION 2.04. Special Provisions for Working Capital Loans.................................38
SECTION 2.05. Letters of Credit............................................................39
SECTION 2.06. Funding of Borrowings........................................................44
SECTION 2.07. Interest Elections...........................................................45
SECTION 2.08. Termination and Reduction of Commitments.....................................46
SECTION 2.09. Repayment of Loans; Evidence of Debt.........................................47
SECTION 2.10. Optional Prepayments of Loans................................................48
SECTION 2.11. Mandatory Prepayments........................................................49
SECTION 2.12. Fees.........................................................................51
SECTION 2.13. Interest.....................................................................52
SECTION 2.14. Alternate Rate of Interest; Illegality.......................................52
SECTION 2.15. Increased Costs..............................................................53
SECTION 2.16. Break Funding Payments.......................................................54
SECTION 2.17. Taxes........................................................................55
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs..................57
SECTION 2.19. Mitigation Obligations; Replacement of Lenders...............................58
ARTICLE IIIREPRESENTATIONS AND WARRANTIES
SECTION 3.01. Financial Condition..........................................................59
SECTION 3.02. No Change....................................................................60
SECTION 3.03. Organization; Powers.........................................................60
SECTION 3.04. Authorization; Enforceability................................................60
SECTION 3.05. Corporate Structure..........................................................60
SECTION 3.06. Compliance with Law..........................................................61
SECTION 3.07. No Legal Bar.................................................................61
SECTION 3.08. Governmental Actions.........................................................61
SECTION 3.09. Litigation...................................................................61
SECTION 3.10. Environmental Matters........................................................61
SECTION 3.11. No Default; Event of Default.................................................62
SECTION 3.12. Properties...................................................................62
SECTION 3.13. Taxes........................................................................62
SECTION 3.14. Federal Regulations..........................................................62
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
SECTION 3.15. ERISA........................................................................62
SECTION 3.16. Investment Company Act.......................................................62
SECTION 3.17. Security Documents...........................................................62
SECTION 3.18. Principal Place of Business..................................................63
SECTION 3.19. Disclosure...................................................................63
SECTION 3.20. Sufficiency of System Contracts..............................................63
SECTION 3.21. Immunity.....................................................................63
SECTION 3.22. Export Control...............................................................64
SECTION 3.23. Foreign Corrupt Practices Act................................................64
SECTION 3.24. Intellectual Property........................................................64
ARTICLE IVCONDITIONS
SECTION 4.01. Conditions Precedent to the Initial Credit Extensions........................64
SECTION 4.02. Conditions Precedent to Subsequent Credit Extensions.........................71
ARTICLE VAFFIRMATIVE COVENANTS
SECTION 5.01. Financial Statements and Other Information...................................74
SECTION 5.02. Reports......................................................................75
SECTION 5.03. Payment of Obligations.......................................................76
SECTION 5.04. Conduct of Business; System Completion.......................................76
SECTION 5.05. Existence....................................................................76
SECTION 5.06. Compliance with Laws.........................................................76
SECTION 5.07. Performance of Agreements....................................................77
SECTION 5.08. Taxes and Claims.............................................................77
SECTION 5.09. Notices......................................................................77
SECTION 5.10. Insurance....................................................................77
SECTION 5.11. Fiscal Year..................................................................78
SECTION 5.12. Use of Proceeds..............................................................78
SECTION 5.13. Environmental Matters........................................................78
SECTION 5.14. Operating Budgets; Operating Plans...........................................78
SECTION 5.15. Governmental Actions.........................................................79
SECTION 5.16. Cooperation with Independent Engineer........................................79
SECTION 5.17. Spare Parts..................................................................79
SECTION 5.18. Interest Rate Protection.....................................................79
SECTION 5.19. Revenue Account..............................................................79
SECTION 5.20. Maintenance of Process Agent.................................................80
SECTION 5.21. System Operation and Maintenance.............................................80
SECTION 5.22. Event of Loss................................................................80
SECTION 5.23. Books and Records; Inspection Rights.........................................80
SECTION 5.24. Export Control...............................................................80
SECTION 5.25. Foreign Corrupt Practices Act................................................80
SECTION 5.26. Further Assurances...........................................................81
SECTION 5.27. As to Intellectual Property Collateral.......................................81
SECTION 5.28. Future Subsidiaries..........................................................81
SECTION 5.29. Lease........................................................................82
SECTION 5.30. Foreign Subsidiary Collateral; Mortgages.....................................83
</TABLE>
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<PAGE>
<TABLE>
ARTICLE VINEGATIVE COVENANTS
<S> <C> <C>
SECTION 6.01. Indebtedness.................................................................84
SECTION 6.02. Liens........................................................................85
SECTION 6.03. Fundamental Changes..........................................................85
SECTION 6.04. Sale of Assets...............................................................85
SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions....................85
SECTION 6.06. Restricted Payments..........................................................87
SECTION 6.07. Amendment of System Contracts, etc...........................................87
SECTION 6.08. Supply Contract..............................................................88
SECTION 6.09. Addition to Configuration....................................................89
SECTION 6.10. Permitted System Upgrades....................................................90
SECTION 6.11. Leases.......................................................................90
SECTION 6.12. Change of Office.............................................................90
SECTION 6.13. Change of Name...............................................................90
SECTION 6.14. Transactions with Affiliates.................................................90
SECTION 6.15. Sale and Leaseback...........................................................91
SECTION 6.16. Approval of Additional Contracts.............................................91
SECTION 6.17. Capital Expenditures.........................................................91
SECTION 6.18. Limitations on Transfer and Issuance of Interests............................91
SECTION 6.19. Unrelated Activities; Abandonment; New Subsidiaries..........................92
SECTION 6.20. Set-off......................................................................92
SECTION 6.21. Changes in Capital Budget....................................................92
SECTION 6.22. Payment of Construction Costs................................................93
SECTION 6.23. Sales of Capacity............................................................93
SECTION 6.24. Financial Covenants..........................................................93
SECTION 6.25. Amendments, etc. of Organizational and Other Documents.......................94
SECTION 6.26. Management and Advisory Fees, etc............................................95
SECTION 6.27. Immunity.....................................................................95
ARTICLE VIIEVENTS OF DEFAULT
SECTION 7.01. Non-Payment of Obligations...................................................95
SECTION 7.02. Breach of Warranty...........................................................95
SECTION 7.03. Non-Performance of Certain Covenants and Obligations.........................96
SECTION 7.04. Involuntary Bankruptcy Proceeding, etc.......................................96
SECTION 7.05. Voluntary Bankruptcy Proceeding, etc.........................................96
SECTION 7.06. Judgments....................................................................97
SECTION 7.07. ERISA........................................................................97
SECTION 7.08. Impairment of Security, etc..................................................97
SECTION 7.09. Commercial Operation.........................................................97
SECTION 7.10. Impairment of System Contract................................................97
SECTION 7.11. Default Under System Contract................................................98
SECTION 7.12. Liquidated Damages...........................................................98
SECTION 7.13. Revocation of Landing License, etc...........................................98
SECTION 7.14. Change in Control............................................................98
SECTION 7.15. Default on Other Indebtedness................................................98
SECTION 7.16. Delay in Construction or Installation........................................99
</TABLE>
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<PAGE>
<TABLE>
ARTICLE VIIIACCOUNTS
<S> <C> <C>
SECTION 8.01. Creation of Accounts.........................................................99
SECTION 8.02. Required Deposits into the Accounts.........................................100
SECTION 8.03. Deposits Held as Cash Collateral............................................103
SECTION 8.04. Source of Payments; Deposits Irrevocable....................................103
SECTION 8.05. Books of Account; Statements................................................103
SECTION 8.06. Location of the Accounts....................................................104
SECTION 8.07. Construction Account........................................................104
SECTION 8.08. Revenue Account.............................................................104
SECTION 8.09. Special Payment Account.....................................................108
SECTION 8.10. Debt Reserve Account........................................................109
SECTION 8.11. Holdings Interest Reserve Account...........................................109
SECTION 8.12. Operating Reserve Account...................................................110
SECTION 8.13. Insurance Proceeds Account..................................................111
SECTION 8.14. Clean-Up Account............................................................112
SECTION 8.15. Sales and Issuances Proceeds Account........................................112
SECTION 8.16. Construction Contingency Reserve Account....................................113
SECTION 8.17. VAT Refund Account..........................................................114
SECTION 8.18. Current Account.............................................................114
SECTION 8.19. Subsidiary Accounts.........................................................114
SECTION 8.20. Release of Excess Amounts...................................................115
SECTION 8.21. Acceleration................................................................115
SECTION 8.22. Investment..................................................................115
SECTION 8.23. Value.......................................................................115
SECTION 8.24. Other Determinations........................................................116
SECTION 8.25. Sales of Permitted Investments..............................................116
SECTION 8.26. Available Cash..............................................................116
SECTION 8.27. Termination.................................................................116
SECTION 8.28. Rights of Sales Agent to Commissions........................................116
SECTION 8.29. Conflicts With Other Loan Documents.........................................116
SECTION 8.30. Checking Account............................................................117
SECTION 8.31. Purchaser Escrow Arrangements...............................................117
ARTICLE IXTHE ADMINISTRATIVE AGENT, OTHER AGENTS AND AGENT
RELATED PERSONS
SECTION 9.01. Authorization and Action....................................................117
SECTION 9.02. Exculpation of, and Reliance by, Agents and Agent Related Persons...........118
SECTION 9.03. Agents, Agent Related Persons and Affiliates................................118
SECTION 9.04. Lender Credit Decision......................................................119
SECTION 9.05. Indemnification.............................................................119
SECTION 9.06. Collateral Matters..........................................................120
SECTION 9.07. Successor Administrative Agent..............................................120
ARTICLE XMISCELLANEOUS
SECTION 10.01. Notices....................................................................121
SECTION 10.02. Waivers; Amendments........................................................122
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
SECTION 10.03. Expenses; Indemnity; Damage Waiver.........................................123
SECTION 10.04. Successors and Assigns; Consent and Agreement..............................124
SECTION 10.05. Limited Recourse...........................................................127
SECTION 10.06. Survival...................................................................127
SECTION 10.07. Counterparts; Integration; Effectiveness...................................128
SECTION 10.08. Severability...............................................................128
SECTION 10.09. Right of Setoff............................................................128
SECTION 10.10. Governing Law; Jurisdiction; Consent to Service of Process.................128
SECTION 10.11. WAIVER OF JURY TRIAL.......................................................129
SECTION 10.12. Headings...................................................................129
SECTION 10.13. Replacement of Independent Engineer or Insurance Consultant................129
SECTION 10.14. Confidentiality............................................................130
</TABLE>
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<PAGE>
SCHEDULES:
Schedule 1.01(a) -- Permitted Reserve LC Facility
Schedule 2.01 -- Lenders; Commitments
Schedule 2.09 -- Principal Amortization Table
Schedule 3.05(a) -- Borrower Capital Structure
Schedule 3.05(b) -- Subsidiaries
Schedule 3.08 -- Governmental Actions
Schedule 3.13 -- Taxes
Schedule 3.17 -- Collateral Filings
Schedule 5.10 -- Insurance
EXHIBITS:
Exhibit A-1 -- Form of Working Capital Note
Exhibit A-2 -- Form of Term Note
Exhibit B-1 -- Form of Borrowing Request
Exhibit B-2 -- Form of Issuance Request
Exhibit B-3 -- Form of Borrowing Certificate
Exhibit C -- Form of Continuation/Conversion Notice
Exhibit D -- Form of Assignment and Acceptance
Exhibit E-1 -- Form of Borrower Security Agreement
Exhibit E-2 -- Form of Subsidiary Security Agreement
Exhibit E-3 -- Form of SSI Lender Security Agreement
Exhibit F-1 -- Form of Holdings Pledge Agreement
Exhibit F-2 -- Form of Borrower Pledge Agreement
Exhibit F-3 -- Form of SSI Lender Pledge Agreement
Exhibit G -- Form of Subsidiary Guaranty Agreement
Exhibit H -- Form of Closing Date Certificate
Exhibit I-1 -- Form of Contingency Letter of Credit
Exhibit I-2 -- Form of Retainage Letter of Credit
Exhibit J -- Form of SSI Consent
Exhibit K -- Form of Construction Progress Certificate
Exhibit L -- Form of Pre-approved Capacity Sales Agreement
Exhibit M-1 -- Form of Expense Certificate
Exhibit M-2 -- Form of Article VIII Certificate
Exhibit N -- Form of Participation Certificate
Exhibit O-1 -- Form of Legal Opinion of Appleby, Spurling & Kempe
Exhibit O-2 -- Form of Legal Opinion of Simpson Thacher & Bartlett
Exhibit O-3 -- Form of Legal Opinion of Hogan & Hartson, LLP
Exhibit O-4 -- Form of Legal Opinion of Clifford Chance
Exhibit O-5 -- Form of Legal Opinion of in-house counsel to AT&T
Exhibit O-6 -- Form of Legal Opinion of in-house counsel to SSI
Exhibit O-7 -- Form of Legal Opinion of Davis Polk & Wardwell
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CREDIT AGREEMENT, dated as of June 27, 1997 (as amended, supplemented,
amended and restated or otherwise modified from time to time, this "Agreement"),
among GLOBAL TELESYSTEMS LTD., a corporation organized and existing under the
laws of Bermuda (the "Borrower"), the financial institutions from time to time
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parties hereto as lenders (collectively, the "Lenders"), DEUTSCHE BANK AG, NEW
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YORK BRANCH, and CANADIAN IMPERIAL BANK OF COMMERCE, acting by and/or through
one or more of its branches, agencies or affiliates ("CIBC"), as lead agents for
----
the Lenders (in such capacity, the "Lead Agents"), DEUTSCHE BANK AG, NEW YORK
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BRANCH, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), and CIBC, as syndication agent for the Lenders (in such
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capacity, the "Syndication Agent"), documentation agent for the Lenders (in such
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capacity, the "Documentation Agent") and issuer of the Letters of Credit
-------------------
referred to herein (in such capacity, the "Issuing Bank").
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W I T N E S S E T H :
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WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in Section 1.01 of this Agreement;
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WHEREAS, the Borrower (together with its Subsidiaries) proposes to develop,
construct, own (and lease), provide and sell Capacity on a four fiber pair,
fiber-optic submarine cable system to be known as the Atlantic Crossing Cable
System or AC-1, which is intended to be used to provide direct
telecommunications service between and among the United States, the United
Kingdom and the Federal Republic of Germany (as modified from time to time in
accordance with the terms hereof, the "System");
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WHEREAS, in order to provide for the design, construction and installation
of the System, the Borrower has entered into the Supply Contract with the
Contractor (and, pursuant to Supplement No. 1 thereto, the Subsidiaries became
or shall become parties thereto);
WHEREAS, the Contractor's obligations with respect to the Work under and as
defined in the Supply Contract are being guaranteed by AT&T Corp. pursuant to,
and subject to the limitations set forth in, the Supply Contract Guaranty;
WHEREAS, in order to provide security for the payment to the Contractor of
amounts owing under the Supply Contract, the Borrower, the Contractor and the
Escrow Agent have entered into the Contractor Escrow and Security Agreement;
WHEREAS, in order to provide for the operation, administration and
maintenance of the System, the Borrower has
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entered into the OA&M Agreement with the Operator (and, pursuant to Supplement
No. 1 thereto, the Subsidiaries became or shall become parties thereto);
WHEREAS, in order to market and sell Capacity, the Borrower has entered
into the Sales Agency Agreement with the Sales Agent;
WHEREAS, certain of the assets located in the United States to be used in
connection with the operation of the System are and/or shall be owned by the
subsidiary of the Contractor referred to herein as SSI Sub 2, which shall grant
an indefeasible right of use and option in favor of the U.S. Subsidiary pursuant
to the SSI IRU and Option Agreement;
WHEREAS, in order to finance a portion of the design, development,
construction and installation of the System, Holdings, the Borrower's parent,
has agreed to make cash equity contributions to the Borrower in an aggregate
amount equal to the Net Equity Funding Commitment;
WHEREAS, in order to finance the remaining portion of the design,
development, construction and installation of the System, the Borrower is
entering into this Agreement pursuant to which the Lenders and the Issuing Bank
have agreed, subject to the terms and conditions set forth herein, to make
certain Credit Extensions to the Borrower; and
WHEREAS, in furtherance of the foregoing and in order to secure and support
the Borrower's obligations to the Lenders and the Issuing Bank under the Loan
Documents, Holdings, the Borrower and the Subsidiaries will enter into the
Security Documents (including with respect to the aforesaid SSI IRU and Option
Agreement) to which they are parties (and the Subsidiaries (other than the
German Subsidiary) will enter into the Subsidiary Guaranty Agreement);
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
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SECTION 1.1. Defined Terms. As used in this Agreement, the following
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terms shall have the meanings specified below:
"ABR" when used in reference to any Loan or Borrowing, refers to whether
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such Loan, or the Loans comprising such
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Borrowing, are bearing interest at a rate determined by reference to the
Alternate Base Rate.
"Accounts" shall be the collective reference to the Revenue Account, the
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Construction Account, the Debt Reserve Account, the Holdings Interest Reserve
Account, the Operating Reserve Account, the Construction Contingency Reserve
Account, the Clean-Up Account, the Insurance Proceeds Account, the Special
Payment Account, the Sales and Issuances Proceeds Account, the Current Account,
the VAT Refund Account, the Subsidiary Accounts and each other "Collateral
Account", together with each sub-account of such accounts, established and
maintained pursuant to Article VIII.
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"Actual Date of Commercial Operation" means the date the Borrower receives
-----------------------------------
a Commissioning Report under the Supply Contract demonstrating that the System
is Ready for Commercial Service or Ready for Provisional Acceptance.
"Additional Contracts" means any contract entered into by the Borrower or
--------------------
any Subsidiary after the Closing Date (other than employment contracts and
contracts involving less than $1,000,000 annually).
"Additional Material Contract" means each Additional Contract designated as
----------------------------
an "Additional Material Contract" in accordance with Section 6.16.
------------
"Additional Non-Material Contract" means each Additional Contract
--------------------------------
designated as an "Additional Non-Material Contract" in accordance with Section
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6.16.
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"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for
------------------
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" is defined in the preamble and includes each of its
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successors hereunder.
"Advisory Services Agreement" means the Advisory Services Agreement, dated
---------------------------
as of March 25, 1997, between the Borrower and PCG Telecom Services LLC, as the
same may be amended, supplemented, amended and restated or otherwise modified
from time to time in accordance with the terms hereof.
"Advisory Services Fee" means the "Fee", as defined in the Advisory
---------------------
Services Agreement.
"Affiliate" means, with respect to a specified Person, another Person
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(other than a subsidiary of the Person specified)
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that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agent Related Persons" means the Agents, the Issuing Bank, the Arrangers
---------------------
and their respective officers, directors, partners, agents, employees and
Affiliates and Subsidiaries.
"Agents" is the collective reference to the Administrative Agent, the
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Syndication Agent, the Documentation Agent and each Lead Agent.
"Agreement" is defined in the preamble.
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"Alternate Base Rate" means, for any day, a rate per annum equal to the
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greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Annex H Costs" means the costs set forth on Annex H to the OA&M Agreement.
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"Applicable Percentage" means, with respect to any Lender, the percentage
---------------------
of the total Commitments represented by such Lender's Commitments; provided
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that, for purposes of this definition, Lenders obligated to purchase
participations in Working Capital Loans pursuant to Section 2.04(a) shall be
---------------
deemed to have Working Capital Loan Commitments in amounts equal to such
participation obligations and the Working Capital Lenders' Working Capital Loan
Commitments shall be deemed to be ratably reduced by such participation
obligations. If the Commitments have terminated or expired, the Applicable
Percentages shall be determined based upon the Commitments most recently in
effect, giving effect to any assignments.
"Applicable Rate" means, for any day, with respect to any ABR Loans or
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Eurodollar Loans, the applicable rate per annum set forth below under the
caption "ABR Spread" or "Eurodollar Spread", as the case may be:
ABR Spread Eurodollar Spread
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1.50% 2.50%
The Applicable Rates set forth above shall be reduced by .50% per annum if and
so long as the Sales Threshold has been met when no
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Designated Event or Specified Default shall have occurred and be continuing.
"Arrangers" means CIBC Wood Gundy Securities Corp., a non-banking affiliate
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of Canadian Imperial Bank of Commerce, and Deutsche Morgan Grenfell Inc., a non-
bank indirect subsidiary of Deutsche Bank AG, each in its capacity as an
arranger with respect hereto.
"Article VIII Certificate" means each certificate of the Borrower,
------------------------
substantially in the form of Exhibit M-2, delivered pursuant to Article VIII.
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"Assessment Rate" means, for any day, the annual assessment rate in effect
---------------
on such day that is payable by a member of the Bank Insurance Fund classified as
"well-capitalized" and within supervisory subgroup "B" (or a comparable
successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to the Federal Deposit Insurance Corporation for insurance
by such Corporation of time deposits made in dollars at the offices of such
member in the United States; provided that if, as a result of any change in any
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law, rule or regulation, it is no longer possible to determine the Assessment
Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall
be determined by the Administrative Agent to be representative of the cost of
such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered into
-------------------------
by a Lender and an assignee (with the consent of any party whose consent is
required by Section 10.04), and accepted by the Administrative Agent,
-------------
substantially in the form of Exhibit D or any other form approved by the
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Administrative Agent.
"AT&T" means AT&T Corp., a New York corporation.
----
"Availability Period" means
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(a) with respect to any Loan (other than a Loan made to reimburse an
LC Disbursement in accordance with Section 2.05(e)), the period from and
---------------
including the Closing Date to but excluding the earliest of (i) if the
Actual Date of Commercial Operation does not occur prior to the Guaranteed
Completion Date, the Guaranteed Completion Date, (ii) if the Actual Date of
Commercial Operation does occur prior to the Guaranteed Completion Date,
the date on which the Contractor has received payment in full of all
amounts due under the Supply Contract other than the portion thereof
constituting the Final Contractor Payment, and (iii) the date of
termination of the Commitments; and
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(b) with respect to any Loan made to reimburse an LC Disbursement
under any Letter of Credit in accordance with Section 2.05(e), the period
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from and including the date the related Letter of Credit is issued to but
excluding the earliest of (i) the date such Letter of Credit is terminated
in accordance with its terms (other than by reason of a drawing
thereunder), (ii) the date such LC Disbursement is reimbursed in accordance
with Section 2.05(e) from funds other than the proceeds of a Loan, (iii)
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the date which is five Business Days after the date the Borrower receives
notice of such LC Disbursement and (iv) the date of termination of the
Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
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multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Blockage Event" means the occurrence and continuance of (a) an Event of
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Default arising under Section 7.01, (b) a Default or Event of Default arising
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under Section 7.04 or 7.05 (but only if such event is with respect to the
------------ ----
Borrower), (c) a Default arising under Section 7.11 (but only if such Default is
------------
with respect to the Operator or the Contractor) during the period of time the
Operator or the Contractor, as the case may be, is being replaced in accordance
with the terms of such Section 7.11 or (d) an Event of Default arising under
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Section 7.11 (but only if such Event of Default is with respect to the Operator
- ------------
or the Contractor).
"Board" means the Board of Governors of the Federal Reserve System of the
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United States of America.
"Borrower" is defined in the preamble.
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"Borrower Pledge Agreement" means the Pledge Agreement, dated as of the
-------------------------
date hereof, substantially in the form of Exhibit F-2, made by the Borrower in
-----------
favor of the Administrative Agent, as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time, including as
supplemented by the Foreign Subsidiary Pledge Supplements.
"Borrower Security Agreement" means the Security Agreement, dated as of the
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date hereof, substantially in the form of Exhibit E-1, made by the Borrower in
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favor of the Administrative Agent, as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time.
"Borrowing" means Loans of the same Class and Type, made, converted or
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continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect.
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"Borrowing Certificate" means a certificate of the Borrower, substantially
---------------------
in the form of Exhibit B-3.
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"Borrowing Date" means the last Business Day of each calendar month.
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"Borrowing Request" means a notice from the Borrower, substantially in the
-----------------
form of Exhibit B-1. Each Borrowing Request shall specify the information
-----------
specified in Section 2.03 and shall be accompanied by a certificate of the
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Borrower setting forth all costs which have been incurred and which are to be
paid with the proceeds of the proposed Borrowing (with all applicable invoices
attached). The final Borrowing Request delivered at the end of the Availability
Period shall include a statement certifying all costs set forth in the Capital
Budget which have not yet been funded, which costs will be prefunded into the
Clean-Up Account.
"Business Day" means any day that is not a Saturday, Sunday or other day on
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which commercial banks in New York City are authorized or required by law to
remain closed; provided that, when used in connection with a Eurodollar Loan,
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the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
"Capacity" means S Capacity and/or T Capacity, as the context may require.
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"Capacity Sales Agreements" means all agreements for the sale or lease or
-------------------------
other disposition of Capacity entered into between the Borrower or any
Subsidiary and any other Person, as each may be amended, supplemented, amended
and restated or otherwise modified from time to time in accordance with the
terms hereof.
"Capacity Sales Revenue" means the cumulative cash revenue (net of sales
----------------------
commissions) received by the Borrower and its Subsidiaries from the sales of
Capacity and from payments in respect of maintenance charges from customers,
but, in any event, not double counting payments received by the Subsidiaries
from the Borrower under the Intercompany Agreement.
"Capital Budget" shall have the meaning set forth in Section 4.01(h).
-------------- ---------------
"Capital Costs" means all costs and expenses incurred or to be incurred by
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the Borrower or any Subsidiary in connection with the design, development,
installation, construction, completion, start-up and testing of the System (and
shall include, in any event, all interest and other financing costs during
construction incurred or to be incurred by the Borrower, any Subsidiary (if
permitted pursuant to Section 6.01) and Holdings (pursuant to the
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Holdings Note Purchase Agreement)), all payments under Hedging Agreements and
all OA&M Expenses to the extent set forth in the Capital Budget, all as set
forth in the then current Capital Budget.
"Capital Lease Obligations" of any Person, means the obligations of such
-------------------------
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Capital Stock" means any and all shares, interests, participation or other
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equivalents (however designated) of capital stock of a corporation, and any and
all equivalent ownership interests in a Person (other than a corporation).
"Casualty Proceeds" all payments received by the Administrative Agent, the
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Borrower or any Subsidiary from any insurer in respect of casualty to or loss of
property, all awards and proceeds in respect of a taking, but excluding business
interruption insurance or delayed opening of business insurance and payments in
respect of liability policies.
"Casualty Proceeds Deposits" is defined in Section 8.13.
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"Certificate of Commercial Service" is defined in the Supply Contract.
---------------------------------
"Certificate of Final Acceptance" is defined in the Supply Contract.
-------------------------------
"Certificate of Provisional Acceptance" is defined in the Supply Contract.
-------------------------------------
"Change in Control" means and shall be deemed to have occurred if (a) there
-----------------
shall occur any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Borrower and its Subsidiaries to any Person or group of related Persons for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (a
"Group"), together with any Affiliates thereof; (b) the holders of Capital Stock
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of the Borrower shall approve any plan or proposal for the liquidation or
dissolution of the Borrower; (c) any Person or Group (other than the Permitted
Holders) shall become, after the Closing Date, the owner, directly or
indirectly, beneficially or of record, of Voting Stock representing more than
35% of the total voting power of all Voting Stock of Holdings or the Borrower;
(d) any "Change of Control" as defined in the Holdings Note Purchase Agreement
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shall occur; (e) there shall be a termination of PCG or its Affiliates under the
Advisory Services Agreement; (f) the Borrower shall cease to be at least a 65%
owned, direct subsidiary of Holdings, with all ownership interests in the
Borrower held by all Persons free and clear of all consensual Liens except Liens
in favor of the Administrative Agent; (g) Holdings shall cease to control a
majority of the seats on the Board of Directors of the Borrower; or (h) the PCG
Group and their respective Affiliates shall cease to own and control, directly
or indirectly, at least 95% of their aggregate initial holdings in Holdings as
of the Closing Date, beneficially and of record.
"Change in Law" means (a) the adoption of any law, rule or regulation after
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the Closing Date, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
Closing Date or (c) compliance by any Lender, any parent of any Lender or the
Issuing Bank with any request, guideline or directive of any Governmental
Authority made or issued after the Closing Date (whether or not having the force
of law).
"Checking Account" is defined in Section 8.02(b).
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"CIBC" is defined in the preamble.
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"Class" when used in reference to any Loan or Borrowing, refers to whether
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such Loan, or the Loans comprising such Borrowing, are Working Capital Loans or
Term Loans and, when used in reference to any Commitment, refers to whether such
Commitment is a Working Capital Loan Commitment or a Term Loan Commitment.
"Clean-Up Account" means the special account designated by that name
----------------
established by the Administrative Agent pursuant to Section 8.01(a).
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"Closing Date" means the date on which this Agreement shall have been
------------
executed and delivered by the parties hereto and the conditions specified in
Section 4.01 are satisfied or waived as evidenced by the making of the initial
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Loans.
"Closing Date Certificate" means a certificate of a Responsible Officer of
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the Borrower, substantially in the form of Exhibit H.
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"Code" means the Internal Revenue Code of 1986, as amended from time to
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time.
"Collateral" means any and all "Collateral", as defined in any applicable
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Security Document.
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"Commercial Operation Date" means the earlier of (a) the date the
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Certificate of Commercial Service is issued with respect to the System and (b)
the date the Certificate of Provisional Acceptance is issued with respect to the
System.
"Commitment" means the Working Capital Loan Commitment or the Term Loan
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Commitment, or a combination thereof (as the context requires).
"Confidential Memorandum" means the Confidential Information Memorandum,
-----------------------
dated April 1997, with respect to Atlantic Crossing U.S.$410,000,000 Senior
Secured Facilities distributed by the Arrangers.
"Consolidated Interest Expense" means, with respect to the Borrower and the
-----------------------------
Subsidiaries for any period, the sum of (a) gross interest expense (including
all cash and accrued interest expense) of the Borrower and the Subsidiaries for
such period on a consolidated basis and (b) that portion of Permitted Senior
Cash Dividends paid during such period in respect of interest on the Holdings
Senior Notes.
"Consolidated Net Income" means, for any period, net income of the Borrower
-----------------------
and the Subsidiaries determined on a consolidated basis in accordance with GAAP.
"Construction Account" means the special account designated by that name
--------------------
established by the Administrative Agent pursuant to Section 8.01(a).
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"Construction Contingency Reserve Account" means the special account
----------------------------------------
designated by that name established by the Administrative Agent pursuant to
Section 8.01(a).
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"Construction Progress Certificate" means a certificate from the Contractor
---------------------------------
(and countersigned by the Borrower and the Independent Engineer), substantially
in the form of Exhibit K.
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"Consultants" means, collectively, the Independent Engineer, the Market
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Consultant and the Insurance Consultant.
"Contest" means, with respect to any tax, Lien, claim or obligation, a
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contest pursued in good faith and by appropriate proceedings diligently
conducted, so long as (a) adequate reserves in accordance with GAAP have been
established with respect thereto, (b) no Lien shall have been filed in
connection therewith or any Lien filed in connection therewith shall have been
removed from the record by the bonding thereof and (c) the failure to pay such
tax, Lien, claim or obligation during the pendency of such contest could not
reasonably be expected to have a Material Adverse Effect.
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"Contingency Letter of Credit" means the reducing Letter of Credit,
----------------------------
substantially in the form of Exhibit I-1, or such other form as agreed to by the
-----------
Borrower, the Contractor, the Administrative Agent and the Issuing Bank, issued
to support the Borrower's obligation to maintain amounts in the Escrow
Contingent Account as contemplated by Sub-Article 5(C)(7) of the Supply
Contract, as such Letter of Credit may be amended, supplemented, amended and
restated or otherwise modified from time to time.
"Continuation/Conversion Notice" means a request by the Borrower to convert
------------------------------
or continue a Working Capital Borrowing or a Term Loan Borrowing in accordance
with Section 2.07, substantially in the form of Exhibit C.
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"Contractor" means SSI.
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"Contractor Escrow and Security Agreement" means the Escrow and Security
----------------------------------------
Agreement, dated as of March 25, 1997, among SSI, the Borrower and the Escrow
Agent, as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time in accordance with the terms hereof.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or any agreement, instrument, judgment, order,
decree or other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Contract Variation" means any amendment, supplement, waiver, consent or
------------------
other modification to the Supply Contract and shall include any "Contract
Variation" as such term is defined in the Supply Contract.
"Control" means the possession, directly or indirectly, of (a) the power to
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direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise and/or
(b) the ownership of 10% or more of the securities having ordinary voting power
for the election of directors of a Person. "Controlling" and "Controlled" have
----------- ----------
meanings correlative thereto.
"Credit Extension" means, as the context may require, (a) the making of a
----------------
Loan by a Lender or (b) the issuance of any Letter of Credit, or the extension
of any expiration date of any previously issued Letter of Credit, by the Issuing
Bank.
"Current Account" means the special account designated by that name
---------------
established by the Administrative Agent pursuant to Section 8.01(a).
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"Debt Reserve Account" means the special account designated by that name
--------------------
established by the Administrative Agent pursuant to Section 8.01(a).
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"Debt Reserve Amount" means, at any time of determination, an amount equal
-------------------
to six months of anticipated interest on the Loans using the interest rate in
effect as of such date with respect to the Loans plus an amount equal to the
next scheduled principal payment on the Loans.
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Defaulting Lender" means any Lender with respect to which a Lender Default
-----------------
is in effect.
"Designated Event" means, as of any Principal Payment Date, the Borrower's
----------------
failure to be in compliance with Section 6.24 as of such Principal Payment Date,
------------
as set forth in the certificate delivered by the Borrower to the Administrative
Agent in accordance with Section 5.02(c), or the failure of the Borrower to
---------------
deliver such a certificate when required under Section 5.02(c), and such
---------------
Designated Event shall be deemed to continue until such time as the Borrower
shall have delivered a certificate under Section 5.02(c) indicating compliance
---------------
with Section 6.24 and the Borrower shall be in compliance with Section 6.24.
------------ ------------
"Documentation Agent" is defined in the preamble.
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"Dollars" or "$" refers to lawful money of the United States of America.
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"EBITDA" means, for any period, Consolidated Net Income for such period,
------
plus, without duplication and (other than with respect to amounts included in
- ----
clause (b) of the definition of Consolidated Interest Expenses) to the extent
- ----------
deducted from revenues in determining Consolidated Net Income for such period
(a) the aggregate amount of Consolidated Interest Expense for such period, (b)
the aggregate amount of letter of credit fees paid during such period, (c) the
aggregate amount of income tax expense for such period, (d) all amounts
attributable to depreciation and amortization for such period and (e) all non-
cash, non-recurring charges during such period, and minus, without duplication
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and to the extent added to revenues in determining Consolidated Net Income for
such period, all non-cash, non-recurring gains during such period, in each case
determined in accordance with GAAP.
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"Environmental Laws" means all applicable laws, rules, permits, orders and
------------------
regulations relating to the protection of the environment and natural resources,
and all similar items under the laws of each jurisdiction (including the United
States, Bermuda, the United Kingdom and the Federal Republic of Germany), where
the Borrower and its Subsidiaries are incorporated and/or operate.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law
or (b) the release or threatened release of any Hazardous Materials into the
environment.
"Equity Contributions" means each contribution of cash equity by Holdings
--------------------
to the Borrower to fund the development, construction, installation or ownership
of the System.
"Equity Funding Commitment" means $325,000,000.
-------------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any entity (whether or not incorporated) that,
---------------
together with the Borrower, is treated as a single employer under Section 414(b)
or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section
412 of the Code, is treated as a single employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043(c) of ERISA or the regulations issued thereunder with respect to a Plan
(other than an event for which the 30-day notice period is waived under
applicable PBGC regulations); (b) the failure to make a required contribution to
any Plan sufficient to give rise to a lien under Section 302(f) of ERISA; (c)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the taking of any steps by the Borrower or any of its
ERISA Affiliates to terminate any Plan, if such termination could result in any
liability under Title IV of ERISA with respect to such Plan; (f) the receipt by
the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to an intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (g) the incurrence by the Borrower or any of its
ERISA Affiliates of any liability with respect to the withdrawal or partial
withdrawal,
-13-
<PAGE>
within the meaning of Section 4063 of ERISA, from any multiple-employer Plan; or
(h) the receipt by the Borrower or any ERISA Affiliate of any notice from any
Multiemployer Plan concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.
"Escrow Account" means the "Escrow Account", as defined in the Contractor
--------------
Escrow and Security Agreement.
"Escrow Agent" means The Chase Manhattan Bank, a New York chartered bank,
------------
in its capacity as escrow agent under the Contractor Escrow and Security
Agreement, and each of its successors and assigns as such thereunder.
"Escrow Contingency Requirement" means $50,000,000.
------------------------------
"Escrow Contingent Account" means the "Contingent Account", as defined in
-------------------------
the Contractor Escrow and Security Agreement.
"Escrow Dispute Account" means the "Dispute Account", as defined in the
----------------------
Contractor Escrow and Security Agreement.
"Escrow Payment Account" means the "Payment Account", as defined in the
----------------------
Contractor Escrow and Security Agreement.
"Eurodollar" when used in reference to any Loan or Borrowing, refers to
----------
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" is defined in Article VII.
---------------- -----------
"Event of Loss" means (a) the actual loss or constructive total loss of all
-------------
or substantially all of any Segment of the System or (b) the loss, destruction
or damage of any material portion of a Segment of the System.
"Excess Cash Flow" means, for each semi-annual period ending on a Principal
----------------
Payment Date (or, with respect to the Initial Principal Payment Date, the period
from the Commercial Operation Date to the Initial Principal Payment Date), all
cash revenue received during such period by the Borrower and the Subsidiaries
and available to the Borrower after the application of the amounts set forth in
clauses first through fourth of Section 8.08(d) in accordance with the terms of
- ------------- ------ ---------------
Article VIII.
- ------------
"Excluded Taxes" means, with respect to the Administrative Agent, any other
--------------
Agent, any Lender, the Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder, (a) Taxes
imposed by the jurisdiction under the laws of which such recipient is organized
-14-
<PAGE>
or in which its principal office is located or, in the case of any Lender, in
which its applicable lending office is located, (b) any branch profits Taxes
imposed by the United States of America or any similar Tax imposed by any other
jurisdiction in which any Lender is located and (c) in the case of a Lender, any
withholding Tax that is imposed on amounts payable to such Lender unless,
subject to Section 10.04 with respect to assignees, (i) such withholding Tax is
-------------
the result of a Change in Law and (ii) such Lender has complied with the
provisions of Section 2.17(e).
---------------
"Expense Certificate" means each certificate of the Borrower, substantially
-------------------
in the form of Exhibit M-1, delivered pursuant to Section 8.08(b).
----------- ---------------
"Federal Funds Effective Rate" means, for any day, the weighted average
----------------------------
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Final Contractor Payment" means that portion (5%) of the Initial Contract
------------------------
Price which is payable to the Contractor upon System Final Completion.
"First Principal Amortization Reset Date" is the last day of the
---------------------------------------
"Availability Period" as set forth in clause (a) of the definition thereof.
----------
"Foreign Subsidiary Pledge Supplements" means all supplements to the
-------------------------------------
Borrower Pledge Agreement in respect of Subsidiaries of the Borrower
incorporated outside the United States of America, in form and substance
reasonably satisfactory to the Administrative Agent, as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time.
"GAAP" means generally accepted accounting principles in the United States
----
of America.
"German Subsidiary" means the German corporation to be known as Global
-----------------
Telesystems GmbH, which is, as of the Closing Date, in the process of being
formed by the Borrower as a direct, wholly-owned subsidiary of the Borrower.
-15-
<PAGE>
"German Subsidiary Account" means the special account of the German
-------------------------
Subsidiary designated by that name established by the Administrative Agent
pursuant to Section 8.01(b).
---------------
"Governmental Action" means all permits, authorizations, registrations,
-------------------
consents, approvals, notices and licenses of or with any Governmental Authority
that are required in connection with the construction, installation and
operation of the System, including all Landing Licenses.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
--------- ---------
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
---------------
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term Guarantee shall not include endorsements for
--------
collection or deposit in the ordinary course of business.
"Guaranteed Completion Date" means June 30, 1999.
--------------------------
"Hazardous Materials" means all materials defined as hazardous substances
-------------------
under the Federal Comprehensive Environmental Response, Compensation and
Liability Act, petroleum or petroleum distillates, or friable asbestos or
friable asbestos containing materials, and all similar items under the laws of
each jurisdiction (including the United States, Bermuda, the United Kingdom and
the Federal Republic of Germany) where the Borrower and its Subsidiaries are
incorporated and/or operate.
"Hedging Agreement" means any interest rate protection agreement, foreign
-----------------
currency exchange agreement, commodity price
-16-
<PAGE>
protection agreement or other interest or currency exchange rate or commodity
price hedging arrangement.
"Holdings" means Global Telesystems Holdings Ltd., a corporation organized
--------
and existing under the laws of Bermuda.
"Holdings Interest Reserve Account" means the special account designated by
---------------------------------
that name established by the Administrative Agent pursuant to Section 8.01(a).
---------------
"Holdings Interest Reserve Amount" means, at any time of determination, an
--------------------------------
amount equal to six months of anticipated interest on the Holdings Senior Notes.
"Holdings Note Purchase Agreement" means the Senior Note Securities
--------------------------------
Purchase Agreement, dated as of March 25, 1997, among Holdings and the
Purchasers named therein, as the same may be amended, supplemented, amended and
restated or otherwise modified from time to time.
"Holdings Pledge Agreement" means the Pledge Agreement, dated as of the
-------------------------
date hereof, substantially in the form of Exhibit F-1, made by Holdings in favor
-----------
of the Administrative Agent, as the same may be amended, supplemented, amended
and restated or otherwise modified from time to time.
"Holdings Senior Notes" means the senior notes issued by Holdings pursuant
---------------------
to the Holdings Note Purchase Agreement.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person in
respect of the deferred purchase price of property or services (excluding
current accounts payable incurred in the ordinary course of business), (d) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (e) all Guarantees by such Person of
Indebtedness of others, (f) all Capital Lease Obligations of such Person, (g)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (h) all obligations under
Hedging Agreements and (i) all obligations, contingent or otherwise, of such
Person in respect of bankers' acceptances.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
-17-
<PAGE>
"Independent Engineer" means Conexart Technologies, Inc. or such other
--------------------
engineer or engineering firm as may be appointed by the Administrative Agent in
accordance with Section 10.13.
-------------
"Initial Contract Price" is defined in the Supply Contract.
----------------------
"Initial Principal Payment Date" means the first May 31 or November 30 (or,
------------------------------
if such day is not a Business Day, the immediately preceding Business Day) to
occur more than two months after the Commercial Operation Date.
"Insurance Consultant" means Sedgwick Energy & Marine Limited or such other
--------------------
insurance consulting firm as may be appointed by the Administrative Agent in
accordance with Section 10.13.
-------------
"Insurance Proceeds Account" means the special account designated by that
--------------------------
name established by the Administrative Agent pursuant to Section 8.01(a).
---------------
"Intercompany Agreement" means the Intercompany Agreement, dated as of the
----------------------
date hereof, in form and substance reasonably satisfactory to the Lead Agents,
among the Borrower, the U.S. Subsidiary and the U.K. Subsidiary (and, once the
German Subsidiary is created, the German Subsidiary), as the same may be
amended, supplemented or otherwise modified from time to time.
"Interconnect Agreements" means each agreement entered into by the Borrower
-----------------------
and/or the Subsidiaries with another Person providing for the connection of the
System to any other fiber-optic networks, including backhaul interconnections.
"Interest Coverage Ratio" means, on any date of determination, the ratio of
-----------------------
(a) EBITDA to (b) Consolidated Interest Expense.
"Interest Payment Date" means (a) with respect to any ABR Loan, the last
---------------------
Business Day of each February, May, August and November and (b) with respect to
any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three, six or, if
available to all Lenders, twelve months thereafter, as the Borrower may elect;
provided, that (a) if any Interest Period would end on a day
- --------
-18-
<PAGE>
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day, (b) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period and
(c) Interest Periods shall be selected so that sufficient funds are available
without breakage to make scheduled amortization payments on the Loans. For
purposes hereof, the date of a Borrowing initially shall be the date on which
such Borrowing is made and thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
"Issuance Request" means a Letter of Credit request and certificate duly
----------------
executed by the Borrower, substantially in the form of Exhibit B-2.
-----------
"Issuing Bank" means Canadian Imperial Bank of Commerce and/or any of its
------------
Affiliates reasonably satisfactory to the Borrower, in its capacity as the
issuer of the Letters of Credit hereunder, and its successors in such capacity
as provided in Section 2.05(i).
---------------
"Landing Countries" means, at any time of determination, each country in
-----------------
which the System is landed or planned to land at such time. As of the date of
this Agreement, the System is planned to land in the United States, Great
Britain and the Federal Republic of Germany (or, if selected as an alternative
to the Federal Republic of Germany in accordance with the terms of the Supply
Contract, The Netherlands).
"Landing License" means, with respect to any Landing Country, the
---------------
telecommunications license (if a license is required, no such license being
required in the Federal Republic of Germany) issued by a Governmental Authority
in such Landing Country permitting the System to land in such Landing Country.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
---------------
Letter of Credit.
"LC Exposure" means, at any time of determination, the sum of (a) the
-----------
aggregate undrawn amount of all outstanding Letters of Credit at such time plus
(b) the aggregate amount of all LC Disbursements that have not yet been
reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any
Lender at any time of determination shall be its Applicable Percentage of the
total LC Exposure at such time.
"Lead Agents" is defined in the preamble.
----------- --------
-19-
<PAGE>
"Lead Agents Fee Letters" means the fee letters, dated as of June 1, 1997,
-----------------------
respectively, between the Borrower and one or both of the Lead Agents.
"Lender Default" means (a) the refusal (which has not been retracted) of a
--------------
Lender to make available its portion of any Borrowing or to fund its portion of
any unreimbursed payment under Section 2.05(e) or (b) a Lender having notified
---------------
the Administrative Agent and/or the Borrower that it does not intend to comply
with its obligations under Section 2.01 or under Section 2.05, in the case of
------------ ------------
either clause (a) or clause (b) above, as a result of the appointment of a
---------- ----------
receiver or conservator with respect to such Lender at the direction or request
of any regulatory agency or authority.
"Lenders" means the Persons listed on Schedule 2.01 and any other Person
------- -------------
that shall have become a party hereto pursuant to an Assignment and Acceptance,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Acceptance.
"Letter of Credit" means any letter of credit issued pursuant to this
----------------
Agreement.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
---------
Eurodollar Borrowing for such Interest Period shall be the average rate (rounded
upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal New York office of each Reference Lender in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"Lien" means, with respect to any asset (a) any mortgage, deed of trust,
----
lien, pledge, hypothecation, encumbrance, charge, security interest or similar
encumbrance in, on or of such asset and (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention agreement
(or any financing lease having substantially the same economic effect as any of
the foregoing) relating to such asset.
-20-
<PAGE>
"Liquidated Damages" means payments made by the Contractor or the Supply
------------------
Contract Guarantor under Article 22 of the Supply Contract.
"Loan Documents" shall be the collective reference to this Agreement, the
--------------
Notes, the Lead Agents Fee Letters, the Security Documents and the Subsidiary
Guaranty Agreement.
"Loan Parties" shall be the collective reference to Holdings, the Borrower
------------
and each Subsidiary.
"Loans" shall be the collective reference to the Working Capital Loans and
-----
the Term Loans.
"Majority Lenders" means, at any time of determination, Non-Defaulting
----------------
Lenders having Working Capital Exposures, LC Exposure, outstanding Term Loans
and unused Commitments representing more than 51% of the sum of the total
Working Capital Exposures, LC Exposure, outstanding Term Loans and unused
Commitments of such Non-Defaulting Lenders at such time.
"Market Consultant" means KMI Corporation or such other market consultant
-----------------
firm as may be appointed by the Borrower and the Administrative Agent.
"Material Adverse Effect" means a material adverse effect on (a) the System
-----------------------
or the ownership thereof, (b) the business, assets, revenues (with respect to
representations and warranties made after the Commercial Operation Date),
results of operations (with respect to representations and warranties made after
the Commercial Operation Date) or financial condition (or, with respect to
representations and warranties made as of the Closing Date only, prospects) of
the Borrower and the Subsidiaries taken as a whole, (c) the ability to achieve
the Actual Date of Commercial Operation by the Guaranteed Completion Date, (d)
the ability of (i) the Borrower, (ii) any of the Subsidiaries (unless curable by
the Borrower or another Subsidiary) or (iii) the Supply Contract Guarantor, to
perform their respective obligations under the Loan Documents or the Systems
Contracts to which it is a party or (e) the validity or enforceability of the
Loan Documents or the Lenders' rights and remedies under the Loan Documents.
"Material Impact" means (a) a material adverse effect on the Lenders, (b) a
---------------
material adverse effect on the Collateral contemplated on the date hereof to be
granted to the Administrative Agent (including under Section 5.30, but excluding
------------
Collateral not comprising the System as contemplated on the date hereof), or the
Lenders' position with respect thereto, (c) a Material Adverse Effect, (d) an
adverse effect on the revenues of the Borrower and the Subsidiaries taken as a
whole or (e) a material delay in obtaining, or a material risk in not obtaining,
-21-
<PAGE>
or in the termination or revocation of, a material Governmental Action necessary
to complete or operate the System as contemplated on the date hereof.
"Material Operating Budget Deviation" means, with respect to the Operating
-----------------------------------
Budget for any Operating Year, the payment of any OA&M Expense (excluding Sales
Commissions) which would result in total operating costs (excluding Sales
Commissions) for such Operating Year (after giving effect to all other payments
of OA&M Expenses (excluding Sales Commissions) in such Operating Year, including
all other cost overruns and underruns or other savings with respect to any
budget category) exceeding the total operating costs (excluding Sales
Commissions) set forth in the Operating Budget for such Operating Year, and such
excess, when added to the "Cumulative Overruns" for all prior Operating Years,
would exceed an amount equal to 20% of the "Benchmark Costs" for all Operating
Years (including the current Operating Year). For purposes of this definition,
"Benchmark Costs" shall be the total operating costs (excluding Sales
---------------
Commissions) for each Operating Year set forth in the Operating Plan, and
"Cumulative Overruns" shall be, at any time, an amount equal to the excess of
- --------------------
(a) the sum of the actual operating costs (excluding Sales Commissions earned in
accordance with the Sales Agency Agreement) for each complete Operating Year
ended over (b) the sum of the Benchmark Costs for each such complete Operating
----
Year ended.
"Maturity Date" means November 30, 2002.
-------------
"Monthly OA&M Transfer Date" is defined in Section 8.08(b)(i).
-------------------------- ------------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Mortgages" means the mortgages, deeds of trust and other instruments
---------
required to be executed and delivered by Loan Parties owning real property
pursuant to the terms of this Agreement (including Section 5.30 hereof),
------------
creating, in favor of the Administrative Agent for the benefit of the Lenders,
Liens on such real property, as amended, supplemented, amended and restated or
otherwise modified from time to time.
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Net Cash Proceeds" means (a) with respect to the sale, transfer, lease or
-----------------
other disposition of any asset (excluding Capacity) by the Borrower or any
Subsidiary, an amount certified in reasonable detail by a Responsible Officer of
the Borrower to the Lenders as the excess, if any, of (i) the sum of cash
received in connection with such sale, transfer, lease or other disposition over
(ii) the sum of (A) amounts placed in escrow or held as a reserve, in accordance
with GAAP, against any
-22-
<PAGE>
liabilities associated with such sale or disposition (except that, to the extent
and as of the time any such amounts are released from such reserve, such amounts
shall constitute Net Cash Proceeds), (B) amounts paid to minority interest
holders of such asset and the principal amount of any Indebtedness (other than
Indebtedness under this Agreement) which is secured by any such asset and which
is repaid in connection with the sale, transfer, lease or other disposition
thereof, (C) the reasonable out-of-pocket expenses incurred or to be incurred by
the Borrower or such Subsidiary in connection with such sale, transfer, lease or
other disposition and (D) provision for taxes attributable to such sale,
transfer, lease or other disposition (as estimated by the Borrower in good
faith, provided that to the extent such estimate shall have exceeded the amount
--------
of taxes actually paid, such difference shall thereupon constitute Net Cash
Proceeds), (b) with respect to the issuance of any Capital Stock by the
Borrower, an amount certified in reasonable detail by a Responsible Officer of
the Borrower to the Lenders as the excess of (i) the sum of the cash received in
connection with such issuance over (ii) the underwriting discounts and
commissions (if any) and other reasonable fees, out-of-pocket expenses and other
costs incurred or to be incurred by the Borrower in connection with such
issuance and (c) with respect to the incurrence of Indebtedness by Holdings or
the Borrower, an amount certified in reasonable detail by a Responsible Officer
of Holdings or the Borrower, as the case may be, to the Lenders as the excess of
(i) the sum of the cash received in connection with such incurrence of
Indebtedness over (ii) the reasonable fees, out-of-pocket expenses and other
costs incurred or to be incurred by Holdings or the Borrower in connection with
such incurrence of Indebtedness.
"Net Equity Funding Commitment" means an amount equal to the Equity Funding
-----------------------------
Commitment minus an amount equal to the sum of (a) the fees, out-of-pocket
expenses and other costs incurred by Holdings in connection with the issuance of
the Holdings Senior Notes and the issuance of its Capital Stock prior to the
Closing Date, (b) that portion of the proceeds of the Holdings Senior Notes
retained by Holdings not exceeding $26,400,000 to provide for an interest
reserve account for the holders of the Holdings Senior Notes, (c) that portion
of the proceeds of the Capital Stock issued prior to the Closing Date retained
by Holdings not exceeding $500,000, (d) that portion of the proceeds of the
Holdings Senior Notes not exceeding $500,000 retained by Holdings to pay for
general and administrative expenses of Holdings and (e) the fees, out-of-pocket
expenses and other expenses incurred by Holdings or the Borrower and paid by
Holdings in connection with the transactions contemplated hereby or by any of
the foregoing; provided, that the amounts set forth in clauses (a) through (e)
-------- ----------- ---
are consistent with the Capital Budget.
-23-
<PAGE>
"Non-Defaulting Lender" means and includes each Lender other than a
---------------------
Defaulting Lender.
"Non-Material System Contracts" shall be the collective reference to the
-----------------------------
Advisory Services Agreement, the SSI Indemnity Agreement, the SSI Subordinated
Pledge Agreement, the SSI Subordinated Security Agreement, the Intercompany
Agreement, each Additional Non-Material Contract and the Contractor Escrow and
Security Agreement.
"Notes" shall be the collective reference to the Term Notes and the Working
-----
Capital Notes.
"OA&M Agreement" means the Operations, Administration and Maintenance
--------------
Agreement, dated as of March 25, 1997, between the Borrower and the Operator, as
the same may be amended, supplemented, amended and restated or otherwise
modified from time to time.
"OA&M Expenses" means all operation, administration and maintenance
-------------
expenses with respect to the System which are payable by the Borrower or any
Subsidiary (including all selling, general and administrative expenses, all
commissions on sales of Capacity, all amounts in respect of reimbursements
payable under Section 2(b) of the Advisory Services Agreement, all sales, excise
and similar taxes, all other taxes and duties payable by the Borrower or such
Subsidiary and all payments owing to the Operator under the OA&M Agreement in
respect of work performed thereunder); provided, however, that OA&M Expenses
-------- -------
shall not include (i) prior to the Commercial Operation Date, amounts payable
which are Capital Costs and are set forth in the Capital Budget, (ii) amounts
payable in respect of Permitted System Upgrades and Permitted Costs, (iii) any
non-cash expenses, (iv) income and franchise taxes payable by any Subsidiary,
(v) all payments made to the Subsidiaries under the Intercompany Agreement and
(vi) the Advisory Services Fee.
"Obligations" is defined in the Borrower Security Agreement.
-----------
"Obligors" shall be the collective reference to the Borrower, Holdings, the
--------
Subsidiaries, the Contractor (until the expiration of the basic warranty period
under the Supply Contract) and, prior to the performance of all obligations
under the Supply Contract Guaranty, the Supply Contract Guarantor.
"Operating Budget" is defined in Section 5.14.
---------------- ------------
"Operating Budget Deviation" means, with respect to the Operating Budget
--------------------------
for any Operating Year, the payment of any OA&M Expense (excluding Sales
Commissions) which would result in total operating costs (excluding Sales
Commissions) for such Operating Year (after giving effect to all other payments
of OA&M Expenses
-24-
<PAGE>
(excluding Sales Commissions) in such Operating Year, including all other cost
overruns and underruns or other savings with respect to any budget category)
exceeding the total operating costs (excluding Sales Commissions) set forth in
the Operating Budget for such Operating Year by more than 5%.
"Operating Plan" is defined in Section 5.14.
-------------- ------------
"Operating Reserve Account" means the special account designated by that
-------------------------
name established by the Administrative Agent pursuant to Section 8.01(a).
---------------
"Operating Reserve Amount" means, at any time of determination, an amount
------------------------
equal to six months of anticipated operating expenses in accordance with the
then current Operating Budget of the Borrower and the Subsidiaries.
"Operating Year" means, initially, the period from the date the United
--------------
States to United Kingdom segment of the System becomes operational to the
following December 31st and, thereafter, each ensuing calendar year.
"Operator" means SSI.
--------
"Other Taxes" means any and all present or future stamp or documentary
-----------
Taxes, charges or similar levies arising from any payment hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement.
"Participation Certificate" is defined in Section 2.04(a).
------------------------- ---------------
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"PCG" means Pacific Capital Group, Inc., a California corporation.
---
"PCG Group" means, collectively, PCG and such Persons who were principals,
---------
officers, directors or employees of PCG as of the Closing Date (whether at any
future time such Person ceases to be such) and any other Person who becomes a
principal, officer, director or employee of PCG after the Closing Date.
"Perfectible Collateral" is defined in Section 3.17.
---------------------- ------------
"Permitted Costs" means (a) all amounts due under the Supply Contract
---------------
(including, in respect of Permitted System Upgrades), (b) any and all amounts
due in connection with any change to the configuration of the System permitted
under Section 6.09, (c) any and all amounts due in respect of any capital
------------
expenditure permitted under Section 6.17 and (d) any other amount applied to
------------
-25-
<PAGE>
costs of the type set forth in Section 8.08(b), Section 8.08(c) or in clauses
--------------- --------------- -------
first through fourth of Section 8.08(d).
- ----- ------ ---------------
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes that are not yet due or are being
contested in accordance with Section 5.03;
------------
(b) (i) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens relating to the construction of the System
or (ii) other Liens arising in the ordinary course of business and securing
obligations that are not overdue by more than 60 days or are being
contested in accordance with Section 5.03;
------------
(c) any Liens on any portion of the System arising by operation of
law through the Contractor (or any of its subcontractors);
(d) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(e) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not materially detract from the value of the
affected property or interfere with the ordinary conduct of business of the
Borrower or any Subsidiary;
(g) Liens arising under any Loan Document or System Contract;
(h) Liens arising under the Contractor Escrow and Security Agreement;
(i) Liens granted by the German Subsidiary in favor of the Borrower
under the security agreement entered into in accordance with Section
-------
5.30(b);
-------
(j) the rights of any purchaser of Capacity with respect to the use
of portions of the System as set forth or referred to in the Capacity Sales
Agreements; and
(k) Liens arising out of judgments or awards with respect to which
appeals or other proceedings for review are
-26-
<PAGE>
being prosecuted in good faith and by appropriate proceedings diligently
conducted and for the payment of which adequate reserves have been provided
or other provisions reasonably satisfactory to the Administrative Agent
have been made.
"Permitted Holders" means each of PCG, PCG Telecom LDC, CIBC and their
-----------------
respective Affiliates.
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a
credit rating of at least A-1 from S&P or at least P-1 from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and overnight sweep accounts, money
market deposit accounts issued or offered by, (i) the Administrative Agent
or any of its Affiliates, (ii) any Lender or (iii) any other bank which has
a combined capital and surplus and undivided profits of not less than
$250,000,000;
(d) fully collateralized repurchase agreements with a term of not
more than 30 days for securities described in clause (a) above and entered
----------
into with a financial institution satisfying the criteria described in
clause (c) above; and
----------
(e) with respect to the investment of funds on deposit in the
Contractor Escrow and Security Agreement, investments permitted by the
Contractor Escrow and Security Agreement.
"Permitted Reserve LC Facility" means a letter of credit facility for the
-----------------------------
Borrower consistent with the terms set forth on Schedule 1.01(a).
----------------
"Permitted Sale Leasebacks" means leases or sale leasebacks of real and
-------------------------
personal property constituting a portion of the System, provided that (a) such
--------
leases or sale leasebacks shall be undertaken for fair value pursuant to a tax
program reasonably
-27-
<PAGE>
satisfactory to the Lead Agents recommended by Arthur Andersen, LLP or such
other tax consultant of national standing retained by the Borrower that is
reasonably satisfactory to the Lead Agents and (b) the Net Cash Proceeds of any
sale of assets undertaken in connection therewith shall be applied to the
prepayment of the Term Loans in accordance with Section 2.11(c).
---------------
"Permitted Senior Cash Dividends" means, with respect to any fiscal year of
-------------------------------
the Borrower, cash dividends paid by the Borrower in an amount not to exceed (a)
so long as the Holdings Senior Notes remain outstanding, the lesser of (i)
$19,000,000 and (ii) the actual amount necessary to pay interest on the Holdings
Senior Notes, as certified by a Responsible Officer of the Borrower to the
Administrative Agent, plus $1,000,000 and (b) $1,000,000 thereafter (in each
case exclusive of any cash dividends paid by the Borrower under Section 6.06(d),
---------------
(e) and (f)).
- --- ---
"Permitted Subordinated Debt" means Indebtedness of the Borrower which has
---------------------------
(a) no principal payments, redemptions, repurchases, sinking funds or
prepayments prior to the date which is one year after the payment in full in
cash of all Loans and other obligations hereunder and under the Loan Documents,
(b) no cash interest payments except to the extent permitted by Section 6.06(d)
---------------
hereof, provided that, in any event, unless the Majority Lenders otherwise
--------
agree, no cash interest payments are permitted with respect thereto so long as
any Event of Default, Specified Default or Designated Event shall have occurred
and be continuing, and (c) interest rate, interest payment date, subordination,
covenants, defaults and other terms and conditions reasonably satisfactory to
the Lead Agents.
"Permitted System Upgrades" means upgrades to the System contemplated by
-------------------------
Article 6A of the Supply Contract.
"Person" means any natural person, corporation, limited liability company,
------
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
----
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Plan of Work" means the plan of work attached as Appendix 3 to the Supply
------------
Contract, as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time.
-28-
<PAGE>
"Pledge Agreements" shall be the collective reference to the Holdings
-----------------
Pledge Agreement, the Borrower Pledge Agreement and the SSI Lender Pledge
Agreement.
"Presale Proceeds" means cash proceeds (net of sale commissions) received
----------------
by the Borrower and/or the Subsidiaries under Capacity Sales Agreements on or
prior to the Commercial Operation Date.
"Prime Rate" means the rate of interest per annum established by Deutsche
----------
Bank AG as its prime or reference or base rate in effect at its principal office
in New York City; each change in the Prime Rate shall be effective from and
including the date such change is effective. The Prime Rate is not necessarily
the lowest rate of interest charged to borrowers.
"Principal Payment Date" means the Initial Principal Payment Date and each
----------------------
May 31 and November 30 (or, if such day is not a Business Day, the immediately
preceding Business Day) occurring thereafter.
"Projections" means the reasonably detailed operating projections for the
-----------
System which were delivered by the Borrower to the Administrative Agent and the
Arrangers prior to the date hereof and which reflect the reasonable expected
case (and not worst case) projections of the revenues, operating expenses, cash
flow, debt service and other related items for the System.
"Quarterly Advisory Services Payment Date" means (a) initially, the
----------------------------------------
Initial Principal Payment Date and (b) thereafter, each quarterly date which
occurs on the last business day of the applicable month.
"Ready for Commercial Service" is defined in the Supply Contract.
----------------------------
"Ready for Provisional Acceptance" is defined in the Supply Contract.
--------------------------------
"Reference Lenders" means CIBC Inc., Deutsche Bank AG, New York Branch, and
-----------------
BHF-Bank Aktiengesellschaft, Grand Cayman Branch.
"Register" has the meaning set forth in Section 10.04(c).
-------- ----------------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and subsidiaries and the respective directors, officers and
employees of such Person and such Person's Affiliates and subsidiaries.
"Required Balance" means (a) with respect to the Debt Reserve Account, the
----------------
Debt Reserve Amount, (b) with respect to the
-29-
<PAGE>
Operating Reserve Account, the Operating Reserve Amount and (c) with respect to
the Holdings Interest Reserve Account, the Holdings Interest Reserve Amount.
"Required Lenders" means, at any time of determination, Non-Defaulting
----------------
Lenders having Working Capital Exposures, LC Exposure, outstanding Term Loans
and unused Commitments representing more then 66-2/3% of the sum of the total
Working Capital Exposures, LC Exposures, outstanding Term Loans and unused
Commitments of such Non-Defaulting Lenders at such time.
"Requirement of Law" means, as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule, judgment, decree, order or regulation of any
Governmental Authority, and any determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Reserve Accounts" means the collective reference to the Debt Reserve
----------------
Account, the Operating Reserve Account and the Holdings Interest Reserve
Account.
"Responsible Officer" means, with respect to any matter, with respect to
-------------------
any Person, the President, any Vice President, Assistant Vice President,
Treasurer or Assistant Treasurer of such Person, or any other officer of such
Person who in the normal performance of his operational responsibility would
have knowledge of such matter and the requirements, if any, with respect
thereto.
"Restricted Payment" means any dividend or other distribution (whether in
------------------
cash, securities or other property) with respect to any shares of any class of
Capital Stock of the Borrower or any Subsidiary, or any payment (whether in
cash, securities or other property), including any sinking fund or similar
deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such shares of Capital Stock of the Borrower
or any Subsidiary (or in respect of any Permitted Subordinated Debt) or any
option, warrant or other right to acquire any such shares of Capital Stock of
the Borrower or any Subsidiary.
"Retainage Issuance Date" means the date on which the Contractor receives
-----------------------
payment in full of all amounts due under the Supply Contract other than the
portion thereof constituting the Final Contractor Payment, provided that the
--------
Contingency Letter of Credit shall have been returned by the Borrower to the
Issuing Bank or terminated or expired or, if drawn, the related LC Disbursement
shall have been reimbursed in full to the Issuing Bank.
-30-
<PAGE>
"Retainage Letter of Credit" means the letter of credit substantially in
--------------------------
the form of Exhibit I-2 or such other form as agreed by the Borrower, the
-----------
Contractor, the Administrative Agent and the Issuing Bank, as such letter of
credit may be amended, supplemented, amended and restated or otherwise modified
from time to time.
"Revenue Account" means the special account designated by that name
---------------
established by the Administrative Agent pursuant to Section 8.01(a).
---------------
"S Capacity" means that capacity on the System which is available on the S
----------
Segments.
"S Segments" is defined in the form of Capacity Sales Agreement attached as
----------
Exhibit L.
- ---------
"Sales Agency Agreement" means the Sales Agency Agreement, dated as of
----------------------
March 25, 1997, between the Borrower and the Sales Agent, as the same may be
amended, supplemented, amended and restated or otherwise modified from time to
time.
"Sales Agent" means SSI.
-----------
"Sales Commissions" means sales commissions payable to the Sales Agent
-----------------
under the Sales Agency Agreement, but not including expense reimbursement and
other obligations payable thereunder.
"Sales and Issuances Proceeds Account" means the special account designated
------------------------------------
by that name established by the Administrative Agent pursuant to Section
-------
8.01(a).
"Sales Threshold" means at any date of determination, when the sum of (a)
---------------
an amount equal to all cash payments received by the Borrower and the
Subsidiaries on or prior to such date under Capacity Sales Agreements entered
into in accordance Section 6.23 plus (b) an amount equal to the aggregate amount
------------ ----
of firm commitments outstanding as of such date for the sale of Capacity entered
into in accordance with Section 6.23 (provided that such firm commitments shall
------------
be included for purposes of this clause (b) only to the extent amounts payable
----------
thereunder are payable on or before the date which is five Business Days after
the Commercial Operation Date and, with respect to any amounts payable
thereafter, only if the obligor thereunder has a long-term senior unsecured debt
rating of at least "A" from S&P or at least "A" from Moody's or is otherwise
acceptable to the Majority Lenders), equals or exceeds $296,500,000.
"Second Principal Amortization Reset Date" means the last day of the
----------------------------------------
"Availability Period" as set forth in clause (b) of the definition thereof.
----------
-31-
<PAGE>
"Security Agreements" shall be the collective reference to the Borrower
-------------------
Security Agreement, each Subsidiary Security Agreement and the SSI Lender
Security Agreement.
"Security Documents" shall be the collective reference to the Pledge
------------------
Agreements, the Security Agreements and the Mortgages.
"Segment" is defined in the Supply Contract.
-------
"SG&A Expenses" means selling, general and administrative expenses incurred
-------------
by the Borrower and the Subsidiaries in connection with the marketing and
operation of the System.
"Special Payment Account" means the special account designated by that name
-----------------------
established by the Administrative Agent pursuant to Section 8.01(a).
---------------
"Special Payments" means (a) all payments made by the Contractor under the
----------------
Supply Contract and all other payments made by the Contractor or the Supply
Contract Guarantor in respect of any breach or failure by the Contractor to
perform its obligations under the Supply Contract, whether as a result of any
proceeding, settlement or otherwise, and (b) all payments under insurance
policies maintained by the Borrower or any Subsidiary to compensate for a delay
in the commencement of operations of the System.
"Specified Default" means (a) any Event of Default under Article VII and
----------------- -----------
(b) any Default arising under Sections 7.01, 7.03, 7.04 or 7.05.
------------- ---- ---- ----
"Specified Event of Default" means the occurrence of any Event of Default
--------------------------
under Article VII other than those arising under Sections 7.06 or 7.15.
----------- ------------- ----
"S&P" means Standard & Poor's Ratings Services.
---
"SSI" means AT&T Submarine Systems, Inc., a Delaware corporation, together
---
with its permitted successors and assigns.
"SSI Consent" means the Consent and Agreement, dated as of the date hereof,
-----------
substantially in the form of Exhibit J, among the Borrower, SSI and the
---------
Administrative Agent, as the same may be amended, supplemented, amended and
restated or otherwise modified from time to time in accordance with the terms
hereof and, with respect to any supply contract permitted to replace the Supply
Contract in accordance with Section 7.11, any replacement consent and agreement
------------
relating to such new supply contract, as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time.
-32-
<PAGE>
"SSI Indemnity Agreement" means the Indemnity Agreement, dated as of the
-----------------------
date hereof, in form and substance reasonably satisfactory to the Lead Agents,
made by the Borrower in favor of SSI, as the same may be amended, supplemented
or otherwise modified from time to time.
"SSI IRU and Option Agreement" means the Indefeasible Right of Use and
----------------------------
Option Agreement, in form and substance reasonably satisfactory to the Lead
Agents, between SSI Sub 2 and the U.S. Subsidiary, as the same may be amended,
supplemented or otherwise modified from time to time.
"SSI Lease" means the lease, in form and substance reasonably satisfactory
---------
to the Lead Agents, between SSI Sub 2, as lessee, and the U.S. Subsidiary, as
lessor, as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time in accordance with the terms hereof.
"SSI Lender Pledge Agreement" means the Pledge Agreement, dated as of the
---------------------------
date hereof, substantially in the form of Exhibit F-3, made by SSI Sub 1 in
-----------
favor of the Administrative Agent, as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time.
"SSI Lender Security Agreement" means the Security Agreement, dated as of
-----------------------------
the date hereof, substantially in the form of Exhibit E-3, made by SSI Sub 2 in
-----------
favor of the Administrative Agent, as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time.
"SSI Subordinated Pledge Agreement" means the Subordinated Pledge
---------------------------------
Agreement, dated as of the date hereof, in form and substance reasonably
satisfactory to the Lead Agents, made by SSI Sub 1 in favor of the U.S.
Subsidiary, as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time.
"SSI Subordinated Security Agreement" means the Subordinated Security
-----------------------------------
Agreement, dated as of the date hereof, in form and substance reasonably
satisfactory to the Lead Agents, made by SSI Sub 2 in favor of the U.S.
Subsidiary, as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time.
"SSI Sub 1" means SSI Atlantic Crossing Holdings LLC, a Delaware limited
---------
liability company and a wholly owned subsidiary of SSI.
"SSI Sub 2" means SSI Atlantic Crossing LLC, a Delaware limited liability
---------
company and a wholly owned subsidiary of SSI Sub 1.
-33-
<PAGE>
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
----------------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months, in
the case of the Base CD Rate, and (b) with respect to the Adjusted LIBO Rate,
for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those
imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"subsidiary" means, with respect to any Person (the "parent") at any date,
---------- ------
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
that is, as of such date, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" means any subsidiary of the Borrower.
----------
"Subsidiary Accounts" means, collectively, the German Subsidiary Account,
-------------------
the U.K. Subsidiary Account and the U.S. Subsidiary Account.
"Subsidiary Guaranty Agreement" means the Guaranty Agreement, dated as of
-----------------------------
the date hereof, substantially in the form of Exhibit G, made by the U.S.
---------
Subsidiary (and any other Subsidiary from time to time party thereto) in favor
of the Administrative Agent, as the same may be amended, supplemented, amended
and restated or otherwise modified from time to time.
"Subsidiary Security Agreement" means the U.S. Subsidiary Security
-----------------------------
Agreement and each other Security Agreement made by a Subsidiary in favor of the
Administrative Agent in accordance with Section 5.30, in each case as amended,
------------
supplemented, amended and restated or otherwise modified from time to time.
-34-
<PAGE>
"Subsidiary Transfer Date" means the last Business Day of each May, August,
------------------------
November and February occurring after the date the Segment connecting the United
States to the United Kingdom becomes Ready for Commercial Service or, with
respect to any Subsidiary, such other dates as such Subsidiary designates in
writing to the Administrative Agent.
"Subsidiary Transfer Payment" means, with respect to any Subsidiary as of
---------------------------
any Subsidiary Transfer Date, to the extent permitted by applicable law, all
amounts on deposit in such Subsidiary's Subsidiary Account as of such date, net
of all Taxes due (or to become due) from such Subsidiary and all OA&M Expenses
anticipated to be incurred by such Subsidiary prior to the next Subsidiary
Transfer Date (or such lesser amount as may be permitted under applicable law to
be distributed to the Borrower).
"Supply Contract" means the Project Development and Construction Contract,
---------------
dated as of March 18, 1997, between the Contractor and the Borrower, as the same
may be amended, supplemented, amended and restated or otherwise modified from
time to time in accordance with the terms hereof.
"Supply Contract Guaranty" means the Guaranty, dated as of March 18, 1997,
------------------------
made by the Supply Contract Guarantor in favor of the Borrower, as the same may
be amended, supplemented, amended and restated or otherwise modified from time
to time.
"Supply Contract Guarantor" means AT&T.
-------------------------
"Syndication Agent" is defined in the preamble.
----------------- --------
"System" is defined in the second recital.
------ ------ -------
"System Activities" means all activities related to the design,
-----------------
development, engineering, acquisition, installation, construction, landing,
completion, disposition, financing, modification, start-up, testing, operation,
ownership, possession, maintenance and use of the System.
"System Contracts" shall be the collective reference to the Supply
----------------
Contract, the Supply Contract Guaranty, the Capacity Sales Agreements, the OA&M
Agreement, the Sales Agency Agreement, the SSI Lease, the SSI IRU and Option
Agreement, each Additional Material Contract and the Non-Material System
Contracts.
"System Final Completion" means the date on which the Certificate of Final
-----------------------
Acceptance shall have been issued with respect to the System in accordance with
the terms of the Supply Contract, as certified by the Independent Engineer.
-35-
<PAGE>
"System Revenues" means, for any period, all revenues received by the
---------------
Borrower and the Subsidiaries during such period including all revenues and
proceeds received by it from (a) sales, leases or other dispositions of
Capacity, (b) the sale, lease, transfer or other disposition of any of its
assets, (c) all payments made by purchasers of Capacity to the Borrower or any
Subsidiary in respect of operation, administration and maintenance charges, (d)
all payments made by insurers under business interruption policies and (e) all
payments received under Hedging Agreements after the Commercial Operation Date,
but excluding from System Revenues all Special Payments, Casualty Proceeds and
- --- ---------
Net Cash Proceeds.
"T Capacity" means that capacity on the System which is available on the T
----------
Segments.
"T Segments" is defined in the form of Capacity Sales Agreement attached as
----------
Exhibit L.
- ---------
"Taxes" means any and all present or future taxes, levies, imposts, duties,
-----
deductions, charges or withholdings imposed by any Governmental Authority.
"Term Loans" is defined in Section 2.01.
---------- ------------
"Term Loan Commitment" means, as to any Lender, its obligation to make Term
--------------------
Loans to the Borrower and acquire participations in Letters of Credit in an
aggregate amount not to exceed at any one time outstanding the amount set forth
opposite such Lender's name on Schedule 2.01 under the heading "Term Loan
-------------
Commitment" or, in the case of a Lender that is an assignee, the amount of such
assigning Lender's Term Loan Commitment assigned to such assignee pursuant to
Section 10.04 in each case as such amount may be adjusted from time to time as
- -------------
provided herein.
"Term Note" is defined in Section 2.09(e).
--------- ---------------
"Termination Date" means the last day of the Availability Period.
----------------
"Three-Month Secondary CD Rate" means, for any day, the secondary market
-----------------------------
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day is not a Business Day, the next preceding Business Day) by
the Board through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day) or, if such rate is not so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately
-36-
<PAGE>
10:00 a.m., New York City time, on such day (or, if such day is not a Business
Day, on the next preceding Business Day) by the Administrative Agent from three
negotiable certificate of deposit dealers of recognized standing selected by it.
"Type" when used in reference to any Loan or Borrowing, refers to whether
----
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"U.K. Subsidiary" means GT U.K. Ltd., a United Kingdom corporation and a
---------------
direct, wholly-owned subsidiary of the Borrower.
"U.K. Subsidiary Account" means the special account of the U.K. Subsidiary
-----------------------
designated by that name established by the Administrative Agent pursuant to
Section 8.01(b).
- ---------------
"U.S. Subsidiary" means GT Landing Corp., a Delaware corporation and a
---------------
direct, wholly-owned subsidiary of the Borrower.
"U.S. Subsidiary Account" means the special account of the U.S. Subsidiary
-----------------------
designated by that name established by the Administrative Agent pursuant to
Section 8.01(b).
- ---------------
"U.S. Subsidiary Security Agreement" means the Subsidiary Security
----------------------------------
Agreement, dated as of the date hereof, substantially in the form of Exhibit E-
---------
2, made by the U.S. Subsidiary in favor of the Administrative Agent, as the same
may be amended, supplemented, amended and restated or otherwise modified from
time to time.
"Voting Stock" means, with respect to any Person, securities of any class
------------
or classes of Capital Stock in such Person entitling the holders thereof to vote
under ordinary circumstances in the election of members of the board of
directors or other governing body of such Person.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
--------------------
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
"Working Capital Exposure" means, with respect to any Lender at any time,
------------------------
the outstanding principal amount of such Lender's Working Capital Loans and/or
participation interests in Working Capital Loans at such time.
"Working Capital Lenders" means the Lenders designated as such on the
-----------------------
signature pages hereof, together with their successors and assigns.
-37-
<PAGE>
"Working Capital Loan Commitment" means, as to any Working Capital Lender,
-------------------------------
its obligation to make Working Capital Loans to the Borrower in an aggregate
amount not to exceed at any one time outstanding the amount set forth opposite
such Working Capital Lender's name on Schedule 2.01 under the heading "Working
-------------
Capital Loan Commitment" or, in the case of any Working Capital Lender that is
an assignee, the amount of the assigning Lender's Working Capital Loan
Commitment assigned to such assignee pursuant to Section 10.04 in each case as
-------------
such amount may be adjusted from time to time as provided herein.
"Working Capital Loans" is defined in Section 2.01.
--------------------- ------------
"Working Capital Note" is defined in Section 2.09(e).
-------------------- ---------------
"Working Capital Loan Percentage" means, with respect to any Lender other
-------------------------------
than a Working Capital Lender, the percentage set forth opposite the name of
such Lender on Schedule 2.01 under the heading "Working Capital Loan
-------------
Percentage".
"VAT Refund Account" means the special account designated by that name
------------------
established by the Administrative Agent pursuant to Section 8.01(a).
---------------
SECTION 1.2. Classification of Loans and Borrowings. For purposes of this
--------------------------------------
Agreement, Loans may be classified and referred to by Class (e.g., a "Working
----
Capital Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
----
(e.g., a "Eurodollar Working Capital Loan"). Borrowings also may be classified
----
and referred to by Class (e.g., a "Working Capital Borrowing") or by Type (e.g.,
---- ----
a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Working
----
Capital Borrowing").
SECTION 1.3. Terms Generally. The definitions of terms herein shall apply
---------------
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented, amended and restated or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof"
and "hereunder", and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to
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<PAGE>
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
SECTION 1.4. Accounting Terms; GAAP. Except as otherwise expressly
----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time.
ARTICLE II
THE COMMITMENTS
---------------
SECTION 2.1. Commitments. Subject to the terms and conditions set forth
-----------
herein, (a) each Working Capital Lender severally agrees to make working capital
loans ("Working Capital Loans") to the Borrower from time to time during the
---------------------
Availability Period in an aggregate principal amount that will not result in
such Working Capital Lender's Working Capital Exposure exceeding such Working
Capital Lender's Working Capital Loan Commitment and (b) each Lender severally
agrees to make term loans ("Term Loans") to the Borrower from time to time
----------
during the Availability Period in an aggregate principal amount not to exceed
such Lender's Term Loan Commitment; provided that no Lender shall make any Term
--------
Loan if, after giving effect thereto, the sum of the outstanding Term Loans and
the LC Exposure (in each case, after giving effect to the Term Loans requested
to be made and the Letters of Credit requested to be issued on such date) exceed
the Term Loan Commitments of all Lenders. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Working Capital Loans. Amounts repaid in respect of Term
Loans may not be reborrowed.
SECTION 2.2. Loans and Borrowings. (a) Each Loan shall be made as part
--------------------
of a Borrowing consisting of Loans of the same Class and Type made by the
Lenders ratably in accordance with their respective Commitments of the
applicable Class. The failure of any Lender to make any Loan required to be
made by it shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments of the Lenders are several and no Lender shall be
- --------
responsible for any other Lender's failure to make Loans as required.
(b) Each Working Capital Borrowing and Term Loan Borrowing may be ABR
Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request
in accordance herewith.
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<PAGE>
(c) Each Eurodollar Borrowing and each ABR Borrowing shall be in an
aggregate amount that is not less than $500,000, in the case of a Working
Capital Borrowing, and not less than $5,000,000, in the case of a Term Loan
Borrowing; provided that any such Borrowing may be in an aggregate amount that
--------
is equal to the entire unused balance of the total Working Capital Loan
Commitments or Term Loan Commitments, as the case may be, or in an amount that
is required to finance the reimbursement of an LC Disbursement as contemplated
by Section 2.05(e). Borrowings of more than one Type and Class may be
---------------
outstanding at the same time; provided that there shall not at any time be more
--------
than a total of eight Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
SECTION 2.3. Requests for Borrowings. To request a Working Capital
-----------------------
Borrowing or a Term Loan Borrowing, the Borrower shall notify the Administrative
Agent of such request by delivering a Borrowing Request to the Administrative
Agent (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of the proposed Borrowing or
(b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before the date of the proposed Borrowing; provided that
--------
any such notice of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.05(e) may be given not later than
---------------
11:00 a.m., New York City time, on the date of the proposed Borrowing. Each
such Borrowing Request shall be irrevocable. Each such Borrowing Request shall
specify the following information in compliance with Section 2.02:
------------
(a) whether the requested Borrowing is to be a Working Capital
Borrowing and/or Term Loan Borrowing;
(b) the aggregate amount of the requested Borrowing;
(c) the date of such Borrowing, which shall be (A) in the case of
Term Loans, a Borrowing Date and (B) in the case of Working Capital Loans,
a Business Day;
(d) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
(e) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period".
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<PAGE>
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each applicable Lender of the details thereof
and of the amount of such Lender's Loan to be made as part of the requested
Borrowing.
SECTION 2.4. Special Provisions for Working Capital Loans.
--------------------------------------------
(a) Participations in Working Capital Loans.
---------------------------------------
(i) By the making of a Working Capital Loan and without further
action on the part of the Working Capital Lenders, the Working Capital
Lenders hereby ratably grant to each Lender that is not a Working Capital
Lender, and each Lender that is not a Working Capital Lender hereby
acquires ratably from the Working Capital Lenders, a participation in such
Working Capital Loan equal to such Lender's Working Capital Loan Percentage
of the aggregate amount of such Working Capital Loan. Each Lender that is
not a Working Capital Lender acknowledges and agrees that its obligation to
acquire a participation pursuant to this paragraph in respect of each
Working Capital Loan is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of a Default, a Designated Event, an Event of Default or a
Material Adverse Effect or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever.
(ii) If any Event of Default described in Section 7.04 or 7.05 shall
------------ ----
have occurred, each Lender (other than a Working Capital Lender)
immediately and automatically shall, and at other times, from time to time,
promptly upon request by the Working Capital Lenders delivered to the
Administrative Agent (which shall promptly notify each Lender thereof),
each Lender (other than a Working Capital Lender) shall, transfer
immediately to the Administrative Agent for credit to the Working Capital
Lenders, in immediately available funds, the amount of its participation
set forth in clause (i). The Working Capital Lenders will deliver to such
----------
other Lender, promptly following receipt of such funds, a Participation
Certificate, substantially in the form of Exhibit N, dated the date of
---------
receipt of such funds and in the amount of such Lender's participation if
requested to do so by such other Lender.
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<PAGE>
(iii) So long as any Lender that is not a Working Capital Lender has
fulfilled any obligation to make payments to the Administrative Agent for
the account of the Working Capital Lenders pursuant to clause (a)(i) above
-------------
and is not a Defaulting Lender, upon (and only upon) receipt by the
Administrative Agent for the account of the Working Capital Lenders of
immediately available funds from the Borrower in respect of interest or
commitment fees relating to the Working Capital Loans, the Working Capital
Lenders shall promptly remit, through the Administrative Agent, to the
Lenders which are not Working Capital Lenders an amount equal to their pro
rata share of the Applicable Rate paid with respect to outstanding Working
Capital Loans and an amount equal to their pro rata share of such
commitment fees.
(iv) Upon (and only upon) receipt by the Administrative Agent for the
account of the Working Capital Lenders of immediately available funds from
the Borrower as payment in respect of principal of or interest on a Working
Capital Loan with respect to which a Lender (other than a Working Capital
Lender) has paid the Administrative Agent for the account of the Working
Capital Lenders for such Lender's participation in such Working Capital
Loan pursuant to clause (a)(i) above, the Administrative Agent will pay to
-------------
each such Lender which is not a Defaulting Lender, in the same funds as
those received by the Administrative Agent for the account of the Working
Capital Lenders, such Lender's pro rata share of such funds, and the
Working Capital Lenders shall receive their pro rata share of any funds of
any Lender that did not so pay the Administrative Agent for the account of
the Working Capital Lenders.
(b) Acknowledged Privity. The Borrower expressly agrees that, in respect
--------------------
of each Lender's funded participation interest in any Working Capital Loan, such
Lender shall be deemed to be in privity of contract with the Borrower and have
the same rights and remedies against the Borrower under the Loan Documents as if
such funded participation interest in such Working Capital Loan were a Working
Capital Loan.
(c) Obligation to Participate in Working Capital Loans Absolute. Each
-----------------------------------------------------------
Lender's obligation in accordance with this Agreement to purchase participation
interests in Working Capital Loans, as contemplated by this Section 2.04, as a
------------
result of the making of a Working Capital Loan, shall be absolute and
unconditional and without recourse to or representation or warranty by the
Working Capital Lenders and shall not be affected by any circumstance, including
(i) any set-off, counterclaim, recoupment, defense or other right which such
Lender may have against the Working Capital Lenders, the Borrower or any other
Person for any reason whatsoever; (ii) the occurrence or
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<PAGE>
continuance of a Default, an Event of Default, a Designated Event or a Material
Adverse Effect; or (iii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
SECTION 2.5. Letters of Credit. (a) General. Subject to the terms and
----------------- -------
conditions set forth herein, the Borrower may request the issuance of, and the
Issuing Bank shall issue (i) on any Business Day on which the conditions
precedent set forth in Section 4.02 are satisfied (or waived by the Majority
------------
Lenders), the Contingency Letter of Credit and (ii) on the Retainage Issuance
Date, the Retainage Letter of Credit. In the event of any inconsistency between
the terms and conditions of this Agreement and the terms and conditions of any
form of letter of credit application or other agreement submitted by the
Borrower to, or entered into by the Borrower with, the Issuing Bank relating to
any Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
---------------------------------------------------------------------
To request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Borrower shall hand deliver
or telecopy (or transmit by electronic communication if arrangements for doing
so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) an Issuance Request requesting the issuance of
a Letter of Credit, or identifying the Letter of Credit to be amended, renewed
or extended, the date of issuance, amendment, renewal or extension, the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
-------------
of this Section), the stated amount of such Letter of Credit, the name and
address of the beneficiary thereof and such other information as shall be
necessary to prepare, amend, renew or extend such Letter of Credit. If
requested by the Issuing Bank, the Borrower also shall submit a letter of credit
application on the Issuing Bank's standard form in connection with any request
for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or
extended only if, after giving effect to such issuance, amendment, renewal or
extension (i) the LC Exposure for all Letters of Credit then outstanding shall
not exceed $50,000,000 and (ii) the sum of the aggregate principal amount of the
Term Loans then outstanding and the LC Exposure shall not exceed the total Term
Loan Commitments. The Contingency Letter of Credit will permit multiple draws
thereunder and, once any drawing thereunder has been reimbursed in accordance
with the terms hereof, will, subject to the preceding sentence, permit the
stated amount thereof to be increased by the amount so reduced. Any portion of
the Term Loan Commitments utilized for the Contingency Letter of Credit may be
reused for the issuance of the Retainage Letter of Credit, subject to the
restrictions in the preceding sentence and the
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<PAGE>
satisfaction (or waiver by the Majority Lenders) of the applicable conditions
set forth in Section 4.02.
------------
(c) Expiration Date. The Retainage Letter of Credit shall expire at or
---------------
prior to the close of business on the date which is one year after the date of
the issuance of such Letter of Credit, but in no event later than the Maturity
Date. The Contingency Letter of Credit shall expire at or prior to the close of
business on the earlier of (i) the date on which the Borrower would no longer be
required to maintain funds on deposit in the Escrow Contingent Account in
accordance with the Contractor Escrow and Security Agreement if the Contingency
Letter of Credit had not been issued and (ii) 20 days after the Guaranteed
Completion Date.
(d) Participation. By the issuance of a Letter of Credit (or an amendment
-------------
to a Letter of Credit increasing the amount thereof) and without any further
action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby
grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a
participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender
hereby absolutely and unconditionally agrees to pay to the Administrative Agent,
for the account of the Issuing Bank, such Lender's Applicable Percentage of each
LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on
the date due as provided in paragraph (e) of this Section, or of any
-------------
reimbursement payment required to be refunded to the Borrower for any reason.
Each Lender acknowledges and agrees that its obligation to acquire a
participation pursuant to this paragraph in respect of each Letter of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of
Credit or the occurrence and continuance of a Default, a Designated Event, an
Event of Default or a Material Adverse Effect or reduction or termination of the
Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in
-------------
respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement
by paying to the Administrative Agent an amount equal to such LC Disbursement
not later than 2:00 p.m., New York City time, on the date that such LC
Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such
notice has not been received by the Borrower prior to such time on such date,
then not later than 2:00 p.m., New York City time, on (i) the Business Day that
the Borrower receives such notice, if such notice is received prior to 10:00
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<PAGE>
a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that
--------
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.03 that such payment be financed with an
------------
ABR Borrowing in an equivalent amount and, to the extent so financed, the
Borrower's obligation to make such payment shall be discharged and replaced by
the resulting ABR Borrowing. If the Borrower fails to make such payment when
due, or if any payment by the Borrower must be returned or restored (by reason
of a bankruptcy proceeding or otherwise), the Administrative Agent shall notify
each Lender of the applicable LC Disbursement, the payment then due from the
Borrower in respect thereof and such Lender's Applicable Percentage thereof.
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.06 with respect to Loans
------------
made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the
------------ ------- --------
payment obligations of the Lenders), and the Administrative Agent shall promptly
pay to the Issuing Bank the amounts so received by it from the Lenders.
Promptly following receipt by the Administrative Agent of any payment from the
Borrower pursuant to this paragraph, the Administrative Agent shall distribute
such payment to the Issuing Bank or, to the extent that Lenders have made
payments pursuant to this paragraph to reimburse the Issuing Bank and are Non-
Defaulting Lenders, then to such Non-Defaulting Lenders and the Issuing Bank as
their interests may appear. Any payment made by a Lender pursuant to this
paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the
funding of ABR Loans as contemplated above) shall not constitute a Loan and
shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
--------------------
Disbursements as provided in paragraph (e) of this Section, and each Lender's
-------------
obligation to reimburse the Issuing Bank for any LC Disbursement, shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement irrespective of any event or
circumstance that would constitute a legal or equitable discharge of the
Borrower's obligations hereunder, and irrespective of any other circumstances,
including the following:
(i) any lack of validity or enforceability of this Agreement, any
Loan Document, any Letter of Credit, or of any Letter of Credit application
or other agreement between the Issuing Bank and an account party;
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<PAGE>
(ii) any amendment or waiver of or any consent to departure from the
provisions of this Agreement or any other Loan Document in accordance with
the terms thereof;
(iii) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
permitted transferee of any Letter of Credit (or any Person for whom any
such beneficiary or any such transferee may be acting), the Administrative
Agent, the Issuing Bank, any Lender or any other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated hereby or by the other Loan Documents or any unrelated
transaction (including an underlying transaction between the Borrower and
the beneficiary named in any such Letter of Credit);
(iv) any draft, demand, certificate or other document presented under
or in connection with any Letter of Credit proving to be forged, fraudulent
or invalid in any respect or any statement therein being untrue or
inaccurate in any respect;
(v) any payment by the Issuing Bank acting in good faith under any
Letter of Credit against presentation of a draft or certificate that does
not strictly comply with the terms of any Letter of Credit; or any payment
made by the Issuing Bank under any Letter of Credit to any Person
reasonably believed by it to be a trustee in bankruptcy, debtor-in-
possession, assignee for the benefit of creditors, liquidator, receiver or
other representative of or successor to any beneficiary or any transferee
of any Letter of Credit, including any arising in connection with any
insolvency proceeding;
(vi) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any
guarantee or other obligation, for all or any of the obligations of the
Borrower in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Borrower or a guarantor;
provided that the foregoing shall not be construed to excuse the Issuing Bank
- --------
from liability to the Borrower to the extent of any direct damages (as opposed
to consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's failure to exercise the agreed
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<PAGE>
standard of care (as set forth below) in determining whether drafts and other
documents presented under a Letter of Credit comply with the terms thereof.
Neither the Administrative Agent, the Lead Agents, the Lenders nor the Issuing
Bank, nor any of their Related Parties, shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder,
or any error, omission, interruption, loss or delay in transmission or delivery
of any draft, notice or other communication under or relating to any Letter of
Credit (including any document required to make a drawing thereunder), any error
in interpretation of technical terms or any consequence arising from causes
beyond the control of the Issuing Bank; provided that the foregoing shall not be
--------
construed to excuse the Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank's
failure to exercise the agreed standard of care (as set forth below) in
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that
the Issuing Bank shall have exercised the agreed standard of care in the absence
of gross negligence or wilful misconduct on the part of the Issuing Bank,
provided that it is understood and agreed that the Issuing Bank may accept
- --------
documents that appear on their face to be in substantial compliance with the
terms of a Letter of Credit, without responsibility for further investigation,
and may make payment upon presentation of documents that appear on their face to
be in substantial compliance with the terms of such Letter of Credit; and
provided, further, that (i) the Issuing Bank shall have the right, in its sole
- -------- -------
discretion, to decline to accept such documents and to make such payment if such
documents are not in strict compliance with the terms of such Letter of Credit
and (ii) the Borrower shall have in any event waived any right it may have to
object to payment by the Issuing Bank against documents presented to it unless
expressly objected to in writing within twenty days after such payment and, if
requested in writing by the Borrower, delivery to the Borrower of such documents
by the Issuing Bank. The Issuing Bank agrees to promptly notify the Borrower of
each LC Disbursement.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
-----------------------
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder.
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<PAGE>
(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement,
----------------
then, unless the Borrower shall reimburse such LC Disbursement in full on the
date such LC Disbursement is made, the unpaid amount thereof shall bear
interest, for each day from and including the date such LC Disbursement is made
to but excluding the date that the Borrower reimburses such LC Disbursement, at
the rate per annum then applicable to ABR Term Loans; provided that, if the
--------
Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph
---------
(e) of this Section (including pursuant to an ABR Borrowing in accordance with
- ---
Section 2.03), then Section 2.13(c) shall apply. Interest accrued pursuant to
- ------------ ---------------
this paragraph shall be for the account of the Issuing Bank, except that
interest accrued on and after the date of payment by any Lender pursuant to
paragraph (e) of this Section to reimburse the Issuing Bank shall be for the
- -------------
account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at
-------------------------------
any time by written agreement among the Borrower, the Administrative Agent, the
replaced Issuing Bank, the successor Issuing Bank and any beneficiary of a
Letter of Credit. The Administrative Agent shall notify the Lenders of any such
replacement of the Issuing Bank. At the time any such replacement shall become
effective, the Borrower shall pay all unpaid fees accrued for the account of the
replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective
---------------
date of any such replacement, (i) the successor Issuing Bank shall have all the
rights and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement (unless such Letters
of Credit are replaced with new Letters of Credit issued by the successor
Issuing Bank), but shall not be required to issue additional Letters of Credit.
SECTION 2.6. Funding of Borrowings. (a) Each Lender shall make each Loan
---------------------
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders. The Administrative Agent will make such Loans available
to the Borrower by promptly crediting the amounts so received, in like funds, to
the Construction Account; provided that ABR Term Loans made to finance the
--------
reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be
---------------
remitted by the Administrative Agent to the Issuing Bank.
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<PAGE>
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
-------------
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender agrees to pay to the Administrative Agent forthwith on demand
such corresponding amount with interest thereon, for each day from and including
the date such amount is made available to the Borrower to but excluding the date
of payment to the Administrative Agent, at the Federal Funds Effective Rate for
three days and at the Alternate Base Rate thereafter. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
SECTION 2.7. Interest Elections. (a) Each Working Capital Borrowing and
------------------
Term Loan Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Article II. The Borrower may elect
----------
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by delivering a
Continuation/Conversion Notice to the Administrative Agent by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
------------
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election. Each such notice shall be irrevocable.
(c) Each Continuation/Conversion Notice shall specify the following
information in compliance with Section 2.02:
------------
(i) the Borrowing to which such Continuation/Conversion Notice
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be
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specified pursuant to clauses (iii) and (iv) below shall be specified for
------------- ----
each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Continuation/Conversion Notice, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Continuation/Conversion Notice requests a Eurodollar Borrowing but
does not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of a Continuation/Conversion Notice, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Continuation/Conversion
Notice with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Majority Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.8. Termination and Reduction of Commitments. (a) Unless
----------------------------------------
previously terminated, the Commitments shall terminate on the Termination Date.
(b) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Commitments under paragraph (c) of this Section at least
-------------
five (5) Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall
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<PAGE>
be irrevocable. Any termination or reduction of the Commitments shall be
permanent. Each reduction of the Commitments of any Class shall be made ratably
among the Lenders in accordance with their respective Commitments of such Class.
(c) The Borrower may at any time terminate, or from time to time reduce,
the Commitments of any Class; provided that (i) each reduction of the
--------
Commitments of any Class shall be in an amount that is an integral multiple of
$1,000,000, (ii) the Borrower shall not terminate or reduce the Commitments of
any Class if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.10 or 2.11, (A) with respect to the Working Capital
------------ ----
Loan Commitments, the aggregate principal amount of the outstanding Working
Capital Loans would exceed the Working Capital Loan Commitments or (B) with
respect to the Term Loan Commitments, the aggregate principal amount of the
outstanding Term Loans and LC Exposure would exceed the Term Loan Commitments
and (iii) the Borrower shall not terminate or reduce the Term Loan Commitments
if the remaining Term Loan Commitments, together with other funds available to
the Borrower, would not, in the reasonable judgment of the Administrative Agent,
be sufficient to pay the remaining amounts owing under the Supply Contract and
the other costs necessary to complete the System.
(d) Except for mandatory prepayments made pursuant to Section 2.11(f), the
---------------
Working Capital Loan Commitments shall be automatically and permanently reduced
upon and in the amount of any payments made thereon pursuant to Section 2.09(a)
---------------
and, after all Term Loans have been repaid in full, in the amount of any
mandatory prepayments made thereon pursuant to Section 2.11.
------------
(e) The Commitments shall be automatically and permanently reduced upon
and in the amount of any payments made pursuant to clause tenth of Section
------------ -------
8.08(a).
- -------
SECTION 2.9. Repayment of Loans; Evidence of Debt. (a) The Borrower
------------------------------------
hereby unconditionally promises to repay the Working Capital Borrowings and the
Term Loan Borrowings (including any Term Loan Borrowing used to repay an LC
Disbursement, which Term Loan Borrowing may be made after the Initial Principal
Payment Date) in eight semi-annual installments on Principal Payment Dates,
commencing on the Initial Principal Payment Date in an amount for each such
Principal Payment Date as set forth on Schedule 2.09; provided that in no event
------------- --------
shall the Borrower be obligated to make payments of principal of Loans hereunder
in an amount greater than the total principal amount of Loans outstanding
hereunder. On the First Principal Amortization Reset Date, if the aggregate
amount of Working Capital Loans then outstanding is less than $10,000,000, then
the aggregate amount of the installments payable on Principal Payment Dates as
set forth on Schedule 2.09 shall be reduced by the difference between
-------------
$10,000,000 and the aggregate amount of Working Capital Loans
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outstanding as of such date, such reduction to be applied to the then remaining
installments of principal pro rata. On the Second Principal Amortization Reset
Date, if the aggregate amount of Term Loans actually made hereunder is less than
$400,000,000, then the aggregate amount of installments of Term Loans payable on
Principal Payment Dates as set forth on Schedule 2.09 shall be reduced by the
-------------
difference between $400,000,000 and the aggregate amount of Term Loans actually
made hereunder, such reduction to be applied to the then remaining installments
of principal pro rata.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent acting for this purpose as an agent of the
Borrower, shall maintain the Register pursuant to Section 10.04(c) and a
----------------
subaccount therein for each Lender, in which it shall record (i) the amount of
each Loan and each obligation evidenced by a Note made hereunder, the Class and
Type thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the Register and the accounts maintained pursuant
to paragraph (b) or (c) of this Section shall constitute prima facie evidence of
------------- --- ----- -----
the existence and amounts of the obligations recorded therein; provided that the
--------
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative Agent
by any Lender, the Borrower will execute and deliver to such Lender, as
applicable, (i) a promissory note of the Borrower payable to the order of such
Lender and its registered assigns evidencing the Working Capital Loans of such
Lender and substantially in the form of Exhibit A-1 with appropriate insertions
-----------
as to date and principal amount (each, a "Working Capital Note") and (ii) a
--------------------
promissory note of the Borrower payable to the order of such Lender and its
registered assigns evidencing the Term Loans of such Lender and substantially in
the form of Exhibit A-2 with appropriate insertions as to date and principal
-----------
amount
(each, a "Term Note"). Thereafter, the Loans evidenced by any such Note and
---------
interest thereon shall at all times (including
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<PAGE>
after assignment pursuant to Section 10.04) be represented by one or more Notes
-------------
payable to the order of the payee named therein and its registered assigns. A
Note and the obligation evidenced thereby may be assigned or otherwise
transferred in whole or in part only by registration of such assignment or
transfer of such Note and the obligation evidenced thereby in the Register (and
each Note shall expressly so provide). Any assignment or transfer of all or
part of an obligation evidenced by a Note shall be registered in the Register
only upon surrender for registration of assignment or transfer of the Note
evidencing such obligation, accompanied by an Assignment and Acceptance duly
executed by the assignor thereof, and thereupon, if requested by the assignee,
one or more new Notes shall be issued to the designated assignee and the old
Note shall be returned by the Administrative Agent to the Borrower marked
"canceled". No assignment of a Note and the obligation evidenced thereby shall
be effective unless it shall have been recorded in the Register by the
Administrative Agent as provided in this subsection 2.09(e).
------------------
SECTION 2.10. Optional Prepayments of Loans. (a) The Borrower shall have
-----------------------------
the right at any time and from time to time to prepay any Borrowing in whole or
in part, without premium or penalty (including with the proceeds released from
the Escrow Contingent Account upon the issuance of the Contingency Letter of
Credit), subject to prior notice in accordance with paragraph (b) of this
-------------
Section and subject to the provisions of Section 2.16.
------------
(b) The Borrower shall notify the Administrative Agent in writing or by
telephone (confirmed by telecopy) of any optional prepayment hereunder, not
later than 11:00 a.m., New York City time, five Business Days before the date of
prepayment. Each such notice shall be irrevocable and shall specify, in the
case of any prepayment of Loans, the date and amount of prepayment and whether
the prepayment is (i) of Term Loans, Working Capital Loans or a combination
thereof and (ii) of Eurodollar Loans, ABR Loans or a combination thereof, and,
in each case if a combination thereof, the principal amount allocable to each,
and shall specify how such prepayment shall be applied to the remaining
installments of the Loans. Promptly following receipt of any such notice, the
Administrative Agent shall advise the Lenders of the contents thereof. Partial
optional prepayments shall be in a minimum aggregate principal amount of
$5,000,000 and integral multiples of $250,000 in excess thereof. Optional
prepayments shall be accompanied by accrued interest to the extent required by
Section 2.13. Without in any way limiting the obligation of the Borrower to
- ------------
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from a Responsible Officer of the
Borrower (or a designee of such Responsible
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<PAGE>
Officer). In each such case the Borrower hereby waives the right to dispute the
Administrative Agent's record of the terms of any such telephonic notice.
(c) Optional prepayments shall be applied to the remaining installments of
the Loans as specified by the Borrower in the notice of prepayment set forth in
paragraph (b) above.
- -------------
SECTION 2.11. Mandatory Prepayments. (a) The Borrower shall prepay the
---------------------
outstanding Loans with Presale Proceeds in accordance with the terms of Section
-------
8.08(a).
- -------
(b) On each Principal Payment Date, the Borrower shall prepay the
outstanding Loans in an amount equal to 50% (or, if as of such date a Designated
Event shall have occurred and be continuing, 100%) of Excess Cash Flow
determined as of such date, in each case in accordance with the terms of Section
-------
8.08(d).
- -------
(c) The Borrower shall prepay the Loans promptly after the receipt of Net
Cash Proceeds, as follows:
(i) by an amount equal to 50% of the Net Cash Proceeds of any
new issuance after the Closing Date of Capital Stock of the Borrower in
accordance with Section 8.15(a); provided, however, that the Borrower shall
--------------- -------- -------
not be required to make any such prepayment if such Net Cash Proceeds are
immediately applied to the payment of Permitted Costs or are being held
(for no more than 60 days, unless such Net Cash Proceeds are being held for
the payment of Permitted Costs which are to be paid pursuant to a
definitive executed agreement) for the payment of Permitted Costs or such
Net Cash Proceeds are being held to pay an identified cost with the consent
of the Administrative Agent in the Construction Account, the Revenue
Account or the Clean-Up Account, as the case may be, in accordance with
Section 8.15(a);
---------------
(ii) by an amount equal to 100% of the Net Cash Proceeds of an
incurrence of Indebtedness by the Borrower or Holdings after the Closing
Date (other than Indebtedness permitted by Section 6.01 and Indebtedness of
------------
Holdings permitted pursuant to Section 6.01 of the Holdings Note Purchase
Agreement as in effect on the date hereof, but subject in any event to the
limitations contained in Section 6.01) in accordance with Section 8.15(b);
------------ ---------------
and
(iii) by an amount equal to 100% of the Net Cash Proceeds of
any sale, transfer or other disposition of any asset of the Borrower or the
Subsidiaries (other than (A) sales, transfers or dispositions described in
clause (a), (b) and (e) of Section 6.04 and (B) dispositions resulting in
---------- --- --- ------------
aggregate Net Cash Proceeds not exceeding $500,000 during any fiscal year
of the Borrower) in accordance with Section
-------
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<PAGE>
8.15(c); provided, however, that the Borrower shall not be required to make
------- -------- -------
any such prepayment if such Net Cash Proceeds are, within six months of
receipt, reinvested in the Borrower's or any Subsidiary's business (other
than for Permitted System Upgrades).
(d) If an Event of Loss shall occur, unless the affected portion of the
System is being repaired in accordance with Section 5.22, the Borrower shall, on
------------
the third Business Day following the date on which insurance, condemnation or
expropriation proceeds are received with respect to such Event of Loss, prepay
the Loans in an amount equal to the insurance proceeds received in accordance
with Section 8.13(d).
---------------
(e) After the payment in full of all Capital Costs, the Borrower shall
prepay the Loans with funds made available to it for prepayments of the Loans
under Section 8.20.
------------
(f) The Borrower shall prepay the Working Capital Loans promptly after the
receipt by the Borrower or any Subsidiary of any refund of VAT by an amount
equal to such refund less any costs, fees or other expenses incurred by the
Borrower or such Subsidiary in connection with collecting such refund in
accordance with Section 8.17.
------------
(g) After the prepayment in full of all Loans, prepayments shall be made
in accordance with the foregoing clauses to cash collateralize LC Exposure as if
such LC Exposure were Loans.
(h) Mandatory prepayments shall be accompanied by accrued interest to the
extent required by Section 2.13.
------------
(i) Except as otherwise provided in paragraph (f) above, all mandatory
-------------
prepayments of the Loans shall be applied first, to the mandatory prepayment of
-----
the Term Loans, second, to the mandatory prepayment of the Working Capital
------
Loans, and third, to the cash collateralization of LC Exposure. Mandatory
-----
prepayments of the Loans shall be applied to the installments thereof as
follows: one-half of such prepayments shall be applied to such installments in
the direct order of maturity, and one-half of such prepayments shall be applied
to such installments in the inverse order of maturity.
(j) Upon making a mandatory prepayment pursuant to this Section, the
Borrower shall have the right (i) first, to apply such prepayment to the ABR
Loans and to any and all Eurodollar Loans having Interest Period(s) ending on
the date of such prepayment and (ii) then, with respect to Eurodollar Loans
having Interest Period(s) ending on a day other than the date of such
prepayment, to deposit cash in a cash collateral account, on terms and subject
to documentation reasonably satisfactory to the Administrative Agent, sufficient
to prepay in full such
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<PAGE>
Eurodollar Loans (together with accrued interest thereon) at the end of the
applicable Interest Period(s). Any amounts so deposited shall be held in a cash
collateral account and shall be applied to the prepayment of the applicable
Eurodollar Loans at the end of the current Interest Periods applicable thereto.
The Administrative Agent shall invest funds in any such cash collateral account
in overnight investments constituting Permitted Investments.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to the Administrative
----
Agent for the account of each Lender a commitment fee, which shall accrue at the
rate of 1/2 of 1% per annum on the average daily unused portion of the
Commitments of such Lender during the period from the Closing Date to but
excluding the date on which such Commitment terminates. Accrued commitment fees
shall be payable in arrears on the last Business Day of each February, May,
August and November of each year and on the date on which the Commitments
terminate, commencing on the first such date to occur after the date hereof.
All commitment fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day). For purposes of computing commitment fees with
respect to the Term Loan Commitments, a Term Loan Commitment of a Lender shall
be deemed to be used to the extent of the outstanding Term Loans and LC Exposure
of such Lender. For purposes of computing commitment fees relating to Working
Capital Loan Commitments, a Working Capital Loan Commitment shall be deemed to
be used to the extent of the outstanding Working Capital Loans.
(b) The Borrower agrees to pay (i) to the Administrative Agent for the
account of each Lender a participation fee with respect to its participation in
each Letter of Credit, which shall accrue at a rate per annum equal to the
Applicable Rate applicable to interest on Eurodollar Term Loans on the average
daily amount of such Lender's LC Exposure in respect of such Letter of Credit
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the date such Letter of Credit is issued to
but excluding the date on which such Letter of Credit is terminated, and (ii) to
the Issuing Bank a fronting fee, which shall accrue at the rate of .15% per
annum on the average daily stated amount of each outstanding Letter of Credit
(as such stated amount may be reduced in accordance with the terms of such
Letter of Credit) issued by the Issuing Bank during the period from and
including the date such Letter of Credit is issued to but excluding the date on
which such Letter of Credit is terminated. Participation fees and fronting fees
accrued through and including the last Business Day of each February, May,
August and November of each year shall be payable on such Business Day,
commencing on the first such date to occur after the issuance of a Letter of
Credit; provided that all such fees shall be payable on the date
--------
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<PAGE>
on which such Letter of Credit terminates. All participation fees and fronting
fees shall be computed on the basis of a year of 360 days and shall be payable
for the actual number of days elapsed (including the first day but excluding the
last day).
(c) The Borrower agrees to pay to the Administrative Agent and the
Arrangers, for their own account, the fees payable in the amounts and at the
times separately agreed upon between the Borrower, the Administrative Agent and
the Arrangers in the Lead Agent Fee Letters.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders.
SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing
--------
shall bear interest at a rate per annum equal to the Alternate Base Rate plus
the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at
a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in
effect for such Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by the Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided above or (ii) in the case of
any other amount, 2% plus the rate applicable to ABR Loans as provided above.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; provided that (i) interest accrued pursuant
--------
to paragraph (c) of this Section shall be payable on demand, (ii) in the event
-------------
of any repayment or prepayment of any Loan, accrued interest on the principal
amount repaid or prepaid shall be payable on the date of such repayment or
prepayment, (iii) in the event of any conversion of any Eurodollar Borrowing
prior to the end of the current Interest Period therefor, accrued interest on
such Loan shall be payable on the effective date of such conversion and (iv) all
accrued interest shall be payable upon termination of the Commitments.
(e) All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate
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<PAGE>
is based on the Prime Rate shall be computed on the basis of a year of 365 days
(or 366 days in a leap year), and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
SECTION 2.14. Alternate Rate of Interest; Illegality. (a) If prior to the
--------------------------------------
commencement of any Interest Period for a Eurodollar Borrowing:
(i) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period; or
(ii) the Administrative Agent is advised by the Majority Lenders that
the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest
Period will not adequately and fairly reflect the cost to such Lenders of
making or maintaining their Loans included in such Borrowing for such
Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any
Continuation/Conversion Notice that requests the conversion of any Borrowing to,
or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
(b) Notwithstanding any other provision of this Agreement, if on or after
the date of this Agreement the adoption of or any change in any applicable law
or in the interpretation or application thereof shall make it unlawful for any
Lender to make or maintain Eurodollar Loans as contemplated by this Agreement,
such Lender shall give telex, telecopy or telephonic notice thereof to the
Administrative Agent and the Borrower as soon as practicable (and, with respect
to any such telephonic notice, the party delivering the same agrees to confirm
such notice in writing) and (i) the commitment of such Lender hereunder to make
Eurodollar Loans and continue Eurodollar Loans as such shall forthwith be
canceled and (ii) such Lender's Loans then outstanding as Eurodollar Loans, if
any, shall be converted automatically to ABR Loans on the respective last days
of the then current Interest Periods with respect to such Loans or within such
earlier period as required by law. If any such conversion of a Eurodollar Loan
occurs on a day which is not the last day of the then current Interest Period
with respect
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thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to Section 2.16.
------------
SECTION 2.15. Increased Costs. (a) If any Change in Law shall:
---------------
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account
of, or credit extended or participated in by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing
Bank; or
(ii) impose on any Lender or the Issuing Bank any other condition
affecting this Agreement or Eurodollar Loans made by such Lender or any
Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on the capital of such Lender, the Issuing Bank or any holding company
for such Lender or the Issuing Bank as a consequence of this Agreement or the
Loans made by, or participation in Letters of Credit held by, such Lender, or
the Letters of Credit issued by the Issuing Bank, to a level below that which
such Lender, the Issuing Bank or the holding company for such Lender or Issuing
Bank could have achieved but for such Change in Law (taking into consideration
such Lender's or the Issuing Bank's policies with respect to capital adequacy),
then from time to time the Borrower will pay to such Lender, the Issuing Bank,
or such Lender's or the Issuing Bank's holding company, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank
for any such reduction suffered.
(c) If any Lender or the Issuing Bank becomes entitled to claim
compensation pursuant to this Section, such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) of the event by reason of
which it has become so entitled.
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A certificate of a Lender or the Issuing Bank setting forth the amount or
amounts necessary to compensate such Lender or the Issuing Bank or such holding
company, as the case may be, as specified in paragraph (a) or (b) of this
------------- ---
Section delivered to the Borrower (with a copy to the Administrative Agent),
shall constitute prima facie evidence of the correctness of the amount claimed.
----- -----
(d) The Borrower shall pay such Lender or the Issuing Bank, as the case
may be, all amounts payable pursuant to the foregoing provisions of this Section
-------
2.15 within 20 days after receipt of certification thereof from such Lender or
- ----
the Issuing Bank. Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or the Issuing Bank's right to demand such compensation;
provided that the Borrower shall not be required to compensate a Lender or the
- --------
Issuing Bank pursuant to this Section for any increased costs or reductions
incurred more than six months prior to the date that such Lender or the Issuing
Bank, as the case may be, notifies the Borrower of the Change in Law giving rise
to such increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor.
SECTION 2.16. Break Funding Payments. In the event of (a) the payment of
----------------------
any principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto, (b) the conversion of any Eurodollar Loan other than
on the last day of the Interest Period applicable thereto or (c) the failure to
borrow, convert, continue or prepay any Eurodollar Loan on the date specified in
any notice delivered pursuant hereto, then, in any such event, the Borrower
shall compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, the loss to any Lender attributable to
any such event shall be equal to the excess, if any, of (i) the amount of
interest that such Lender would pay for a deposit equal to the principal amount
of such Loan for the period from the date of such payment, conversion or failure
to the last day of the then current Interest Period for such Loan (or, in the
case of a failure to borrow, convert or continue, the duration of the Interest
Period that would have resulted from such borrowing, conversion or continuation)
if the interest rate payable on such deposit were equal to the Adjusted LIBO
Rate for such Interest Period, over (ii) the amount of interest that such Lender
would earn on such principal amount for such period if such Lender were to
invest such principal amount for such period at the interest rate that would be
bid by such Lender (or an affiliate of such Lender) for dollar deposits from
other banks in the eurodollar market at the commencement of such period. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered by such
Lender to the Borrower (with a copy to the Administrative
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Agent) and shall constitute prima facie evidence of the correctness of the
----- -----
amount claimed.
SECTION 2.17. Taxes. (a) Any and all payments by or an account of any
-----
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that if the
--------
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender and
the Issuing Bank, for the full amount of any Indemnified Taxes or Other Taxes
paid by the Administrative Agent, such Lender or the Issuing Bank, as the case
may be, and any penalties, interest and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its
own behalf or on behalf of a Lender or the Issuing Bank, shall constitute prima
-----
facie evidence of the correctness of the amount claimed.
- -----
(d) As soon as reasonably practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Without in any way affecting the obligation of the Borrower under
Section 2.17(a)(i) to pay any increased amount only on account of Indemnified
- ------------------
Taxes, each Lender organized under the laws of a jurisdiction outside the United
States, on or prior to the date of its execution and delivery of this Agreement
or on the date of the Assignment and Acceptance pursuant to which it becomes a
Lender, as the case may be, and from time to time
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<PAGE>
thereafter if requested in writing by the Borrower or the Administrative Agent
(but only so long as such Lender remains lawfully able to do so), shall provide
the Borrower and the Administrative Agent with Internal Revenue Service form
1001 or 4224, as appropriate, or any successor or other form prescribed by the
Internal Revenue Service, certifying that such Lender is exempt from or entitled
to a reduced rate of United States withholding tax on payments of interest
pursuant to this Agreement or the Notes. At the reasonable request of the
Borrower, any Lender that is legally entitled to an exemption from or reduction
of withholding tax which is an Indemnified Tax with respect to payments under
this Agreement shall deliver to the Borrower (with a copy to the Administrative
Agent), at the time or times reasonably requested by the Borrower or at such
times as are otherwise prescribed by applicable law, such properly completed and
executed documentation prescribed by applicable law as will permit such payments
to be made without withholding or subject to withholding at a reduced rate. If
any form or document referred to in this subsection (e) requires the disclosure
of information (other than information necessary to compute the tax payable or
information required by the relevant taxing authority to secure such exemption
or reduction with respect to withholding tax and that is necessary to secure
such exemption from or reduction of withholding tax) that the Lender reasonably
considers to be confidential, the Lender shall give notice thereof to the
Borrower and shall not be obligated to include in such form or document such
confidential information.
(f) If a Lender, the Issuing Bank or the Administrative Agent shall become
aware that it is entitled to receive a refund in respect of an Indemnified Tax
paid by the Borrower, which refund in the good faith judgment of such Lender is
allocable to such payment made pursuant to this Section, it shall promptly
notify the Borrower of the availability of such refund and shall, within 30 days
after the receipt of a request by the Borrower, apply for such refund. If any
Lender, the Issuing Bank or the Administrative Agent receives a refund in
respect of any Indemnified Tax paid by the Borrower, or as to which it has been
indemnified by the Borrower, which refund in the good faith judgment of such
Lender is allocable to such payment made pursuant to this Section, it shall
promptly notify the Borrower of such refund and shall, within 20 days of
receipt, repay such refund to the Borrower (together with any interest with
respect thereto received from the relevant taxing authority). In any event,
each Lender shall have the right to arrange its tax affairs as it, in its sole
discretion, deems most advantageous to it and nothing shall require a Lender to
disclose its tax returns or other confidential fiscal or tax information to the
Borrower.
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
-----------------------------------------------------------
(a) The Borrower shall make each payment required to be made by it hereunder
(whether of principal,
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interest, fees or reimbursement of LC Disbursements, or under Section 2.15, 2.16
------------ ----
or 2.17, or otherwise) prior to 1:00 p.m., New York City time, on the date when
----
due, in immediately available funds, without set-off or counterclaim. Subject
to Article VIII, all such payments shall be made to the Administrative Agent at
------------
its offices at 1251 Avenue of the Americas, New York, New York, 10019 except
payments to be made directly to the Issuing Bank as expressly provided herein
and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 10.03 shall
------------- ---- ---- -----
be made directly to the Persons entitled thereto. The Administrative Agent
shall distribute any such payments (including payments received pursuant to
Article VIII) received by it for the account of any other Person to the
- ------------
appropriate recipient promptly following receipt thereof. Except as set forth
herein, if any payment hereunder shall be due on a day that is not a Business
Day, the date for payment shall be extended to the next succeeding Business Day,
and, in the case of any payment accruing interest, interest thereon shall be
payable for the period of such extension. All payments hereunder shall be made
in dollars.
(b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be
applied, subject to the provisions of Article VIII, (i) first, to pay interest
------------
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, to pay principal and unreimbursed LC Disbursements then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans or participation in LC Disbursements resulting in
such Lender receiving payment of a greater proportion of the aggregate amount of
its Loans and participation in LC Disbursements and accrued interest thereon
than the proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) a participation in
the Loans and LC Disbursements of the other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans and participation in LC Disbursements; provided that (i)
--------
if any such participation is purchased and all or any portion of the payment
giving rise thereto is recovered, such participation shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this
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Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participation in
LC Disbursements to any assignee or participant, other than to the Borrower or
any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply).
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
Federal Funds Effective Rate for three days and at the Alternate Base Rate
thereafter.
(e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.05(d) or (e), 2.06(b) or 2.18(d), then the Administrative
--------------- --- ------- -------
Agent may, in its discretion or, as to Section 2.05(d) or (e), as may be
--------------- ---
required by the Issuing Bank (notwithstanding any contrary provision hereof),
apply any amounts thereafter received by the Administrative Agent for the
account of such Lender to satisfy such Lender's obligations under such Sections
until all such unsatisfied obligations are fully paid.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any
----------------------------------------------
Lender requests compensation under Section 2.15, or if the Borrower is required
------------
to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.17, then such Lender shall use
------------
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and
------------ ----
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender.
(b) If any Lender requests compensation under Section 2.15 which is not
------------
being requested by the Lenders generally, or if the
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Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
------------
or if any Lender becomes a Defaulting Lender, then the Borrower may, at its sole
expense and effort, upon notice to such Lender and the Administrative Agent, so
long as no Default or Designated Event shall have occurred and is continuing,
require such Lender to assign and delegate, without recourse (in accordance with
and subject to the restrictions contained in Section 10.04), all its interests,
-------------
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (i) the Borrower shall have received the prior
--------
written consent of the Administrative Agent and the Issuing Bank, which consent
shall not unreasonably be withheld or delayed, (ii) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loans
and participation in LC Disbursements, accrued interest thereon, accrued fees
and all other amounts payable to it hereunder, from the assignee (to the extent
of such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.15 or payments required
------------
to be made pursuant to Section 2.17, such assignment will result in a reduction
------------
in such compensation or payments. A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.
(c) If a Lender changes its applicable lending office (other than pursuant
to paragraph (d) below) and the effect of such change, as of the date of such
change, would be to cause the Borrower to become obligated to pay any additional
amount under Section 2.15 or 2.17, the Borrower shall not be obligated to pay
------------ ----
such additional amount.
(d) If a condition or an event occurs which would, or would upon the
passage of time or giving of notice, result in the payment of any additional
amount to any Lender by the Borrower pursuant to Section 2.15 or 2.17, such
------------ ----
Lender shall promptly notify the Borrower and the Administrative Agent and shall
take such steps as may reasonably be available to it to mitigate the effects of
such condition or event (which shall include efforts to rebook the Loans held by
such Lender at another lending office, or through another branch or an
affiliate, of such Lender); provided that such Lender shall not be required to
--------
take any step that, in its reasonable judgment, would be materially
disadvantageous to its business or operations or would require it to incur
additional costs (unless the Borrower agrees to fund such costs in a manner
satisfactory to such Lender).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Administrative Agent, the
Issuing Bank, the Lead Agents and the Lenders on the Closing Date and on the
date of each Borrowing that:
SECTION 3.1. Financial Condition. The Borrower has heretofore furnished
-------------------
to the Lenders its unaudited consolidated balance sheet and statements of
income, stockholders' equity and cash flow as of and for the fiscal quarter and
the portion of the fiscal year ended March 31, 1997, in each case, certified by
a Responsible Officer of the Borrower. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flow of the Borrower and its consolidated Subsidiaries as of
such date and for such period in accordance with GAAP, subject to year-end
adjustments and the absence of footnotes. All material liabilities of the
Borrower on such date are disclosed in such balance sheet.
SECTION 3.2. No Change. Since March 31, 1997, there has been no
---------
development or event and no change which has had or could reasonably be expected
to have a Material Adverse Effect, except as expressly contemplated by the Loan
Documents; provided that an adverse change in sales or prospective sales of
--------
Capacity whether or not based on changes or perceived changes in external market
conditions (including as a result of increased competition or introductions or
applications of new technology) will not, in and of itself (or because of any
related reduction in net income), provide a basis that an event described above
has occurred.
SECTION 3.3. Organization; Powers. Each of the Borrower and the
--------------------
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and is qualified to do business in
such jurisdiction and in each other jurisdiction in which the conduct of its
business requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect.
SECTION 3.4. Authorization; Enforceability. (a) Each of the Borrower and
-----------------------------
the Subsidiaries has full corporate power and authority to conduct its business
as proposed to be conducted by it in respect of the System and to execute,
deliver and perform each Loan Document and System Contract to which it is a
party and to take all action as may be necessary to complete the transactions
contemplated hereunder.
(b) Each of the Borrower and the Subsidiaries has taken all necessary
corporate action to authorize the borrowings and other
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Credit Extensions hereunder by the Borrower, to grant the Liens provided for in
the Security Documents to which it is a party and to authorize the execution,
delivery and performance of this Agreement and each other Loan Document and
System Contract to which it is a party.
(c) Each of this Agreement and each other Loan Document and System
Contract to which the Borrower or any Subsidiary is a party has been duly
executed and delivered by the Borrower or such Subsidiary, as the case may be,
and constitutes a legal, valid and binding obligation of the Borrower or such
Subsidiary, enforceable against the Borrower or such Subsidiary in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.
SECTION 3.5. Corporate Structure. (a) As of the Closing Date, the only
-------------------
shareholder of the Borrower is Holdings. As of the Closing Date, the capital
structure of the Borrower and its Subsidiaries is as set forth on Schedule
--------
3.05(a).
- -------
(b) As of the Closing Date, the only subsidiaries of the Borrower are set
forth on Schedule 3.05(b), each of which are wholly-owned direct subsidiaries of
----------------
the Borrower. From and after the Closing Date, the only subsidiaries of the
Borrower not listed on Schedule 3.05(b) are those, if any, created and
----------------
capitalized in accordance with and subject to Sections 6.05 and 6.19.
------------- ----
SECTION 3.6. Compliance with Law. The Borrower and the Subsidiaries are
-------------------
in compliance in all material respects with all Requirements of Law as of the
Closing Date, and, as of any date representations and warranties are made or
deemed made under this Agreement subsequent to the Closing Date, are in
compliance with all Requirements of Law except to the extent of any non-
compliance which could not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.7. No Legal Bar. The execution, delivery and performance by the
------------
Borrower and the Subsidiaries of each Loan Document and System Contract to which
it is a party and the borrowings by the Borrower hereunder and the use of the
proceeds thereof and the granting of all Liens under the Security Documents (a)
will not violate or result in a default under any Requirement of Law binding on
such Person or its assets, (b) will not violate or result in a default under any
material Contractual Obligation of such Person and (c) will not result in the
creation or imposition of any Lien on any asset of the Borrower or any
Subsidiary except Permitted Encumbrances.
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SECTION 3.8. Governmental Actions. Schedule 3.08 sets forth, to the best
-------------------- -------------
knowledge of the Borrower, all Governmental Actions that are required to be
obtained by the Borrower, any Subsidiary or the Contractor in connection with
the construction, installation, development, ownership and operation of the
System. To the best knowledge of the Borrower (after due inquiry), no Landing
License is required in the Federal Republic of Germany. By written notice to
the Administrative Agent, the Borrower shall be permitted to amend and
supplement such Schedule from time to time in connection with any amendment or
supplement to the schedule provided by the Contractor under Article 7(G) of the
Supply Contract.
SECTION 3.9. Litigation. There are no actions, suits or proceedings by or
----------
before any arbitrator or Governmental Authority pending against or, to the
knowledge of the Borrower, threatened (a) by or against the Borrower, any other
Loan Party or the System or (b) with respect to any Loan Document, in either
case which could reasonably be expected to have a Material Adverse Effect.
SECTION 3.10. Environmental Matters. No condition or violation of
---------------------
Environmental Laws exists with respect to the System, the Borrower, any
Subsidiary or any of their respective properties or assets owned or operated by
them which in each case could reasonably be expected to have a Material Adverse
Effect. To the best knowledge of the Borrower, no other violation of
Environmental Law exists which could reasonably be expected to have a Material
Adverse Effect.
SECTION 3.11. No Default; Event of Default. None of the Borrower or any
----------------------------
other Loan Party is in default in any material respect under any System Contract
or is in default under any Loan Document as of the Closing Date. As of any date
representations and warranties are made or deemed made under this Agreement
subsequent to the Closing Date, (a) none of the Borrower or any other Loan Party
is in default under any System Contract which could reasonably be expected to
have a Material Adverse Effect and (b) no payment Default or Specified Event of
Default has occurred and is continuing.
SECTION 3.12. Properties. The Borrower and each Subsidiary has good title
----------
to, valid leasehold interests in or an indefeasible right to use (pursuant to
the SSI IRU and Option Agreement) all its real and personal property material to
its business free and clear of all Liens, except for Permitted Encumbrances and
minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize such properties for their intended
purposes.
SECTION 3.13. Taxes. To the best of the Borrower's knowledge, neither the
-----
Borrower, any of the Subsidiaries nor the
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System is subject to any material tax in any jurisdiction, except for taxes set
forth in Schedule 3.13. Each of the Borrower and the Subsidiaries has timely
-------------
filed or caused to be filed all tax returns and reports required to have been
filed by such Person and has paid or caused to be paid all Taxes shown to be due
on such returns except Taxes subject to a Contest.
SECTION 3.14. Federal Regulations. The Borrower is not engaged nor will
-------------------
it engage in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulations G, U and X of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of the Loans will be used for "purchasing" or "carrying"
any "margin stock" as so defined or for any purpose which violates the
provisions of the Regulations of such Board of Governors.
SECTION 3.15. ERISA. No ERISA Event has occurred or is reasonably
-----
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
have a Material Adverse Effect, and no contribution failure has occurred with
respect to any Plan sufficient to give rise to a lien under Section 302(f) of
ERISA.
SECTION 3.16. Investment Company Act. Neither the Borrower nor any
----------------------
Subsidiary is an "investment company" as defined in, or subject to regulation
under, the Investment Company Act of 1940.
SECTION 3.17. Security Documents. The recordings and filings shown on
------------------
Schedule 3.17 are, on and as of the Closing Date, all the recordings, filings
- -------------
and other actions necessary and appropriate to establish, protect and perfect
the Administrative Agent's security interest in the right, title, estate and
interest of the Borrower and the Subsidiaries in and to the Collateral which can
be perfected by the filing of Uniform Commercial Code financing statements or by
possession by the Administrative Agent (the "Perfectible Collateral"). The
----------------------
Security Documents are effective to create in favor of the Administrative Agent
valid and enforceable first Liens on, and first security interests in, all
right, title, estate and interest of the Borrower and the Subsidiaries in and to
the Perfectible Collateral.
SECTION 3.18. Principal Place of Business. As of the Closing Date, the
---------------------------
principal place of business of the Borrower is located in Hamilton, Bermuda, the
registered office of business of the U.S. Subsidiary is located at The
Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle Court,
Delaware 19801, and the registered office of the U.K. Subsidiary
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<PAGE>
is located at Th Floor, The Quadrangle, Imperial Square, Cheltenham GL50 1YX,
United Kingdom.
SECTION 3.19. Disclosure. The written factual information furnished by
----------
(or based on written information furnished by) the Borrower to the Lenders in
connection with the negotiation of the Loan Documents (including written
information furnished by, or based on written information furnished by, the
Borrower and contained in the Confidential Memorandum) (excluding any financial
projections and other estimates or views of future circumstances), taken as a
whole, does not contain, as of the Closing Date, any untrue statements of
material fact and does not omit to state, as of the Closing Date, any material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not materially misleading (unless
superseded or corrected and disclosed in writing prior to the Closing Date).
The costs set forth in the Capital Budget reflect, as of the Closing Date, the
Borrower's best estimates of all costs necessary for the construction,
installation and financing of the System. The projections delivered by the
Borrower to the Lead Agents on the Closing Date in accordance with Section
-------
4.01(j) (which are substantially the same as the projections contained in the
- -------
Confidential Memorandum) have been prepared in good faith and have been based on
assumptions which were reasonable at the time prepared. The Operating Plan
delivered with the initial Operating Budget has been, and the Operating Budget
for each ensuing Operating Year, as of the date delivered to the Administrative
Agent in accordance with the terms hereof, shall have been, prepared by the
Borrower in good faith and have been based on assumptions which were reasonable
at the time prepared.
SECTION 3.20. Sufficiency of System Contracts. The services to be
-------------------------------
performed and other rights granted pursuant to the System Contracts and the Loan
Documents comprise all of the material services, materials and property
interests required to perform the System Activities.
SECTION 3.21. Immunity. Neither the Borrower nor any Subsidiary is
--------
entitled to claim for itself, any of its assets or the System immunity from
suit, execution, attachment or other legal process in any proceeding in any
jurisdiction in connection with any of the Loan Documents or System Contracts to
which it is a party.
SECTION 3.22. Export Control. Each of the Borrower and the Subsidiaries
--------------
is in compliance in all material respects with all U.S. export laws and
regulations applicable to it.
SECTION 3.23. Foreign Corrupt Practices Act. None of the Borrower, any
-----------------------------
Subsidiary or any of its officers, directors, employees, agents or affiliates,
acting on its behalf, has taken
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any action in connection with the System that violates the Foreign Corrupt
Practices Act of the United States, if applicable.
SECTION 3.24. Intellectual Property. Each of the Borrower and its
---------------------
Subsidiaries own or are licensed or otherwise have the right to use (and have
maintained in full force and effect and have not abandoned) or obtain all of the
trademarks, copyrights, patents, licenses and other intellectual property rights
that are reasonably necessary for the operation of each of their respective
businesses, without, to the best of the Borrower's knowledge, conflict with the
rights of any other Person and free of Liens (other than Permitted
Encumbrances), except where the failure to have any such rights could not
reasonably be expected to have a Material Adverse Effect.
ARTICLE IV
CONDITIONS
----------
SECTION 4.1. Conditions Precedent to the Initial Credit Extensions. The
-----------------------------------------------------
obligations of each Working Capital Lender to make its initial Working Capital
Loans available on the Closing Date shall be subject to the fulfillment of, or
waiver by the Majority Lenders of, each of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received,
--------------
with a counterpart for each Lender, each of the following documents:
(i) this Agreement, duly executed and delivered by each of
the parties hereto;
(ii) the Holdings Pledge Agreement, duly executed and
delivered by Holdings and the Administrative Agent, together with (A)
the stock certificate representing all of the Capital Stock of the
Borrower and (B) undated stock powers for such stock certificate
representing such Capital Stock, executed in blank and delivered by a
duly authorized officer of Holdings;
(iii) the Borrower Pledge Agreement, duly executed and
delivered by the Borrower and the Administrative Agent, together with
(A) the stock certificates representing all of the Capital Stock of
the U.S. Subsidiary and (B) undated stock powers for each stock
certificate representing such Capital Stock, executed in blank and
delivered by a duly authorized officer of the Borrower;
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(iv) the Borrower Security Agreement, duly executed and
delivered by the Borrower and the Administrative Agent;
(v) the U.S. Subsidiary Security Agreement, duly executed
and delivered by the U.S. Subsidiary and the Administrative Agent;
(vi) the SSI Lender Pledge Agreement, duly executed and
delivered by SSI Sub 1 and the Administrative Agent;
(vii) the SSI Lender Security Agreement, duly executed
and delivered by SSI Sub 2 and the Administrative Agent; and
(viii) the Subsidiary Guaranty Agreement, duly executed
and delivered by the U.S. Subsidiary.
(b) System Contracts. The Administrative Agent shall have received,
----------------
with a counterpart for each Lender, each of the following documents:
(i) a true and complete copy of the Supply Contract, duly
certified as such by a Responsible Officer of the Borrower as of the
Closing Date and as being in full force and effect;
(ii) Supplement No. 1 to the Supply Contract, in form and
substance reasonably satisfactory to the Lead Agents, duly executed
and delivered by the Contractor, the Borrower and the Subsidiaries;
(iii) a true and complete copy of the Supply Contract
Guaranty, duly certified as such by a Responsible Officer of the
Borrower as of the Closing Date and as being in full force and effect;
(iv) a true and complete copy of the OA&M Agreement, duly
certified as such by a Responsible Officer of the Borrower as of the
Closing Date and as being in full force and effect;
(v) Supplement No. 1 to the OA&M Agreement, in form and
substance reasonably satisfactory to the Lead Agents, duly executed
and delivered by the Operator, the Borrower and the Subsidiaries;
(vi) a true and complete copy of the Sales Agency
Agreement, duly certified as such by a Responsible Officer of the
Borrower as of the Closing Date and as being in full force and effect;
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(vii) Supplement No. 1 to the Sales Agency Agreement, in form and
substance reasonably satisfactory to the Lead Agents, duly executed
and delivered by the Sales Agent, the Borrower and the Subsidiaries;
(viii) the SSI Consent, duly executed and delivered by
the Contractor, the Administrative Agent and the Borrower;
(ix) the SSI IRU and Option Agreement, duly executed and
delivered by the U.S. Subsidiary and SSI Sub 2;
(x) a true and complete copy of the Advisory Services
Agreement, duly certified as such by a Responsible Officer of the
Borrower as of the Closing Date and as being in full force and effect,
together with the First Amendment thereto;
(xi) a true and complete copy of the Contractor Escrow and
Security Agreement, duly certified as such by a Responsible Officer of
the Borrower as of the Closing Date and as being in full force and
effect, together with the First Amendment thereto;
(xii) the SSI Indemnity Agreement, duly executed and
delivered by SSI and the Borrower;
(xiii) the SSI Subordinated Pledge Agreement, duly
executed and delivered by SSI Sub 1 and the U.S. Subsidiary;
(xiv) the SSI Subordinated Security Agreement, duly
executed and delivered by SSI Sub 2 and the U.S. Subsidiary; and
(xv) the Intercompany Agreement, duly executed and
delivered by the Borrower and the Subsidiaries.
(c) Legal Opinions. The Administrative Agent shall have received,
--------------
with a counterpart for each Lender, the following executed legal opinions,
each dated the Closing Date:
(i) the legal opinion of Appleby, Spurling & Kempe,
Bermuda counsel to the Borrower and Holdings, substantially in the
form of Exhibit O-1;
-----------
(ii) the legal opinion of Simpson Thacher & Bartlett,
special New York counsel to the Borrower and
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<PAGE>
the Subsidiaries, substantially in the form of Exhibit O-2;
-----------
(iii) the legal opinion of Hogan & Hartson, LLP, special
U.S. regulatory counsel to the Borrower and the Subsidiaries,
substantially in the form of Exhibit O-3;
-----------
(iv) the legal opinion of Clifford Chance, special U.K.
regulatory counsel, substantially in the form of Exhibit O-4;
-----------
(v) the legal opinion of in-house counsel to AT&T,
substantially in the form of Exhibit O-5;
-----------
(vi) the legal opinion of in-house counsel to SSI,
substantially in the form of Exhibit O-6; and
-----------
(vii) the legal opinion of Davis Polk and Wardwell, New
York counsel to SSI, SSI Sub 1 and SSI Sub 2, substantially in the
form of
Exhibit O-7.
-----------
(d) Independent Engineer's Report. The Administrative Agent shall
-----------------------------
have received, with a copy for each Lender, the final report of the
Independent Engineer, dated March, 1997.
(e) Market Consultant's Report. The Administrative Agent shall have
--------------------------
received, with a copy for each Lender, the final report of the Market
Consultant.
(f) Insurance Consultant's Report. The Administrative Agent shall
-----------------------------
have received, with a copy for each Lender, a report of the Insurance
Consultant, in form and substance reasonably satisfactory to the Lead
Agents, which addresses the adequacy of the insurance required to be
maintained by the Contractor under the Supply Contract (other than as to
levels of self-insurance and deductibles) as well as the adequacy of the
insurance proposed to be maintained by the Borrower and the Subsidiaries.
(g) Insurance. The Administrative Agent shall have received, with a
---------
copy for each Lender, a certificate of the Insurance Consultant stating
that all required insurance policies to be maintained by the Borrower and
the Subsidiaries on the Closing Date pursuant to this Agreement have been
obtained and are in full force and effect.
(h) Capital Budget. The Administrative Agent shall have received,
--------------
with a copy for each Lender, a construction and capital budget and
construction drawdown schedule (including a drawdown schedule with respect
to the Loans) (as amended in accordance with the terms hereof, the
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<PAGE>
"Capital Budget"), in form and substance reasonably satisfactory to the
--------------
Lead Agents, which sets forth all Capital Costs to be incurred prior to
System Final Completion.
(i) Landing Licenses. The Administrative Agent shall have received
----------------
evidence reasonably satisfactory to the Lead Agents that the Borrower and
the Subsidiaries have appropriately filed, or caused to be filed, all
necessary applications for the issuance of the Landing Licenses.
(j) Projections. The Administrative Agent shall have received, with
-----------
a copy for each Lender, a copy of the Projections reformatted in form
reasonably satisfactory to the Lead Agents and reflecting information
arising from the final versions of the System Contracts, certified as of
the Closing Date by a Responsible Officer of the Borrower as being prepared
in good faith and based on reasonable assumptions.
(k) Tax Report. The Administrative Agent shall have received, with a
----------
copy for each Lender, a copy of a tax report from Arthur Andersen LLP with
respect to VAT and duties, in form and substance reasonably satisfactory to
the Lead Agents, and such other information reasonably satisfactory to the
Lead Agents with respect to taxes payable by the Borrower and the
Subsidiaries as the Lead Agents shall reasonably require.
(l) Security Interests (Recordings and Filings). Each of the
-------------------------------------------
documents and instruments set forth in Schedule 3.17 shall have been
-------------
delivered to the Administrative Agent for recording or filing or shall have
been recorded or filed in the respective places or offices set forth in
Schedule 3.17, and any and all recording and filing fees with respect
-------------
thereto shall have been paid.
(m) Equity Contributions. The Administrative Agent shall be
--------------------
reasonably satisfied that the Borrower received on March 25, 1997 a capital
contribution in an amount equal to $175,000,000.
(n) No Violation of Law. The consummation of the transactions
-------------------
contemplated by the Loan Documents and by the System Contracts shall not
violate any Requirement of Law.
(o) Financial Statements. The Administrative Agent shall have
--------------------
received the unaudited balance sheet and related financial statements of
the Borrower for the fiscal quarter ended March 31, 1997, certified as such
by a Responsible Officer of the Borrower.
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<PAGE>
(p) Fees. The Administrative Agent and the Lead Agents shall have
----
received all fees and expenses (including counsel fees and expenses) due
and payable by the Borrower to the Administrative Agent and the Lead Agents
on or prior to the Closing Date.
(q) Agent for Service of Process. The Administrative Agent shall
----------------------------
have received evidence reasonably satisfactory to the Lead Agents that the
Borrower and each other Loan Party that does not have an office in the
United States has irrevocably appointed an agent in New York, New York for
service of process.
(r) Corporate Proceedings of the Borrower. The Administrative Agent
-------------------------------------
shall have received a copy of the resolutions, in form and substance
reasonably satisfactory to the Lead Agents, of the Board of Directors of
the Borrower authorizing (i) the execution, delivery and performance of
this Agreement and the other Loan Documents and System Contracts to which
it is a party, (ii) the borrowings contemplated hereunder and (iii) the
granting by it of the Liens created pursuant to the Security Documents to
which it is a party, certified by the Secretary or an Assistant Secretary
of the Borrower as of the Closing Date, which certificate shall be in form
and substance reasonably satisfactory to the Lead Agents and shall state
that the resolutions thereby certified have not been amended, modified,
revoked or rescinded.
(s) Borrower Incumbency Certificate. The Administrative Agent
-------------------------------
shall have received a certificate of the Borrower, dated the Closing
Date, as to the incumbency and signature of the officers of the
Borrower executing any Loan Document or System Contract, in form and
substance reasonably satisfactory to the Lead Agents, executed by the
President or any Vice President and the Secretary or any Assistant
Secretary of the Borrower.
(t) Corporate Proceedings of Holdings. The Administrative Agent
---------------------------------
shall have received a copy of the resolutions, in form and substance
reasonably satisfactory to the Lead Agents, of the Board of Directors of
Holdings authorizing (i) the execution, delivery and performance of the
Loan Documents to which Holdings is a party and (ii) the granting by it of
the Liens created pursuant to the Security Documents to which it is a
party, certified by the Secretary or an Assistant Secretary of Holdings as
of the Closing Date, which certificate shall be in form and substance
reasonably satisfactory to the Lead Agents and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
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<PAGE>
(u) Holdings Incumbency Certificate. The Administrative Agent shall have
-------------------------------
received a certificate of Holdings, dated the Closing Date, as to the
incumbency and signature of the officers of Holdings executing any Loan
Document, in form and substance reasonably satisfactory to the Lead Agents,
executed by the President or any Vice President and the Secretary or any
Assistant Secretary of Holdings.
(v) Corporate Proceedings of Subsidiaries. The Administrative Agent
-------------------------------------
shall have received a copy of the resolutions, in form and substance
reasonably satisfactory to the Lead Agents, of the Board of Directors of
the U.S. Subsidiary authorizing (i) the execution, delivery and performance
of the Loan Documents to which it is a party and (ii) the granting by it of
the Liens created pursuant to the Security Documents to which it is a
party, certified by a Responsible Officer of the U.S. Subsidiary as of the
Closing Date, which certificate shall be in form and substance reasonably
satisfactory to the Lead Agents and shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded.
(w) Subsidiary Incumbency Certificates. The Administrative Agent
----------------------------------
shall have received a certificate of the U.S. Subsidiary, dated the Closing
Date, as to the incumbency and signature of the officers of the U.S.
Subsidiary executing any Loan Document, in form and substance reasonably
satisfactory to the Lead Agents, executed by two Responsible Officers of
the U.S. Subsidiary.
(x) Corporate Proceedings of SSI, SSI Sub 1 and SSI Sub 2. The
-----------------------------------------------------
Administrative Agent shall have received a copy of the resolutions, in form
and substance reasonably satisfactory to the Administrative Agent, of the
Board of Directors of each of SSI, SSI Sub 1 and SSI Sub 2, as the case may
be, authorizing (i) the execution, delivery and performance of the Loan
Documents or the System Contracts to which it is a party, and (ii) the
granting by it of the Liens created pursuant to the Security Documents to
which it is a party, certified by the Secretary or an Assistant Secretary
of such Person as of the Closing Date, which certificate shall be in form
and substance reasonably satisfactory to the Lead Agents and shall state
that the resolutions thereby certified have not been amended, modified,
revoked or rescinded.
(y) SSI, SSI Sub 1 and SSI Sub 2 Incumbency Certificates. The
----------------------------------------------------
Administrative Agent shall have received a certificate of each of SSI,
SSI Sub 1 and SSI Sub 2 each dated the Closing Date, as to the
incumbency and signature of the officers of SSI, SSI
-77-
<PAGE>
Sub 1 and SSI Sub 2, as the case may be, executing any System
Contract, in form and substance reasonably satisfactory to the Lead
Agents, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of SSI, SSI Sub 1 and SSI Sub 2,
as the case may be.
(z) Corporate Documents. The Administrative Agent shall have
-------------------
received true and complete copies of the certificate of incorporation and
by-laws (or such other organizational and governing documents) of each of
Holdings, the Borrower, the U.S. Subsidiary, SSI, SSI Sub 1 and SSI Sub 2,
certified as of the Closing Date as complete and correct copies thereof by
a Responsible Officer of such Person.
(aa) Closing Date Certificate. The Administrative Agent shall have
------------------------
received the Closing Date Certificate, dated the Closing Date and duly
executed by a Responsible Officer of the Borrower, stating that (a) no
default in any material respect as to the Borrower or its Subsidiaries has
occurred and is continuing under any System Contract and (b) to the best of
the Borrower's knowledge, no default in any material respect as to any
other party thereto has occurred and is continuing under any System
Contract, together with all attachments thereto.
(ab) Representations and Warranties. All representations and
------------------------------
warranties made by the Borrower and each other Obligor in any Loan Document
or System Contract shall be true and correct in all material respects when
made (unless any such representation or warranty relates solely to an
earlier date, in which case it shall have been true and correct in all
material respects as of such earlier date).
(ac) No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing as of the Closing Date.
(ad) Borrowing Request. The Administrative Agent shall have received
-----------------
a Borrowing Request in accordance with Section 2.03, with appropriate
------------
insertions and attachments, executed by a Responsible Officer of the
Borrower.
(ae) Satisfactory Documentation. All documentation shall be
--------------------------
reasonably satisfactory to the Lead Agents.
SECTION 4.2. Conditions Precedent to Subsequent Credit Extensions. The
----------------------------------------------------
obligation of each Lender to make a Loan on the occasion of any Borrowing (other
than the initial Working Capital Loans made on the Closing Date), and of the
Issuing Bank to
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<PAGE>
issue, renew or extend the maturity or expiration date of any Letter of Credit,
shall be subject to the fulfillment of, or waiver by the Majority Lenders of,
each of the following conditions precedent:
(a) Equity Contributions. Unless such Borrowing is comprised solely
--------------------
of a Working Capital Borrowing, the Administrative Agent shall have
received evidence reasonably satisfactory to the Administrative Agent that
the Borrower has spent (or, simultaneously with the application of the
proceeds of such Borrowing, will have spent or shall have deposited in the
Construction Account) on System Activities in accordance with the terms of
the Capital Budget an amount equal to the Net Equity Funding Commitment
minus (i) any amounts remaining in the "Secured Dispute Account", the
"Contingent Account", and the "Joint Dispute Account" (as such terms are
defined in the Contractor Escrow and Security Agreement) in accordance with
the terms of the Contractor Escrow and Security Agreement, and (ii) any
amounts remaining in the Borrower's or any Subsidiary's checking account in
accordance with Section 8.30.
------------
(b) Construction Progress Certificate. Unless such Borrowing is
---------------------------------
comprised solely of a Working Capital Borrowing, the Administrative Agent
shall have received a Construction Progress Certificate; provided that if
such Construction Progress Certificate indicates that the Independent
Engineer or the Borrower is disputing any invoice under the Supply
Contract, the proceeds of the Loans will be placed into the "Joint Dispute
Account" in accordance with the terms of the Supply Contract and the
Contractor Escrow and Security Agreement.
(c) Representations and Warranties. All representations and
------------------------------
warranties made by the Borrower and each other Loan Party in any Loan
Document shall be true and correct in all material respects when made
(unless any such representation or warranty relates solely to an earlier
date, in which case it shall have been true and correct in all material
respects as of such earlier date).
(d) No Payment Default or Specified Event of Default. No payment
------------------------------------------------
Default or Specified Event of Default shall have occurred and be continuing
on such date, and no Event of Loss shall have occurred and be continuing on
such date (i) which Event of Loss could reasonably be expected to have a
Material Adverse Effect or (ii) with respect to which Event of Loss the
cost to repair is in excess of $2,500,000 unless (A) the Borrower is able
to certify (as confirmed by the Independent Engineer) in its reasonable
judgment that the System can be completed by the Actual Date of Commercial
Operation with the Loans, equity and insurance payments
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<PAGE>
available to it or (B) the risk of loss with respect to that portion of
the System giving rise to the Event of Loss is borne by the Contractor
under the Supply Contract).
(e) No Change in Law. No change shall have occurred after the
----------------
Closing Date in any applicable law that would make any Lender's
participation in the transactions contemplated by the Loan Documents
illegal.
(f) No Force Majeure. No event of force majeure shall exist which at
----------------
such time permits any party (other than the Borrower) to any System
Contract to terminate such System Contract (other than a Capacity Sales
Agreement and any Non-Material System Contract).
(g) Governmental Actions (other than Landing Licenses). Unless such
--------------------------------------------------
Borrowing is comprised solely of a Working Capital Borrowing, the
Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower stating that each Governmental Action (other than
Landing Licenses) set forth in Schedule 3.08 which is required in
-------------
accordance with such Schedule (as such Schedule may be amended or
supplemented in accordance with Section 3.08) to be obtained on or prior to
------------
the date of such Borrowing shall have been duly obtained, except for those
Governmental Actions specifically described in such certificate (the
"Delinquent Governmental Actions") which the Borrower and the Contractor
--------------------------------
failed to obtain by the date of such Borrowing; provided that (i) the
--------
failure to obtain any such Delinquent Governmental Action by the date of
such Borrowing could not reasonably be expected to have a Material Adverse
Effect and (ii) if requested by the Administrative Agent and to the extent
applicable (i.e., such matter is within the expertise of counsel), the
----
Borrower shall deliver an opinion of appropriate regulatory counsel, in
form and substance reasonably satisfactory to the Administrative Agent,
stating that such counsel has no reason to believe that such Delinquent
Governmental Actions could not be obtained in due course.
(h) Landing Licenses. Unless such Borrowing is comprised solely of a
----------------
Working Capital Borrowing, the Administrative Agent shall have received (i)
a certificate of a Responsible Officer of the Borrower stating that each
Landing License set forth in Schedule 3.08 which is required in accordance
-------------
with such Schedule to be obtained on or prior to the date of such Borrowing
shall have been duly obtained or, with respect to any required Landing
License which has not been so obtained by such date (the "Delinquent
----------
Landing Licenses"), such certificate shall set forth the details associated
----------------
with any such delay and be accompanied by an opinion of the Borrower's
regulatory counsel, in form and
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<PAGE>
substance reasonably satisfactory to the Administrative Agent, stating that
there is no material impediment to receiving such Delinquent Landing
License and that it is reasonable to expect that such Delinquent Landing
License will be obtained within three months after the date set forth in
Schedule 3.08 for the procurement of such Delinquent Landing License. Once
-------------
issued, each Landing License shall be in full force and effect and shall
not be subject to any appeal or contest where there is a material risk that
such Landing License will be revoked.
(i) Working Capital Loans. The conditions set forth in Section 4.01
--------------------- ------------
shall have been fulfilled and/or waived by the Majority Lenders on the
Closing Date and the initial Working Capital Loans shall have been made
pursuant thereto.
(j) Borrowing Request. The Administrative Agent shall have received
-----------------
a Borrowing Request in accordance with Section 2.03, with appropriate
------------
insertions and attachments, executed by a Responsible Officer of the
Borrower.
(k) Borrowing Certificate. The Administrative Agent shall have
---------------------
received a Borrowing Certificate, dated the date of such Borrowing, with
appropriate insertions and attachments, executed by a Responsible Officer
of the Borrower.
ARTICLE V
AFFIRMATIVE COVENANTS
---------------------
Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees and other obligations payable hereunder
and under the Loan Documents shall have been paid in full and all Letters of
Credit shall have expired or terminated (or shall have been cash collateralized
on terms reasonably acceptable to the Administrative Agent and the Issuing Bank)
and all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Administrative Agent, the Lead Agents, the Issuing Bank and the
Lenders that:
SECTION 5.1. Financial Statements and Other Information. The Borrower
------------------------------------------
shall deliver to the Administrative Agent, with a copy for each Lender, the
following:
(a) within 90 days after the end of each fiscal year of the Borrower,
its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the
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<PAGE>
previous fiscal year, all reported on by independent public accountants of
recognized national standing (without qualification or exception as to the
scope of such audit) to the effect that such consolidated financial
statements present fairly in all material respects the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower (commencing with the fiscal
quarter ending September 30, 1997), its consolidated balance sheet and
related statements of operations, stockholders' equity and cash flows as of
the end of and for such fiscal quarter and the then elapsed portion of the
fiscal year, setting forth in each case in comparative form the figures for
the corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by a
Responsible Officer of the Borrower as presenting fairly in all material
respects the financial condition and results of operations of the Borrower
and its consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Responsible Officer of the
---------- ---
Borrower certifying to such officer's knowledge whether a Default has
occurred and, if a Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm, if available from
------ ---
such accounting firm, that reported on such financial statements (which
certificate may be limited to accounting matters and may disclaim
responsibility for legal interpretations) stating whether they obtained
knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the extent
permitted by accounting rules or guidelines);
(e) if there has been a material Change in Law with respect to or
affecting Collateral which could reasonably be expected to adversely affect
the Lenders or there have been material additions to, or changes in, or a
change in location of, a material portion of, the Collateral, at the
request of the Administrative Agent, an opinion of counsel addressed to the
Administrative Agent and the Lenders
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<PAGE>
covering such collateral security in a manner reasonably satisfactory to
the Administrative Agent; and
(f) such other information respecting the conditions or operations,
financial or otherwise, of the Borrower or any Subsidiary as the Issuing
Bank or the Administrative Agent may from time to time reasonably request.
SECTION 5.2. Reports. (a) The Borrower shall deliver to the
-------
Administrative Agent, with a copy for each Lender, within 15 days after the end
of each calendar quarter (commencing with the calendar quarter ending on
September 30, 1997) a report which sets forth the aggregate sales of Capacity as
at the end of such quarter, the amount of Capacity remaining to be sold, any
terminations of sales of Capacity during such quarter, the purchase price
therefor and the date such payments shall become (or became) due. The Borrower
shall have no obligation to provide copies or otherwise disclose the contents of
individual Capacity Sales Agreements to any party hereto, except the Borrower
shall permit the Administrative Agent to review and retain a copy of Capacity
Sales Agreements (but, so long as no Event of Default or Designated Event has
occurred and is continuing, not to make further copies thereof), so long as such
information is kept subject to the confidentiality obligation contained in
Section 10.14 hereof; provided (i) such disclosure shall always be deemed to
- ------------- --------
have been clearly marked as confidential and (ii) the exceptions set forth in
clauses (d), (e), (f) and (g) of Section 10.14 shall not be applicable to the
- ----------- --- --- --- -------------
confidentiality obligation set forth herein so long as no Event of Default or
Designated Event shall have occurred or be continuing.
(b) The Borrower shall deliver to the Administrative Agent, promptly after
its receipt, such other reports (excluding ordinary correspondence) regarding
the System, the Borrower or the Subsidiaries as the Contractor or the Operator
or Sales Agent is required to provide to the Borrower under the System
Contracts, and shall deliver to the Administrative Agent promptly upon receipt
or transmission copies of all amendments, and material waivers, written consents
and other modifications (including all material Contract Variations) under any
System Contract, other than as to any Capacity Sales Agreement and any Non-
Material System Contract and the Borrower shall use reasonable efforts to give
to the Administrative Agent in advance of execution, drafts of amendments to the
Supply Contract, the OA&M Agreement, the Sales Agency Agreement and the Supply
Contract Guaranty.
(c) The Borrower shall deliver to the Administrative Agent, within three
Business Days prior to each Principal Payment Date (but effective as of such
Principal Payment Date), a certificate of a Responsible Officer of the Borrower
setting forth reasonably
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<PAGE>
detailed calculations demonstrating the Borrower's compliance with Section 6.24;
------------
provided that if the Initial Principal Payment Date occurs less than six months
- --------
after the Commercial Operation Date, the Borrower shall not be required to
demonstrate compliance with the Interest Coverage Ratio requirement set forth in
Section 6.24(b) as of the Initial Principal Payment Date.
- ---------------
(d) The Borrower shall assist and cooperate with the Independent Engineer
in providing the Lenders with such reports as the Lenders through the
Administrative Agent shall reasonably request of the Independent Engineer
(including a monthly construction progress report).
(e) Concurrently with the obtaining of any Landing License, the Borrower
shall furnish to the Administrative Agent an appropriate and favorable opinion
of counsel as to such Landing License being in full force and effect and the
only telecommunications license from (i) in the case of the United States
Landing License, the Federal Communications Commission, (ii) in the case of the
United Kingdom Landing License, the United Kingdom Department of Trade and
Industry, and (iii) in the case of any other Landing Country, the applicable
Governmental Authority, necessary for the landing and operation of the System
(and, with respect only to the United Kingdom Landing License up to but not
including, the System interface at the United Kingdom Cable station) as
described in the applicable application.
(f) At least one Business Day prior to each Principal Payment Date, the
Borrower shall deliver to the Administrative Agent a certificate setting forth
the Required Balance with respect to each Reserve Account as of such date.
SECTION 5.3. Payment of Obligations. The Borrower shall, and shall cause
----------------------
each of the Subsidiaries to, pay at or before maturity or before they become
delinquent, as the case may be, all its material obligations of whatever nature,
except where the amount or validity thereof is subject to a Contest.
SECTION 5.4. Conduct of Business; System Completion. The Borrower and the
--------------------------------------
Subsidiaries shall engage solely in System Activities and activities incidental
thereto. The Borrower shall diligently enforce all of its rights under the
Supply Contract and the Supply Contract Guaranty and shall cooperate with, and
take all reasonable action that it can to assist, the Contractor to complete the
System in accordance with the terms of the Supply Contract.
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<PAGE>
SECTION 5.5. Existence. The Borrower shall, and shall cause each of the
---------
Subsidiaries to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence and take all reasonable
action to maintain all rights, privileges and franchises material, necessary or
desirable in the normal conduct of its business except those as to which the
failure to maintain such rights, privileges and franchises could not reasonably
be expected to have a Material Adverse Effect; provided that the foregoing shall
--------
not prohibit any merger, consolidation, liquidation or dissolution permitted
under Section 6.03.
------------
SECTION 5.6. Compliance with Laws. The Borrower shall, and shall cause
--------------------
each of the Subsidiaries to, comply in all material respects with all
Requirements of Law applicable to it or its property, except where the failure
to do so could not reasonably be expected to have a Material Adverse Effect.
SECTION 5.7. Performance of Agreements. The Borrower shall, and shall
-------------------------
cause each of the Subsidiaries to, observe in all material respects the
covenants and agreements of the Borrower and the Subsidiaries contained in the
System Contracts.
SECTION 5.8. Taxes and Claims. (a) The Borrower shall, and shall cause
----------------
each of the Subsidiaries to, pay and discharge all Taxes lawfully imposed on it
or on its income or profits or on any of its property prior to the date on which
penalties attach thereto unless such Tax is subject to a Contest.
(b) The Borrower shall use reasonable best efforts to maintain and keep in
full force and effect all clearance rulings, decrees or similar items necessary
to continue the Borrower's exemption from the impositions of any Tax or similar
charge (other than de minimis Taxes or Taxes and other charges set forth on
-- -------
Schedule 3.13) under the laws of Bermuda on the Borrower and its assets and
- -------------
revenues.
SECTION 5.9. Notices. The Borrower shall, promptly after a Responsible
-------
Officer of the Borrower has knowledge thereof, give written notice to the
Administrative Agent of (a) the occurrence of a Default or Event of Default
(and, with respect to such event, the Borrower shall also give notice thereof to
the Contractor), (b) any payment default under any Contractual Obligation of
the Borrower or any Subsidiary, or any other such default that could reasonably
be expected to have a Material Adverse Effect, (c) any litigation or similar
proceeding affecting the Borrower, any of the Subsidiaries or the System
concerning any Governmental Action or which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect, (d) the occurrence of
any ERISA Event that alone or together with any other ERISA Events that have
occurred, could reasonably be expected to result in liability in an aggregate
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<PAGE>
amount in excess of $1,000,000, (e) the execution of any Additional Contract
(together with a copy thereof), (f) any material event constituting force
-----
majeure under the Supply Contract or any other material delay in the
- -------
construction of the System, (g) any loss or damage to the Collateral in excess
of $250,000 (whether or not insured), (h) the cancellation or revocation of any
material Governmental Action or insurance maintained by the Borrower, (i) any
Lien (other than Permitted Encumbrances) against any collateral security or the
System, (j) no less than five Business Days prior thereto, any Transfers set
forth in clause (e) of Section 6.04 and on a semi-annual basis, all Transfers
---------- ------------
set forth in clauses (c) and (g) of Section 6.04, and (k) any other development
----------- --- ------------
that has resulted in, or could reasonably be expected to result in, a Material
Adverse Effect.
SECTION 5.10. Insurance. The Borrower shall at all times carry and
---------
maintain or cause to be carried and maintained insurance in accordance with the
provisions set forth in Schedule 5.10. All such insurance shall comply with the
-------------
other provisions set forth in Schedule 5.10.
-------------
SECTION 5.11. Fiscal Year. The fiscal year of the Borrower and the
-----------
Subsidiaries shall be the twelve-month period ending on December 31 of each
year.
SECTION 5.12. Use of Proceeds. The proceeds of the Term Loans shall be
---------------
used to finance System Activities in accordance with the Capital Budget and to
pay fees and expenses directly related thereto. The proceeds of the Working
Capital Loans shall be used to finance the development, construction and
installation of the System, to fund the Construction Contingency Reserve
Account, to pay fees and expenses and for working capital purposes (including
the payment of VAT).
SECTION 5.13. Environmental Matters. The Borrower shall, and shall cause
---------------------
each of the Subsidiaries to, comply in all material respects with any and all
applicable Environmental Laws, except where the failure to so comply could not
reasonably be expected to have a Material Adverse Effect.
SECTION 5.14. Operating Budgets; Operating Plans. (a) Within 30 days of
----------------------------------
the date the United States to United Kingdom Segment of the System is Ready for
Commercial Service, and after prior review by, and the approval of, the Lead
Agents and the Independent Engineer, the Borrower will adopt (i) an operating
budget detailing anticipated costs in connection with operating the System (an
"Operating Budget") for the initial Operating Year and (ii) an operating plan
- -----------------
updating the Projections (the "Operating Plan") for the period from the first
--------------
day of the initial Operating Year through the Maturity Date which shall set
forth the anticipated costs and revenues, by Operating Year, in connection with
operating the System during such period.
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<PAGE>
(b) Within 30 days of the commencement of each subsequent Operating Year,
and after prior review by and discussion with the Administrative Agent and the
Independent Engineer, the Borrower will adopt an Operating Budget for such
Operating Year; provided that (i) any Operating Budget that provides for total
--------
costs (excluding Sales Commissions) in excess of 105% of the total costs
(excluding Sales Commissions) set forth in the Operating Plan for such Operating
Year shall not be adopted without the prior written consent of the Lead Agents
and (ii) any Operating Budget which provides for total operating costs
(excluding Sales Commissions) in excess of the operating costs (excluding Sales
Commissions) set forth in the Operating Plan for such Operating Year, and such
excess, when added to the Cumulative Overruns for all Operating Years, would
exceed an amount equal to 20% of the Benchmark Costs for all prior Operating
Years (including the current Operating Year), shall not be adopted without the
prior written consent of the Majority Lenders. For purposes hereof, "Benchmark
---------
Costs" shall be the total operating costs (excluding Sales Commissions) for each
- -----
Operating Year set forth in the Operating Plan, and "Cumulative Overruns" shall
-------------------
be, at any time of determination, an amount equal to the difference between (a)
the sum of the actual operating costs (excluding Sales Commissions) for each
complete Operating Year ended and (b) the sum of Benchmark Costs for each such
complete Operating Year ended; Cumulative Overruns may be a negative number.
(c) The Borrower shall, simultaneously with the delivery of each Operating
Budget (other than the initial Operating Budget), deliver to the Administrative
Agent (for informational purposes only), an update of the Operating Plan.
(d) The Borrower shall deliver copies of the Operating Budgets for each
such Operating Year promptly to the Administrative Agent.
SECTION 5.15. Governmental Actions. The Borrower shall (a) promptly make,
--------------------
or cause to make, all filings for all Governmental Actions required in
connection with the construction, installation or operation of the System as
soon as reasonably possible and in accordance with the Plan of Work (and, in any
event, in time to comply with the dates for procurement of Governmental Actions
set forth in Schedule 3.08), (b) assist the Contractor where necessary or
-------------
appropriate in all follow-up necessary to obtain on a timely basis all such
Governmental Actions and (c) from and after System Final Completion, maintain
(or cause the Operator under the System Contracts to maintain) in full force and
effect all material Governmental Actions as are at the time necessary in order
to operate and maintain the System, except where the failure to file or maintain
such Governmental Actions could not reasonably be expected to have a Material
Adverse Effect.
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SECTION 5.16. Cooperation with Independent Engineer. The Borrower shall,
-------------------------------------
and shall cause each Subsidiary to, keep the Independent Engineer fully informed
on a timely basis with respect to the design of, and other material matters
relating to, the System, and shall meet (and, to the extent within its control,
cause the Contractor to meet) the Independent Engineer at reasonable times and
upon reasonable notice to discuss any and all of the foregoing.
SECTION 5.17. Spare Parts. The Borrower shall, on and after the
-----------
Commercial Operation Date, maintain, or cause the Operator to maintain, spare
parts with respect to the System as are customary for the submarine fiber-optic
cable industry.
SECTION 5.18. Interest Rate Protection. The Borrower shall enter into
------------------------
Hedging Agreements by or within four months after the Closing Date with one or
more Lenders or Affiliates thereof with respect to a portion of the Loans and
for a portion of the period from the date the Term Loans are first drawn to the
date the System is anticipated to be Ready for Commercial Service (each such
portion to be reasonably satisfactory to the Borrower and the Lead Agents) and,
thereafter, the Borrower shall, at or about the Commercial Operation Date, enter
into Hedging Agreements reasonably satisfactory to the Lead Agents with respect
to a portion of the Loans and for periods reasonably satisfactory to the
Borrower and the Lead Agents, in each case under documents reasonably
satisfactory to the Borrower and the Lead Agents, in order to hedge the
Borrower's interest rate exposure on the Loans from and after such date.
SECTION 5.19. Revenue Account. The Borrower shall, and shall cause the
---------------
Subsidiaries to, deposit all of their respective revenues (other than those
being applied to the immediate prepayment of the Loans) directly into the
Revenue Account or the applicable Subsidiary Account as required by Article
-------
VIII.
SECTION 5.20. Maintenance of Process Agent. The Borrower shall, and shall
----------------------------
cause each of the Subsidiaries that does not maintain an office in New York to,
maintain in New York, New York a Person acting as agent to receive on its behalf
service of process.
SECTION 5.21. System Operation and Maintenance. The Borrower shall, and
--------------------------------
shall cause the Subsidiaries to, from and after System Final Completion, cause
the System to be operated and maintained in an efficient and business-like
manner in accordance with the terms of the System Contracts.
SECTION 5.22. Event of Loss. If an Event of Loss shall occur and no Event
-------------
of Default or Designated Event shall have occurred and be continuing and (a) in
the Independent Engineer's reasonable opinion it is technically feasible to
restore, rebuild
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or replace the affected portion of the System within one year, (b) in the Lead
Agent's reasonable opinion there are or will be sufficient funds available to
the Borrower (including from proceeds of insurance) to restore, rebuild or
replace the affected portion of the System so that the System will be able to
operate on a commercially feasible basis (and in any event on a basis sufficient
to pay the Loans and all other obligations owing to the Lenders), and (c) in the
Independent Engineer's reasonable opinion, it is reasonably likely that the
Borrower and the Subsidiaries will have as and when needed all rights of way and
permits necessary to restore, rebuild or replace the affected portion of the
System, then the Borrower, at its sole cost and expense, shall restore, rebuild
or replace the affected portion of the System.
SECTION 5.23. Books and Records; Inspection Rights. The Borrower shall,
------------------------------------
and shall cause each of the Subsidiaries to, keep proper books of record and
account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower shall,
and shall cause each of the Subsidiaries to, permit any representative of the
Lenders designated by the Administrative Agent, upon reasonable prior notice, to
visit and inspect its properties, to examine and make copies from its books and
records (other than examining and making copies with respect to Capacity Sales
Agreements, except to the extent set forth in Section 5.02(a)), and to discuss
---------------
its affairs, finances and condition with its officers and (at the Borrower's
expense no more than twice a year) its independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION 5.24. Export Control. The Borrower shall, and shall cause each of
--------------
the Subsidiaries to, comply in all material respects with all U.S. export laws
and regulations.
SECTION 5.25. Foreign Corrupt Practices Act. The Borrower shall, and
-----------------------------
shall cause each of the Subsidiaries to, comply in all material respects with
the Foreign Corrupt Practices Act of the United States, if applicable.
SECTION 5.26. Further Assurances. The Borrower shall cause to be promptly
------------------
and duly taken, executed, acknowledged and delivered all such further acts,
documents and assurances as the Administrative Agent from time to time may
reasonably request in order to carry out more effectively the intent and
purposes of this Agreement and the other Loan Documents, including with respect
to the maintenance of perfection of all Collateral that is perfectible and the
proper grant and perfection of Liens on perfectible assets hereafter acquired by
the Borrower or any of its Subsidiaries.
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<PAGE>
SECTION 5.27. As to Intellectual Property Collateral. (a) The Borrower
--------------------------------------
shall not, and shall not permit any of its Subsidiaries to, do any act, or omit
to do any act, whereby any of such intellectual property collateral may lapse or
become abandoned or dedicated to the public or unenforceable, unless such lapse,
abandonment, dedication or unenforceability could not reasonably be expected to
have a Material Adverse Effect.
(b) In no event shall the Borrower or any Subsidiary, or any of their
respective agents, employees, designees or licensees, file an application for
the registration of any intellectual property collateral with the United States
Patent and Trademark Office, the United States Copyright Office or any similar
office or agency in any other country or any political subdivision thereof,
unless it promptly informs the Administrative Agent.
(c) The Borrower shall take, and shall cause its Subsidiaries to take, all
reasonably necessary steps, including in any proceeding before the United States
Patent and Trademark Office, the United States Copyright Office, and any foreign
counterpart thereof, to maintain and pursue any application (and to obtain the
relevant registration) filed with respect to, and to maintain any registration
of, any material item of the intellectual property collateral, including the
filing of applications for renewal, affidavits of use, affidavits of
incontestability and opposition, interference proceedings and the payment of
appropriate fees, except where the failure to so maintain, obtain or pursue
could not reasonably be expected to have a Material Adverse Effect.
SECTION 5.28. Future Subsidiaries. Without limiting the effect of any
-------------------
restriction contained herein upon any Person becoming, after the Closing Date,
either a direct or indirect Subsidiary of the Borrower, or upon the Borrower
acquiring additional Capital Stock or other ownership interests of any new or
existing Subsidiary, if any Person shall become a Subsidiary after the Closing
Date;
(a) such Person (unless such Person is the German Subsidiary, in
which case the provisions of Section 5.30(b) shall apply) shall become a
---------------
party to (i) a guaranty in substantially the form of the provisions of the
guaranty contained in the Subsidiary Guaranty Agreement, and (ii) a
security agreement in substantially the form of the U.S. Subsidiary
Security Agreement, in either case, with such modifications as the
Administrative Agent may reasonably request or consent to, in a manner
reasonably satisfactory to the Administrative Agent;
(b) the Borrower shall pledge or cause to be pledged to the
Administrative Agent all of the outstanding shares of
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<PAGE>
such Capital Stock or other ownership interests of such Subsidiary owned
directly by it, along with undated stock powers for such certificates,
executed in blank (or, if any such shares of Capital Stock or other
ownership interests are uncertificated, confirmation and evidence
satisfactory to the Administrative Agent that the security interest in such
uncertificated securities has been perfected by the Administrative Agent in
accordance with Section 8-313 and Section 8-321 of the U.C.C. or any
similar law which may be applicable);
(c) the Administrative Agent shall have received from each such
Subsidiary, (other than any newly formed Subsidiary) certified copies of
Uniform Commercial Code Requests for Information or Copies (Form UCC-11),
or a similar search report certified by a party acceptable to the
Administrative Agent, dated a date reasonably near (but prior to) the date
of any such Person becoming a direct or indirect Subsidiary, listing all
effective financing statements, tax liens and judgment liens which name
such Person as the debtor and which are filed in the jurisdictions in which
filings are to be made pursuant to this Agreement and the other Loan
Documents, and in such other jurisdictions as the Administrative Agent may
reasonably request, together with copies of such financing statements (none
of which (other than financing statements (i) filed pursuant to the terms
hereof in favor of the Administrative Agent, if such Form UCC-11 or search
report, as the case may be, is current enough to list such financing
statements, (ii) being terminated pursuant to termination statements that
are to be delivered on or prior to the date such Person becomes such
Subsidiary or (iii) in respect of protective filings or Liens permitted
under Section 6.02) shall cover any of the Collateral); and
------------
(d) the Administrative Agent shall have received from each such
Subsidiary executed copies of U.C.C. financing statements (or equivalent
instruments) naming each such Subsidiary as the debtor and the
Administrative Agent as the secured party, suitable for filing under the
U.C.C. (or the foreign equivalent) of all jurisdictions as may be necessary
or, in the reasonable opinion of the Administrative Agent, desirable to
perfect the first priority security interest of the Administrative Agent
pursuant to the security agreement entered into by such Subsidiary in such
types of collateral as were perfected with respect to other Subsidiaries as
of the Closing Date,
together, in each case, with such opinions of legal counsel for the Borrower
relating thereto as the Administrative Agent shall reasonably request, which
legal opinions shall be in form and substance reasonably satisfactory to the
Administrative Agent.
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<PAGE>
SECTION 5.29. Lease. Upon the U.S. Subsidiary's acquisition from the
-----
Contractor of the real property located in the United States in accordance with
the terms of the Supply Contract, the Borrower shall cause the U.S. Subsidiary
to enter into the SSI Lease with SSI Sub 2.
SECTION 5.30. Foreign Subsidiary Collateral; Mortgages. The Borrower
----------------------------------------
shall:
(a) within the 90 days after the Closing Date (with the Borrower
agreeing to use reasonable commercial efforts to achieve the following
sooner than such date), (i) cause the U.K. Subsidiary to execute (A) a
Subsidiary Security Agreement or its reasonable equivalent under applicable
local law, in form and substance reasonably satisfactory to the
Administrative Agent, and (B) the Subsidiary Guaranty Agreement, (ii) cause
the U.K. Subsidiary to make all filings and obtain all notarizations
reasonably required in connection therewith to give the Administrative
Agent, for the benefit of the Lenders, a "perfected" security interest in
the same type of property that was perfected as of the Closing Date under
the U.S. Subsidiary Security Agreement, (iii) subject all ownership
interests in the U.K. Subsidiary to the Borrower Pledge Agreement and (iv)
deliver to the Administrative Agent customary favorable legal opinions with
respect thereto;
(b) within 90 days after the date the German Subsidiary is created
and validly existing under local law, (i) cause the German Subsidiary to
execute a security agreement or its reasonable equivalent under applicable
local law in favor of the Borrower, in form and substance reasonably
satisfactory to the Administrative Agent, to secure any intercompany
indebtedness owing from time to time by the German Subsidiary to the
Borrower, which intercompany indebtedness will be pledged to the
Administrative Agent for the benefit of the Lenders under pledge
arrangements reasonably satisfactory to the Administrative Agent, (ii)
cause the German Subsidiary to make all filings and obtain all
notarizations reasonably required in connection therewith to give the
Borrower a "perfected" security interest in the same type of property that
was perfected as of the Closing Date under the U.S. Subsidiary Security
Agreement and (iii) deliver to the Administrative Agent customary favorable
legal opinions with respect thereto; and
(c) within 90 days after the acquisition by the U.K. Subsidiary or
the U.S. Subsidiary, as the case may be, of real property under the Supply
Contract, (i) cause such Subsidiary to execute a Mortgage, or its
reasonable equivalent under applicable local law, in favor of the
Administrative Agent and in form and substance reasonably
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<PAGE>
satisfactory to the Administrative Agent providing the Administrative Agent
with a first Lien thereon, subject only to customary Liens which in any
event do not materially adversely effect (a) such Subsidiary's use,
operation or enjoyment of such property for its intended purpose or (b) the
Lender's rights or remedies under the Mortgage and (ii) cause to be
provided to the Administrative Agent, to the extent commercially feasible,
mortgagee's title insurance (or its reasonable equivalent) in amounts and
in form reasonably satisfactory to the Administrative Agent.
ARTICLE VI
NEGATIVE COVENANTS
------------------
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees and other obligations payable hereunder and
under the Loan Documents have been paid in full and all Letters of Credit have
expired or terminated (or shall have been cash collateralized on terms
reasonably acceptable to the Administrative Agent and the Issuing Bank) and all
LC Disbursements shall have been reimbursed, the Borrower covenants and agrees
with the Administrative Agent, the Lead Agents, the Issuing Bank and the Lenders
that:
SECTION 6.1. Indebtedness. The Borrower shall not, and shall not permit
------------
any Subsidiary to, create, incur, assume or suffer to exist any Indebtedness,
except:
(a) Indebtedness incurred under the Loan Documents;
(b) Permitted Subordinated Debt;
(c) Capital Lease Obligations permitted by Section 6.11;
------------
(d) trade or other similar Indebtedness incurred in the ordinary
course of business and payable within 60 days;
(e) Indebtedness under, or constituting net exposure under, interest
Hedging Agreements entered into in accordance with Section 5.18 or other
------------
Hedging Agreements otherwise permitted by the Lead Agents;
(f) Indebtedness under any Permitted Sale Leaseback;
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(g) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or another Subsidiary; provided that, (i) with
--------
respect to any Indebtedness of any Subsidiary to the Borrower, such
Indebtedness shall be evidenced by a promissory note pledged to the
Administrative Agent by the Borrower on terms reasonably satisfactory to
the Administrative Agent, (ii) with respect to any Indebtedness of the
Borrower to a Subsidiary, repayment of such Indebtedness shall be
subordinated to the repayment of the Credit Extensions and all other
obligations under this Agreement and the other Loan Documents in a manner
reasonably satisfactory to the Administrative Agent and (iii) no
Indebtedness may be extended to the German Subsidiary by any other
Subsidiary without the prior written consent of the Administrative Agent;
(h) Guarantees by the Borrower of Indebtedness of any Subsidiary, and
by any Subsidiary of Indebtedness of the Borrower (other than under clause
------
(j) below) or any other Subsidiary (other than the German Subsidiary);
---
(i) Indebtedness under the Permitted Reserve LC Facility; and
(j) other Indebtedness of the Borrower in an aggregate principal
amount not to exceed $1,750,000 at any one time.
SECTION 6.2. Liens. The Borrower shall not, and shall not permit any
-----
Subsidiary to, create, incur, assume or permit to exist any Lien on the
Collateral or on the System or any of its other assets, except Permitted
Encumbrances.
SECTION 6.3. Fundamental Changes. The Borrower shall not, and shall not
-------------------
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or liquidate or
dissolve, except that (a) any Subsidiary may merge into or consolidate with the
Borrower in a transaction in which the Borrower is the surviving corporation,
(b) any Subsidiary may merge into or consolidate with another Subsidiary (other
than the German Subsidiary or any other Subsidiary which for any reason has not
executed and delivered the Subsidiary Guaranty Agreement) and, so long as no
Default would occur after giving effect thereto, SSI Sub 2 may merge with the
U.S. Subsidiary, in each case in a transaction in which the surviving entity is
a wholly-owned Subsidiary and (c) any Subsidiary may, with the prior written
consent of the Administrative Agent (such consent not to be unreasonably
withheld or delayed), liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the
Borrower and such liquidation or dissolution is not disadvantageous in any
material respect to the Lenders.
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<PAGE>
SECTION 6.4. Sale of Assets. The Borrower shall not, and shall not permit
--------------
any Subsidiary to, sell, lease, convey, assign, transfer or otherwise dispose of
(each, a "Transfer") all or any portion of its assets except (a) Transfers of
--------
Capacity in accordance with Section 6.23, (b) Transfers of assets by any
------------
Subsidiary to the Borrower, (c) Transfers of assets in the ordinary course of
business not required for the efficient operation of the System for fair value
with a book value not exceeding for all such Transfers under this clause (c)
----------
$10,000,000 in the aggregate for all fiscal years, (d) Transfers in connection
with Permitted Sale Leasebacks, (e) Transfers of assets to Subsidiaries (unless
such Subsidiary is the German Subsidiary) which have executed and delivered the
Subsidiary Guaranty Agreement and where the Capital Stock of such Subsidiary is
subject to a Lien in favor of the Administrative Agent, but only to the extent
necessary to facilitate the obtaining of Landing Licenses or the minimization of
material Taxes or constituting an investment permitted by Section 6.05 (any such
------------
Transfers to the German Subsidiary (other than transfers in connection with the
initial capitalization of the German Subsidiary) being subject to the prior
written consent of the Administrative Agent), (f) Transfers in connection with
any Permitted System Upgrades or in connection with the installation of the
Phase 2 Segment (as defined in the Supply Contract) and (g) Transfers of
obsolete, worn out or defective equipment and other assets for fair value in
cash; provided that the proceeds or the Net Cash Proceeds of a Transfer (A)
--------
under clauses (c), (d) and (g) shall be applied to the prepayment of the Loans
----------- --- ---
and cash collateralization of LC Exposure if required in accordance with Section
-------
2.11 and (B) under clause (a) shall be deposited into the Revenue Account for
- ---- ----------
application in accordance with Article VIII.
------------
SECTION 6.5. Investments, Loans, Advances, Guarantees and Acquisitions.
---------------------------------------------------------
(a) The Borrower shall not, and shall not permit any of the Subsidiaries to,
purchase, hold or acquire (including pursuant to any merger with any Person that
was not a wholly owned Subsidiary prior to such merger) any Capital Stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, or become a general or limited
partner in any partnership or a joint venturer in any joint venture or enter
into any profit sharing or royalty agreement or similar arrangement whereby the
Borrower's or any of the Subsidiaries' income or profits are, or might be,
shared with any Person, except:
(i) Permitted Investments;
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(ii) investments by the Borrower in a Subsidiary; provided (A)
--------
such Subsidiary has executed and delivered the Subsidiary Guaranty
Agreement (unless such Subsidiary is the German Subsidiary) and the Capital
Stock of such Subsidiary is subject to a first priority Lien in favor of
the Administrative Agent and (B) such Investment is necessary to capitalize
such Subsidiary in accordance with applicable law, to facilitate the
obtaining of Landing Licenses or the minimization of material Taxes or to
enable such Subsidiary to acquire assets to be used to operate the System
or otherwise fulfill obligations incurred in connection with the System and
reflected in the Capital Budget or the Operating Budget; provided that the
--------
aggregate investments in the German Subsidiary not comprising Indebtedness
or payments under the Intercompany Agreement shall not in any event exceed
$40,000,000 at any one time outstanding;
(iii) loans or advances made by the Borrower to any Subsidiary
and made by any Subsidiary to the Borrower or any other Subsidiary;
provided (A) each such Subsidiary has executed and delivered the Subsidiary
--------
Guaranty Agreement (unless such Subsidiary is the German Subsidiary) and
the Capital Stock of such Subsidiary is subject to a first priority Lien in
favor of the Administrative Agent and (B) such Investment is necessary to
facilitate the obtaining of Landing Licenses or the minimization of
material Taxes or to enable such Subsidiary to acquire assets to be used to
operate the System or otherwise fulfill obligations incurred in connection
with the System and reflected in the Capital Budget or the Operating
Budget; provided that the aggregate investments in the German Subsidiary
--------
not comprising Indebtedness or payments under the Intercompany Agreement
shall not in any event exceed $40,000,000 at any one time outstanding; and
provided, further, that (1) any loans or advances made by the Borrower to
-------- -------
any Subsidiary shall be evidenced by a promissory note pledged to the
Administrative Agent and (2) the repayment of any loans or advances made by
any Subsidiary to the Borrower shall be subordinated to all obligations
owing to the Agent Related Persons and the Lenders on terms satisfactory to
the Administrative Agent;
(iv) Guarantees constituting Indebtedness permitted by Section
-------
6.01;
----
(v) prior to the receipt by the Borrower of Equity Contributions
in respect of the issuance of the Holdings Senior Notes, investments by the
Borrower in Holdings constituting a receivable as set forth in the
Borrower's balance sheet as of March 31, 1997 referred to in Section 3.01;
------------
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<PAGE>
(vi) pursuant to or in accordance with the terms of the SSI IRU
and Option Agreement; and
(vii) the purchase or acquisition of Capital Stock of a
Subsidiary in accordance with Sections 5.28 and 6.19(c) or Section 6.18.
------------- ------- ------------
SECTION 6.6. Restricted Payments. The Borrower shall not, and shall not
-------------------
permit any of the Subsidiaries to, declare or make any Restricted Payment or any
payment in connection with any tax sharing arrangement except for (a) Restricted
Payments by the Subsidiaries to the Borrower, (b) distributions by the Borrower
or any Subsidiary in respect of its Capital Stock which are payable solely in
additional Capital Stock of the Borrower or such Subsidiary, but only to the
extent such additional Capital Stock is subject to a first priority Lien in
favor of the Administrative Agent, (c) distributions by the Borrower
constituting Permitted Senior Cash Dividends in accordance with clause fourth of
-------------
Section 8.08(d), (d) distributions by the Borrower in respect of its Capital
- ---------------
Stock and/or payments of interest on Permitted Subordinated Debt from funds
available to the Borrower in accordance with (i) clause eighth or eleventh of
------------- --------
Section 8.08(a), (ii) clause sixth of Section 8.08(d) or (iii) Section 8.15(a),
- --------------- ------------ --------------- ---------------
(e) distributions by the Borrower in respect of its Capital Stock from proceeds
made available to the Borrower from the Special Payment Account in accordance
with Section 8.09, (f) distributions by the Borrower in respect of its Capital
------------
Stock from proceeds made available to the Borrower from the Holding Interest
Reserve Account in accordance with Section 8.11(b) and (g) payments in
---------------
connection with tax sharing arrangements among the Borrower and the
Subsidiaries.
SECTION 6.7. Amendment of System Contracts, etc. (a) The Borrower shall
----------------------------------
not, and shall not permit the Subsidiaries to, amend, supplement or otherwise
modify, or grant any material waivers or material consents under, or agree to
any material contract variation or material discretionary or other material
change that requires the consent or agreement of the Borrower under, any System
Contract without the written consent of the Majority Lenders (such consent not
to be unreasonably withheld) other than (i) Contract Variations in accordance
with Section 6.08, (ii) as permitted by such System Contract without the consent
------------
of the Borrower or such Subsidiary, (iii) amendments, supplements or other
modifications or waivers, consents, Contract Variations, or exercises of
discretionary action or other changes to Non-Material System Contracts which are
entered into in the ordinary course of business and which could not reasonably
be expected to have a Material Impact, provided that in any event no amendments,
--------
supplements or other modifications may be made to the subordination provisions
contained in the SSI Subordinated Pledge Agreement or the SSI Subordinated
Security Agreement or to the provisions relating to the "Joint Dispute Account"
contained in
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the Contractor Escrow and Security Agreement without the prior written consent
of the Administrative Agent, (iv) administerial, clarifying, correcting or other
immaterial amendments to any such System Contract which could not reasonably be
expected to have a Material Impact (it being understood that an increased cost
permitted pursuant to Section 5.14 shall not be deemed to constitute a "Material
------------
Impact" under clause (a) thereof solely by reason of such increased cost), (v)
----------
other amendments, supplements or modifications not involving the Supply Contract
that do not involve increased costs other than as permitted pursuant to Section
-------
5.14 and which, in any event, could not reasonably be expected to have a
- ----
Material Impact, (vi) amendments, supplements or other modifications required to
implement the provisions of Section 6.09 or 6.10 and (vii) amendments,
------------ ----
supplements or other modifications or waivers, consents, contract variations or
other changes to Capacity Sales Agreements so long as any such amendments are on
commercially reasonable terms and comply with the proviso to Section 6.23;
------------
provided, however, that no amendments, supplements or other modifications or
- -------- -------
waivers, consents, contract variations or other changes to the Intercompany
Agreement shall be made without the prior written consent of the Lead Agents.
(b) The Borrower shall not, and shall not permit the Subsidiaries to,
terminate or permit the termination of any System Contract other than (i) in
accordance with its terms, (ii) as permitted by such System Contract without the
consent of the Borrower or such Subsidiary, (iii) as required by applicable law,
(iv) a System Contract (other than the Supply Contract Guaranty) which the
Borrower (with the concurrence of the Independent Engineer and, if such System
Contract is the OA&M Agreement or the Sales Agency Agreement, with the prior
written consent of the Lead Agents) reasonably believes is no longer useful to
the Borrower's business, (v) as to Non-Material System Contracts so long as such
Non-Material System Contract is, at the request of the Administrative Agent
(upon such consultation with the Independent Engineer as the Administrative
Agent shall require), replaced with a new contract reasonably acceptable to the
Administrative Agent, or (vi) the termination of a Capacity Sales Agreement so
long as (A) such actions are commercially reasonable and (B) the provisions of
Section 6.23 are complied with.
- ------------
(c) The Borrower and the Subsidiaries shall be permitted to replace
certain System Contracts in accordance with the terms of Article VII.
-----------
SECTION 6.8. Supply Contract. (a) The Borrower shall not, without the
---------------
prior written consent of the Majority Lenders (or, with respect to any Contract
Variation that will not increase the costs under the Supply Contract by more
than $500,000 for any individual Contract Variation and up to $3,000,000 in the
aggregate for all Contract Variations taken together, the
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Administrative Agent), such consent in each case not to be unreasonably
withheld, enter into any Contract Variation, or grant any waiver or consent
under, the Supply Contract other than (i) Contract Variations, waivers or
consents made on an emergency basis to the extent there are funds available for
the payment thereof in the Capital Budget or the Construction Contingency
Reserve Account so long as such Contract Variation, waiver or consent could not
reasonably be expected to have a Material Adverse Effect, (ii) Contract
Variations, waivers or consents required to implement the provisions of Section
-------
6.09, (iii) Contract Variations, waivers or consents required to implement the
- ----
provisions of Section 6.10, (iv) Contract Variations, waivers or consents, to
------------
the extent required, that merely change the route of the System (so long as the
Landing Countries do not change) without increasing the cost under the Supply
Contract (or, if such change would increase the cost under the Supply Contract,
such increase is funded with equity funds made available to the Borrower or
Permitted Subordinated Debt of the Borrower or is otherwise borne exclusively by
parties other than (and without recourse to) the Borrower and the Subsidiaries,
which in each case has been fully funded or has been committed to on terms
reasonably satisfactory to the Administrative Agent or is funded with other
amounts made available to the Borrower and described in clause (a) of Section
---------- -------
6.09 so long as such Contract Variation, waiver or consent could not reasonably
- ----
be expected to have a Material Adverse Effect, (v) Contract Variations, waivers
or consents otherwise permitted by Section 6.07 and (vi) immaterial consents and
------------
waivers that could not reasonably be expected to have a Material Adverse Effect.
(b) The Borrower shall not, (i) without the prior written consent of the
Majority Lenders (such consent not to be unreasonably withheld), (A) reduce the
amount or change the date or basis for payment of liquidated damages under
Article 22 of the Supply Contract, (B) reduce the duration of any warranty
period under the Supply Contract, (ii) without the prior written consent of the
Lead Agents (based upon consultation with the Independent Engineer and such
consent not to be unreasonably withheld), (x) reduce the scope of any warranty
under the Supply Contract, (y) reduce the scope or availability of intellectual
property under Article 18 of the Supply Contract and (z) materially change the
terms of payment as set forth in Article 5 of the Supply Contract.
(c) The Borrower shall not, (i) without the prior written consent of the
Lead Agents (based upon consultation with the Independent Engineer and such
consent not to be unreasonably withheld), agree to (A) new acceptance testing as
contemplated under the definition of "Acceptance Testing", (B) new performance
requirements as contemplated under the definition of "Performance Requirements"
and any term or appendix or exhibit underlying the substance of such definition
and (C) any equitable adjustment to
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the Initial Contract Price under the second sentence of Article 6D of the Supply
Contract unless such adjustment is in accordance with this Section; and (ii)
without the prior written consent of the Majority Lenders, (A) grant or
otherwise consent to any extension of time under the last sentence of Article 6D
of the Supply Contract and (B) agree to any arrangement to extend the Scheduled
RFS Date (as defined in the Supply Contract) under Article 22(A)(3) of the
Supply Contract.
SECTION 6.9. Addition to Configuration. The Borrower shall not, without
-------------------------
the prior written consent of the Majority Lenders (such consent to not be
unreasonably withheld), add any additional Landing Country or select, or agree
to the selection of, any alternative Landing Country (other than The
Netherlands) to the contemplated configuration of the System unless (a) in the
case of adding an additional Landing Country, all costs related to such addition
are funded with equity funds made available to the Borrower or Permitted
Subordinated Debt of the Borrower or funds made available to the Borrower for
its sole benefit, in accordance with clause eleventh of Section 8.08(a), clause
--------------- --------------- ------
sixth of Section 8.08(d) or Section 8.15(a) or is otherwise borne exclusively by
- ----- --------------- ---------------
parties other than (and without recourse to) the Borrower and the Subsidiaries,
which in each case has been fully funded or has been committed to on terms
reasonably satisfactory to the Administrative Agent, (b) such addition could not
reasonably be expected to have a Material Adverse Effect, (c) no material
liabilities of or costs to the Borrower or any of the Subsidiaries shall be
created which are not provided for from sources described in clause (a) above
----------
and (d) in the case of the selection of an alternative Landing Country, the
Independent Engineer has concurred that the conditions in the Supply Contract
underlying such selection have been met.
SECTION 6.10. Permitted System Upgrades. The Borrower shall not request
-------------------------
that the Contractor perform any Permitted System Upgrade unless the costs
thereof are (a) funded with the Borrower's portion of Excess Cash Flow or other
funds made available to the Borrower, for its sole benefit, in accordance with
Section 8.08(a) or Section 8.15(a) or (b) funded with equity funds made from
- --------------- ---------------
common stock of the Borrower or preferred stock with provisions substantially
similar to Permitted Subordinated Debt made available to the Borrower or
Permitted Subordinated Debt of the Borrower or is otherwise borne by parties
other than (and without recourse to) the Borrower and the Subsidiaries, which in
each case has been fully funded or has been committed to on terms reasonably
satisfactory to the Administrative Agent.
SECTION 6.11. Leases. The Borrower shall not, and shall not permit the
------
Subsidiaries to, enter into any lease except for (a) leases of personal property
in the ordinary course of business, (b) leases of real property in the ordinary
course of business, (c) Capital Lease Obligations in an amount not to
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exceed $250,000 in any fiscal year of the Borrower, (d) Permitted Sale
Leasebacks and (e) the SSI Lease and the SSI IRU and Option Agreement.
SECTION 6.12. Change of Office. The Borrower shall not, and shall not
----------------
permit the Subsidiaries to, change the location of its principal place of
business unless the Borrower shall have given the Administrative Agent at least
30 days' prior written notice thereof and all action reasonably necessary or
advisable in the Administrative Agent's opinion to protect and perfect the Liens
and security interests in the Collateral shall have been taken.
SECTION 6.13. Change of Name. The Borrower shall not, and shall not
--------------
permit the Subsidiaries to, change its name unless the Borrower shall have given
the Administrative Agent at least 30 days' prior written notice thereof and all
action reasonably necessary or advisable in the Administrative Agent's opinion
to protect and perfect the Liens and security interests in the Collateral shall
have been taken.
SECTION 6.14. Transactions with Affiliates. The Borrower shall not, and
----------------------------
shall not permit the Subsidiaries to, enter into any agreement with any
Affiliate of the Borrower except (a) as required by the Loan Documents or the
System Contracts and (b) transactions in the ordinary course of business which
are on fair and reasonable terms not less favorable than the Borrower or any
Subsidiary could obtain in an arm's-length transaction with a Person which is
not an Affiliate.
SECTION 6.15. Sale and Leaseback. The Borrower shall not, and shall not
------------------
permit the Subsidiaries to, enter into any arrangement with any Person providing
for the leasing of real or personal property which has been or is to be sold by
it to such Person, other than Permitted Sale Leasebacks.
SECTION 6.16. Approval of Additional Contracts. Without the prior written
--------------------------------
consent of the Majority Lenders (such consent not to be unreasonably withheld),
the Borrower shall not, and shall not permit the Subsidiaries to, enter into any
Additional Contract, other than (a) Capacity Sales Agreements or other
agreements or arrangements for the disposition of Capacity entered into in
accordance with Section 6.23, (b) pipeline and cable crossing agreements and
------------
other similar agreements entered into in the ordinary course of business to
facilitate the construction and installation of the System by the Contractor,
(c) Interconnect Agreements entered into in the ordinary course of business, (d)
the SSI Lease, (e) other contracts in the ordinary course of business to the
extent amounts payable thereunder, if any, are provided for in the Capital
Budget or the Operating Budget, (f) other contracts entered into in the ordinary
course of business that do not have a material adverse
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effect on the Lenders and (g) with the prior written consent of the Lead Agents,
if such Additional Contract relates to the System and is being entered into as a
quid pro quo for the purchase of Capacity by the counterparty thereto and the
- ---- --- ---
entering into or performance of such Additional Contract could not reasonably be
expected to have a Material Impact. The Borrower shall be permitted to replace
System Contracts as set forth in Section 6.07 and Article VII. At the time any
------------ -----------
such Additional Contract is entered into (other than Capacity Sales Agreements
and agreements entered into pursuant to clause (b)), the Borrower and the
----------
Administrative Agent (upon consultation with the Independent Engineer, if
necessary) shall designate such Additional Contract as either an "Additional
Material Contract" or an "Additional Non-Material Contract".
SECTION 6.17. Capital Expenditures. The Borrower shall not make any
--------------------
expenditure in respect of the purchase of capital assets, except for
expenditures which could not reasonably be expected to adversely affect the
System and which are (a) covered by the Capital Budget or the then current
Operating Budget, (b) to the extent not covered by the Capital Budget or the
then current Operating Budget, are funded solely from sources described in
clause (a) of Section 6.09 or (c) approved by the Majority Lenders in writing
- ---------- ------------
(after consultation with the Independent Engineer).
SECTION 6.18. Limitations on Transfer and Issuance of Interests. The
-------------------------------------------------
Borrower shall not, and shall not permit the Subsidiaries to, (a) permit the
transfer of any ownership interest in Subsidiaries, except in accordance with
Section 6.03, or (b) issue any additional ownership interests, unless (subject
- ------------
in any event to the provisions of Section 7.14) (i) such ownership interests are
------------
issued by the Borrower or are otherwise in accordance with Section 6.06(b) and
---------------
(ii) such ownership interests are being issued by Subsidiaries to the Borrower
(whether in addition to or substitution for the then outstanding Capital Stock
of such Subsidiary) and in each case are made subject to the first priority Lien
in favor of the Administrative Agent; provided that, with respect to any such
--------
pledge agreement pledging the Capital Stock of the Borrower, the liability of
the shareholders of the Borrower shall be limited to the "Collateral" pledged
thereunder.
SECTION 6.19. Unrelated Activities; Abandonment; New Subsidiaries. (a)
---------------------------------------------------
The Borrower shall not, and shall not permit the Subsidiaries to, engage in any
business other than System Activities or as otherwise contemplated by the System
Contracts and the Loan Documents, and activities incidental thereto.
(b) The Borrower shall not abandon the diligent development, construction,
installation or operation of the System.
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(c) The Borrower shall not, and shall not permit the Subsidiaries to,
create any new subsidiaries after the Closing Date other than (i) with the prior
written consent of the Lead Agents, (ii) in connection with the acquisition of
the Capital Stock of SSI Sub 2 as a wholly-owned Subsidiary on terms reasonably
satisfactory to the Administrative Agent, (iii) the creation of the German
Subsidiary or (iv) wholly-owned, special purpose Subsidiaries created in
connection with changes to the System configuration permitted by this Agreement;
provided that, in any event, (x) the Capital Stock of such Subsidiary shall be
- --------
subject to the first priority Lien of the Administrative Agent and, (y) such
Subsidiary (unless it is the German Subsidiary) shall have executed and
delivered to the Administrative Agent a Subsidiary Guaranty Agreement.
SECTION 6.20. Set-off. Without the prior written consent of the
-------
Administrative Agent (such consent not to be unreasonably withheld), the
Borrower shall not, and shall not permit the Subsidiaries to, exercise any right
of set-off with respect to amounts owing to it by the Contractor under the
Supply Contract.
SECTION 6.21. Changes in Capital Budget. Without the prior written
-------------------------
consent of the Majority Lenders (such consent not to be unreasonably withheld),
the Borrower shall not modify the Capital Budget to increase the aggregate
amounts payable thereunder (except with respect to the payment of Sales
Commissions earned pursuant to the Sales Agency Agreement) unless such
modification is a necessary conforming change related to an amendment to a
System Contract permitted by Section 6.07 or Section 6.08 or is concurrent and
------------ ------------
consistent with any additional sources of funds which are to be made available
to the Borrower and not theretofore contemplated in the Capital Budget
(including amounts available in the Construction Contingency Reserve Account,
liquidated damages being applied to obligations hereunder and proceeds of
insurance applied in accordance with terms of this Agreement); provided that the
--------
foregoing shall not prevent the Borrower from applying identified cost savings
in a budget category (as confirmed by the Independent Engineer or the
Administrative Agent, as applicable) to cost overruns in another budget category
(as confirmed by the Independent Engineer or the Administrative Agent, as
applicable) without increasing the aggregate amounts payable under the Capital
Budget (provided that the prior written consent of the Lead Agents shall be
required with respect to the application of any identified cost savings in
excess of $2,000,000).
SECTION 6.22. Payment of Construction Costs. Prior to the Commercial
-----------------------------
Operation Date, the Borrower shall not pay any amount (other than with respect
to amounts received from the sources described in clause (a) of Section 6.09 or
---------- ------------
from amounts available in the Construction Contingency Reserve Account or under
the Working Capital Loan Commitment or from Special Payments) in
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respect of the construction and installation of the System other than those
costs set forth or provided for in the Capital Budget, as the same may be
amended in accordance with Section 6.21, Sales Commissions earned and payable in
------------
accordance with the terms of the Sales Agency Agreement and costs that SSI is
contractually obligated to pay under any System Contract if it results in a
dollar for dollar reduction in amounts payable by the Borrower or any of its
Subsidiaries under such System Contract.
SECTION 6.23. Sales of Capacity. The Borrower shall not, and shall not
-----------------
permit the Subsidiaries to, sell or otherwise dispose Capacity except (a)
pursuant to Capacity Sale Agreements substantially in the form of Exhibit L or
---------
(b) pursuant to other agreements or arrangements which are on commercially
reasonable terms (which shall include the disposition of Capacity without cash
compensation in exchange for mutual restoration agreements); provided that, in
--------
any event, (i) all such agreements and arrangements shall provide that amounts
payable to the Borrower shall be paid to the Revenue Account, (ii) no agreement
providing for future payments shall prohibit the granting of a security interest
in such agreement by the Borrower to the Lenders and (iii) without derogation of
the provisions of Section 6.24, such agreements shall provide that payments
------------
thereunder shall be in cash and at least 80% of such payments shall be due and
payable before the Maturity Date; and provided, further, that (A) no individual
-------- -------
sale shall defer more than $4,000,000 beyond the Maturity Date without prior
written consent of the Lead Agents and (B) once the aggregate amount of payments
deferred beyond the Maturity Date exceeds $20,000,000, no further deferral of
payments beyond the Maturity Date shall be permitted without the prior written
consent of the Majority Lenders (or the Lead Agents if, as of any date of
determination, the cumulative Capacity Sales Revenue received by the Borrower
and the Subsidiaries as of such date exceeds 175% of the cumulative Capacity
Sales Revenue set forth in Section 6.24(a) with respect to such date) (and
---------------
subject, in any event, to clause (A) above).
----------
SECTION 6.24. Financial Covenants. (a) Minimum Capacity Sales Revenue.
------------------- ------------------------------
The Borrower shall not permit Capacity Sales Revenue to be less than the
following amounts by the dates set forth below:
Principal Payment Minimum Cumulative
Dates Occurring in $ Sales Revenue
------------------ ----------------------
May 1999 $ 75,000,000
November 1999 $350,000,000
May 2000 $425,000,000
November 2000 $500,000,000
May 2001 $600,000,000
November 2001 $700,000,000
May 2002 $800,000,000
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November 2002 and thereafter $900,000,000
(b) Minimum Interest Coverage Ratio. The Borrower shall not permit, for
-------------------------------
any period of four consecutive fiscal quarters ending on a Principal Payment
Date (other than the Initial Principal Payment Date if it occurs less than 6
months after the Commercial Operation Date) occurring during any "Test Period"
set forth below, the Interest Coverage Ratio for such period to be less than the
ratio set forth below for such Test Period:
Test Period Interest Coverage
(Principal Payment Dates occurring in) Ratio
-------------------------------------- -----------------
1999 3.0:1
2000 4.5:1
2001 and thereafter 8.0:1
Notwithstanding anything to the contrary contained in this Agreement, the
failure to comply with this Section 6.24 at any time shall not constitute an
------------
Event of Default, but shall result in Excess Cash Flow being applied 100% to the
Lenders in accordance with Section 8.08(d) until such time as the Borrower shall
---------------
have delivered a certificate to the Administrative Agent in accordance with
Section 5.02(c) demonstrating the Borrower's compliance with this Section 6.24.
- --------------- ------------
SECTION 6.25. Amendments, etc. of Organizational and Other Documents. The
------------------------------------------------------
Borrower shall not, and shall not permit the Subsidiaries to, amend, supplement
or otherwise modify, or permit the amendment, modification or supplementation
of, (a) the certificate of incorporation or by-laws or other organizational
documents (including any By-Laws or Memorandum of Association) in a manner which
is inconsistent with or violates the terms of or could reasonably be expected to
prevent compliance with any of the terms of any Loan Document or System Contract
or could materially adversely affect the Lenders or any Collateral or (b) if
issued in accordance with and subject to the terms of this Agreement, any
documents evidencing or relating to Permitted Subordinated Debt which could
adversely affect the Lenders or result in provisions that are more onerous on
the Borrower.
SECTION 6.26. Management and Advisory Fees, etc. The Borrower shall not,
---------------------------------
and shall not permit any of the Subsidiaries to pay any management, advisory,
consulting or other similar fees to any Affiliate of the Borrower, except
pursuant to the Advisory Services Agreement as in effect on the date hereof in
accordance with Article VIII.
------------
SECTION 6.27. Immunity. Neither the Borrower nor any of the Subsidiaries
--------
shall, in any proceeding in Bermuda, the United States, the United Kingdom, the
Federal Republic of Germany or elsewhere, in connection with any Loan Document,
claim for
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itself, any of its assets or the System, immunity from suit, execution,
attachment or other legal process.
ARTICLE VII
EVENTS OF DEFAULT
-----------------
Each of the following events or occurrences described in this Article VII
-----------
shall constitute an "Event of Default".
SECTION 7.1. Non-Payment of Obligations. The Borrower shall fail to pay
--------------------------
any principal of any Loan when and as the same shall become due and payable; or
the Borrower shall fail to pay any interest on any Loan or any fee payable under
this Agreement or any other Loan Document when and as the same shall become due
and payable, and such failure shall continue unremedied for a period of five
days; or the Borrower or any Subsidiary shall fail to pay any other amount
payable under this Agreement or any other Loan Document when and as the same
shall become due and payable, and such failure shall continue unremedied for a
period of 5 days following the Borrower's receipt of written notice thereof from
the Administrative Agent.
SECTION 7.2. Breach of Warranty. Any representation or warranty made or
------------------
deemed made by the Borrower, any other Loan Party or any other Obligor in this
Agreement, in any other Loan Document or in any System Contract to which it is a
party or in any certificate delivered by the Borrower, any Loan Party or any
other Obligor pursuant to this Agreement, any other Loan Document or any System
Contract shall prove to have been false or misleading in any material respect as
of the time made or deemed made and, if such misrepresentation is capable of
being corrected as of a subsequent date, such misrepresentation shall not have
been corrected as of a day within thirty (30) calendar days following written
notice thereof being given by the Administrative Agent to the Borrower or such
Loan Party; provided that if such misrepresentation is made by such other
--------
Obligor in a System Contract, it shall not constitute an Event of Default
hereunder unless such misrepresentation has caused or could reasonably be
expected to cause a Material Adverse Effect (after giving effect to any right
the Borrower has to replace such System Contract in accordance with the terms of
this Agreement).
SECTION 7.3. Non-Performance of Certain Covenants and Obligations. (a)
----------------------------------------------------
The Borrower shall fail to observe or perform any covenant or agreement
contained in Article VI of this Agreement (other than Section 6.24); or (b) the
---------- ------------
Borrower or any Loan Party shall fail to perform any of its covenants or
agreements contained in Article IV of any Security Document or in the Subsidiary
Guaranty Agreement; or (c) the Borrower or any other Loan Party shall fail to
observe or perform any covenant or
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agreement contained in this Agreement or any other Loan Document to which it is
a party (other than those specified in Sections 7.01 and 7.02 above, in clauses
------------- ---- -------
(a) and (b) of this Section 7.03 and those set forth in Section 6.24), and such
- --- --- ------------ ------------
failure shall continue unremedied or unwaived for a period of thirty (30) days
after the Borrower or such Loan Party receives actual knowledge thereof from the
Administrative Agent; provided, however, with respect to this clause (c) if (i)
-------- ------- ----------
such failure cannot be cured within such thirty (30)-day period despite the
Borrower's or such Loan Party's best efforts to do so, (ii) such failure is
susceptible of cure, (iii) the Borrower or such other Loan Party is continuously
proceeding with diligence and in good faith to cure such failure and (iv) the
existence of such failure has not had and could not reasonably be expected to
have a Material Adverse Effect, then such thirty (30)-day cure period shall be
extended to such date, not to exceed a total ninety (90)-day cure period, as
shall be necessary for the Borrower or such other Loan Party to cure such
failure.
SECTION 7.4. Involuntary Bankruptcy Proceeding, etc. An involuntary
--------------------------------------
proceeding shall be commenced or an involuntary petition shall be filed seeking
(a) liquidation, reorganization or other relief in respect of the Borrower, any
other Loan Party or any other Obligor or its debts, or of a substantial part of
its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (b) the appointment of
a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower, any other Loan Party or any other Obligor or for a substantial
part of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered; provided that, with respect to the
--------
Contractor, such proceeding shall not constitute an Event of Default hereunder
if (i) such event occurs prior to the Actual Date of Commercial Operation, so
long as the Supply Contract has not been terminated or rejected and the
Contractor is continuing to diligently perform its obligations under the Supply
Contract (or the Supply Contract Guarantor is diligently performing its
obligations under the Supply Contract Guaranty) or (ii) such event occurs on or
after the Actual Date of Commercial Operation, so long as such event could not
reasonably be expected to have a Material Adverse Effect.
SECTION 7.5. Voluntary Bankruptcy Proceeding, etc. The Borrower, any
------------------------------------
other Loan Party or any other Obligor shall (a) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (b) consent to the institution of any
proceeding or petition described in Section 7.04, (c) apply for or consent to
------------
the appointment of a
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receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower, any other Loan Party or any other Obligor or for a substantial
part of its assets, (d) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (e) make a general assignment
for the benefit of creditors or (f) take any action for the purpose of effecting
any of the foregoing, provided that, with respect to the Contractor, any such
--------
event or action shall not constitute an Event of Default hereunder if (i) such
event occurs prior to the Actual Date of Commercial Operation, so long as the
Supply Contract has not been terminated or rejected and the Contractor is
continuing to diligently perform its obligations under the Supply Contract (or
the Supply Contract Guarantor is diligently performing its obligations under the
Supply Contract Guaranty) or (ii) such event occurs on or after the Actual Date
of Commercial Operation, so long as such event could not reasonably be expected
to have a Material Adverse Effect.
SECTION 7.6. Judgments. One or more final judgments (a) for the payment
---------
of money in an aggregate amount (not paid or covered by insurance) in excess of
$5,000,000 shall be rendered against the Borrower or any other Loan Party (other
than Holdings) and the same shall not have been vacated, discharged, stayed or
bonded pending appeal within 45 days from the entry thereof or (b) shall be
entered in the form of an injunction or similar form of relief requiring
suspension or abandonment of the construction, installation or operation of the
System and such injunction or similar relief shall not have been stayed,
discharged or vacated within 60 days.
SECTION 7.7. ERISA. An ERISA Event shall have occurred that, in the
-----
opinion of the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to have a Material Adverse
Effect.
SECTION 7.8. Impairment of Security, etc. Any Loan Document shall cease
---------------------------
to be in full force and effect or the Borrower or any Loan Party shall so assert
in writing; or the Lien as to any material portion of the Collateral created by
any Security Document shall cease to be enforceable or, in the case of
Perfectible Collateral, of the same effect and priority purported to be created
thereby; or the Supply Contract Guaranty shall cease to be in full force and
effect (except as a result of the express provisions thereof) or the Supply
Contract Guarantor shall so assert in writing.
SECTION 7.9. Commercial Operation. The Actual Date of Commercial
--------------------
Operation shall not have occurred by the Guaranteed Completion Date.
SECTION 7.10. Impairment of System Contract. Any System Contract shall
-----------------------------
cease to be valid and binding and in full force
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and effect, other than as contemplated by the terms of Section 6.07; provided
------------ --------
that with respect to any such System Contract (other than the Supply Contract
Guaranty and, unless the Supply Contract is being replaced in accordance with
Section 7.11, the SSI Consent, as to which the following provision shall not be
- ------------
applicable), it shall not constitute an Event of Default under this Section so
long as such event is cured by the Borrower by replacing such System Contract
with the consent of the Majority Lenders (such consent not to be unreasonably
withheld or delayed) within 60 days of such event.
SECTION 7.11. Default Under System Contract. (a) Any party to any System
-----------------------------
Contract (other than a Capacity Sales Agreement and the Supply Contract) shall
be in material default thereunder and, other than with respect to the Supply
Contract Guaranty, such default shall continue unremedied for 30 consecutive
days and such default could reasonably be expected to have a Material Adverse
Effect, unless any such System Contract has been replaced with the consent of
the Majority Lenders within 60 days of such default (such consent not to be
unreasonably withheld or delayed); or (b) prior to the date of System Final
Completion, an "Event of Default" (other than an "Event of Default" due solely
to the failure of the Contractor to achieve System Final Completion due to its
inability to deliver a System which is upgradable beyond a capacity of 10 Gb/s
per fiber pair) shall have occurred and be continuing under the Supply Contract,
unless the Supply Contract has been replaced with the prior written consent of
the Majority Lenders within 60 days of such event (such consent not to be
unreasonably withheld or delayed) or the Supply Contract Guarantor is diligently
performing its obligations under the Supply Contract Guaranty and has cured such
"Event of Default" within such 60-day period, it being understood that a failure
of the Contractor to achieve the Commercial Operation Date by the Scheduled RFS
Date (as defined in the Supply Contract) shall not constitute an Event of
Default under this Section so long as it achieves the Commercial Operation Date
by the Guaranteed Completion Date.
SECTION 7.12. Liquidated Damages. The Contractor shall fail to pay when
------------------
due any amounts owing as liquidated damages under Article 22(A) of the Supply
Contract (unless the Supply Contract Guarantor is duly performing under the
Supply Contract Guaranty).
SECTION 7.13. Revocation of Landing License, etc. Any Landing License or
----------------------------------
other Governmental Action which shall at the time be necessary for the
performance of any material System Activity in a manner contemplated under the
Loan Documents and the System Contracts shall be revoked or shall otherwise
terminate (or shall be amended or modified in a materially adverse manner) and
such revocation or termination (or such amendment or modification thereof) could
reasonably be expected
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to have a Material Adverse Effect, unless such Landing License or Governmental
Action is replaceable and is replaced with the prior written consent of the
Majority Lenders (such consent not to be unreasonably withheld or delayed) with
an alternative Landing License or Governmental Action permitting the performance
of such System Activity within 60 days of the occurrence of such event.
SECTION 7.14. Change in Control. A Change in Control shall occur.
-----------------
SECTION 7.15. Default on Other Indebtedness. The Borrower or any other
-----------------------------
Loan Party (other than Holdings) shall (a) default in any payment of principal
of or interest on any Indebtedness (other than Indebtedness under the Loan
Documents) or in the payment of any obligations under Hedging Agreements, in any
case in an aggregate amount in excess of $1,000,000 beyond the period of grace,
if any, provided in the instrument or agreement under which such Indebtedness
was created or (b) default in the performance of any other agreement relating to
such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, in each case beyond the period of grace, if any,
provided therein, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or permit the holders
of such Indebtedness to cause, such Indebtedness to become due prior to its
stated maturity.
SECTION 7.16. Delay in Construction or Installation. The construction or
-------------------------------------
installation of the System shall be suspended under Article 15 of the Supply
Contract for more than 60 days or the System (or any Segment thereof) shall be
abandoned by the Borrower.
If any Event of Default described in Sections 7.04 or 7.05 shall occur with
------------- ----
respect to the Borrower or any Subsidiary, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, and an amount equal to 100% of all LC Exposure, shall automatically
become immediately due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.
If any Event of Default (other than any Event of Default described in
Section 7.04 or 7.05) shall occur for any reason, whether voluntary or
- ------------ ----
involuntary, and be continuing, the Administrative Agent may, and at the request
or with the consent of the Majority Lenders shall, by notice to the Borrower,
take any or all of the following actions, at the same or different times: (a)
terminate the Commitments, and thereupon the Commitments shall terminate
immediately, (b) declare the Loans then outstanding to be due and payable in
whole (or in part, in
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which case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower, (c) demand that the
Borrower immediately pay to the Administrative Agent an amount equal to 100% of
the LC Exposure whereupon the Borrower shall immediately make such payment to
the Administrative Agent which shall hold such amount in a cash collateral
account to secure the LC Exposure and (iv) exercise such other rights or
remedies as the Lenders may have under the Loan Documents or applicable law.
ARTICLE VIII
ACCOUNTS
--------
SECTION 8.1. Creation of Accounts. (a) The Administrative Agent hereby
--------------------
establishes the following twelve special, segregated and irrevocable cash
collateral accounts in the name of the Borrower and for the benefit of the
Lenders, which accounts shall be maintained by the Administrative Agent at all
times until the termination of this Agreement and the payment in full of all
Obligations:
(1) Construction Account;
(2) Revenue Account;
(3) Special Payment Account;
(4) Debt Reserve Account;
(5) Holdings Interest Reserve Account;
(6) Operating Reserve Account;
(7) Insurance Proceeds Account;
(8) Clean-Up Account;
(9) Sales and Issuances Proceeds Account;
(10) Construction Contingency Reserve Account;
(11) VAT Refund Account; and
(12) Current Account.
(b) The Administrative Agent hereby establishes the following three
special, segregated and irrevocable cash collateral accounts, each in the name
of the applicable Subsidiary and for the benefit of the Lenders, which accounts
shall be maintained by the Administrative Agent at all times until the
termination of this Agreement and the payment in full of all obligations:
(1) German Subsidiary Account;
(2) U.K. Subsidiary Account; and
(3) U.S. Subsidiary Account;
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provided that the German Subsidiary Account will not be established until the
--------
Administrative Agent receives notice from the Borrower that the German
Subsidiary has been created.
(c) All moneys, investments and securities at any time on deposit in any
of the Accounts shall be under the sole dominion and control of the
Administrative Agent and shall constitute collateral in accordance with the
terms of the Security Documents to be held in the custody of the Administrative
Agent for the purposes and on the terms set forth in the Security Documents and
this Article VIII.
------------
SECTION 8.2. Required Deposits into the Accounts.
-----------------------------------
(a) Contractor Escrow Account. (i) On each date occurring after the
-------------------------
Closing Date and prior to the funding of the initial Term Loans on which the
Borrower receives Equity Contributions from Holdings, the Borrower shall deposit
such Equity Contributions in the Escrow Payment Account.
(ii) On the date the initial Term Loans are made, the Lenders shall fund a
portion of such Term Loan in an amount equal to $26,400,000 on such date to
deposit in the Escrow Payment Account (and thereafter be applied pursuant to the
terms of the Contractor Escrow and Security Agreement).
(b) Construction Account. (i) Each Lender shall, subject to Section
-------------------- -------
8.02(c) and 8.02(j), fund each Loan made by it hereunder directly to the
- ------- -------
Administrative Agent for deposit in the Construction Account.
(ii) Upon the issuance of the Contingency Letter of Credit in accordance
with the terms hereof and of the Contractor Escrow and Security Agreement, the
Borrower shall deposit the cash proceeds released from the Escrow Contingent
Account in the Construction Account.
(iii) On each date on which the Borrower receives Equity Contributions
from Holdings after the funding of the initial Term Loans, but prior to the
payment of all Capital Costs, the Borrower shall, subject to the provisions of
Section 8.02(k), deposit such Equity Contributions in the Construction Account.
- ---------------
(iv) On the earlier of (A) the date the Contingency Letter of Credit is
issued and (B) the date the initial Term Loans are made, the Borrower shall
transfer from its general corporate checking account (the "Checking Account")
----------------
directly to the Administrative Agent for deposit in the Construction Account, an
amount equal to the excess, if any, between (x) the then current balance in the
Checking Account and (y) $150,000.
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(v) On any date after the Closing Date and prior to the Commercial
Operation Date on which the Borrower receives payment under any Hedging
Agreement, the Borrower shall deposit such payment into the Construction
Account.
(c) Escrow Dispute Account. Subject to the satisfaction or waiver by the
----------------------
Majority Lenders of the applicable conditions precedent set forth herein, each
Lender shall fund the "disputed portion" of any Loan made by it hereunder
directly to the Escrow Agent for deposit into the Escrow Dispute Account in
accordance with the terms of the Supply Contract and of the Contractor Escrow
and Security Agreement. The "disputed portion" of any Loan shall be that amount
indicated by the Borrower or the Independent Engineer as being in dispute in the
certificate attached to the monthly Construction Progress Certificate delivered
in connection with such Loan.
(d) Revenue Account. Subject to Section 8.02(k), the Borrower shall
--------------- ---------------
deposit in the Revenue Account all System Revenues of the Borrower.
(e) Special Payment Account. The Borrower shall deposit in the Special
-----------------------
Payment Account all Special Payments.
(f) Debt Reserve Account. The Administrative Agent shall deposit amounts
--------------------
in the Debt Reserve Account from amounts on deposit in the Revenue Account as
specified in Sections 8.08(a) and (d).
---------------- ---
(g) Holdings Interest Reserve Account. The Administrative Agent shall
---------------------------------
deposit amounts in the Holdings Interest Reserve Account from amounts on deposit
in the Revenue Account as specified in Sections 8.08(a) and (d).
---------------- ---
(h) Operating Reserve Account. The Administrative Agent shall deposit
-------------------------
amounts in the Operating Reserve Account from amounts on deposit in the Revenue
Account as specified in Sections 8.08(a) and (d).
------- ---
(i) Insurance Proceeds Account. The Borrower and the Administrative Agent
--------------------------
shall deposit all Casualty Proceeds in the Insurance Proceeds Account.
(j) Clean-Up Account. Subject to the satisfaction or waiver by the
----------------
Majority Lenders of the applicable conditions precedent set forth herein, each
Lender shall fund the Loan made by it hereunder on the last day of the
Availability Period in respect of Capital Costs which are not yet due directly
to the Administrative Agent for deposit in the Clean-Up Account.
(k) Sales and Issuances Proceeds Account. The Borrower shall deposit in
------------------------------------
the Sales and Issuances Proceeds Account all Net
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Cash Proceeds received after the funding of the initial Term Loans.
(l) Construction Contingency Reserve Account. The Administrative Agent
----------------------------------------
shall deposit amounts in the Construction Contingency Reserve Account in
accordance with Section 8.08(a).
---------------
(m) VAT Refund Account. The Borrower shall deposit all refunds of value
------------------
added taxes and import duties in the VAT Refund Account.
(n) Current Account. The Administrative Agent shall deposit amounts in
---------------
the Current Account from amounts on deposit in the Revenue Account as specified
in Section 8.08(b).
---------------
(o) German Subsidiary Account. The Administrative Agent shall deposit all
-------------------------
capital contributions or loans, as the case may be, from the Borrower to the
German Subsidiary directly in the German Subsidiary Account from amounts on
deposit in the Construction Account. The Administrative Agent will transfer all
payments by the Borrower to the German Subsidiary under the Intercompany
Agreement directly to the German Subsidiary Account from amounts on deposit in
the Revenue Account in accordance with Sections 8.08(a), 8.08(b), 8.10(a),
---------------- ------- -------
8.11(a) and 8.12(a).
- ------- -------
(p) U.K. Subsidiary Account. The Administrative Agent shall deposit all
-----------------------
capital contributions or loans, as the case may be, from the Borrower to the
U.K. Subsidiary directly in the U.K. Subsidiary Account from amounts on deposit
in the Construction Account. The Administrative Agent will transfer all
payments by the Borrower to the U.K. Subsidiary under the Intercompany Agreement
directly to the U.K. Subsidiary Account from amounts on deposit in the Revenue
Account in accordance with Sections 8.08(a), 8.08(b), 8.10(a), 8.11(a) and
---------------- ------- ------- -------
8.12(a).
- -------
(q) U.S. Subsidiary Account. The Administrative Agent shall deposit all
-----------------------
capital contributions or loans, as the case may be, from the Borrower to the
U.S. Subsidiary directly in the U.S. Subsidiary Account from amounts on deposit
in the Construction Account. The Administrative Agent will transfer all
payments by the Borrower to the U.S. Subsidiary under the Intercompany Agreement
directly to the U.S. Subsidiary Account from amounts on deposit in the Revenue
Account in accordance with Sections 8.08(a), 8.08(b), 8.10(a), 8.11(a) and
---------------- ------- ------- -------
8.12(a).
- -------
SECTION 8.3. Deposits Held as Cash Collateral. The Administrative Agent
--------------------------------
agrees to accept all revenues, cash, payments, insurance and casualty proceeds,
other amounts and Permitted Investments to be delivered to or held by the
Administrative Agent pursuant to the terms of this Agreement. The
Administrative Agent shall hold and safeguard the Accounts (and the revenues,
cash, payments, insurance and casualty
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<PAGE>
proceeds, instruments, securities and other amounts on deposit therein) during
the term of this Agreement and shall treat the revenues, cash, payments,
insurance and casualty proceeds, instruments, securities and other amounts in
the Accounts as funds, instruments, securities and other properties pledged by
the Borrower (or the applicable Subsidiary, in the case of the Subsidiary
Accounts) to the Administrative Agent as collateral securing the Obligations in
accordance with the provisions of this Agreement and the Security Documents.
SECTION 8.4. Source of Payments; Deposits Irrevocable. (a) If the
----------------------------------------
Administrative Agent shall be unable to determine the source of any payments
received or the Account or Accounts into which such payments are to be
deposited, the Administrative Agent shall hold such amounts in the Revenue
Account (and shall not be applied in accordance with Section 8.08) until its
------------
proper application is identified.
(b) Any deposit made into any Account hereunder shall, absent manifest
error, be irrevocable and the amount of such deposit and any instrument or
security held in such Account and all interest thereon shall be held in trust by
the Administrative Agent and applied solely as provided in this Article VIII.
------------
SECTION 8.5. Books of Account; Statements. (a) The Administrative Agent
----------------------------
shall maintain books of account on a cash basis and record therein all deposits
into and transfers to and from the Accounts and all investment transactions
effected by the Administrative Agent pursuant to Section 8.22 and any such
------------
recordation shall constitute prima facie evidence of the information recorded.
----- -----
(b) Not later than the tenth Business Day of each month, commencing with
the first month to occur after the earlier of (i) the date the United States to
United Kingdom Segment of the System becomes operational and (ii) the receipt of
Net Cash Proceeds or Casualty Proceeds, the Administrative Agent shall deliver
to the Borrower a statement setting forth the transactions in each Account
during the preceding month and specifying the System Revenues, Net Cash
Proceeds, Special Payments, Casualty Proceeds, cash equivalents and other
amounts held in each Account at the close of business on the last Business Day
of the preceding month; provided that the Administrative Agent shall promptly
--------
respond (during normal business hours) to requests by the Borrower concerning
information regarding deposits, investments and transfers in and among the
Accounts.
SECTION 8.6. Location of the Accounts. The Accounts shall be maintained
------------------------
by the Administrative Agent at its office located at 1251 Avenue of the
Americas, New York, New York 10019, until the Administrative Agent gives written
notice to the other
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parties to this Agreement setting forth a different location of the Accounts, in
the manner specified in Section 10.01; provided, however, that such location
-------------
shall be in New York City.
SECTION 8.7. Construction Account. On each Borrowing Date, the
--------------------
Administrative Agent shall transfer, from the cash available in the Construction
Account, (a) directly to each Person to which an amount in excess of $200,000 is
due and payable (and otherwise to the Borrower for the benefit of the Persons
entitled thereto), the amounts identified as Capital Costs then due and payable
in the Borrowing Request delivered in connection with such Borrowing Date and
(b) directly to the Borrower, for deposit into the Checking Account, the amount
set forth in the Borrowing Request delivered in connection with such Borrowing
Date as necessary to bring the amounts on deposit in the Checking Account to
$150,000. The Administrative Agent shall, upon receipt of a certificate from
the Borrower requesting the same, apply a portion of the proceeds received in
the Construction Account pursuant to Section 8.02(b)(ii) as specified in such
-------------------
certificate to the prepayment of the Working Capital Loans in accordance with
Section 2.10.
- ------------
SECTION 8.8. Revenue Account.
---------------
(a) Presale Proceeds. The Administrative Agent shall, upon receipt by it
----------------
of a certificate of the Borrower prior to the Commercial Operation Date (which
shall be delivered no more frequently than once a month, except for certificates
delivered with respect to amounts payable pursuant to clause first, which may be
------ -----
delivered twice a month), and in any event on the Commercial Operation Date,
distribute, from the cash available in the Revenue Account, the following
amounts in the following order of priority:
first, to the Sales Agent, all Sales Commissions earned in accordance
-----
with the Sales Agency Agreement but not yet paid under the Sales Agency
Agreement as indicated in such certificate;
second, (A) to the Operator (or such other Person as may be entitled
------
thereto), all Annex H Costs of the Borrower then due and payable and (B) to
each Subsidiary's Subsidiary Account, a portion of the amounts due and
owing to such Subsidiary under the Intercompany Agreement equal to all
Annex H Costs of such Subsidiary then due and payable; provided that no
--------
more than $6,500,000 in the aggregate shall be distributed in respect of
Annex H Costs of the Borrower and the Subsidiaries pursuant to clause (A)
----------
of this clause second and Section 8.19(a) in any calendar quarter;
------------- ---------------
third, until such time as $10,000,000 in the aggregate shall have been
-----
distributed pursuant to this clause third on or prior to the Commercial
------------
Operation Date, to the
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Construction Contingency Reserve Account, to be applied in accordance with
Section 8.16;
------------
fourth, until such time as $48,000,000 in the aggregate shall have
------
been distributed pursuant to this clause fourth on or prior to the
-------------
Commercial Operation Date, to the Debt Reserve Account, to be applied in
accordance with Section 8.10;
------------
fifth, until such time as $13,000,000 in the aggregate shall have been
-----
distributed pursuant to this clause fifth on or prior to the Commercial
------------
Operation Date, to the Operating Reserve Account, to be applied in
accordance with Section 8.12;
------------
sixth, until such time as $9,000,000 in the aggregate shall have been
-----
distributed pursuant to this clause sixth on or prior to the Commercial
------------
Operation Date, to the Holdings Interest Reserve Account, to be applied in
accordance with Section 8.11;
------------
seventh, until such time as $200,000,000 in the aggregate shall have
-------
been distributed pursuant to this clause seventh on or prior to the
--------------
Commercial Operation Date, to the Administrative Agent, for the account of
the Lenders, to be applied to the prepayment of the Loans, together with
accrued interest thereon and any amounts due pursuant to Section 2.16, in
------------
accordance with Section 2.11(a);
---------------
eighth, until such time as $75,000,000 in the aggregate shall have
------
been distributed pursuant to this clause eighth on or prior to the
-------------
Commercial Operation Date, to Holdings, for the benefit of the holders of
the Holdings Senior Notes, to be applied to the prepayment of the Holdings
Senior Notes, together with accrued interest thereon and premium, if any,
payable in connection therewith;
ninth, to the Administrative Agent, for the account of the Lenders, up
-----
to an amount sufficient to pay all Loans in full, together with accrued
interest thereon and all other amounts payable under this Agreement and the
other Loan Documents;
tenth, thereafter, to the Escrow Payment Account, an aggregate amount
-----
not to exceed the remaining Commitments (or, if less, the remaining amounts
payable under the Supply Contract), whereupon such Commitments shall be
reduced dollar for dollar in accordance with Section 2.08; and
------------
eleventh, thereafter, to the Borrower, to be applied to such purposes
--------
(including the making of equity dividends) as the Borrower may direct.
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(b) Payment of OA&M Expenses, Intercompany Payments and Advisory Services
---------------------------------------------------------------------
Fee After the Commercial Operation Date. (i) On or before the twentieth day of
- ---------------------------------------
each month occurring after the Commercial Operation Date (or if such day is not
a Business Day, the immediately preceding Business Day), the Borrower shall
deliver to the Administrative Agent an Expense Certificate requesting
distributions to be made to pay OA&M Expenses (including Sales Commissions
earned in accordance with the Sales Agency Agreement) from the Revenue Account.
The approval of the Lead Agents shall be required for the payment of OA&M
Expenses (other than Sales Commissions earned in accordance with the Sales
Agency Agreement) which would cause an Operating Budget Deviation and the
approval of the Majority Lenders shall be required if such payment would cause a
Material Operating Budget Deviation. On the twenty-fifth day of each month (or
if such date is not a Business Day, the immediately succeeding Business Day)
(each such date, a "Monthly OA&M Transfer Date"), the Administrative Agent shall
--------------------------
distribute, from the cash available in the Revenue Account, (A) directly to each
Person (other than a Subsidiary) to which an amount in excess of $200,000 is due
and payable, the amounts identified as OA&M Expenses of the Borrower then due
and owing in Item 1 of the Expense Certificate referred to above, (B) to the
Borrower for the benefit of the Persons entitled thereto, all other OA&M
Expenses of the Borrower then due and owing in Item 1 of such Expense
Certificate, (C) to the Current Account, the amounts identified as OA&M Expenses
of the Borrower expected to be due and owing prior to the next Monthly OA&M
Transfer Date in Item 2 of such Expense Certificate and (D) to the Borrower, for
deposit into the Checking Account, the amount set forth in Item 3 of such
Expense Certificate as necessary to bring the amounts on deposit in the Checking
Account to $150,000. In addition, the Administrative Agent shall distribute,
from the cash available in the Revenue Account, directly to each Subsidiary
Account, the amounts due and owing by the Borrower to the applicable Subsidiary
under the Intercompany Agreement as set forth in Item 5 of the Expense
Certificate. Sales Commissions earned in accordance with the Sales Agency
Agreement shall have first priority and be payable before all other OA&M
Expenses and before payments under the Intercompany Agreement.
(ii) The Borrower shall be permitted to deliver a certificate to the
Administrative Agent on one other day of a month (in addition to the date set
forth in paragraph (i) above) setting forth Sales Commissions earned and owing
in accordance with the Sales Agency Agreement and the Administrative Agent shall
promptly distribute, from the cash available in the Revenue Account, the amount
of such Sales Commissions earned in accordance with the Sales Agency Agreement
directly to the Sales Agent.
(iii) On the earlier of (A) the Initial Principal Payment Date and (B) the
date of System Final Completion, so long as no
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Event of Default shall have occurred and be continuing, the Administrative Agent
shall distribute from cash available in the Revenue Account, directly to PCG
Telecom Services LLC, that portion of the Advisory Services Fee due and payable
on such date in accordance with the terms of the Advisory Services Agreement,
provided that the amount payable pursuant to this Section 8.08(b)(iii) on the
- -------- --------------------
date of System Final Completion shall not exceed $500,000 if the Debt Reserve
Account does not have a balance therein in an amount equal to at least the
amount referred to in clause fourth of Section 8.08(a) as of the date of System
------------- ---------------
Final Completion.
(iv) If any portion of the Contract Price is due and owing and remains
unpaid (and such unpaid portion is not required pursuant to the terms of this
Agreement to be paid from another specified source, unless amounts are not
actually available from such other source), the Borrower shall be permitted to
deliver a certificate to the Administrative Agent setting forth such unpaid
amounts and the Administrative Agent shall promptly distribute, from cash
available in the Revenue Account, the portion of the Contract Price remaining
unpaid.
(c) Monthly Transfers After the Commercial Operation Date. On the last
-----------------------------------------------------
Business Day of each calendar month occurring after the Commercial Operation
Date, the Administrative Agent shall distribute from the cash available in the
Revenue Account (after making any distributions required by Section 8.08(b)) the
---------------
following amounts in the following order of priority:
first, to the Administrative Agent, for the account of the Lenders,
-----
the amount of all fees payable pursuant to the terms of the Loan Documents,
which the Administrative Agent certifies to the Borrower to be due and
payable on such date;
second, to the Administrative Agent, for the account of the Lenders,
------
the amount, if any, equal to the interest on the Loans and under Hedging
Agreements which the Administrative Agent certifies to the Borrower to be
due and payable under the Loan Documents on such date;
third, if such date is a Principal Payment Date, to the Administrative
-----
Agent, for the account of the Lenders, the amount, if any, equal to the
principal (excluding any mandatory prepayments thereof) which the
Administrative Agent certifies to the Borrower to be due and payable on
such date; and
fourth, so long as no Event of Default has occurred and is continuing,
------
(i) if such date is a Quarterly Advisory Services Payment Date and a
Principal Payment Date, the amount equal to the Advisory Services Fee which
the Borrower
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certifies to the Administrative Agent to be due and payable on such date
(including any amounts deferred pursuant to Section 8.08(b)(iii) or
--------------------
deferred in respect of any prior period because of the occurrence and
continuance of an Event of Default) and (ii) if such date is a Quarterly
Advisory Services Payment Date and not a Principal Payment Date, the amount
set forth in clause (i) above, so long as at least an equal dollar amount
----------
shall be remaining in the Revenue Account after any distributions made
pursuant to this clause (ii).
-----------
(d) Semi-Annual Transfers After the Commercial Operation Date. On each
---------------------------------------------------------
Principal Payment Date, the Administrative Agent shall distribute from the cash
available in the Revenue Account (after making any distributions required by
Sections 8.08(b) and 8.08(c)) the following amounts in the following order of
- ---------------- -------
priority:
first, to the Operating Reserve Account, an amount sufficient to cause
-----
the amounts on deposit therein to equal the Operating Reserve Amount (as
set forth in the most recent certificate of the Borrower delivered pursuant
to Section 5.02(f));
---------------
second, to the Debt Reserve Account, an amount sufficient to cause the
------
amounts on deposit therein to equal the Debt Reserve Amount (as set forth
in the most recent certificate of the Borrower delivered pursuant to
Section 5.02(f));
---------------
third, to the Holdings Interest Reserve Account, an amount sufficient
-----
to cause the amounts on deposit therein to equal the Holdings Interest
Reserve Amount (as set forth in the most recent certificate of the Borrower
delivered pursuant to Section 5.02(f));
---------------
fourth, so long as no Blockage Event has occurred and is continuing,
------
to Holdings, an amount equal to one-half of the annual Permitted Senior
Cash Dividends for the current fiscal year, together with any Permitted
Senior Cash Dividends distributable pursuant to this clause fourth which
-------------
were blocked for any prior period and have not otherwise been paid pursuant
to this clause fourth or from amounts on deposit in the Holdings Interest
-------------
Reserve Account;
fifth, to the Administrative Agent, for the account of the Lenders, an
-----
amount equal to 50% (or 100%, in the event a Designated Event has occurred
and is continuing) of the remainder of the cash available in the Revenue
Account to be applied to the prepayment of the Loans in accordance with
Section 2.11(b); and
---------------
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<PAGE>
sixth, thereafter to the Borrower, to be applied to such purposes
-----
(including the making of equity dividends) as the Borrower may direct, the
remainder, if any, of the cash available in the Revenue Account;
provided, however, if an Event of Default shall have occurred and be continuing,
- -------- -------
(x) amounts payable pursuant to clause fourth of this Section 8.08(d), if any,
------------- ---------------
shall be limited to an amount no greater than the interest due and payable on
the Holdings Senior Notes on the next succeeding June 1 or December 1, as the
case may be, as certified by the Borrower to the Administrative Agent and (y)
all amounts remaining on deposit in the Revenue Account after the payment of
amounts specified in clauses first through fourth shall be applied by the
------------- ------
Administrative Agent to the obligations then due in such order as the
Administrative Agent shall direct.
SECTION 8.9. Special Payment Account. All Special Payments deposited in
-----------------------
the Special Payment Account constituting Liquidated Damages or proceeds of
delayed opening of business insurance shall be applied by the Administrative
Agent first, to the payment of interest due and payable on the Loans, second, to
----- ------
the payment of interest on the Holdings Senior Notes and, third, to the payment
-----
of other Capital Cost overruns resulting from the delay in the Commercial
Operation Date, in each case as and when the same shall become due and payable.
All other Special Payments shall be transferred to the Revenue Account to be
applied in accordance with Section 8.08; provided that, in the event the Supply
------------ --------
Contract is being replaced in accordance with this Agreement, such other Special
Payments shall, subject to Section 8.21 of this Agreement, be applied by the
------------
Borrower to the costs of entering into a replacement supply agreement and to
such other related costs as shall be approved by the Administrative Agent.
SECTION 8.10. Debt Reserve Account. (a) If, prior to the Commercial
--------------------
Operation Date, the amounts due and owing to any Subsidiary under the
Intercompany Agreement exceed the amounts distributed to such Subsidiary
pursuant to clause second of Section 8.08(a), and no amounts remain on deposit
------------- ---------------
in the Holdings Interest Reserve account or the Operating Reserve Account, the
Administrative Agent shall distribute to such Subsidiary, from amounts on
deposit in the Debt Reserve Account, the remaining amounts due and owing to such
Subsidiary under the Intercompany Agreement.
(b) If, prior to the Commercial Operation Date, Annex H Costs of the
Borrower or other OA&M Expenses of the Borrower due and payable exceed the
amounts distributed in respect thereof pursuant to clause second of Section
------------- -------
8.08(a), and no amounts remain on deposit in the Holdings Interest Reserve
- -------
Account or the Operating Reserve Account, the Administrative Agent shall
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distribute to the Operator (or such other Person as may be entitled thereto),
from amounts on deposit in the Debt Reserve Account, an amount equal to such
OA&M Expenses of the Borrower remaining unpaid; provided that amounts
--------
distributed pursuant to this paragraph (b), Section 8.11(b), Section 8.12(b),
------------- --------------- ---------------
Section 8.19(a) and clause second of Section 8.08(a) shall not exceed (x)
- --------------- ------------- ---------------
$6,500,000 in any calendar quarter in respect of Annex H Costs of the Borrower
and the Subsidiaries or (y) the amounts allocated therefor in the then current
Operating Budget in respect of all OA&M Expenses (other than Annex H Costs and
Sales Commissions earned in accordance with the Sales Agency Agreement) of the
Borrower and the Subsidiaries.
(c) If, subsequent to the Commercial Operation Date, on any date on which
the payment of principal or interest on the Loans becomes due and payable, the
cash available in the Revenue Account is insufficient to make the payment
obligations set forth in clauses second and third of Section 8.08(c) on such
-------------- ----- ---------------
date, the Administrative Agent shall transfer to the Administrative Agent, for
the benefit of the Lenders, the amount (to the extent cash is available in the
Debt Reserve Account) equal to the amount of any deficiency in the payment
obligations set forth in clauses second and third of Section 8.08(c) on such
-------------- ----- ---------------
date.
SECTION 8.11. Holdings Interest Reserve Account. (a) If, prior to the
---------------------------------
Commercial Operation Date, the amounts due and owing to any Subsidiary under the
Intercompany Agreement exceed the amounts distributed to such Subsidiary
pursuant to clause second of Section 8.08, the Administrative Agent shall
------------- ------------
distribute to such Subsidiary, from amounts on deposit in the Holdings Interest
Reserve Account, the remaining amounts due and owing to such Subsidiary under
the Intercompany Agreement.
(b) If, prior to the Commercial Operation Date, Annex H Costs of the
Borrower or other OA&M Expenses of the Borrower due and payable exceed the
amounts distributed in respect thereof pursuant to clause second of Section
------------- -------
8.08(a), the Administrative Agent shall distribute to the Operator (or such
- -------
other Person as may be entitled thereto), from amounts on deposit in the
Holdings Interest Reserve Account, an amount equal to such OA&M Expenses of the
Borrower remaining unpaid; provided that amounts distributed pursuant to this
--------
paragraph (b), Section 8.19(a) and clause second of Section 8.08(a) shall not
- ------------- --------------- ------------- ---------------
exceed (x) $6,500,000 in any calendar quarter in respect of Annex H Costs of the
Borrower and the Subsidiaries or (y) the amounts allocated therefor in the then
current Operating Budget in respect of all OA&M Expenses (other than Annex H
Costs and Sales Commissions earned in accordance with the Sales Agency
Agreement) of the Borrower and the Subsidiaries.
(c) If, on any Principal Payment Date (or any other date on which interest
may be due and payable on the Holdings Senior
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Notes), the cash available in the Revenue Account is insufficient to make the
payment obligations set forth in clause fourth of Section 8.08(d) on such
------------- ---------------
Principal Payment Date or other date (or if amounts on deposit in the Revenue
Account may not be applied to all or any portion thereof by reason of the
occurrence of a Designated Event or an Event of Default or otherwise), the
Administrative Agent shall, subject to the provisions of Section 8.21, transfer
to Holdings the amount (to the extent cash is available in the Holdings Interest
Reserve Account) equal to the amount of any deficiency in the payment
obligations set forth in clause fourth of Section 8.08(d) on such Principal
------------- ---------------
Payment Date or other date.
SECTION 8.12. Operating Reserve Account. (a) If, prior to the Commercial
-------------------------
Operation Date, the amounts due and owing to any Subsidiary under the
Intercompany Agreement exceed the amounts distributed to such Subsidiary
pursuant to clause second of Section 8.08, and no amounts remain on deposit in
------------- ------------
the Holdings Interest Reserve Account, the Administrative Agent shall distribute
to such Subsidiary, from amounts on deposit in the Operating Reserve Account,
the remaining amounts due and owing to such Subsidiary under the Intercompany
Agreement.
(b) If, prior to the Commercial Operation Date, Annex H Costs of the
Borrower or other OA&M Expenses of the Borrower due and payable exceed the
amounts distributed in respect thereof pursuant to clause second of Section
------------- -------
8.08(a), and no amounts remain on deposit in the Holdings Interest Reserve
- -------
Account, the Administrative Agent shall distribute to the Operator (or such
other Person as may be entitled thereto), from amounts on deposit in the
Operating Reserve Account, an amount equal to such OA&M Expenses of the Borrower
remaining unpaid; provided that amounts distributed pursuant to this paragraph
-------- ---------
(b), Section 8.11(b), Section 8.19(a) and clause second of Section 8.08(a) shall
- --- --------------- --------------- ------------- ---------------
not exceed (x) $6,500,000 in any calendar quarter in respect of Annex H Costs of
the Borrower and the Subsidiaries or (y) the amounts allocated therefor in the
then current Operating Budget in respect of all OA&M Expenses (other than Annex
H Costs and Sales Commissions earned in accordance with the Sales Agency
Agreement) of the Borrower and the Subsidiaries.
(c) If, subsequent to the Commercial Operation Date, on any Monthly OA&M
Transfer Date (or other date on which the Borrower requests the payment of Sales
Commissions earned in accordance with the Sales Agency Agreement due and owing),
the cash available in the Revenue Account is insufficient to make the payment
obligations set forth in the Expense Certificate (or other certificate) setting
forth such OA&M Expenses, the Administrative Agent shall transfer to the
Person(s) entitled thereto in accordance with Section 8.08(b) (to the extent
---------------
cash is available in the Operating Reserve Account) the amount of any
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deficiency in the payment of the OA&M Expenses set forth in such certificate.
SECTION 8.13. Insurance Proceeds Account. (a) All cash, cash
--------------------------
equivalents, instruments, investments and securities at any time on deposit in
the Insurance Proceeds Account, including all interest or other income earned
with respect thereto, are herein called the "Casualty Proceeds Deposits".
--------------------------
(b) The Casualty Proceeds Deposits shall be accumulated in the Insurance
Proceeds Account and held therein until paid to or upon the order of the
Borrower as provided in paragraph (c) of this Section 8.13, or paid to the
------------- ------------
Administrative Agent as provided in paragraph (d) or (e) of this Section 8.13,
------------- --- ------------
or returned to the Borrower as provided in Section 8.27.
------------
(c) Subject to the provisions of paragraphs (d) and (e) of this Section
-------------- --- -------
8.13, Casualty Proceeds Deposits shall be paid over to or upon the order of the
- ----
Borrower (or directly to the Persons entitled thereto, in the case of amounts in
excess of $200,000) to reimburse it for, or to pay, the cost of repairing,
rebuilding or otherwise replacing the damaged or destroyed or lost or condemned
property in respect of which such moneys were received, upon the receipt by the
Administrative Agent of a certificate of the Borrower (A) setting forth in
reasonable detail the work done or proposed to be done and materials purchased
or to be purchased by way of the renewal, repair, rebuilding or other
replacement of the damaged or destroyed or lost or condemned property and (B)
stating the specific amount requested to be paid over to or upon the order of
the Borrower (or such other Person) or that such amount is requested to
reimburse the Borrower, as the case may be, for, or to pay, costs actually
incurred to repair, rebuild or replace property and that such amount, together
with amounts remaining in the Insurance Proceeds Account for such purpose and
other funds of the Borrower available for such purpose, are sufficient to pay in
full the costs of such renewal, repair, rebuilding or other replacement. In the
event that any amounts remain in the Insurance Proceeds Account after
application thereof in accordance with this paragraph (c), the Administrative
-------------
Agent shall transfer such Casualty Proceeds Deposits to the Revenue Account.
(d) If the Borrower shall at any time notify the Administrative Agent that
an Event of Loss has occurred, then, unless the System is being repaired in
accordance with Section 5.22, the Administrative Agent shall promptly withdraw
------------
the Casualty Proceeds Deposits from the Insurance Proceeds Account and deliver
the same to the Administrative Agent to be applied to the payment of the
Obligations in accordance with Section 2.11(d). If the System is being repaired
---------------
in accordance with Section 5.22, the provisions of paragraph (c) above shall
------------ -------------
apply.
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<PAGE>
(e) If an Event of Default has occurred and is continuing and the Loans
have been accelerated in accordance with Article VII, then the Administrative
-----------
Agent shall promptly withdraw the Casualty Proceeds Deposits from the Insurance
Proceeds Account and apply the same to the payment of the Obligations in such
order as the Administrative Agent may elect.
SECTION 8.14. Clean-Up Account. The Administrative Agent shall, upon
----------------
receipt by it of a certificate of the Borrower setting forth the same
information required in a Borrowing Request with respect to the Capital Costs to
be paid (together with all applicable invoices), distribute, from the cash
available in the Clean-Up Account, directly to each Person to which an amount in
excess of $200,000 is due and payable (and otherwise to the Borrower for the
benefit of the Persons entitled thereto), the amounts identified as Capital
Costs in such certificate as then due and payable. The Borrower shall use
reasonable efforts to submit certificates under this Section 8.14 no more than
------------
once a month.
SECTION 8.15. Sales and Issuances Proceeds Account. Amounts on deposit
------------------------------------
in the Sales and Issuances Proceeds Account shall be applied as follows:
(a) if such amounts are Net Cash Proceeds of any new issuance after
the Closing Date of Capital Stock of the Borrower, (i) an amount equal to
the portion thereof being held in accordance with the proviso contained in
clause (i) of Section 2.11(c) for application to the payment of Permitted
---------- ---------------
Costs (which shall be specified in a certificate of the Borrower delivered
to the Administrative Agent when such Net Cash Proceeds are deposited)
shall be held and applied to the payment thereof upon receipt of a
certificate of the Borrower specifying the Person(s) to whom such Permitted
Costs are due and owing (provided that any portion thereof which is being
held for the payment of Capital Costs shall be transferred to the
Construction Account or, after the Commercial Operation Date, the Revenue
Account or, after the Availability Period, the Clean-Up Account) and (ii)
the remainder shall be applied, 50% to the prepayment of the Loans in
accordance with Section 2.11(c)(i) and 50% to the Borrower, to be used in
------------------
such manner (including equity dividends) as the Borrower shall determine;
(b) if such amounts are Net Cash Proceeds of an incurrence of
Indebtedness by the Borrower or Holdings after the Closing Date (other than
Indebtedness permitted by Section 6.01 and Indebtedness of Holdings
------------
permitted pursuant to Section 6.1 of the Holdings Note Purchase Agreement
-----------
as in effect on the date hereof), such Net Cash Proceeds shall be applied
to the prepayment of the Loans in accordance with Section 2.11(c)(ii); and
-------------------
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<PAGE>
(c) if such amounts are Net Cash Proceeds in respect of any sale,
transfer, lease or other disposition of any asset of the Borrower or any
Subsidiary, (i) an amount equal to the portion thereof being held to be
reinvested in the Borrower's or any Subsidiary's business (which shall be
specified in a certificate of the Borrower delivered to the Administrative
Agent when such Net Cash proceeds are deposited) shall be held and applied
to the payment of the relevant expenses upon receipt of a certificate of
the Borrower specifying the Person(s) to whom such expenses are due and
owing, (ii) if any such Net Cash Proceeds are not expended in accordance
with clause (i) above within six months of their receipt into the Sales and
----------
Issuances Proceeds Account, such Net Cash Proceeds (net of the portion
being transferred to the Revenue Account pursuant to clause (iii) below),
------------
shall be applied to the prepayment of the Loans in accordance with Section
-------
2.11(c)(iii) and (iii) all such other Net Cash Proceeds which are not being
------------
held pursuant to clause (i) above or are not being applied to the
----------
prepayment of the Loans pursuant to Section 2.11(c)(iii), shall be
--------------------
transferred to the Revenue Account.
SECTION 8.16. Construction Contingency Reserve Account. (a) If, prior to
----------------------------------------
the Commercial Operation Date, the amounts due and owing to any Subsidiary under
the Intercompany Agreement exceed the amounts distributed to such Subsidiary
pursuant to clause second of Section 8.08, and no amounts remain on deposit in
------------- ------------
the Holdings Interest Reserve Account, the Operating Reserve Account and the
Debt Reserve Account, the Administrative Agent shall distribute to such
Subsidiary, from amounts on deposit in the Construction Contingency Reserve
Account, the remaining amounts due and owing to such Subsidiary under the
Intercompany Agreement.
(b) If, prior to the Commercial Operation Date, Annex H Costs of the
Borrower or other OA&M Expenses of the Borrower due and payable exceed the
amounts distributed in respect thereof pursuant to clause second of Section
------ -------
8.08(a), and no amounts remain on deposit in the Holdings Interest Reserve
- -------
Account, the Operating Reserve Account and the Debt Reserve Account, the
Administrative Agent shall distribute to the Operator (or such other person as
may be entitled thereto), from amounts on deposit in the Construction
Contingency Reserve Account, an amount equal to such OA&M Expenses of the
Borrower remaining unpaid; provided that amounts distributed pursuant to this
paragraph (b), Section 8.10(b), Section 8.11(b), Section 8.12(b), Section
- ------------- --------------- --------------- --------------- -------
8.19(a) and clause second of Section 8.08(a) shall not exceed (x) $6,500,000 in
- ------- ------------- ---------------
any calendar quarter in respect of Annex H Costs of the Borrower and the
Subsidiaries or (y) the amounts allocated therefor in the then current Operating
Budget in respect of all OA&M Expenses (other than Annex H Costs and Sales
Commissions
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<PAGE>
earned in accordance with the Sales Agency Agreement) of the Borrower and the
Subsidiaries.
(c) The Administrative Agent shall pay, from and to the extent of cash
available in the Construction Contingency Reserve Account and as set forth in a
certificate of the Borrower, (i) directly to each Person to which an amount in
excess of $200,000 is due and payable and (ii) otherwise, to the Borrower for
the benefit of the Persons entitled thereto, the amounts identified in such
certificate as Capital Costs overruns then due and payable in the Borrowing
Request delivered in connection with the most recent Borrowing Date.
SECTION 8.17. VAT Refund Account. The Administrative Agent shall, upon
------------------
receipt of a certificate of the Borrower directing the same, apply the amounts
on deposit in the VAT Refund Account to the prepayment of the Working Capital
Loans, together with accrued and unpaid interest thereon, in accordance with
Section 2.11(e) on the last day of the current Interest Period(s) with respect
- ---------------
thereto.
SECTION 8.18. Current Account. The Administrative Agent shall pay, from
---------------
and to the extent of cash available in the Current Account and as set forth in a
certificate of the Borrower, (i) directly to each Person to which an amount in
excess of $200,000 is due and payable, the amounts previously identified as OA&M
Expenses in Item 2 of the most recently delivered Expense Certificate which are
then due and owing, or (ii) to the Borrower for the benefit of the Persons
entitled thereto, all other such OA&M Expenses previously identified in Item 2
of the most recently delivered Expense Certificate which are then due and owing.
SECTION 8.19. Subsidiary Accounts. (a) If, prior to the Commercial
-------------------
Operation Date, Annex H Costs of a Subsidiary or other OA&M Expenses of a
Subsidiary are due and payable, the Administrative Agent shall distribute, from
the cash available in such Subsidiary's Subsidiary Account, to the Operator (or
such other Person as may be entitled thereto) an amount equal to such OA&M
Expenses of such Subsidiary then due and payable to such Person.
(b) The Administrative Agent shall, on each Monthly OA&M Transfer Date,
distribute from the cash available in each Subsidiary's Subsidiary Account (i)
directly to each Person to which an amount in excess of $200,000 is due and
payable, the amounts identified as OA&M Expenses of such Subsidiary then due and
owing in Item 1 of the Expense Certificate delivered pursuant to Section 8.08(b)
---------------
in respect of such date and (ii) to such Subsidiary for the benefit of the
Persons entitled thereto, all other OA&M Expenses of such Subsidiary then due
and owing in Item 1 of such Expense Certificate.
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<PAGE>
(c) The Administrative Agent shall distribute from the cash available in
each Subsidiary's Subsidiary Account to the applicable Governmental Authority
entitled thereto the amount of taxes then due and payable by such Subsidiary (or
required to be withheld from payments made by such Subsidiary) to such
Governmental Authority as set forth in a certificate of such Subsidiary
delivered to the Administrative Agent.
(d) The Administrative Agent shall, on each Subsidiary Transfer Date,
distribute, from the cash available in each Subsidiary's Subsidiary Account, to
the Revenue Account, the amount of such Subsidiary's Transfer Payment due and
payable on such date, as set forth in a certificate of the Borrower delivered to
the Administrative Agent.
SECTION 8.20. Release of Excess Amounts. If, as of any Principal Payment
-------------------------
Date, (a) an amount is on deposit in the Debt Reserve Account, the Holdings
Interest Reserve Account or the Operating Reserve Account in excess of the
Required Balance for such Account, as the result of the actual realization of
income or gain on the amounts on deposit in such Account and (b) no Event of
Default or Designated Event has occurred and is continuing, then the
Administrative Agent shall distribute any such excess amounts to the Revenue
Account. After the payment of all Capital Costs, amounts remaining on deposit
in the Construction Account, the Construction Contingency Reserve Account, the
VAT Refund Account and the Clean-Up Account shall be applied first, to fund the
-----
Reserve Accounts to bring the amounts on deposit therein up to the Required
Balances (in the order of priority set forth in Section 8.08(d)) and second, to
--------------- ------
the prepayment of the Loans in accordance with Section 2.11(e).
---------------
SECTION 8.21. Acceleration. Any other provision contained in this
------------
Agreement to the contrary notwithstanding (but still subject to Section 8.28),
------------
upon the occurrence and during the continuance of an Event of Default and after
the Loans have become or have been declared to be due and payable in accordance
with Article VII, the Administrative Agent shall then distribute cash from the
-----------
Accounts to be applied to the payment of the Obligations in such order as the
Administrative Agent shall direct.
SECTION 8.22. Investment. Any cash held by the Administrative Agent in
----------
any Account shall be invested by the Administrative Agent from time to time as
directed in writing by the Borrower (or, if Event of Default has occurred and is
continuing, by the Administrative Agent in its sole discretion) in Permitted
Investments. Any income or gain realized as a result of any such investment
shall be held as part of the applicable Account and reinvested as provided
herein. If any income tax is payable on account of any such income or gain, it
shall be paid by the Borrower or its Affiliates. Any such
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<PAGE>
investment may be sold (without regard to maturity date) by the Administrative
Agent whenever necessary to make any distribution required by this Agreement.
The Administrative Agent shall have no liability for any loss resulting from any
such investment or sale thereof other than by reason of its willful misconduct
or gross negligence. The Administrative Agent will promptly notify the Borrower
of any loss resulting from any such investment or sale and the Borrower may
instruct the Administrative Agent to, and the Administrative Agent shall,
reimburse the affected Account from the System Revenues.
SECTION 8.23. Value. Cash and Permitted Investments on deposit from time
-----
to time in the Accounts shall be valued (the "Value") by the Administrative
-----
Agent as follows:
(a) cash shall be valued at the face amount thereof; and
(b) Permitted Investments shall be valued at the lesser of the face
amount and the purchase price.
SECTION 8.24. Other Determinations. The Borrower and the Administrative
--------------------
Agent may establish procedures not materially inconsistent with this Agreement
pursuant to which the Administrative Agent may conclusively determine, for
purposes of this Agreement, the amounts from time to time to be distributed or
paid by the Administrative Agent from cash available in the Accounts or pursuant
to which the Administrative Agent and the Borrower may provide for reasonable
operating and administrative flexibility. In addition, the Borrower and the
Administrative Agent may establish additional Accounts (i.e., with respect to
VAT refunds, insurance proceeds, etc.) of the Subsidiaries in order to better
reflect the separateness of the Borrower's and any Subsidiary's property,
subject to Liens in favor of, and such terms and conditions regarding withdrawal
and application as are consistent with the terms hereof.
SECTION 8.25. Sales of Permitted Investments. The Administrative Agent
------------------------------
will use its reasonable commercial efforts to sell Permitted Investments so that
actual cash is available, on each date on which a distribution is to be made
pursuant to this Agreement, for the Administrative Agent to make such
distribution in cash on such date. The amount of any check or other instrument
which may be deposited in any Account shall not be treated as cash available
until the final collection thereof.
SECTION 8.26. Available Cash. In determining the amount of available cash
--------------
in any Account at any time, in addition to any cash then on deposit in such
Account, the Administrative Agent shall treat as available cash the amount which
the Administrative Agent would have received on such day if the Administrative
Agent
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<PAGE>
had liquidated all the Permitted Investments (at then prevailing market prices)
then on deposit in such Account.
SECTION 8.27. Termination. Upon termination of this Agreement and the
-----------
payment in full of all Obligations, the Administrative Agent shall transfer any
remaining amounts, together with any interest thereon, on deposit in the
Accounts to the Borrower or as the Borrower may direct.
SECTION 8.28. Rights of Sales Agent to Commissions. Any provision of this
------------------------------------
Agreement to the contrary notwithstanding, the Administrative Agent and the
Lenders agree that the payment of Sales Commissions earned in accordance with
the Sales Agency Agreement will have priority over all other payments and, after
the occurrence of an Event of Default, the Administrative Agent will, prior to
applying any amounts in the Accounts to the prepayment of the Loans (or the
payment of the Loans after acceleration), first pay over to the Sales Agent the
amount of any accrued and unpaid Sales Commissions earned in accordance with the
Sales Agency Agreement.
SECTION 8.29. Conflicts With Other Loan Documents. To the extent the
-----------------------------------
provisions of this Article VIII and the provisions of any other Loan Document
------------
conflict as to the application of System Revenues or other amounts on deposit in
the Accounts, the provisions of this Article VIII shall take precedence.
------------
SECTION 8.30. Checking Account. The Borrower hereby agrees that (a) from
----------------
and after the earlier of (i) the date the Contingency Letter of Credit is issued
hereunder and (ii) the date the initial Term Loans are made, the balance in the
Checking Account shall not exceed $150,000 (excluding amounts representing
earned interest and amounts distributed pursuant to this Article VIII to the
------------
Borrower for the benefit of other Persons) and (b) amounts on deposit in the
Checking Account shall be used solely to pay Capital Costs in accordance with
the Capital Budget or OA&M Expenses in accordance with the then effective
Operating Budget. The Subsidiaries shall be permitted to maintain general
corporate checking accounts; provided that the aggregate balance maintained in
--------
such checking accounts shall not at any time exceed $50,000 in the aggregate
(excluding amounts representing earned interest and amounts distributed pursuant
to this Article VIII to the Subsidiaries for the benefit of other Persons).
------------
SECTION 8.31. Purchaser Escrow Arrangements. Anything contained herein to
-----------------------------
the contrary notwithstanding, in the event a purchaser of Capacity requires that
its down payment, if any, on its purchase of Capacity be placed in escrow, the
Borrower shall be permitted to enter into customary escrow arrangements with
such purchaser; provided that once the Borrower becomes entitled to any such
--------
amounts in accordance with the terms of such escrow
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<PAGE>
arrangements, such amounts shall be deposited into the Revenue Account.
ARTICLE IX
THE ADMINISTRATIVE AGENT, OTHER AGENTS
AND AGENT RELATED PERSONS
-----------------------------------------------
SECTION 9.1. Authorization and Action. Each Lender hereby appoints and
------------------------
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under this Agreement as are delegated
to the Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto. As to any matters not
expressly provided for by this Agreement (including enforcement or collection of
the Notes), the Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Lenders, the Required Lenders or the
Lenders, as the case may be, for actions or refraining from acting pursuant to
the terms of this Agreement, and such instructions shall be binding upon all
Lenders and all holders of Notes; provided, however, that the Administrative
-------- -------
Agent shall not be required to take any action that exposes the Administrative
Agent to personal liability (unless indemnified to its reasonable satisfaction)
or that is contrary to this Agreement or applicable law. The Administrative
Agent agrees to give to each Lender prompt notice of each notice given to it by
the Borrower or any of the Subsidiaries pursuant to the terms of this Agreement.
SECTION 9.2. Exculpation of, and Reliance by, Agents and Agent Related
---------------------------------------------------------
Persons. Neither the Administrative Agent nor any other Agent nor any Agent
- -------
Related Person shall be liable to any Lender for any action taken or omitted to
be taken by it or them under or in connection with this Agreement or any other
Loan Document, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent and each Agent Related Person:
(a) may treat the payee of any Note as the holder thereof or any
Lender as a Lender until the Administrative Agent receives and accepts an
Assignment and Acceptance entered into by such payee or Lender, as
assignor, and an eligible assignee, as assignee, as provided in Section
-------
10.04;
-----
(b) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other
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<PAGE>
experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts;
(c) makes no warranty or representation to any Lender and shall not
be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with
this Agreement or any other Loan Document;
(d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of
this Agreement or any other Loan Document on the part of the Borrower, or
any of the Subsidiaries or to inspect the property (including the books and
records) of the Borrower or any of the Subsidiaries;
(e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of,
or the perfection or priority of any lien or security interest created or
purported to be created under or in connection with, this Agreement or any
other instrument or document furnished pursuant hereto; and
(f) shall incur no liability to any Lender under or in respect of
this Agreement or any other Loan Document by acting upon any notice,
consent, certificate or other instrument or writing (which may be by
telecopier, telegram, or telex) believed by it to be genuine and signed or
sent by the proper party or parties.
SECTION 9.3. Agents, Agent Related Persons and Affiliates. With respect
--------------------------------------------
to its Commitment, the Credit Extensions made by it and any Note issued to it,
Deutsche Bank AG and Canadian Imperial Bank of Commerce and their respective
Affiliates shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not an Agent; and the
term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Deutsche Bank, AG, Canadian Imperial Bank of Commerce and any Affiliate thereof
in its individual capacity. Deutsche Bank, AG, Canadian Imperial Bank of
Commerce and their Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, the Borrower, any of its
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any such Subsidiary, all as if Deutsche Bank, AG, Canadian Imperial
Bank of Commerce and their Affiliates were not an Agent and without any duty to
account therefor to the Lenders.
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<PAGE>
SECTION 9.4. Lender Credit Decision. Each Lender acknowledges that it
----------------------
has, independently and without reliance upon any Agent or Agent Related Person
or any other Lender and based on the financial statements referred to in Section
-------
3.01 and such other documents and information as it has deemed appropriate, made
- ----
its own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon any
Agent or Agent Related Person or any other Lender based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 9.5. Indemnification. The Lenders agree to indemnify each Agent
---------------
and Agent Related Person (to the extent not reimbursed by the Borrower or the
Subsidiaries), ratably according to the respective principal amounts of the
Loans owing to them, participation interests in Working Capital Loans and
Letters of Credit and Commitments issued by them, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgements,
suits, costs, expenses or disbursements of any kind or nature whatsoever that
may be imposed on, incurred by, or asserted against such Agent or Agent Related
Person in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by such Agent or Agent Related Person
under this Agreement or any other Loan Document, provided that no Lender shall
--------
be liable to any Agent or Agent Related Person for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgements,
suits, costs, expenses or disbursements resulting from such Agent's or Agent
Related Person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender agrees to reimburse each Agent and Agent Related
Person promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by such Agent or Agent Related Person in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that such Agent or Agent
Related Person is not reimbursed for such expenses by the Borrower or any of the
Subsidiaries.
SECTION 9.6. Collateral Matters. (a) The Administrative Agent is
------------------
authorized on behalf of all the Lenders, without the necessity of any notice to
or further consent from the Lenders, from time to time to take any action with
respect to any collateral security or the Security Documents which may be
necessary to perfect and maintain perfected the security interest in and Liens
upon the collateral security granted pursuant to the Security Documents.
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(b) The Lenders irrevocably authorize the Administrative Agent, at its
option and in its discretion, to release (i) any security interest or Lien
granted to or held by the Administrative Agent upon any collateral security (A)
upon termination of the Commitments and Letters of Credit, and payment in full
in cash of all principal of and interest on the Loans and all fees, costs,
indemnities, gross-ups and expenses that are payable under this Agreement or
under any other Loan Document and have been invoiced as of such termination date
(in which case the Lenders hereby authorize the Administrative Agent to execute,
and the Administrative Agent agrees to execute, reasonable releases in
connection with this Agreement and the Loan Documents (other than, in any event,
as to items stated to survive the termination of this Agreement or a Loan
Document)); (B) constituting property sold or to be sold or disposed of as part
of or in connection with any disposition permitted hereunder; (C) constituting
property in which the Borrower or any Subsidiary of the Borrower owned no
interest at the time the security interest and/or Lien was granted or at any
time thereafter; (D) consisting of an instrument evidencing Indebtedness or
other debt instrument, if the Indebtedness evidenced thereby has been paid in
full; or (E) if approved, authorized or ratified in writing by the Majority
Lenders or, if required by Section 10.02, the Required Lenders or each Lender,
-------------
as applicable, and (ii) any guarantor from its obligations under any Guaranty
constituting a Loan Document in the event such guarantor is not required to be a
guarantor pursuant to the terms of this Agreement. Upon request by the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent's authority to release particular types or items of
collateral security or a Guaranty pursuant to this Section.
SECTION 9.7. Successor Administrative Agent. The Administrative Agent may
------------------------------
resign at any time by giving 30 days' written notice thereof to the Lenders and
the Borrower and may be removed at any time with or without cause by the
Majority Lenders. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint a successor Administrative Agent, with the prior
written consent of the Borrower (not to be unreasonably withheld or delayed) so
long as no Event of Default has occurred and is continuing. If no successor
Administrative Agent shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Majority Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lenders, appoint, with the prior written consent of
the Borrower (not to be unreasonably withheld or delayed) so long as no Event of
Default has occurred and is continuing, a successor Administrative Agent, which
shall be a Lender or a commercial bank organized under the laws of the United
States of America or of any State thereof and having a
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combined capital and surplus of at least $250,000,000. Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article IX shall inure to its
----------
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1. Notices. Except in the case of notices and other
-------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at Cedar House, 41 Cedar Avenue,
Hamilton, Bermuda, Attention of Global Telesystems, Ltd., Vice President
(Telecopy No. 441-296-6749);
(b) if to the Administrative Agent, to it at 1251 Avenue of the
Americas, New York, New York 10019, Attention of John Quinn, Corporate
Finance Services Department (Telecopy No. 212-469-4139);
(c) if to a Lead Agent, to 31 West 52nd Street, New York, New York
10019, Attention of Elizabeth Tallmadge and Lydia Zaininger (Telecopy No.
212-469-7936) in the case of Deutsche Bank AG, New York Branch, or to 425
Lexington Avenue, New York, New York 10017, Attention of Louise Bell
(Telecopy No. 212-856-3562) in the case of CIBC;
(d) if to the Issuing Bank, to it at 425 Lexington Avenue, New York,
NY 10017, Attention of Louise Bell (Telecopy No. 212-856-3562); and
------------
(e) if to any other Lender, to it at its address (or telecopy number)
set forth on Schedule 2.01.
-------------
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given (a)
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to the Borrower or any of the Subsidiaries in accordance with Article VII of
-----------
terms of this Agreement shall be deemed to have been given when sent (answerback
received) in the case of telecopy, when delivered, in the case of hand or
overnight courier service, and three days after mailing, in the case of
certified or registered mail, or (b) to any party hereto in accordance with the
terms of this Agreement other than for purposes of the immediately preceding
clause (a), shall be deemed to have been given on the date of receipt.
- ----------
SECTION 10.2. Waivers; Amendments. (a) No failure or delay by the
-------------------
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent, the Issuing Bank and the
Lenders hereunder are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision of this Agreement or
any other Loan Document or consent to any departure by the Borrower or any
Subsidiary therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
-------------
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan
or issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, any Lender or the
Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement, any other Loan Document nor any provision
hereof or thereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Loan Parties party
thereto and the Majority Lenders or by such Loan Parties and the Administrative
Agent with the consent of the Majority Lenders (unless expressly provided
otherwise in this Agreement); provided that no such agreement shall (i) increase
--------
the Commitment of any Lender without the written consent of such Lender, (ii)
reduce the principal amount of any Loan or LC Disbursement or reduce the rate of
interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan or LC Disbursement, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse
any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing
--------------- ---
of payments required thereby, without the written consent of each Lender, (v)
release any
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substantial and material portion of the Collateral (other than releases in
accordance with the terms of this Agreement or any Security Document), amend
Section 2.11(b) or change the application of Presale Proceeds in accordance with
- ---------------
Section 8.08 (a) without the consent of the Required Lenders, (vi) be with
- ----------------
respect to terms which are material to the Contractor and adverse to the
interests of the Contractor, without the written consent of the Contractor or
(vii) change any of the provisions of this Section or the definition of
"Required Lenders", "Majority Lenders" or any other provision hereof specifying
the number or percentage of Lenders required to waive, amend or modify any
rights hereunder or make any determination or grant any consent hereunder or
release all or substantially all of the Collateral or release any guarantor from
its obligations under a guaranty, without the written consent of each Lender;
provided further that no such agreement shall amend, modify or otherwise affect
- -------- -------
the rights or duties of the Administrative Agent or the Issuing Bank hereunder
without the prior written consent of the Administrative Agent or the Issuing
Bank, as the case may be. The Borrower shall deliver to the Contractor a copy
of each amendment to such Financing Document which has an impact on the
Contractor promptly after execution thereof.
SECTION 10.3. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall
----------------------------------
pay (i) subject to paragraph 5 of the Commitment Letter, dated as of March 25,
1997, among the Borrower, Holdings, CIBC Inc. and CIBC Wood Gundy Securities
Corp., all reasonable out-of-pocket expenses incurred by the Administrative
Agent, the Arrangers, and their respective Affiliates, including the reasonable
fees, charges and disbursements of one documentation counsel for the
Administrative Agent and the Arrangers and their respective Affiliates, in
connection with the syndication of the credit facilities provided for herein,
the preparation of such Commitment Letter, this Agreement and the Loan
Documents, and any amendments, modifications or waivers of the provisions hereof
and any other Loan Document (whether or not the transactions contemplated hereby
or thereby shall be consummated) and the reasonable fees, charges and
disbursements of one counsel for the Administrative Agent and the Arrangers and
their respective Affiliates in connection with the ongoing consideration of
legal matters relevant to any of the foregoing, including the ongoing compliance
with this Agreement and the security relating hereto and thereto, (ii) the
reasonable fees and expenses of any local counsel retained by the Administrative
Agent, (iii) the reasonable ongoing fees and expenses of the Consultants in
connection with the preparation of their reports and the ongoing fees and
expenses of the Independent Engineer and the Insurance Consultant, (iv) any
expenses the Borrower or any Subsidiary specifically agrees to pay pursuant to
any provision of the Loan Documents and (v) all reasonable out-of-pocket
expenses incurred by the Administrative Agent, the Lead Agents, the Issuing Bank
or any Lender, but only in connection with the enforcement or
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protection of its rights or remedies in connection with this Agreement and the
Loan Documents, including its rights under this Section, or in connection with
the Loans made or Letters of Credit issued hereunder, including in connection
with any workout, restructuring or negotiations in respect thereof, provided
--------
with respect to legal fees, the Borrower shall be responsible to pay only the
reasonable fees and expenses of one or more counsel selected by the
Administrative Agent for the benefit of itself, the Lead Agents, the other
Agents and the Issuing Bank. Other than as set forth above, the Administrative
Agent and the Lenders shall be responsible for their own expenses, including
ongoing administration expenses (which the Administrative Agent's fee is
intended to cover) and expenses incurred in connection with assignments. With
respect to out-of-pocket expenses incurred in connection with amendments,
modifications or waivers to this Agreement or the Loan Documents and in
connection with the ongoing consideration of legal matters relevant to this
Agreement and the other Loan Documents (except for matters relating to the
enforcement or protection of rights or remedies and except when an Event of
Default has occurred and is continuing) the Administrative Agent agrees to
confer with the Borrower in advance of the incurrence of any such expenses.
(b) The Borrower shall indemnify the Administrative Agent, the Lead
Agents, the Issuing Bank and each Lender, and each Related Party of any of the
foregoing Persons (each such Person being called an "Indemnitee") against, and
----------
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses (subject, in the case of ordinary expenses, to
the provisions of Section 10.03(a)), including the fees, charges and
----------------
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the consummation of the transactions contemplated
hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by the Issuing Bank to honor a demand for payment under a
Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (iii) any presence
or release of Hazardous Materials on or from any property owned or operated by
the Borrower or any of its Subsidiaries, or any Environmental Liability related
in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
--------
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee or relate to a
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<PAGE>
claim brought by an assignee or Participant against the Lender making such
assignment or participation.
(c) Each Indemnitee claiming any right to indemnity under paragraph (b) of
-------------
this Section by reason of the institution of any action against such Indemnitee
shall notify the Borrower thereof and shall consult with the Borrower from time
to time in connection with the defense of such action. In case any such action
shall be brought against such Indemnitee, the Borrower shall be entitled, at its
expense, to assume the defense thereof or to participate in such action with
counsel of its choice (which counsel shall be reasonably satisfactory to such
Indemnitee); provided that the Borrower may not settle any such action without
the prior written consent of such Indemnitee (such consent not to be
unreasonably withheld or delayed) and the Borrower shall not be entitled to
assume the defense thereof if (i) such Indemnitee reasonably determines, on the
advice of counsel, that representation of both the Borrower and such Indemnitee
by the Borrower's counsel would present such counsel with a conflict of
interest, (ii) the defendants in, or targets of, any such action include both
such Indemnitee and the Borrower, and such Indemnitee shall have reasonably
concluded, on advice of counsel, that there may be legal defenses available to
it which are significantly different from those available to the Borrower, (iii)
the Borrower shall not have employed counsel satisfactory to such Indemnitee to
represent such Indemnitee within a reasonable time after notice of the
institution of any such action, or (iv) such Indemnitee is faced with potential
criminal liability.
SECTION 10.4. Successors and Assigns; Consent and Agreement. (a) The
---------------------------------------------
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted hereby,
except that the Borrower may not assign or otherwise transfer any of its rights
or obligations hereunder without the prior written consent of each Lender (and
any attempted assignment or transfer by the Borrower without such consent shall
be null and void). Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Issuing Bank, the Agent Related Parties and Related
Parties of the Lenders and, with respect to Article VIII and the last sentence
------------
of this Section 10.04(a), SSI, and with respect to Section 10.02(b)(vi), the
---------------- --------------------
Contractor) any legal or equitable right, remedy or claim under or by reason of
this Agreement. All Lenders now or hereafter parties to this Agreement hereby
agree to be bound by the terms of the SSI Consent to the same extent as the
Administrative Agent.
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<PAGE>
(b) Any Lender may assign to one or more assignees (other than to the
Borrower, any of its Subsidiaries or PCG or any of its Affiliates) all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it) and the other
Loan Documents; provided that (i) except in the case of an assignment to a
--------
Lender or an assignment solely of such Lender's rights or benefits under the
Loan Documents to an Affiliate of any Lender (or, after the date on which the
System is Ready for Provisional Acceptance and subject to the consent of the
Issuing Bank, not to be unreasonably withheld or delayed, in the case of any
assignment in respect of Letters of Credit or LC Exposure, of Obligations and
Commitments to an Affiliate of a Lender), no such assignment shall be permitted
without the prior written consent of each of the Borrower, the Administrative
Agent and Issuing Bank (which consent shall not be unreasonably withheld or
delayed), (ii) except in the case of an assignment to a Lender (or, after the
date on which the System is Ready for Provisional Acceptance and subject to the
consent of the Issuing Bank, not to be unreasonably withheld or delayed, in the
case of any assignment in respect of Letters of Credit or LC Exposure, of
Obligations and Commitments to an Affiliate of a Lender) or an assignment of the
entire remaining amount of the assigning Lender's Commitment, the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000 unless
each of the Borrower and the Administrative Agent otherwise consent, (iii) each
partial assignment shall be made as an assignment of a proportionate part of all
the assigning Lender's rights and obligations under this Agreement, (iv) the
parties to each assignment shall execute and deliver to the Administrative Agent
an Assignment and Acceptance for its acceptance and recording in the Register,
together with a processing and recordation fee of $3,500 (which shall be paid by
the assignor and/or assignee but not the Borrower) and (v) the assignee shall
not, as of the effective date of such assignment, be entitled to receive any
greater payment under Section 2.15 or 2.17 than the assigning Lender shall be
------------ ----
entitled to receive with respect to the obligations sold. Upon acceptance and
recording pursuant to paragraph (d) of this Section, from and after the
-------------
effective date specified in each Assignment and Acceptance, the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance, have the rights and obligations of a Lender
under this Agreement, and the assigning Lender thereunder shall, to the extent
of the interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto). Any assignment
or transfer by a Lender of rights or obligations under this Agreement that does
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not comply with this paragraph shall be treated for purposes of this Agreement
as a sale by such Lender of a participation in such rights and obligations in
accordance with paragraph (e) of this Section.
-------------
(c) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in The City of New York a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders and the registered
owner(s) of any obligation evidenced by a Note, and the Commitment of, and
principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The Notes and
--------
the obligations evidenced thereby may be assigned or otherwise transferred in
whole or in part only by registration in the Register and the Note evidencing
the same shall be registered on the Register only upon surrender for
registration of assignment or transfer of the Note evidencing such obligation,
duly endorsed by (or accompanied by a written instrument of assignment or
transfer duly executed by) the registered owner thereof, and thereupon one or
more new Note(s) in the same aggregate principal amount shall be issued to the
designated assignee(s) and the old Notes shall be returned by the Administrative
Agent to the Borrower marked "canceled". No assignment of any Note or
obligation evidenced thereby shall be effective unless it has been recorded in
the Register as provided in this Section 10.04(c). The entries in the Register
----------------
shall be conclusive, and the Borrower, the Administrative Agent, the Issuing
Bank and the Lenders may treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the processing and recordation
fee referred to in paragraph (b) of this Section, evidence of such assignee's
-------------
exemption from withholding Taxes and any written consent to such assignment
required by paragraph (b) of this Section, the Administrative Agent shall accept
-------------
such Assignment and Acceptance and record the information contained therein in
the Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Lead Agents or the Issuing Bank, sell participations
to one or more banks or other entities (a "Participant") in all or a portion of
-----------
such Lender's rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided that (i) such
--------
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other
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parties hereto for the performance of such obligations and (iii) the Borrower,
the Administrative Agent, the Issuing Bank, the Lead Agents and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement. Subject to paragraph (f) of this Section, the Borrower
-------------
agrees that each Participant shall be entitled to the benefits of Sections 2.15,
-------------
2.16 and 2.17 to the same extent as if it were a Lender and had acquired its
- ---- ----
interest by assignment pursuant to paragraph (b) of this Section.
-------------
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.15 or 2.17 than the applicable Lender would have been entitled
------------ ----
to receive with respect to the participation sold to such Participant. A
Participant shall not be entitled to the benefits of Section 2.17 unless the
------------
Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with the
provisions of Section 2.17(e) as though it were a Lender.
---------------
(g) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including any such pledge or assignment to a Federal Reserve Bank, and
this Section shall not apply to any such pledge or assignment of a security
interest; provided that no such pledge or assignment of a security interest
--------
shall release a Lender from any of its obligations hereunder or substitute any
such assignee for such Lender as a party hereto.
SECTION 10.5. Limited Recourse. There shall be full recourse to the
----------------
Borrower and the Subsidiaries and all of its assets for the liabilities of the
Borrower and the Subsidiaries under this Agreement and the other Loan Documents,
but in no event shall any holder of any equity interest in the Borrower (or any
officer or director of such holder or any officer or director of the Borrower or
any Subsidiary, in its capacity as such) be personally liable or obligated for
such liabilities of the Borrower and the Subsidiaries.
SECTION 10.6. Survival. All covenants, agreements, representations and
--------
warranties made by the Borrower herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit, and shall
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continue in full force and effect as long as the principal of or any accrued
interest on any Loan or any fee or any other amount payable under this Agreement
is outstanding and unpaid or any Letter of Credit is outstanding and so long as
the Commitments have not expired or terminated. The provisions of Sections
--------
2.15, 2.16, 2.17 and 10.03 and Article IX shall survive and remain in full force
---- ---- ----- ----------
and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the Letters
of Credit and the Commitments or the termination of this Agreement or any
provision hereof.
SECTION 10.7. Counterparts; Integration; Effectiveness. This Agreement
----------------------------------------
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to an Agent and/or Agent
Related Person constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
------------
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and, subject to and in
accordance with Section 10.04, their respective successors and assigns.
-------------
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 10.8. Severability. Any provision of this Agreement held to be
------------
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 10.9. Right of Setoff. If an Event of Default shall have occurred
---------------
and be continuing, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement held by such
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Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement and although such obligations may be unmatured. The rights
of each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 10.10. Governing Law; Jurisdiction; Consent to Service of Process.
----------------------------------------------------------
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.
(b) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT
OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF
THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT
SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, THE ISSUING BANK OR ANY
LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.
(c) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT REFERRED TO IN
PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
- -------------
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.01. NOTHING IN THIS
-------------
AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 10.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
--------------------
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
-144-
<PAGE>
SECTION 10.12. Headings. Article and Section headings and the Table of
--------
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 10.13. Replacement of Independent Engineer or Insurance
------------------------------------------------
Consultant. Any appointment by the Administrative Agent of a replacement
engineer to act as the "Independent Engineer" or of a replacement "Insurance
Consultant" under the Loan Documents and the System Contracts shall be subject
to the approval of the Borrower, such approval not to be unreasonably withheld
or delayed.
SECTION 10.14. Confidentiality. Each of the Administrative Agent, the
---------------
Issuing Bank, the Lead Agents, any other Agents and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates' directors, officers,
employees and agents, including accountants, legal counsel and other advisors
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep
such Information confidential), (b) to the extent requested by any governmental
or regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or the enforcement
of rights hereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of the Borrower
(not to be unreasonably withheld or delayed), (h) to the extent such Information
(x) becomes publicly available other than as a result of a breach of this
Section or (y) becomes available to the Administrative Agent, the Issuing Bank,
the Lead Agents or any Lender on a nonconfidential basis from a source other
than the Borrower or (i) to any direct or indirect contractual counterparties in
swap agreements or such contractual counterparties' professional advisors,
provided that such contractual counterparty or professional advisor to such
contractual counterparty agrees in writing to keep such information confidential
to the same extent required of the Lenders hereunder. For the purposes of this
Section, "Information" means all information received from or on behalf of the
-----------
Borrower relating to the Borrower, the Subsidiaries, its business or the System,
other than any such information that is available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by
the Borrower; provided that, in the case of information received from
--------
-145-
<PAGE>
the Borrower after the date hereof, such information is clearly identified at
the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
-146-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
GLOBAL TELESYSTEMS LTD.
By:________________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH, as a Lead Agent and as
Administrative Agent
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through one or more
of its branches, agencies or affiliates, as a
Lead Agent, as Syndication Agent, as
Documentation Agent and as Issuing Bank
By:________________________________
Name:
Title:
Signature Page 1
<PAGE>
WORKING CAPITAL LENDER/LENDERS:
- ------------------------------
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS BRANCH
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
CIBC INC.
By:________________________________
Name: Louise Bell
Title: Director, CIBC Wood Gundy
Securities Corp., as Agent
Signature Page 2
<PAGE>
MANAGING AGENTS/ LENDERS:
- ------------------------
BANK OF MONTREAL
By:________________________________
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
COMMERZBANK
AKTIENGESELLSCHAFT, NEW YORK
BRANCH
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
Signature Page 3
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
Signature Page 4
<PAGE>
CO-AGENTS/LENDERS:
- -----------------
BERLINER BANK
AKTIENGESELLSCHAFT
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
CREDITANSTALT-BANKVEREIN
By:________________________________
Name:
Title:
LANDESBANK HESSEN-THURINGEN
GIROZENTRALE
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
INDUSTRIAL BANK OF JAPAN, LTD.
By:________________________________
Name:
Title:
Signature Page 5
<PAGE>
DE NATIONALE INVESTERINGS-
BANK, N.V.
By:________________________________
Name:
Title:
KZH-SOLEIL CORPORATION
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
Signature Page 6
<PAGE>
LENDERS:
- -------
BANK OF SCOTLAND
By:________________________________
Name:
Title:
BANQUE PARIBAS
By:________________________________
Name:
Title:
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By:________________________________
Name:
Title:
SOUTHERN PACIFIC THRIFT & LOAN ASSOCIATION
By:________________________________
Name:
Title:
THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH
By:________________________________
Name:
Title:
Signature Page 7
<PAGE>
THE TOYO TRUST & BANKING
COMPANY, LTD.
By:________________________________
Name:
Title:
PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:________________________________
Name:
Title:
Signature Page 8
<PAGE>
EXHIBIT 4.6
[EXECUTION COPY]
FIRST AMENDMENT AND CONSENT
TO CREDIT AGREEMENT
THIS FIRST AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this
"Amendment"), dated as of December 15, 1997, to the Existing Credit Agreement
---------
(as defined below), is made by GLOBAL TELESYSTEMS LTD., a corporation organized
and existing under the laws of Bermuda (the "Borrower"), the Lenders (such
--------
capitalized term and other capitalized terms used in this preamble and the
recitals below to have the meanings set forth in Article I) signatories hereto,
---------
DEUTSCHE BANK AG, NEW YORK BRANCH, and CANADIAN IMPERIAL BANK OF COMMERCE,
acting by and/or through one or more of its branches, agencies or affiliates
("CIBC"), as lead agents for the Lenders (in such capacity, the "Lead Agents"),
- ------ -----------
DEUTSCHE BANK AG, NEW YORK BRANCH, as administrative agent for the Lenders (in
such capacity, the "Administrative Agent"), and CIBC, as syndication agent for
--------------------
the Lenders (in such capacity, the "Syndication Agent"), documentation agent for
-----------------
the Lenders (in such capacity, the "Documentation Agent") and issuer of the
-------------------
Letters of Credit referred to herein (in such capacity, the "Issuing Bank").
------------
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Lenders, the Lead Agents, the
Administrative Agent, the Syndication Agent, the Documentation Agent and the
Issuing Bank are parties to the Credit Agreement, dated as of June 27, 1997 (as
amended, supplemented, amended and restated or otherwise modified prior to the
date hereof, the "Existing Credit Agreement", and as amended by this Amendment
-------------------------
and as the same may be further amended, supplemented, amended and restated or
otherwise modified from time to time, the "Credit Agreement");
----------------
WHEREAS, the Borrower desires to (a) make an addition to the
configuration of the System by adding a landing site in The Netherlands, (b) add
an extension to the System to connect Denmark, which extension the Borrower will
either own in part or have rights with respect to a portion of the capacity
thereon, (c) acquire and provide backhaul service in certain locations, (d)
provide interim restoration for purchasers of capacity and (e) increase its
sales staff;
WHEREAS, the parties hereto wish to modify the Existing Credit
Agreement to allow for the foregoing and related matters;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements contained herein, the parties hereto hereby covenant and agree
as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. The following terms when used in
-------------------
this Amendment shall have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the preamble.
-------------------- --------
"Amendment" is defined in the preamble.
--------- --------
"Amendment Effective Date" is defined in Article IV.
------------------------ ----------
"Borrower" is defined in the preamble.
-------- --------
"Credit Agreement" is defined in the first recital.
---------------- ----- -------
"Documentation Agent" is defined in the preamble.
------------------- --------
"Existing Credit Agreement" is defined in the first recital.
------------------------- ----- -------
"Issuing Bank" is defined in the preamble.
------------ --------
"Lead Agents" is defined in the preamble.
----------- --------
"Syndication Agent" is defined in the preamble.
----------------- --------
SECTION 1.2. Other Definitions. Terms for which meanings are
-----------------
provided in the Credit Agreement are, unless otherwise defined herein or the
context otherwise requires, used in this Amendment with such meanings.
ARTICLE II
AMENDMENTS TO CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment
Effective Date, the provisions of the Existing Credit Agreement referred to
below are hereby amended in accordance with this Article II. Except as
----------
expressly so amended, the Existing Credit Agreement shall continue in full force
and effect in accordance with its terms.
SECTION 2.1. Modification of Article I (Definitions). Article I of
---------------------------------------
the Existing Credit Agreement is hereby amended in accordance with Sections
--------
2.1.1 through 2.1.7.
- ----- -----
SECTION 2.1.1. Section 1.1 of the Existing Credit Agreement is hereby
amended by inserting the following definitions in such Section in the
appropriate alphabetical sequence:
-2-
<PAGE>
"Amendment No. 1" means the First Amendment and Consent to Credit
---------------
Agreement, dated as of December 15, 1997, to this Agreement.
"Backhaul Service" means the acquisition and disposition of capacity,
----------------
initially constituting one STM-16 backhaul circuit in the United Kingdom
and two STM-16 backhaul circuits in the United States, on inland
telecommunications systems owned or controlled by parties other than the
Borrower and its Affiliates which connect to any cable station on the
System, and activities incidental thereto, the costs of which are initially
provided for in the Capital Budget or, in the future, (i) prior to the
adoption of the first Operating Budget, additional acquisitions of such
capacity (provided that the Borrower shall have commitments from purchasers
of such capacity, as determined on a net present value basis acceptable to
the Lead Agents, in an amount at least equal to its costs for such capacity
less an amount of up to $5,000,000 in the aggregate) or (ii) thereafter,
additional acquisitions of such capacity, the costs of which are provided
for in any Operating Budget.
"Borrower's Amendment Request Letter" means the letter, dated November
-----------------------------------
4, 1997, from the Borrower to the Lenders entitled "Amendment to Senior
Credit Agreement".
"Denmark Extension" means a cable extension to the System which is to
-----------------
be used to provide direct telecommunications service to Denmark and which
shall be owned in part by the Borrower or as to which the Borrower shall
have rights to use capacity thereon, in each case subject to a perfected
security interest in favor of the Administrative Agent (it being understood
that such security interest shall relate solely to the Borrower's contract
rights with respect thereto, or if through a Subsidiary, such Subsidiary's
contract rights and bank accounts with respect thereto) and constituting
approximately a pro rata portion (based on the Borrower's investment) of
--- ----
such extension's capacity, and in which the Borrower's investment does not
exceed $3,500,000 in the aggregate, as provided for in the Capital Budget.
"Interim Restoration" means the ability to provide alternative service
-------------------
as a back-up to service on the System, all of the costs (including per diem
use fees and usage costs) of which have been provided for in the Capital
Budget, by insurance or by the purchasers of Capacity.
"Netherlands Landing Site" means the site located in The Netherlands
------------------------
where the System will land, together with all real property and other
rights and property interests associated therewith.
"Netherlands Subsidiary" means the Netherlands corporation to be
----------------------
formed by the Borrower as a direct, wholly-owned subsidiary of the Borrower
in connection with the Netherlands Landing Site.
"Tyco Guaranty" means the Guaranty, dated as of November 24, 1997,
-------------
made by Tyco International (US) Inc. in favor of the Borrower, as the same
may be amended, supplemented, amended and restated or otherwise modified
from time to time.
-3-
<PAGE>
SECTION 2.1.2. Section 1.1 of the Existing Credit Agreement is hereby
amended by amending the definition of "Guaranteed Completion Date" by deleting
the date "June 30, 1999" appearing therein and inserting in replacement therefor
the date "September 30, 1999".
SECTION 2.1.3. Section 1.1 of the Existing Credit Agreement is hereby
amended by amending the definition of "Landing Countries" by inserting a new
sentence at the end thereof as follows: "As of the effective date of Amendment
No. 1, the System is also planned to land (and the Supply Contract amendment
described in Section 3.5 of Amendment No. 1 provides for landing) in The
Netherlands.".
SECTION 2.1.4. Section 1.1 of the Existing Credit Agreement is hereby
amended by amending the definition of "Sales Threshold" by (a) deleting the
amount "$296,500,000" appearing at the end thereof and inserting in replacement
therefor the amount "$368,000,000", (b) deleting clause (a) thereof and
inserting the following in replacement therefor:
"(a) an amount equal to all cash payments received by the Borrower and its
Subsidiaries on or prior to such date (i) under Capacity Sales Agreements
entered into in accordance with Section 6.23, (ii) for providing Backhaul
------------
Service in accordance with Section 6.23, (iii) under sales arrangements
------------
entered into in accordance with Section 6.23 for the sale of capacity on
------------
the Denmark Extension, (iv) with respect to Interim Restoration and (v) in
respect of reimbursement for set up costs for Interim Restoration (the
items described in the foregoing clauses (ii) through (v) being hereinafter
referred to as the "Additional Sources of Funds"), plus",
--------------------------- ----
and (c) by adding the following words to clause (b) thereof after the reference
to Section 6.23 and before the parenthetical: "plus an amount equal to the
aggregate amount of firm commitments outstanding as of such date in respect of
Additional Sources of Funds".
SECTION 2.1.5. Section 1.1 of the Existing Credit Agreement is hereby
amended by amending the definition of "System" in its entirety to read as
follows:
"System" means the four fiber pair, fiber-optic submarine cable system
------
to be known as the Atlantic Crossing Cable System or AC-1, which is
intended to be used to provide direct telecommunications service between
and among the United States, the United Kingdom, the Federal Republic of
Germany and The Netherlands (as modified from time to time in accordance
with the terms hereof), notwithstanding the definition thereof set forth in
the second recital.
--------------
SECTION 2.1.6. Section 1.1 of the Existing Credit Agreement is hereby
amended by amending the definition of "System Activities" by inserting "and the
Denmark Extension (including the acquisition and disposition of capacity
thereon), Backhaul Service and Interim Restoration" at the end thereof before
the period.
SECTION 2.1.7. Section 1.1 of the Existing Credit Agreement is hereby
amended by amending the definition of "System Contracts" by inserting ", the
Tyco Guaranty" after the words "the Supply Contract Guaranty," appearing on the
second line thereof.
-4-
<PAGE>
SECTION 2.2. Modification of Article II (Commitments). Article II of the
----------------------------------------
Existing Credit Agreement is hereby amended in accordance with Section 2.2.1.
-------------
SECTION 2.2.1. Section 2.09(a) of the Existing Credit Agreement is hereby
amended by deleting the amount "$400,000,000" in both places where it appears
therein and inserting in replacement therefor in both such places the amount
"$472,000,000".
SECTION 2.3. Modification of Article V (Affirmative Covenants). Article V
-------------------------------------------------
of the Existing Credit Agreement is hereby amended in accordance with Section
-------
2.3.1.
- -----
SECTION 2.3.1. Section 5.12 of the Existing Credit Agreement is hereby
amended by (a) inserting ", it being understood and agreed that the proceeds of
the Term Loans may only be used to pay for up to $3,500,000 of the cost of the
Denmark Extension" at the end of the first sentence thereof, and (b) inserting
"and to make payments in connection with Backhaul Service and Interim
Restoration, and to pay certain costs relating to the Netherlands Landing Site
in accordance with the Capital Budget" at the end of the second sentence
thereof.
SECTION 2.4. Modification of Article VI (Negative Covenants). Article VI
-----------------------------------------------
of the Existing Credit Agreement is hereby amended in accordance with Sections
--------
2.4.1 through 2.4.3.
- ----- -----
SECTION 2.4.1. Section 6.04(a) of the Existing Credit Agreement is hereby
amended by inserting the following at the end thereof: ", Transfers of capacity
on the Denmark Extension, Transfers of capacity in respect of Interim
Restoration and Transfers of capacity in respect of Backhaul Service, in each
case in accordance with Section 6.23".
------------
SECTION 2.4.2. Section 6.16(e) of the Existing Credit Agreement is hereby
amended by inserting the following at the end thereof (but before the comma at
the end thereof): "(including with respect to (i), and ancillary to the
implementation of, the Netherlands Landing Site, (ii) the construction,
installation, maintenance, operation or use of, or the acquisition of rights in,
the Denmark Extension, all on terms to be reviewed by and reasonably
satisfactory to the Lead Agents, (iii) Backhaul Service and (iv) Interim
Restoration, all on terms otherwise permitted pursuant to this Agreement and
Article III of Amendment No. 1".
SECTION 2.4.3. Section 6.23 of the Existing Credit Agreement is hereby
amended by:
(a) deleting the words "dispose Capacity" appearing in the second
line thereof and inserting the following in replacement therefor: "dispose
of Capacity or capacity provided through Backhaul Service, the Denmark
Extension or Interim Restoration"; and
(b) deleting in its entirety the parenthetical appearing in clause
(b) thereof and inserting the following in replacement therefor before the
first proviso appearing therein: "(which shall include the disposition of
-------
Capacity without cash compensation in exchange for mutual restoration
agreements or for reasonably equivalently valued capacity on other
telecommunications systems, provided that no more than 20
-5-
<PAGE>
transatlantic STM-1 circuits may be so used to transfer Capacity without
cash compensation in exchange for capacity on other telecommunications
systems) or (c) with respect to capacity related to Backhaul Service, the
Denmark Extension or Interim Restoration, pursuant to other agreements or
arrangements which are on commercially reasonable terms (which may include
the disposition of capacity with respect to Backhaul Service or with
respect to the Denmark Extension without cash compensation in exchange for
mutual restoration agreements or for reasonably equivalent capacity on
other telecommunications systems)".
SECTION 2.5. Modification of Schedules and Exhibits. Certain of the
--------------------------------------
schedules and exhibits to the Existing Credit Agreement are hereby amended in
accordance with Sections 2.5.1 through 2.5.6.
-------------- -----
SECTION 2.5.1. Schedule 2.01 (Commitments) to the Existing Credit
Agreement is hereby amended and restated in its entirety to read as set forth in
Annex I hereto.
- -------
SECTION 2.5.2. Schedule 2.09 (Amortization Schedule) to the Existing
Credit Agreement is hereby amended and restated in its entirety to read as set
forth in Annex II hereto.
--------
SECTION 2.5.3. Schedule 3.05(a) (Borrower Capital Structure) to the
Existing Credit Agreement is hereby amended and restated in its entirety to read
as set forth in Annex III hereto.
---------
SECTION 2.5.4. Schedule 3.05(b) (Subsidiaries) to the Existing Credit
Agreement is hereby amended and restated in its entirety to read as set forth in
Annex IV hereto.
- --------
SECTION 2.5.5. Schedule 3.17 (Collateral Filings) to the Existing Credit
Agreement is hereby amended and restated in its entirety to read as set forth in
Annex V hereto.
- -------
SECTION 2.5.6. Exhibit L (Form of Pre-approved Capacity Sales Agreement)
to the Existing Credit Agreement is hereby amended and restated in its entirety
to read as set forth in Annex VI hereto.
--------
ARTICLE III
CONSENTS
Effective on (and subject to the occurrence of) the Amendment Effective
Date, consents regarding certain provisions of the Existing Credit Agreement
referred to below are hereby granted by the Majority Lenders in accordance with
this Article III.
-----------
SECTION 3.1. Section 2.05(c) Consent. The Majority Lenders hereby consent
-----------------------
to the extension of the expiration date of the Contingency Letter of Credit due
to the extension of the Guaranteed Completion Date.
-6-
<PAGE>
SECTION 3.2. Section 5.28 Consent. The Majority Lenders hereby consent
--------------------
that, notwithstanding the terms of Section 5.28 of the Existing Credit
Agreement, the Borrower's obligations with respect to the Netherlands Subsidiary
and the Netherlands Subsidiary's obligations shall be as set forth in Section
-------
7.1 of this Amendment.
- ---
SECTION 3.3. Section 6.01 Consent. The Majority Lenders hereby consent to
--------------------
the additional Indebtedness incurred under the Loan Documents by reason of the
amendment to Schedule 2.01 to the Existing Credit Agreement effected by Section
------------- -------
2.5.1 of this Amendment.
- -----
SECTION 3.4. Section 6.07 Consent. The Majority Lenders hereby consent to
--------------------
the amendment of the OA&M Agreement set forth in Annex VII.
---------
SECTION 3.5. Section 6.08 Consent. The Majority Lenders hereby consent to
--------------------
the amendment to the Supply Contract set forth in Annex VIII, including for
----------
purposes of Section 6.08(a)(ii) and Section 6.08(b)(i)(A) of the Existing Credit
Agreement.
SECTION 3.6. Section 6.09 Consent. The Majority Lenders hereby consent to
--------------------
the addition of The Netherlands as an additional Landing Country, the costs of
which are being financed with Loans provided for in the Credit Agreement, and to
the Denmark Extension, all on terms otherwise permitted under this Amendment.
SECTION 3.7. Section 6.19(c) Consent. The Majority Lenders hereby consent
-----------------------
to the creation of the Netherlands Subsidiary for the purposes and on the terms
set forth in this Amendment and the Credit Agreement.
SECTION 3.8. Section 6.21 Consent. The Majority Lenders hereby consent to
--------------------
the modifications to the Capital Budget effected by the revised Capital Budget
attached hereto as Annex IX, and further consent that the term "Capital Budget"
--------
shall hereafter mean such Capital Budget, as the same may be amended or
otherwise modified in accordance with Section 6.21 of the Credit Agreement.
SECTION 3.9. System Upgrade Consent. The Majority Lenders hereby consent
----------------------
to the upgrade of the United States to Germany Segment of the System in order to
terminate service in Germany at the full four-fiber pair with Capacity of 10
Gb/s per fiber pair in accordance with the Capital Budget and the Supply
Contract.
SECTION 3.10. Unisource Parties Consent. The Majority Lenders hereby
-------------------------
consent to each of PTT Telecom BV, Swiss Confederation, acting through Swisscom,
and Telia AB as an acceptable obligor under a Capacity Sales Agreement
regardless of its long-term debt rating for purposes of determining the Sales
Threshold in accordance with the definition thereof.
-7-
<PAGE>
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the date first above
written upon satisfaction of each of the conditions precedent set forth in this
Article IV to the satisfaction of the Administrative Agent (the first date as of
- ----------
which each such condition has been satisfied being herein called the "Amendment
---------
Effective Date").
- --------------
SECTION 4.1. Compliance with Warranties. The representations and
--------------------------
warranties set forth in Article VI hereof shall be true and correct in all
----------
material respects.
SECTION 4.2. Counterparts. The Lead Agents shall have received (a)
------------
counterparts hereof executed on behalf of the Borrower, each other Obligor party
hereto, the Majority Lenders and each Lender whose Commitment has increased (as
reflected on amended Schedule 2.01 attached hereto) and (b) counterparts of the
Fee Letter, dated as of the date hereof, duly executed by the Borrower and the
Administrative Agent (the "Fee Letter").
----------
SECTION 4.3. Fees and Expenses. The Administrative Agent shall have
-----------------
received (a) for the benefit of the Lead Agents and all Lenders, all fees agreed
to in the Fee Letter and (b) all expenses due and payable pursuant to Section
-------
10.5 (to the extent then invoiced) and pursuant to the Existing Credit Agreement
- ----
(including all previously invoiced fees and expenses).
SECTION 4.4. Authorization; Legal Opinions, etc. The Administrative
----------------------------------
Agent shall have received (a) certified resolutions from the Borrower duly
authorizing this Amendment and all related documentation, (b) customary
favorable legal opinions from U.S. and Bermuda counsel to the Borrower and
counsel to the Contractor with respect to the matters contemplated by this
Amendment and such amendments, respectively, all reasonably satisfactory to the
Administrative Agent, and (c) a certificate from an authorized officer of the
Borrower setting forth that (i) all representations and warranties made in this
Amendment are true and correct in all material respects as if made on the date
thereof, (ii) no defaults have occurred and are continuing, (iii) there are no
regulatory restrictions prohibiting the contemplated activities and (iv) there
has been no material adverse change in the matters set forth in the Borrower's
Amendment Request Letter (excluding any financial projections and other
estimates or views of future circumstances), as updated in writing by the
Borrower under its letter, dated December 9, 1997, taken as a whole.
SECTION 4.5. Filings, etc. The Administrative Agent shall have
------------
received, in form suitable for filing and reasonably satisfactory to the
Administrative Agent, all filings and other documentation (including as may be
required under Bermuda law) necessary to ensure that all Indebtedness permitted
to be incurred under the Credit Agreement (including the additional Indebtedness
permitted to be incurred in accordance with Section 3.3 of this Amendment) shall
-----------
be appropriately secured and perfected as required by the terms of the Credit
Agreement.
SECTION 4.6. Permits, etc. Schedule 3.08 (Governmental Actions) to
------------
the Existing Credit Agreement shall be updated with respect to the Netherlands
Landing Site and other
-8-
<PAGE>
permits that may be required in connection with the transactions contemplated by
this Amendment in a manner reasonably satisfactory to the Independent Engineer
and the Lead Agents.
SECTION 4.7. Tyco Guaranty. The Administrative Agent shall have
-------------
received a guaranty from Tyco International (US) Inc. ("Tyco International") in
------------------
the form of Annex X, duly executed and delivered by Tyco International and duly
-------
acknowledged by the Contractor in the location set forth thereon, together with
certified resolutions of Tyco International authorizing such guaranty and a
favorable legal opinion of counsel to Tyco International reasonably satisfactory
to the Lead Agents.
SECTION 4.8. Legal Details, etc. All documents executed or submitted
------------------
pursuant hereto shall be reasonably satisfactory in form and substance to the
Administrative Agent and its counsel. The Administrative Agent and its counsel
shall have received all information and such counterpart originals or such
certified or other copies or such materials, as the Administrative Agent or its
counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment shall be satisfactory to the
Administrative Agent and its counsel.
ARTICLE V
CONDITIONS TO DRAW ON TERM LOANS
FOR NETHERLANDS LANDING SITE COSTS
SECTION 5.1. Additional Conditions Precedent. In addition to the
-------------------------------
conditions precedent set forth in Section 4.02 of the Credit Agreement, it shall
also be a condition precedent to the draw of any Term Loan for the purpose of
providing financing for any costs associated with the Netherlands Landing Site
that the Administrative Agent shall have received executed copies of signed,
enforceable Capacity Sales Agreements that are represented and warranted by the
Borrower to be in full force and effect with the Unisource parties referred to
in the Borrower's Amendment Request Letter for an amount totaling at least
$82,000,000.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. Representations and Warranties. In order to induce the
------------------------------
Lenders, the Issuing Bank and the Agents to enter into this Amendment, the
Borrower hereby reaffirms, as of the Amendment Effective Date, that each of its
representations and warranties contained in the Credit Agreement and each other
Loan Document are true and correct in all material respects as of the Amendment
Effective Date (unless any such representation or warranty relates solely to an
earlier date, in which case it shall have been true and correct in all material
respects as of such earlier date, except that for these purposes, the references
to the term "Closing Date" in Sections 3.17 and 3.18 of the Credit Agreement
shall be deemed to be
-9-
<PAGE>
references to the Amendment Effective Date) and additionally represents and
warrants unto the Lenders, the Issuing Bank and the Agents as set forth in this
Article VI.
- ----------
SECTION 6.2. Validity, etc. This Amendment constitutes the legal,
--------------
valid and binding obligation of the Borrower and each other Obligor party
hereto, enforceable in accordance with its terms subject to the effect of any
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally.
SECTION 6.3. No Default. No Default or Event of Default has occurred
----------
and is continuing, and neither the Borrower nor any other Obligor is in
violation of (or, after giving effect to the activities contemplated by this
Amendment, will be in violation of) any law or Governmental Action.
SECTION 6.4. True Copies. Attached hereto are true and complete
-----------
copies of (a) the amendment to the Supply Contract and the amendment to the OA&M
Agreement dealing with the activities contemplated by this Amendment, and no
other amendments or other modifications to such agreements have been executed as
of the Amendment Effective Date, and (b) the new Capital Budget and updated
projections.
SECTION 6.5. Disclosure. The Borrower's Amendment Request Letter
----------
(excluding any financial projections and other estimates or views of future
circumstances), as updated in writing by the Borrower under its letter, dated
December 9, 1997, taken as a whole, does not contain, as of December 9, 1997,
any untrue statements of material fact and does not omit to state, as of the
Amendment Effective Date, any material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not materially misleading. The costs set forth in the Capital Budget
attached hereto reflect, as of the Amendment Effective Date, the Borrower's best
estimates of all costs necessary for the construction, installation and
financing of the System. The updated projections delivered by the Borrower to
the Lenders have been prepared in good faith and have been based on assumptions
which were reasonable at the time prepared.
ARTICLE VII
COVENANTS
SECTION 7.1. Covenants. In order to induce the Lenders, the Issuing
---------
Bank, the Administrative Agent and the Lead Agents to enter into this Amendment,
the Borrower covenants and agrees that within the earlier of (a) 120 days after
the Amendment Effective Date and (b) 90 days after the date of formation of the
Netherlands Subsidiary (or such longer periods, if any, to which the Lead Agents
may agree in writing), the Borrower shall (i) execute and deliver a supplement
to the Borrower Pledge Agreement and/or an appropriate Foreign Subsidiary Pledge
Supplement for the purpose of pledging to the Administrative Agent for each of
the Lender Parties all of its interests in the Netherlands Subsidiary, all on
terms reasonably satisfactory to the Lead Agents, (ii) cause the Netherlands
Subsidiary to grant to the Administrative Agent (or the Borrower, if a grant in
favor of the Administrative Agent is prohibited under local law or if the Lead
Agents otherwise agree in writing) a first priority, perfected lien on any of
the Netherlands Subsidiary's bank accounts and (iii) duly file
-10-
<PAGE>
for the issuance of any Landing License, if required, in respect of the
Netherlands Landing Site.
ARTICLE VIII
AFFIRMATION AND CONSENT OF OBLIGORS
SECTION 8.1. Affirmation and Consent. In order to induce the
-----------------------
Lenders, the Issuing Bank, the Administrative Agent and the Lead Agents to enter
into this Amendment, each of the undersigned Obligors (other than the Borrower)
hereby (a) acknowledges, consents and agrees to the terms and conditions set
forth in this Amendment; (b) reaffirms, as of the Amendment Effective Date, (i)
the covenants and agreements contained in each Loan Document to which it is a
party, including, in each case, as such covenants and agreements may be modified
by the transactions contemplated hereby, and (ii) its guarantee of payment of
the Obligations pursuant to the Subsidiary Guaranty (if applicable); (c)
certifies that, as of the date hereof (both before and after giving effect to
the occurrence of the Amendment Effective Date), the representations and
warranties made by it contained in the Loan Documents to which it is a party are
true and correct in all material respects with the same effect as if made on the
date hereof, except to the extent any such representation or warranty refers or
pertains solely to a date prior to the date hereof (in which case such
representation and warranty was true and correct in all material respects as of
such earlier date); (d) confirms that each Loan Document to which it is a party
is and shall continue to be in full force and effect and the same are hereby
ratified and confirmed in all respects, except that upon the occurrence of the
Amendment Effective Date, all references in such Loan Documents to the "Credit
Agreement", "Loan Documents", "thereunder", "thereof", or words of similar
import shall mean the Credit Agreement and the Loan Documents, as the case may
be, in each case after giving effect to the amendments and other modifications
provided for herein.
Each of the undersigned Obligors (other than the Borrower) hereby
acknowledges and agrees that the acceptance by the Lenders, the Issuing Bank,
the Administrative Agent and the Lead Agents of this Amendment shall not be
construed in any manner to establish any course of dealing on any such Person's
part, including the providing of any notice or the requesting of any
acknowledgment not otherwise expressly provided for in any Loan Document with
respect to any future amendment, waiver, supplement or other modification to any
Loan Document or any arrangement contemplated by any Loan Document.
ARTICLE IX
RIGHT OF QUIET ENJOYMENT
SECTION 9.1. Right of Quiet Enjoyment. The Administrative Agent and
------------------------
each Lender agrees, for the benefit of each Person not an Affiliate of the
Borrower now or hereafter acquiring rights from the Borrower or any of its
Subsidiaries in any Capacity or in any capacity in any inland system pursuant to
a Capacity Sales Agreement, indefeasible right of use agreement, any inland
capacity purchase agreement or otherwise in accordance with
-11-
<PAGE>
Section 6.23 of the Credit Agreement (a "Capacity Purchaser"), that,
------------------
notwithstanding any other provision hereof or any other Loan Document, so long
as no event has occurred and is continuing under such agreement which entitles
the "Grantor" thereunder to suspend service for such person, the Administrative
Agent and such Lender will not take or cause to be taken any action to interfere
with such person's right to quiet enjoyment and use of the rights granted to
such person in accordance with the terms of such agreement. The Administrative
Agent agrees to provide, and the Lenders hereby authorize it to provide, at the
written request of the Borrower, a written confirmation of the foregoing for the
benefit of such Capacity Purchasers.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Cross References. References in this Amendment to any
----------------
article or section are, unless otherwise specified, to such article or section
of this Amendment.
SECTION 10.2. Loan Document Pursuant to Credit Agreement. This
------------------------------------------
Amendment is a Loan Document executed pursuant to the Existing Credit Agreement
and shall be construed, administered and applied in accordance with all of the
terms and provisions of the Existing Credit Agreement.
SECTION 10.3. Successors and Assigns. This Amendment shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
SECTION 10.4. Counterparts. This Amendment may be executed by the
------------
parties hereto in several counterparts, all of which shall be deemed to be an
original and which shall constitute together but one and the same agreement.
SECTION 10.5. Expenses. The Borrower hereby agrees to pay to or
--------
reimburse the Administrative Agent and the Lead Agents, upon demand, all of
their reasonable expenses in connection with the development, negotiation,
preparation, syndication, execution and closing of this Amendment, including all
reasonable fees and other charges of Mayer, Brown & Platt in connection
therewith.
SECTION 10.6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 10.7. Event of Default. It is understood and agreed that any
----------------
breach of Section 7.1 hereof shall constitute an immediate Event of Default.
-----------
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers hereunder duly authorized as of the
date and year first above written.
GLOBAL TELESYSTEMS LTD.
By:________________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH, as a Lead Agent and as
Administrative Agent
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through one or more
of its branches, agencies or affiliates,
as a Lead Agent, as Syndication Agent,
as Documentation Agent and as Issuing Bank
By:________________________________
Name:
Title:
<PAGE>
GT LANDING CORP.
By:________________________________
Name:
Title:
GT U.K. LTD.
By:________________________________
Name:
Title:
<PAGE>
CIBC INC.
By:________________________________
Name: Louise Bell
Title: Director, CIBC Oppenheimer Corp.,
as Agent
<PAGE>
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS BRANCH
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
BERLINER BANK
AKTIENGESELLSCHAFT
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
BANK OF MONTREAL
By:________________________________
Name:
Title:
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
LANDESBANK HESSEN-THURINGEN GIROZENTRALE
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
INDUSTRIAL BANK OF JAPAN, LTD.
By:________________________________
Name:
Title:
<PAGE>
METROPOLITAN LIFE INSURANCE
COMPANY
By:________________________________
Name:
Title:
<PAGE>
KZH-SOLEIL CORPORATION
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
NATIONAL CITY BANK
By:________________________________
Name:
Title:
<PAGE>
BANK OF SCOTLAND
By:________________________________
Name:
Title:
<PAGE>
CREDITANSTALT-BANKVEREIN
By:________________________________
Name:
Title:
<PAGE>
DE NATIONALE INVESTERINGS-
BANK, N.V.
By:________________________________
Name:
Title:
<PAGE>
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By:________________________________
Name:
Title:
<PAGE>
SOUTHERN PACIFIC BANK
By:________________________________
Name:
Title:
<PAGE>
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH
By:________________________________
Name:
Title:
<PAGE>
THE TOYO TRUST & BANKING
COMPANY, LTD.
By:________________________________
Name:
Title:
<PAGE>
PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:________________________________
Name:
Title:
<PAGE>
GULF INTERNATIONAL BANK B.S.C.
By:________________________________
Name:
Title:
<PAGE>
KZH HOLDING CORPORATION III
By:________________________________
Name:
Title:
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
BANK BRUSSELS LAMBERT, NEW
YORK BRANCH
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
<PAGE>
ANNEX I
-------
SCHEDULE 2.01 (COMMITMENTS)
---------------------------
<PAGE>
ANNEX II
--------
SCHEDULE 2.09 (AMORTIZATION SCHEDULE)
-------------------------------------
<PAGE>
ANNEX III
---------
SCHEDULE 3.05(a) (BORROWER CAPITAL STRUCTURE)
---------------------------------------------
<PAGE>
ANNEX IV
--------
SCHEDULE 3.05(b) (SUBSIDIARIES)
-------------------------------
<PAGE>
ANNEX V
-------
SCHEDULE 3.17 (COLLATERAL FILINGS)
----------------------------------
<PAGE>
ANNEX VI
--------
EXHIBIT L (FORM OF PRE-APPROVED CAPACITY SALES AGREEMENT)
---------------------------------------------------------
<PAGE>
ANNEX VII
---------
OA&M AGREEMENT AMENDMENT
------------------------
<PAGE>
ANNEX VIII
----------
SUPPLY CONTRACT AMENDMENT
-------------------------
<PAGE>
ANNEX IX
--------
CAPITAL BUDGET
--------------
<PAGE>
ANNEX X
-------
TYCO INTERNATIONAL GUARANTY
---------------------------
<PAGE>
EXHIBIT 4.7
================================================================================
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
dated as of
July 2, 1998
by and between
GCT PACIFIC HOLDINGS, LTD.,
SCS (BERMUDA) LTD.,
MARUBENI PACIFIC CABLE LIMITED
and
PACIFIC CROSSING LTD.
Pacific Crossing Fiber-Optic Submarine Cable System
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITIONS......................... 1
Section 1.1 Definitions............................................. 1
Section 1.2 Other Definitional Provisions........................... 9
ARTICLE II - ORGANIZATION AND CAPITALIZATION............... 10
Section 2.1 Formation of the Company................................ 10
Section 2.2 Name.................................................... 10
Section 2.3 Purpose................................................. 10
Section 2.4 Principal Place of Business; Registered Office.......... 10
Section 2.5 Share Capital........................................... 10
Section 2.6 Share Register.......................................... 10
Section 2.7 Budgeted Capital Contributions.......................... 11
Section 2.8 New Capital............................................. 11
Section 2.9 Use of Capital.......................................... 13
Section 2.10 Distribution Policy..................................... 13
ARTICLE III - MANAGEMENT AND ADMINISTRATION............... 13
Section 3.1 Board of Directors of the Company....................... 13
Section 3.2 Requirements for Board Action........................... 15
Section 3.3 Officers................................................ 17
Section 3.4 Shareholders' Meetings.................................. 18
Section 3.5 Accounting, Record Keeping and Reporting................ 20
Section 3.6 Business Plans.......................................... 21
Section 3.7 Budgets................................................. 21
Section 3.8 Deposits and Withdrawals of Funds....................... 22
ARTICLE IV - CERTAIN BUSINESS ARRANGEMENTS................ 22
Section 4.1 Contracts for Services with Affiliates.................. 22
ARTICLE V - TAX MATTERS......................... 22
Section 5.1 Tax Matters............................................. 22
Section 5.2 Partnership Election.................................... 23
Section 5.3 Capital Accounts; Book Allocations...................... 23
Section 5.4 Tax Allocations......................................... 23
Section 5.5 Income Tax Information.................................. 24
- i -
<PAGE>
Page
----
ARTICLE VI -
[Intentionally omitted.]...................... 24
ARTICLE VII - TRANSFER AND ASSIGNMENT............... 24
Section 7.1 Transfer of Securities.................................... 24
Section 7.2 Right of First Refusal.................................... 25
Section 7.3 Tag-Along Rights.......................................... 27
Section 7.4 Drag-Along Rights......................................... 28
Section 7.5 Involuntary Transfers..................................... 30
Section 7.6 Liability of Transferor................................... 30
Section 7.7 Prohibited Transfers...................................... 30
Section 7.8 Expenses in Connection With Transfers..................... 31
Section 7.9 Exit Rights of SCS........................................ 31
ARTICLE VIII - REPRESENTATIONS, WARRANTIES AND COVENANTS..... 31
Section 8.1 Representations and Warranties............................. 31
Section 8.2 Covenants.................................................. 32
ARTICLE IX - IPG............................... 33
Section 9.1 Constitution............................................. 33
Section 9.2 Function................................................. 33
Section 9.3 Counsel.................................................. 33
ARTICLE X - CONFIDENTIALITY.................... 33
Section 10.1 Confidentiality...................................... 33
ARTICLE XI - DEFAULTS AND REMEDIES................. 34
Section 11.1 Defaults.................................................. 34
Section 11.2 Actions Upon Default...................................... 35
Section 11.3 Option of Non-Defaulting Shareholders to Purchase Shares.. 36
Section 11.4 Other Remedies............................................ 37
ARTICLE XII - DEADLOCK....................... 37
Section 12.1 Deadlock.................................................. 37
- ii -
<PAGE>
Page
----
ARTICLE XIII - TERMINATION AND DISSOLUTION.............................. 37
Section 13.1 Termination............................................... 37
Section 13.2 Winding-up................................................ 37
ARTICLE XIV - MISCELLANEOUS.................... 38
Section 14.1 After-Acquired Shares.................................... 38
Section 14.2 Rights of Transferees; Requirement to Become a Party..... 38
Section 14.3 Owner of Shares.......................................... 38
Section 14.4 Effect of Ceasing to Own An Interest..................... 38
Section 14.5 Conflict of Terms........................................ 39
Section 14.6 Legend................................................... 39
Section 14.7 Notices.................................................. 39
Section 14.8 Applicable Law; Forum Selection.......................... 39
Section 14.9 Arbitration.............................................. 40
Section 14.10 Amendment................................................ 40
Section 14.11 Assignment............................................... 40
Section 14.12 Expenses................................................. 40
Section 14.13 Specific Enforcement..................................... 40
Section 14.14 Headings................................................. 40
Section 14.15 Entire Agreement......................................... 40
Section 14.16 Waivers.................................................. 41
Section 14.17 Severability............................................. 41
Section 14.18 No Third Party Beneficiaries............................. 41
Section 14.19 Public Statements........................................ 41
Section 14.20 $........................................................ 41
Section 14.21 Execution in Counterparts................................ 41
- iii -
<PAGE>
Schedule 1: Subscription of Shares; Percentage Interest
Schedule 2: Capital Commitments
Schedule 3: Addresses for Notices
Exhibit A: Bye-Laws and Memorandum of Association
Exhibit B: Preliminary Construction Budget (to be agreed)
Exhibit C: Supply Contract
Exhibit D: Sales Agency Agreement
Exhibit E-1: O&M Agreement (Wet Plant) (to be agreed)
Exhibit E-2: O&M Agreement (Dry Plant) (to be agreed)
Exhibit F: Customer Care and NOC Services Agreement (to be agreed)
Exhibit G: Form of Capacity Purchase Agreement (to be agreed)
Exhibit H: Financial Services Agreement
Exhibit I: Form of Backhaul Purchase Agreement (to be agreed)
- iv -
<PAGE>
AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT, dated as of July 2,
1998 (as further amended, supplemented or otherwise modified from time to time,
this "Agreement"), by and among (i) GCT PACIFIC HOLDINGS, LTD. ("GCT"), a
company organized under the laws of Bermuda (ii) SCS (BERMUDA) LTD. ("SCS"), a
corporation organized under the laws of Bermuda (iii) MARUBENI PACIFIC CABLE
LIMITED, a company organized under the laws of Bermuda ("Marubeni") and (iv)
PACIFIC CROSSING LTD., a company organized under the laws of Bermuda (the
"Company") amends, restates and supersedes in its entirety that certain
Shareholders Agreement, dated as of April 9, 1998, by and among the Company,
GCT, SCS, Marubeni and Marubeni Corporation, a corporation organized under the
laws of Japan (the "Original Shareholders Agreement").
W I T N E S S E T H:
-------------------
WHEREAS, in connection with the establishment of the Company and the
parties' desire to plan and develop together the ownership and operation of a
subsea fiber optic ring cable system to be named "Pacific Crossing" or "PC-1"
connecting Japan and the United States (the "System"), each of the Shareholders
desires to enter into this Agreement in order to set forth certain
understandings regarding the Shareholders' relationship with the Company and
each other;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements hereinafter set forth, which the parties hereto
agree is good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto, intending to be legally bound, do
hereby agree as follows:
ARTICLE I - DEFINITIONS
Section 1.1 Definitions. As used herein, the following terms shall
-----------
have the following meanings:
"Additional Shares" shall have the meaning set forth in Section
7.3(d).
"Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly through one or more intermediaries controls,
is controlled by or is under common control with, such Person; provided
that the Company shall not be treated as an Affiliate of any wholly-owned
Subsidiary of the Company. For purposes of this Agreement, the term
"control" (and the derivative terms "controlling" and "controlled") shall
mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
<PAGE>
2
"Agreement" shall mean this Amended and Restated Shareholders
Agreement, as further amended, supplemented or otherwise modified from time
to time in accordance with the terms hereof.
"Alternative Offer" shall have the meaning set forth in Section
13.2(b).
"Auction Bank" shall have the meaning set forth in Section 13.2(b).
"Backhaul Purchase Agreement" shall mean each Backhaul Purchase
Agreement, substantially in the form of Exhibit I (or such other form as
may be agreed by a Principal Executive Officer of the Company and, if such
form exceeds the discretion given to such Principal Executive Officer by
the Board of Directors, the Board of Directors), providing for the
acquisition by the Company of backhaul or other terrestrial capacity to be
connected to the System.
"Board of Directors" shall have the meaning set forth in Section 3.1.
"Budgeted Capital Contribution" shall mean, with respect to any
Shareholder, any contribution by such Shareholder to the Company in
accordance with the terms of Section 2.7.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in Bermuda or the State of New York are
authorized or obligated by law or executive order to close.
"Business Plan" shall mean, initially, the business plan for the
Company during the Construction Period to be developed by its Chief
Executive Officer after the closing of the Construction Financing and,
thereafter, each subsequent business plan to be developed on an annual
basis during the Operating Period, in each case as adopted pursuant to the
procedures described in Section 3.6.
"Capacity" shall mean telecommunications capacity on the System.
"Capacity Purchase Agreement" shall mean each Capacity Purchase
Agreement, substantially in the form of Exhibit G (or such other form as
may be agreed by a Principal Executive Officer of the Company and, if such
form exceeds the discretion given to such Principal Executive Officer by
the Board of Directors, the Board of Directors), providing for the sale,
lease or other disposition of Capacity, as each may be amended,
supplemented or otherwise modified from time to time.
"Capital Call" shall mean any request by the Company that the
Shareholders make a Budgeted Capital Contribution to the Company pursuant
to Section 2.7.
"Capital Call Date" shall mean each Business Day on which the
Shareholders are requested by the Company to make a Budgeted Capital
Contribution to the Company, which Business Day (a) shall be specified by
the Company in a Capital Call Notice delivered by the Company to each of
the Shareholders and (b) shall be no less than 15 days from the date of
delivery of such Capital Call Notice by the Company.
<PAGE>
3
"Capital Call Notice" shall mean a written notice requesting that Capital
Contributions be made by the Shareholders to the Company, which notice
shall (a) be delivered by the Company to each Shareholder, (b) call for
contributions to the Company by the Shareholders of all or a portion of
their Budgeted Capital Contributions, (c) specify the Capital Call Date on
which such Capital Contributions are to be made and (d) specify the account
of the Company to which the Capital Contributions should be made available,
all in accordance with Section 2.7.
"Capital Commitment" shall have the meaning set forth in Section 2.7.
"Capital Contribution" shall mean, with respect to any Shareholder,
any contribution by such Shareholder to the Company in accordance with the
terms of Section 2.7 or Section 2.8.
"Capital Expenditure" shall mean for any period, with respect to the
Company, any expenditure (other than any expenditure made pursuant to the
Supply Contract) by the Company or any subsidiary thereof for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital
assets or additions to equipment (including replacements, capitalized
repairs and improvements during such period) which should be capitalized
under US GAAP on a consolidated balance sheet of the Company and any
subsidiaries thereof.
"Carrier" shall mean any telecommunications common carrier or any
Affiliate thereof.
"Chairman of the Board" shall have the meaning set forth in Section
3.1.
"Chief Executive Officer" shall mean the officer appointed by the
Board of Directors holding such title, or if no officer holds such title,
the President of the Company.
"Common Shares" means common shares of the Company.
"Company Election Notice" shall have the meaning set forth in Section
7.2(a).
"Company Sale" shall have the meaning set forth in Section 13.2(a).
"Construction Budget" shall mean the construction budget setting forth
all costs related to the design, development, engineering, financing,
acquisition, landing, completion, construction, installation and start-up
of the System and adopted pursuant to the procedures described in Section
3.7.
"Construction Completion Date" shall mean the date on which the
construction of the System has been completed in accordance with the terms
of the Supply Contract and the System has become operational and ready for
commercial service.
"Construction Costs" shall mean all costs related to the design,
development, engineering, financing, acquisition, installation,
construction, landing, completion, testing and start-up of the System set
forth in the Construction Budget.
<PAGE>
4
"Construction Financing" shall mean all third party financing incurred
by the Company or any of its subsidiaries to pay Construction Costs,
including all commercial bank financing, vendor financing and issuances of
debt and equity securities by the Company or any subsidiary of the Company
for such purpose, including any refinancing thereof, but excluding the
Capital Contributions.
"Customer Care and NOC Services Agreement" shall mean the Customer
Care and NOC Services Agreement to be entered into between Global Crossing
Development Holdings, Ltd. and the Company, substantially in the form of
Exhibit F, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the terms hereof and of the
Construction Financing.
"Default Notice" shall have the meaning set forth in Section 11.1.
"Defaulting Shareholder" means, as of any date of determination, any
Shareholder as to which an Event of Default shall have occurred and be
continuing.
"Director" shall mean any Person duly elected to the Board of
Directors pursuant to Section 3.1.
"Dollars" and "$" shall mean the lawful currency of the United States
of America.
"Drag-Along Notice" shall have the meaning set forth in Section
7.4(b).
"Drag-Along Notice Date" shall have the meaning set forth in Section
7.4(b).
"Drag-Along Sale" shall have the meaning set forth in Section 7.4(a).
"Drag-Along Sale Date" shall have the meaning set forth in Section
7.4(b).
"Effective Date" shall have the meaning set forth in Section 6.1.
"Event of Default" shall have the meaning set forth in Section 11.1.
"Failed Shareholder Meeting" shall have the meaning set forth in
Section 3.4(d).
"Financial Services Agreement" shall mean the Financial Services
Agreement to be entered into between Global Crossing Development Co. and
the Company, substantially in the form of Exhibit H, as the same may be
amended, supplemented or otherwise modified from time to time in accordance
with the terms hereof.
"Fiscal Quarter" shall mean each fiscal quarter comprising a portion
of any Fiscal Year.
"Fiscal Year" shall mean the accounting year of the Company commencing
each year on January 1 and ending on the following December 31, or such
other accounting year as the
<PAGE>
5
Company may from time to time adopt. The Fiscal Year may differ from the
Company's taxable year.
"Fully Subscribed Shareholder" shall have the meaning set forth in
Section 2.8(e).
"Further Capital Notice" shall have the meaning set forth in Section
2.8(e).
"Independent Accountants" shall mean Arthur Andersen or such other
accounting firm as may be selected by the Board of Directors.
"Initial Configuration" shall mean the configuration of the System
contemplated pursuant to the Supply Agreement, prior to any amendment or
supplement thereto.
"Initiating Shareholders" shall have the meaning set forth in Section
7.4(a).
"Intercompany Agreement" shall mean any agreement executed by the
Company or a Subsidiary of the Company (i) to which a Shareholder, any
Affiliate thereof or any Related Party thereto is also a party or (ii) in
which a Shareholder, any Affiliate thereof or any Related Party thereto has
a substantial financial interest.
"Interest" or "Percentage Interest" shall mean, with respect to each
Shareholder, its percentage interest in the Company set forth next to its
name on Schedule 1, so long as each Shareholder pays its Subscription
Price, makes its Budgeted Capital Contributions in accordance with Section
2.7 and makes its pro rata portion of any contributions of New Capital in
the form of additional equity in accordance with Section 2.8; to the extent
there are new Shareholders, then, with respect to any Shareholder, it shall
mean the percentage that results from dividing the total value of such
individual Shareholder's capital and other contributions by the aggregate
value of all the Shareholders' capital and other contributions, as agreed
between the Shareholders.
"Involuntary Transfer Notice" shall have the meaning set forth in
Section 7.5.
"IPG" shall mean have the meaning set forth in the JV Agreement.
"IPO" shall have the meaning set forth in Section 7.2(f).
"JV Agreement" shall mean the Agreement to form Joint Venture, dated
as of February 15, 1998, among Global Crossing, Tyco International, Ltd.,
KDD Submarine Cable Systems, Inc. and Marubeni Corporation.
"New Capital" shall have the meaning set forth in Section 2.8(a).
"New Capital Notice" shall have the meaning set forth in Section
2.8(c).
"Notice" shall have the meaning set forth in Section 7.2(a).
"Notice Date" shall have the meaning set forth in Section 7.3(c).
<PAGE>
6
"O&M Agreements" shall mean the collective reference to each agreement
providing for the operation and maintenance of the wet plant and dry plant
portions of the System, substantially in the form of Exhibit E-1 and E-2,
respectively, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms hereof and of the
Construction Financing.
"Offeree" shall have the meaning set forth in Section 7.2(a).
"Offeree Election Notice" shall have the meaning set forth in Section
7.2(b).
"Offeree Election Number" shall have the meaning set forth in Section
7.2(b).
"Offered Shares" shall have the meaning set forth in Section 7.2(a).
"Offeror" shall have the meaning set forth in Section 7.2(a).
"Operating Budget" shall mean, for each Operating Year, the operating
budget setting forth all operating costs of the Company for such Operating
Year and adopted pursuant to the procedures described in Section 3.7.
"Operating Period" shall mean the period commencing on the initial
date of commercial operation of the System and ending on the date the
System is taken out of service.
"Operating Quarter" shall mean (a) initially, the period beginning on
the initial date of commercial operation of the System and ending on the
last day of the first full fiscal quarter following such initial date and
(b) thereafter, each fiscal quarter comprising a portion of any Operating
Year.
"Operating Year" shall mean (a) initially, the period beginning on the
initial date of commercial operation of the System and ending on the next
December 31 and (b) thereafter, each ensuing calendar year.
"Other Holders" shall have the meaning set forth in Section 7.3(a).
"Permitted Transferee" shall have the meaning set forth in Section
7.1(b).
"Person" shall mean any individual, partnership, joint venture,
corporation, limited liability company, limited duration company, limited
life company, association, trust or other enterprise or a government,
including any agency thereof.
"Preliminary Construction Budget" shall mean the Preliminary
Construction Budget, in the form of Exhibit B, setting forth the estimated
costs of construction, installation and start-up of the System, including
all legal, interest and other financing costs.
"Principal Executive Officer" shall mean the Chief Executive Officer,
the Chief Financial Officer and the Senior Vice President (or the
equivalent thereof).
<PAGE>
7
"Pro Rata Share" shall have the meaning set forth in Section 7.2(b).
"Proposed Operating Budget" shall have the meaning set forth in
Section 3.7(b).
"Purchase Notice" shall have the meaning set forth in Section 7.2(b).
"Recalled Shareholder Meeting" shall have the meaning set forth in
Section 3.4(d).
"Register" shall have the meaning set forth in Section 2.6(a).
"Related Party" means, with respect to any Shareholder (i) any
Affiliate of such Shareholder, (ii) any Person in which such Shareholder or
Affiliate of such Shareholder has a substantial economic interest, (iii)
any Person having a substantial economic interest in any such Affiliate or
(iv) any Person in which a Person specified in clause (i), (ii) or (iii)
above has substantial economic interest.
"Roll-Over Budget" shall have the meaning set forth in Section 3.7(b).
"Sale Notice" shall have the meaning set forth in Section 7.3(c).
"Sales Agency Agreement" shall mean the Sales Agency Agreement to be
entered into between Global Crossing International, Ltd. and the Company,
substantially in the form of Exhibit D, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof and of the Construction Financing.
"Selling Shareholder" shall have the meaning set forth in Section
7.3(a).
"Shares" shall mean (A) the shares representing the common shares of
the Company, (B) any security or other instrument (1) received as a
dividend on, or other payment made to holders of, such shares (or any
security or other instrument referred to in this definition) or (2) issued
in connection with a split of such shares (or any security or other
instrument referred to in this definition) or as a result of any exchange
or reclassification of such shares (or any security or other instrument
referred to in this definition), reorganization, recapitalization,
consolidation or merger, (C) any option, warrant or right to acquire such
shares (or any security or other instrument referred to in this definition)
and (D) any security or other instrument exchangeable for, or convertible
into, such shares (or any security or other instrument referred to in this
definition).
"Share Capital" shall have the meaning set forth in Section 2.5.
"Shareholder" shall mean each of GCT, SCS and Marubeni and each other
Person, if any, that hereafter becomes a party to this Agreement; a
Shareholder that transfers all of its Shares in the Company in accordance
with the provisions of this Agreement shall cease to be a Shareholder. The
initial Shareholders will be GCT, SCS and Marubeni.
"Shareholder Loans" shall have the meaning set forth in Section
2.8(a).
<PAGE>
8
"Shareholders' Allotment" shall have the meaning set forth in Section
7.3.(a).
"Shareholders Shares" shall have the meaning set forth in Section
7.3.(a).
"Share Percentage" shall mean, at any time with respect to any
Shareholder, the percentage which the number of Common Shares owned by such
Shareholder then constitutes of the aggregate number of Common Shares then
outstanding.
"Subscription Notice" shall have the meaning set forth in Section
2.8(d).
"Subscription Price" shall mean, with respect to the Shares subscribed
by each Shareholder on the Effective Date, the amount payable by the
Shareholder set forth on Schedule I hereto under the heading "Total
Purchase Price."
"Subsidiary" shall mean, as to any person, (A) any corporation more
than 50% of whose stock of any class or classes having by terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such
person and/or one or more Subsidiaries of such person and (B) any
partnership, association, joint venture or other entity in which such
person and/or one or more Subsidiaries of such person have more than a 50%
equity interest therein.
"Supermajority Board Approval" shall have the meaning set forth in
Section 3.2(b).
"Supermajority Shareholder Approval" shall have the meaning set forth
in Section 3.4(f).
"Supply Contract" shall mean the Project Development and Construction
Contract, dated as of April 21, 1998, attached hereto as Exhibit C, as the
same may be amended, supplemented, amended and restated or otherwise
modified from time to time in accordance with the terms hereof and of the
Construction Financing.
"System" shall having the meaning ascribed to such term in the
recitals of this Agreement.
"System Contracts" shall mean the Supply Contract, the Sales Agency
Agreement, the O&M Agreements, the Customer Care and NOC Services
Agreement, the Capacity Purchase Agreements and each other material
contract relating to the construction, operation or maintenance of, or
disposition of Capacity on, the System.
"System Reconfiguration" shall have the meaning assigned thereto in
Section 3.2(c).
"System Upgrade" shall mean each upgrade or other enhancement to the
System, whether for the purpose of increasing System Capacity or capability
or otherwise, including any upgrade undertaken pursuant to Article 6 of the
Supply Contract, but not including any System Reconfiguration.
<PAGE>
9
"Tag-Along Notice" shall have the meaning set forth in Section 7.3(d).
"Tag-Along Sale" shall have the meaning set forth in Section 7.3(a).
"Tag-Along Sale Date" shall have the meaning set forth in Section
7.3(c).
"Termination Event" shall have the meaning set forth in Section 13.1.
"Termination Notice" shall have the meaning set forth in Section 11.2.
"Third Party" shall have the meaning set forth in Section 7.4(a).
"Third Party Proposal" shall have the meaning set forth in Section
7.4(f).
"Transfer" shall have the meaning set forth in Section 7.1(a).
"Transaction Documents" shall mean, collectively, this Agreement, the
Systems Contracts, the Financial Services Agreement, each agreement
relating to the Construction Financing and each other agreement entered
into by any Person which the Shareholders agree shall be a Transaction
Document.
"US GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
Section 1.2 Other Definitional Provisions. (a) Unless otherwise
-----------------------------
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in any other document made or delivered pursuant hereto.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Article, Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) Except as otherwise specified herein, each reference in this
Agreement to a Transaction Document shall be deemed (i) to include all exhibits,
annexes, schedules or other attachments thereto and (ii) to refer to such
Transaction Document as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms and the terms of this
Agreement.
(e) Each reference in this Agreement to a Person shall be deemed to
include such Person's permitted successors and assigns.
(f) The use of the word "including" in this Agreement means
"including, without limitation".
<PAGE>
10
ARTICLE II - ORGANIZATION AND CAPITALIZATION
Section 2.1 Formation of the Company. Subject to the terms and
------------------------
conditions hereof, the Shareholders have established the Company as an exempted
company limited under the laws of Bermuda. The Shareholders have taken, or have
caused to be taken, all such actions as may be required under the laws of
Bermuda in connection with the formation of the Company on the terms and
conditions set forth herein and the Shareholders agree to take, or cause to be
taken, all such actions as may be required under the laws of Bermuda in
connection with the continuation of the Company on the terms and conditions set
forth herein. The Company shall have an unlimited duration.
Section 2.2 Name. The name of the Company shall be "Pacific Crossing
----
Ltd."
Section 2.3 Purpose. The Company's business shall be the
-------
development, financing, construction, installation, operation, maintenance,
ownership of, and the sale, lease or other disposition of capacity on the
System, and all business related or reasonably incidental thereto, and the
Company may take any and all actions necessary, appropriate or consistent
therewith (collectively, the "Company Business"). The Company shall not engage
in any business other than the Company Business unless the Shareholders, by
unanimous written consent, grant their approval to engage in such other
business.
Section 2.4 Principal Place of Business; Registered Office. The
----------------------------------------------
Company shall maintain its office and principal place of business at, and its
business shall be conducted from, Wessex House, 45 Reid Street, Hamilton HM12,
Bermuda. The address of the Company's registered office in Bermuda shall be
Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda. The Company's principal
place of business and registered office may be changed at any time by a vote of
the Board of Directors in accordance with Section 3.2(a).
Section 2.5 Share Capital. The authorized share capital of the
-------------
Company shall be $12,000 (the "Share Capital") and shall consist of 1,200,000
common shares having a par value of $.01 per share. On the Effective Date, in
consideration of each Shareholder paying the Subscription Price, the Company
shall issue to each Shareholder the number of Common Shares set forth opposite
such Shareholder's name on Schedule 1 hereto. All Common Shares shall be
identical and shall entitle the holders thereof to the same rights and
privileges. The Shareholders shall have no personal liability for the debts or
liabilities of the Company beyond the amount, if any, of the Subscription Price
unpaid by them and shall not be required to contribute to the assets of the
Company on a winding up of the business of the Company.
Section 2.6 Share Register. (a) All Common Shares will be issued in
--------------
registered form only. All issued Common Shares shall be registered in the
Register of Shareholders (the "Register"), which shall be kept by the Chief
Executive Officer or by one or more persons designated for such purpose by the
Chief Executive Officer and the Register shall contain the name of each
Shareholder, its address including its country of residence or elected domicile,
the number of Shares held by it, the amount paid or agreed to be considered as
paid on the Common Shares, the date on which each Shareholder was entered into
the Register and the date at which any Shareholder ceased to be a member for one
year after such Shareholder was entered into the Register.
<PAGE>
11
(b) Transfer of Shares shall be made in accordance with the terms of
this Agreement and the Bye-Laws of the Company, and shall be effected by written
instrument of transfer to be inscribed in the Register, such instrument to be
dated and signed by the transferor and the transferee or by persons holding
suitable powers of attorney to act therefor. The Board of Directors shall
accept and enter into the Register any Transfer effected in accordance with the
terms of this Agreement and the Bye-Laws of the Company and pursuant to an
agreement or agreements between the transferor and the transferee, true and
complete copies of which shall have been delivered to the Company.
(c) Every Shareholder must provide the Chief Executive Officer with
an address to which all notices and announcements from the Company, the Board of
Directors or other Shareholders may be sent. Such address will also be entered
in the Register. Any Shareholder may, at any time, change its address as
entered in the Register by means of a written notification to the Company at its
registered office and, for so long as the registered office and principal place
of business are not the same address, also by written notification to the
principal place of business or to such other address as may be set by the Chief
Executive Officer from time to time.
Section 2.7 Budgeted Capital Contributions. (a) Each Shareholder
------------------------------
agrees to make Budgeted Capital Contributions in cash from time to time to the
Company in an aggregate amount not to exceed the amount set forth opposite its
name on Schedule 2 hereto (as to each Shareholder, its "Capital Commitment").
At any time and from time to time after the date hereof, on any Capital Call
Date, each Shareholder shall contribute to the Company such portion of its
unfunded Capital Commitment as shall be specified by the Company in the Capital
Call Notice delivered with respect to such Capital Call Date; provided, however,
that in no event shall any Shareholder be required to make capital contributions
in excess of its Capital Commitment.
(b) In delivering a Capital Call Notice, the Company (i) will call
for Budgeted Capital Contributions from all Shareholders simultaneously and pro
rata in accordance with each Shareholder's Share Percentage and (ii) will call
only for such Budgeted Capital Contributions as are set forth in the
Construction Budget.
(c) Budgeted Capital Contributions by the Shareholders shall be made
in Dollars, by wire transfer of immediately available funds to the account of
the Company specified in the relevant Capital Call Notice. No Shareholder shall
be entitled to any interest or compensation by reason of its Budgeted Capital
Contributions or by reason of serving as a Shareholder. No Shareholder shall be
required to lend any funds to the Company. Each Shareholder agrees to provide
guarantees or other credit support for its unfunded Capital Commitment to the
extent required pursuant to the Construction Financing.
Section 2.8 New Capital. (a) In the event that the Company from
-----------
time to time requires capital in addition to the aggregate Capital Commitments
and the Board of Directors approves pursuant to Section 3.2(b) the raising of
additional capital ("New Capital") by the Company, each Shareholder shall have
the preferential right to subscribe to such New Capital in proportion to its
Interest as of the date of the notice described in Section 2.8(c). All New
Capital shall be in the form of loans to the Company ("Shareholder Loans"),
unless the Board of Directors approves the issuance of New Capital in a form
other than debt. Shareholder Loans may be made directly by a Shareholder or by
an Affiliate of a Shareholder. No Shareholder shall transfer, or allow any
Affiliate of such Shareholder to transfer, any Shareholder Loan except (i) to an
Affiliate of such Shareholder
<PAGE>
12
or (ii) concurrently with, in proportion to, and to the same party as, a
Transfer of any Shares by such Shareholder in accordance with Section 7.1. Each
Shareholder shall transfer, and shall cause any Affiliate of such Shareholder to
transfer, any Shareholder Loan concurrently with, in proportion to, and to the
same party as, a Transfer of any Shares by such Shareholder in accordance with
Section 7.1. If an Affiliate of a Shareholder shall cease to be an Affiliate of
such Shareholder, then, prior to such time, such Shareholder shall cause such
Affiliate to transfer any Shareholder Loans held by it to such Shareholder.
(b) The Shareholders acknowledge and agree that upon the written
request of any Shareholder, the Board of Directors shall promptly determine
whether or not to approve the issuance of New Capital and the terms of such New
Capital.
(c) Promptly following a decision of the Board of Directors to issue
New Capital, the Company shall provide to each Shareholder a written notice (a
"New Capital Notice") specifying the total amount of the New Capital proposed to
be issued and the amount and terms of such New Capital for which each
Shareholder is entitled to subscribe.
(d) For a period of sixty (60) days following the date of the New
Capital Notice, each Shareholder may elect by written notice to the Company (a
"Subscription Notice") to subscribe for all or any portion of that amount of New
Capital for which the Shareholder is entitled to subscribe as set forth in the
New Capital Notice.
(e) At the end of such sixty (60) day period, (i) the Company shall
give to each Shareholder written notice of which Shareholders have subscribed
for New Capital and the amount of such New Capital for which each such
Shareholder has subscribed and (ii) in the event that any Shareholder does not
subscribe for the full amount of New Capital for which such Shareholder is
entitled to subscribe, the Company shall give to each Shareholder that had
subscribed for the full amount of New Capital for which it was entitled to
subscribe (a "Fully Subscribed Shareholder") written notice (a "Further Capital
Notice") specifying the amount of such unsubscribed New Capital. For a period of
fifteen (15) days from the date of any Further Capital Notice, each Fully
Subscribed Shareholder may elect, by giving a Further Subscription Notice to the
Company, to subscribe for additional unsubscribed New Capital, which shall be
allocated in the following order of priority: first, ratably to the Fully
Subscribed Shareholders in accordance with each Fully Subscribed Shareholder's
Equity Percentage, to the extent the Fully Subscribed Shareholders have elected
to do so and second, if any Fully Subscribed Shareholders have subscribed for
more unsubscribed New Capital than has been allocated pursuant to the clause
first above, ratably to such Fully Subscribed Shareholders in accordance with
the unfulfilled subscriptions of such Fully Subscribed Shareholders.
(f) Each Subscription Notice shall constitute a binding commitment of
the Shareholder giving the same to purchase from the Company the amount of New
Capital set forth therein, at the price, by the date and on the terms and
conditions set forth in the Capital Notice, and shall be enforceable by the
Company against the subscribing Shareholder.
(g) Any New Capital in the form of debt shall have priority of
repayment of all principal and interest over any distribution of profits or any
distribution in return of capital by the Company to the Shareholders.
<PAGE>
13
(h) The Company may issue any New Capital not subscribed for by the
Shareholders pursuant to this Section 2.8 to any other Person; provided that
such issuance shall have first been approved by the Board of Directors as
required by Section 3.2(b).
(i) Promptly following receipt by the Company of the New Capital, the
Company shall, and the Shareholders agree to take all actions necessary to cause
the Company to, execute all certificates, instruments, amendments and other
documents and take such other actions as are necessary or desirable to effect
the foregoing contribution to capital.
(j) In the event the New Capital is in the form of additional equity,
the number of Shares to be issued in connection with such New Capital shall be
determined by the Board of Directors at the time of the approval by the Board of
Directors of a decision to issue New Capital in a form other than debt.
Section 2.9 Use of Capital. Capital will be used for purposes as the
--------------
Board of Directors shall determine (consistent with any budget or business plan
approved pursuant to Section 3.2(b)), including for the payment of Construction
Costs.
Section 2.10 Distribution Policy. The Board of Directors shall cause
-------------------
the Company to, at least semi-annually after the date of commercial operation of
the System, make a dividend to the Shareholders of 100% of the amount of funds
of the Company, which, in the reasonable determination of the Board of Directors
of the Company (which such determination shall be consistent with the Operating
Budgets of the Company and the Construction Financing agreements and shall take
into account amounts which are to be reserved for the upgrade of the System
pursuant to the Supply Contract), is available for the payment of dividends or
distributions, unless the holders of at least 75% of the Common Shares agree in
writing to a lesser amount (in which case such lesser amount shall be paid to
the Shareholders).
ARTICLE III - MANAGEMENT AND ADMINISTRATION
Section 3.1 Board of Directors of the Company.
---------------------------------
(a) (i) The Company shall be managed by a board of directors
(the "Board of Directors") initially comprised of six (6) directors (each,
a "Director") and proportionately reflecting the respective Interests.
Three (3) of the initial Directors shall be nominated by GCT, one (1) of
the initial Directors shall be nominated by SCS and two (2) of the initial
Directors shall be nominated by Marubeni. In the event the respective
Interests of the Shareholders change, including as a result of the
provisions of Section 2.8(j) or 11.2(b) or of the admission of additional
Shareholders as Shareholders of the Company, representation on the Board of
Directors (and, if necessary, the size of the Board of Directors) shall be
appropriately adjusted so that the Shareholders shall have representation
on the Board of Directors approximately proportional to their respective
ownership of outstanding Common Shares. Directors nominated by a
Shareholder shall be referred to as such Shareholder's "Director
Designees".
<PAGE>
14
(ii) Each of the Shareholders hereby agrees to vote in favor of, and
to cause its Director Designees to vote in favor of, the Director Designees
of each other Shareholder for positions on the Board of Directors. The
Director Designees of GCT shall initially be: David Lee, William Carter and
Gene Shutler. The Director Designee of KDD-SCS shall initially be:
Yasuhiko Niiro. The Director Designees of Marubeni shall initially be:
Fumio Uehara and Osamu Okubo. Each Shareholder agrees not to take, and
shall cause its Director Designees not to take, any action to remove a
Director Designee other than in accordance with the following sentence (or
in accordance with Section 3.1(a)(i) as a result of a change in the
respective Interests). As soon as practicable after receipt of a written
request from a Shareholder to remove a Director Designee of such
Shareholder, the other Shareholders agree to take, or cause to be taken by
their Director Designees, all appropriate action to effect the removal of
such Director Designee. Upon the removal, resignation or death of a
Director Designee, the Shareholder nominating such Director Designee shall
designate a replacement Director Designee, and the other Shareholders agree
to take, or cause to be taken by their respective Director Designees, as
soon as practicable after receipt of such designation, all appropriate
action to effect the election of such replacement Director Designee.
(iii) Each Shareholder shall vote against or withhold consent from
any proposal to amend the Company's Memorandum of Association or Bye-laws
to change the composition or character of the Board of Directors as set
forth in this Section 3.1, except to reflect the respective proportionate
Interests.
(iv) Each Shareholder agrees to vote or give written consent, or to
cause its Director Designees to vote or give written consent, for the
election of the person designated by GCT as Chairman of the Board of
Directors of the Company (the "Chairman of the Board") so long as GCT owns
more Common Shares than any other Shareholder and has not been a Defaulting
Shareholder. Each Shareholder agrees to vote or give written consent, or
to cause its Director Designees to vote or give written consent, for the
election of the person designated by Marubeni, as Deputy Chairman of the
Board of Directors of the Company (the "Deputy Chairman") so long as
Marubeni is the second largest Shareholder of the Company and has not been
a Defaulting Shareholder. Each Shareholder agrees not to take, and shall
cause its Director Designees not to take, any action to remove either such
persons as Chairman or Deputy Chairman of the Board of Directors of the
Company during such period. The Chairman of the Board shall preside over
meetings of the Board of Directors but shall otherwise have no additional
voting or other rights in his capacity as such, including in connection
with any matters submitted to or voted upon by the Board of Directors. In
the absence of the Director then serving as Chairman of the Board at any
meeting of the Board of Directors, (A) the Chairman of the Board for such
meeting shall be the Director serving as Deputy Chairman (or, in his
absence, another Director nominated by the Shareholder which nominated the
Director then serving as Chairman of the Board), and (B) the Board of
Directors may continue to act in accordance with the terms of this
Agreement.
(v) Each Director shall serve for a term of the duration set forth in
the Bye-Laws or, if earlier, until the date of resignation or removal of
such Director or the date upon which the Shareholder that nominated such
Director ceases to be a Shareholder (or reduces its interest such that it
is no longer entitled to the same number of Director Designees and chooses
to remove such Director Designee as a result); provided that, in the event
that a Director resigns
<PAGE>
15
or is removed prior to the end of the scheduled term of such outgoing
Director, the initial term for any Director which replaces such outgoing
Director on the Board of Directors shall be the remaining scheduled term of
such outgoing Director.
(vi) Any Director may resign by giving notice in writing to the
Secretary at the Registered Office. The Secretary will give written notice
to all the Shareholders.
Section 3.2 Requirements for Board Action. (a) Except as provided in
-----------------------------
Section 3.2(b) or 3.2(c) or mandatorily required by the laws of Bermuda, all
actions taken by the Board of Directors shall require the unanimous written
consent of all Directors (excluding Directors appointed by any Defaulting
Shareholder) or the approval of a majority of all Directors present or
represented and entitled to vote on such actions at a meeting which has been
duly called and at which a quorum was present at the time such vote was taken.
(b) The following actions shall require the unanimous written consent
of all Directors or the approval of at least 75% of the Directors present or
represented and entitled to vote on such actions at a meeting which has been
duly called and at which a quorum was present at the time such vote was taken
("Supermajority Board Approval"):
(i) subject to the provisions of Section 7.4, the merger or
consolidation of the Company with or into any other Person or of any Person
other than a Subsidiary of the Company, with or into the Company, the sale
of all or substantially all of the assets of the Company or any material
Subsidiary, the dissolution, liquidation, reorganization or
recapitalization of the Company or any similar extraordinary corporate
action or transaction involving the Company;
(ii) the incurrence of indebtedness by the Company or any of its
Subsidiaries in excess of $100 million in aggregate principal amount, other
than indebtedness originally incurred pursuant to the Construction
Financing;
(iii) refinancing of any indebtedness of the Company or any of its
Subsidiaries in excess of $100 million in outstanding principal amount;
(iv) the approval of the Company's marketing plan, including the
establishment of pricing policies for the disposition of capacity on the
System, which will include, among other things, specified price bands,
volume discounts and financing terms for the sale of Capacity;
(v) the approval of the Company's Business Plan and Operating
Budget;
(vi) the execution, material amendment or termination of any
material System Contract (other than a Capacity Purchase Agreement) or any
other agreement or agreements involving more than $50,000,000 (in each case
which is not an Intercompany Agreement or a Capacity Purchase Agreement) or
the amendment or extension of the foregoing prior to the end of its stated
term;
(vii) sales of assets by the Company and its Subsidiaries, other than
in the ordinary course of business or pursuant to the Company's Business
Plan, Operating Budget or
<PAGE>
16
Construction Budget, with a purchase price or fair market value in excess
of $25 million per year in the aggregate or which are otherwise material to
the business of the Company and its Subsidiaries;
(viii) the execution of any Intercompany Agreement (or the amendment
or extension thereof) or the approval of any transaction or series of
related transactions between the Company or any of its Subsidiaries and a
Shareholder, Affiliate of a Shareholder or a Related party, other than
transactions whose terms are expressly provided for in the Transaction
Documents;
(ix) except as contemplated by the then-effective Business Plan or
Operating Budget, the making of Capital Expenditures in an aggregate amount
per year in excess of $25,000,000;
(x) the issuance of any New Capital Notice or the incurrence of any
indebtedness to any Shareholder or any Affiliate thereof or any Related
Party thereof;
(xi) with respect to any Intercompany Agreement that by its terms
allows the parties to elect to renew or terminate such agreement upon the
occurrence of some specified event or circumstance (as would occur, by way
of example, with an Intercompany Agreement that is automatically renewable
after a specified period of time, unless the parties otherwise agree), any
election by the Company to terminate or not renew such Intercompany
Agreement and any determination of whether a default has occurred and
whether and what actions should be taken in respect thereof and the
exercise of any right or option shall be determined by a majority of the
Directors nominated by the disinterested Shareholders;
(xii) approval of the Construction Financing;
(xiii) establishment of a Subsidiary of the Company or the transfer
of any ownership interest therein to any Person other than a wholly-owned
Subsidiary of the Company;
(xiv) the final approval of the Construction Budget;
(xv) the election, appointment or removal of any Principal
Executive Officer of the Company, except removal for cause;
(xvi) the undertaking of a System Upgrade;
(xvii) the adoption of or change in the Company's dividend policy;
(xviii) the final approval of the implementation of the Global Pass
program; or
(xix) any amendment or other modification of the Company's
Memorandum of Association or Bye-Laws, except as required by Section 14.5.
(c) The following actions shall require the unanimous written consent
of all Directors (excluding Directors appointed by any Defaulting Shareholder)
or the approval of all of the Directors
<PAGE>
17
present or represented and entitled to vote on such actions at a meeting which
has been duly called and at which a quorum was present at the time such vote was
taken:
(i) the expansion of the System by means of a material
geographical addition to the configuration of the System or a material
geographical reconfiguration of the System from the Initial Configuration
(any such event, a "System Reconfiguration"), if such System
Reconfiguration would cost in excess of $100 million; or
(ii) a material change in the Company Business.
(d) Each Shareholder, following a preliminary vote, agrees to cause
its Director Designees to vote against or withhold its written consent from any
proposal regarding any matter listed in the preceding subsection (b) or (c)
unless the appropriate percentage of the Directors of the Company (as specified
in such subsections), pursuant to such preliminary vote, has indicated it will
vote or give written consent in favor of such proposal.
(e) Each Shareholder agrees to notify each other Shareholder of any
Intercompany Agreement (other than those set forth as Exhibits to this
Agreement) to which it or any of its Affiliates or Related Parties will be
party.
(f) Any action approved by the Board of Directors may be taken by any
authorized Director or officer of the Company on behalf of the Company and any
action so taken shall bind the Company. The Board of Directors, at its
discretion, may grant broad operating powers to any Principal Executive Officer
of the Company, including with respect to matters set forth in Section 3.2 (b)
(so long as such grant is authorized pursuant to Supermajority Board Approval).
Except as otherwise provided herein, no Shareholder or Director or any other
Person shall have the authority to bind the Company.
Section 3.3 Officers. (a) The officers of the Company (the
--------
"Officers") shall consist of a Chief Executive Officer, a Chief Financial
Officer, and such other officers, including Vice Presidents, Treasurers,
Assistant Treasurers, Secretaries, and Assistant Secretaries as the Board of
Directors shall deem necessary from time to time. Each officer shall hold
office until such officer resigns or is removed.
(b) The Board of Directors shall by Supermajority Board Approval in
accordance with Section 3.2(b) appoint all Principal Executive Officers. Any
Director may at any time call a special meeting of the Board of Directors to
vote upon the dismissal of any Principal Executive Officer if such Director, in
his or her reasonable business judgment (or the reasonable business judgment of
the Shareholder appointing such Director), believes that such Principal
Executive Officer should be dismissed. Following any such dismissal, the
succeeding Principal Executive Officer shall be selected by Supermajority Board
Approval in accordance with the provisions of Section 3.2(b).
(c) The Chief Executive Officer shall be the primary operating
officer of the Company and shall be responsible for the general and executive
management and daily administration of the operations and business of the
Company in accordance with the terms and conditions of this Agreement, the
Business Plan then in effect, the Construction Budget, the Operating Budget then
in effect and the Memorandum of Association of the Company, including decisions
as to timing and
<PAGE>
18
delivery of Capital Call Notices in accordance with Section 2.7 (but subject to
Section 3.2(b)). The Chief Executive Officer shall also carry into effect all
orders and resolutions of the Board of Directors.
(d) The Chief Financial Officer shall, subject to the terms and
conditions hereof, oversee and be responsible for financial matters pertaining
to the Company and its obligations under this Agreement, shall oversee the
preparation of financial statements for the Company and its related obligations
to the Shareholders and discharge such other duties as are set forth herein or
as may from time to time be delegated to the Chief Financial Officer by the
Board of Directors or the Chief Executive Officer. The Chief Financial Officer
shall present reports on the financial condition of the Company from time to
time to the Chief Executive Officer and, upon request of any Director, at the
specified meeting of the Board of Directors.
(e) All other officers shall have such duties as may from time to
time be delegated to them by the Board of Directors or the Chief Executive
Officer.
(f) The Board of Directors may establish and fund a compensation plan
for the Chief Executive Officer, the Chief Financial Officer and other officers
specified by the Chief Executive Officer and approved by the Board of Directors.
Such plan shall provide for such compensation of such officers, including any
signing bonuses, base salary, incentive bonuses and severance, as shall be
determined by the Board of Directors.
Section 3.4 Shareholders' Meetings. (a) The annual general meeting of
----------------------
Shareholders shall be held, in accordance with Bermuda law, in Bermuda at the
registered office of the Company, or at such other place as may be specified in
the notice of meeting, on the first Friday in the month of June in each year.
If such day is not a Business Day in Bermuda, the annual general meeting shall
be held on the next following Business Day in Bermuda. All meetings other than
annual general meetings shall be called special general meetings.
(b) Other meetings of Shareholders may be held at such times as may
be determined by vote of the Board of Directors in accordance with Section
3.2(a) and specified in the notice of meeting for such meetings. Any
Shareholder, or Shareholders together, holding not less than one-tenth of the
Common Shares (so long as it is not a Defaulting Shareholder) may at any time
request the Board of Directors to call a special general meeting of
Shareholders. The request must state the purpose of the meeting, must be signed
by the requesting Shareholder(s) and deposited at the registered office. The
Board of Directors shall call a special general meeting of Shareholders
immediately following receipt of any such request. If the Board of Directors
fail to convene a special general meeting twenty-one days from the date of
deposit of the request, the requesting Shareholder(s) may convene a special
general meeting in accordance with Bermuda law. Each notice of meeting shall
specify the purpose or purposes of the meeting and the matters to be considered
at such meeting.
(c) Written notice of the place, date and time of every meeting of
Shareholders, whether annual or special, shall be given to each Shareholder not
less than 15 days nor more than 60 days prior to the date of such meeting unless
(i) such notice is waived in writing by all the Shareholders and (ii) all
Shareholders are present or represented at such meeting. At any meeting so
called, the Shareholders shall transact only such business as was specified in
the notice for such meeting and any other business which all Shareholders
determine is prudent.
<PAGE>
19
(d) A quorum of the Shareholders (without which a vote of the
Shareholders on any matter may not be held) will consist of Shareholders holding
at least 75% of the issued and outstanding Common Shares (excluding the Common
Shares of any Shareholder which is a Defaulting Shareholder). Shareholders may
participate in a meeting of Shareholders by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear and speak to each other, and such participation in a
meeting will constitute presence in person at the meeting; provided that all
actions approved by the Shareholders at any such meeting will be reduced to
writing in the form of resolutions and will be signed by all Shareholders
participating in such meeting. Each Shareholder agrees not to avoid any meeting
for the purpose of frustrating a quorum of the Shareholders. If (i) a meeting
of the Shareholders has been called in accordance with Section 3.4(c) and a
quorum has not been achieved (a "Failed Shareholder Meeting") and (ii) another
meeting for the purpose of transacting the same business as set forth in the
notice with respect to the Failed Shareholder Meeting (a "Recalled Shareholder
Meeting") is called in accordance with Section 3.4(c) upon at least 15 days
prior written notice to all Shareholders, then a quorum for the Recalled
Shareholder Meeting shall not require the Shareholders who failed to attend the
Failed Shareholder Meeting.
(e) Subject to Section 3.4(f) and any mandatory provisions of Bermuda
law, all actions which are required by such law to be taken or approved by the
Shareholders shall require the approval of Shareholders holding more than 50% of
the issued and outstanding Common Shares (excluding the Common Shares of any
Defaulting Shareholder) by affirmative vote at a meeting of Shareholders held
pursuant to this Section 3.4. Shareholders may vote upon and approve the
matters described in Section 3.4(f). Actions of the Shareholders may also be
taken by the unanimous written consent of all Shareholders (other than
Defaulting Shareholders).
(f) The following actions shall require the approval of Shareholders
holding at least 75% (or 100% in the case of clause (ii) below) of the
outstanding Common Shares (excluding the Common Shares of any Defaulting
Shareholder) by affirmative vote at a meeting of Shareholders held pursuant to
this Section 3.4 ("Supermajority Shareholder Approval"):
(i) any action which results in the dilution of a
Shareholder's Share Percentage;
(ii) any material change in the Company Business;
(iii) any issuance, purchase or redemption by the Company of
any securities, including Shares, of the Company, or any change, increase
or reduction in the capitalization of the Company;
(iv) subject to the provisions of Section 7.4, any merger or
consolidation of the Company or any material Subsidiary with, or
acquisition of all or substantially all of the assets or capital stock of
the Company or any material Subsidiary by, another person or other business
combination or any dissolution, liquidation or winding-up of the Company or
any material Subsidiary;
(v) any amendment of the Memorandum of Association of the
Company; or
<PAGE>
20
(vi) any filing of a voluntary petition in bankruptcy or for
reorganization or for the adoption of an arrangement or an admission
seeking the relief therein provided under any existing or future law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief
of debtors.
(g) Any action approved by the Shareholders may be taken by any
authorized Director or officer of the Company on behalf of the Company and any
action so taken shall bind the Company. Except as otherwise provided herein, no
Shareholder or Director or any other Person shall have the authority to bind the
Company.
Section 3.5 Accounting, Record Keeping and Reporting.
----------------------------------------
(a) The books and records of the Company shall be kept in accordance
with US GAAP, consistently applied. The Company shall keep books, records and
accounts with respect to (i) all sums of money received and expended by the
Company and the matters in respect of which the receipt and expenditure take
place, (ii) all sales and purchases of goods by the Company and (iii) the assets
and liabilities of the Company.
(b) The accounts of the Company shall be audited by the Independent
Accountants. The annual financial statements of the Company shall be audited in
accordance with generally accepted auditing standards in the United States.
(c) The books of account of the Company shall be kept and maintained
at the principal place of business of the Company or at such other place as the
Board of Directors shall determine. If the records of account are kept at
someplace outside Bermuda, there shall be kept at an office of the Company in
Bermuda such records as will enable the Directors to ascertain with reasonable
accuracy the financial position of the Company at the end of each three month
period. Each of the Shareholders, through their respective authorized
representatives, shall have the right at such Shareholder's expense to visit and
inspect any of the operations and any of the properties and assets of the
Company, including the books of account of the Company, and to make copies and
take extracts therefrom, and to discuss its affairs, finances and accounts with
its officers and the Independent Accountants all at such reasonable times and as
often as may be reasonably requested.
(d) As soon as practicable following the end of each Fiscal Year, the
Company shall cause to be prepared for the Company and shall deliver to the
Shareholders and the Board of Directors not later than 45 days following the end
of such Fiscal Year a statement of the results of operations for the Fiscal
Year, a balance sheet as at the end of such Fiscal Year, a statement of retained
earnings or deficit and a statement of cash flows for such Fiscal Year, together
with all schedules and footnotes thereto and a report thereon of the Independent
Accountants.
(e) As soon as practicable after the end of each month and Fiscal
Quarter the Company shall cause to be prepared and the Company shall deliver to
each Shareholder not later than 10 days following the end of such month or
Fiscal Quarter, as the case may be, an operating report for the Company for such
period, which report shall detail, among other things, sales of Capacity made in
such period, expenses incurred in such period, compared to the Construction
Budget or Operating Budget then in effect, and all supporting activities of the
Chief Executive Officer and any other employees of the Company and other
operating data.
<PAGE>
21
(f) Under the direction of the Board of Directors, the Company shall
prepare and file, or shall cause to be prepared, as applicable, all reports
prescribed by any governmental authority having jurisdiction over the Company,
or the System, as the case may be.
(g) In addition to the reports described above, the Company shall
furnish such other financial and supporting information to each Shareholder and
the Board of Directors in such detail and with such frequency as the Board of
Directors may reasonably require.
Section 3.6 Business Plans. (a) General. The Chief Executive
-------------- -------
Officer shall prepare and deliver to the Board of Directors a proposed business
plan of the Company within 90 days of his employment by the Company for the
period prior to the date of commercial operation of the System, which business
plan shall be updated (i) unless otherwise directed by the Board of Directors,
at least 90 Business Days prior to the beginning of each Operating Year with
respect to such Operating Year and (ii) at such other times as the Board of
Directors shall request. If a proposed updated Business Plan is approved by the
Board of Directors, then the Company shall adopt such proposed updated Business
Plan which shall then supersede the then-existing Business Plan. If no such
proposed updated Business Plan is approved, the then-existing Business Plan
shall remain in effect.
(b) Marketing. A marketing plan for the Company will be developed by
---------
the Chief Executive Officer working in conjunction with the sales agent. It is
expected that the System will participate in the Global Pass program (if
approved pursuant to Section 3.2(b)(xviii)) and that the plan will seek to
market the System in conjunction with other Global Crossing systems and will
seek to provide customers with flexibility of routing between such systems on
deferred purchases of capacity.
(c) Backhaul. A backhaul plan providing capacity purchasers with
--------
interconnection facilities to other cable systems and major cities at market
based rates will be developed, and the Shareholders will actively assist in
implementing such plan. The backhaul plan will also provide that the Company or
its Subsidiaries will enter into Backhaul Purchase Agreements with providers of
backhaul capacity, some of which may be Affiliates or Related Parties to the
Shareholders (including Global Access Limited), in order to acquire backhaul
capacity for resale to customers. The backhaul plan will allow for co-location
by capacity purchasers.
Section 3.7 Budgets. (a) Each Shareholder agrees that the
-------
Preliminary Construction Budget shall be the budget presented to the arrangers
of the Construction Financing as the basis of the Construction Budget. The
Construction Budget will be negotiated by the IPG with the arrangers of the
Construction Financing and will be subject to Supermajority Board Approval.
(b) At least 60 Business Days prior to the beginning of each
Operating Year, the Chief Financial Officer will prepare and present an annual
budget (a "Proposed Operating Budget"), which upon Board Approval in accordance
with Section 3.2(a) shall be adopted by the Company as the Annual Budget. Each
Proposed Operating Budget shall, among other things, set forth an estimate of
the revenues and expenditures (together with a contingency) of the Company for
such Operating Year. Except as otherwise provided in the contingency (or with
respect to any Extraordinary Expenditure), no expenditure shall be incurred by
or on behalf of the Company which is not contemplated, either specifically or
generally, by the Operating Budget then in effect. If the Board of Directors
does not approve the Proposed Operating Budget for any Operating Year, then the
<PAGE>
22
Operating Budget to be used by the Company in connection with the management of
the Company for such Operating Year shall be the Operating Budget for the
immediately preceding Operating Year as modified by the Chief Financial Officer
(a "Roll-Over Budget"), with such modifications limited as follows:
(i) the aggregate expenses of the Company for the preceding
Operating Year shall not be increased by more than 5%;
(ii) the budget may include funding for any emergency
expenditures necessary during the current year that were not included in
the Operating Budget for the preceding Operating Year; and
(iii) the budget may include funding for any preexisting
commitment of the Company which has received any required approvals under
this Agreement.
At least 10 Business Days prior to the beginning of each Operating Quarter of
any Operating Year covered by a Roll-Over Budget, the Chief Financial Officer
will prepare and present a Proposed Operating Budget with respect to the
remainder of such Operating Year, which upon Board Approval thereof in
accordance with Section 3.2(a) shall be used by the Company as the Operating
Budget for such period.
Section 3.8 Deposits and Withdrawals of Funds. Funds of the Company
---------------------------------
shall be deposited in such banks or other depositories as shall be designated
from time to time by the Board of Directors. All withdrawals from any such
depository shall be made only as authorized by the Shareholders or the Board of
Directors and shall be made only by check, wire transfer, debit memorandum or
other written instruction.
ARTICLE IV - CERTAIN BUSINESS ARRANGEMENTS
Section 4.1 Contracts for Services with Affiliates. The Company or a
--------------------------------------
Subsidiary of the Company may from time to time with the approval of the
Shareholders or the Board of Directors as provided in Article III enter into one
or more contracts with any Shareholder or a Shareholder's Affiliates or Related
Parties to provide services that are necessary or appropriate for the proper
functioning of the Company, including services in connection with the
construction, operation and sale of capacity of the System.
ARTICLE V - TAX MATTERS
Section 5.1 Tax Matters.
-----------
(a) For purposes of all dealings with taxes, the Board of Directors
shall appoint an officer (who may be the Chief Financial Officer) who shall
serve as the Company "Tax Matters" officer.
<PAGE>
23
(b) The Tax Matters officer shall cause to be prepared the tax
returns for the Company and shall provide copies of all such tax returns to the
Shareholders for their approval, not to be unreasonably withheld or delayed,
prior to the filing of such returns but in any event no later than the date
specified by the Board of Directors.
(c) The Tax Matters officer shall cooperate with all Shareholders
and, for other than routine correspondence and communications, shall promptly
provide Shareholders with copies of notices or other materials from, and inform
Shareholders of discussions engaged in with, the U.S. Internal Revenue Service
or tax authorities of other jurisdictions and shall provide the Shareholders
with notice of all scheduled administrative proceedings or audits, including
meetings with agents of the Internal Revenue Service or other authorities,
technical advice conferences and appellate hearings as soon as possible after
receiving notice of the scheduling of proceedings. Each of the Shareholders
shall be entitled to participate at its own expense in any such administrative
proceedings or audits.
Section 5.2 Partnership Election. (a) At any time, GCT may notify
--------------------
the Company that GCT wants the Company to file an election to be classified as a
partnership for U.S. Federal income tax purposes, in which event the Company
shall promptly file an election on Internal Revenue Service Form 8832 (or any
successor form) to be classified as a partnership for U.S. Federal income tax
purposes (a "Partnership Election"). The Partnership Election may be signed by
any Officer of the Company who is authorized by the Board of Directors to sign
on behalf of the Company. If the Company files a Partnership Election, the
parties hereto agree to reasonably cooperate to amend this Agreement to provide
for the maintenance of capital accounts in accordance with applicable U.S.
Treasury Regulations.
(b) This Agreement currently provides that the liquidation of the
Company will be effected by the sale of Shares. The Shareholders agree that it
may be in the interest of all parties to provide that any liquidation could also
be effected by a sale of assets. The Shareholders agree to negotiate in good
faith to consider whether such an alternative is acceptable and if so, to enter
into an amendment to this Agreement to provide for such alternative.
Section 5.3 Capital Accounts; Book Allocations. A capital account
----------------------------------
(each a "Capital Account") shall be maintained for each Shareholder. The
Capital Account of each Shareholder shall be credited with the Subscription
Price paid by such Shareholder, increased by any allocation of income or gain
and by any additional Capital contributions (other than Shareholder Loans) by
that Shareholder, and shall be reduced by any allocations of loss, expense or
deduction and by any distribution to that Shareholder. Except as otherwise
provided herein, all items of Company income, gain, loss, expense or deduction
shall be allocated to the Capital Accounts of the Shareholders in proportion to
their Share ownership. The foregoing provisions relating to the maintenance of
Capital Accounts and allocations of Company income, gain, loss, expense or
deduction are intended to comply with Treasury Regulations Section 1.704-1(b)
(including, without limitation, the "qualified income offset" provisions
contained therein), and shall be interpreted and applied in consistent with such
Regulations. Additionally, the foregoing allocation provisions shall be
interpreted and applied in a manner consistent with the "minimum gain
chargeback" provisions set forth in Treasury Regulations Sections 1.704-2(f) and
1.704-2(i)(4).
Section 5.4 Tax Allocations. Except as otherwise required by the
---------------
Code, the Regulations or Sections 5.3 and 5.4, all items of Company income,
gain, loss, expense, deduction and
<PAGE>
24
any other items shall be allocated among the Shareholders for federal income tax
purposes in the same proportions as they share the corresponding items pursuant
to Section 5.3.
Section 5.5 Income Tax Information. The Shareholders agree to use
----------------------
their reasonable best efforts to cause the Company to prepare and send, or cause
to be prepared and sent, by April 1 of each Fiscal Year and to each Person who
was a Shareholder at any time during such Fiscal Year, copies of such
information as may be required for applicable income tax reporting purposes,
including such information as a Shareholder may reasonably request for the
purpose of applying for refunds of withholding taxes.
ARTICLE VI
[Intentionally omitted.]
ARTICLE VII - TRANSFER AND ASSIGNMENT
Section 7.1 Transfer of Securities.
----------------------
(a) Except as expressly permitted by paragraph (b) below, no
Shareholder shall, directly or indirectly, sell (whether by involuntary or
judicial sale or otherwise), transfer, create, incur, assume or suffer to exist
a lien on, grant a security interest in, pledge, hypothecate, assign, give or
otherwise (voluntarily or by operation of law) dispose of (any such act is
hereinafter referred to as a "Transfer") any Shares to any person.
(b) A Shareholder may (i) transfer any Shares or any interest therein
or any rights to purchase Shares hereunder to an Affiliate of such Shareholder,
(ii) pledge any or all Shares or grant a security interest therein to secure
indebtedness under any Construction Financing or pledge any or all Shares or
grant a security interest therein to secure indebtedness of the Shareholder
owing to a bank or other lender, provided that any such bank or other lender
(other than pursuant to the Construction Financing) pursuant to this clause (ii)
shall acquire only a security interest in the Shares entitling such bank or
other lender only to the proceeds from any sale of the Shares in accordance with
the terms of this Agreement and shall not acquire title to the Shares or any
other rights incident thereto, and, in the case of any foreclosure on the Shares
by such bank or other lender, the pledgee shall be considered an "Offeror" (as
defined below) and shall not be permitted to consummate the foreclosure without
complying with the provisions of Section 7.2 hereof or (iii) subject to the
provisions of Section 7.2, sell, transfer, assign, give or otherwise dispose of
any Shares to any Person (any such transferee pursuant to clause (i), (ii) or
(iii) above shall be referred to herein as a "Permitted Transferee"); provided,
however, notwithstanding anything to the contrary contained in this paragraph,
no Transfer shall be permitted (w) to a Person who is at such time a Carrier,
(x) to any Person prior to the Construction Completion Date except as provided
in Section 14.11 (b), (y) to any Person unless the creditworthiness of such
Person is reasonably satisfactory to a majority of the non-transferring
shareholders or (z) if, as a result thereof, the Company would be subject to any
requirements it was not subject to immediately prior to such Transfer including,
without limitation, under United States federal or state securities laws or
regulations. Notwithstanding the foregoing, in the case of a Permitted
Transferee of a Shareholder where such transferee is a United States resident
<PAGE>
25
or citizen, any Transfer pursuant to this paragraph (b) shall be subject to the
prior written consent of the Company, which consent shall be granted unless, in
the opinion of the Company, such transfer might result in the Company or any
Shareholder incurring any tax liability, the Company being involved in any
litigation, the Company being registered or regulated as an investment company
under the United States Investment Company Act of 1940, as amended, or suffering
any other pecuniary or fiscal disadvantage or other adverse effect which the
Company might not otherwise incur or suffer.
(c) In the event a Transfer of any Shares has taken place in violation
of the provisions of this Agreement, the Board of Directors shall refuse to
register such Transfer in the Register and such Transfer shall be void and of no
effect, and no distribution of any kind shall be paid by the Company to the
transferee in respect of such Shares (all such dividends and distributions being
deemed waived), and the voting rights, if any, of such Shares on any matter
whatsoever shall remain vested in the transferor during the period commencing
with such transferor's initial noncompliance and ending when compliance shall
have occurred.
Section 7.2 Right of First Refusal.
----------------------
(a) Prior to any Shareholder making any Transfer in accordance with
clause (iii) of Section 7.1(b), such Shareholder (the "Offeror") shall provide
written notice (the "Notice") to the Company, which notice shall set forth (i)
confirmation that such Offeror intends to Transfer all or certain of its Shares
in a bona fide transaction with a third party in accordance with Section
7.1(b)(iii), (ii) the name and address of each proposed transferee or purchaser
and such other information as is reasonably necessary to determine that such
transferee or purchaser is not a Carrier, (iii) the number of Shares proposed to
be Transferred (the "Offered Shares"), (iv) the proposed amount and form of
consideration to be paid for the Offered Shares, and (v) all other material
terms of the proposed Transfer. The Company shall provide each other
Shareholder (each, an "Offeree") a copy of the Notice within five days of
receipt thereof. Within 45 days of receipt of the Notice, the Company shall (if
and only if requested by Offerees holding 75% of the Shares other than the
Offered Shares) elect to buy all of the Offered Shares at the price and on the
terms and conditions set forth in the Notice by delivery of a written notice to
the Offeror (the "Company Election Notice") with a copy to each Offeree, which
notice shall constitute the binding agreement of the Company to purchase all of
such shares at the price and on the terms and conditions set forth in the
Notice. Within 45 days of delivery of the Company Election Notice, the Company
shall deliver a certified check payable to such Offeror, or to such other person
as such Offeror may request, in the amount of the purchase price (as calculated
below) of such Offered Shares to be purchased by the Company. Upon receipt of
payment for the Offered Shares, such Offeror shall deliver instruments of
transfer properly endorsed in blank, together with the corresponding
certificate(s) representing all such Offered Shares to the Company.
(b) Each Offeree may elect to buy all or any portion of the Offered
Shares at the price and upon the terms and conditions set forth in the Notice in
the event that the Company shall elect not to deliver a Company Election Notice
or shall fail to deliver the purchase price of the Offered Shares in accordance
with the terms hereof. Each Offeree shall make such election by delivery of a
written notice (the "Offeree Election Notice") to the Offeror within 45 days of
the date of receipt of the Notice by the Company, which Offeree Election Notice,
in the event that the Company shall elect not to deliver a Company Election
Notice or shall fail to deliver the purchase price of the Offered Shares, shall
constitute the binding agreement of each Offeree to purchase the
<PAGE>
26
number of Offered Shares set forth in the Offeree Election Notice (the "Offeree
Election Number") at the price and upon the terms and conditions set forth in
the Notice. If more than one Offeree shall send an Offeree Election Notice and
the aggregate Offeree Election Numbers equal or exceed the number of Offered
Shares, then each Offeree shall be entitled to purchase (i) its pro rata share
(the "Pro Rata Share"), based upon the relative interests in the Shares of the
Company, on a fully diluted basis, held by all Offerees, of the Offered Shares,
to the extent the Offerees have elected to do so and (ii) its pro rata share
based on the unfulfilled Offeree Election Numbers of the remaining Offered
Shares and the Offeree Election Notice shall be deemed to be an election to
purchase such Shares. If the Company shall elect not to deliver a Company
Election Notice or shall fail to deliver the purchase price of the Offered
Shares in accordance with the terms hereof, the Offeror shall deliver written
notice thereof (the "Purchase Notice") to each Offeree who has submitted an
Offeree Election Notice. The Purchase Notice shall state the number of Offered
Shares to be acquired by each such Offeree and the closing date for such
transaction, which date shall not be less than 30 days from the date of delivery
of the Purchase Notice to all such Offerees. At such closing, each such Offeree
shall deliver to such Offeror, or to such other person as such Offeror may
request, by wire transfer of immediately available funds, the amount of the
purchase price (as calculated below) of the Offered Shares to be purchased by
such Offeree, to be held in escrow against delivery of the instruments of
transfer properly endorsed in blank, and the corresponding certificate(s)
representing all such Offered Shares. If any Offeree shall fail to deliver such
purchase price, then the other Offerees may purchase, pro rata, the Offered
Shares to have been purchased by such Offeree by wire transfer of immediately
available funds of the purchase price for such additional Offered Shares, to be
held in escrow against delivery of the instruments of transfer properly endorsed
in blank, and the corresponding certificate(s) representing all such Offered
Shares. Upon receipt of payment for all of the Offered Shares, such Offeror
shall deliver instruments of transfer properly endorsed in blank and the
corresponding certificates representing all such Offered Shares to the
respective Offerees.
(c) If a Company Election Notice or Offeree Election Notice is not
received by such Offeror from the Company or any Offeree within the respective
periods specified in paragraphs (a) and (b) above, or if the Company or the
Offerees elect to purchase less than all of the Offered Shares or fail to
deliver the purchase price of the Offered Shares in accordance with the terms
hereof, the Offeror shall have the right to transfer, sell or otherwise dispose
of the Shares specified in the Notice to the proposed purchaser or transferee in
accordance with the terms of this Agreement, but only at a price and upon terms
and conditions no less favorable to the Offeror than those stated in the Notice
and only if such sale occurs on a date within 120 days from the date of the
Notice.
(d) For purposes of calculating the purchase price of any such
transfer, sale or disposition, if any portion of the consideration consists of
other than cash and/or readily marketable securities, the fair market value of
any non-cash consideration shall be determined, at the expense of the Offeror,
by a nationally recognized independent valuation consultant or appraiser (with
experience evaluating such type of property) selected by the Offeror and
reasonably satisfactory to the Company or each Offeree, as the case may be. All
payments by the Company or Offerees pursuant to this Section 7.2 shall be in
cash.
(e) The closing of the transactions contemplated by this Section 7.2
shall occur at the principal place of business of the Company unless otherwise
agreed to in writing by the Company and the parties to such transaction.
<PAGE>
27
(f) The provisions of this Section 7.2, as well as clause (y) of
Section 7.1(b), shall apply to any transfer of any capital stock or other equity
securities of any Shareholder or other entity where substantially all of such
Shareholder's or other entity's assets are directly or indirectly comprised of
Shares (a "Special Purpose Shareholder").
Section 7.3 Tag-Along Rights.
----------------
(a) If any holder of Shares (the "Selling Shareholder"), at any time
or from time to time, enters into an agreement (whether oral or written) to
transfer any Shares in accordance with clause (iii) of Section 7.1(b) (a "Tag-
Along Sale"), then each Shareholder other than the Selling Shareholder (the
"Other Holders") shall have the right, but not the obligation, to participate in
such Tag-Along Sale by selling the number of Shares respectively owned by such
Other Holder as calculated in the following manner. Such Shares owned by the
Other Holders are hereinafter referred to collectively as the "Shareholders'
Shares." The number of Shares that the Other Holders shall be entitled to
include in such Tag-Along Sale (the "Shareholders' Allotment") shall equal the
product (rounded down to the nearest whole share) of (i) the total number of
Shares proposed to be Transferred pursuant to the Tag-Along Sale or such greater
number of shares that the proposed purchaser in the Tag-Along Sale shall agree
to purchase or otherwise acquire, times (ii) a fraction, the numerator of which
shall equal the aggregate number of Shareholders' Shares on the date of the Sale
Notice (as defined below), and the denominator of which shall equal the sum of
(A) the aggregate number of Shares owned by the Selling Shareholder on the date
of the Sale Notice plus (B) the aggregate number of Shareholders' Shares on the
date of the Sale Notice. For purposes of this Section 7.3, the number and price
of Shares shall be calculated on a fully diluted basis. Any such sales by the
Other Holders shall be on the same terms and conditions as the proposed Tag-
Along Sale by the Selling Shareholder, provided, however, that no Other Holder
shall be required to make any representation, covenant or warranty in connection
with the Tag-Along Sale, other than as to its ownership and authority to sell,
free of liens, claims and encumbrances, the Shares proposed to be sold by it.
(b) Notwithstanding the foregoing, this Section 7.3 shall not apply to
any transfer to a Shareholder or the Company pursuant to Section 7.2 hereof.
(c) The Selling Shareholder shall promptly provide each of the Other
Holders and the Company with written notice (the "Sale Notice") not less than 30
days prior to the proposed date of the Tag-Along Sale (the "Tag-Along Sale
Date"). In order to facilitate the prompt delivery of the Sale Notice, the
Company hereby covenants to provide the Selling Shareholder participating in a
Tag-Along Sale access to the Register of the Company. Each Sale Notice shall
set forth (i) the name and address of each proposed transferee or purchaser of
Shares in the Tag-Along Sale, (ii) the name and address of the Selling
Shareholder and the number of Shares proposed to be transferred by such Selling
Shareholder, (iii) the proposed amount and form of consideration to be paid for
such Shares and the terms and conditions of payment offered by each proposed
transferee or purchaser, (iv) the number of Shareholders' Shares held of record
as of the close of business on the date of the Sale Notice (the "Notice Date")
by the Other Holders to whom the notice is sent, (v) the aggregate number of
Shares held of record as of the Notice Date by the Selling Shareholder, (vi) the
number of Shares that the Other Holder is entitled to include in the Tag-Along
Sale (as computed in accordance with the equation set forth above) assuming each
Other Holder elected to sell the maximum number of Shareholders' Shares
possible, (vii) the number of Shareholders' Shares in the Shareholders'
<PAGE>
28
Allotment, (viii) confirmation that the proposed purchaser or transferee is not
a Carrier and has been informed of the "Tag-Along Rights" provided for herein
and has agreed to purchase Shares in accordance with the terms hereof, and (ix)
the Tag-Along Sale Date.
(d) Each Other Holder who wishes to participate in the Tag-Along Sale
shall provide written notice (or oral notice confirmed in writing) (the "Tag-
Along Notice") to the Selling Shareholder and the Company not less than ten days
prior to the Tag-Along Sale Date. The Tag-Along Notice shall set forth the
number of Shares that such Other Holder elects to include in the Tag-Along Sale,
which shall not exceed the product of (x) the Shareholders' Allotment times (y)
a fraction, the numerator of which is equal to the aggregate number of
Shareholders' Shares owned of record as of the Notice Date by such Other Holder
and the denominator of which is the aggregate number of Shareholders' Shares
owned of record by all of the Other Holders as of the Notice Date. The Tag-
Along Notice shall also specify the aggregate number of additional Shares owned
of record as of the Notice Date by such Other Holder, if any, which such Other
Holder desires also to include in the Tag-Along Sale ("Additional Shares") in
the event there is an undersubscription for the entire Shareholders' Allotment.
In the event there is an undersubscription by the Other Holders for the entire
Shareholders' Allotment, the Selling Shareholder participating in the Tag-Along
Sale shall apportion the unsubscribed Shareholders' Shares to Other Holders
whose Tag-Along Notices specified an amount of Additional Shares, which
apportionment shall be on a pro rata basis among such Other Holders in
accordance with the number of Additional Shares specified by all such Other
Holders in their Tag-Along Notices.
(e) The Company shall determine the aggregate number of Shares to be
sold by each participating Other Holder or in any given Tag-Along Sale in
accordance with the terms hereof, and the Tag-Along Notices given by the Other
Holders shall constitute their binding agreements to sell such shares at the
price and on the terms and conditions applicable to such sale.
(f) If a Tag-Along Notice is not received by the Selling Shareholder
participating in the Tag-Along Sale from an Other Holder prior to the ten day
period specified above, the Selling Shareholder shall have the right to Transfer
the number of Shares specified in the Sale Notice to the proposed purchaser or
transferee without any participation by such Other Holder (subject to the right
of Other Holders to sell Additional Shares in the event of an undersubscription
as described above), but only at a price and upon terms and conditions no more
favorable to the Selling Shareholder than those stated in such Sale Notice and
only if such sale occurs on a date within 90 days of the Tag-Along Sale Date.
(g) The provisions of this Section 7.3 shall apply to any transfer of
any capital stock or other equity securities of any Shareholder or other entity
where substantially all of such Shareholder's or other entity's assets are
directly or indirectly comprised of Shares.
Section 7.4 Drag-Along Rights.
-----------------
(a) Notwithstanding any other provision hereof, if Shareholders
holding 75% or more of the issued and outstanding Shares (the "Initiating
Shareholders") agree to sell (a "Drag-Along Sale") 100% of the aggregate number
of Shares then held by the Initiating Shareholders to any person who is not an
Affiliate of the Initiating Shareholders (a "Third Party"), then upon the demand
of the Initiating Shareholders, the other Shareholders hereby agree to sell to
such Third Party 100% of the
<PAGE>
29
Shares then held by them, at a price per share and on terms and conditions no
less favorable to such other Shareholders than those on which the Initiating
Shareholders have agreed to sell their Shares to such Third Party, provided,
however, that (i) no Shareholder shall be obligated to participate in any Drag-
Along Sale unless each Shareholder is provided an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to such Shareholder, to the
effect that the Drag-Along Sale is not in violation of applicable Federal or
state securities or other laws, (ii) no Shareholder shall be required to make
any representation, covenant or warranty in connection with the Drag-Along Sale,
other than as to its ownership and authority to sell, free of liens, claims and
encumbrances, the Shares proposed to be sold by it and (iii) no Shareholder
shall be required to accept any consideration for its Shares other than cash and
marketable securities.
(b) Prior to making any Drag-Along Sale, the Initiating Shareholders
shall promptly provide each Shareholder with written notice (the "Drag-Along
Notice") not more than 60 nor less than 30 days prior to the proposed date of
the Drag-Along Sale (the "Drag-Along Sale Date"). The Drag-Along Notice shall
set forth: (i) the name and address of the Third Party, (ii) the proposed
amount and form of consideration to be paid per share and the terms and
conditions of payment offered by the Third Party, (iii) the number of shares of
Shares held of record as of the close of business on the date of the Drag-Along
Sale Notice (the "Drag-Along Notice Date") by the Initiating Shareholders, (iv)
confirmation that the Initiating Shareholders are selling 100% of the aggregate
number of shares of Shares then held by them to a Third Party, and (v) the Drag-
Along Sale Date.
(c) On the Drag-Along Sale Date, each Shareholder shall deliver an
instrument of transfer and the corresponding certificate or certificates for all
of its Shares, duly endorsed for transfer with signatures guaranteed, to such
Third Party in the manner and at the address indicated in the Drag-Along Sale
Notice and the Initiating Shareholders shall (i) cause each Shareholder's pro
rata share of the purchase price to be paid to such Shareholder and (ii) deliver
to each Shareholder the opinion of counsel contemplated by Section 7.4(a)
hereof.
(d) The provisions of this Section 7.4 shall apply regardless of the
form of consideration received in the Drag-Along Sale; provided, however, that
if the Initiating Shareholders have agreed to sell any Shares for non-cash
consideration, the proposed purchaser's offer shall include (or, at its option,
the Initiating Shareholders may otherwise provide) an option for the Shareholder
to participate in such Drag-Along Sale and to select as consideration for its
sale either its pro rata share of such non-cash consideration or cash in the
amount of the fair market value of such non-cash consideration, which fair
market value shall be determined by an internationally recognized independent
valuation consultant or appraiser (with experience evaluating such type of
property) to be selected by the Initiating Shareholders and reasonably
satisfactory to the Shareholders holding a majority of the outstanding shares of
Shares then held by Shareholders requesting the appraisal.
(e) Any Shareholder who participates in the Drag-Along Sale and
receives its proportionate share of the purchase price therefrom who fails to
deliver an instrument of transfer properly endorsed in blank and corresponding
certificate or certificates for all of its Shares as described in this Section
7.4, hereby appoints the Chief Executive Officer as its duly appointed attorney-
in-fact to execute an instrument of transfer and a suitable indemnity in respect
of the missing certificate(s) for its Shares. Furthermore, such Shareholder
shall for all purposes be deemed no longer to be a shareholder of the Company,
shall have no voting rights, shall not be entitled to any dividends
<PAGE>
30
or other distributions in respect of the Company's Shares held by it (all such
dividends and distributions being deemed waived), shall have no other rights or
privileges granted to shareholders under this or any future agreement and, in
the event of liquidation of the Company, its rights with respect to any
consideration it would have received if it had complied with this Section 7.4,
if any, shall be subordinate to the rights of any equity holder.
(f) In the event that a proposal is made by a Third Party for a
merger or consolidation involving all of the Company's Shares or any of the
Company's Subsidiaries or to purchase all or substantially all of the Company's
assets (a "Third Party Proposal") and the Initiating Shareholders approves in
writing such Third Party Proposal, each Shareholder agrees to vote or give
written consent, or to cause its Director Designees to vote or give written
consent, in favor of such Third Party Proposal approved by the Initiating
Shareholders; provided that the other Shareholders shall not be required to take
any such action unless the price per share, and other terms and conditions of
such proposal, shall be no less favorable to the other Shareholders than those
applicable to the Initiating Shareholders; provided, further, that (i) no
Shareholder shall be obligated to take any such action unless each Shareholder
is provided an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to such Shareholder, to the effect that the Third Party Proposal is
not in violation of applicable Federal or state securities or other laws, (ii)
no Shareholder shall be required to make any representation, covenant or
warranty in connection with the Third Party Proposal, other than as to its
ownership and authority to transfer, free of liens, claims and encumbrances, the
shares of Shares proposed to be transferred by it and (iii) no Shareholder shall
be required to accept any consideration for its Shares other than cash and
readily marketable securities.
Section 7.5 Involuntary Transfers. In the event any or all of a
---------------------
Shareholder's Interest is transferred involuntarily, directly or indirectly, by
operation of law or otherwise, such Shareholder shall give written notice (an
"Involuntary Transfer Notice") promptly after receiving knowledge thereof, and
in any case within 15 days of such involuntary Transfer, to the other
Shareholders, with a copy to the transferee, stating the fact that the
involuntary Transfer occurred, the reason therefor, the date of such Transfer,
the name and address of the transferee and the Interest acquired by such
transferee.
Section 7.6 Liability of Transferor. In the event that any
-----------------------
Shareholder proposes to make a Transfer permitted under this Article, such
Shareholder shall cause the transferee, prior to such Transfer, to execute one
or more instruments pursuant to which the transferee adopts and agrees to be
bound as a Shareholder to this Agreement and such transferring Shareholder shall
be released from the obligations hereunder (including its commitment under
Section 2.7) with respect to the interest represented by the transferred Shares
assumed by the transferee and, until the transferee executes said instrument(s),
such transfer shall not be valid and effective and the transferor shall remain
fully liable for the acts, omissions or defaults of the transferee with respect
to the interest represented by the proposed transferred Shares and the
provisions of this Agreement, as if the transferor were still a party hereto.
No Transfer shall relieve the transferor of responsibility for its own acts,
omissions or defaults.
Section 7.7 Prohibited Transfers. Notwithstanding anything in this
--------------------
Article VII to the contrary, no Shareholder may transfer its Shares (i) in
violation of applicable law and, in particular, without the permission of the
Bermuda Monetary Authority, as necessary, or (ii) in violation of any of the
provisions of the Company's Bye-Laws or Memorandum of Association.
<PAGE>
31
Section 7.8 Expenses in Connection With Transfers. Each Shareholder
-------------------------------------
shall reimburse the Company for all reasonable expenses incurred by the Company
in connection with any Transfer proposed or effectuated by such Shareholder.
Section 7.9 Exit Rights of SCS. At any time after the Construction
------------------
Completion Date, if any of the following events occurs:
(a) the Company fails to make 100% of the dividend distributions
available to be made in accordance with the provisions of Section 2.10
because 75% or more of the Directors decided to distribute less than 100%
of such available dividend distributions as provided for in such Section
2.10;
(b) the Company has disposed of the full capacity of the System;
(c) seven (7) years have elapsed from the date of this Agreement; or
(d) SCS's Share Percentage shall at any time fall below 10% as a
result of any action it has not approved or otherwise consented to;
then, SCS shall have, in its sole discretion and upon giving to all other
Shareholders written notice (hereinafter "Exit Notice"), the right to sell all
of its Shares ("Exit Shares") to the remaining Shareholders (if such remaining
Shareholders agree) for their fair market value in cash ("Purchase Price"). Upon
receipt of the Exit Notice, each Shareholder other than SCS shall have the right
to purchase from SCS a pro rata portion of the Exit Shares in proportion to its
respective Share Percentage. The procedural provisions of Section 7.2 shall
govern such offer and purchase. Upon the sale of the Exit Shares, SCS will no
longer be a party to this Agreement, and the provisions of Section 7.6 shall be
applicable. If the remaining Shareholders shall elect to purchase less than all
of the Exit Shares, then SCS shall have the right to engage a third party
adviser to sell the Exit Shares to persons other than the Shareholders in
accordance with the provisions of Section 7.2(c).
ARTICLE VIII - REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 8.1 Representations and Warranties. Each Shareholder
------------------------------
represents and warrants to each of the other Shareholders as of the date hereof
as follows:
(a) Such Shareholder is duly organized and validly existing under the
laws of the jurisdiction of its organization and has all requisite power and
authority to own, lease and operate its properties, to carry out its business as
it is now being conducted and to perform its obligations hereunder, and under
its constituent documents, and to consummate the transactions contemplated
hereby and thereby.
(b) The execution, delivery and performance by such Shareholder of
this Agreement and the other documents referenced herein to which it is or is to
be a party have been authorized by all necessary action on the part of such
Shareholder, and do not and will not: (i) require any authorization, consent or
approval that has not been given or obtained of such Shareholder or to the best
of its knowledge, any governmental authority, (ii) violate any law, rule,
regulation, order, or
<PAGE>
32
decree presently in effect and having applicability to it, (iii) violate the
organizational documents of such Shareholder, (iv) violate any permit,
concession, grant, franchise, license or other governmental authorization,
approval, judgment, order or decree, or any mortgage, agreement, deed of trust,
indenture or any other instrument to which it is a party or by which it is bound
or any of its properties or assets are bound or which is otherwise applicable to
it or (v) create or impose any liens, mortgages, pledges, claims, security
interests, charges or encumbrances or obligations to create a lien, charge,
pledge or mortgage.
(c) This Agreement is the legal and binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with its terms,
and any other document referenced herein to which it is or is to be a party,
when duly executed and delivered by the parties thereto, will be the legal and
binding obligation of such Shareholder enforceable against such Shareholder in
accordance with its terms.
(d) There is no litigation pending or, to such Shareholder's
knowledge, threatened to which such Shareholder or any of its Affiliates is a
party which, if adversely determined, would have a material adverse effect on
the financial condition or prospects or business of such Shareholder or the
Company.
(e) All negotiations relating to this Agreement and the transactions
contemplated hereby have been carried out without the intervention of any person
acting on behalf of such Shareholder in a manner that could give rise to any
valid claim against the Company or any other Shareholder for any brokerage or
finder's commission, fee or similar compensation.
(f) It is not the agent of any other Shareholder for any purpose
hereof, and no Shareholder is authorized to take any action on behalf of any
other Shareholder except as expressly set forth herein.
Section 8.2 Covenants.
---------
(a) Cooperation in Financing; Further Assurances. Each Shareholder
--------------------------------------------
hereby undertakes to assist the IPG in securing the Construction Financing and
cooperate in good faith with all commercially reasonable requests of the
arrangers of the Construction Financing relating to such Shareholder and its
participation in the transactions contemplated by this Agreement.
(b) Compliance with Laws. In the performance of their obligations
--------------------
under this Agreement, the Shareholders and the Company shall, and shall cause
their respective directors, officers, employees and agents to, comply strictly
with all applicable laws, regulations and orders of all applicable
jurisdictions.
(c) System Contracts. Each Shareholder hereby undertakes to cause
----------------
the Company to enter into the System Contracts in substantially the forms
attached as Exhibits hereto (or in such other form as may be agreed by the
Shareholders) at such time as the Shareholders deem it appropriate.
<PAGE>
33
(d) No Duty of Loyalty. The Shareholders and their Affiliates shall
------------------
have no fiduciary duty or other duty of loyalty to the Company or any other
Shareholder and shall be free to engage in business, or invest in businesses,
competitive with the Company.
ARTICLE IX - IPG
Section 9.1 Constitution. The IPG (as defined in the JV Agreement)
------------
will be co-chaired by GCT and Marubeni. Participation shall be as follows:
GCT
---
Bill Carter, Co-Chairman
David Lee
Wally Dawson
Marubeni
--------
Masao Teramoto, Co-Chairman
Yoneaki Masaki
Jason Tavano
Section 9.2 Function. Prior to the employment of the Chief Executive
--------
Officer and the other Principal Executive Officers of the Company, the IPG shall
perform the functions ordinarily performed by such officers, including the
negotiation of the System Contracts and the terms of the Construction Financing.
The operation of the IPG shall be informal and be determined by the Co-Chairmen
with all reasonable efforts being made in light of the time schedule to provide
meaningful reporting to the Board of Directors and the Shareholders. Formal
meetings, if any, may be held by telephonic conference call.
Section 9.3 Counsel. Simpson Thacher & Bartlett shall act as lead
-------
counsel to the IPG (except with respect to any Intercompany Agreement between
the Company and Global Crossing (or an Affiliate of Global Crossing)) and Davis
Polk & Wardwell shall act as co-counsel. The IPG will apportion work to counsel
in a manner to avoid unnecessary duplication of work.
ARTICLE X - CONFIDENTIALITY
Section 10.1 Confidentiality. Each of the Shareholders agrees that
---------------
materials disclosed to another Shareholder hereunder to evaluate various aspects
of the transaction as well as documents prepared by the Shareholders pursuant to
this Agreement may contain proprietary confidential information and trade
secrets ("Confidential Information") and the disclosure or unauthorized use of
such Confidential Information could cause irreparable injury. Each Shareholder
agrees that all such Confidential Information provided by another Shareholder
will be used and disclosed only to officers, directors, employees and advisors
of a Shareholder who need to know such Confidential Information for the purpose
and to the limited extent necessary to evaluate the business relationship herein
described and to take the steps contemplated by this Agreement, and such
Confidential Information shall not otherwise be disclosed to any other person.
All extracts, digests, and copies of such Confidential Information shall be
maintained under strict control by its recipient. The term
<PAGE>
34
"Confidential Information" shall not include such portions of the Confidential
Information which (i) is generally available to the public or has become, after
the time of discovery, part of the public domain by publication or otherwise
through no fault of the receiving party, (ii) was, prior to the time of
disclosure, already known to the receiving party and was not acquired, directly
or indirectly, from the disclosing party or its representatives, (iii) is, after
the time of disclosure, independently developed by the receiving party and not
as a result of disclosure of the Confidential Information by the disclosing
party to the receiving party, (iv) is, after the time of disclosure, acquired in
good faith without any restriction of confidentiality from a third party who is
under no secrecy obligation to the disclosing party with respect thereto which
is known to the receiving party or (v) is no longer treated as confidential by
the disclosing party. The provisions of this Article X shall be also binding
upon each shareholder of any Special Purpose Shareholder.
ARTICLE XI - DEFAULTS AND REMEDIES
Section 11.1 Defaults. If any Shareholder:
--------
(a) commits a material breach of its obligations under this
Agreement, including its obligations under Section 2.7 which is not cured
within 10 Business Days after notice; or
(b) shall (i) fail generally to pay its debts as they become due,
(ii) admit in writing its inability to pay its debts generally as they
become due, (iii) commence a voluntary bankruptcy or insolvency case or
proceeding, (iv) consent to, or acquiesce in, the institution of a
bankruptcy or an insolvency proceeding against it or the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding, (v) apply for, consent to or acquiesce in the appointment of or
taking possession by a custodian or its business or of any part of its
property, (vi) make a general assignment for the benefit of its creditors
or (vii) take any corporate action in furtherance of or to facilitate,
conditionally or otherwise, any of the foregoing; or
(c) shall be subject to a judgment, decree or order of court of
competent jurisdiction which (i) is for relief against it in an involuntary
bankruptcy or insolvency case, (ii) appoints a custodian of its business or
for any part of its property or (iii) orders the winding-up or liquidation
of its affairs; and such judgment, decree or order shall remain unstayed
and in effect for a period of 30 consecutive days; or any bankruptcy or
insolvency petition or application shall be filed, or any bankruptcy case
or insolvency proceeding shall be commenced against it and such petition,
application, case or proceeding is not dismissed within 60 days;
then in the case of any event described in the foregoing subclauses (a), (b), or
(c) (each an "Event of Default") such Shareholder shall for the purposes hereof
be deemed a "Defaulting Shareholder." Shareholders which are not Defaulting
Shareholders shall for the purposes hereof be deemed "Non-Defaulting
Shareholders", and any Non-Defaulting Shareholder may (and the Company shall)
serve notice (a "Default Notice") on a Defaulting Shareholder of the occurrence
of an Event of Default.
Each Shareholder agrees that with respect to the payment of its
Budgeted Capital Contributions, time is of the essence, that any Event of
Default by any Shareholder would cause
<PAGE>
35
injury to the Company and to the other Shareholders and that the amount of
damages caused by any such injury would be extremely difficult to calculate.
Accordingly, the Shareholders agree that upon any Event of Default by a
Shareholder at any time, all of the succeeding provisions of this Article XI
shall apply.
Section 11.2 Actions Upon Default. (a) In the case of a default
--------------------
described by Section 11.1(a) that is not a default caused by the failure to fund
a Budgeted Capital Contribution required pursuant to Section 2.7, the Defaulting
Shareholder shall have 90 days after the receipt of a Default Notice within
which to remedy the breach. During such 90 day period, the Shareholders shall
use their commercially reasonable efforts to resolve the matter to their mutual
satisfaction.
(b) In the case of a default described by Section 11.1(a) that is a
default caused by the failure to fund a Budgeted Capital Contribution required
pursuant to Section 2.7, the Defaulting Shareholder shall have 10 Business Days
after the designated Capital Call Date for such Budgeted Capital Contribution to
fund such Budgeted Capital Contribution. If, after such 10 day period, the
Defaulting Shareholder has not funded its required Budgeted Capital
Contribution, (i) the Chief Executive Officer shall promptly notify each Non-
Defaulting Shareholder of such failure and (ii) any Non-Defaulting Shareholder
shall have the right (but not the obligation), upon 5 days prior written notice
to the Defaulting Shareholder, to fund the unfunded portion of such Budgeted
Capital Contribution within 60 Business Days after the designated Capital Call
Date for such Budgeted Capital Contribution. If a Non-Defaulting Shareholder
funds the unfunded portion of such Budgeted Capital Contribution, the Defaulting
Shareholder, in its capacity as a Shareholder, shall transfer Shares for no
consideration to such Non-Defaulting Shareholder, in its capacity as a
Shareholder, such that after giving effect to such transfer the Share
Percentages of the Shareholders, in their capacities as Shareholders, shall
equal their respective Interests. Amounts contributed by a Non-Defaulting
Shareholder pursuant to this Section 11.2(b) shall not be, and shall not be
deemed to be, in respect of or in satisfaction of its Capital Commitment
hereunder. If, within 60 Business Days after the designated Capital Call Date
for such Budgeted Capital Contribution, a Defaulting Shareholder shall not have
made such Budgeted Capital Contribution (together with interest thereon) and no
Non-Defaulting Shareholder(s) shall have funded such Budgeted Capital
Contribution, then such Defaulting Shareholder's Interest shall be reduced by
half and each Non-Defaulting Shareholder's Interest shall be increased by a
ratable portion of such reduction. The Company shall cancel Shares and issue
new Shares to reflect the foregoing changes in Shareholders' Interests.
(c) In the case of a default described by Section 11.1(b) or Section
11.1(c), in the case of a default described by Section 11.1(a) that is not a
default caused by the failure to fund a Budgeted Capital Contribution required
pursuant to Section 2.7 if at the end of the applicable 90-day period the
Defaulting Shareholder has not remedied the default or the matter has not
otherwise been settled to the satisfaction of the Non-Defaulting Shareholders,
or in the case of a default described by Section 11.1(a) that is a default
caused by the failure to fund a Budgeted Capital Contribution required pursuant
to Section 2.7 if at the end of the applicable 10-day period the Defaulting
Shareholder has not funded the required Budgeted Capital Contribution, the Non-
Defaulting Shareholders shall have the right, at their option, to (i) obtain
money damages from the Defaulting Shareholder and/or (ii) terminate this
Agreement upon written notice (a "Termination Notice") to the Defaulting
Shareholder, in which event the provisions of Section XIII shall apply, and/or
(iii) exercise their purchase option pursuant to Section 11.3 below.
<PAGE>
36
Section 11.3 Option of Non-Defaulting Shareholders to Purchase
-------------------------------------------------
Shares. (a) In addition to the remedies set out in Section 11.2, the Non-
Defaulting Shareholders may, within 90 days of their being so entitled, purchase
on a pro rata basis, the Interest owned by the Defaulting Shareholder for a
price in cash equal to the lesser of (i) the fair market value of such Interest
(as reduced pursuant to Section 11.2) at the end of the most recently ended
Fiscal Quarter and (ii) the amount of such Interest (as reduced pursuant to
Section 11.2) less the amount owed to the Company in respect of the Defaulting
Shareholder's unpaid Budgeted Capital Contribution.
(b) If the Non-Defaulting Shareholders elect to purchase the Interest
owned by the Defaulting Shareholder pursuant to this Section 11.3 for a price
less than that set forth in 11.3(a)(ii), the Shareholders will attempt in good
faith to determine the fair market value (on a going concern basis) of the
Company and the Shares. If the Shareholders cannot agree on a valuation within
60 days after any Shareholder exercises its rights under this Section 11.3, then
the Company will retain an internationally known investment banking firm to make
an independent valuation of the fair market value (on a going concern basis) of
the Company and the Shares. The fees and expenses of such investment banking
firm will be borne by the Defaulting Shareholder. The Defaulting Shareholder
shall have the right to retain an internationally known investment banking firm
to make an independent valuation of the fair market value (on a going concern
basis) of the Company and the Shares. The fees and expenses of such investment
banking firm shall be borne by the Defaulting Shareholder.
(c) Each valuation of the Company and Shares pursuant to this Section
11.3 shall take into account all of the relevant facts and circumstances related
to the Company at that time (including the price a willing buyer would pay and a
willing seller would accept in an arms-length transaction (including a strategic
premium), the number of Shareholders exiting the Company and the ability of the
Company to continue to maintain the System) and shall be completed within one
month after the relevant investment banking firm is retained.
(d) If two investment banking firms are retained pursuant to
paragraph (b) above and the fair market values of the Company and the Shares as
determined by such investment banking firms differ by an amount which is less
than or equal to 20%, the fair market value of the Company and the Shares shall
be the average of such valuations. If the fair market values of the Company and
the Shares as determined by such investment banking firms differ by an amount
which is greater than 20%, such investment banking firms shall select a third
internationally recognized investment banking firm to determine the fair market
value (on a going concern basis) of the Company and the Shares, the fees and
expenses of which will be borne by the Shareholders in accordance with their
respective Interests. If the fair market value of the Company and the Shares as
determined by such third investment banking firm is between the fair market
values determined by the other two investment banking firms, the fair market
value of the Company and the Shares shall be the value determined by such third
investment banking firm. If the fair market value of the Company and the Shares
as determined by such third investment banking firm is greater than or equal to
the higher of the fair market values of the Company and the Shares as determined
by the other two investment banking firms or is less than or equal to the lower
of the fair market values of the Company and the Shares as determined by such
other investment banking firms, the fair market value of the Company and the
Shares shall be the average of the valuations of all three investment banking
firms.
<PAGE>
37
Section 11.4 Other Remedies. The rights of the Shareholders pursuant
--------------
to this Article XI shall not be exclusive, but shall be in addition to any other
rights or remedies available to any of the Shareholders at law or in equity.
ARTICLE XII - DEADLOCK
Section 12.1 Deadlock. If at any time there is a dispute or
--------
disagreement which results in a Deadlock (as defined below), any Director or
Shareholder may notify each other Director or Shareholder (as the case may be)
that a Deadlock has occurred (a "Deadlock Notice"). Each Shareholder agrees
that upon delivery or receipt of a Deadlock Notice, it will use all reasonable
efforts to resolve such Deadlock within 60 days of the date of the Deadlock
Notice. If such Deadlock is not resolved within such 60 day period, then any
Shareholder may, by notice to the other Shareholders (the "Triggering Notice"),
initiate a Company Sale procedure pursuant to Section 13.2 below.
"Deadlock" means the occurrence of either of the following: (i) a
Roll-Over Budget having been in effect for three consecutive Operating Years
pursuant to Section 3.7 and (ii) at any time after three years from the date
hereof, any matter requiring the approval of 75% of the Directors or
Shareholders shall not have been approved by 75% of the Directors or
Shareholders but shall have been approved by at least 50% of the Directors or
Shareholders.
ARTICLE XIII - TERMINATION AND DISSOLUTION
Section 13.1 Termination. This Agreement shall terminate and the
-----------
Company shall be liquidated upon the occurrence of any of the following events
(each a "Termination Event"):
(a) the Non-Defaulting Shareholders shall deliver a Termination
Notice pursuant to Section 11.2;
(b) by final, nonappealable court or other governmental order; or
(c) by unanimous vote of the Shareholders.
Section 13.2 Winding-up. (a) Promptly after the occurrence of a
----------
Termination Event or the delivery of a Triggering Notice, the Shareholders shall
seek to sell all of the issued and outstanding Shares to a buyer or buyers
(which may include a Shareholder or an Affiliate of a Shareholder) in accordance
with the provisions of this Section 13.2 (a "Company Sale"); provided that all
Shares shall be sold to such buyer or buyers at an identical price and on
identical terms.
(b) Following the occurrence of a Termination Event or the delivery
of a Triggering Notice, the Company and all Shareholders shall cooperate in good
faith in connection with such Company Sale and use their reasonable efforts to
assist in maximizing the consideration per share of the Shares received by the
Shareholders in such Company Sale. Promptly (and in any event within 60 days),
the Company will retain an internationally recognized investment banking firm to
assist in such Company Sale (the "Auction Bank"). The Auction Bank will then
conduct an auction in a
<PAGE>
38
commercially reasonable fashion among potential purchasers identified by the
Auction Bank, the Company and the Shareholders, and will be instructed to obtain
definitive bids for the Company as soon as practical (and in any event within
180 days after it is retained by the Company), which bids will be required to be
for all of the outstanding Shares and for consideration consisting entirely of
cash. Following the conclusion of the auction, the Company and the Shareholders
will use their reasonable best efforts to negotiate a Company Sale at the
highest cash price per Share that was offered (and to the party that made such
offer) unless the Board of Directors, by the affirmative vote of at least 75% of
the Directors determines that another offer (an "Alternative Offer") is in the
best interests of the Shareholders, in which case the Company and the
Shareholders will use their reasonable best efforts to negotiate a Company Sale
to the party making the Alternative Offer at the price specified in such
Alternative Offer. Each Shareholder shall sell to such purchaser all Shares
then held by such Shareholder on the terms and conditions contained in the
definitive agreements negotiated with such purchaser, and such sale shall be
effected within 90 days following identification of such purchaser by the
Auction Bank, provided that the consummation of such purchase and sale with
respect to all Shareholders shall be delayed to the extent necessary to comply
with any regulatory filings or other regulatory requirements applicable to the
sale by any Shareholder.
(c) No sale of Shares may be triggered under this Section 13.2 unless
the purchaser has agreed to purchase all of the then issued and outstanding
Shares and no Shareholder shall be required to sell less than all of such
Shareholder's Shares.
ARTICLE XIV - MISCELLANEOUS
Section 14.1 After-Acquired Shares. All of the provisions of this
---------------------
Agreement shall apply to (i) all Shares now owned or which may be Transferred
hereafter to, or owned by, any Shareholder, and (ii) all securities and
instruments (A) received by a Shareholder as a dividend on or other payment made
to holders of Shares, or (B) issued in connection with a split of Shares or as a
result of any exchange for or reclassification of Shares or a reorganization,
recapitalization, consolidation or merger.
Section 14.2 Rights of Transferees; Requirement to Become a Party.
----------------------------------------------------
If a Shareholder transfers any or all of its Shares to any Permitted Transferee
or other Person in compliance with this Agreement, such transferee shall have
the same rights hereunder as are given to, and shall be subject to the same
obligations as are imposed upon the Shareholder by the terms hereof with respect
to the Shares that are the subject of the Transfer. No Transfer shall be in
compliance with this Agreement or effective unless the transferee, prior to such
Transfer, agrees in writing to be bound by the terms of this Agreement and to
become a "Shareholder."
Section 14.3 Owner of Shares. The person in whose name Shares are
---------------
registered in the Register may be treated as the owner thereof for all purposes,
including without limitation, for the giving of notices under this Agreement.
Section 14.4 Effect of Ceasing to Own An Interest. If any
------------------------------------
Shareholder ceases to own any Interest in the Company, such Shareholder shall
forthwith cease to be a party to this Agreement or a Shareholder (without
prejudice to any rights or obligations then existing or accruing and on the
<PAGE>
39
basis that such Shareholder's obligations under Article X shall continue to
apply) and this Agreement shall be construed accordingly.
Section 14.5 Conflict of Terms. In the event that the terms of this
-----------------
Agreement and the terms of any of the Company's Bye-Laws or Memorandum of
Association differ, the Shareholders shall take, and shall cause the Company and
its Board of Directors to take, such steps as are necessary to amend the
applicable Company's Bye-Laws or Memorandum of Association to reflect the terms
of this Agreement, so far as permitted by law. Until such time as the Bye-Laws
have been amended to reflect the terms of this Agreement, the terms of this
Agreement shall prevail as between the Shareholders, so far as permitted by law.
If any such amendment is not permitted by law, the applicable Company's Bye-Laws
or Memorandum of Association shall prevail.
Section 14.6 Legend. So long as the provisions of this Agreement
------
remain in effect, all certificates evidencing Shares shall be endorsed with the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND THE SALE OR OTHER TRANSFER
THEREOF, OR ANY INTEREST THEREIN, MAY BE MADE ONLY IN A
TRANSACTION NOT SUBJECT TO, OR PURSUANT TO AN EXEMPTION FROM,
THE REGISTRATION REQUIREMENTS OF SUCH ACT. THE SALE, TRANSFER,
PLEDGE OR OTHER ENCUMBRANCE OF DISPOSITION OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO AND RESTRICTED BY
AN AMENDED AND RESTATED SHAREHOLDERS AGREEMENT DATED AS OF
JULY 2, 1998, AS IT MAY BE AMENDED FROM TIME TO TIME IN
ACCORDANCE WITH THE PROVISIONS THEREOF (THE "AGREEMENT"), WHICH
CONTAINS RESTRICTIONS ON TRANSFER, RIGHTS OF FIRST REFUSAL,
TAG-ALONG AND DRAG-ALONG PROVISIONS. COPIES OF THE AGREEMENT
MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY.
Section 14.7 Notices. All notices and other communications provided
-------
for or permitted hereunder shall be made in writing by hand-delivery, air
courier or facsimile transmission to the persons and addresses set forth on
Schedule 3 hereto. All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; three business
days after being timely dispatched delivery prepaid, if by air courier; and when
receipt acknowledged, if sent by facsimile transmission. Any of the above
addresses may be changed by notice made in accordance with this subsection.
Section 14.8 Applicable Law; Forum Selection. This Agreement is
-------------------------------
governed by and shall be construed in accordance with the laws of New York
(except to the extent the laws of Bermuda are mandatorily applicable) without
giving effect to the principles of conflict of laws thereof.
<PAGE>
40
Section 14.9 Arbitration. The Shareholders agree that any dispute
-----------
arising out of or in connection with this Agreement or the transactions
contemplated hereby shall be submitted to arbitration. The Shareholders shall
negotiate in good faith and use all reasonable efforts to agree upon a
resolution of any dispute after receipt of written notice of such dispute from a
Shareholder. If the Shareholders cannot agree on an amicable settlement within
60 days from written submission of the matter by one Shareholder to another, the
matter shall be submitted to arbitration. The Shareholder invoking arbitration
shall select one arbitrator, the other Shareholder shall appoint one arbitrator,
and the two arbitrators so appointed shall select a third arbitrator. In the
event such arbitrators cannot agree upon a third arbitrator, a third arbitrator
shall be selected in accordance with the rules as then in effect of the American
Arbitration Association. The decision of two of the three arbitrators so
appointed as to the validity of any claim shall be conclusive and binding upon
the parties to this Agreement. Any such arbitration shall be held in New York,
New York under the international rules as then in effect of the American
Arbitration Association; provided that the arbitrators shall not have the powers
of amiable compfiteur or ex aequo et bono. The parties hereto intend that this
Agreement and any interpretation, construction or enforcement hereof by the
arbitrators will be governed by the specific terms of this Agreement. The
official language of any such arbitration will be English. Each party to any
such arbitration shall pay its own expenses; provided that the fees, costs and
expenses of the third arbitrator shall be borne equally by the Shareholder
invoking arbitration, on the one hand, and the other Shareholders, on the other
hand.
Section 14.10 Amendment. No amendment, modification, waiver, change
---------
or addition hereto shall be effective or binding on any party hereto unless the
same is in writing and signed by each of the parties hereto.
Section 14.11 Assignment. (a) The provisions of this Agreement shall
----------
be binding upon and shall inure to the benefit of the Shareholders and their
respective heirs, successors and permitted assigns. No transfer or assignment
of this Agreement shall be permitted unless the conditions set forth in Article
VII are satisfied.
Section 14.12 Expenses. Except as set forth in the Construction
--------
Budget, each of the Shareholders shall be responsible for and pay all expenses,
costs and fees incurred or assumed by such Shareholder in connection with the
preparation, negotiation and execution of this Agreement, compliance herewith
and the consummation or the transactions contemplated hereby.
Section 14.13 Specific Enforcement. Each of the parties hereto
--------------------
acknowledges and agrees that (a) monetary damages would be an inadequate remedy
for a breach of any of the provisions of this Agreement, (b) in addition to
being entitled to exercise all of their rights granted by law, including
recovery of damages, the other parties shall therefore be entitled to specific
performance of its rights under this Agreement and (c) in the event of any
action for specific performance it shall waive the defense that a remedy at law
would be adequate.
Section 14.14 Headings. The headings of this Agreement are for
--------
reference only and shall not be deemed to form part of the text.
Section 14.15 Entire Agreement. This Agreement and the other
----------------
documents or instruments referred to herein when delivered, or required to be
delivered in connection herewith, constitute the entire agreement among the
Shareholders and supersede all prior agreements and
<PAGE>
41
undertakings, oral or written, among them or between any of them with respect to
the subject matter hereof. On the Effective Date, the JV Agreement and the MOU
shall terminate.
Section 14.16 Waivers. Any waiver, express or implied, by any
-------
Shareholder of any right hereunder or of any failure to perform or breach hereof
by any other Shareholder shall not constitute or be deemed a waiver of any other
right hereunder or of any other failure to perform or breach hereof by any
Shareholder, whether of a similar or dissimilar nature, unless the same is in
writing and signed by each Shareholder.
Section 14.17 Severability. The invalidity or unenforceability of
------------
any provision of this Agreement shall not affect the validity or enforceability
of its other provisions. Following the determination that any provision of this
Agreement is unenforceable, the Shareholders shall negotiate in good faith a new
provision that, as far as legally possible, most nearly reflects the intent of
the Shareholders and that restores this Agreement as nearly as possible to its
original intent and effect.
Section 14.18 No Third Party Beneficiaries. This Agreement is solely
----------------------------
for the benefit of the Shareholders and the Company, and their respective
successors and permitted assigns, and this Agreement shall not otherwise be
deemed to confer upon or give to any other third party any right, claim, cause
of action, or other interest herein.
Section 14.19 Public Statements. The parties shall consult with each
-----------------
other prior to issuing any public announcement or statement with respect to this
Agreement or the transaction contemplated hereby.
Section 14.20 $. All references to "$" mean United States dollars.
-
Section 14.21 Execution in Counterparts. This Agreement may be
-------------------------
executed in one or more counterparts and by one or more parties to any
counterpart, each of which shall be deemed an original and all of which together
shall constitute one and the same agreement.
<PAGE>
42
IN WITNESS WHEREOF, the Shareholders have entered into this Agreement
as of the day and year first above written.
GCT PACIFIC HOLDINGS, LTD.
By:_______________________________________
Name:
Title:
SCS (BERMUDA) LTD.
By:_______________________________________
Name:
Title:
MARUBENI PACIFIC CABLE LIMITED
By:_______________________________________
Name:
Title:
PACIFIC CROSSING LTD.
By:_______________________________________
Name:
Title:
<PAGE>
EXHIBIT 5.1
July 1, 1998
Global Crossing Ltd.
Wessex House, 1st Floor
45 Reid Street
HAMILTON HM 12
Bermuda
Dear Sirs:
RE: GLOBAL CROSSING LTD. (THE "COMPANY")
Registration Statement Form S-1 No. 333-53393
- --------------------------------------------------
We have acted as legal counsel in Bermuda to the Company in connection with
the proposed offer by the Company of common shares (the "Shares") pursuant to a
prospectus (the "Prospectus"), forming part of the Registration Statement on
Form S-1 (No. 333-53393) (the "Registration Statement") filed with the
Securities and Exchange Commission on May 22, 1998.
Unless otherwise defined herein, capitalised terms have the meanings
assigned to them in the Prospectus.
DOCUMENTS EXAMINED
- ------------------
For the purposes of this opinion we have examined and relied upon the
following:
(A) A faxed copy of the Prospectus.
(B) A copy of the permission of the Bermuda Monetary Authority under the
Exchange Control Act (1972) and related regulations for the issue of the
Shares.
<PAGE>
2
(C) A certified copy of the Minutes of the Meeting of the Board of Directors
of the Company held on July 1, 1998 and the unanimous written resolutions
of the Shareholder of the Company dated July 1, 1998 (the "Resolutions").
(D) The entries and filings shown in respect of the Company in the register of
companies at the office of the Registrar of Companies in Hamilton,
Bermuda, as revealed by a search on July 1, 1998.
(E) The entries and filings shown in the Supreme Court Causes Book at the
Registry of the Supreme Court in Hamilton, Bermuda, as revealed by a
search on July 1, 1998 in respect of the Company.
(F) Certified copies dated July 1, 1998 of the Certificate of Incorporation,
Memorandum of Association and Bye-laws adopted for the Company
(collectively referred to as the "Constitutional Documents").
ASSUMPTIONS
- -----------
In stating our opinion we have assumed:-
(i) the authenticity, accuracy and completeness of all documents (including,
without limitation, public records) submitted to us as originals and the
conformity to authentic original documents of all documents submitted to
us as certified, conformed, notarised or photostatic copies;
(ii) the genuineness of all signatures on the documents;
(iii) the authority, capacity and power of each of the persons signing any of
the documents (other than the Company);
(iv) that any factual statements made in any of the documents are true,
accurate and complete;
(v) that there are no provisions of the laws or regulations of any
jurisdiction other than Bermuda which would be contravened by the
transaction envisaged in the Prospectus or which would have any
implication in relation to the opinion expressed herein and that, in so
far as any obligation under, or action to be taken under, the Prospectus
is required to be performed or taken in any jurisdiction outside Bermuda,
the performance of such obligation or the taking of such action will
constitute a valid and binding obligation of each of the parties thereto
under the laws of that jurisdiction and will not be illegal by virtue of
the laws of that jurisdiction;
(vi) that the searches made on July 1, 1998 in the register of companies at the
office of the Registrar of Companies and in the Supreme Court Causes Book
at the Registry of the
<PAGE>
3
Supreme Court referred to in paragraphs (D) and (E) of this opinion
respectively, were complete and accurate at the time of such search and
disclosed all information which is material for the purposes of this
opinion and such information has not since such date been materially
altered; and
(vii) that the Resolutions, are in full force and effect and have not been
rescinded, either in whole or in part and accurately record the
resolutions duly passed by the Board of Directors of the Company and
adopted by the Shareholder as the case may be.
OPINION
- -------
Based upon and subject to the foregoing and subject to the reservations
set out below and to any matters not disclosed to us, we are of the opinion
that:-
(1) The Company is an exempted company incorporated with limited liability
under the laws of Bermuda.
(2) All necessary corporate action required pursuant to Bermuda law has been
taken by or on behalf of the Company and all the necessary authorisations
and approvals of Governmental Authorities in Bermuda have been duly
obtained for the issue of the Shares and when issued and paid for in
accordance with the terms of the Prospectus, the Shares will be duly
issued and will be outstanding as fully paid and non-assessable shares of
the Company.
RESERVATIONS
- ------------
We have the following reservations:-
(a) We express no opinion as to the availability of equitable remedies such as
specific performance or injunctive relief, or as to any matters which are
within the discretion of the courts of Bermuda in respect of any
obligations of the Company as set out in the Prospectus. Further, we
express no opinion as to the validity or binding effect of any waiver of
or obligation to waive either any provision of law (whether substantive or
procedural) or any right or remedy.
(b) We express no opinion as to any law other than Bermuda law and none of the
opinions expressed herein relates to compliance with or matters governed
by the laws of any jurisdiction except Bermuda. This opinion is limited to
Bermuda law as applied by the Courts of Bermuda at the date hereof.
(c) In order to issue this opinion we have carried out the searches referred
to in paragraphs D and E at 10:30 a.m. on July 1, 1998 and have not
enquired as to whether there have been any changes since that date.
<PAGE>
4
(d) Any reference in this opinion to shares being "non-assessable" shall mean,
in relation to fully paid shares of the Company and subject to any contrary
provision in any agreement in writing between such company and the holder
of such shares, that no shareholder shall be bound by an alteration to the
Memorandum of Association or Bye-laws of the Company after the date on
which he became a shareholder, if and so far as the alteration requires him
to take, or subscribe for additional shares, or in any way increases his
liability to contribute to the share capital of, or otherwise to pay money
to the Company.
DISCLOSURE
- ----------
This opinion is addressed to you solely for your benefit and is neither to
be transmitted to any other person, nor relied upon by any other person or for
any other purpose nor quoted or referred to in any public document nor filed
with any governmental agency or person, without our prior written consent,
except as may be required by law or regulatory authority. Further, this opinion
speaks as of its date and is strictly limited to the matters stated herein. We
hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement.
This opinion is governed by and is to be construed in accordance with
Bermuda law. It is given on the basis that it will not give rise to any legal
proceedings with respect thereto in any jurisdiction other than Bermuda.
Yours faithfully,
<PAGE>
EXHIBIT 8.1
July 2, 1998
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Dear Sirs:
We have acted as special United States tax counsel to Global Crossing
Ltd. (the "Issuer"), in connection with the offering of common stock of the
Issuer (the "Common Stock").
In connection with the offering, we have examined the Pre-Effective
Amendment No. 1, dated July 2, 1998, to the Registrant's Registration Statement
on Form S-1 (File No. 333-53393) (the "Registration Statement") under the
Securities Act of 1933, as amended. In addition, we have examined such other
documents, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the authenticity of all documents submitted
to us as originals, the conformity of all final documents to drafts reviewed by
us, the conformity to original documents of all documents submitted to us as
certified, conformed, photostatic or facsimile copies, and
<PAGE>
-2-
Global Crossing Ltd. July 2, 1998
the authenticity of the originals of such latter documents. Further, we have
relied upon certain other statements and representations made by the officers of
the Issuer and its affiliates and by representatives of the Issuer and its
affiliates. We also have assumed that the Registration Statement will be in the
form examined by us as set forth above.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we hereby advise you that the statements set forth in
the Prospectus under the caption "Taxation of Stockholders--United States
Federal Income Tax Considerations", insofar as they purport to constitute
summaries of matters of United States federal tax law and regulations or legal
conclusions with respect thereto, constitute accurate summaries of the matters
described therein in all material respects. We express no opinion with respect
to the transactions referred to herein or in the Registration Statement other
than as expressly set forth herein.
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the federal law of the
United States.
<PAGE>
-3-
Global Crossing Ltd. July 2, 1998
We hereby consent to the filing of this opinion letter as Exhibit 8.1 to
the Registration Statement and to the use of our name under the captions
"Taxation of Stockholders" and "Legal Matters" in the Prospectus included in the
Registration Statement.
Very truly yours,
/s/Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 8.2
July 1, 1998
Global Crossing Ltd.
Wessex House, 1st Floor
45 Reid Street
HAMILTON HM 12
Bermuda
Dear Sirs:
RE: REGISTRATION STATEMENT ON FORM S-1
Registration No. 333-53393 of Global Crossing Ltd. (the "Company")
------------------------------------------------------------------
We have acted as attorneys in Bermuda for the Company in connection with its
filing with the Securities and Exchange Commission of a Registration Statement
on Form S-1, File No. 333-53393 (the "Registration Statement"), with respect to
the proposed offer by the Company of common shares (the "Shares") pursuant to
the terms of a Prospectus, a copy of which has been filed on May 22, 1998 as
part of the Registration Statement.
For the purpose of this opinion we have examined (i) a copy of the
Registration Statement, (ii) a copy of the Prospectus, (iii) a certified copy of
the Memorandum of Association, Certificate of Incorporation and Bye-laws of the
Company, (iv) a certified copy of the Foreign Exchange Letter dated March 17,
1998 issued by the Bermuda Monetary Authority in favour of the Company, and (v)
a certified copy of the Tax Assurance dated March 24, 1998 issued by the
Registrar of Companies for the Minister of Finance in relation to the Company.
Our opinion is limited to Bermuda laws supplied by the Courts of Bermuda at
the date hereof and is given on the basis that it will be governed by and
construed in accordance with Bermuda law. We have made no investigation of, nor
do we express any opinion as to the laws of any jurisdiction other than Bermuda
and in giving our opinion we have assumed (i) the genuineness of all signatures
on the documents which we have examined, (ii) the accuracy of factual statements
made therein, (iii) the authority, capacity and power of each of the persons
signing the documents, and (iv) the authenticity, accuracy and completeness of
all documents submitted to us as originals and the conformity to authentic
original documents of all documents submitted to us as copies.
In our opinion the sub-sections of the Prospectus entitled "Taxation of the
Company Bermuda Tax Considerations" and "Taxation of the Stockholders Bermuda
Tax Considerations" of the Prospectus under the main heading "Tax
Considerations" are an accurate statement of Bermuda law.
Our opinion is limited to such matters and we express no opinion as to the
laws of the United States of America or any other territory or jurisdiction.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our Firm under the caption
"Service of Process and Enforcement of Liability".
<PAGE>
EXHIBIT 10.1
FORM OF
1998 GLOBAL CROSSING LTD.
STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purpose of the Plan is to aid the Company and its Subsidiaries in
recruiting and retaining key individuals of outstanding ability and to motivate
such individuals to exert their best efforts on behalf of the Company and its
Subsidiaries by providing incentives through the granting of Awards. The
Company expects that it will benefit from the added interest which such key
individuals will have in the welfare of the Company as a result of their
proprietary interest in the Company's success.
2. DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any
---
successor thereto.
(b) Award: An Option, Stock Appreciation Right or Other Stock-Based
-----
Award granted pursuant to the Plan.
(c) Beneficial Owner: A "beneficial owner", as such term is defined
----------------
in Rule 13d-3 under the Act (or any successor rule thereto).
(d) Board: The Board of Directors of the Company.
-----
(e) Change in Control: The occurrence of any of the following events:
-----------------
(i) any Person (other than a Person holding securities
representing 10% or more of the combined voting power of the
Company's outstanding securities as of the Effective Date, the
Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned,
directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of
the Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company, (a) in excess of the
interest in the Company held by the shareholders of the Company
as of the Effective Date (or their heirs or distributors by will
or the laws
<PAGE>
2
of descent and distribution) and (b) representing 30% or more of
the combined voting power of the Company's then-outstanding
securities;
(ii) during any period of twenty-four months (not including any
period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board, and any new
director (other than (A) a director nominated by a Person who has
entered into an agreement with the Company to effect a
transaction described in Sections 2(e)(i), (iii) or (iv) of the
Plan, (B) a director nominated by any Person (including the
Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual
or threatened proxy contest) which if consummated would
constitute a Change in Control or (C) a director nominated by any
Person who is the Beneficial Owner, directly or indirectly, of
securities of the Company representing 10% or more of the
combined voting power of the Company's securities) whose election
by the Board or nomination for election by the Company's
shareholders was approved in advance by a vote of at least two-
thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof;
(iii) the shareholders of the Company approve any transaction or
series of transactions under which the Company is merged or
consolidated with any other company, other than a merger or
consolidation which would result in the shareholders of the
Company immediately prior thereto continuing to own (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than 65% of the combined
voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a liquidation of the Company into a
wholly-owned subsidiary.
(f) Code: The Internal Revenue Code of 1986, as amended, or any
----
successor thereto.
(g) Committee: A committee of 3 or more individuals appointed from
---------
time to time by the Board, which, until otherwise determined by
the Board, shall consist of the full Board.
(h) Company: Global Crossing Ltd.
-------
<PAGE>
3
(i) Disability: Inability to engage in any substantial gainful
----------
activity by reason of a medically determinable physical or mental
impairment which constitutes a permanent and total disability, as
defined in Section 22(e)(3) of the Code (or any successor section
thereto). The determination whether a Participant has suffered a
Disability shall be made by the Committee based upon such
evidence as it deems necessary and appropriate. A Participant
shall not be considered disabled unless he or she furnishes such
medical or other evidence of the existence of the Disability as
the Committee, in its sole discretion, may require.
(j) Effective Date: July 15, 1998
--------------
(k) Fair Market Value: On a given date, the arithmetic mean of the
-----------------
high and low prices of the Shares as reported on such date on the
Composite Tape of the principal national securities exchange on
which such Shares are listed or admitted to trading, or, if no
Composite Tape exists for such national securities exchange on
such date, then on the principal national securities exchange on
which such Shares are listed or admitted to trading, or, if the
Shares are not listed or admitted on a national securities
exchange, the arithmetic mean of the per Share closing bid price
and per Share closing asked price on such date as quoted on the
National Association of Securities Dealers Automated Quotation
System (or such market in which such prices are regularly
quoted), or, if there is no market on which the Shares are
regularly quoted, the Fair Market Value shall be the value
established by the Committee in good faith. If no sale of Shares
shall have been reported on such Composite Tape or such national
securities exchange on such date or quoted on the National
Association of Securities Dealer Automated Quotation System on
such date, then the immediately preceding date on which sales of
the Shares have been so reported or quoted shall be used.
(l) ISO: An Option that is also an incentive stock option granted
---
pursuant to Section 6(d) of the Plan.
(m) LSAR: A limited stock appreciation right granted pursuant to
----
Section 7(d) of the Plan.
(n) Other Stock-Based Awards: Awards granted pursuant to Section 8 of
------------------------
the Plan.
(o) Option: A stock option granted pursuant to Section 6 of the
------
Plan.
(p) Option Price: The purchase price per Share of an Option, as
------------
determined pursuant to Section 6(a) of the Plan.
<PAGE>
4
(q) Participant: An individual who is selected by the Committee to
-----------
participate in the Plan.
(r) Performance-Based Awards: Certain Other Stock-Based Awards
------------------------
granted pursuant to Section 8(b) of the Plan.
(s) Person: A "person", as such term is used for purposes of Section
------
13(d) or 14(d) of the Act (or any successor section thereto).
(t) Plan: The 1998 Global Crossing Ltd. Stock Incentive Plan.
----
(u) Public Offering: a sale of shares of the Company's common
---------------
stock to the public pursuant to a registration statement under
the Securities Act of 1933, as amended, that has been declared
effective by the Securities and Exchange Commission (other than a
registration statement on Form S-4 or Form S-8, or any other
successor or other forms promulgated for similar purposes, or a
registration statement in connection with an offering to
employees of the Company and its Subsidiaries) that results in an
active trading market in the Company's common stock; provided,
--------
that there shall be deemed to be an "active trading market" if
the Company's common stock is listed or quoted on a national
stock exchange or the NASDAQ National Market.
(v) Shares: Shares of Class E non-voting common stock, par value
------
$0.000001 per Share, of the Company.
(w) Stock Appreciation Right: A stock appreciation right granted
------------------------
pursuant to Section 7 of the Plan.
(x) Subsidiary: A subsidiary corporation, as defined in Section
----------
424(f) of the Code (or any successor section thereto).
3. SHARES SUBJECT TO THE PLAN
The total number of Shares which may be issued under the Plan is ,
including Shares issued under the 1998 Global Crossing Ltd., LDC Stock Incentive
Plan. The maximum number of Shares for which Awards may be granted during
a calendar year to any Participant shall be as determined by the Committee from
time to time. The Shares may consist, in whole or in part, of unissued Shares
or treasury Shares. The issuance of Shares or the payment of cash upon the
exercise of an Award shall reduce the total number of Shares available under the
Plan, as applicable. Shares which are subject to Awards which terminate or
lapse may be granted again under the Plan.
4. ADMINISTRATION
The Plan shall be administered by the Committee, which shall consist
solely of at
<PAGE>
5
least two individuals who are each "non-employee directors" within the meaning
of Rule 16b-3 under the Act (or any successor rule thereto) and "outside
directors" within the meaning of Section 162(m) of the Code (or any successor
section thereto). The Committee is authorized to interpret the Plan, to
establish, amend and rescind any rules and regulations relating to the Plan, and
to make any other determinations that it deems necessary or desirable for the
administration of the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to the
extent the Committee deems necessary or desirable. Any decision of the
Committee in the interpretation and administration of the Plan, as described
herein, shall lie within its sole and absolute discretion and shall be final,
conclusive and binding on all parties concerned (including, but not limited to,
Participants and their beneficiaries or successors). The Committee shall
require payment of any amount it may determine to be necessary to withhold for
federal, state, local or other taxes as a result of the exercise of an Award.
Unless the Committee specifies otherwise, the Participant may elect to pay a
portion or all of such withholding taxes by (a) delivery in Shares or (b) having
Shares withheld by the Company from any Shares that would have otherwise been
received by the Participant.
5. LIMITATIONS
No Award may be granted under the Plan after the tenth anniversary of
the Effective Date, but Awards theretofore granted may extend beyond that date.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be, as determined by the
Committee, non-qualified or incentive stock options for federal income tax
purposes, as evidenced by the related Award agreements, and shall be subject to
the foregoing and the following terms and conditions and to such other terms and
conditions, not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by
------------
the Committee.
(b) Exercisability. Options granted under the Plan shall be
--------------
exercisable at such time and upon such terms and conditions as may be determined
by the Committee, but in no event shall an Option be exercisable more than ten
years after the date it is granted.
(c) Exercise of Options. Except as otherwise provided in the Plan or
-------------------
in an Award agreement, an Option may be exercised for all, or from time to time
any part, of the Shares for which it is then exercisable. For purposes of
Section 6 of the Plan, the exercise date of an Option shall be the later of the
date a notice of exercise is received by the Company and, if applicable, the
date payment is received by the Company pursuant to clauses (i), (ii) or (iii)
in the following sentence. The purchase price for the Shares as to which an
Option is exercised shall be paid to the Company in full at the time of exercise
at the election of the Participant (i) in cash, (ii) in Shares having a Fair
Market Value equal to the aggregate
<PAGE>
6
Option Price for the Shares being purchased and satisfying such other
requirements as may be imposed by the Committee; provided, that such Shares have
--------
been held by the Participant for no less than six months, (iii) partly in cash
and partly in such Shares, (iv) through the withholding of Shares (which would
otherwise be delivered to the Participant) with an aggregate Fair Market Value
on the exercise date equal to the aggregate Option Price or (v) through the
delivery of irrevocable instruments to a broker to deliver promptly to the
Company an amount equal to the aggregate option price for the shares being
purchased. No Participant shall have any rights to dividends or other rights of
a stockholder with respect to Shares subject to an Option until the Participant
has given written notice of exercise of the Option, paid in full for such Shares
and, if applicable, has satisfied any other conditions imposed by the Committee
pursuant to the Plan.
(d) ISOs. The Committee may grant Options under the Plan that are
----
intended to be ISOs. Such ISOs shall comply with the requirements of Section
422 of the Code (or any successor section thereto). No ISO may be granted to
any Participant who at the time of such grant, owns more than ten percent of the
total combined voting power of all classes of stock of the Company or of any
Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the
Fair Market Value of a Share on the date the ISO is granted and (ii) the date on
which such ISO terminates is a date not later than the day preceding the fifth
anniversary of the date on which the ISO is granted. Any Participant who
disposes of Shares acquired upon the exercise of an ISO either (i) within two
years after the date of grant of such ISO or (ii) within one year after the
transfer of such Shares to the Participant, shall notify the Company of such
disposition and of the amount realized upon such disposition.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
(a) Grants. The Committee also may grant (i) a Stock Appreciation
------
Right independent of an Option or (ii) a Stock Appreciation Right in connection
with an Option, or a portion thereof. A Stock Appreciation Right granted
pursuant to clause (ii) of the preceding sentence (A) may be granted at the time
the related Option is granted or at any time prior to the exercise or
cancellation of the related Option, (B) shall cover the same Shares covered by
an Option (or such lesser number of Shares as the Committee may determine) and
(C) shall be subject to the same terms and conditions as such Option except for
such additional limitations as are contemplated by this Section 8 (or such
additional limitations as may be included in an Award agreement).
(b) Terms. The exercise price per Share of a Stock Appreciation Right
-----
shall be an amount determined by the Committee but in no event shall such amount
be less than the greater of (i) the Fair Market Value of a Share on the date the
Stock Appreciation Right is granted or, in the case of a Stock Appreciation
Right granted in conjunction with an Option, or a portion thereof, the Option
Price of the related Option and (ii) an amount permitted by applicable laws,
rules, by-laws or policies of regulatory authorities or stock exchanges. Each
Stock Appreciation Right granted independent of an Option shall entitle a
Participant upon exercise to an amount equal to (i) the excess of (A) the Fair
Market Value on the exercise date of one Share over (B) the exercise price per
Share, times (ii) the number of Shares covered by the Stock Appreciation Right.
Each Stock Appreciation Right granted
<PAGE>
7
in conjunction with an Option, or a portion thereof, shall entitle a Participant
to surrender to the Company the unexercised Option, or any portion thereof, and
to receive from the Company in exchange therefor an amount equal to (i) the
excess of (A) the Fair Market Value on the exercise date of one Share over (B)
the Option Price per Share, times (ii) the number of Shares covered by the
Option, or portion thereof, which is surrendered. The date a notice of exercise
is received by the Company shall be the exercise date. Payment shall be made in
Shares or in cash, or partly in Shares and partly in cash (any such Shares
valued at such Fair Market Value), all as shall be determined by the Committee.
Stock Appreciation Rights may be exercised from time to time upon actual receipt
by the Company of written notice of exercise stating the number of Shares with
respect to which the Stock Appreciation Right is being exercised. No fractional
Shares will be issued in payment for Stock Appreciation Rights, but instead cash
will be paid for a fraction or, if the Committee should so determine, the number
of Shares will be rounded downward to the next whole Share.
(c) Limitations. The Committee may impose, in its discretion, such
-----------
conditions upon the exercisability or transferability of Stock Appreciation
Rights as it may deem fit.
(d) Limited Stock Appreciation Rights. The Committee may grant LSARs
---------------------------------
that are exercisable upon the occurrence of specified contingent events. Such
LSARs may provide for a different method of determining appreciation, may
specify that payment will be made only in cash and may provide that any related
Awards are not exercisable while such LSARs are exercisable. Unless the context
otherwise requires, whenever the term "Stock Appreciation Right" is used in the
Plan, such term shall include LSARs.
8. OTHER STOCK-BASED AWARDS
(a) Generally. The Committee, in its sole discretion, may grant
---------
Awards of Shares, Awards of restricted Shares and Awards that are valued in
whole or in part by reference to, or are otherwise based on the Fair Market
Value of, Shares ("Other Stock-Based Awards"). Such Other Stock-Based Awards
shall be in such form, and dependent on such conditions, as the Committee shall
determine, including, without limitation, the right to receive one or more
Shares (or the equivalent cash value of such Shares) upon the completion of a
specified period of service, the occurrence of an event and/or the attainment of
performance objectives. Other Stock-Based Awards may be granted alone or in
addition to any other Awards granted under the Plan. Subject to the provisions
of the Plan, the Committee shall determine to whom and when Other Stock-Based
Awards will be made, the number of Shares to be awarded under (or otherwise
related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards
shall be settled in cash, Shares or a combination of cash and Shares; and all
other terms and conditions of such Awards (including, without limitation, the
vesting provisions thereof and provisions ensuring that all Shares so awarded
and issued shall be fully paid and non-assessable).
(b) Performance-Based Awards. Notwithstanding anything to the
------------------------
contrary herein, certain Other Stock-Based Awards granted under this Section 8
may be granted in a manner which is deductible by the Company under Section
162(m) of the Code (or any successor section thereto) ("Performance-Based
Awards"). A Participant's Performance-Based
<PAGE>
8
Award shall be determined based on the attainment of written performance goals
approved by the Committee for a performance period established by the Committee
(i) while the outcome for that performance period is substantially uncertain and
(ii) no more than 90 days after the commencement of the performance period to
which the performance goal relates or, if less, the number of days which is
equal to 25 percent of the relevant performance period. The performance goals,
which must be objective, shall be based upon one or more of the following
criteria: (i) consolidated earnings before or after taxes (including earnings
before interest, taxes, depreciation and amortization); (ii) net income; (iii)
operating income; (iv) earnings per Share; (v) book value per Share; (vi) return
on shareholders' equity; (vii) expense management; (viii) return on investment;
(ix) improvements in capital structure; (x) profitability of an identifiable
business unit or product; (xi) maintenance or improvement of profit margins;
(xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs;
(xvi) cash flow; (xvii) working capital and (xviii) return on assets. The
foregoing criteria may relate to the Company, one or more of its Subsidiaries or
one or more of its divisions or units, or any combination of the foregoing, and
may be applied on an absolute basis and/or be relative to one or more peer group
companies or indices, or any combination thereof, all as the Committee shall
determine. In addition, to the degree consistent with Section 162(m) of the
Code (or any successor section thereto), the performance goals may be calculated
without regard to extraordinary items. The maximum amount of a Performance-
Based Award during a calendar year to any Participant shall be 500,000 Shares.
The Committee shall determine whether, with respect to a performance period, the
applicable performance goals have been met with respect to a given Participant
and, if they have, to so certify and ascertain the amount of the applicable
Performance-Based Award. No Performance-Based Awards will be paid for such
performance period until such certification is made by the Committee. The
amount of the Performance-Based Award actually paid to a given Participant may
be less than the amount determined by the applicable performance goal formula,
at the discretion of the Committee. The amount of the Performance-Based Award
determined by the Committee for a performance period shall be paid to the
Participant at such time as determined by the Committee in its sole discretion
after the end of such performance period; provided, however, that a Participant
-------- -------
may, if and to the extent permitted by the Committee and consistent with the
provisions of Section 162(m) of the Code, elect to defer payment of a
Performance-Based Award.
9. ADJUSTMENTS UPON CERTAIN EVENTS
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares
---------
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off, combination
or exchange of Shares or other corporate exchange, or any distribution to
shareholders of Shares other than regular cash dividends, the Committee in its
sole discretion and without liability to any person may make such substitution
or adjustment, if any, as it deems to be equitable, as to (i) the number or kind
of Shares or other securities issued or reserved for issuance pursuant to the
Plan or pursuant to
<PAGE>
9
outstanding Awards, (ii) the Option Price and/or (iii) any other affected terms
of such Awards.
(b) Change in Control. Except as otherwise provided in an Award
-----------------
agreement, in the event of a Change in Control, the Committee in its sole
discretion and without liability to any person may take such actions, if any, as
it deems necessary or desirable with respect to any Award (including, without
limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount
in exchange for the cancellation of an Award and/or (iii) the requiring of the
issuance of substitute Awards that will substantially preserve the value, rights
and benefits of any affected Awards previously granted hereunder) as of the date
of the consummation of the Change in Control.
10. NO RIGHT TO EMPLOYMENT
The granting of an Award under the Plan shall impose no obligation on
the Company or any Subsidiary to continue the employment of a Participant and
shall not lessen or affect the Company's or Subsidiary's right to terminate the
employment of such Participant.
11. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of the Company
and a Participant, including without limitation, the estate of such Participant
and the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
12. NONTRANSFERABILITY OF AWARDS
Unless otherwise determined by the Committee, an Award shall not be
transferable or assignable by the Participant otherwise than by will or by the
laws of descent and distribution. An Award exercisable after the death of a
Participant may be exercised by the legatees, personal representatives or
distributees of the Participant.
13. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which, (a) without the approval of
the shareholders of the Company, would (except as is provided in Section 10 of
the Plan), increase the total number of Shares reserved for the purposes of the
Plan or change the maximum number of Shares for which Awards may be granted to
any Participant or (b) without the consent of a Participant, would impair any of
the rights or obligations under any Award theretofore granted to such
Participant under the Plan; provided, however, that the Committee may amend the
-------- -------
Plan in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of the Code or other applicable laws. Notwithstanding
anything to the contrary herein, the Board may not amend, alter or discontinue
the provisions relating to Section 9(b) of the Plan after the occurrence of a
Change in Control.
<PAGE>
10
14. INTERNATIONAL PARTICIPANTS
With respect to Participants who reside or work outside the United
States of America and who are not (and who are not expected to be) "covered
employees" within the meaning of Section 162(m) of the Code, the Committee may,
in its sole discretion, amend the terms of the Plan or Awards with respect to
such Participants in order to conform such terms with the requirements of local
law.
15. CHOICE OF LAW
The Plan shall be governed by and construed in accordance with the
laws of the State of New York.
16. EFFECTIVENESS OF THE PLAN
The Plan shall be effective as of the Effective Date. If the Plan is
not approved by the shareholders of the Company prior to the first anniversary
of the Effective Date, no Awards may be granted thereafter.
<PAGE>
EXHIBIT 10.2
PROJECT DEVELOPMENT
AND
CONSTRUCTION CONTRACT
BETWEEN AT&T SUBMARINE SYSTEMS, INC.
AND
GLOBAL TELESYSTEMS LTD.
<PAGE>
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
1 Provision of System................................................... 1
2 Documents Forming the Entire Contract................................. 2
3 Definitions........................................................... 2
4 Contract Price........................................................ 11
5 Terms of Payment by Purchaser......................................... 14
6 Contract Variations................................................... 17
6A. Optional Upgrades..................................................... 18
7 Responsibilities for Permits.......................................... 19
8 Route Survey.......................................................... 20
9 Acceptance............................................................ 21
10 Warranty.............................................................. 25
11 Contractor Support.................................................... 28
12 Purchaser's Obligations............................................... 28
13 Termination for Default............................................... 29
14 Termination for Convenience........................................... 31
15 Suspension............................................................ 34
16 Title and Risk of Loss................................................ 35
17 Force Majeure......................................................... 36
18 Intellectual Property................................................. 38
19 Infringement.......................................................... 43
20 Safeguarding of Information and Technology............................ 44
21 Export Control........................................................ 45
22 Liquidated Damages.................................................... 45
23 Limitation of Liability/Indemnification............................... 46
24 Counterparts.......................................................... 47
25 Design and Performance Responsibility................................. 47
26 Product Changes....................................................... 48
27 Risk and Insurance.................................................... 48
28 Plant and Work Rules.................................................. 51
29 Right of Access....................................................... 51
30 Quality Assurance..................................................... 53
31 Documentation......................................................... 53
32 Training.............................................................. 53
33 Settlement of Disputes/Arbitration.................................... 53
34 Applicable Law........................................................ 54
35 Notices............................................................... 54
36 Publicity and Confidentiality......................................... 55
37 Assignment............................................................ 55
38 Relationship of the Parties........................................... 56
39 Successors Bound...................................................... 56
40 Article Captions...................................................... 57
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
41 Severability......................................................... 57
42 Survival of Obligations.............................................. 57
43 Non-Waiver........................................................... 57
44 Language............................................................. 57
45 Entire Agreement..................................................... 57
46 Coming into Force.................................................... 58
</TABLE>
ii
<PAGE>
EXHIBIT 10.2
PROJECT DEVELOPMENT AND
CONSTRUCTION CONTRACT
BETWEEN AT&T SUBMARINE SYSTEMS, INC.
AND GLOBAL TELESYSTEMS LTD.
This Project Development and Construction Contract ("Contracts) is
made this 18th day of March 1997 between AT&T Submarine Systems, Inc., a
corporation organized and existing under the laws of the State of Delaware, of
the United States of America, and having an office at 340 Mt. Kemble Avenue,
Morristown, New Jersey, 07962-1923 of the United States of America (hereinafter
"Contractor") and Global Telesystems Ltd., a corporation organized and existing
under the laws of Bermuda, and having an office at Cedar House, 41 Cedar Avenue,
Hamilton HM12 Bermuda (hereinafter "Purchaser").
WHEREAS, Purchaser desires to establish a fiber optic submarine cable
system, to be known as the Atlantic Crossing 1 Submarine Cable System
(hereinafter, and as more fully defined herein, the "System"), which will be
used to provide service between and among the United States mainland, United
Kingdom and Germany; and
WHEREAS, the System will consist of the following Segments:
Segment 1: From United Kingdom to New York, United States;
Segment 2: From New York, United States to Germany; and
Segment 3: From Germany to United Kingdom; and
WHEREAS, Contractor is in the business of designing, constructing,
installing, supplying, delivering, manufacturing, operating, and maintaining
fiber optic submarine cable systems and is familiar with the general business of
the fiber optic submarine cable system industry; and
WHEREAS, Purchaser seeks to purchase and own the System and wishes to
engage Contractor to perform the Work and Upgrade Work; and
WHEREAS, Contractor is willing to perform the Work on a turn-key,
fixed-price basis in accordance with and subject to the terms hereof; and
WHEREAS, Contractor is willing to perform the Upgrade Work on a turn-
key, fixed-price basis in accordance with and subject to the terms hereof.
NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS
ARTICLE 1 PROVISION OF SYSTEM
- -------------------------------
In consideration of the Contract Price and the Upgrade Prices, the
Contractor agrees to undertake the Work and the Upgrade Work and to provide the
Purchaser with the
<PAGE>
2
System meeting the System Performance Requirements on or before the Scheduled
RFS Date and the System Upgrades meeting the requirements of Article 6A, all in
accordance with the terms hereof.
ARTICLE 2 DOCUMENTS FORMING THE ENTIRE CONTRACT
- -------------------------------------------------
This Contract consists of these commercial Terms and Conditions and
the following documents (in the form of attachments, including appendices,
attached hereto), which shall be read and construed as part of the Contract:
. Technical Volume (includes Route Information), Appendix 5
. Plan of Work, Appendix 3, Upgrade Plan of Work, Appendix 3A
. Provisioning Schedule, Appendix 1, Upgrade Provisioning Schedule,
Appendix 1A
. Billing Schedule, Appendix 2, Upgrade Billing Schedule, Appendix 2A
. Invoice Format, Appendix 4
In the event of any inconsistency between the Terms and Conditions and
the above listed documents, the Terms and Conditions shall prevail. The
Appendices listed above have no order of precedence.
ARTICLE 3 DEFINITIONS
- -----------------------
Definitions are as described in the specific Articles. Except as
otherwise defined the following definitions shall apply throughout the Contract:
AAA has the meaning set forth in Sub-Article 33(B).
ACCEPTANCE TESTING means (i) with respect to a Segment or the System,
the tests described in the System Commissioning and Acceptance section of
the Technical Volume or developed pursuant to such section by mutual
agreement of the Parties (with 15 days prior notice to the Independent
Engineer) and reasonably designed to verify that such Segment or the System
meets the applicable Performance Requirements and (ii) with respect to any
System Upgrade, the tests described in the System Commissioning and
Acceptance section of the Technical Volume or developed pursuant to such
section by mutual agreement (with 15 days prior notice to the Independent
Engineer) of the Parties and reasonably designed to verify that the System
Upgrade meets the applicable Performance Requirements.
ACCESS RIGHTS means all ownership, easement and/or other property
rights necessary to access and occupy the sites for cable stations in order
to own, operate and maintain the System.
ACTUAL KNOWLEDGE means the actual knowledge of any executives with
management responsibility for the Contract.
<PAGE>
3
ASSIGNMENT has the meaning set forth in Sub-Article 37(A).
BANKRUPTCY EVENT means an event specified in Sub-Article 13(A)(3) or
13(A)(4) with Contractor as the "other Party".
BILLING SCHEDULE means a billing schedule attached hereto as Appendix
2.
CAPACITY PURCHASE AGREEMENT means the Capacity Purchase Agreement
substantially in the form agreed by the Parties on the date this Contract
comes into force in accordance with Article 46.
CERTIFICATE OF COMMERCIAL SERVICE means a certificate issued by
Purchaser to Contractor certifying that a Segment, the System or a System
Upgrade is Ready for Commercial Service.
CERTIFICATE OF FINAL ACCEPTANCE means a certificate issued by
Purchaser to Contractor certifying that the System or a System Upgrade is
Ready for Final Acceptance.
CERTIFICATE OF PROVISIONAL ACCEPTANCE means a certificate issued by
Purchaser to Contractor certifying that a Segment, the System or a System
Upgrade is Ready for Provisional Acceptance.
CIBC COMMITMENT LETTER means the Atlantic Crossing 1 Commitment Letter
to be entered into among the Purchaser, CIBC Wood Gundy Securities Corp.
and CIBC Inc. providing for loans to Purchaser in an aggregate amount of
$410,000,000.
COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
CONFIDENTIAL INFORMATION has the meaning set forth in Sub-Article
36(B).
CONSENT means a Consent and Agreement to be entered into among
Contractor, Purchaser and the financing parties described in Sub-Article
37(C) and substantially in the form agreed by the Parties on the date this
Contract comes into force in accordance with Article 46.
CONTINGENCY ACCOUNT means the Contingency Account to be created under
the Escrow and Security Agreement.
CONTRACT means this agreement, specifically consisting of the
documents described in Article 2, and shall be deemed to include any
amendments thereto or Contract Variations pursuant to Article 6 (Contract
Variations).
CONTRACTOR means the entity that has executed this Contract as the
Contractor (AT&T Submarine Systems, Inc.) and that will be responsible for
the performance of
<PAGE>
4
the Work (and if applicable, Upgrade Work) under this
Contract and shall include its permitted successors and/or assigns.
CONTRACT PRICE means the Initial Contract Price, plus any variations
pursuant to Article 6 (Contract Variations), Taxes as set forth in Sub-
Article 4(B) and other adjustments to the Contract Price provided for in
this Contract.
CONTRACT TAXES has the meaning set forth in Sub-Article 4(B)(1).
CONTRACT VARIATION has the meaning set forth in Sub-Article 6(A).
DATE OF COMMERCIAL SERVICE, PROVISIONAL ACCEPTANCE OR FINAL ACCEPTANCE
means the date that Purchaser receives a Commissioning Report or an Upgrade
Commissioning Report, as the case may be, demonstrating that a Segment or
the System or a System Upgrade, as the case may be, is Ready for Commercial
Service, Ready for Provisional Acceptance or Ready for Final Acceptance.
DEFAULT means an Event of Default or any event, condition or
occurrence which with the giving of notice or passage of time or both would
be an Event of Default.
DELIVERABLE SOFTWARE has the meaning set forth in Sub-Article 18(C).
DELIVERABLE TECHNICAL MATERIAL has the meaning set forth in Sub-
Article 18(B).
DISPUTE ACCOUNT means the Dispute Account to be created under the
Escrow and Security Agreement.
ESCROW AGENT means The Chase Manhattan Bank, in its capacity as escrow
agent and security agent under the Escrow and Security Agreement, and its
successors in such capacity.
ESCROW AND SECURITY AGREEMENT means that Escrow and Security Agreement
to be entered into by and among AT&T Submarine Systems, Inc., Global
Telesystems Ltd. and The Chase Manhattan Bank, as amended from time to
time.
EVENT OF DEFAULT has the meaning set forth in Sub-Article 13(A).
EXCLUDED TAX means (i) any franchise, excess profits, net worth,
capital or capital gains Tax, as well as any Tax on doing business or
imposed on net or gross income or receipts (including minimum and
alternative minimum Taxes measured by any items of Tax preference), but in
each case excluding Taxes that are or are in the nature of sales, use,
excise, license, stamp, rental, ad valorem, value added or property Taxes;
(ii) any Taxes imposed by a jurisdiction other than one in which (a) the
Contractor is or is treated as engaged in activities contemplated by or in
fulfillment of
<PAGE>
5
the Contract or (b) the Purchaser or its affiliates has a nexus to such
jurisdiction and the Tax imposed is attributable to that nexus, (iii) Taxes
imposed on the Contractor as a result of Contractor's gross negligence or
willful misconduct and (iv) any import duty, other import related charges,
sales or use tax, VAT or property tax imposed by the United States or any
political subdivision thereof or Taxing authority therein in respect of
Supplies brought into the United States for testing, modification or other
similar purposes prior to being installed or used outside the United
States.
FINAL COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
FINAL SURVEY REPORT means the final survey report described in Section
1.1.4.2 of the Route Survey, Cable Loading and Marine Operations section of
the Technical Volume.
FINANCING DOCUMENTS means the agreements relating to the financing
referred to in Sub-Article 37(C), including without limitation the
financing, security and related documentation referred to in the CIBC
Commitment Letter and the Holding Company Note Purchase Agreement and
related documents.
FINANCING EVENT OF DEFAULT means any event, condition or occurrence
which would permit any party or parties to a Financing Document to
terminate its commitments thereunder or accelerate Purchaser's obligations
thereunder.
FORCE MAJEURE has the meaning set forth in Sub-Article 17(A).
*
HOLDING COMPANY means Global Telesystems Holdings Ltd., a corporation
organized and existing under the laws of Bermuda.
HOLDING COMPANY NOTE PURCHASE AGREEMENT means a Note Purchase
Agreement to be entered into between the Holding Company and the purchasers
named therein providing for $150,000,000 in loans to Holding Company, as
amended from time to time.
INDEPENDENT ENGINEER means Conexart Technologies, Inc. or a similarly
qualified successor in the capacity as the engineer to the financing
sources specified in Sub-Article 37(C) who has agreed to be bound by the
confidentiality provisions of this Contract and who is not affiliated with
a competitor of Contractor.
INFORMATION has the meaning set forth in Sub-Article 20(A).
INITIAL CONTRACT PRICE has the meaning set forth in Sub-Article
4(A)(1).
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
6
INITIAL UPGRADE PRICE has the meaning set forth in Sub-Article
4(A)(2).
INTELLECTUAL PROPERTY has the meaning set forth in Sub-Article 18(A).
LAWS means any laws, ordinances, regulations, rules, orders,
proclamations, requirements of governmental authorities or treaties.
MANUFACTURING MATERIALS has the meaning set forth in Sub-Article
13(B).
NEXUS TAX means any Tax imposed by way of withholding in respect of or
in lieu of an Excluded Tax, but only to the extent such Tax would not have
been imposed but for the nexus (other than as a consequence of the
activities of the Contractor) of the Purchaser or its affiliate to the
jurisdiction imposing the Tax.
NON-SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
NOTICE OF TERMINATION has the meaning set forth in Sub-Article 14(A).
OPERATIONS, ADMINISTRATION AND MAINTENANCE AGREEMENT means the
Operations, Administration and Maintenance Agreement to be entered into
between AT&T Submarine Systems, Inc. and Global Telesystems Ltd., as
amended from time to time.
OPTION PERIOD has the meaning set forth in Sub-Article 6A(B).
PARTY(IES) means either of the Purchaser and/or the Contractor, as
appropriate.
PAYMENT ACCOUNT means the Payment Account to be created under the
Escrow and Security Agreement.
PAYMENT ESCROW DATE means the first date after the date hereof on
which no funds remain in the Payment Account (or on which Contractor has
invoiced an aggregate amount equal to the lesser of $275,000,000 and the
aggregate amount deposited into the Payment Account and such amount has
been paid (or deposited into the Dispute Account) or is due (or required to
be deposited into the Dispute Account)).
PERFORMANCE REQUIREMENTS means (i) with respect to a Segment or the
System, the applicable System Performance Requirements set forth or to be
developed by mutual agreement pursuant to the Transmission Performance
section of the System Description section of the Technical Volume, (ii)
with respect to any System Upgrade, the System Performance Requirements set
forth in or to be developed by mutual agreement pursuant to the Technical
Volume or (iii) in each case, such other Segment, System or System Upgrade
performance levels as mutually agreed by the Parties, including impairment
budgets.
<PAGE>
7
PERMITS means all Access Rights, permits, pipeline and cable crossing
agreements, approvals, "no objections", permissions-in-principle,
authorizations, consents, customs clearances, registrations, certificates,
rights-of-way, certificates of occupancy, licenses, including without
limitation, landing licenses, orders, vessel and crew authorizations/visas,
permission for the operation of navigational aids and radio systems and
similar authorizations necessary to complete the Work and operate and
maintain the System (other than any of the foregoing (i) relating to the
ownership, operation and maintenance of the System and not necessary until
after the System is Ready for Final Acceptance, (ii) which is or would be
needed by Purchaser to engage in any business outside the business of
developing, owning and operating a submarine cable system or (iii) which is
or would be needed at any time by any purchaser or lessee of capacity on
the System).
PHASE 2 SEGMENT means Segment 2 or Segment 3.
PROVISIONING SCHEDULE means the price schedule attached hereto in
Appendix 1.
PURCHASER means Global Telesystems Ltd. and shall include its
permitted successors and assigns.
READY FOR COMMERCIAL SERVICE means (i) for any Segment, that (a) such
Segment has the ability to carry commercial traffic between the two landing
points of such Segment (at 5 Gb/s per fiber pair in the case of Segment 1
and at 10 Gb/s per fiber pair in the case of a Phase 2 Segment) meeting
performance criteria of ITU-T G.826 as defined in the System Performance
section of the Technical Volume and has line monitoring and protection
switching capability, (b) Contractor has tested and provided for STM-1
interconnectivity capability to the Segment terminal equipment according to
ITU-T G.826, (c) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be performed by
it, (d) all Permits are obtained for such Segment, and (e) unless both
Parties agree otherwise, with respect to a Phase 2 Segment, the other Phase
2 Segment shall have satisfied the conditions set forth above, (ii) for the
System, that the System has the ability to carry commercial traffic
throughout the System (at 10 Gb/s per fiber pair) meeting performance
criteria of ITU-T G.826 as defined in the System Performance section of the
Technical Volume with self healing ring protection capability and per
Segment protection capability, has line monitoring and per Segment
protection switching capability and has network management capability, (b)
Contractor has tested and provided for STM-1 interconnectivity capability
to the System terminal equipment according to ITU-T G.826, (c) Contractor
has substantially performed its obligations under Article 18 (Intellectual
Property) then required to be performed by it, (d) an interconnect
agreement is in place with a bona fide carrier at each landing point, and
(e) all Permits are obtained for the System and (iii) for any System
Upgrade, the System is Ready for Commercial Service at the capacity
specified for such System Upgrade.
<PAGE>
8
READY FOR FINAL ACCEPTANCE means (i) for the System, that (a)(l) the
System has successfully and continuously (other than by reason of Force
Majeure in which case the test period shall be extended for a time period
equal to the time period of such Force Majeure) functioned in compliance
with the System Performance Requirements during the period of ninety (90)
consecutive days after the Date of Provisional Acceptance or (II) if the
System shall have failed to meet the System Performance Requirements at any
time during such period (other than by reason of Force Majeure), the
Contractor has corrected such failure and the System has successfully and
continuously (other than by reason of Force Majeure in which case the test
period shall be extended for a time period equal to the time period of such
Force Majeure) functioned in compliance with the System Performance
Requirements for such additional period of time not to exceed ninety (90)
days (and not to end prior to the date 90 days after the Date of
Provisional Acceptance) as reasonably determined by the Independent
Engineer as being sufficient to confirm that such failure has been
corrected and that no other failures are likely to appear and (b) all
deficiencies noted in the Certificate of Provisional Acceptance have been
corrected (other than minor deficiencies which will not affect the
operation of the System, in respect of which an equitable adjustment to the
Contract Price will be made) and (c) Contractor has complied in all
material respects with Article 18 (Intellectual Property) and (ii) for any
System Upgrade, that (a)(l) the System Upgrade has successfully functioned
in compliance with the System Performance Requirements during the period of
ninety (90) days after the Date of Provisional Acceptance of the System
Upgrade or (II) if the System Upgrade shall have failed to meet the System
Performance Requirements during such period, the Contractor has corrected
such failure and the System Upgrade has successfully functioned in
compliance with the System Performance Requirements for such additional
period of time not to exceed ninety (90) days as reasonably determined by
the Independent Engineer as sufficient to confirm that such failure has
been corrected and (b) all deficiencies noted in the Certificate of
Provisional Acceptance have been corrected (other than minor deficiencies
which will not affect the operation of the System, in respect of which an
equitable adjustment of the Contract Price will be made) and (c) Contractor
has complied in all material respects with Article 18 (Intellectual
Property).
READY FOR PROVISIONAL ACCEPTANCE means (i) with respect to any
Segment, (a) such Segment is complete in all material respects (and in any
event is Ready for Commercial Service), (b) the results of Acceptance
Testing of such Segment demonstrate that such Segment has satisfied the
System Performance Requirements, (c) Contractor has substantially performed
its obligations under Article 18 (Intellectual Property) then required to
be performed by it, (d) all Permits are obtained for such Segment, and (e)
unless both Parties agree otherwise, with respect to a Phase 2 Segment, the
other Phase 2 Segment shall have satisfied the conditions set forth above,
(ii) with respect to the System, the System is complete in all material
respects (and in any event is Ready for Commercial Service), all three
Segments are Ready for Provisional Acceptance with self-healing ring
protection capability and per Segment protection capability and line
monitoring and network management capability and (iii) with respect to any
System Upgrade, the results of Acceptance Testing of such System
<PAGE>
9
Upgrade demonstrate that such System Upgrade is complete in all material
respects and is sufficient to realize the Performance Requirements.
REPRESENTATIVES has the meaning set forth in Article 36(B).
REQUIRED AMOUNT means initially *.
RETAINAGE means an amount equal to * of the Initial Contract Price.
RETAINAGE LETTER OF CREDIT means a letter of credit issued by a bank
reasonably satisfactory to Contractor with a face amount equal to the
amount of the Retainage and substantially in the form agreed by the Parties
on the date this Contract comes into force in accordance with Article 46.
RETESTING has the meaning set forth in Sub-Article 9(B)(3).
ROUTE SURVEY means the route survey described in the Route Survey,
Cable Loading and Marine Operations section of the Technical Volume.
SALES AGENCY AGREEMENT means the Sales Agency Agreement to be entered
into between AT&T Submarine Systems, Inc. and Global Telesystems Ltd., as
amended from time to time.
SCHEDULED RFS DATE has the meaning set forth in Sub-Article 9(A).
SCHEDULED UPGRADE DATE means for any System Upgrade, the date by which
the Contractor agrees such System Upgrade will be Ready for Provisional
Acceptance or Commercial Service.
SEGMENT means Segment 1, Segment 2 or Segment 3, as the case may be.
SEGMENT 1 means Segment C as defined in the Technical Volume from
United Kingdom to New York, United States and landing in locations capable
of interconnecting with major telecommunications carriers.
SEGMENT 2 means Segment A as defined in the Technical Volume from New
York, United States to Germany and landing in locations capable of
interconnecting with major telecommunications carriers.
SEGMENT 3 means Segment B as defined in the Technical Volume from
Germany to United Kingdom and landing in locations capable of
interconnecting with major telecommunications carriers.
SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
SHIP PERIOD has the meaning set forth in Sub-Article 10(A).
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
10
SUPPLIES means any and all materials, plant, machinery, equipment,
hardware and items supplied by the Contractor under this Contract.
SUSPENSION means a suspension in pursuant to Sub-Article 15(A) or
15(B).
SYSTEM means the four fiber pair submarine cable system consisting of
Segments 1, 2 and 3 (at a per fiber pair capacity of * Gb/s at the Date of
Commercial Service or the Date of Provisional Acceptance, as the case may
be, of the System, with each Segment upgradeable to * Gb/s per fiber pair
at the Date of Provisional Acceptance) as more fully described in the
System Description section of the Technical Volume.
SYSTEM PERFORMANCE REQUIREMENTS has the meaning set forth in the
System Description section of the Technical Volume.
SYSTEM UPGRADE has the meaning set forth in Sub-Article 6A(A).
TAX means any tax, duty, levy, charge or custom (including, without
limitation, any sales or use tax, VAT or octroi duty relating to the
Contract items and fiscal stamps connected with Contract legalization)
imposed or collected by any taxing authority or agency (domestic or
foreign).
TECHNICAL VOLUME means the Technical Volume attached hereto as
Appendix 5.
UPGRADE BILLING SCHEDULE means the billing schedule attached hereto as
Appendix 2A.
UPGRADE COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
UPGRADE PERIOD has the meaning set forth in Sub-Article 6A(E).
UPGRADE PLAN OF WORK means the plan of work attached hereto as
Appendix 3A.
UPGRADE PRICE means, for any System Upgrade, the Initial Upgrade Price
for such System Upgrade, plus any variations pursuant to Article 6
(Contract Variations), Taxes as set forth in Sub-Article 4(B) and other
adjustments to such Upgrade Price provided for in this Contract.
UPGRADE PROVISIONING SCHEDULE means the provisioning schedule attached
hereto as Appendix 1A.
UPGRADE WARRANTY PERIOD has the meaning set forth in Sub-Article
10(A).
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
11
UPGRADE WORK means the activities and services to be performed or
provided by Contractor under Article 6A.
UPGRADEABILITY LIABILITY LIMIT means at any time, the (i) the sum of
the Initial Contract Price plus all of the Initial Upgrade Prices less, if
----
the System shall have been upgraded to a capacity of * Gb/s or more per
fiber pair, (ii) the product of (A) the sum of the Initial Contract Price
plus all of the Initial Upgrade Prices and (B) the ratio of (I) the
aggregate capacity (for all four fiber pairs) to which the System has been
upgraded by System Upgrades to (II) * Gb/s.
WARRANTY PERIOD has the meaning set forth in Sub-Article 10(A).
WORK means all activities and services (other than the activities and
services specified in this Contract to be provided by Purchaser) necessary
to be performed or provided in developing, planning, designing,
manufacturing, constructing, delivering, installing and testing the System,
until the System is Ready for Final Acceptance, including without
limitation, designating, coordinating and obtaining on behalf of Purchaser
the Access Rights and obtaining all Permits. Whether or not used in
conjunction with the term "Supplies", the term "Work" shall always be
deemed to include the provision of the relevant Supplies, unless the
context requires otherwise.
ARTICLE 4 CONTRACT PRICE
- --------------------------
A. Contract Price
1. The initial Contract Price for the Work, in United States
Dollars (US$) is a fixed fee of 625,909,438 dollars (the "Initial
Contract Price"). The Initial Contract Price does not include the
cost of optional upgrades which are described in Article 6A
(Optional Upgrades), any contract variations as provided for in
Article 6 (Contract Variations), any Taxes, services performed
pursuant to the Operations, Administration and Maintenance
Agreement, or services performed pursuant to the Sales Agency
Agreement.
2. The initial Upgrade Price for any Upgrade Work, in United States
Dollars (US$) is the fixed fee set forth in Appendix 2A (the
"Initial Upgrade Price"). No Initial Upgrade Price includes the
cost any contract variations as provided for in Article 6
(Contract Variations), any Taxes, services performed pursuant to
the Operations, Administration and Maintenance Agreement, or
services performed pursuant to the Sales Agency Agreement.
B. Taxes, Levies and Duties
1. The Initial Contract Price and each Initial Upgrade Price, as
stated in Sub-Article 4(A) above, excludes any Tax. The Contract
Price and each
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
12
Upgrade Price shall without duplication be adjusted for any Tax
imposed on or in connection with this Contract (including,
without limitation, the execution and delivery of this Contract,
the Work, the Upgrade Work and the Supplies, but excluding any
Excluded Taxes) (any such Taxes, other than Excluded Taxes, are
hereinafter referred to as "Contract Taxes"). Contractor has
provided a good faith estimate of the Contract Taxes payable by
the Purchaser; it being understood that the Contractor shall have
no liability under this Contract or otherwise to the Purchaser
for any errors or omissions in such estimate or any losses
arising therefrom. The Contractor shall be responsible for any
Excluded Tax that might be incurred by the Contractor as well as
any Tax described in clause (iv) of the definition of Excluded
Tax.
2. The Purchaser will be ultimately responsible for the payment of
all Contract Taxes (including, without limitation, Contract Taxes
that are VAT, octroi duties relating to Contract items and fiscal
stamps, etc. connected with Contract legalizations to the
authorities in their countries). In the case of any Contract
Taxes paid by the Contractor, the Contractor shall submit payment
on the Purchaser's behalf and Contractor will be reimbursed by
the Purchaser in accordance with Article 5 (Terms of Payment by
Purchaser).
3. The Contractor agrees to use reasonable efforts including,
without limitation, by registering for VAT and any applicable
sales Taxes in any country, state or other jurisdiction where
legally required, to cooperate with and assist Purchaser in its
efforts (i) to have Supplies which are the subject of this
Contract made exempt from Contract Taxes, whether in the
manufacture of the Supplies or related to the importation or
location or installation of the Supplies, (ii) to request
revisions, drawbacks, remissions, reclassifications or the like
to the jurisdictions identified by the Purchaser; or (iii) to
reduce or eliminate Contract Taxes (including the provision of
applicable certifications and forms) and to obtain any available
refunds of Contract Taxes, provided that the Contractor shall not
---------
be required to act other than in accordance with the relevant
Laws then in force. The Purchaser shall reimburse the Contractor,
in accordance with Article 5, for any costs (including the
reasonable fees and expenses of legal counsel, accountants and
other advisors) incurred by the Contractor under this Sub-Article
4(B)(3) provided that Purchaser was notified and has consented to
--------
the incurrence of such costs, fees and expenses. Contractor shall
not be required to cooperate with and assist Purchaser in its
efforts under this Sub-Article 4(B)(3) or to take any action
hereunder which in the Contractor's good faith judgment would
incur any costs or if in Contractor's good faith judgment it
would be advisable to obtain the advice of counsel, accountants
or other advisors prior to cooperating with or assisting
purchaser or taking any action, unless in each case,
<PAGE>
13
Purchaser has agreed to reimburse Contractor under the foregoing
proviso.
4. Prior to the Date of Provisional Acceptance with respect to the
System or any System Upgrade, the Contractor shall provide
evidence of having made all payments for Taxes included in the
Contract Price or Upgrade Price or described in clause (iv) of
the definition of Excluded Taxes, other than VAT due on payments
of the Contract Price or Upgrade Price made on or after the Date
of Provisional Acceptance of the System or System Upgrade, which
evidence shall be provided within sixty (60) days of the date of
each such payment.
5. As part of Work or any Upgrade Work, the Contractor shall
obtain, on Purchaser's behalf, any import license or other
official authorization and carry out all customs formalities
necessary for the importation or exportation of goods in
connection with such Work or Upgrade Work. The Purchaser agrees
to be the Importer or Exporter of Record or designate an Importer
or Exporter of Record/Consignee on its behalf. Purchaser must
provide a Letter of Authorization from any third party designate
stating it agrees to be the Importer or Exporter of Record on
Purchaser's behalf and identify the name and address of the
designated Importer or Exporter of Record.
6. The Supplies to be installed or held on land shall be delivered
to the agreed point at the named place of destination and shall
be consigned to the Purchaser.
C. Withholding Tax
1. If withholding for any Tax is required in respect of any payment
to the Contractor, the Purchaser shall (i) withhold the
appropriate amount from such payment, (ii) pay such amount to the
relevant authorities in accordance with the applicable Laws and
(iii) in the case of any such withholding in respect of a
Contract Tax or a Nexus Tax and subject to the Contractor's
satisfying the obligations set forth in the last sentence of this
Sub-Article 4(C)(1), pay the Contractor an additional amount such
that the net amount received by the Contractor is the amount the
Contractor would have received in the absence of such
withholding. In such a case, the Purchaser shall provide to the
Contractor, as soon as reasonably practicable, a certified copy
of an official tax receipt for any Tax which is retained from any
payment due to the Contractor or for any Tax which is paid on
behalf of the Contractor. All such receipts shall be in the name
of the Contractor. The Contractor agrees to complete accurately
and timely provide to the Purchaser or, if required, to the
applicable Taxing authority, such forms, certifications or other
documents as may be requested in timely manner by Purchaser, in
order
<PAGE>
14
to allow it to make payments to the Contractor without any
deduction or withholding on account of withholding Taxes (or at a
reduced rate thereof) or to receive a refund of any amounts
deducted or withheld on account of withholding Taxes.
2. If the Contractor shall become aware that it is entitled to
receive a refund or credit from a relevant taxing or governmental
authority in respect of a Contract Tax or Nexus Tax as to which
the Purchaser has paid an additional amount pursuant to Sub-
Article 4(C)(1) above, the Contractor shall promptly notify the
Purchaser of the availability of such refund or credit and shall,
within 30 days after receipt of a request by the Purchaser
(whether as a result of notification that it has made to the
Purchaser or otherwise), make a claim to such taxing or
governmental authority for such refund or credit at the
Purchaser's expense. If the Contractor receives a refund or
credit in respect of a Contract or Nexus Tax as to which the
Purchaser has paid an additional amount pursuant to Sub-Article
4(C)(1 ) above, or if, as a result of the Purchaser's payment of
such additional amounts, the Contractor or any other member of an
affiliated group, as defined in section 1504(a) of the Code, of
which the Contractor is a member, receives a credit against Taxes
imposed on its income or franchise taxes imposed on it by the
country under the laws of which it is organized or any political
subdivision thereof, the Contractor shall promptly notify the
Purchaser of such refund or credit and shall within 30 days from
the date of receipt of such refund or benefit of such credit pay
over the amount of such refund or benefit of such credit
(including any interest paid or credited by the relevant taxing
or governmental authority with respect to such refund or credit)
to the Purchaser (but only to the extent of the additional
payments made by the Purchaser under Sub-Article 4(C)(1 ) above
with respect to the Contract or Nexus Tax giving rise to such
refund or credit), net of all out-of-pocket expenses of the
Contractor; provided, however, that the Purchaser, upon the
-------- -------
request of the Contractor agrees to repay the amount paid over to
the Purchaser (plus penalties, interest or other charges due to
the appropriate authorities in connection therewith) to the
Contractor in the event the Contractor is required to repay such
refund or credit to such relevant authority.
ARTICLE 5 TERMS OF PAYMENT BY PURCHASER
- ---------------------------------------
A. General Conditions of Payment
1. All payments shall be made and all invoices shall be rendered in
US Dollars (US$). The Purchaser shall be responsible for and
shall pay all costs and fees for payment, as well as the banking
and cabling costs. All banking documents and correspondence must
be in English.
<PAGE>
15
B. Invoice Procedures
1. All invoices for Work shall be submitted according to the
Billing Schedule. All invoices for Work shall have a certificate
in the form of Appendix 4-1 attached.
2. Any Contract Variations shall be invoiced and paid in accordance
with the terms of the Contract Variation as specified in Article
6 (Contract Variations).
3. Invoices for Upgrade Work shall be submitted according to the
Upgrade Billing Schedule and shall be paid in accordance with
this Article 5.
4. Invoices for amounts not described in Sub-Sections 1-3 above,
which may become payable hereunder shall be submitted after
applicable costs have been incurred or such other time as may be
specified in this Contract. Such invoices shall be accompanied by
a certificate of the Contractor explaining such amount and
certifying that it is payable.
5. The Contractor shall render all invoices to the following address
or facsimile number:
Global Telesystems Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM12 Bermuda
Facsimile: 441-292-8666
Attn: Mr. David Lee
with a copy to
Conexart Technologies, Inc.
124 de Charante
Saint Lambert
Quebec, Canada J451 K3
Facsimile: 514-466-1093
Attn: Mr. Martin Fournier
C. Payment Procedures
1. The Purchaser shall pay the Contractor, and the Contractor shall
accept payment, in accordance with this Article 5 (Terms of
Payment by Purchaser).
<PAGE>
16
2. At the time this Contract comes into force pursuant to Article
46 hereof, the initial payment of * shall be paid by Purchaser to
Contractor, and Purchaser shall deposit with the Escrow Agent the
amount to be deposited pursuant to the Escrow Agreement to be
applied in accordance with the terms of the Escrow and Security
Agreement.
3. Invoices given to the Purchaser (and the Independent Engineer
and, until no funds remain in the Payment Account, the Escrow
Agent) on or before the last day of any month shall, subject to
Sub-Article 5(C)(5) below, be due and payable on the last day of
the next month or such other time as may be specified in this
Contract.
4. Invoices not paid when due shall accrue late payment charges
from the day, following the day, on which payment was due until
the day on which it is paid. Invoices for extended payment
charges shall not be issued for an amount less than U.S. $1,000.
Extended payment charges shall be computed at the rate of one
percent (1%) per month.
5. In the event that the Purchaser has an objection to any invoice
or other payment obligation or any amount owing by Contractor to
Purchaser shall not have been paid when due, the Purchaser shall
promptly notify the Contractor (and, until no funds remain in the
Payment Account, the Escrow Agent) of such objection and such
amount, and the Purchaser and Contractor shall make every
reasonable effort to settle promptly the dispute concerning the
payment(s) in question. In the event such dispute cannot be
settled, the Purchaser will have the right to withhold payment of
the disputed amount(s) (or withhold from the invoice amount a sum
equal to the amount purportedly owing by Contractor) so long as
(i) it provides a statement from the Independent Engineer (or,
prior to the date of the first draw under the Financing
Documents, the Purchaser) disputing the invoice or specifying
such amount owing by Contractor and (ii) it deposits, in full,
such disputed amount(s) into (or such amount is deposited,
pursuant to the Escrow and Security Agreement, into) the Dispute
Account.
(a) Provided such disputed amount is placed into the Dispute
Account in a timely manner, the Purchaser shall not be
deemed to be in breach of or in default for failing to pay
Contractor.
(b) The Escrow Agent will distribute the disputed amount in
accordance with the terms of the Escrow and Security
Agreement.
(c) In addition, the prevailing Party shall be entitled to
receive from the other Party an amount equal to (i) interest
on the distributed,
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
17
disputed amount at a rate of one percent (1%) per month less
(ii) interest distributed by the Escrow Agent under clause
(b) above.
Purchaser shall not set off against Contractor's obligations
except in accordance with this Sub-Article 5(C)(5).
6. The Purchaser shall make timely payments for that portion of the
invoice not in dispute in accordance with Sub-Article 5(C) or
such payments will be assessed extended payment charges as set
forth in Sub-Article 5(C)(4). Pending resolution of the dispute,
the Purchaser may not withhold payment (unless also subject to
dispute) on any other invoice concerning different goods and/or
services submitted by Contractor.
7. The Contractor will accept a letter of credit, to be issued in
form and substance satisfactory to it and issued by an
institution satisfactory to it, in lieu of the amount required to
be deposited in the Contingency Account.
ARTICLE 6 CONTRACT VARIATIONS
- -----------------------------
A. Either Party may request, during construction of the System or any
System Upgrade, by written order (with a copy to the Independent Engineer), a
contract variation requiring additions or alterations to, deviations or
deductions from the System or System Upgrade ("Contract Variation"). If the
other Party consents, in its sole discretion, this change will be formalized as
an amendment to this Contract by a Contract Variation.
B. A Contract Variation shall not become effective unless and until the
price adjustment, the terms and schedule of payment and the extension of time
and all other terms have been mutually agreed upon by the Parties and such
Contract Variation is signed by an authorized representative of each Party. Each
Contract Variation shall be incorporated as an amendment to the Contract.
C. Contractor may seek a Contract Variation for any change, after the
date hereof, of any Law (except those affecting only Taxes or wages) which
requires a change in the Work or the Upgrade Work or affects the costs (other
than wages) incurred or to be incurred by the Contractor or any combination of
the foregoing and Purchaser shall agree to any such change in Work or Upgrade
Work as may be required and to an equitable adjustment to the Contract Price or
the applicable Upgrade Price. As of the date hereof, neither Party has Actual
Knowledge of any proposed change in any Law that would require a change in the
Work or the Upgrade Work.
D. The Initial Contract Price is based on the assumption that Contractor
will acquire or build two cable stations and lease space in one cable station.
If fewer or more cable stations need to be built or acquired, both Parties will
agree to an equitable adjustment
<PAGE>
18
to the Contract Price and the terms and schedule of payments. No extension of
time will be granted solely because three cable stations will be built, unless
the Purchaser consents thereto.
E. Contractor may seek a Contract Variation to replace Germany as a
landing site with a landing site in the Netherlands and, so long as (i) the
Scheduled RFS Date is not delayed as a result thereof, (ii) the Contract Price
is equitably increased, if necessary, by no more than $3,000,000 and (iii) it is
reasonable to assume that the Netherlands landing license will be obtained by
the time required by the Financing Documents, the Purchaser shall agree to such
Contract Variation.
ARTICLE 6A. OPTIONAL UPGRADES
- --------------------------------
A. This Article includes the terms and conditions governing an option for
future upgrades to the System (each a "System Upgrade") that may be exercised by
Purchaser during the Option Period.
B. *
C. *
D. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
19
E. *
F. *
G. *
H. *
I. *
J. *
K. *
ARTICLE 7 RESPONSIBILITIES FOR PERMITS
- --------------------------------------
A. The Purchaser shall reasonably cooperate with and assist the
Contractor to obtain all Permits, to the extent that Purchaser's cooperation and
assistance are necessary for Contractor to expeditiously and cost-efficiently
obtain such Permits. The Purchaser agrees to respond promptly to any such
request from Contractor. Further, the Purchaser agrees that it will not impede
or interfere with Contractor's activities or Contractor's abilities to perform
its
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
20
obligations. Upon notice from Contractor with respect to a Permit or receipt by
Purchaser of a copy of a Permit, Purchaser shall fulfill all conditions of such
Permit and perform all responsibilities thereunder, except to the extent that
such conditions or responsibilities are those of the Contractor under Work.
B. Subject to paragraph C below, the Contractor shall have the
responsibility for obtaining all Permits on Purchaser's behalf.
C. Any delay in obtaining or failure to obtain any Permit shall
constitute a Force Majeure and be treated as described in Article 17 (Force
Majeure), except to the extent such delay is a result of Contractor's gross
negligence or willful misconduct.
D. The Contractor shall, before making any variations from the designs,
drawings, plans or procedures that may be necessitated by so complying with any
Laws and that would represent a material change to the overall design of the
System, give to the Purchaser written notice, specifying the variations proposed
to be made, and the reasons for making them. Except with respect to variations
necessitated by complying with any changes, after the date hereof, in any Laws
(the costs with respect to which shall be borne by the Purchaser), the
Contractor shall be responsible for the payment of any and all costs incurred as
a result of the need to vary design, drawings, plans or procedures to comply
with any of the circumstances set forth in this Article.
E. As of the date hereof, neither Party has Actual Knowledge of any
proposed changes in the foregoing which would necessitate any such variation.
F. The Contractor shall (i) give all notices required by any Laws to be
given to any authority and (ii) perform or permit the performance by authorized
persons of any inspection required by the said Laws, in each case as in effect
on the date hereof.
G. Within 30 days after the date of execution of this Contract, the
Contractor will prepare and deliver to the Purchaser a detailed list of Permits
that to its knowledge are required to be obtained under current law in order to
complete the Work and shall update such list from time to time if it becomes
aware of changes in Permit requirements. Such list, as updated from time to
time, shall set forth the projected dates of filing for such Permits and an
estimate of when such Permits are expected to be obtained. Without limiting
Contractor's liabilities in respect of Sub-Articles 7(B) and 7(C), Contractor
shall have no liability in respect of the information furnished under this Sub-
Article.
ARTICLE 8 ROUTE SURVEY
- ----------------------
A. The Contractor shall conduct the Route Survey and select the cable
route for the System in accordance with the information in the Final Survey
Report. Contractor shall be permitted to make changes, at its discretion, to the
route selection, if necessary for operational reasons without additional cost to
Purchaser.
<PAGE>
21
B. Any changes to the route selection requested by Purchaser shall be
treated as a Contract Variation in accordance with Article 6 (Contract
Variations).
ARTICLE 9 ACCEPTANCE
- --------------------
A. General
1. The Acceptance Testing shall be performed by the Contractor. The
Purchaser and its designated representatives (including the
Independent Engineer) may observe, at their own expense, the
Contractor's tests and review the test results. Purchaser may
request and conduct any additional tests, at its own expense, but
any delay caused by such process shall be a Force Majeure event.
2. Until the Date of Final Acceptance of the System or if a System
Upgrade is requested by Purchaser, the Date of Final Acceptance
of such System Upgrade, the Purchaser agrees to allow Contractor
access to all Segments of the System.
3. The Purchaser shall issue a Certificate of Commercial Service in
accordance with the provisions of Sub-Article 9(D)(1).
4. Once a Segment of the System, the System, or a System Upgrade is
Ready for Provisional Acceptance, the Purchaser shall issue a
Certificate of Provisional Acceptance.
5. Once the System or a System Upgrade is Ready for Final
Acceptance, the Purchaser shall issue a Certificate of Final
Acceptance.
6. The Purchaser shall not unreasonably withhold or delay issuance
of a Certificate of Commercial Service, a Certificate of
Provisional Acceptance or a Certificate of Final Acceptance.
7. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Service of the System will occur by November 30, 1998
(as such date may be extended under Article 6 (Contract
Variations), Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled RFS
Date"). The Contractor shall use reasonable efforts to be Ready
for Provisional Acceptance or Commercial Service with respect to
Segment 1 with a capacity of 5Gb/s per fiber pair by May 31,
1998.
8. The Date of Commercial Service, Provisional Acceptance and Final
Acceptance, as the case may be, shall be deemed to have occurred
with respect to a Segment, the System or a System Upgrade if a
Certificate
<PAGE>
22
of Commercial Service, a Certificate of Provisional Acceptance or
a Certificate of Final Acceptance is issued with respect thereto.
B. Notice of Acceptance or Rejection
1. Within thirty (30) days of receipt by Purchaser and Independent
Engineer of the Commissioning Report or Upgrade Commissioning
Report, as the case may be, the Purchaser must issue notification
to the Contractor of the following:
(a) issuance of a Certificate of Provisional Acceptance in
accordance with Sub-Article 9(C); or
(b) rejection of a Certificate of Provisional Acceptance, but
instead issuance of a Certificate of Commercial Service in
accordance with Sub-Article 9(D) below; or
(c) rejection of the Segment, the System or System Upgrade in
its existing condition and issuance of neither a Certificate
of Provisional Acceptance nor a Certificate of Commercial
Service, with a written explanation of reasons for
rejection.
If the Purchaser (or the Independent Engineer on its behalf)
fails to respond with such notification within thirty (30) days,
then the Date of Provisional Acceptance of the Segment, the
System or System Upgrade shall be deemed to be the date such
Commissioning Report or Upgrade Commissioning Report, as the case
may be, was received by the Purchaser.
2. On receipt of a notice from the Purchaser pursuant to Sub-
Articles 9(B)(1)(b) or (c) above, the Contractor shall be
entitled to address any disputes and explain any discrepancies to
the Purchaser regarding the results of the Acceptance Testing.
Unless Purchaser, for good cause, rejects such explanation, it
shall issue a new notice pursuant to Sub-Article 9(B)(1) above,
which shall be deemed to have been issued on the date of the
original notice.
3. In case of rejection, and if the explanation by the Contractor
as in Sub-Article 9(B)(2) above is not accepted, for good cause,
by the Purchaser, the Contractor shall carry out the necessary
corrective actions and will effect a new series of Acceptance
Testing ("Retesting"). After receipt by Purchaser and Independent
Engineer of the new Commissioning Report or Upgrade Commissioning
Report, as the case may be, describing the results of Retesting,
the Purchaser will be granted a new period of thirty (30) days to
analyze the new Report according to the provisions of Sub-Article
9(B)(1) and any new notice
<PAGE>
23
of the Purchaser shall apply from the date the Purchaser receives
such new Commissioning Report or Upgrade Commissioning Report, as
the case may be.
C. Provisional Acceptance
1. The Certificate of Provisional Acceptance may have annexed to it
a list of any outstanding deficiencies to be corrected by the
Contractor.
2. The Contractor shall, as soon as reasonably practicable, correct
such deficiencies and complete the Work or Upgrade Work indicated
on all such listed items so as to comply in all material respects
with the requirements of this Contract, provided that the
Purchaser allows Contractor the necessary access to the
Segment(s) as the Contractor needs to correct such deficiencies
and complete the Work or Upgrade Work. The Contractor shall give
the Purchaser reasonable notice of its requirement for such
access.
D. Commercial Service
1. A Certificate of Commercial Service shall be issued by Purchaser
with respect to a Segment, the System or System Upgrade if the
results of the Acceptance Testing demonstrate that such Segment,
the System or such System Upgrade does not justify the issuance
of a Certificate of Provisional Acceptance, but nevertheless,
such Segment, the System or such System Upgrade is Ready for
Commercial Service.
2. Each Certificate of Commercial Service shall have annexed to it a
mutually agreed list of all outstanding items to be completed by
the Contractor.
3. The Contractor shall, as soon as reasonably practicable, remedy
the outstanding items, provided that the Purchaser allows
Contractor the necessary access to the Segment(s) as the
Contractor needs to remedy such outstanding items. The Contractor
shall give the Purchaser reasonable notice of its requirement for
such access. Notwithstanding the above, provided that Contractor
has been allowed access to the Segment(s) as required in Sub-
Article 9(A)(2), the Contractor shall continue to carry the risk
of loss for any outstanding item until such item is no longer
outstanding.
4. When the outstanding items referenced in Sub-Article 9(D)(3)
above have been remedied, and the Segment(s) or System Upgrade is
otherwise Ready for Provisional Acceptance, the Purchaser will
promptly issue a Certificate of Provisional Acceptance.
<PAGE>
24
5. The issuance of a Certificate of Commercial Service with respect
to a Segment or System Upgrade shall in no way relieve the
Contractor from its obligation to provide a Segment or System
Upgrade conforming with the Performance Requirements at the time
of the issuance of a Certificate of Commercial Service.
E. Final Acceptance
1. Within thirty (30) days of the date of receipt by Purchaser and
Independent Engineer of the Final Commissioning Report, the
Purchaser shall issue a Certificate of Final Acceptance or reject
such Report. If the Purchaser neither issues a Certificate of
Final Acceptance nor rejects such Report within such thirty (30)
day period, then the Date of Final Acceptance of the System shall
be deemed to be the date such Final Commissioning Report was
received by the Purchaser.
F. Title and Risk of Loss
1. Upon payment of all amounts listed in the Billing Schedule with
respect to a Segment (other than in the case of a Phase 2
Segment, the Retainage with respect thereto) and the issuance of
a Certificate of Commercial Service or a Certificate of
Provisional Acceptance with respect to such Segment by the
Purchaser in accordance with this Contract, title (free and clear
of all liens deriving through or from Contractor (including any
subcontractor)) to such Segment shall vest in the Purchaser.
2. Upon (i) payment of all amounts listed in the Billing Schedule
with respect to the System (other than the Retainage) and the
issuance of the Retainage Letter of Credit and (ii) the issuance
of a Certificate of Commercial Service or a Certificate of
Provisional Acceptance with respect to the System by the
Purchaser in accordance with this Contract, title (free and clear
of all liens deriving through or from Contractor (including any
subcontractor)) to the System shall vest in the Purchaser.
3. Upon payment of the Upgrade Price with respect to a System
Upgrade and the issuance of a Certificate of Commercial Service
or a Certificate of Provisional Acceptance with respect to such
System Upgrade by the Purchaser in accordance with this
Contract, title to such System Upgrade shall vest in the
Purchaser.
4. As from the date of vesting of title in a Segment, the System or
a System Upgrade, the Purchaser shall, except as set forth in
the following sentence, assume the risk of loss in respect of
all parts of such Segment, the System or System Upgrade and
responsibility for its maintenance. As stated in Sub-Article
9(A)(2), the Contractor will be
<PAGE>
25
allowed access to such Segment, and, so long as the Contractor
has been allowed access to such Segment as may be required, the
Contractor shall continue to carry the risk of loss with respect
of each item outstanding under Sub-Article 9(C)(1) and 9(D)(2)
until such item is no longer outstanding.
ARTICLE 10 WARRANTY
- --------------------
A. The Contractor warrants that the System and each System Upgrade,
including its spares, shall be free from defects in supplies, workmanship and
design for a period of * years commencing from the Date of Provisional
Acceptance of the System or such System Upgrade, as the case may be,
(hereinafter Warranty Period" and "Upgrade Warranty Period"), with Ship Costs
being covered for the first two * of the Warranty Period (the "Ship Period") and
the Purchaser being responsible for all Ship Costs thereafter.
1. During the Warranty Period for the System or the Upgrade Warranty
Period for a System Upgrade, the Contractor shall make good, by
repair or replacement, at its sole option, any defects in the
System or such System Upgrade, as the case may be, including any
spares, which may become apparent or be discovered due to
imperfect workmanship, faulty design or faulty material supplied
by the Contractor, or any act, neglect or omission on the
Contractors part.
(a) If at any time within the Warranty Period or the Upgrade
Warranty Period for a System Upgrade any defect occurs which
causes the System or such System Upgrade, as the case may
be, to fail to meet its overall Performance Requirements,
the Contractor shall repair or replace such part or parts.
In making such repairs, Contractor may make changes to the
System or such System Upgrade, as the case may be, or
substitute equipment of later or comparable design, provided
the changes, modifications, or substitutions under normal
and proper use do not cause the System or such System
Upgrade as the case may be to fail to meet the Performance
Requirements.
(b) The Contractor shall use reasonable efforts to minimize the
period of time that any Segment or the System is out of
service for testing and repair. The Purchaser agrees to
cooperate with the Contractor to facilitate the Contractor's
repair activity.
(c) In the event that the Contractor fails to make the repair or
to make reasonable efforts to minimize the period of time
that the System is out of service for repair, the Purchaser
may repair the System or the System Upgrade and the
Contractor shall reimburse the Purchaser for Non-Ship Costs
and, with respect to any such repair relating to a defect
identified in good faith by
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
26
Purchaser in writing prior to the end of the Ship Period,
Ship Costs.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing, any repair by the Purchaser
shall not in any way diminish the Contractor's
obligation under the warranty. Any equipment discovered
to be defective or faulty and recovered during a
warranty repair shall be returned to the Contractor at
its request.
2. Contractor shall bear the Ship Costs of only those repairs of the
defects identified in good faith by Purchaser in writing prior to
the end of the Ship Period. However, the Contractor shall bear
the Non-Ship Costs of each repair, replacement or improvement
required during the Warranty Period.
As used herein, "Ship Cost" means the costs of operating a
vessel, including but not limited to running and standing charges
for the vessel (including but not limited to labor charges for
the vessel's crew, at sea insurance, port charges, fuel and lube
oils, consumables, cable loading, cable unloading, navigation and
Marisat) as well as the costs associated with the use and
operation of the SCARAB and the sea bed tractor, and "Non-Ship
Costs" means the costs of making a repair, including the cost of
components, equipment or materials requiring replacement, the
cost of any additional equipment necessary to effect the repair,
the cost of making the repair, including the cost of reburying
any previously buried portion, the cost of labor and engineering
assistance or development required to make the repair and all
necessary associated costs, such as, but not limited to, shipping
and customs and services that may be required to make the repair,
but excluding any of the foregoing which are Ship Costs.
3. The Contractor shall effect all warranty repairs of the System
and shall supply all necessary repair materials. However, the
Contractor may use, with the consent of the Purchaser, which
shall not be unreasonably withheld, the materials needed to
effect a repair from the Purchaser's available spare materials.
The Contractor shall promptly replace in kind such materials
supplied from the Purchaser's spare materials, or at the option
of the Purchaser, reimburse the Purchaser for such materials at
its original purchase price. The replacement of or reimbursement
for such materials shall be made at a time mutually agreed to by
the Purchaser and the Contractor.
<PAGE>
27
4. The Contractor warrants that services furnished hereunder will be
performed in a workmanlike manner using materials free from
defects except when such materials are provided by the Purchaser
(it being understood that all materials arranged for directly by
Contractor, whether or not purchased in the name of Purchaser,
are not materials provided by the Purchaser). If such services
prove to be not so performed and Purchaser notifies the
Contractor within six (6) months from the completion of the
service, the Contractor will promptly correct the defect.
5. Any part which replaces a defective part during the applicable
Warranty Period or Upgrade Warranty Period, shall be subject to
the remaining Warranty Period and Ship Period, if any, or Upgrade
Warranty Period, as the case may be, of the part which was
replaced. However, the Warranty Period shall never exceed five
(5) years from the Date of Provisional Acceptance of the System
and the Upgrade Warranty Period for any System Upgrade shall
never exceed five (5) years from the Date of Provisional
Acceptance of such System Upgrade. Further, Ship Costs shall be
included only with respect to defects identified in good faith by
Purchaser in writing during the first two (2) years from the Date
of Provisional Acceptance of the System.
B. *
C. The warranties provided above in Sub-Articles 10(A) and (B) by the
Contractor shall not apply to defects or failures of performance, which result
from damage caused by acts or omissions of the Purchaser or its agents,
employees or representatives or third parties (other than the Contractor), or
which result from modifications, misuse, neglect, accident or abuse, repair,
storage or maintenance by other than the Contractor or its agents, use in a
manner not in accordance with the System Description, or other causes beyond the
control of or without the fault of the Contractor or its employees, agents or
subcontractors including, but not restricted to, causes set forth in Article 12
(Purchaser's Obligations) or Article 17 (Force Majeure) hereof.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
28
D. THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WHICH ARE SPECIFICALLY
DISCLAIMED. THE PURCHASER'S SOLE AND EXCLUSIVE REMEDY UNDER THIS ARTICLE SHALL
BE THE CONTRACTOR'S OBLIGATION TO MAKE REPAIRS OR REPLACEMENTS AS SET FORTH IN
THIS ARTICLE.
E. The Contractor shall, in accordance with its normal operating
practices, investigate any defective part or parts repaired or replaced pursuant
to this Article 10 to determine the type of defect and the cause of failure of
the part or parts. The Contractor shall provide a written report to the
Purchaser on the results of the investigation, if any.
ARTICLE 11 CONTRACTOR SUPPORT
- ------------------------------
A. For a period of ten (10) years from the applicable Date of Provisional
Acceptance or Date of Commercial Service of the System whichever is earlier, the
Contractor will make available to the Purchaser replacement parts and repair
service for the System as may be reasonably necessary for its operation,
maintenance or repair. Where identical parts cannot be supplied, the Contractor
shall provide fully compatible parts with characteristics equal or superior to
those originally provided by the Contractor. Such parts and services shall be
provided under commercially reasonable conditions of price and delivery.
B. Notwithstanding Sub-Article 11(A), if for any reason the Contractor or
Contractor's suppliers intend to cease or ceases manufacturing or having
manufactured identical or fully compatible replacement parts, the Contractor
shall use reasonable efforts to give one year's prior written notice to the
Purchaser to allow the Purchaser to order from the Contractor any required
replacement parts and shall provide full details of the arrangements to provide
equivalents.
ARTICLE 12 PURCHASER'S OBLIGATIONS
- -----------------------------------
A. Purchaser agrees to pay all amounts payable by it when due under this
Contract and to perform all of its other obligations under this Contract.
B. In the event the Purchaser establishes a branch office in any of the
relevant jurisdictions, the Purchaser shall be solely responsible to perform all
activities necessary to establish such branch office.
C. If any loss, damage, delay or failure of performance of the System or
a System Upgrade results from the Purchaser's failure to perform its obligations
under this Contract and results in an increase in the costs of performance or
the time required for performance of any of the Contractor's duties or
obligations under this Contract, the Contractor shall be entitled, as
appropriate, to (i) an equitable adjustment in the Contract Price or applicable
Upgrade Price, (ii) an equitable extension of time for completion of its Work or
the Upgrade Work, (iii) reimbursement for all such additional costs incurred,
and (iv) to the extent necessary in
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29
light of Purchaser's failure and the adjustments made in accordance with clauses
(i), (ii) and (iii) above, an equitable adjustment of the Work and/or Upgrade
Work.
1. The Contractor shall inform the Purchaser promptly of any
occurrence covered under this Sub-Article 12(C), and shall use
reasonable efforts to minimize any such additional costs or
delay.
2. The Contractor shall promptly provide to the Purchaser an
estimate of the anticipated additional costs and time required to
complete the Work or Upgrade Work and request relief from
contractual obligations or duties, as appropriate. Purchaser
shall, upon notification, make advance payment to Contractor for
the estimated amount of anticipated additional costs; provided
--------
that Purchaser may deposit such amount into the Dispute Account
and Sub-Article 5(C)(5) shall apply. Contractor shall without
limiting Purchaser's obligations in the foregoing sentence,
discuss such costs with Purchaser upon Purchaser's request.
3. As soon as reasonably practicable after the actual costs become
known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser.
4. If the estimated amount is greater than the amount of actual
costs, then the Contractor shall reimburse the Purchaser. If the
amount of actual costs incurred is greater than the estimated
amount, then the Purchaser shall reimburse the Contractor for any
shortfall in accordance with Article 5 (Terms of Payment of
Purchaser).
ARTICLE 13 TERMINATION FOR DEFAULT
- -----------------------------------
A. Either Party may, by written Notice of Termination for Default,
immediately upon receipt or such later date as specified in the notice,
terminate the whole or any part of this Contract in any one of the following
circumstances (each an "Event of Default"):
1. In the case of the Purchaser, if Contractor materially fails to
comply with the terms and conditions of this Contract and, if
such failure occurs prior to the Date of Commercial Service or
the Date of Provisional Acceptance, it would not be reasonable to
believe that the Contractor will be able to provide the System
which is Ready for Commercial Service or Provisional Acceptance,
as the case may be, within 200 days after the Scheduled RFS Date;
2. If the other Party defaults on any of its payment obligations
(or, in the case of the Contractor, if the amount in the
Contingency Account is less than the amount initially deposited
therein) and does not cure such default (or does not increase the
amount on deposit in the Contingency Account to the amount
initially deposited therein or provide the
<PAGE>
30
Contractor with a letter of credit for such deficiency in form
and substance and issued by a bank reasonably satisfactory to
Contractor) within a period of thirty (30) days (or such longer
period as the non-breaching Party may authorize in writing) after
receipt of written notice demanding cure;
3. If the other Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the
foregoing;
4. If an involuntary case or other proceeding shall be commenced
against the other Party seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period of 45 days; or an order for relief shall be entered
against the other Party.
B. If this Contract is terminated by the Purchaser as provided in Sub-
Article 13(A), the Purchaser, in addition to any other rights provided in this
Article and upon payment to Contractor of all monies due and owing as set forth
in Sub-Article 13(C) below, may require the Contractor to transfer title and
deliver to the Purchaser in the manner and to the extent directed by the
Purchaser any completed equipment, material or supplies, and such partially
completed cable and materials, parts, tools, dies, jigs, fixtures, plans,
drawings, information, and contract rights (hereinafter collectively
"Manufacturing Materials") as the Contractor has had specifically produced or
specifically acquired for the performance of such part of this Contract as has
been terminated and which, if this Contract had been completed, would have been
required to be furnished to the Purchaser; and the Contractor shall, upon the
direction of the Purchaser, protect and preserve property in the Contractor's
possession in which the Purchaser has an interest.
C. If the Contract is terminated by Contractor as provided in Sub-Article
13(A), the Purchaser shall pay the total of:
1. the Contract Price (or after the Date of Final Acceptance of the
System, if a System Upgrade has been selected, the Upgrade Price)
less (a) the portion of the Contract Price or Upgrade Price paid
by Purchaser to
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31
Contractor under the Billing Schedule and (b) costs that will not
be incurred because of the termination;
2. the cost of settling and paying claims rising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 13(C)(3) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection, preservation and disposition of property
proper to this Contract as well as additional costs incurred due
to Purchaser's Default.
D. Force Majeure events pursuant to Article 17 (Force Majeure) shall not
constitute a default or provide a basis for termination under this Article.
E. Regardless of any termination of this Contract as provided in Sub-
Article 13(A), neither Party shall be relieved from any liability for damages or
otherwise which may have been incurred by reason of any breach of this Contract.
F. Without limitation to the foregoing, in the event that Purchaser
terminates this Contract pursuant to Sub-Article 13(A), the Contractor shall be
liable to Purchaser (without duplication) for the total of all costs and
expenses reasonably incurred by Purchaser in completing the Work or in
correcting deficiencies in the Work to the extent that the payments made to
Contractor pursuant to this Contract, together with such costs and expenses,
exceed the Contract Price.
ARTICLE 14 TERMINATION FOR CONVENIENCE
- ---------------------------------------
A. The performance of Work under this Contract may be terminated by the
Purchaser in whole, or in part, at its discretion. The Purchaser shall deliver
to the Contractor a written notice specifying the extent to which performance of
Work under this Contract is terminated, and the date upon which such termination
becomes effective (a "Notice of Termination"). Upon termination, the Purchaser
will make payment to Contractor of all monies due and owing as set forth in Sub-
Article 14(D) below.
B. After receipt of such Notice of Termination, and except as otherwise
directed by the Purchaser, the Contractor shall:
1. Stop Work under this Contract on the date and to the extent
specified in the Notice of Termination;
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32
2. Place no further orders or contracts for materials, services or
facilities except as may be necessary for completion of such
portion of Work under this Contract as is not terminated;
3. Use reasonable efforts to terminate all orders and contracts to
the extent that they relate to the performance of Work terminated
by the Notice of Termination;
4. Assign to the Purchaser, in the manner, at the time, and to the
extent directed by the Purchaser, all of the Contractor's rights,
title and interest under the orders and contracts so terminated;
5. Use reasonable efforts to settle all outstanding liabilities and
all claims arising out of such termination of orders and
contracts, with the Purchaser's approval or ratification to the
extent required;
6. Transfer title and deliver to the Purchaser in the manner, at the
time and to the extent (if any) directed for the fabricated or
unfabricated parts, work in process, completed work, supplies and
other material produced as a part of, or acquired in connection
with, the performance of the Work terminated by the Notice of
Termination;
7. Use reasonable efforts to sell, in the manner, at the time, to
the extent and at the price or prices directed or authorized by
the Purchaser, any property of the types referred to in Sub-
Article 13(B)(6) above provided, however, that the Contractor:
-------- -------
(a) shall not be required to extend credit to any buyer; and
(b) may acquire any such property under the conditions
prescribed by and at a price approved by the Purchaser;
and provided further that the net proceeds of any such transfer
-------- -------
or disposition shall be applied in reduction of any payments to
be made by the Purchaser to the Contractor under this Contract
or, if no such payments are due, paid in such other manner as the
Purchaser may direct;
8. Complete performance of such part of the Work which was not
terminated by the Notice of Termination; and
9. Take such action as may be necessary, or as the Purchaser may
reasonably direct, for the protection and preservation of the
property related to this Contract which is in the Contractor's
possession and in which the Purchaser has acquired or may acquire
an interest.
<PAGE>
33
C. After such Notice of Termination, the Contractor shall submit to the
Purchaser a written termination claim. Such claim shall be submitted promptly,
but, unless otherwise extended, in no event later than six months from the
effective date of termination.
D. In the settlement of any such partial or total termination claim, the
Purchaser shall pay to the Contractor the total of:
1. (i) if the Contract is terminated in whole under this Article 14
prior to the Payment Escrow Date, all amounts invoiced in
accordance with the Contract plus, for Work or Supplies which
have not been invoiced, an amount calculated by reference to the
prices set forth in the Provisioning Schedule and to the amount
of such Work or Supplies done or provided and (ii) in all other
cases, the Contract Price (or after the Date of Final Acceptance
of the System, if a System Upgrade has been selected, the Upgrade
Price) less (a) the portion of the Contract Price or Upgrade
Price paid by Purchaser to Contractor under the Billing Schedule
allocable to the terminated Segment(s) of the System or System
Upgrade, (b) the portion of the Contract Price allocable to the
unterminated Segment(s) of the System and (c) costs that will not
be incurred because of the termination.
2. the cost of settling and paying claims rising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 14(D)(4) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection and disposition of property proper to this
Contract.
E. In arriving at the amount due to the Contractor under this Article 14,
all unliquidated payments made to the Contractor, any liability which the
Contractor may have to the Purchaser, and the agreed price for, or the proceeds
of sale of any materials, supplies or other things acquired by the Contractor or
sold, pursuant to the provisions of this Article 14, and not otherwise recovered
by or credited to the Purchaser shall be deducted.
F. In addition, if the Contract is only partially terminated, prior to
the settlement of the terminated portion, the Contractor may file with the
Purchaser a request in writing for an equitable adjustment of the Contract Price
for the portion of the Contract not terminated by the Notice of Termination, and
the Purchaser shall grant Contractor an equitable adjustment to the Contract
Price, which shall be reflected in the Provisioning Schedule, Appendix 1.
<PAGE>
34
G. The Purchaser may, from time to time, under such terms and conditions
as they prescribe approve partial payments and payments on account against costs
incurred by the Contractor in connection with the terminated portion of this
Contract. If such payments total in excess of the amount finally agreed or
determined to be due under this Article 14, such excess shall be refunded, upon
demand, by the Contractor to the Purchaser.
H. For a period of one year after final settlement under this Contract,
the Contractor shall preserve and make available to the Purchaser at reasonable
times at the Contractor's office, but without direct charge to the Purchaser,
all supporting books, records and documents required to be kept relating to the
terminated Work.
ARTICLE 15 SUSPENSION
- ----------------------
A. The Purchaser may, at its convenience, order the Contractor to suspend
all or part of the Work for such period of time as the Purchaser determines to
be appropriate. If, as a result of such Suspension, the Contractor incurs
additional costs or losses in the discharge of its responsibilities under this
Contract, and where such suspension, losses or costs are not caused by the
Contractor's act or omission and could not have been reasonably prevented by the
Contractor, the Contractor shall be allowed an equitable adjustment to the
Contract Price or the Provisioning Schedule in Appendix 1 and an equitable
extension in the time required for performance.
B. Upon the occurrence of:
(i) (A) a Default by the Purchaser, (B) receipt by Purchaser prior
to the Date of Final Acceptance of a notice of a Financing Event of Default
or (C) on or prior to the Date of Final Acceptance, a failure to satisfy
the conditions precedent under a Financing Document which results in a
failed funding thereunder;
(ii) the termination without in each case reasonably satisfactory
replacement of (A) the CIBC Commitment Letter or (B) prior to the Date of
Final Acceptance (or if all of the notes contemplated to be sold under the
Holding Company Note Purchase Agreement have been sold, prior to the
repayment in full of all amounts outstanding thereunder), the Holding
Company Note Purchase Agreement, unless in each case, such failure is due
to the failure of the Contractor to perform its obligations when required
hereunder;
(iii) the failure to (A) consummate the transactions contemplated
in the CIBC Commitment Letter on substantially the terms set forth in the
summary of terms and conditions attached thereto and with definitive
documentation consistent with the terms of such summary, except for
inconsistencies with respect to terms which are either not material to the
interests of the Contractor or not adverse to the interests of the
Contractor and (B) make a draw under the Working Capital Facility referred
to therein, in each case on or prior to the date three months from the date
hereof unless the delay is due to the failure of the Contractor to perform
its obligations when required hereunder;
<PAGE>
35
(iv) the failure of Holding Company to make a draw contemplated by
the Note Purchase Agreement and contribute the net proceeds thereof to
Purchaser or of Purchaser to immediately deposit such net proceeds (net of
mutually agreed upon construction and development expenses of the
Purchaser) into the Payment Account, in each case prior to the time needed
by Purchaser to pay its obligations under this Contract;
(v) any transfer prior to the Date of Final Acceptance of any
portion of the System except in accordance with Article 37;
(vi) any supplement executed by a Transferee shall not be in full
force and effect;
(vii) the amendment of any Financing Document without Contractor's
consent, unless such amendment is with respect to terms which are either
not material to the interests of the Contractor or not adverse to the
interests of the Contractor;
(viii) the termination or reduction of the commitments or the
prepayment of any loans under the Financing Documents if the remaining
commitments, together with amounts on deposit in the Payment Account and
the Contingent Account, would not be sufficient to pay the remaining unpaid
portion of the Contract Price;
the Contractor, in addition to any other rights provided in Article 13, may
suspend performance of its obligations and all Work and (in the case of clause
(i)) Upgrade Work. Purchaser shall deliver a copy of each notice of default or
event of default simultaneously with the delivery thereof to any party to any
Financing Document and shall promptly notify Contractor of the occurrence of any
of the foregoing items listed in clauses (i) through (viii) above or of any
failure to satisfy any condition under any Financing Document which results in a
failed funding thereunder, and Purchaser shall deliver to Contractor a copy of
each Financing Document (other than the Holding Company Note Purchase Agreement
and the Financing Documents relating solely thereto) and each amendment to such
Financing Documents which has an impact on the Contractor promptly after
execution thereof.
C. Every forty-five (45) days, during the period of Suspension,
the Parties shall meet formally and review the circumstances surrounding the
Suspension including without limitation, the anticipated date of re-commencing
Work.
D. Thereafter, if the Suspension continues for a total of one
hundred and eighty (180) days, the Contractor may terminate the Contract by
notice to the Purchaser and the Contract shall be deemed to have been terminated
by Purchaser, effective on the date of Contractor's notice, in accordance with
Sub-Article 13(A) and the remaining provisions of Article 13 shall apply.
ARTICLE 16 TITLE AND RISK OF LOSS
- ----------------------------------
A. Except as provided in Article 18 (Intellectual Property),
Article 20 (Safeguarding of Information and Technology) and Article 21 (Export
Control), title to all
<PAGE>
36
Supplies provided by the Contractor hereunder for incorporation in or attachment
to a Segment shall pass to and vest in the Purchaser in accordance with Article
9 (Acceptance). Risk of loss or damage to all Supplies provided by the
Contractor for incorporation in or attachment to such Segment shall pass to and
vest in the Purchaser in accordance with Article 9. Upon termination of this
Contract pursuant to Article 13 (Termination for Default) or 14 (Termination for
Convenience), the Purchaser may require, upon full payment of all amounts due
thereunder (provided that, without limiting Purchaser's obligation to make any
--------
such payment, if this Contract is terminated by Purchaser because of a
Bankruptcy Event full payment shall not be required prior to the transfer of
title), that title to the equipment, materials and supplies, which has not
previously passed to the Purchaser, pass to the Purchaser, free and clear of all
liens, claims, charges and other encumbrances deriving through or in connection
with the Contractor or any supplier or sub-contractor of the Contractor.
B. Upon the passage of title in accordance with the terms of Article 13
(except a transfer described in the proviso of the last sentence of Sub-Article
16(A)), the Contractor warrants that all parts, materials, and equipment to
which title has passed will be free and clear of all liens, claims, charges and
other encumbrances deriving through or in connection with the Contractor or any
supplier or sub-contractor of the Contractor.
ARTICLE 17 FORCE MAJEURE
- -------------------------
A. The Contractor shall not be responsible for any loss, damage, delay or
failure of performance resulting directly or indirectly from any cause which is
beyond its reasonable control ("Force Majeure"), including but not limited to:
delay in obtaining or failure to obtain any Permits; acts of God or of the
public enemy; acts or failure to act of any governmental authority; war or
warlike operations, civil war or commotion, mobilizations or military call-up,
and acts of similar nature; revolution, rebellions, sabotage, and insurrections
or riots; fires, floods, epidemics, quarantine restrictions; strikes, and other
labor actions; freight embargoes; unworkable weather; trawler or anchor damage;
damage caused by other marine activity such as fishing, marine research and
marine development; general unavailability of any raw materials or components;
acts or omissions of transporters; or the acts or failure to act of any of the
Purchaser, of its representatives or agents, provided that (i) a loss by
--------
Contractor of employees (other than by reasons of Force Majeure), (ii) strikes
and other labor actions involving the Contractor's own work force, (iii) the
first 5 days of unworkable weather (unless any such day occurs during the 30
days immediately preceding the then Scheduled RFS Date), (iv) the failure (other
than by reason of force majeure) of any subcontractor, supplier or transporter
to perform its obligations to Contractor (including on account of insolvency)
unless such supplies or transportation or other services are generally
unavailable in the marketplace, (v) the unavailability of any raw materials or
components, unless such raw materials or components are generally unavailable in
the marketplace or are unavailable by reason of force majeure or (vi) any
increase in Contractor's costs shall not in and of itself constitute Force
Majeure.
B. If any such Force Majeure causes an increase in the time or costs
required for performance of any of its duties or obligations, the Contractor
shall be entitled to the
<PAGE>
37
following: (i) an equitable adjustment in the Contract Price, (ii) an equitable
extension of time for completion of the Work or the Upgrade Work, as the case
may be, (iii) reimbursement for all such additional costs incurred and (iv) to
the extent necessary in light of such Force Majeure and the adjustments made in
accordance with clauses (i), (ii) and (iii) above, an equitable adjustment to
the Work and/or Upgrade Work; provided that in no event shall the Purchaser be
--------
liable under clause (i) or (iii) of this Sub-Article 17(B) for (a) any loss of
or damage due to Force Majeure, to the extent such loss or damage is required by
Article 27 to be covered by insurance for the benefit of the Contractor or by
self insurance, or is otherwise actually covered by insurance for the benefit of
the Contractor, or (b) the amount by which the replacement cost of physical
assets exceeds the initial cost thereof or the cost of replacement parts
therefor unless such incremental replacement cost is uninsurable, or (c) the
initial cost of any lost or damaged physical assets or the cost of any repair or
replacement thereof (except in the case of replacement, as provided in clause
(b) above) except for losses caused by Purchaser or (d) (without limiting
Purchaser's obligations under any other provision of this Contract) any third
party claims against Contractor.
C. Increase in cost due to Purchaser will be as provided for in Article
12, Purchaser's Obligations.
D. The Contractor shall inform the Purchaser promptly with written
notification, and in all cases within fourteen (14) days of discovery and
knowledge, of any occurrence covered under this Article and shall use its
reasonable efforts to minimize such additional costs or delays. The Contractor
shall promptly provide an estimate of the anticipated additional costs, the time
required to complete the Work or the Upgrade Work and any changes to the Work or
the Upgrade Work, as the case may be. Contractor shall be entitled to an
extension of time equal to at least one day for each day of delay resulting from
the Force Majeure condition. As soon as reasonably practicable after the actual
costs become known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser. Thereafter, the Purchaser shall reimburse
the Contractor for the actual costs incurred by the Contractor against
submission of corresponding invoices in accordance with Article 5 (Terms of
Payment by Purchaser).
E. Within thirty (30) days of receipt of such a notice from Contractor,
the Purchaser and the Independent Engineer may provide a written response. The
absence of a response shall be deemed as acceptance of Contractor's notice and
request for additional costs and time.
F. If a Force Majeure (other than for failure to procure a Permit through
fault of the Contractor) continues for a total of two hundred (200) days, either
Party may terminate the Contract by notice to the other and the Contract shall
be deemed to have been terminated by Purchaser, prior to the Payment Escrow Date
effective on the date of the terminating Party's notice, in accordance with Sub-
Article 14(A) and the remaining provisions of Article 14 shall apply to such
termination.
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ARTICLE 18 INTELLECTUAL PROPERTY
- ---------------------------------
A. Ownership
All right, title, and interest in and to any information, computer or
other apparatus programs, software, specifications, drawings, designs, sketches,
tools, market research or operating data, prototypes, records, documentation,
works of authorship or other creative works, ideas, concepts, methods,
inventions, discoveries, improvements, or other business, financial and/or
technical information (whether or not protectable or registrable under any
applicable intellectual property law) developed by Contractor in the course of
its performance under this Contract, or otherwise furnished by Contractor to
Purchaser as part of the delivery of the System under this Contract, is and
shall remain the sole property of Contractor (hereinafter individually and
collectively referred to as "Intellectual Property"). Unless otherwise expressed
in this Contract, no license is implied or granted herein to Purchaser to any
Intellectual Property by virtue of this Contract, nor by the transmittal or
disclosure of any such Intellectual Property to Purchaser. Any Intellectual
Property disclosed, furnished, or conveyed to Purchaser that is marked as
"Proprietary" or "Confidential", (or if transmitted orally is identified as
being proprietary or confidential), or under the totality of the circumstances
ought to reasonably be treated as being proprietary or confidential to
Contractor even if not so marked or identified, shall be treated in accordance
with the provision of Article 20 (Safeguarding of Information and Technology).
B. Licenses
Contractor shall furnish to Purchaser, upon the transfer of title to
any portion of the System or a System Upgrade pursuant to Article 9, copies of
all technical information, specifications, drawings, designs, sketches, tools,
operating data, records, documentation and/or other types of engineering or
technical data or information that a person of ordinary skill in the relevant
technical field would consider reasonably necessary to operate, maintain or
repair each component of such portion of the System or System Upgrade as
delivered by Contractor (the "Deliverable Technical Material"). Contractor
grants to Purchaser a perpetual, royalty-free, non-transferable (except under
the circumstances specified in Sub-Article 18(G) below) license to use and
reproduce the Deliverable Technical Materials owned, controlled, or developed by
Contractor to fulfill Purchaser's obligations under this Contract and to use and
operate the System (as upgraded by any System Upgrades) supplied by Contractor
with the right to employ third parties (under appropriate written obligations
respecting confidentiality) to assist Purchaser in fulfilling its obligations
under this Contract and in using and operating the System (as upgraded by any
System Upgrades), but with no right to sublicense. Contractor grants to
Purchaser a perpetual, royalty-free, nontransferable (except under the
circumstances specified in Sub-Article 18(G) below) license to use and reproduce
those portions of Deliverable Technical Materials owned or controlled by third
parties (but only to the extent of any rights which may have been granted to
Contractor by such third parties) to fulfill Purchaser's obligations under this
Contract and to use and operate the System supplied by Contractor with the right
to employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using and operating the System (as upgraded by any System
Upgrades), but with no
<PAGE>
39
right to sublicense. Except as set forth in this provision, no license under
Contractor's patents, copyrights, trade or service marks, trade secrets or other
intellectual property rights protectable under law in the United States or any
foreign country is granted to Purchaser. It is expressly understood that it
shall not be a violation of this license for Purchaser, on its own behalf or
through third parties (under appropriate written obligations respecting
confidentiality) specifically employed for the purpose, to modify the System (as
upgraded by any System Upgrades) or connect the System (as upgraded by any
System Upgrades) to other systems, provided that Purchaser may not use the
Deliverable Technical Materials in achieving such modification or
interconnection for any purpose other than determining the technical
configuration, systems interface and/or interoperability requirements of the
System (as upgraded by any System Upgrades) as delivered by Contractor (subject
to the rights of third parties therein and thereto), and subject to the
limitations on Contractor's obligations as set forth in Articles 10(C) and 19(A)
concerning any such modification or interconnection.
C. Deliverable Software
Contractor shall furnish to the Purchaser, upon transfer of title to
any portion of the System or System Upgrade pursuant to Article 9, copies of all
computer or other apparatus programs and software, in executable form, and
related documentation, where such copies of programs and software shall consist
solely of executable code provided in offline media (e.g., tapes, or diskettes)
for restoration purposes, sufficient to operate, maintain or repair the computer
systems of such portion of the System or System Upgrade, as the case may be, as
delivered by Contractor (the Deliverable Software). Contractor shall furnish to
Purchaser, from time to time during the Warranty Period or any Upgrade Warranty
Period, copies of all computer or other apparatus programs and software, in
executable form, and related documentation, where such copies of programs and
software shall consist solely of executable code provided in offline media for
restoration purposes, that Contractor may develop to correct errors or to
maintain Deliverable Software previously furnished to Purchaser, which shall
also be treated as Deliverable Software for purposes of this Contract upon
delivery thereof to Purchaser. Contractor grants to Purchaser a perpetual,
royalty-free, non-transferable (except under the circumstances specified in Sub-
Article 18(G) below) license to use and reproduce the Deliverable Software
Materials owned, controlled, or developed by Contractor to fulfill Purchaser's
obligations under this Contract and to use and operate the System (as upgraded
by any System Upgrades) supplied by Contractor with the right to employ third
parties (under appropriate written obligations respecting confidentiality) to
assist Purchaser in fulfilling its obligations under this Contract and in using
and operating the System (as upgraded by any System Upgrades), but with no right
to sublicense. Contractor grants to Purchaser a perpetual, royalty-free,
nontransferable (except under the circumstances specified in Sub-Article 1 8(G)
below) license to use and reproduce those portions of Deliverable Software owned
or controlled by third parties (but only to the extent of any rights which may
have been granted to Contractor by such third parties) to fulfill Purchaser's
obligations under this Contract and to use and operate the System (as upgraded
by any System Upgrades) supplied by Contractor with the right to employ third
parties (under appropriate written obligations respecting confidentiality) to
assist Purchaser in fulfilling its obligations under this Contract and in using
and operating the System (as upgraded by any System Upgrades), but with no right
to sublicense. These licenses shall be limited to the right
<PAGE>
40
to use Deliverable Software only with the particular type of computer equipment
or substantially similar replacement equipment for which the Deliverable
Software was provided in the System (as upgraded by any System Upgrades) as
supplied by Contractor.
1. Confidentiality
Purchaser shall keep the Deliverable Software confidential in
accordance with Article 20 (Safeguarding of Information and
Technology) and Article 21 (Export Control) and agrees to use its
best efforts to see that its employees, consultants, and agents,
and other users of such software, comply with the provisions of
this Contract. Purchaser also agrees to refrain from taking any
steps, such as reverse assembly or decompilation, to derive a
source code equivalent of any object code that is furnished by
Contractor, provided that Contractor continues to maintain the
Deliverable Software in accordance with the terms of the
Operating, Administration and Maintenance Agreement or is willing
and able to enter into an agreement to maintain the Deliverable
Software upon terms reasonably comparable to the pertinent terms
of Operating, Administration and Maintenance Agreement after the
expiration or termination thereof or does not go insolvent or
bankrupt to thereby trigger *. In the case of insolvency or
bankruptcy of Contractor, Purchaser shall limit any derivation of
a source code equivalent to that portion of the Deliverable
Software that was developed by Contractor. Purchaser shall not
under any circumstances take any steps to derive a source code
equivalent from that portion of the Deliverable Software
comprising commercial, off-the-shelf software developed or
provided by third parties.
2. Backup Copies
Purchaser may make and retain two archive copies of the
Deliverable Software. Any copy will contain the same copyright
notice and proprietary markings as are on the original software
and shall be subject to the same restrictions as the originals.
3. Termination of Software Licenses
In the event of use of Deliverable Software other than that
permitted in Sub-Article 18(C) or any other material breach of
this Article 18 by Purchaser, Contractor, at its option, may
terminate the rights granted to Purchaser pursuant to this
Article, upon written notice to Purchaser. Upon termination,
Purchaser shall either return or destroy, at Contractor's option,
all copies of Deliverable Software furnished under this Contract.
4. Indemnification
In the event of use of Deliverable Software furnished hereunder
other than permitted in Sub-Article 18(C) or any other material
breach of this
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
41
Article 18 by Purchaser, the Purchaser shall indemnify and hold
Contractor harmless from any and all third party claims resulting
therefrom whether arising from a defect in the software or
otherwise.
D. Trademarks, Tradenames, etc.
No rights are granted herein to Purchaser to use any identification
(such as, but not limited to tradenames, trademarks, service marks or symbols,
and abbreviations, contractions, or simulations thereof) owned or used by
Contractor or its parent company and affiliates to identify Contractor or its
parent company and affiliates or any of its products or services. Purchaser
agrees that it will not, without the prior written permission of Contractor, use
such identification in advertising, publicity, packaging, labeling, or in any
other manner to identify itself or any of its products, services, or
organizations, or represent directly or indirectly that any product, service, or
organization of it is a product, service, or organization of Contractor or its
parent company or affiliates, or that any product or service of Purchaser is
made in accordance with or utilizes any Intellectual Property of Contractor or
its parent company or affiliates.
E. DISCLAIMER, LIMITATION OF LIABILITY
CONTRACTOR REPRESENTS THAT ANY INFORMATION OR INTELLECTUAL PROPERTY
FURNISHED IN CONNECTION WITH THIS CONTRACT SHALL BE TRUE AND ACCURATE TO THE
BEST OF ITS KNOWLEDGE AND BELIEF, BUT CONTRACTOR SHALL NOT BE HELD TO ANY
LIABILITY FOR UNINTENTIONAL ERRORS OR OMISSIONS THEREIN. EXCEPT AS EXPRESSLY
PROVIDED, CONTRACTOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSLY OR
IMPLIEDLY. BY WAY OF EXAMPLE, BUT NOT OF LIMITATION, CONTRACTOR AND ITS PARENT
COMPANY AND AFFILIATES MAKES NO REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF INFORMATION OR
INTELLECTUAL PROPERTY DISCLOSED OR PROVIDED HEREUNDER WILL NOT INFRINGE ANY
PATENT OR OTHER INTELLECTUAL PROPERTY RIGHT OF A THIRD PARTY. CONTRACTOR AND ITS
PARENT AND AFFILIATES SHALL NOT BE HELD TO ANY LIABILITY WITH RESPECT TO ANY
CLAIM BY PURCHASER OR ANY THIRD PARTY CLAIM AGAINST PURCHASER ON ACCOUNT OF, OR
ARISING FROM, PURCHASER'S USE OF INFORMATION OR INTELLECTUAL PROPERTY DISCLOSED
OR PROVIDED BY CONTRACTOR.
F. Joint Development
In the event that the disclosure of Intellectual Property by
Contractor or the exchange of other information results in the creation or
development of new information from the substantial contribution of one or more
of Contractor's employees, agents, or consultants with one or more of
Purchaser's employees, agents, or consultants during the course of this
Contract, then such newly created information shall be subject to the terms of
Article 20 (Safeguarding of Information and Technology). Any such newly and
jointly developed
<PAGE>
42
information shall be jointly owned by the Parties. Notwithstanding the above,
the Parties acknowledge and agree that between them the ownership of any newly
created information comprising inventions, discoveries, improvements, conceived,
first reduced to practice, made or developed in anticipation of, in the course
or as a result of Work or Upgrade Work shall be determined in accordance with
Title 35 of the United States Code. With respect to any newly created
information that is patented and jointly owned by the Parties, each Party shall
have equal rights to license such patents or assign their interests to third
parties without accounting to or obtaining the consent of the other Party
hereto. The Parties shall by mutual agreement decide which Party shall file any
United States Patent application. The Party filing such application shall do so
at its own expense and shall have the right to elect to file in any foreign
country it so chooses. Each Party agrees that it will, without charge to the
other, have its employees, agent, consultants or other associates, sign all
papers and do all acts necessary, desirable, or convenient to enable the filing
Party at its expense to file and prosecute applications for patents on such
inventions, discoveries, or improvements, and to maintain patents granted
thereon.
G. Transferability
The license granted to Purchaser by Contractor in the Deliverable
Technical Materials and Deliverable Software are personal and non-transferable,
except that Purchaser may assign or transfer such licenses to an affiliated
entity under common control with the Purchaser or to any entity succeeding to
Purchaser's entire interest in the System (as upgraded by any System Upgrades)
as a result of reorganization or restructuring of the Purchaser or in the event
of a change of control of the Purchaser.
H. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
43
*
ARTICLE 19 INFRINGEMENT
- ------------------------
A. The Contractor agrees to defend or settle at its own expense all suits
for infringement of any patent, copyright, trademark or other form of
intellectual property right in any country of the world, for the use and
operation of the System (as upgraded by any System Upgrades) as supplied by
Contractor and for any component part thereof or material or equipment used
therein (or the manufacture of any material or the normal use thereof) provided
by the Contractor or on its behalf pursuant to this Contract and will hold the
Purchaser harmless from all expense of defending any such suit and all payments
for final judgment assessed on account of such infringement, except such
infringement or claim arising from:
1. The Contractor's adherence to the Purchaser's directions in the
design and configuration of the System (as upgraded by any System
Upgrades) or to use materials, parts or equipment of the
Purchaser's selection; or
2. Such material, parts or equipment furnished to the Contractor by
the Purchaser, other than in each case, items of the Contractor's
design or selection or the same as any of the Contractor's
commercial merchandise or in processes or machines of the
Contractor's design or selection used in the manufacture of such
standard products or parts; or
3. Use of the System (as upgraded by any System Upgrades) or the
materials, parts or equipment furnished by Contractor other than
for the purposes indicated in, or reasonably to be inferred from,
this Contract or in conjunction with other products; or
4. Modification of the System (as upgraded by any System Upgrades)
or the materials, parts or equipment furnished by the Contractor,
or connection of the System to another system by any person or
entity other than Contractor, without prior expressed written
approval by Contractor.
B. The Purchaser will, at its own expense, defend all suits against the
Contractor for such excepted infringement and hold the Contractor harmless from
all expense of defending any such suit and from all payments by final judgment
assessed against the Contractor on account of such excepted infringement.
C. The Contractor and the Purchaser agree to give each other prompt
written notice of claims and suits for infringement, full opportunity and
authority to assume the sole defense, including appeals and, upon request and at
its own expense, the other agrees to furnish all information and assistance
available to it for such defense.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
44
D. If all or any portion of the System (as upgraded by any System
Upgrades) or any material, part or equipment provided by the Contractor or on
its behalf is held to constitute an infringement (excluding such excepted
infringements specified in Sub-Article 19(A)) and is subject to an injunction
restraining its use or any order providing for its delivery up to or
destruction, or if in respect of any such claim of infringement the Contractor
deems it advisable to do so, the Contractor shall at its own expense either:
1. Procure for the Purchaser the right to retain and continue to use
the System, the affected portion thereof, or any such material,
part or equipment without interruption for the Purchaser;
2. Replace or modify the System, the affected portion thereof, or
any material, part or equipment so that it becomes noninfringing
while continuing to meet the Performance Requirements or
3. If the remedies specified in Sub-Articles 19(D)(1) an 19(D)(2)
are not feasible, refund to the Purchaser the full purchase price
paid for the System, the affected portion thereof, or any
material, part or equipment found to be infringing.
E. In no event shall the Purchaser make any admission or settle any claim
in relation with any claim for infringement without Contractor's consent.
ARTICLE 20 SAFEGUARDING OF INFORMATION AND TECHNOLOGY
- ------------------------------------------------------
A. In performance of this Contract, it may be mutually advantageous to
the Parties hereto to share certain specifications, designs, plans, drawings,
software, market research or operating data, prototypes, or other business,
financial, and or/technical information related to products, services, or
systems which are proprietary to the disclosing Party or its affiliates (and in
the case of Contractor, Contractor's parent company) (together with this
Contract and related documents, "Information"). The Parties recognize and agree
that Information includes information that was supplied in contemplation hereof
prior to execution of this Contract, and further agree that Information includes
information in both tangible and intangible form.
B. Unless such Information was previously known to the Party receiving
such Information free of any obligation to keep it confidential, or such
Information has been or is subsequently made public through other than
unauthorized disclosure by the receiving Party or is independently developed by
the receiving Party (as documented by the records of the receiving Party), it
shall be kept confidential by the Party receiving such Information, shall be
used only in the performance of this Contract, and may not be used for any other
purposes except upon such terms as may be agreed upon in writing by the Party
owning such Information. The receiving Party may disclose such Information to
other persons, upon the furnishing Party's prior written authorization, but
solely to perform acts which this Article expressly authorizes the receiving
Party to perform itself and further provided such other person agrees in writing
(a copy of which writing will be provided to the furnishing Party at its
request) to the same conditions respecting disclosure and use of Information
contained in
<PAGE>
45
this Article and to any other reasonable conditions requested by the furnishing
Party. Nothing herein shall prevent a Party from disclosing Information (a) upon
the order of any court or administrative agency, (b) upon the request or demand
of, or pursuant to any regulation of, any regulatory agency or authority, (c) to
the extent reasonably required in connection with the exercise of any remedy
hereunder and (d) to a Party's legal counsel or independent auditors.
C. The Purchaser may disclose Information to its lenders and their
representatives in connection with obtaining financing for the System, provided
that each such lender or third party enters into a confidentiality agreement
containing terms and conditions similar to those in this Contract. Any such
disclosure of Information shall be subject to the restrictions in Sub-Article
20(B).
ARTICLE 21 EXPORT CONTROL
- --------------------------
The Parties acknowledge that any products, software, and technical
information (including, but not limited to, services and training) provided by
either Party under this Contract are or may be subject to export laws and
regulations of the United States and the destination country(ies) and any use or
transfer of such products, software and technical information must be authorized
under those Laws. The Parties agree that they will not use, distribute, transfer
or transmit the products, software or technical information (even if
incorporated into other products) except in compliance with export Laws. If
requested by either Party, the other Party agrees to sign all necessary export-
related documents as may be required to comply with export Laws.
ARTICLE 22 LIQUIDATED DAMAGES
- ------------------------------
A. If the System is not Ready for Commercial Service or Provisional
Acceptance by the Scheduled RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the Contractor
(with 15 days prior notice to the Independent Engineer);
Then Contractor shall pay to Purchaser for each day of delay, for up to 200
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the portion of the Initial Contract Price
allocable to the Segment(s) not Ready for Commercial Service (it being
understood for this purpose that each such Segment of the System must have a
capacity of * Gb/s per fiber pair) or Provisional Acceptance.
B. If a System Upgrade is not Ready for Commercial Service or Provisional
Acceptance by the Scheduled Upgrade Date, as it may have been extended under:
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
46
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the Contractor
(with 15 days prior notice to the Independent Engineer);
Then Contractor shall pay to Purchaser for each day of delay, for up to 90
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Upgrade Contract Price.
ARTICLE 23 LIMITATION OF LIABILITY/INDEMNIFICATION
- ---------------------------------------------------
A. NOTWITHSTANDING ANY OTHER PROVISION IN THIS CONTRACT, AND IRRESPECTIVE
OF ANY FAULT, NEGLIGENCE OR GROSS NEGLIGENCE OF ANY KIND, IN NO EVENT SHALL
EITHER PARTY OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE
FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, RELIANCE OR SPECIAL (INCLUDING
PUNITIVE) DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUE, LOSS OF
BUSINESS OPPORTUNITY OR THE COSTS ASSOCIATED WITH THE USE OF RESTORATION
FACILITIES RESULTING FROM ITS FAILURE TO PERFORM, PURSUANT TO THE TERMS AND
CONDITIONS OF THIS CONTRACT, PROVIDED THAT THE CONTRACT PRICE LESS COSTS SAVED
(AND IF ANY SYSTEM UPGRADE HAS BEEN SELECTED, THE UPGRADE PRICE LESS COSTS
SAVED) AND ANY LIABILITIES INCURRED BY CONTRACTOR TO THIRD PARTIES IN CONNECTION
WITH THIS CONTRACT SHALL BE DEEMED TO BE DIRECT DAMAGES.
B. EXCEPT AS SET FORTH BELOW IN THE LAST TWO SENTENCES OF THIS SUB-
ARTICLE 23(B), THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY, WHETHER IN TORT,
CONTRACT OR OTHERWISE, EXCEPT FOR CLAIMS RELATING TO SYSTEM UPGRADES, SHALL BE
DIRECT DAMAGES PROVEN NOT TO EXCEED * OF THE CONTRACT PRICE. THE CONTRACTOR'S
MAXIMUM AGGREGATE LIABILITY FOR CLAIMS RELATING TO SYSTEM UPGRADES (IF
CONTRACTOR CAN SHOW THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT TRANSMISSION
MARGIN AND THUS SUCH CLAIMS DO NOT ARISE UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B))
SHALL BE DIRECT DAMAGES PROVEN NOT TO EXCEED * OF THE APPLICABLE UPGRADE PRICE.
THE FOREGOING LIMITATION SHALL NOT APPLY TO CLAIMS UNDER SUB-ARTICLES 19(A) AND
23(C). IF CONTRACTOR CANNOT SHOW THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT
TRANSMISSION MARGIN FOR A SYSTEM UPGRADE, THE CONTRACTOR'S MAXIMUM AGGREGATE
LIABILITY FOR CLAIMS ARISING UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B) SHALL BE
DIRECT DAMAGES PROVEN NOT TO EXCEED * OF THE APPLICABLE UPGRADEABILITY LIABILITY
LIMIT.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
47
C. Contractor, at its expense, shall defend, indemnify and hold harmless
Purchaser, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, prior to risk of loss passing to Purchaser,
the operation and maintenance of the System, to the extent such losses were
caused by the negligence or willful misconduct of the Contractor, its
subcontractors, employees or agents. The defense, indemnification and save
harmless obligation is specifically conditioned on the following: (i) Purchaser
providing prompt notification in writing of any such claim or demand when it
obtains Actual Knowledge thereof, unless such failure shall not have materially
impaired Contractor's ability to defend against such claim; (ii) Contractor
having control of the defense of any such action, claim or demand and of all
negotiations for its settlement or compromise; and (iii) Purchaser cooperating,
at Contractor's expense, in a reasonable way to facilitate the defense of such
claim or demand or the negotiations for its settlement.
D. Purchaser, at its expense, shall defend, indemnify and hold harmless
Contractor, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, after risk of loss passes to Purchaser, the
operation or maintenance of the System, to the extent such losses were caused by
the negligence or willful misconduct of the Purchaser, its subcontractors,
employees or agents (other than AT&T Submarine Systems, Inc.). The defense,
indemnification and save harmless obligation is specifically conditioned on the
following (i) Contractor providing prompt notification in writing of any such
claim or demand when it obtains Actual Knowledge thereof, unless such failure
shall not have materially impaired Purchaser's ability to defend against such
claim; (ii) Purchaser having control of the defense of any such action, claim or
demand and of all negotiations for its settlement or compromise; and (iii)
Contractor cooperating, at Purchaser's expense, in a reasonable way to
facilitate the defense of such claim or demand or the negotiations for its
settlement.
ARTICLE 24 COUNTERPARTS
- ------------------------
This Contract may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
ARTICLE 25 DESIGN AND PERFORMANCE RESPONSIBILITY
- -------------------------------------------------
A. The Contractor shall be solely responsible for the design of and for
all details of the System and the System Upgrades and for the adequacy thereof.
B. The Contractor's responsibility for design of the System and the
System Upgrades shall not in any way be diminished nor shall the Contractor's
design approach be restricted or limited by the Purchaser's acceptance of the
Contractor's guidance or recommendations as to engineering standards and design
specifications, or by the Purchaser's suggestions or recommendations on any
aspect of the design.
<PAGE>
48
C. Purchaser shall use reasonable efforts in assisting the Contractor to
obtain in a timely manner accurate information required for the Contractor to
perform the Work and the Upgrade Work, which Contractor cannot expeditiously and
cost-effectively obtain from any source other than the Purchaser.
ARTICLE 26 PRODUCT CHANGES
- ---------------------------
The Contractor may at any time make changes to the System or System
Upgrades furnished pursuant to this Contract, or modify the drawings and
published specifications relating thereto, or substitute equipment of later
design, provided the changes, modifications, or substitutions under normal and
proper use do not impact upon the form, fit, expected life or function of the
System as provided in the System Performance Requirements.
ARTICLE 27 RISK AND INSURANCE
- ------------------------------
A. The Contractor shall at all times maintain, and upon request, the
Contractor shall furnish the Purchaser with certificates, or other reasonable
evidence, that Contractor maintains, the following insurance or has adequate
self-insurance (other than as required to comply with any statutory insurance
requirements):
1. Workmen's Compensation and Employers Liability Insurance (with a
limit of not less than * for any one incident or series of
incidents arising from one event or such higher limit as may be
required by the laws of any jurisdiction) covering the officers
and employees of the Contractor for all compensation or other
benefits required of the Contractor by the laws of any nation or
political sub-division thereof to which the Contractor and its
operations under this Contract are subject in respect of injury
of death of any such employee.
2. Comprehensive General Public Liability Insurance, covering
personal injury and/or property damage, with combined single
limits of not less than * for claims of injury or death
of any persons or loss of or damage to property resulting from
any one accident. This insurance to be extended to provide Marine
Comprehensive General Liability including liabilities arising out
of the operation of subsea equipment.
3. Comprehensive Automobile Liability insurance covering all
vehicles and automotive equipment owned, hired, or in the custody
and control of Contractor and complying with all applicable
legislation with limits not less than * combined single
limit for the death or injury of any person per accident and not
less than * for the loss or damage to property resulting
from any one accident.
4. All Risk Insurance in respect of all property of Contractor, its
respective officers, agents and employees connected with the
performance of the Work against all loss or damage from whatever
cause.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
49
5. Conventional Marine Hull and Machinery Insurance including War
Risks or any vessel(s) owned, operated or chartered by the
Contractor, in an amount equal to the full value thereof. In the
event of damage to or loss of such vessel(s), the Contractor
agrees to look to its insurance carrier for payment of such loss
or damage and hereby releases the Purchaser and waives any claims
against the Purchaser for the loss of such vessel(s) unless due
to the negligence of Purchaser, its agent or representatives
(other than Contractor).
6. All vessels are to be entered in a Mutual Protection and
Indemnity Association with a full and unlimited entry or to have
Marine Protection and Indemnity Insurance with a limit of not
less than * including coverage far illness, injury or
death of crew members (unless covered under Workmen's
Compensation Insurance), Contractual Liability Coverage,
Collision and Tower's Liability, Removal of Wreck and Debris and
Third Party Liability.
7. Excess Liability Coverage over that required in Sub-Articles
27(A)(1), (2) and (3) with minimum limits of * for any
one accident or occurrence.
8. Specialist Operations Insurance with a limit of not less than
* as per London Wording 1993 or equivalent.
9. Transit Insurance including inland, air, and Marine Cargo
coverage including War (other than on land) in an amount
sufficient to cover the expected highest value of any one
shipment. Coverage to include Institute Cargo Clauses, all risks
1.1.63, Institute War Clauses, London Malicious Damage Clause,
and Institute Strikes Riots and Civil Commotion Clauses or their
equivalent.
10. Marine Cargo or equivalent is required to protect, for full cost,
against all risks of physical loss or damage to the plant,
equipment and supplies to be included in the System (other than
War Risks) beginning with when each such item is ready for
shipping and ending when the submersible plant and equipment are
placed overside the cable laying vessel and when the equipment
and supplies are delivered to the cable stations, central
offices, or network operation center. The coverage continues to
cover cable lying on the seabed.
11. Sea Bed or equivalent coverage (including an Old Mines and
Torpedoes Clause, including other derelict weapons of War) is
required to protect, for full cost, against all risks of physical
loss or damage to the submersible plant and equipment described
in Sub-Article 27(A)(10) above. See last paragraph.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
50
12. War Risks or equivalent coverage is required to protect against
damage to, seizure by and/or destruction of the System by means
of war, piracy, takings at sea and other warlike operations until
discharge of the submersible plant and equipment. For the
purposes of this Article "discharge of the submersible plant and
equipment" shall be deemed to take place when the plant and
equipment reaches the sea bottom, as far as the submersible plant
and equipment is concerned, and when the plant is off-loaded in
the respective terminal country, as far as non-submersible plant
is concerned.
13. Pollution Liability (EIL) insurance for installation operations
and as arising from the use of vessels in an amount not less than
* or such higher sum as may be required to meet any legal
requirement in area of operations.
The Comprehensive General Liability Insurance required pursuant to
Sub-Article 27(A)(2) above, shall include Contractual Liability Coverage which
shall specifically apply to the obligations assumed by the Contractor under the
Terms and Conditions of this Contract.
B. 1. All the foregoing insurances shall be effected with a
creditworthy insurer and shall be endorsed to provide Purchaser
with at least thirty (30) days prior written notice of
cancellation or material change.
2. All the foregoing insurances shall name Purchaser as an
additional insured as to operations hereunder, in which event the
Contractor's insurance shall be primary to any insurance carried
by Purchaser.
3. The limits specified herein are minimum requirements and shall
not be construed in any way as limits of liability or as
constituting acceptance by Purchaser of such responsibility for
financial liabilities in excess of such limits. The Contractor
shall bear all deductibles applicable to any insurance.
4. If it is judicially determined that the monetary limits of
insurance required hereunder or of any indemnity voluntarily
assumed under the Terms and Conditions of this Contact which the
Contractor agrees will be supported either by available liability
insurance or voluntarily self-insured, in part or whole, exceeds
the maximum limits permitted under applicable law, it is agreed
that said insurance requirements or indemnity shall automatically
be amended to conform to the maximum monetary limits permitted
under such law.
5. Contractor shall take reasonable steps to provide that any sub-
contractor engaged by it has in effect or will effect Employer's
Liability, Workmen's Compensation, Hull and Machinery and
Protection and
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
51
Indemnity insurances and any other insurances required by law,
together with such other insurances as the Contractor may
consider necessary.
6. If the Contractor fails to effect or keep in force any of the
insurances required under this Contract, Purchaser may effect and
keep in force any such insurances and pay such premiums as may be
necessary for that purpose and from time to time deduct the
amount so paid by Purchaser from any money due or which may
become due to the Contractor hereunder or recover the same as a
debt due from the Contractor, provided that Purchaser is not in
Default.
7. Each Party shall give the other prompt notification of any claim
with respect to any of the insurances to be provided hereunder,
accompanied by full details giving rise to such claim. Each Party
shall afford the other all such assistance as may be required for
the preparation and negotiation of insurance claims.
8. Contractor shall report to Purchaser as soon as practicable all
accidents or occurrences resulting in injuries to Contractor's
employees or third parties, or damage to property of third
parties, arising out of our during the course of services for
Purchaser by Contractor.
C. The Contractor may organize such levels of deductibles, excesses and
self-insurance as it considers appropriate.
D. The insurance requirements of this Article 27 will remain in place
with respect to each Segment, the System or System Upgrade, as the case may be,
and will not in any way be diminished or reduced until the transfer of title and
risk of loss shall have passed to Purchaser of such Segment, System or System
Upgrade, as the case may be, even in the event of the sale of substantially all
the assets of the Contractor by way of a merger, consolidation or sale of
assets.
ARTICLE 28 PLANT AND WORK RULES
- --------------------------------
Employees and agents of each Party shall, while on the premises of the
other or its subcontractors, comply with all plant rules and governmental
regulations.
ARTICLE 29 RIGHT OF ACCESS
- ---------------------------
A. The Contractor shall, upon reasonable notice of not less than ten (10)
working days, during normal business hours and in a manner to avoid any
disruption of the work on the premises including performance of other contracts,
permit access by the Purchaser or its Quality Assurance (QA) Representative
(other than a competitor of the Contractor or any affiliate of a competitor) to
the Contractor's premises where the work will be performed, and will use its
best endeavors to secure rights of access to premises of its subcontractors
where the work will be performed, having subcontracts or orders in the amount
of, or equivalent to
<PAGE>
52
U.S. $125,000 or more, in accordance with the Contractor's contractual
arrangements with its subcontractors, and allow the Purchaser or its QA
Representative to:
1. audit the Contractor's quality assurance system and its
application to the Work and Upgrade Work, including manufacture,
development and raw materials and components provision;
2. inspect all parts of the Work and Upgrade Work to the extent
reasonably practicable to ensure that their quality meets the
Specification.
This right of access shall allow for the Purchaser and/or its QA representative
(up to a total of three (3) persons). The Purchaser shall provide the name(s),
nationality and title of each such visitor prior to the visit. The Contractor
shall not be responsible for any costs, including travel and accommodation
costs, of the Purchaser or its representatives.
B. The right of access shall also allow for the Purchaser and/or
representatives (up to a total of three (3) persons) to be aboard the vessel(s)
during installation and the route survey, provided accommodations are available.
The Contractor shall not be responsible for any costs of the Purchaser or its
representatives, except for living expenses on board the vessel which includes
one (1 ) daily telex or fax, all other travel and accommodation costs for the
Purchaser or its QA Representatives shall be for the account of the Purchaser.
C. Any right of access shall not be construed as creating any obligation
requiring the Contractor or its subcontractors to disclose trade secrets or
proprietary information. Further, such right of access may be conditioned on the
execution of a confidentiality and non-disclosure agreement and/or subject to
routine building or security rules, regulations or procedures.
D. Any exercise of any right of the Purchaser hereunder to inspect,
audit, visit or to serve any part of the Work or System Upgrades shall not be
construed as limiting any obligation of Contractor hereunder, including without
limitation, under Articles 1 and 10 hereof.
E. Contractor will have access to the System as necessary to accomplish
its responsibilities under this Contract and in order to make repairs and to
make System Upgrades. Contractor will provide reasonable notice of its need for
access and will take reasonable steps to minimize disruptions to the operation
of the System.
F. Contractor shall give the Purchaser reasonable prior written notice of
each monthly project management review meeting with respect to the status of the
construction and/or installation of the System, and Purchaser's representatives
(up to three such representatives) and the Independent Engineer shall at their
cost be permitted to attend and participate in such meetings.
<PAGE>
53
ARTICLE 30 QUALITY ASSURANCE
- -----------------------------
All equipment, material and supplies provided under this Contract
shall be inspected and tested by representatives designated by the Contractor to
the extent reasonably practical to assure that the quality of the equipment,
materials and supplies being incorporated is sufficient to realize the System
Performance Requirements. The inspection and test program established for such
equipment, materials and supplies shall be consistent with commercial practices
normally employed by the Contractor in the construction of submarine cable
systems. The foregoing shall not be construed as limiting any of the
Contractor's obligations under this Contract.
ARTICLE 31 DOCUMENTATION
- -------------------------
The Contractor shall furnish to the Purchaser one copy of the
standard documentation in the English language for the System provided
hereunder. Such documentation shall be provided prior to the Acceptance testing.
Additional copies of the documentation are available at additional cost.
ARTICLE 32 TRAINING
- --------------------
The Contractor will provide, until the Date of Final Acceptance, any
and all training necessary for the operation and maintenance of the System.
ARTICLE 33 SETTLEMENT OF DISPUTES/ARBITRATION
- ----------------------------------------------
A. The Parties shall endeavor to settle amicably by mutual discussions
any disputes, differences, or claims whatsoever related to this Contract.
B. Failing such amicable settlement, any controversy, claim or dispute
arising under or relating to this Contract, including the existence, validity,
interpretation, performance, termination or breach thereof, shall finally be
settled by arbitration in accordance with the International Arbitration Rules of
the American Arbitration Association ("AAA"). Unless the Parties agree to a sole
arbitrator, there shall be three (3) arbitrators, with each Party appointing one
arbitrator, who collectively will select a third. The language of the
arbitration shall be English. The Arbitrator will not have authority to award
punitive damages to either Party. Each Party shall bear its own expenses, but
the Parties shall share equally the fees and expenses of the Arbitration
Tribunal and the AAA. This Contract shall be enforceable, and any arbitration
award shall be final, and judgment thereon may be entered in any court of
competent jurisdiction. In any such arbitration, the decision in any prior
arbitration under this Contract shall not be deemed conclusive of the rights as
among themselves of the Parties hereunder. The arbitration shall be held in New
York, New York. U.S.A.
<PAGE>
54
ARTICLE 34 APPLICABLE LAW
- --------------------------
This Contract shall be construed and governed in accordance with the
laws of the State of New York, United States, excluding its conflicts of law
provisions and excluding the Convention for the International Sale of Goods.
ARTICLE 35 NOTICES
- -------------------
A. Any notices, consent, approval, or other communication pursuant to
this Contract shall be in writing, in the English language, and shall be deemed
to be duly given or served on a Party if sent to the Party at the address
stipulated in Sub-Article 35(B) and if sent by any one of the following means
only:
1. Sent by hand: Such communication shall be deemed to have been
received on the day of delivery provided receipt of delivery is
obtained.
2. Sent by facsimile: Such communication shall be deemed to have
been received, under normal service conditions, twenty-four
(24) hours following the time of dispatch or on confirmation by
the receiving Party, whichever is earlier.
3. Sent by registered or certified mail: Such communication shall
be deemed to have been received, under normal service
conditions, on the day it was received or on the tenth day
after it was dispatched, whichever is earlier.
B. For purposes of this Article, the names, addresses and fax numbers
of the Parties are as detailed below. Any change to the name, address, and
facsimile numbers may be made at any time by giving thirty (30) days prior
written notice.
AT&T Submarine Systems, Inc.
Room S120
340 Mt. Kemble Ave.
Morristown, New Jersey 07960 U.S.A.
FAX: +1 201 326 2704
Global Telesystems Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM12 Bermuda
FAX 441-292-8666
Attn: Mr. David Lee
<PAGE>
55
ARTICLE 36 PUBLICITY AND CONFIDENTIALITY
- -----------------------------------------
A. No information relating to this Contract shall be released by either
Party to any newspaper, magazine, journal or other written, oral or visual
medium without the prior written approval of an authorized representative of the
other Party; provided that, subject to Article 20 (Safeguarding of Information
--------
and Technology) and the following Sub-Article, this Article shall not restrict
either Party from (i) responding to customary press inquiries or otherwise
making public or private statements in the normal course of business, so long as
consistent with a mutually agreed press-release and (ii) assisting in the
obtaining of financing in accordance with Sub-Article 37(C), including the
publication of a financial tombstone.
B. This Contract and any non-public information, written or oral, with
respect to this Contract, "Confidential Information", will be kept confidential
and shall not be disclosed, in whole or in part, to any person other than
affiliates, officers, directors, employees, agents or representatives of a Party
(collectively, "Representatives") who need to know such Confidential Information
for the purpose of negotiating and executing this Contract. Each Party agrees to
inform each of its Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential Information in
accordance with the terms of this Article. Nothing herein shall prevent a Party
from disclosing Confidential Information (a) upon the order of any court or
administrative agency, (b) upon the request or demand of, or pursuant to any
regulation of, any regulatory agency or authority, (c) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (d) to a
Party's legal counsel or independent auditors, (e) prospective lenders to the
Purchaser or Holding Company, and (f) to any actual or proposed assignee of all
or part of its rights hereunder provided that such actual or proposed assignee
agrees in writing to be bound by the provisions of this Article.
ARTICLE 37 ASSIGNMENT
- -----------------------
A. Except as provided in this Article, neither Party shall assign this
Contract or any right or interest under this Contract, nor delegate any work or
obligation to be performed under this Contract ("Assignment"), without the other
Party's prior written consent which shall not be unreasonably withheld (it being
understood that it shall be deemed to be reasonable to withhold consent to the
assignment of this Contract or any rights, interest or obligations hereunder to
a competitor of Contractor or an affiliate of a competitor or uncreditworthy
party). Nothing herein shall preclude a Party from employing a subcontractor in
carrying out its obligations under this Contract. A Party's use of such
subcontractor shall not release the Party from its obligations or liability
under this Contract.
B. The Contractor has the right to assign all of its rights under this
Contract or to delegate all of its duties hereunder at any time without the
Purchaser's consent to any successor to substantially all the assets of the
Contractor by way of a merger, consolidation or sale of assets provided that in
the case of any assignment or delegation pursuant to this Sub-Article 37(B) such
assignee shall assume in writing all warranties, representations and obligations
of Contractor under this Contract. The Contractor shall give the Purchaser
written notice of the assignment.
<PAGE>
56
C. The Parties acknowledge that Purchaser may finance construction of
the System on a Project finance" basis and that in connection therewith the
financing parties will require that such financing be secured by certain assets
of Purchaser (including but not limited to this Contract). The Purchaser may, in
connection with any such project financing grant a collateral assignment of its
rights and obligation under this Contract to any such financing parties which
executes and delivers a Consent, and in connection therewith, the Contractor
will execute and deliver a Consent, and Purchaser may transfer in accordance
with such Consent.
D. The Purchaser has the right to assign all of its rights and delegate
all of its duties under this Contract to any other entity (a Transferee") to
whom all of the Financing Documents and all Permits in Purchaser's name have
been assigned in accordance with the terms thereof and to whom all of
Purchaser's rights and interests in the System have been transferred. Purchaser
also has the right (i) to assign all of its rights hereunder with respect to any
particular Landing, Assets to any Transferee, (ii) to assign Permits with
respect to such Landing Assets, or have Permits with respect to such Landing
Assets issued in the name of, such Transferee and (iii) to transfer such Landing
Assets or have such Landing Assets transferred directly to, such Transferee;
provided that (a) such Transferee shall execute a supplement to this Contract
- --------
whereby it becomes jointly and severally liable, together with Purchaser, for
all of Purchaser's obligations under this Contract and (b) Purchaser's and
Holding Company's lenders permit such assignments and transfers without causing
a reduction in the financing committed for the System. "Landing Assets" means,
with respect to each jurisdiction where a portion of the System is located, all
or part of such portion of the System located therein. It is understood that the
Purchaser, at its option, may assign and transfer rights with respect to Landing
Assets in different jurisdiction to different Transferees. Purchaser shall not
transfer any of its rights under this Contract or the System except in
accordance with the foregoing. Any assignment or transfer not expressly
permitted by this Sub-Article 37(D) shall be of no force and effect. Any
assignment or transfer which results in any increase in costs or any loss,
damage, delay or failure of performance shall constitute a Force Majeure, and,
without limiting the applicability of Article 17 (Force Majeure), Purchaser
shall be responsible for any increase in costs resulting therefrom.
ARTICLE 38 RELATIONSHIP OF THE PARTIES
- ---------------------------------------
All work performed by a Party under this Contract shall be performed
as an independent contractor and not as an agent of the other and no persons
furnished by a Party shall be considered the employees or agents of the other.
Each Party shall be responsible for its employees' compliance with all Laws
while performing under this Contract. This Contract shall not form a joint
venture or partnership between the Parties.
ARTICLE 39 SUCCESSORS BOUND
- ----------------------------
This Contract shall be binding on the Contractor and the Purchaser
and their respective successors and assigns.
<PAGE>
57
ARTICLE 40 ARTICLE CAPTIONS
- ----------------------------
The captions of the Articles do not form part of this Contract and
shall not have any effect on the interpretation thereof.
ARTICLE 41 SEVERABILITY
- ------------------------
If any of the provisions of this Contract shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Contract, but rather the entire Contract shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions and the rights and obligations of the Contractor and the
Purchaser shall be construed and enforced accordingly. In the event such invalid
or unenforceable provision is an essential and material element of this
Contract, the Parties shall promptly negotiate a replacement provision.
ARTICLE 42 SURVIVAL OF OBLIGATIONS
- -----------------------------------
The Parties' rights and obligations, which, by their nature would
continue beyond the termination, cancellation or expiration of this Contract,
including, but not limited to, those contained in Sub-Article 4(B) (Taxes,
Levies and Duties) and Sub-Article 4(C) (Withholding Tax), Article 18
(Intellectual Property), Article 20 (Safeguarding of Information and
Technology), Article 21 (Export Control) and Article 23 (Limitation of
Liability/Indemnification) shall survive termination, cancellation or expiration
hereof. Article 10 (Warranty) and Article 11 (Contractor Support), shall survive
termination, cancellation or expiration hereof, if and only if, this Contract is
terminated by Purchaser pursuant to Sub-Article 13(A).
ARTICLE 43 NON-WAIVER
- ----------------------
A waiver of any of the terms and conditions of this Contract, or the
failure of either Party strictly to enforce any such term or condition, on one
or more occasions shall not be construed as a waiver of the same or of any other
term or condition of this Contract on any other occasion.
ARTICLE 44 LANGUAGE
- --------------------
This Contract has been executed in the English language and English
will be the controlling language for interpretation of this Contract.
ARTICLE 45 ENTIRE AGREEMENT
- ----------------------------
This Contract supersedes all prior oral or written understanding
between the Parties and constitutes the entire agreement with respect to the
subject matter herein. Such terms and conditions shall not be modified or
amended except by a writing signed by authorized representatives of all Parties.
<PAGE>
58
ARTICLE 46 COMING INTO FORCE
- -----------------------------
A. This Contract agreed to between the Purchaser and Contractor will
not enter into force unless
(I) each of the following documents is executed and delivered on or before March
25, 1997, in a form and substance satisfactory, in its sole discretion, to each
Party hereto:
1. Operations, Administration and Maintenance Agreement;
2. Sales Agency Agreement;
3. Escrow and Security Agreement;
4. CIBC Commitment Letter;
5. Holding Company Note Purchase Agreement; and
6. Guaranty;
(II) the form of the following have been agreed to: (i) Retainage Lender of
Credit, (ii) Appendix 4-1 (Invoice Certificate), (iii) Consent and (iv) Capacity
Purchase Agreement; and
(III) Purchaser shall have made the payments described in Sub-Article 5(C)(2).
B. When all the conditions indicated in Sub-Article 46(A) above are
complied with, then the Purchaser shall immediately notify the Contractor, and,
so long as the date of such notice is on or before March 25, 1997, the Contract
shall come into force on the date of such notice.
<PAGE>
59
This Contract is executed in Toronto, Canada by duly authorized
representatives of the Parties as set forth below.
AT&T Submarine Systems, Inc. Global Telesystems Ltd.
By:____________________ By:____________________
Signature Signature
Title:_________________ Title:_________________
Date:__________________ Date:__________________
<PAGE>
EXHIBIT 10.2 (CONTINUED)
SUPPLEMENT NO. 1
Supplement No. 1, dated as of June 27, 1997 (this "Supplement"), to
----------
the Project Development and Construction Contract described below, among AT&T
Submarine Systems, Inc. (the "Contractor"), Global Telesystems Ltd. ("GTL"), GT
---------- ---
Landing Corp., a Delaware corporation (the "U.S. Subsidiary"), SSI Atlantic
---------------
Crossing LLC, a Delaware limited liability company (the "SSI Subsidiary"), GT
--------------
U.K. Ltd., a corporation organized under the laws of England (the "U.K.
----
Subsidiary") and Global Telesystems GmbH, a corporation organized under the laws
- ----------
of Germany (the "German Subsidiary"; together with the U.S. Subsidiary, the SSI
-----------------
Subsidiary and the U.K. Subsidiary, the "Assignees").
---------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, unless otherwise defined herein, capitalized terms used
herein shall have the meanings given to them in the Contract;
WHEREAS, the Contractor and GTL have entered into the Project
Development and Construction Contract, dated March 18, 1997 (as the same may
from time to time be amended, modified or supplemented, the "Contract"),
--------
pursuant to which the Contractor has agreed to design, manufacture, construct,
install and deliver a fiber optic cable system connecting (a) the United States
to the United Kingdom, (b) the United Kingdom to Germany and (c) Germany to the
United States, all as more fully described in the Contract;
WHEREAS, the Contractor and GTL have also entered into the Operations,
Administration and Maintenance Agreement, dated as of March 25, 1997, pursuant
to which the Contractor has agreed, in accordance with the terms thereof, to
operate, administer and maintain the System;
WHEREAS, the Contractor and GTL have also entered into the Sales
Agency Agreement, dated as of March 25, 1997;
WHEREAS, the U.S. Subsidiary, the U.K. Subsidiary, and the German
Subsidiary are wholly-owned subsidiaries of GTL, and were formed for the purpose
of owning and providing capacity on certain Landing Assets and Rights;
WHEREAS, the SSI Subsidiary is a wholly-owned subsidiary of SSI
Atlantic Crossing Holdings LLC, a Delaware limited liability company (the "SSI
---
Holdings Subsidiary"), which in turn is a wholly-owned subsidiary of the
- -------------------
Contractor, and was formed for the purpose of owning or leasing and controlling
the U.S. Landing Assets and Rights;
WHEREAS, GTL wishes to transfer all rights under the Contract (i) with
respect to the U.S. Real Property Landing Assets and Rights to the U.S.
Subsidiary, (ii) with respect to the U.S. Personal Property Landing Assets and
Rights to the SSI Subsidiary, (iii) with respect to the U.K. Landing Assets and
Rights to the U.K. Subsidiary and (iv) with respect to the German Landing Assets
and Rights to the German Subsidiary;
<PAGE>
WHEREAS, GTL, the Contractor and Deutsche Telekom AG have entered into
a Memorandum of Understanding, dated April 21, 1997, relating to the German
Landing Assets and Rights (the "DT-MOU");
------
WHEREAS, the U.S. Subsidiary will lease the U.S. Real Property Landing
Assets and Rights to the SSI Subsidiary so that the SSI Subsidiary will have
control over all U.S. Landing Assets and Rights;
WHEREAS, the SSI Subsidiary will grant an indefeasible right of use to
the U.S. Subsidiary with respect to the U.S. Landing Assets and Rights;
WHEREAS, GTL will own and control all of the System other than the
Landing Assets and Rights;
WHEREAS, Sub-Article 37(D) of the Contract contemplates the assignment
by GTL to a Transferee or Transferees of its rights under the Contract with
respect to any particular Landing Assets;
WHEREAS, Sub-Article 37(D) of the Contract requires that, in
connection with such assignment by GTL, the Transferees, GTL and the Contractor
shall execute a supplement to the Contract describing their respective rights
and obligations; and
WHEREAS, the Contractor, GTL, the U.S. Subsidiary, the SSI Subsidiary,
the U.K. Subsidiary and the German Subsidiary wish to supplement the provisions
of the Contract to reflect their agreement with respect to the Landing Assets;
NOW THEREFORE, in consideration of the premises, the parties hereto
hereby agree as follows:
1. Defined Terms. (a) Unless otherwise defined herein, capitalized
-------------
terms which are defined in the Contract are used herein as therein defined.
(b) The Contract is hereby amended by deleting the definition of
"Landing Assets" appearing in the third sentence of Sub-Article 37(D) of the
--------------
Contract, and by inserting a new definition of "Landing Assets" in Article 3 of
--------------
the Contract as follows:
"'Landing Assets' means, with respect to each Landing Country where a
--------------
portion of the System is located, all real and personal property (including
leasehold interests therein) comprising the System from time to time and
located within the territory of such Country, including both the portions
of such property on the land of such Country and the portion of such
property under the territorial waters of such Country, and the portion of
such underwater property extending to a point one-half mile beyond the
territorial limit of such Country."
<PAGE>
3
(c) Article 3 of the Contract is hereby amended to add the following
definitions:
"Contingency Letter of Credit" shall mean the letter of credit
----------------------------
described in Sub-Article 5(C)(7) hereof.
"Credit Agreement" means the Credit Agreement, dated as of the date
----------------
hereof, among GTL, the financial institutions from time to time parties
thereto as lenders, Deutsche Bank AG, New York Branch and Canadian Imperial
Bank of Commerce, as lead agents, Deutsche Bank AG, New York Branch, as
administrative agent, and Canadian Imperial Bank of Commerce, as
syndication agent, documentation agent and issuing bank.
"DT-MOU" has the meaning given such term in Supplement No. 1.
------
"German Landing Assets and Rights" means Landing Assets and Rights
--------------------------------
located in Germany, including without limitation, the real and personal
property to be listed on Schedule 3 to Supplement No. 1.
"German Landing Assets and Rights Price" has the meaning set forth in
--------------------------------------
Section 4(d) of Supplement No. 1.
"GTL" shall mean Global Telesystems Ltd., a corporation organized and
---
existing under the laws of Bermuda.
"IRU and Option Agreement" means an Indefeasible Right of Use and
------------------------
Option Agreement to be entered into between the SSI Subsidiary and the U.S.
Subsidiary in substantially the form of Exhibit A to Supplement No. 1, as
the same may from time to time be amended, modified or supplemented.
"IRU Price" has the meaning given such term in Section 6 of Supplement
---------
No. 1.
"Landing Assets and Rights" means, with respect to each Landing
-------------------------
Country, the Landing Assets in such Landing Country together with all
Permits necessary to own or lease, operate and maintain such Landing Assets
and all rights or licenses under Articles 18, 19, 20 of the Contract
relating to such Landing Assets, including all Deliverable Software and
Deliverable Technical Material relating to such Landing Assets.
"Landing Countries" means the United States of America, the United
------------------
Kingdom and Germany.
"Lender Pledge Agreement" means the Pledge Agreement, dated as of the
-----------------------
date hereof, made by the SSI Holdings Subsidiary in favor of the
Administrative Agent for
<PAGE>
4
the lenders under the Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"SSI Subsidiary" has the meaning given such term in Supplement No. 1.
--------------
"Subordinated Pledge Agreement" means the Subordinated Pledge
-----------------------------
Agreement, dated as of the date hereof, made by the SSI Holdings Subsidiary
in favor of the U.S. Subsidiary.
"Supplement No. 1" means Supplement No. 1, dated as of June 27, 1997,
----------------
to the Contract, among GTL, the Contractor, the U.S. Subsidiary, the UK
Subsidiary, the German Subsidiary and the SSI Subsidiary.
"U.K. Landing Assets and Rights" means all Landing Assets and Rights
------------------------------
located in the United Kingdom, including without limitation, the property
to be listed on Schedule 2 to Supplement No. 1.
"U.K. Landing Assets and Rights Price" has the meaning given such
------------------------------------
term in Section 4(c) of Supplement No. 1 .
"U.K. Subsidiary" has the meaning given such term in Supplement No. 1.
---------------
"U.S. Landing Assets and Rights" means all Landing Assets and Rights
------------------------------
in the United States, including, without limitation, the property to be
listed on Schedule 1 to Supplement No. 1.
"U.S. Personal Property Landing Assets and Rights" means all the U.S.
------------------------------------------------
Landing Assets and Rights other than the U.S. Real Property Landing Assets
and Rights.
"U.S. Personal Property Landing Assets and Rights Price" has the
------------------------------------------------------
meaning given such term in Section 4(b) of Supplement No. 1.
"U.S. Real Property Landing Assets and Rights" means all U.S. Landing
--------------------------------------------
Assets and Rights that consists of real property, including, without
limitation, the property to be set forth on Part 2 of Schedule 1 to
Supplement No. 1.
"U.S. Real Property Landing Assets and Rights Price" has the meaning
--------------------------------------------------
given such term in Section 4(a) of Supplement No. 1.
"U.S. Subsidiary" has the meaning given such term in Supplement No. 1.
---------------
2. Assignments of Rights. (a) GTL hereby assigns and transfers all
----------------------
of its right, title and interest under the Contract with respect to the U.S.
Real Property Landing Assets and Rights to the U.S. Subsidiary and the U.S.
Subsidiary hereby accepts such
<PAGE>
5
assignment and transfer and assumes all of the obligations and liabilities of
Purchaser under the Contract with respect to the U.S. Real Property Landing
Assets and Rights;
(b) GTL hereby assigns and transfers all of its right, title and
interest under the Contract with respect to the U.K. Landing Assets and Rights
to the U.K. Subsidiary and the U.K. Subsidiary hereby accepts such assignment
and transfer and assumes all of the obligations and liabilities of Purchaser
under the Contract with respect to the U.K. Landing Assets and Rights.
(c) GTL hereby assigns and transfers all of its right, title and
interest under the Contract with respect to the German Landing Assets and Rights
to the German Subsidiary and the German Subsidiary hereby accepts such
assignment and transfer and assumes all of the obligations and liabilities of
Purchaser under the Contract with respect to the German Landing Assets and
Rights.
(d) GTL hereby assigns and transfers all of its right, title and
interest under the Contract with respect to the U.S. Personal Property Landing
Assets and Rights to the SSI Subsidiary and the SSI Subsidiary hereby accepts
such assignment and transfer and assumes all of the obligations and liabilities
of Purchaser under the Contract with respect to the U.S. Personal Property
Landing Assets and Rights.
(e) The Contractor hereby acknowledges, consents and agrees to the
assignments and assumptions referred to in paragraphs (a) through (d) of this
Section 2.
(f) For purposes of determining the submerged Landing Assets subject
to the foregoing transfer, it is assumed that under the current law of each
Landing Country, the territorial waters of such Country extend twelve nautical
miles seaward from the coast of such Country. If such assumption shall prove to
be incorrect, or if a law shall change such assumption and in fact the
territorial waters of any country extend beyond twelve nautical miles, the
parties shall adjust the Landing Assets subject to this Agreement.
(g) Without limiting the generality of the foregoing, the U.S.
Subsidiary, the SSI Subsidiary, the U.K. Subsidiary and the German Subsidiary
each acknowledges and agrees that it will be subject to the same restrictions on
the transfer of its Landing Assets and Rights as GTL under Sub-Article 37(D) of
the Contract, Sub-Article 25(D) of the OA&M Agreement and Sub-Article 18(D) of
the Sales Agency Agreement (the "Transfer Restrictions") and further agrees that
---------------------
it will cause each direct or indirect transferee of any of its Landing Assets
and Rights to acknowledge and agree that such transferee is also subject to the
Transfer Restrictions.
(h) GTL represents and warrants that the U.S. Subsidiary, the U.K.
Subsidiary and the German Subsidiary are each direct, wholly-owned subsidiaries
and acknowledges and agrees that any transfer of any interest in the U.S.
Subsidiary, the U.K. Subsidiary or the German Subsidiary (or any other person or
entity with any Landing Assets and Rights) will be subject to the Transfer
Restrictions to the same extent as a transfer of Landing Assets and further
agrees that it will cause each direct or indirect transferee of any
<PAGE>
6
such interest to acknowledge and agree that such transferee is also subject to
the Transfer Restrictions with respect to such interest.
3. Joint and Several Liability. (a) Notwithstanding the
---------------------------
assignments and assumptions set forth in Section 2 above, GTL shall remain
liable to pay and perform all of the obligations and liabilities under the
Contract with respect to the assigned Landing Assets and Rights, including,
without limitation, the payment obligations under Section 4 hereof.
(b) The U.S. Subsidiary and the U.K. Subsidiary shall be jointly and
severally liable, together with GTL, for all of GTL's obligations under the
Contract, including, without limitation, GTL's obligations under paragraph (a)
above.
(c) The German Subsidiary shall be jointly and severally liable,
together with GTL, for all obligations of Purchaser under the Contract with
respect to the German Landing Assets and Rights, but for no other obligations
under the Contract.
(d) GTL and the U.K. Subsidiary shall be jointly and severally liable
with the U.S. Subsidiary to pay the IRU Price.
(e) Notwithstanding anything to the contrary herein or in the
Contract, from and after the date of effectiveness of the IRU and Option
Agreement until the date of termination thereof, so long as the IRU Price is
paid to the SSI Subsidiary (i) none of GTL, the U.S. Subsidiary or the U.K.
Subsidiary shall be liable to pay the U.S. Personal Property Landing Assets and
Rights Price and (ii) the failure of the SSI Subsidiary to perform its
obligations under Section 4(b) shall not in and of itself constitute a payment
default or otherwise excuse the Contractor from performing all of its
obligations with respect to the U.S. Personal Property Landing Assets and
Rights, unless such failure is directly caused by an intentional action by the
U.S. Subsidiary or any of its assignees or transferees (including the
Administrative Agent and the lenders under the Credit Agreement).
4. Amounts Payable under the Contract. (a) The U.S. Subsidiary
----------------------------------
hereby agrees to pay all amounts payable under the Contract, when and as due
thereunder, with respect to the U.S. Real Property Landing Assets and Rights
(the "U.S. Real Property Landing Assets and Rights Price"). The portion of the
--------------------------------------------------
Initial Contract Price with respect to the U.S. Real Property Landing Assets and
Rights is to be set forth on Part 1 of Schedule 1 and is subject to adjustment
as provided in Section 4(e) hereof.
(b) The SSI Subsidiary hereby agrees to pay, if and only if the IRU
Price is received by it when and as due under Section 6 hereof, all amounts
payable under the Contract, when and as due thereunder, with respect to the U.S.
Personal Property Landing Assets and Rights (the "U.S. Personal Property Landing
------------------------------
Assets and Rights Price"). The portion of the Initial Contract Price with
- -----------------------
respect to the U.S. Personal Property Landing Assets and Rights is to be set
forth on Part 2 of Schedule 1 hereto and is subject to adjustment as provided in
Section 4(e) hereof.
<PAGE>
7
(c) The U.K. Subsidiary agrees to pay all amounts payable under the
Contract, when and as due thereunder, with respect to the U.K. Landing Assets
and Rights (the "U.K. Landing Assets and Rights Price"). The portion of the
------------------------------------
Initial Contract Price with respect to the U.K. Landing Assets and Rights is to
be set forth on Schedule 2 and is subject to adjustment as provided in Section
4(e) hereof .
(d) The German Subsidiary hereby agrees to pay all amounts payable
under the Contract, when and as due thereunder, with respect to the German
Landing Assets and Rights (the "German Landing Assets and Rights Price"). The
--------------------------------------
portion of the Initial Contract Price with respect to the German Landing Assets
and Rights is to be set forth on Schedule 3 hereto and is subject to adjustment
as provided in Section 4(e) hereof.
(e) The amounts set forth in Schedules 1, 2 and 3 represent the
portions of the Initial Contract Price attributable to the respective Landing
Assets and Rights, are not in addition to the Initial Contract Price, and are
subject to adjustments and additions pursuant to the Contract to the same extent
as the Initial Contract Price.
(f) The Contractor will send separate invoices to the appropriate
Transferee for payment for Landing Assets.
(g) All amounts received by the SSI Subsidiary from the Contractor
under the Contract shall be promptly turned over to the U.S. Subsidiary.
5. Delivery of Landing Assets. Notwithstanding anything in the
--------------------------
Contract to the contrary, the Contractor hereby agrees to deliver, transfer and
assign, or cause to be delivered, transferred and assigned (i) all right, title
and interest in the U.S. Real Property Landing Assets and Rights to the U.S.
Subsidiary, (b) all right, title and interest in the U.S. Personal Property
Landing Assets and Rights to the SSI Subsidiary, (c) all right, title and
interest in the U.K. Landing Assets and Rights to the U.K. Subsidiary and (d)
all right, title and interest in the German Landing Assets and Rights to the
German Subsidiary.
6. IRU and Option Agreement. The SSI Subsidiary and the U.S.
------------------------
Subsidiary agree to enter into the IRU and Option Agreement as soon as
practicable. As the price for the indefeasible right of use granted by the SSI
Subsidiary (the "IRU Price"), the U.S. Subsidiary shall pay to the SSI
---------
Subsidiary an amount equal to the U.S. Personal Property Landing Assets and
Rights Price, which Price shall be payable at the same time or times as the U.S.
Personal Property Landing Assets and Rights Price is due and payable. The
Contractor, the SSI Subsidiary and the U.S. Subsidiary agree, for United States
federal, state and local income tax purposes, (a) to treat the U.S. Subsidiary
as the owner of the U.S. Personal Property Landing Assets and Rights as of the
date or dates the Contractor transfers title to the SSI Subsidiary and (b) to
treat payments of the IRU Price by the U.S. Subsidiary as payments to the
Contractor in respect of such assets and rights, unless such treatment is
challenged by a taxing authority (subject to the contest provisions of the
Indemnity Agreement of even date herewith) or, in respect of such treatment by
the Contractor or the SSI Subsidiary, Davis Polk & Wardwell or other independent
tax counsel selected by the
<PAGE>
8
Contractor and reasonably satisfactory to GTL provides an opinion that such
treatment is more likely than not the incorrect tax treatment of the IRU Price.
7. Lease. The U.S. Subsidiary hereby agrees to lease the U.S. Real
-----
Property Landing Assets and Rights to the SSI Subsidiary pursuant to a Site
Lease substantially in the form of Exhibit B hereto. The SSI Subsidiary and the
U.S. Subsidiary agree to enter into the Site Lease as soon as practicable.
8. Arrangement with Deutsche Telekom AG. The parties hereto hereby
------------------------------------
acknowledge and agree that nothing contained in the DT-MOU or in any subcontract
between Contractor and Deutsche Telekom AG shall change, limit or otherwise
alter the respective obligations and rights of the Contractor, on the one hand,
and GTL and its Transferees, on the other hand, under the Contract, and the
Contractor remains primarily liable and obligated to pay and perform all of its
obligations under the Contract, (including, without limitation, those
obligations under the Contract).
9. Use of the Term "Purchaser" and "Party" in the Supply Contract.
--------------------------------------------------------------
(a) The parties hereto agree that the term "Purchaser" shall mean GTL or any of
its direct or indirect assignees or transferees (including the assignees or
transferees hereunder) in:
(i) the definitions of "Excluded Tax", "Nexus Tax", "Permits" and
"Work";
(ii) Sub-Article 6A(K);
(iii) the second line of Sub-Article 7(A);
(iv) the eighth line of Sub-Article 10(A)(1)(c);
(v) Sub-Article 10(A)(1)(c)(ii), Sub-Articles 10(A)(2), 10(A)(3),
10(A)(4), 10(A)(5) and 10(C);
(vi) the first line of Sub-Article 12(B) and the first sentence of
Sub-Article 12(C);
(vii) Sub-Article 13(C)(3);
(viii) Sub-Article 15(B)(i);
(ix) Sub-Articles 17(A), 17(B) and 17(C);
(x) Sub-Article 18(A), the second sentence of Sub-Article 18(C), Sub-
Article 18(C)(3), Sub-Article 18(C)(4), the penultimate line of
Sub-Article 18(D), the last sentence of Sub-Article 18(E) and
Sub-Article 18(F);
(xi) Sub-Articles 19(A)(1), 19(A)(2) and 19(E);
<PAGE>
9
(xii) Sub-Article 23(D) (excluding the first occurrence);
(xiii) Sub-Article 25(C) (excluding the first occurrence); and
(xiv) Sub-Article 27(A)(5), 27(B)(6) and 27(D);
in each case, in the Contract.
(b) The parties hereto agree that the term "Party" or "Parties" shall
mean GTL or any of its direct or indirect assignees or transferees (including
the assignees and transferees hereunder) on the one hand and the Contractor on
the other in:
(i) Sub-Articles 13(A)(2), 13(A)(3) and 13(A)(4) (but, so long as the
SSI Subsidiary is owned by SSI, not including, in the case of
clauses (3) and (4), the SSI Subsidiary, unless, in the case of
clause (4), such event with respect to the SSI Subsidiary was not
commenced by SSI);
(ii) Sub-Article 13(E);
(iii) Sub-Article 36(A); and
(iv) Sub-Article 37(A),
in each case in the Contract.
(c) GTL and its direct and indirect assignees and transferees shall
act collectively under the Contract and through GTL as its agent with respect to
Consents, Performance Requirements, Acceptance Testing, Contract Variations,
System Upgrades, termination and suspension of all or any part of the Contract
and acceptance of the System or any Segment (including, without limitation, the
issuance of Certificates of Commercial Service, Provisional Acceptance and Final
Acceptance), and any notices, certificates or requests by GTL with respect to
any of the foregoing shall be deemed to have been given by GTL and its direct
and indirect transferees and assignees and any notices, certificates or requests
by any other person with respect to the foregoing shall have no force or effect.
Without limiting the foregoing, the parties acknowledge and agree that no title
to any portion of a Segment or the System shall be transferred to GTL or any of
its assignees or transferees unless all requirements under the Contract for
transfer of the entire Segment or the System, as the case may be, have been
satisfied in full.
(d) GTL shall act as agent for its direct and indirect assignees and
transferees for the receipt of notices (excluding invoices), reports and
information (including the single copy of the documentation provided under
Article 31 of the Contract) from the Contractor, and notices, reports and
information delivered to GTL by the Contractor shall be deemed to have been
delivered to GTL and its direct and indirect transferees. GTL shall
<PAGE>
10
furnish copies of all such notices, reports and information to the U.S.
Subsidiary, the U.K. Subsidiary and the German Subsidiary.
10. Insurance. The Contractor hereby agrees to amend its insurance
---------
policies maintained pursuant to Sub-Article 27(A) of the Contract to name each
Assignee as an additional insured, to the same extent as GTL is so named
pursuant to Sub-Article 27(B) of the Contract, as to operations under the
Contract with respect to the Landing Assets and Rights transferred to such
Assignee hereunder, in which event the Contractor's insurance shall be primary
to any insurance carried by such Assignee.
11. Schedules. (a) The U.S. Subsidiary, GTL and the Contractor agree
---------
to use their best efforts to complete Schedule 1 hereto as soon as is
practicable.
(b) The U.K. Subsidiary, GTL and the Contractor agree to use their
best efforts to complete Schedule 2 hereto as soon as is practicable.
(c) The German Subsidiary, GTL and the Contractor agree to use their
best efforts to complete Schedule 3 hereto as soon as is practicable.
12. Representation by GTL. GTL represents and warrants that GTL's
---------------------
and Holding Company's lenders will permit the foregoing assignments and
transfers without causing a reduction in the financing committed for the System.
13. Covenants of the Contractor. (a) The Contractor will not (i)
---------------------------
vote to enable, or take any other action to permit the SSI Holdings Subsidiary
to issue limited liability company interests or other ownership or equity
securities of any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any limited liability company
interests or other ownership or equity securities of any nature of the SSI
Holdings Subsidiary, (ii) sell, assign, transfer, exchange or otherwise dispose
of, or grant any option with respect to, the Contractor's right, title and
interest in the SSI Holdings Subsidiary or (iii) take any action which could
result in the Contractor's right, title and interest in the SSI Holdings
Subsidiary becoming subject to a lien, trust, pledge or security interest.
(b) The Contractor shall cause the SSI Holdings Subsidiary to not (i)
vote to enable, or take any other action to permit the SSI Subsidiary to issue
limited liability company interests or other ownership or equity securities of
any nature or to issue any other securities convertible into or granting the
right to purchase or exchange for any limited liability company interests or
other ownership or equity securities of any nature of the SSI Subsidiary, (ii)
sell, assign, transfer, exchange or otherwise dispose of, or grant any option
with respect to, the SSI Holdings Subsidiary's right, title and interest in the
SSI Subsidiary or (iii) take any action which could result in the SSI Holdings
Subsidiary's right, title and interest in the SSI Subsidiary becoming subject to
a lien, trust, pledge or security interest, except for the security interests
created by the Lender Pledge Agreement and the Subordinated Pledge Agreement.
<PAGE>
11
14. Acceptance of the System. Without limiting any of the
------------------------
Contractor's rights or any of GTL's obligations, the Contractor and GTL agree
that any Certificate of Provisional Acceptance, Certificate of Commercial
Service or Certificate of Final Acceptance under the Contract issued by GTL
shall be deemed not to have been issued unless GTL shall have received the prior
written consent of Deutsche Bank AG, New York Branch, as administrative agent
for the Lenders (as defined in the Credit Agreement). The Contractor further
acknowledges and agrees that none of the Lenders nor any Agent Related Person
(as defined in the Credit Agreement) shall have any liability under the Contract
if the Independent Engineer (as defined in the Credit Agreement) shall issue a
rejection (including as to a Segment) under the Contract.
15. Amendment to Sub-Article 13. Sub-Article 13(A) of the Contract
---------------------------
is hereby amended by deleting paragraph (2) therein in its entirety and
inserting in lieu thereof the following:
"If the other Party defaults on any of its payment
obligations (or, in the case of the Contractor, if the
amount in the Contingency Account or the amount
available to be drawn under the Contingency Letter of
Credit and the Retainage Letter of Credit is less than
the Required Amount, unless the period of time during
which the Retainage Letter of Credit has to be
outstanding has expired) and does not cure such default
(or does not increase the amount on deposit in the
Contingency Account or increase the amount available to
be drawn under the Contingency Letter of Credit and the
Retainage Letter of Credit to the Required Amount)
within a period of thirty (30) days (or such longer
period as the non-breaching party may authorize in
writing) after receipt of written notice demanding
cure;".
16. Contractor's Acknowledgments.
----------------------------
(a) The Contractor acknowledges and agrees that the Purchaser has
complied with Sub-Article 15(B)(iii) of the Contract, notwithstanding that it
complied later than the required date.
(b) Contractor has had the opportunity to review copies of the
Financing Documents listed on Exhibit C hereto (other than the Holding Company
Note Purchase Agreement and the Financing Documents relating solely thereto) and
the Contractor has no objection to the terms thereof.
(c) The Contractor acknowledges that the Purchaser has granted liens
and security interests on the Purchaser's right, title and interest in and to
the System in favor of its lenders pursuant to the Financing Documents and
agrees that such liens and security interests are assignments and transfers
permitted by and in accordance with Article 37 of the Contract.
<PAGE>
12
17. Notices. Any notices, consent, approval, or other communication
-------
pursuant to this Supplement shall be in writing, in the English language, and
shall be effected in the manner provided for in Sub-Article 35(A) of the
Contract, and in the case of the U.S. Subsidiary, the SSI Subsidiary, the U.K.
Subsidiary and the German Subsidiary, at the address specified below its
signature hereto or to GTL as its agent for notices.
18. Parties. As between the Contractor, GTL and each Assignee that
-------
becomes a party hereto, this Supplement shall be treated as, and shall be
enforceable as, an agreement between the Contractor, GTL and such Assignee and
therefor it is not necessary for all Assignees to become parties hereto in order
for this Supplement to become valid and enforceable as between the Contractor,
GTL and each Assignee which does become a party hereto.
19. Governing Law. This Supplement shall be governed by, and
-------------
construed and interpreted in accordance with, the laws of the State of New York,
United States.
20. Netherlands. The parties agree that none of the foregoing shall
-----------
limit the Contractor's rights under Sub-Article 6(E) of the Contract.
21. Miscellaneous. Except as expressly amended or supplemented
-------------
herein, the Contract shall continue to be, and shall remain, in full force and
effect in accordance with its terms. This Supplement may be executed by the
parties in any number of separate counterparts (including by facsimile
transmission) and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in the location set forth below its signature
by its proper and duly authorized officer as of the date hereof.
AT&T SUBMARINE SYSTEMS, INC.
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Title: President
Signed in:
GLOBAL TELESYSTEMS LTD.
By:_________________________________
Title:
Signed in:
GT LANDING CORP.
By:_________________________________
Title:
Signed in:
Address:
SSI ATLANTIC CROSSING LLC
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Title: Treasurer
Signed in:
Address: 340 Mount Kemble Avenue
Morristown, New Jersey 07960
Telecopy: (201) 326-5664
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in the location set forth below its signature
by its proper and duly authorized officer as of the date hereof.
AT&T SUBMARINE SYSTEMS, INC.
By:_________________________________
Title:
Signed in:
GLOBAL TELESYSTEMS LTD.
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Title: President
Signed in:
GT LANDING CORP.
By:_________________________________
Title:
Signed in:
Address:
SSI ATLANTIC CROSSING LLC
By:_________________________________
Title:
Signed in:
Address:
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in the location set forth below its signature
by its proper and duly authorized officer as of the date hereof.
AT&T SUBMARINE SYSTEMS, INC.
By:_________________________________
Title:
Signed in:
GLOBAL TELESYSTEMS LTD.
By:_________________________________
Title:
Signed in:
GT LANDING CORP.
By: /s/ [SIGNATURE ILLEGIBLE] ^^
---------------------------------
Title: President
Signed in:
Address: c/o Pacific Capital Group, Inc.
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Telecopy: (310) 281-4942
SSI ATLANTIC CROSSING LLC
By:_________________________________
Title:
Signed in:
Address:
<PAGE>
GT U.K. LTD
By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
Title: Director
Signed in:
Address: c/o Wiggin & Co.
The Quadrangle,, Imperial Square
Cheltenham
Gloucestershire GL50 1YX England
Telecopy: (44) 1242 224223
GLOBAL TELESYSTEMS GMBH
By: ________________________________
Title:
Signed in:
Address:
AFFIDAVIT OF EXECUTION BY CORPORATION
-------------------------------------
I, JANICE BERTHIAUME, of the City of Windsor, in the County of Essex, Province
of Ontario, Canada, make oath and say:
1. I am the subscribing witness to the signature and I was present ???? it
executed at Windsor, Ontario, on the 27th day of June, 1997, ????? behalf
of GT U.K. Ltd. by Clint Walker, Director.
2. I know the said Clint Walker and know him to be the Director of ???? said
Corporation.
SWORN before me at the City of )
Windsor, in the County of Essex, ) /s/ Janice Berthiaume
-------------------------------
this 27th day of June, 1997. ) JANICE BERTHIAUME
/s/ [SIGNATURE ILLEGIBLE]
A Commissioner, etc.
<PAGE>
ANNEX A
DEFINITIONS
"Affiliate": of any designated Person, each Person which, directly or
---------
indirectly, controls or is controlled by or is under common control with such
designated Person. For the purposes of this definition, "control" (including,
-------
with correlative meanings, the terms "controlled by" and "under common control
------------ --------------------
with"), as used with respect to any Person, shall mean the possession, directly
- ----
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Applicable Law" or "Law": with respect to any Governmental Authority,
-----------------------
any constitutional provision, law, statute, rule, regulation, ordinance, treaty,
order, decree, judgment, decision, certificate, holding, injunction,
Governmental Action or requirement of such Governmental Authority along with the
interpretation and administration thereof by any Governmental Authority charged
with the interpretation or administration thereof. Unless the context clearly
requires otherwise, the term "Applicable Law" or "Law" shall include each of the
foregoing (and each provision thereof) as in effect at the time in question,
including any amendments, supplements, replacements, or other modifications,
thereto or thereof, and whether or not in effect as of the date hereof.
"Business Day": a day other than a Saturday, a Sunday or any other
------------
day on which commercial banks in New York City, are required or authorized by
Law to be closed and which is also a day on which dealings in Dollar deposits
are carried out in the London interbank market.
"Credit Agreement" shall mean the Credit Agreement, dated as of June
----------------
27, 1997, among GT Ltd., the financial institutions from time to time parties
thereto as lenders, Deutsche Bank AG, New York Branch, and Canadian Imperial
Bank of Commerce, as lead agents, Deutsche Bank AG, New York Branch, as
administrative agent, and Canadian Imperial Bank of Commerce, as syndication
agent, documentation agent and issuing bank (as the same may be amended,
supplemented or otherwise modified from time to time).
"Governmental Action": all permits, authorizations, registrations,
-------------------
consents, approvals, waivers, exceptions, variances, claims, orders, judgments
and decrees, licenses, exemptions, publications to the extent legally binding
upon the parties),filings (other than filings of a purely ministerial nature),
notices to and declarations of or with any Governmental Authority and shall
include, without limitation, all siting, environmental, construction and
operating permits and licenses that are required for the construction, use and
operation of the System.
<PAGE>
2
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"IRU and Option Agreement": the Indefeasible Right of Use and Option
------------------------
Agreement, dated as of June 27, 1997, between and among Site Lessee, as
Grantor and Site Lessor, as Purchaser (as the same may be amended,
supplemented or otherwise modified from time to time).
"Lien": any mortgage, security interest, pledge, hypothecation,
----
encumbrance or lien (statutory or other) of any kind or nature whatsoever
(including, without limitation, any agreement to give any of the foregoing,
any conditional sale or other title retention agreement, any construction
lien or any financing lease having substantially the same economic effect
as any such agreement and the filing of any statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Subordinated Security Agreement" shall mean the Subordinated Security
-------------------------------
Agreement, dated as of June 27, 1997, made by Site Lessee in favor of Site
Lessor, as the same may be amended, supplemented or otherwise modified from
time to time.
"Tax" or "Taxes": any and all fees (including, without limitation,
--- -----
documentation, recording, license and registration fees), taxes (including,
without limitation, net income, franchise, value added, ad valorem, gross
income, gross receipts, sales, use, rental, property (personal and real,
tangible and intangible) and stamp taxes), levies, imposts, duties,
charges, assessments or withholdings of any nature whatsoever, general or
special, ordinary or extraordinary, together with any and all penalties,
fines, additions to tax and interest thereon.
"U.S. Landing Assets and Rights": shall have the meaning given such
------------------------------
term in the Supply Contract.
"U.S. Personal Property Landing Assets and Rights and Rights": shall
-----------------------------------------------------------
have the meaning given such term in the Supply Contract.
"U.S. Real Property Landing Assets and Rights": shall have the meaning
--------------------------------------------
given such term in the Supply Contract.
<PAGE>
10.2 (CONT.)
SUPPLEMENT NO. 2
Supplement No. 2, dated as of December 1, 1997 (this "Supplement No.
2") to the Project Development and Construction Contract described below, among
Tyco Submarine Systems Ltd. formerly AT&T Submarine Systems, Inc. (the
"Contractor"), Global Telesystems Ltd. ("GTL"), GT Landing Corp. (the "U.S.
Subsidiary") GT U.K. Ltd (the U.K. Subsidiary"), Global Telesystems GmbH The
"German Subsidiary") and SSI Atlantic Crossing LLC (the "SSI Subsidiary"). (The
U.S Subsidiary, U.K. Subsidiary, German Subsidiary and the SSI subsidiary will
hereinafter be collectively referred to as the "Subsidiaries").
WITNESSETH
WHEREAS, unless otherwise defined herein, capitalized terms used
herein shall have the meanings given to them in the Contract and Supplement No.
1 described below;
WHEREAS, the Contractor and GTL have entered into the Project
Development and Construction Contract dated March 18, 1997 (as the same has been
and may from time to time be further amended, modified or supplemented, the
"Contracts), pursuant to which the Contractor has agreed to design, manufacture,
construct, install and deliver a fiber optic cable system connecting (a) the
United States to the United Kingdom, (b) the United Kingdom to Germany and (c)
Germany to the United States, all as more fully described in the Contract;
WHEREAS, the Contractor and GTL and the Subsidiaries entered into
Supplement No. 1, dated as of June 27, 1997 ("Supplement No. 1") pursuant to
which GTL transferred all rights under the Contract (i) with respect to the U.S.
Real Property Landing Assets and Rights to the U.S. Subsidiary, (ii) with
respect to the U.S. Personal Property Landing Assets and Rights to the SSI
Subsidiary, (iii) with respect to the U.K. Landing Assets and Rights to the U.K.
Subsidiary and (iv) with respect to the German Landing Assets and Rights to the
German Subsidiary;
WHEREAS, the Contractor and GTL have also entered into the Operations,
Administration and Maintenance Agreement dated as of March 25, 1997, pursuant to
which the Contractor has agreed, in accordance with the terms thereof, to
operate, administer and maintain the System;
WHEREAS, the Contractor and GTL and the Subsidiaries have also entered
into Supplement No. 1, dated as of June 27, 1997 to the OA&M Agreement (the
"OA&M Supplement") pursuant to which GTL transferred all rights under the OA&M
Agreement (i) with respect to the U.S. Personal Property Landing Assets and
Rights to the SSI Subsidiary, (ii) with respect to the U.K. Landing Assets and
Rights to the U.K. Subsidiary and (iii) with respect to the German Landing
Assets and Rights to the German Subsidiary.
WHEREAS, the Contractor and GTL have also entered into the Sales
Agency Agreement, dated as of March 25, 1997;
<PAGE>
2
WHEREAS, the Contractor and GTL and the Subsidiaries have also entered
into Supplement No. 1, dated as of June 27, 1997 to the Sales Agency Agreement
(the "Sales Agency Supplement") pursuant to which Contractor, GTL, the U.S.
Subsidiary, the U.K. Subsidiary and the German Subsidiary supplemented the
provisions of the Sales Agency Agreement to reflect their agreement with respect
to the Landing Assets;
WHEREAS, Article 6 of the Contract contemplates that either Party may
propose a Contract Variation;
WHEREAS, Sub-Article 6(B) of the Contract requires that, a Contract
Variation shall not become effective unless and until the Parties execute a
supplement to the Contract describing their respective rights and obligations,
WHEREAS, Sub-Paragraph 9(C) of Supplement No. 1 provides that GTL and
its direct and indirect assignees and transferees shall act collectively under
the Contract and through GTL as its agent with respect to Contract Variations;
WHEREAS, GTL intends to form a wholly owned subsidiary in the
Netherlands (the "Netherlands Subsidiary") for the purpose of owning and
providing capacity the Netherlands Landing Assets and Rights;
WHEREAS, as soon as the Netherlands Subsidiary is formed, GTL will
assign and transfer all of its right, title and interest in, to and under the
Contract with respect to Netherlands Landing Assets and Rights to the
Netherlands Subsidiary;
WHEREAS, GTL for itself and on behalf of the Netherlands Subsidiary
and the Subsidiaries desires to add an additional landing site to the System at
The Netherlands (the "Netherlands Landings") so that it may provide service
between and among the United States mainland, United Kingdom, Germany and The
Netherlands;
WHEREAS, GTL for itself and on behalf of the Netherlands Subsidiary
and the Subsidiaries desires to modify Segment 3 of the System by splitting it
into two parts to include the Netherlands Landing as follows:
Segment 3a: from Germany to The Netherlands; and
Segment 3b: from The Netherlands to the United Kingdom;
WHEREAS, GTL seeks to purchase and own, as set forth herein, the
Netherlands Landing and wishes to engage Contractor to perform the Work related
thereto;
WHEREAS, the Netherlands Landing Assets and Rights will eventually be
owned by the Netherlands Subsidiary;
WHEREAS, Contractor is willing to perform the Work with respect to
Segment 3a and Segment 3b in accordance with and subject to the terms hereof;
<PAGE>
3
NOW THEREFORE, in consideration of the premises, the Parties hereto
hereby agree as follows:
1. DOCUMENTS FORMING THE ENTIRE SUPPLEMENT
---------------------------------------
The Contract is hereby amended by adding section 7.0 to the Provisioning
Schedule at Appendix 1, and the Netherlands Landing Section of the Billing
Schedule at Appendix 2 and by deleting the portion of the Technical Volume,
Appendix 5 at Tab 1 (System Description), Tab 2 (System Performance
Availability), Tab 3, section 3.1.2 only (Submersible Equipment), Tab 7 (System
Commissioning and Acceptance) and Tab 11 (Straight Line Diagram), the Plan of
Work (Appendix 3), the Upgrade Plan of Work (Appendix 3A), and by inserting the
respective document set forth below in this Paragraph. This Supplement consists
of these terms and conditions and the following documents (in the form of
attachments, including appendices, attached hereto), which shall be read and
construed as part of the Supplement:
. Technical Volume, (Appendix 5) System Description (Tab 1), System
Performance Availability (Tab 2), Submersible Equipment, (Tab 3 section
3.1.2 only), System Commissioning and Acceptance (Tab 7) and Straight Line
Diagram (Tab 11)
. Plan of Work, (Appendix 3); Upgrade Plan of Work, (Appendix 3A)
. Provisioning Schedule section 7.0 (Appendix 1)
. Billing Schedule, Netherlands Landing Section (Appendix 2),
In the event of any inconsistency between the terms and conditions of the
Supplement and the above listed documents, the terms and conditions of the
Supplement shall prevail. The Appendices listed above have no order of
precedence.
2. DEFINED TERMS (a) Unless otherwise defined herein, capitalized
-------------
terms which are defined in the Contract or Supplement No. 1 are used herein as
therein defined.
(b) The Contract is hereby amended by deleting the definition of
"Billing Schedule", "Contract Price", "Phase 2 Segment", "Provisioning
Schedule", "Ready for Commercial Service", "Ready for Provisional Acceptance",
"Segment", "Segment 3", "System", "Technical Volume", "Upgrade Billing
Schedule", "Upgrade Plan of Work" and "Upgrade Provisioning Schedule" appearing
in Article 3 (Definitions) of the Contract, and by inserting the respective
definition as follows:
Billing Schedule means a billing schedule attached to the Contract as
----------------
Appendix 2 as supplemented by Supplement No. 2.
Contract Price means the Initial Contract Price, plus the Netherlands
--------------
Landing Price, plus any variations pursuant to Article 6 (Contract Variations),
Taxes as set forth in Sub-Article 4(B) and other adjustments to the Contract
Price provided for in this Contract.
Phase 2 Segment means Segment 2 at * per fiber pair on * fiber
---------------
pairs and Segment 1 at * per fiber pair on 4 fiber pairs.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
4
Provisioning Schedule means the price schedule attached to the
---------------------
Contract as Appendix 1 as supplemented by the Supplement No. 2.
Ready for Commercial Service means (i) for any Segment, that (a) such
----------------------------
Segment has the ability to carry commercial traffic between the two landing
points of such Segment (at * per fiber pair on * fiber pairs in the case
of a Phase 1 Segment or a Phase 3 Segment and at * per fiber pair on *
fiber pairs for Segment 1 and * fiber pairs for Segment 2 in the case of a Phase
2 Segment and at * per fiber pair on * fiber pairs in the case of a Phase
4 Segment) meeting performance criteria of ITU-T G.826 as defined in the System
Performance section of the Technical Volume and has line monitoring and
protection switching capability, (b) Contractor has tested and provided for STM-
1 interconnectivity capability to the Segment terminal equipment according to
ITUT G.826, (c) Contractor has substantially performed its obligations under
Article 18 (Intellectual Property) then required to be performed by it, (d) all
Permits are obtained for such Segment, (ii) for the System, that the System has
the ability to carry commercial traffic throughout the System (at * per
fiber pair) meeting performance criteria of ITU-T G.826 as defined in the System
Performance section of the Technical Volume with self healing ring protection
capability and per Segment protection capability, has line monitoring and per
Segment protection switching capability and has network management capability,
(b) Contractor has tested and provided for STM-1 interconnectivity capability to
the System terminal equipment according to ITU-T G.826, (c) Contractor has
substantially performed its obligations under Article 18 (Intellectual Property)
then required to be performed by it, (d) an interconnect agreement is in place
with a bona fide carrier at each landing point, and (e) all Permits are obtained
for the System and (iii) for any System Upgrade, the System is Ready for
Commercial Service at the capacity specified for such System Upgrade.
Ready for Provisional Acceptance means (i) with respect to any
--------------------------------
Segment, (a) such Segment is complete in all material respects (and in any event
is Ready for Commercial Service), (b) the results of Acceptance Testing of such
Segment demonstrate that such Segment has satisfied the System Performance
Requirements, (c) Contractor has substantially performed its obligations under
Article 18 (Intellectual Property) then required to be performed by it, and (d)
all Permits are obtained for such Segment, (ii) with respect to the System, the
System is complete in all material respects (and in any event is Ready for
Commercial Service), all four Segments are Ready for Provisional Acceptance with
self-healing ring protection capability and per Segment protection capability
and line monitoring and network management capability and (iii) with respect to
any System Upgrade, the results of Acceptance Testing of such System Upgrade
demonstrate that such System Upgrade is complete in all material respects and is
sufficient to realize the Performance Requirements.
Segment means Segment 1, Segment 2, Segment 3a or Segment 3b as the
-------
case may be.
System means the four fiber pair submarine cable system consisting of
------
Segments 1, 2, 3a and 3b (at a per fiber pair capacity of * at the Date of
Commercial Service or the Date of Provisional Acceptance, as the case may be of
the System, with each
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
5
Segment upgradeable to * per fiber pair at the Date of Provisional
Acceptance) as more fully described in the System Description section of the
Technical Volume.
Technical Volume means the Technical Volume attached to the Contract
----------------
as Appendix 5, as modified by the Supplement No. 2.
Upgrade Plan of Work means the plan of work attached to this
--------------------
Supplement No. 2 as Appendix 3A.
Upgrade Provisioning Schedule means the provisioning schedule attached
-----------------------------
to the Contract as Appendix 1A, as supplemented by the Supplement No. 2.
(c) Article 3 of the Contract is hereby amended to add the following
definitions:
Netherlands Landing Assets and Rights means all Landing Assets and
-------------------------------------
Rights in the Netherlands.
Netherlands Landing Price has the meaning set forth in Paragraph 3 to
-------------------------
this Supplement No. 2.
Phase 3 Segment means Segment 2 or Segment 3a.
---------------
Phase 4 Segment means Segment 1, 2, 3a and 3b at 10 Gb/s per fiber
---------------
pair on 4 fiber pairs.
Segment 3a means Segment B2 as defined in the Technical Volume from
----------
Germany to the Netherlands and landing in locations capable of interconnecting
with major telecommunications carriers.
Segment 3b means Segment B1 as defined in the Technical Volume from
----------
the Netherlands to the United Kingdom and landing in locations capable of
interconnecting with major telecommunications carrier.
Supplement No. 2 means this supplement to the Contract (as the same
may from time to time be amended, modified or supplemented).
(d) Paragraph 1 of Supplement No. 1 is hereby amended by deleting the
definition of "Landing Countries", and by inserting the following:
Landing Countries means the United States of America, the United
-----------------
Kingdom, The Netherlands and Germany.
3. NETHERLANDS LANDING PRICE (a) the Price for the Netherlands
-------------------------
Landing in United States Dollars (US) is a fixed fee of * dollars (the
"Netherlands Landing Price"). The Netherlands Landing Price does not include the
cost of optional upgrades which
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
6
are described in Article 6A (Optional Upgrades) of the Contract, any contract
variations as provided for in Article 6 (Contract Variations) except the
contract variation provided for in this Supplement, any Taxes, services
performed pursuant to the Operations, Administration and Maintenance Agreement,
or services performed pursuant to the Sales Agency Agreement.
(b) The Netherlands Landing Price excludes any Tax.
4. TERMS OF PAYMENT The Contractor will send separate invoices to
----------------
the Netherlands Subsidiary once it has been formed, and GTL has assigned and
transferred all of its right, title and interest in, to and under the Contract
with respect to the Netherlands Landing Assets and Rights, for payment for the
Netherlands Landing Assets and Rights.
5. ACCEPTANCE Article 8 Sub-Article (A)(7) of the Contract is hereby
----------
deleted and the following is inserted in its place: "The Contractor agrees that
the Date of Provisional Acceptance or Commercial Service of the System will
occur by February 22, 1999 (as such date may be extended under Article 6
(Contract Variations), Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled RFS Date"). The
Contractor shall use reasonable efforts to be Ready for Provisional Acceptance
or Commercial Service with respect to Segment 1 with a capacity of * per fiber
pair on * by November 30, 1998 and with respect to Segment 3a with a capacity of
* per fiber pair on * by January 12, 1999."
6. NOTICES Any notice, consent, approval, or other communication
-------
pursuant to this Supplement shall be in writing, in the English language, and
shall be effected in the manner provided in Sub-Article 35(A) of the Contract
and Paragraph 17 of Supplement No. 1, and in the case of the Netherlands
Subsidiary, at the address specified below its signature hereto or to GTL as its
agent for notices.
7. REPRESENTATIONS BY GTL GTL represents and warrants that the
----------------------
Netherlands Subsidiary will be a direct, wholly-owned subsidiary and
acknowledges and agrees that any transfer of any interest in the Netherlands
Subsidiary (or any other person or entity with any Landing Assets and Rights)
will be subject to the Transfer Restrictions to the same extent as a transfer of
any Landing Assets and Rights and further agrees that it will cause each direct
or indirect transferee of any such interest to acknowledge and agree that such
transferee is also subject to the Transfer Restrictions with respect to such
interest.
8. JOINT AND SEVERAL LIABILITY (a) Paragraph 3(b) of Supplement No.
---------------------------
1 is hereby amended to provide: The U.S. Subsidiary, the U.K. Subsidiary and the
Netherlands Subsidiary shall be jointly and severally liable, together with GTL,
for all of GTL's obligations under the Contract, including without limitation,
GTL's obligations under paragraph (a) above."
(b) Paragraph 3(d) of Supplement No. 1 is hereby amended to provide: "GTL, the
U.K. Subsidiary and the Netherlands Subsidiary shall be jointly and severally
liable with the U.S. Subsidiary to pay the IRU Price."
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
7
9. GOVERNING LAW This Supplement shall be governed by, and construed
-------------
and interpreted in accordance with, the laws of the State of New York, United
States.
10. ASSIGNMENT TO NETHERLANDS SUBSIDIARY When the Netherlands
------------------------------------
Subsidiary is formed, the Parties hereto will execute and deliver a Supplement
to the Contract to assign and transfer the contract rights in the Netherlands
Landing Assets and Rights to the Netherlands Subsidiary containing provisions
similar to the provisions of Supplement No.1 to the Contract.
11. ARRANGEMENT WITH DEUTSCHE TELEKOM AG The Parties hereby
------------------------------------
acknowledge and agree that the lease agreement between De Te Immobilien ("De
Te") and the German Subsidiary (the "Lease") for the lease of floor space in the
Cable Station located in Westerland, Germany shall be for a minimum square
meters of 735 square meters on two floors. Nothing contained in the Lease or any
other contract between GTL and/or the German Subsidiary and De Te and/or
Deutsche Telekom AG shall change, limit or otherwise alter the minimum amount of
floor space stated in this Paragraph.
12. MISCELLANEOUS Except as expressly amended or supplemented herein,
-------------
the Contract and Supplement No. 1 shall continue to be, and shall remain, in
full force and effect in accordance with its terms. This Supplement may be
executed by the parties in any number of separate counterparts (including
facsimile transmission) and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in _______________ by its proper and duly
authorized officer as of the date hereof.
<PAGE>
8
TYCO SUBMARINE SYSTEMS LTD.
By: /s/ Neil Garvey
-----------------------
Title: President
Signed in: USA
<PAGE>
9
GLOBAL TELESYSTEMS LTD.
By: /s/ K. Eugene Shutler
-----------------------------------
Title: Executive Director
Signed in: Bermuda
<PAGE>
10
GT LANDING CORP.
By: /s/ K. Eugene Shutler
-----------------------------------
Title: Director
Signed in: Bermuda
<PAGE>
11
GT U.K. LTD.
By: /s/ K. Eugene Shutler
-----------------------------------
Title: Director
Signed in: Bermuda
<PAGE>
12
GLOBAL TELESYSTEMS GmbH
By: /s/ K. Eugene Shutler
----------------------------------
Title: Director
Signed in: Bermuda
<PAGE>
13
SSI ATLANTIC CROSSING LLC
By: /s/
-----------------------------------
Title: Vice President
Signed in: USA
<PAGE>
EXHIBIT 10.3
EXECUTION COPY
_____________________________________
PC-1
_____________________________________
PROJECT DEVELOPMENT
AND
CONSTRUCTION CONTRACT
BETWEEN
TYCO SUBMARINE SYSTEMS LTD.
AND
GCT PACIFIC HOLDINGS, LTD.
_____________________________________
DATED AS OF APRIL 21, 1998
_____________________________________
<PAGE>
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
1 Provision of System........................................... 1
2 Documents Forming the Entire Contract......................... 2
3 Definitions................................................... 2
4 Contract Price................................................ 12
5 Terms of Payment by Purchaser................................. 16
6 Contract Variations........................................... 18
6A. Optional Upgrades............................................. 19
7 Responsibilities for Permits.................................. 22
8 Route Survey.................................................. 23
9 Acceptance.................................................... 24
10 Warranty...................................................... 28
11 Contractor Support............................................ 32
12 Purchaser's Obligations....................................... 32
13 Termination for Default....................................... 33
14 Termination for Convenience................................... 35
15 Suspension.................................................... 37
16 Title and Risk of Loss........................................ 38
17 Force Majeure................................................. 38
18 Intellectual Property......................................... 39
19 Infringement.................................................. 45
20 Safeguarding of Information and Technology.................... 46
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
21 Export Control................................................ 47
22 Liquidated Damages............................................ 47
23 Limitation of Liability/Indemnification....................... 48
24 Counterparts.................................................. 50
25 Design and Performance Responsibility......................... 50
26 Product Changes............................................... 50
27 Risk and Insurance............................................ 50
28 Plant and Work Rules.......................................... 54
29 Right of Access............................................... 54
30 Quality Assurance............................................. 55
31 Documentation................................................. 55
32 Training...................................................... 55
33 Settlement of Disputes/Arbitration............................ 56
34 Applicable Law................................................ 58
35 Notices....................................................... 58
36 Publicity and Confidentiality................................. 59
37 Assignment; Subcontractors.................................... 59
38 Relationship of the Parties................................... 61
39 Successors Bound.............................................. 61
40 Article Captions.............................................. 61
41 Severability.................................................. 61
42 *............................................................. 61
43 Survival of Obligations....................................... 61
44 Non-Waiver.................................................... 62
</TABLE>
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
ii
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
45 Language....................................................... 62
46 Entire Agreement.............................................. 62
47 Coming into Force............................................. 62
</TABLE>
EXHIBITS
- --------
Exhibit A ...................................................... *
Exhibit B .................................. Consent and Agreement
Exhibit C ..................................... Opinion of Counsel
Exhibit D ....................................... Escrow Agreement
Exhibit E ................................ Approved Subcontractors
Exhibit F .................................. Intellectual Property
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
iii
<PAGE>
PROJECT DEVELOPMENT AND
CONSTRUCTION CONTRACT
BETWEEN
TYCO SUBMARINE SYSTEMS LTD. AND
GCT PACIFIC HOLDINGS, LTD.
This Project Development and Construction Contract ("Contract") is
made as of this 21st day of April 1998 between Tyco Submarine Systems Ltd., a
corporation organized and existing under the laws of the State of Delaware,
United States, ("TSSL" or "Contractor") and GCT Pacific Holdings, Ltd., a
company organized and existing under the laws of Bermuda (hereinafter referred
to as "Purchaser").
WHEREAS, Purchaser desires to establish a fiber optic submarine cable
system, to be known as the Pacific Crossing 1 Submarine Cable System
(hereinafter, and as more fully defined herein, the "System"), which will be
used to provide service between the United States mainland and Japan; and
WHEREAS, the System will consist of the following Segments:
Segment N: From Norma Beach, Washington, United States to Ajigaura,
Japan;
Segment W: From Ajigaura, Japan to Shima, Japan;
Segment S: From Shima, Japan to Toro Creek, California, United
States; and
Segment E: From Toro Creek, California, United States to Norma
Beach, Washington, United States; and
WHEREAS, Contractor is in the business of designing, constructing,
installing, supplying, delivering and manufacturing fiber optic submarine cable
systems and is familiar with the general business of the fiber optic submarine
cable system industry; and
WHEREAS, Purchaser seeks to purchase and own the System and wishes to
engage Contractor to perform the Work and Upgrade Work; and
WHEREAS, Contractor is willing to perform the Work and the Upgrade
Work on a turn-key, fixed-price basis in accordance with and subject to the
terms hereof.
NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS
ARTICLE 1 PROVISION OF SYSTEM
- ------------------------------
In consideration of the Contract Price and the Upgrade Prices, the
Contractor agrees to undertake the Work and the Upgrade Work and to provide the
Purchaser with the
<PAGE>
2
System meeting the System Performance Requirements on or before the Scheduled
System RFS Date and the System Upgrades meeting the requirements of Article 6A,
all in accordance with the terms hereof.
ARTICLE 2 DOCUMENTS FORMING THE ENTIRE CONTRACT
- ------------------------------------------------
This Contract consists of these commercial Terms and Conditions,
Exhibits E and F hereto, and the following documents (in the form of
attachments, including appendices, attached hereto), which shall be read and
construed as part of the Contract:
. Technical Volume (includes Route Information), Appendix 6
. Plan of Work, Appendix 3, Upgrade Plan of Work, Appendix 3A
. Provisioning Schedule, Appendix 1, Upgrade Provisioning Schedule,
Appendix 1A
. Billing Schedule, Appendix 2, Upgrade Billing Schedule, Appendix 2A
. Invoice Format, Appendix 4, Form of Contractor's Certificate,
Appendix 4A
. Progress Schedule, Appendix 5
In the event of any inconsistency between the Terms and Conditions
and the above listed documents, the Terms and Conditions shall prevail. The
Appendices listed above have no order of precedence.
ARTICLE 3 DEFINITIONS
- ----------------------
Definitions are as described in the specific Articles. Except as
otherwise defined the following definitions shall apply throughout the Contract:
AAA has the meaning set forth in Sub-Article 33(B).
ACCEPTANCE TESTING means (i) with respect to a Segment or the System,
the tests described in the Commissioning and Acceptance section of the
Technical Volume or developed pursuant to such section by mutual agreement
of the Parties (with 15 days prior notice to the Independent Engineer) and
reasonably designed to verify that such Segment or the System meets the
applicable Performance Requirements and (ii) with respect to any System
Upgrade, the tests described in the Commissioning and Acceptance section of
the Technical Volume or developed pursuant to such section by mutual
agreement of the Parties (with 15 days notice to the Independent Engineer)
and reasonably designed to verify that the System Upgrade meets the
applicable Performance Requirements.
ACCESS RIGHTS means all ownership, easement and/or other property
rights, from both private and governmental entities, both on land and below
the surface of the water (including, without limitation, agreements to use
conduits, install manholes and to lease space in cable stations) necessary
to access, use and occupy cable stations and the sites for cable stations
(including, without limitation, to land and install the
<PAGE>
3
submarine cable and related equipment and to bring such cable from the
ocean to the cable stations) in order for the Purchaser to own, operate and
maintain the System.
ACTUAL KNOWLEDGE means the actual knowledge of any executives with
management responsibility for the Contract.
ASSIGNMENT has the meaning set forth in Sub-Article 37(A).
BANKRUPTCY EVENT means an event specified in Sub-Article 13(A)(3) or
13(A)(4) with Contractor as the "other Party".
BILLING SCHEDULE means a billing schedule attached hereto as Appendix
2.
CERTIFICATE OF COMMERCIAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(D) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Commercial
Acceptance.
CERTIFICATE OF FINAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(E) to Contractor certifying that
the System or a System Upgrade is Ready for Final Acceptance.
CERTIFICATE OF PROVISIONAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(C) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Provisional
Acceptance.
CIF means cost, insurance and freight as defined in the International
Chamber of Commerce, Guide to Incoterms (1990).
COMMISSIONING REPORT has the meaning set forth in the Commissioning
and Acceptance section of the Technical Volume.
CONFIDENTIAL INFORMATION has the meaning set forth in Sub-Article
36(B).
CONSENT means a Consent and Agreement to be entered into among
Contractor, Purchaser and the financing parties described in Sub-Article
37(C) and substantially in the form of Exhibit B hereto, with such changes
therein as made pursuant to Sub-Article 37(C) hereto.
CONTRACT means this agreement, specifically consisting of the
documents described in Article 2, and shall be deemed to include any
amendments thereto or Contract Variations pursuant to Article 6 (Contract
Variations).
CONTRACTOR means the entity that has executed this Contract as
Contractor (TSSL) and that will be responsible for the performance of the
Work (and if applicable, Upgrade Work) under this Contract and shall
include its permitted successors and/or assigns.
<PAGE>
4
CONTRACT PRICE means the Initial Contract Price, plus any variations
pursuant to Article 6 (Contract Variations), Taxes as set forth in Sub-
Article 4(B) and other adjustments to the Contract Price provided for in
this Contract.
CONTRACT TAXES has the meaning set forth in Sub-Article 4(B)(1).
CONTRACT VARIATION has the meaning set forth in Sub-Article 6(A).
DATE OF COMMERCIAL ACCEPTANCE, PROVISIONAL ACCEPTANCE OR FINAL
ACCEPTANCE means the date that Purchaser receives a Commissioning Report or
an Upgrade Commissioning Report, as the case may be, demonstrating that a
Segment or the System or a System Upgrade, as the case may be, is Ready for
Commercial Acceptance, Ready for Provisional Acceptance or Ready for Final
Acceptance in accordance with Article 9 (Acceptance).
DDP means delivered duty paid as defined in the International Chamber
of Commerce, Guide to Incoterms (1990).
DEFAULT means an Event of Default or any event, condition or
occurrence which with the giving of notice or passage of time or both would
be an Event of Default.
DELIVERABLE SOFTWARE has the meaning set forth in Sub-Article 18(C).
DELIVERABLE TECHNICAL MATERIAL has the meaning set forth in Sub-
Article 18(B).
DISPUTE ACCOUNT means the Dispute Account to be created under the
Escrow Agreement.
ESCROW AGENT means Citibank, N.A., in its capacity as escrow agent
under the Escrow Agreement, and its successors in such capacity.
ESCROW AGREEMENT means that Escrow Agreement to be entered into, in
the event of a dispute as described in Sub-Article 5(C)(5), by and among
the Contractor, the Purchaser and the Escrow Agent, substantially in the
form of Exhibit D hereto, with such changes therein as are reasonably
requested by the Escrow Agent, as amended modified or supplemented from
time to time.
EVENT OF DEFAULT has the meaning set forth in Sub-Article 13(A).
EXCLUDED TAX means (i) any franchise, excess profits, net worth,
capital or capital gains Tax, as well as any Tax on doing business or
imposed on net or gross income or receipts (including minimum and
alternative minimum Taxes measured by any items of Tax preference), but in
each case excluding Taxes that are or are in the nature of sales, use,
excise, license, stamp, rental, ad valorem, value added or property
<PAGE>
5
Taxes; (ii) any Taxes imposed by a jurisdiction other than one in which (a)
the Contractor is or is treated as engaged in activities contemplated by or
in fulfillment of the Contract or (b) the Purchaser or its affiliates has a
nexus to such jurisdiction and the Tax imposed is attributable to that
nexus, (iii) Taxes imposed on the Contractor as a result of Contractor's
gross negligence or willful misconduct and (iv) any import duty, other
import related charges, sales or use tax, VAT or property tax imposed by
the United States or any political subdivision thereof or Taxing authority
therein in respect of Supplies brought into the United States for testing,
modification or other similar purposes prior to being installed or used
outside the United States.
EXPEDITED UPGRADE has the meaning set forth in Sub-Article 6A(L).
FINAL COMMISSIONING REPORT has the meaning set forth in Section 7,
Commissioning and Acceptance section of the Technical Volume.
FINAL SURVEY REPORT means the final survey report described in Section
5 of the Marine Installation section of the Technical Volume.
FOB means free on board as defined in the International Chamber of
Commerce, Guide to Incoterms (1990).
FORCE MAJEURE has the meaning set forth in Sub-Article 17(A).
*
*
INDEPENDENT ENGINEER means Conexart Technologies, Inc. or a similarly
qualified successor in the capacity as the engineer to the financing
sources specified in Sub-Article 37(C) who has agreed to be bound by the
confidentiality provisions of this Contract and who is not affiliated with
a competitor of Contractor.
INFORMATION has the meaning set forth in Sub-Article 20(A).
INITIAL CONTRACT PRICE has the meaning set forth in Sub-Article
4(A)(1).
INITIAL UPGRADE PRICE has the meaning set forth in Sub-Article
4(A)(2).
INTELLECTUAL PROPERTY has the meaning set forth in Sub-Article 18(A).
LAWS means any laws, ordinances, regulations, rules, orders,
proclamations, requirements of governmental authorities or treaties.
MANUFACTURING MATERIALS has the meaning set forth in Sub-Article
13(B).
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
6
MILESTONES means the milestones set forth in the Progress Schedule
attached as Appendix 5 to this Contract.
NEXUS TAX means any Tax imposed by way of withholding in respect of or
in lieu of an Excluded Tax, but only to the extent such Tax would not have
been imposed but for the nexus (other than as a consequence of the
activities of the Contractor) of the Purchaser or its affiliate to the
jurisdiction imposing the Tax.
NON-SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
NOTICE OF TERMINATION has the meaning set forth in Sub-Article 14(A).
OPTION PERIOD has the meaning set forth in Sub-Article 6A(B).
PARTY(IES) means either of the Purchaser and/or the Contractor, as
appropriate.
PERFORMANCE REQUIREMENTS means (i) with respect to a Segment or the
System, the applicable System Performance Requirements set forth or to be
developed by mutual agreement pursuant to the System Performance and
Availability section of the Technical Volume, (ii) with respect to any
System Upgrade, the applicable System Performance Requirements set forth in
or to be developed by mutual agreement pursuant to the Technical Volume or
(iii) in each case, such other Segment, System or System Upgrade
performance levels as mutually agreed by the Parties.
PERMITS means all Access Rights, permits, pipeline and cable crossing
agreements, approvals, "no objections", permissions-in-principle,
authorizations, consents, customs clearances, registrations, certificates,
rights-of-way, certificates of occupancy, licenses, including without
limitation, landing licenses, orders, vessel and crew authorizations/visas,
permission for the operation of navigational aids and radio systems and
similar authorizations necessary to complete the Work and operate and
maintain the System (other than any of the foregoing (i) relating to the
ownership, operation and maintenance of the System and not necessary until
after the System is Ready for Final Acceptance, (ii) which is or would be
needed by Purchaser to engage in any business outside the business of
developing, owning and operating a submarine cable system or (iii) which is
or would be needed at any time by any purchaser or lessee of capacity on
the System).
PROVISIONING SCHEDULE means the price schedule attached hereto in
Appendix 1.
PURCHASER means GCT Pacific Holdings, Ltd. and shall include its
permitted successors and assigns.
READY FOR COMMERCIAL ACCEPTANCE means
(i) for any Segment, that
<PAGE>
7
(a) if the System is not at the same time also Ready for
Commercial Acceptance, the Purchaser has consented, in its sole
discretion, to accept such Segment as Ready for Commercial
Acceptance,
(b) such Segment has the ability to carry commercial
traffic between the two landing points of such Segment meeting
performance criteria of ITU-T G.826 as defined in the System
Performance section of the Technical Volume and has line
monitoring and protection switching capability,
(c) Contractor has tested and provided for STM-1
interconnectivity capability (or such other interconnectivity
capability as may be mutually agreed) to the Segment terminal
equipment according to ITU-T G.826,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be
performed by it, and
(e) all Permits are obtained for such Segment, and
(ii) for the System,
(a) that the System has the ability to carry commercial
traffic throughout the System (operating at 20 Gb/s per fiber
pair) meeting performance criteria of ITU-T G.826 as defined in
the System Performance section of the Technical Volume with self
healing ring protection capability and per Segment protection
capability, has line monitoring and per Segment protection
switching capability and has network management capability,
(b) Contractor has tested and provided for STM-1
interconnectivity capability (or such other interconnectivity
capability as may be mutually agreed) to the System terminal
equipment according to ITU-T G.826,
(c) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be
performed by it and
(d) all Permits are obtained for the System and
(iii) for any System Upgrade, the System is Ready for Commercial
Acceptance at the capacity specified for such System Upgrade.
<PAGE>
8
READY FOR FINAL ACCEPTANCE means
(i) for the System, that
(a) (I) the System has successfully and continuously
(other than by reason of Force Majeure in which case the test
period shall be extended for a time period equal to the time
period of such Force Majeure) functioned in compliance with the
System Performance Requirements during the period of ninety (90)
consecutive days after the Date of Provisional Acceptance or
(II) if the System shall have failed to meet the
System Performance Requirements at any time during such period
(other than by reason of Force Majeure), the Contractor has
corrected such failure and the System has successfully and
continuously (other than by reason of Force Majeure in which case
the test period shall be extended for a time period equal to the
time period of such Force Majeure) functioned in compliance with
the System Performance Requirements for such additional period of
time not to exceed ninety (90) days (and not to end prior to the
date 90 days after the Date of Provisional Acceptance) as
reasonably determined by the Independent Engineer as being
sufficient to confirm that such failure has been corrected and
that no other failures are likely to appear and
(b) all deficiencies noted in the Certificate of
Provisional Acceptance have been corrected (other than minor
deficiencies which will not affect the operation of the System,
in respect of which an equitable adjustment to the Contract Price
will be made) and
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property) and
(ii) for any System Upgrade, that
(a) (I) the System Upgrade has successfully functioned in
compliance with the System Performance Requirements during the
period of ninety (90) days after the Date of Provisional
Acceptance of the System Upgrade or (II) if the System Upgrade
shall have failed to meet the System Performance Requirements
during such period, the Contractor has corrected such failure and
the System Upgrade has successfully functioned in compliance with
the System Performance Requirements for such additional period of
time not to exceed ninety (90) days as reasonably determined by
the Independent Engineer as sufficient to confirm that such
failure has been corrected and
<PAGE>
9
(b) all deficiencies noted in the Certificate of
Provisional Acceptance have been corrected (other than minor
deficiencies which will not affect the operation of the System,
in respect of which an equitable adjustment of the Contract Price
will be made) and
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property).
READY FOR PROVISIONAL ACCEPTANCE means
(i) with respect to any Segment,
(a) in the case of all Segments other than Segment S, if
the System is not, at the same time, also Ready for Provisional
Acceptance, the Purchaser has consented, in its sole discretion,
to accept such segment as Ready for Provisional Acceptance,
(b) such Segment is complete in all material respects (and
in any event is Ready for Commercial Acceptance),
(c) the results of Acceptance Testing of such Segment
demonstrate that such Segment has satisfied the System
Performance Requirements,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be
performed by it,
(e) all Permits are obtained for such Segment, and
(ii) with respect to the System, the System is complete in all
material respects (and in any event is Ready for Commercial
Acceptance), all Segments are Ready for Provisional Acceptance with
self-healing ring protection capability and per Segment protection
capability and line monitoring and network management capability and
(iii) with respect to any System Upgrade, the results of
Acceptance Testing of such System Upgrade demonstrate that such System
Upgrade is complete in all material respects and is sufficient to
realize the Performance Requirements.
REPRESENTATIVES has the meaning set forth in Article 36(B).
RETAINAGE means an amount equal to * of the Initial Contract Price.
RETESTING has the meaning set forth in Sub-Article 9(B)(3).
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
10
ROUTE SURVEY means the route survey described in the Marine section of
the Technical Volume.
SCHEDULED SEGMENT S RFS DATE has the meaning set forth in Sub-Article
9(A).
SCHEDULED SYSTEM RFS DATE has the meaning set forth in Sub-Article
9(A).
SCHEDULED UPGRADE DATE means for any System Upgrade, the date by which
the Contractor agrees such System Upgrade will be Ready for Provisional
Acceptance pursuant to Sub-Article 6A(K) hereof.
SEGMENT means Segment N, Segment S, Segment E or Segment W, as the
case may be.
SEGMENT E means the Segment of the System from Toro Creek, California,
United States to Norma Beach, Washington, United States and landing in
locations capable of interconnecting with major telecommunications
carriers.
SEGMENT N means the Segment of the System from Norma Beach,
Washington, United States to Ajigaura, Japan and landing in locations
capable of interconnecting with major telecommunications carriers.
SEGMENT S means the Segment of the System from Shima, Japan to Toro
Creek, California, United States and landing in locations capable of
interconnecting with major telecommunications carriers.
SEGMENT W means the Segment of the System from Ajigaura, Japan to
Shima, Japan and landing in locations capable of interconnecting with major
telecommunications carriers.
SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
SHIP PERIOD has the meaning set forth in Sub-Article 10(A).
SUPPLIES means any and all materials, plant, machinery, equipment,
hardware and items supplied by the Contractor under this Contract.
SUSPENSION means a suspension in pursuant to Sub-Article 15(A) or
15(B).
SYSTEM means the four fiber pair submarine cable system consisting of
Segments N, S, E and W (at a per fiber pair capacity of * Gb/s at the Date
of Commercial Acceptance or the Date of Provisional Acceptance, as the case
may be, of the System, with each Segment having the capability of being
upgraded to * Gb/s per fiber pair at the Date of Provisional Acceptance),
including the cable stations, as more fully described in the System
Description section of the Technical Volume.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
11
SYSTEM PERFORMANCE REQUIREMENTS has the meaning set forth in the
System Description section of the Technical Volume.
SYSTEM UPGRADE has the meaning set forth in Sub-Article 6A(A).
TAX means any tax, duty, levy, charge or custom (including, without
limitation, any sales or use tax, VAT or octroi duty relating to the
Contract items and fiscal stamps connected with Contract legalization)
imposed or collected by any taxing authority or agency (domestic or
foreign).
TECHNICAL VOLUME means the Technical Volume attached hereto as
Appendix 6.
TRANSFEREE means any entity to which purchaser assigns rights
hereunder pursuant to Sub-Article 37(D) hereof.
UPGRADE BILLING SCHEDULE means the billing schedule attached hereto as
Appendix 2A.
UPGRADE COMMISSIONING REPORT has the meaning set forth in the
Commissioning and Acceptance section of the Technical Volume.
UPGRADE PERIOD has the meaning set forth in Sub-Article 6A(E).
UPGRADE PLAN OF WORK means the plan of work attached hereto as
Appendix 3A.
UPGRADE PRICE means, for any System Upgrade, the Initial Upgrade Price
for such System Upgrade, plus any variations pursuant to Article 6
(Contract Variations), Taxes as set forth in Sub-Article 4(B) and other
adjustments to such Upgrade Price provided for in this Contract.
UPGRADE PROVISIONING SCHEDULE means the provisioning schedule attached
hereto as Appendix 1A.
UPGRADE WARRANTY PERIOD has the meaning set forth in Sub-Article
10(A).
UPGRADE WORK means the activities and services to be performed or
provided by Contractor under Article 6A (Optional Upgrades).
*
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
12
WARRANTY PERIOD has the meaning set forth in Sub-Article 10(A).
WORK means all activities and services (other than the activities and
services specified in this Contract to be provided by Purchaser) necessary
to be performed or provided in developing, planning, designing,
manufacturing, constructing, delivering, installing and testing the System,
until the System is Ready for Final Acceptance, including without
limitation, designating, coordinating, obtaining and paying for on behalf
of Purchaser the Access Rights and obtaining all Permits except landing
licenses. Whether or not used in conjunction with the term "Supplies", the
term "Work" shall always be deemed to include the provision of the relevant
Supplies, unless the context requires otherwise.
YEAR 2000 COMPLIANT means, when used with respect to any software or
materials, that such software or materials will operate accurately and,
without interruption, accept, possess and in all manner retain full
functionality when referring to, or involving, any year or date in the
twentieth or twenty-first centuries.
ARTICLE 4 CONTRACT PRICE
- -------------------------
A. Contract Price
1. The initial Contract Price for the Work, in United States Dollars
(US$) is a fee of * (the "Initial Contract Price") which includes
a fixed component of * (the "Fixed Component") and a variable
component of * (which is subject to adjustment to correspond to
the actual cost (including out-of-pocket fees and expenses)
incurred by Contractor in obtaining land in Japan on which two
cable stations, and any parking lots thereto, are built pursuant
to Sub-Article 6(D) (the "Variable Component"). The Initial
Contract Price does not include the cost of optional upgrades
which are described in Article 6A (Optional Upgrades), any
contract variations as provided for in Article 6 (Contract
Variations), or any Taxes. The Fixed Component of the Initial
Contract Price includes all costs and expenses incurred in
obtaining all Permits (including Access Rights) including those
incurred with respect to cable stations (excluding the cost of
acquiring land in Japan on which the two cable stations, and any
parking lots thereto, are built pursuant to Sub-Article 6(D)).
The Fixed Component of the Initial Contract Price includes all
the Work except for the Work described in the Variable Component.
The Fixed Component includes all charges for CIF.
2. The Initial Upgrade Price for any Upgrade Work, in United States
Dollars (US$) is the fixed fee set forth in Appendix 2A (the
"Initial Upgrade Price"). No Initial Upgrade Price includes the
cost of any contract variations as provided for in Article 6
(Contract Variations) or any Taxes.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
13
3. The Provisioning Schedule sets forth the Contractor's estimate of
the breakdown of the Initial Contract Price among various aspects
of the Work. If the actual cost of any aspect of the Work is
greater or less than that set forth in the Provisioning Schedule,
such fact shall not cause any change in the Initial Contract
Price, except for the Variable Component.
4. Without the prior written consent of the Purchaser, which consent
shall not be unreasonably withheld or delayed, the Contractor
shall not arrange for any
(a) Access Right which requires payments to be made by the
Purchaser or made after the System is Ready for Provisional
Acceptance or
(b) Permit which requires aggregate payments in excess of
* to be made by Purchaser or made after the System is Ready
for Provisional Acceptance.
B. Taxes, Levies and Duties
1. The Initial Contract Price and each Initial Upgrade Price, as
stated in Sub-Article 4(A) above, excludes any Tax. The Contract
Price and each Upgrade Price shall without duplication be
adjusted for any Tax imposed on or in connection with this
Contract (including, without limitation, the execution and
delivery of this Contract, the Work, the Upgrade Work and the
Supplies, but excluding any Excluded Taxes) (any such Taxes,
other than Excluded Taxes, are hereinafter referred to as
"Contract Taxes"). Contractor has provided a good faith estimate
of the Contract Taxes payable by the Purchaser; it being
understood that the Contractor shall have no liability under this
Contract or otherwise to the Purchaser for any errors or
omissions in such estimate or any losses arising therefrom. The
Contractor shall be responsible for any Excluded Tax that might
be incurred by the Contractor as well as any Tax described in
clause (iv) of the definition of Excluded Tax.
2. The Purchaser will be ultimately responsible for the payment of
all Contract Taxes (including, without limitation, Contract Taxes
that are VAT, octroi duties relating to Contract items and fiscal
stamps, etc. connected with Contract legalizations to the
authorities in their countries). In the case of any Contract
Taxes paid by the Contractor, the Contractor shall submit payment
on the Purchaser's behalf and Contractor will be reimbursed by
the Purchaser in accordance with Article 5 (Terms of Payment by
Purchaser).
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
14
3. The Contractor agrees to use reasonable efforts including,
without limitation, by registering for VAT and any applicable
sales Taxes in any country, state or other jurisdiction where
legally required, to cooperate with and assist Purchaser in its
efforts (i) to have Supplies which are the subject of this
Contract made exempt from Contract Taxes, whether in the
manufacture of the Supplies or related to the importation or
location or installation of the Supplies, (ii) to request
revisions, drawbacks, remissions, reclassifications or the like
to the jurisdictions identified by the Purchaser; or (iii) to
reduce or eliminate Contract Taxes (including the provision of
applicable certifications and forms) and to obtain any available
refunds of Contract Taxes, provided that the Contractor shall not
--------
be required to act other than in accordance with the relevant
Laws then in force. The Purchaser shall reimburse the Contractor,
in accordance with Article 5, for any reasonable costs (including
the reasonable fees and expenses of legal counsel, accountants
and other advisors) incurred by the Contractor under this Sub-
Article 4(B)(3) provided that Purchaser was notified and has
--------
consented to the incurrence of such costs, fees and expenses.
Contractor shall not be required to cooperate with and assist
Purchaser in its efforts under this Sub-Article 4(B)(3) or to
take any action hereunder which in the Contractor's good faith
judgment would incur any costs or if in Contractor's good faith
judgment it would be advisable to obtain the advice of counsel,
accountants or other advisors prior to cooperating with or
assisting purchaser or taking any action, unless in each case,
Purchaser has agreed to reimburse Contractor under the foregoing
proviso.
4. Prior to the Date of Provisional Acceptance with respect to the
System or any System Upgrade, the Contractor shall provide
evidence of having made all payments for Taxes included in the
Contract Price or Upgrade Price or described in clause (iv) of
the definition of Excluded Taxes, other than VAT due on payments
of the Contract Price or Upgrade Price made on or after the Date
of Provisional Acceptance of the System or System Upgrade, which
evidence shall be provided within sixty (60) days of the date of
each such payment.
5. As part of Work or any Upgrade Work, the Contractor shall obtain
at its expense, on Purchaser's behalf, any import license or
other official authorization and carry out all customs
formalities necessary for the importation or exportation of goods
in connection with such Work or Upgrade Work. The Purchaser
agrees to be the Importer or Exporter of Record or designate an
Importer or Exporter of Record/Consignee on its behalf. Purchaser
must provide a Letter of Authorization from any third party
designate stating it agrees to be the Importer or Exporter of
Record on Purchaser's behalf and identify the name and address of
the designated Importer or Exporter of Record.
<PAGE>
15
6. The Supplies to be installed or held on land shall be delivered
to the agreed point at the named place of destination and shall
be consigned to the Purchaser.
C. Withholding Tax
1. If withholding for any Tax is required in respect of any payment
to the Contractor, the Purchaser shall (i) withhold the
appropriate amount from such payment, (ii) pay such amount to the
relevant authorities in accordance with the applicable Laws and
(iii) in the case of any such withholding in respect of a
Contract Tax or a Nexus Tax and subject to the Contractor's
satisfying the obligations set forth in the last sentence of this
Sub-Article 4(C)(1), pay the Contractor an additional amount such
that the net amount received by the Contractor is the amount the
Contractor would have received in the absence of such
withholding. In such a case, the Purchaser shall provide to the
Contractor, as soon as reasonably practicable, a certified copy
of an official tax receipt for any Tax which is retained from any
payment due to the Contractor or for any Tax which is paid on
behalf of the Contractor. All such receipts shall be in the name
of the Contractor. The Contractor agrees to complete accurately
and timely provide to the Purchaser or, if required, to the
applicable Taxing authority, such forms, certifications or other
documents as may be requested in timely manner by Purchaser, in
order to allow it to make payments to the Contractor without any
deduction or withholding on account of withholding Taxes (or at a
reduced rate thereof) or to receive a refund of any amounts
deducted or withheld on account of withholding Taxes.
2. If the Contractor shall become aware that it is entitled to
receive a refund or credit from a relevant taxing or governmental
authority in respect of a Contract Tax or Nexus Tax as to which
the Purchaser has paid an additional amount pursuant to Sub-
Article 4(C)(1) above, the Contractor shall promptly notify the
Purchaser of the availability of such refund or credit and shall,
within 30 days after receipt of a request by the Purchaser
(whether as a result of notification that it has made to the
Purchaser or otherwise), make a claim to such taxing or
governmental authority for such refund or credit at the
Purchaser's expense. If the Contractor receives a refund or
credit in respect of a Contract or Nexus Tax as to which the
Purchaser has paid an additional amount pursuant to Sub-Article
4(C)(1) above, or if, as a result of the Purchaser's payment of
such additional amounts, the Contractor or any other member of an
affiliated group, as defined in section 1504(a) of the Code, of
which the Contractor is a member, receives a credit against Taxes
imposed on its income or franchise taxes imposed on it by the
country under the laws of which it is organized or any political
subdivision thereof, the Contractor shall promptly notify the
Purchaser
<PAGE>
16
of such refund or credit and shall within 30 days from the date
of receipt of such refund or benefit of such credit pay over the
amount of such refund or benefit of such credit (including any
interest paid or credited by the relevant taxing or governmental
authority with respect to such refund or credit) to the Purchaser
(but only to the extent of the additional payments made by the
Purchaser under Sub-Article 4(C)(1) above with respect to the
Contract or Nexus Tax giving rise to such refund or credit), net
of all out-of-pocket expenses of the Contractor; provided,
--------
however, that the Purchaser, upon the request of the Contractor
-------
agrees to repay the amount paid over to the Purchaser (plus
penalties, interest or other charges due to the appropriate
authorities in connection therewith) to the Contractor in the
event the Contractor is required to repay such refund or credit
to such relevant authority.
ARTICLE 5 TERMS OF PAYMENT BY PURCHASER
- ----------------------------------------
A. General Conditions of Payment
1. All payments shall be made and all invoices shall be rendered in
US Dollars (US$). The Purchaser shall be responsible for and
shall pay all costs and fees for payment, as well as the banking
and wiring costs. All banking documents and correspondence must
be in English.
B. Invoice Procedures
1. All invoices for Work shall be submitted according to the Billing
Schedule, provided, that at the time of any such Invoice the
--------
relevant Milestones have been achieved. All invoices for Work
shall have a certificate addressed to Purchaser in the form of
Appendix 4A attached.
2. Any Contract Variations shall be invoiced and paid in accordance
with the terms of the Contract Variation as specified in Article
6 (Contract Variations).
3. Invoices for Upgrade Work shall be submitted according to the
Upgrade Billing Schedule and shall be paid in accordance with
this Article 5.
4. Invoices for amounts not described in Sub-Sections 1-3 above,
which may become payable hereunder shall be submitted after
applicable costs have been incurred or such other time as may be
specified in this Contract. Such invoices shall be accompanied by
a certificate of the Contractor explaining such amount and
certifying that it is payable.
5. The Contractor shall render all invoices to the following address
or facsimile number:
<PAGE>
17
GCT Pacific Holdings Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Facsimile: 441-296-6749/8606
Attn: Cameron Adderly
with a copy to
Conexart Technologies, Inc.
124 de Charante
Saint Lambert
Quebec, Canada
J4S 1K3
Facsimile: 514-466-1093
Attn: Mr. Martin Fournier
C. Payment Procedures
1. The Purchaser shall pay the Contractor, and the Contractor shall
accept payment, in accordance with this Article 5 (Terms of
Payment by Purchaser).
2. Purchaser agrees to pay an initial payment to Contractor in the
amount of *. Within three business days of the time this Contract
comes into force pursuant to Article 47 hereof, the first portion
of the initial payment, in the amount of *, shall be paid by
Purchaser to Contractor. Failure to receive this payment shall
entitle Contractor to immediately suspend Work hereunder. The
second portion of the initial payment, in the amount of *, shall
be paid by Purchaser to Contractor on June 30, 1998.
3. Invoices given to the Purchaser (and the Independent Engineer) on
or before the last day of any month shall, subject to Sub-Article
5(C)(5) below, be due and payable on the last day of the next
month or such other time as may be specified in this Contract;
provided that invoices given to Purchaser on or before April 30,
--------
1998 shall be due and payable no earlier than June 30, 1998.
4. Invoices not paid when due shall accrue late payment charges from
the day, following the day, on which payment was due until the
day on which it is paid. Invoices for such extended payment
charges shall not be issued for an amount less than U.S. $1,000.
Extended payment charges shall be computed at the rate of one
percent (1%) per month.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
18
5. In the event that the Purchaser has an objection to any invoice
or other payment obligation or any amount owing by Contractor to
Purchaser shall not have been paid when due, the Purchaser shall
promptly notify the Contractor of such objection and such amount,
and the Purchaser and Contractor shall make every reasonable
effort to settle promptly the dispute concerning the payment(s)
in question. In the event such dispute cannot be settled, the
Purchaser will have the right to withhold payment of the disputed
amount(s) (or withhold from the invoice amount a sum equal to the
amount purportedly owing by Contractor) so long as it deposits,
in full, such disputed amount(s) into the Dispute Account.
(a) Provided such disputed amount is placed into the Dispute
Account in a timely manner, the Purchaser shall not be
deemed to be in breach of or in default for failing to pay
Contractor.
(b) The Escrow Agent will distribute the disputed amount in
accordance with the terms of the Escrow Agreement.
(c) In addition, the prevailing Party shall be entitled to
receive from the Dispute Account an amount equal to the
interest earned by the Escrow Agent on the distributed,
disputed amount, which shall be distributed by the Escrow
Agent under clause (b) above.
The Contractor and the Purchaser will share equally the costs and
expenses of the Escrow Agent.
The Contractor and the Purchaser will execute and deliver an
Escrow Agreement substantially in the form of Exhibit D hereto,
with such changes therein as the Escrow Agreement may reasonably
request.
6. The Purchaser shall make timely payments for that portion of the
invoice not in dispute in accordance with Sub-Article 5(C) or
such payments will be assessed extended payment charges as set
forth in Sub-Article 5(C)(4). Pending resolution of the dispute,
the Purchaser may not withhold payment (unless also subject to
dispute) on any other invoice concerning different goods and/or
services submitted by Contractor.
ARTICLE 6 CONTRACT VARIATIONS
- -----------------------------
A. Either Party may request, during construction of the System or any
System Upgrade, by written order, a contract variation requiring additions or
alterations to, deviations or deductions from the System or System Upgrade
("Contract Variation"). If the other Party consents, in its sole discretion,
this change will be formalized as an amendment to this Contract by a Contract
Variation; provided, that the Contractor will not unreasonably withhold
--------
<PAGE>
19
its consent to a Contract Variation requested by the Purchaser; and provided
--------
further, that Purchaser will not unreasonably withhold its consent to a Contract
- -------
Variation requested by the Contractor so long as such Contract Variation does
not affect the Contract Price, any Upgrade Price, the Scheduled System RFS Date,
the Scheduled Segment S RFS Date, any Scheduled Upgrade Date, any warranties or
the Performance Standards.
B. A Contract Variation shall not become effective unless and until the
price adjustment, the terms and schedule of payment and the extension of time
and all other terms have been mutually agreed upon by the Parties (and the
Parties shall act reasonably and in good faith in connection with all such
terms) and such Contract Variation is signed by an authorized representative of
each Party. Each Contract Variation shall be incorporated as an amendment to the
Contract.
C. Contractor may seek a Contract Variation for any change, after the
date hereof, of any Law (except, and to the extent, affecting Taxes or wages)
which requires a change in the Work or the Upgrade Work or affects the costs
(other than wages) incurred or to be incurred by the Contractor or any
combination of the foregoing and Purchaser shall agree to any such change in
Work or Upgrade Work as may be required and to an equitable adjustment to the
Contract Price or the applicable Upgrade Price. As of the date hereof, neither
Party has Actual Knowledge of any proposed change in any Law that would require
a change in the Work or the Upgrade Work.
D. The Parties will execute a Contract Variation to confirm the actual
amount of the Variable Component, after final adjustment, if any, pursuant to
Sub-Article 4(A)(1) hereof.
E. The Initial Contract Price is based on the assumption that
Contractor will acquire ownership of land and build, on such land, two cable
stations in Japan and two cable stations in the United States. To the extent
that such assumption is incorrect (if, for example, the Contractor shall lease
space in one or more existing cable stations) both Parties will agree to an
equitable adjustment, up or down, to the Contract Price and the terms and
schedule of payments. The Contractor will consult with, and obtain the consent
of the Purchaser (not to be unreasonably withheld or delayed) regarding the
location of cable stations and whether to acquire, build, or lease such cable
stations. Any lease for space in a cable station shall be reasonably
satisfactory in form and substance to the Purchaser.
ARTICLE 6A. OPTIONAL UPGRADES
- -----------------------------
A. This Article includes the terms and conditions governing an option
for future upgrades to the System (each a "System Upgrade") that may be
exercised by Purchaser during the Option Period.
B. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
20
C. *
D. *
E. *
F. *
G. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
21
*
H. *
I. *
J. *
K. *
L. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
22
*
ARTICLE 7 RESPONSIBILITIES FOR PERMITS; COMPLIANCE WITH LAWS
- -------------------------------------------------------------
A. The Purchaser shall reasonably cooperate with and assist the
Contractor to obtain all Permits (except those specified in paragraph C below),
to the extent that Purchaser's cooperation and assistance are necessary for
Contractor to expeditiously and cost-efficiently obtain such Permits. The
Purchaser agrees to respond promptly to any such request from Contractor.
Further, the Purchaser agrees that it will not impede or interfere with
Contractor's activities or Contractor's abilities to perform its obligations.
Upon notice from Contractor with respect to a Permit or receipt by Purchaser of
a copy of a Permit, Purchaser shall fulfill all conditions of such Permit and
perform all responsibilities thereunder, except to the extent that such
conditions or responsibilities are those of the Contractor under Work.
Contractor will inform Purchaser as to any such conditions or responsibilities
that, in the Contractor's reasonable judgment, are not ordinary and routine and
obtain Purchaser's consent, which consent shall not be unreasonably withheld,
thereto prior to arranging for any such Permit.
B. Subject to paragraph C below, the Contractor shall have the
responsibility for obtaining, at Contractor's sole cost and expense, all Permits
on Purchaser's behalf. The Contractor will cause all Permits not issued in the
name of Purchaser to be assignable to Purchaser, and to be assigned to Purchaser
at the time title to the System is transferred to Purchaser pursuant to this
Contract. Subject to Sub-Article 4(A)(4), Purchaser shall be
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
23
responsible for payment of all Permit fees and other costs and expenses due with
respect to any Permit after the Date of Provisional Acceptance of the System.
C. The Purchaser shall be responsible for obtaining, at its expense,
landing licenses in the United States and Japan. The Contractor will cooperate
with the Purchaser in connection therewith. Purchaser shall reimburse
reasonable outside counsel fees, reasonable independent consultant fees and
other reasonable out-of-pocket expenses incurred by Contractor in connection
with such cooperation.
D. Any delay in obtaining or failure to obtain any Permit shall
constitute a Force Majeure and be treated as described in Article 17 (Force
Majeure), except to the extent such delay is a result of Contractor's negligence
or willful misconduct.
E. Except with respect to variations necessitated by complying with any
changes, enacted after the date hereof, in any Laws (the costs with respect to
which shall be borne by the Purchaser), the Contractor shall be responsible for
the payment of any and all costs incurred as a result of the need to vary
design, drawings, plans or procedures to comply with any of the circumstances
set forth in this Article. The Contractor shall, before making any variations
from the designs, drawings, plans or procedures that may be necessitated by so
complying with any Laws and that would represent a material change to the
overall design of the System, give to the Purchaser written notice, specifying
the variations proposed to be made, and the reasons for making them. As of the
date hereof, neither Party has Actual Knowledge of any proposed changes in the
Laws which would necessitate any such variation.
F. The Contractor shall (i) give all notices required by any Laws to be
given to any authority and (ii) perform or permit the performance by authorized
persons of any inspection required by the said Laws, subject to Sub-Article
6(C).
G. Within 30 days after the date of execution of this Contract, the
Contractor will prepare and deliver to the Purchaser a detailed list of Permits
that to its knowledge are required to be obtained under current law in order to
complete the Work and shall update such list from time to time if it becomes
aware of changes in Permit requirements. Such list, as updated from time to
time, shall set forth the projected dates of filing for such Permits and an
estimate of when such Permits are expected to be obtained. Without limiting
Contractor's liabilities in respect of Sub-Articles 7(B), Contractor shall have
no liability in respect of the accuracy of the information furnished under this
Sub-Article, except in the case of gross negligence or willful misconduct.
ARTICLE 8 ROUTE SURVEY
- -----------------------
A. The Contractor shall conduct the Route Survey and select the cable
route for the System in accordance with the information in the Final Survey
Report. Contractor shall be permitted to make changes, at its discretion, to the
route selection, if necessary for operational reasons without additional cost to
Purchaser.
<PAGE>
24
B. Any changes to the route selection requested by Purchaser (such as a
change of location for, or an addition of, a cable station) shall be treated as
a Contract Variation in accordance with Article 6 (Contract Variations).
ARTICLE 9 ACCEPTANCE
- ---------------------
A. General
1. The Acceptance Testing shall be performed by the Contractor. The
Purchaser and its designated representatives (including the
Independent Engineer) may observe, at their own expense, the
Contractor's tests and review the test results. Purchaser may
request and conduct any additional tests, at its own expense,
but any delay caused by such process shall be a Force Majeure
event.
2. Until the Date of Final Acceptance of the System or if a System
Upgrade is requested by Purchaser, the Date of Final Acceptance
of such System Upgrade, the Purchaser agrees to allow Contractor
access to all Segments of the System.
3. The Purchaser shall issue a Certificate of Commercial Acceptance
in accordance with the provisions of Sub-Article 9(D)(1).
4. Once a Segment of the System, the System, or a System Upgrade is
Ready for Provisional Acceptance, the Purchaser shall issue a
Certificate of Provisional Acceptance; provided, that it is
--------
within the Purchaser's sole discretion as to whether to accept a
Segment (other than Segment S) instead of the System.
5. Once the System or a System Upgrade is Ready for Final
Acceptance, the Purchaser shall issue a Certificate of Final
Acceptance.
6. The Purchaser shall not unreasonably withhold or delay issuance
of a Certificate of Commercial Acceptance, a Certificate of
Provisional Acceptance or a Certificate of Final Acceptance.
7. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Acceptance of Segment S will occur by March 31, 2000
(as such date may be extended under Article 6 (Contract
Variations) Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled Segment
S RFS Date").
8. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Acceptance of the System will occur by July 31, 2000
(as such date may be extended under Article 6 (Contract
Variations),
<PAGE>
25
Article 17 (Force Majeure) or otherwise under this Contract or
by agreement of the Parties, the "Scheduled System RFS Date").
9. The Date of Commercial Acceptance, Provisional Acceptance and
Final Acceptance, as the case may be, shall be deemed to have
occurred with respect to a Segment, the System or a System
Upgrade if a Certificate of Commercial Acceptance, a Certificate
of Provisional Acceptance or a Certificate of Final Acceptance
is issued with respect thereto.
B. Notice of Acceptance or Rejection
1. Within thirty (30) days of receipt by Purchaser and Independent
Engineer of the Commissioning Report or Upgrade Commissioning
Report, as the case may be, the Purchaser must issue
notification to the Contractor of the following:
(a) issuance of a Certificate of Provisional Acceptance in
accordance with Sub-Article 9(C); or
(b) rejection of a Certificate of Provisional Acceptance, but
instead issuance of a Certificate of Commercial Acceptance
in accordance with Sub-Article 9(D) below; or
(c) rejection of the Segment, the System or System Upgrade in
its existing condition and issuance of neither a
Certificate of Provisional Acceptance nor a Certificate of
Commercial Acceptance, with in the case of the System or
System Upgrade a written explanation of reasons for
rejection (it being understood that acceptance of a Segment
instead of the System (other than Provisional Acceptance of
Segment S) is at the sole discretion of the Purchaser).
If the Purchaser (or the Independent Engineer on its behalf)
fails to respond with such notification within thirty (30) days,
then the Date of Provisional Acceptance of the Segment (subject
to Purchaser's consent), the System or System Upgrade shall be
deemed to be the date such Commissioning Report or Upgrade
Commissioning Report, as the case may be, was received by the
Purchaser.
2. On receipt of a notice from the Purchaser pursuant to Sub-
Articles 9(B)(1)(b) or (c) above, the Contractor shall be
entitled to address any disputes and explain any discrepancies
to the Purchaser regarding the results of the Acceptance
Testing. Unless Purchaser, for good cause, rejects such
explanation, it shall issue a new notice pursuant to Sub-Article
9(B)(1) above, which shall be deemed to have been issued on the
date of the original notice.
<PAGE>
26
3. In case of rejection, and if the explanation by the Contractor as
in Sub-Article 9(B)(2) above is not accepted, for good cause, by
the Purchaser, the Contractor shall carry out the necessary
corrective actions and will effect a new series of Acceptance
Testing ("Retesting"). After receipt by Purchaser and Independent
Engineer of the new Commissioning Report or Upgrade Commissioning
Report, as the case may be, describing the results of Retesting,
the Purchaser will be granted a new period of thirty (30) days to
analyze the new Report according to the provisions of Sub-Article
9(B)(1) and any new notice of the Purchaser shall apply from the
date the Purchaser receives such new Commissioning Report or
Upgrade Commissioning Report, as the case may be.
C. Provisional Acceptance
1. The Certificate of Provisional Acceptance may have annexed to it
a list of any outstanding deficiencies to be corrected by the
Contractor.
2. The Contractor shall, as soon as reasonably practicable, correct
such deficiencies and complete the Work or Upgrade Work indicated
on all such listed items so as to comply in all material respects
with the requirements of this Contract, provided that the
Purchaser allows Contractor the necessary access to the
Segment(s) as the Contractor needs to correct such deficiencies
and complete the Work or Upgrade Work. The Contractor shall give
the Purchaser reasonable notice of its requirement for such
access.
D. Commercial Acceptance
1. A Certificate of Commercial Acceptance shall be issued by
Purchaser with respect to a Segment, the System or System Upgrade
if the results of the Acceptance Testing demonstrate that such
Segment, the System or such System Upgrade does not justify the
issuance of a Certificate of Provisional Acceptance, but
nevertheless, such Segment, the System or such System Upgrade is
Ready for Commercial Acceptance; provided, that such acceptance
--------
of a Segment instead of the System shall be in the sole
discretion of the Purchaser.
2. Each Certificate of Commercial Acceptance shall have annexed to
it a mutually agreed list of all outstanding items to be
completed by the Contractor.
3. The Contractor shall, as soon as reasonably practicable, remedy
the outstanding items, provided that the Purchaser allows
Contractor the necessary access to the Segment(s) as the
Contractor needs to remedy such outstanding items. The Contractor
shall give the Purchaser
<PAGE>
27
reasonable notice of its requirement for such access.
Notwithstanding the above, provided that Contractor has been
allowed access to the Segment(s) as required in Sub-Article
9(A)(2), the Contractor shall continue to carry the risk of loss
for any outstanding item until such item is no longer
outstanding.
4. When the outstanding items referenced in Sub-Article 9(D)(3)
above have been remedied, and the Segment(s) or System Upgrade is
otherwise Ready for Provisional Acceptance, the Purchaser will
promptly issue a Certificate of Provisional Acceptance; provided,
--------
that acceptance of a Segment instead of the System shall be in
the sole discretion of the Purchaser.
5. The issuance of a Certificate of Commercial Acceptance with
respect to a Segment or System Upgrade shall in no way relieve
the Contractor from its obligation to provide a Segment or System
Upgrade conforming with the Performance Requirements at the time
of the issuance of a Certificate of Commercial Acceptance.
E. Final Acceptance
1. Within thirty (30) days of the date of receipt by Purchaser and
Independent Engineer of the Final Commissioning Report, the
Purchaser shall issue a Certificate of Final Acceptance or reject
such Report. If the Purchaser neither issues a Certificate of
Final Acceptance nor rejects such Report within such thirty (30)
day period, then the Date of Final Acceptance of the System shall
be deemed to be the date such Final Commissioning Report was
received by the Purchaser.
F. Title and Risk of Loss
1. If the Purchaser, in its sole discretion, chooses to accept a
Segment prior to accepting the System, then upon payment of all
amounts listed in the Billing Schedule with respect to a Segment
(other than the Retainage with respect thereto) and the issuance
of a Certificate of Commercial Acceptance or a Certificate of
Provisional Acceptance with respect to such Segment by the
Purchaser in accordance with this Contract, title (free and clear
of all liens other than those deriving through or from the
Purchaser) to such Segment shall vest in the Purchaser.
2. Upon (i) payment of all amounts listed in the Billing Schedule
with respect to the System (other than the Retainage) and (ii)
the issuance of a Certificate of Commercial Acceptance or a
Certificate of Provisional Acceptance with respect to the System
by the Purchaser in accordance with this Contract, title (free
and clear of all liens other than those
<PAGE>
28
deriving through or from the Purchaser) to the System shall
vest in the Purchaser.
3. Upon payment of the Upgrade Price with respect to a System
Upgrade and the issuance of a Certificate of Commercial
Acceptance or a Certificate of Provisional Acceptance with
respect to such System Upgrade by the Purchaser in accordance
with this Contract, title to such System Upgrade shall vest in
the Purchaser.
4. As from the date of vesting of title in a Segment, the System
or a System Upgrade, the Purchaser shall, except as set forth
in the following sentence, assume the risk of loss in respect
of all parts of such Segment, the System or System Upgrade and
responsibility for its maintenance. As stated in Sub-Article
9(A)(2), the Contractor will be allowed access to such Segment,
and, so long as the Contractor has been allowed access to such
Segment as may be required, the Contractor shall continue to
carry the risk of loss with respect of each item outstanding
under Sub-Article 9(C)(1) and 9(D)(2) until such item is no
longer outstanding.
ARTICLE 10 WARRANTY
- --------------------
A. The Contractor warrants that the System and each System Upgrade,
including its spares, shall be free from defects in supplies, workmanship and
design for a period of * years commencing from the Date of Provisional
Acceptance of the System or such System Upgrade, as the case may be,
(hereinafter "Warranty Period" and "Upgrade Warranty Period"), with Ship Costs
being covered for the first * years of the Warranty Period (the "Ship Period")
and the Purchaser being responsible for all Ship Costs thereafter.
1. During the Warranty Period for the System or the Upgrade
Warranty Period for a System Upgrade, the Contractor shall make
good, by repair or replacement, at its sole option, any defects
in the System or such System Upgrade, as the case may be,
including any spares, which may become apparent or be
discovered due to imperfect workmanship, faulty design or
faulty material supplied by the Contractor, or any act, neglect
or omission on the Contractors part.
(a) If at any time within the Warranty Period or the Upgrade
Warranty Period for a System Upgrade any defect occurs
which causes the System or such System Upgrade, as the
case may be, to fail to meet its overall Performance
Requirements, the Contractor shall repair or replace such
part or parts. In making such repairs, Contractor may make
changes to the System or such System Upgrade, as the case
may be, or substitute equipment of later or comparable
design, provided the changes, modifications, or
substitutions under normal and proper use do
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
29
not cause the System or such System Upgrade as the case
may be to fail to meet the Performance Requirements.
(b) The Contractor shall use reasonable efforts to minimize
the period of time that any Segment or the System is out
of service for testing and repair. The Purchaser agrees to
cooperate with the Contractor to facilitate the
Contractor's repair activity.
(c) It is understood that if there is a problem on the System,
the Purchaser may immediately dispatch the maintenance
authority to effect repairs. If and to the extent that
such problem is determined to be caused by a defect in the
System covered by this warranty, the Contractor shall
reimburse the Purchaser for its actual Non-Ship Costs
incurred and, with respect to any such repair relating to
a defect identified in good faith by Purchaser in writing
prior to the end of the Ship Period, actual Ship Costs
incurred.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the
earliest possible notice of any such repair.
(ii) Subject to the foregoing and to Sub-Article 10(D),
any repair by the Purchaser shall not in any way
diminish the Contractor's obligation under the
warranty. Any equipment discovered to be defective
or faulty and recovered during a warranty repair
shall be returned to the Contractor at its request.
(d) In the event that the Contractor fails to make the repair
or to make reasonable efforts to minimize the period of
time that the System is out of service for repair, the
Purchaser may repair the System or the System Upgrade and
the Contractor shall reimburse the Purchaser for Non-Ship
Costs and, with respect to any such repair relating to a
defect identified in good faith by Purchaser in writing
prior to the end of the Ship Period, Ship Costs.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the
earliest possible notice of any such repair.
(ii) Subject to the foregoing, any repair by the
Purchaser shall not in any way diminish the
Contractor's obligation
<PAGE>
30
under the warranty. Any equipment discovered to be
defective or faulty and recovered during a warranty
repair shall be returned to the Contractor at its
request.
2. Contractor shall bear the Ship Costs of only those repairs of
the defects identified in good faith by Purchaser in writing
prior to the end of the Ship Period. However, the Contractor
shall bear the Non-Ship Costs of each repair, replacement or
improvement required during the Warranty Period.
As used herein, "Ship Cost" means the costs of operating a
vessel, including but not limited to running and standing
charges for the vessel (including but not limited to labor
charges for the vessel's crew, at sea insurance, port charges,
fuel and lube oils, consumables, cable loading, cable
unloading, navigation and maritime communications) as well as
the costs associated with the use and operation of a remotely
operated vehicle and the tracked self-propelled burial tool,
and "Non-Ship Costs" means the costs of making a repair,
including the cost of components, equipment or materials
requiring replacement, the cost of any additional equipment
necessary to effect the repair, the cost of making the repair,
including the cost of reburying any previously buried portion,
the cost of labor and engineering assistance or development
required to make the repair and all necessary associated costs,
such as, but not limited to, shipping and customs and services
that may be required to make the repair, but excluding any of
the foregoing which are Ship Costs.
3. The Contractor shall effect all warranty repairs of the System
and shall supply all necessary repair materials. However, the
Contractor may use, with the consent of the Purchaser, which
shall not be unreasonably withheld, the materials needed to
effect a repair from the Purchaser's available spare materials.
The Contractor shall promptly replace in kind such materials
supplied from the Purchaser's spare materials, or at the option
of the Purchaser, reimburse the Purchaser for such materials at
its original purchase price. The replacement of or
reimbursement for such materials shall be made at a time
mutually agreed to by the Purchaser and the Contractor.
4. The Contractor warrants that services furnished hereunder will
be performed in a workmanlike manner using materials free from
defects except when such materials are provided by the
Purchaser (it being understood that all materials arranged for
directly by Contractor, whether or not purchased in the name of
Purchaser, are not materials provided by the Purchaser). If
such services prove to be not so performed and Purchaser
notifies the Contractor within six (6) months from the
completion of the service, the Contractor will promptly correct
the defect.
<PAGE>
31
5. Any part which replaces a defective part during the applicable
Warranty Period or Upgrade Warranty Period, shall be subject to
the remaining Warranty Period and Ship Period, if any, or Upgrade
Warranty Period, as the case may be, of the part which was
replaced. However, the Warranty Period shall never exceed * years
from the Date of Provisional Acceptance of the System and the
Upgrade Warranty Period for any System Upgrade shall never exceed
* years from the Date of Provisional Acceptance of such System
Upgrade. Further, Ship Costs shall be included only with respect
to defects identified in good faith by Purchaser in writing during
the first * years from the Date of Provisional Acceptance of the
System.
B. *
C. The Contractor warrants that all Deliverable Software and Deliverable
Technical Materials are Year 2000 Compliant.
D. The warranties provided above in Sub-Articles 10(A) and (B) by the
Contractor shall not apply to defects or failures of performance, which result
from damage caused by acts or omissions of the Purchaser or its agents,
employees or representatives or third parties (other than the Contractor), or
which result from modifications, misuse, neglect, accident or abuse, repair,
storage or maintenance by other than the Contractor or its agents or use in a
manner not in accordance with the System Description or other causes set forth
in Article 12 (Purchaser's Obligations) or Article 17 (Force Majeure).
E. THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WHICH ARE SPECIFICALLY
DISCLAIMED. THE PURCHASER'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO DEFECTS
COVERED BY THE FOREGOING WARRANTY SHALL (EXCEPT AS SET FORTH IN SUB-ARTICLE B
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
32
ABOVE) BE THE CONTRACTOR'S OBLIGATION TO MAKE REPAIRS OR REPLACEMENTS AS SET
FORTH IN THIS ARTICLE; PROVIDED, THAT CONTRACTOR'S FAILURE TO SO PERFORM SHALL
--------
BE SUBJECT TO ARTICLE 13 HEREOF.
F. The Contractor shall, in accordance with its normal operating
practices, investigate any defective part or parts repaired or replaced pursuant
to this Article 10 to determine the type of defect and the cause of failure of
the part or parts. The Contractor shall provide a written report to the
Purchaser on the results of the investigation, if any.
ARTICLE 11 CONTRACTOR SUPPORT
- ------------------------------
A. For a period of ten (10) years from the applicable Date of Provisional
Acceptance or Date of Commercial Acceptance of the System whichever is earlier,
the Contractor will make available to the Purchaser replacement parts and repair
service for the System as may be reasonably necessary for its operation,
maintenance or repair. Where identical parts cannot be supplied, the Contractor
shall provide fully compatible parts with characteristics equal or superior to
those originally provided by the Contractor. Such parts and services shall be
provided under commercially reasonable conditions of price and delivery.
B. Notwithstanding Sub-Article 11(A), if for any reason the Contractor or
Contractor's suppliers intend to cease or ceases manufacturing or having
manufactured identical or fully compatible replacement parts, the Contractor
shall use reasonable efforts to give one year's prior written notice to the
Purchaser to allow the Purchaser to order from the Contractor any required
replacement parts and shall provide full details of the arrangements to provide
equivalents.
ARTICLE 12 PURCHASER'S OBLIGATIONS
- -----------------------------------
A. Purchaser agrees to pay all amounts payable by it when due under this
Contract and to perform all of its other obligations under this Contract.
B. In the event the Purchaser establishes a branch office in any of the
relevant jurisdictions, the Purchaser shall be solely responsible to perform all
activities necessary to establish such branch office.
C. If any loss, damage, delay or failure of performance of the System or
a System Upgrade results from the Purchaser's failure to perform its obligations
under this Contract and results in an increase in the costs of performance or
the time required for performance of any of the Contractor's duties or
obligations under this Contract, the Contractor shall be entitled, as
appropriate, to (i) an equitable adjustment in the Contract Price or applicable
Upgrade Price, (ii) an equitable extension of time for completion of its Work or
the Upgrade Work, (iii) reimbursement for all such additional costs incurred,
and (iv) to the extent necessary in light of Purchaser's failure and the
adjustments made in accordance with clauses (i), (ii) and (iii) above, an
equitable adjustment of the Work and/or Upgrade Work.
<PAGE>
33
1. The Contractor shall inform the Purchaser promptly of any
occurrence covered under this Sub-Article 12(C), and shall use
reasonable efforts to minimize any such additional costs or
delay.
2. The Contractor shall promptly provide to the Purchaser an
estimate of the anticipated additional costs and time required to
complete the Work or Upgrade Work and request relief from
contractual obligations or duties, as appropriate. Purchaser
shall, upon notification, make advance payment to Contractor for
the estimated amount of anticipated additional costs; provided
--------
that Purchaser may deposit such amount into the Dispute Account
and Sub-Article 5(C)(5) shall apply. Contractor shall without
limiting Purchaser's obligations in the foregoing sentence,
discuss such costs with Purchaser upon Purchaser's request.
3. As soon as reasonably practicable after the actual costs become
known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser.
4. If the estimated amount is greater than the amount of actual
costs, then the Contractor shall reimburse the Purchaser. If the
amount of actual costs incurred is greater than the estimated
amount, then the Purchaser shall reimburse the Contractor for any
shortfall in accordance with Article 5 (Terms of Payment of
Purchaser).
ARTICLE 13 TERMINATION FOR DEFAULT
- -----------------------------------
A. Either Party may, by written Notice of Termination for Default,
immediately upon receipt or such later date as specified in the notice,
terminate the whole or any part of this Contract in any one of the following
circumstances (each an "Event of Default"):
1. In the case of the Purchaser, (a) if Contractor materially fails
to comply with the terms and conditions of this Contract and, if
such failure occurs prior to the Date of Commercial Acceptance or
the Date of Provisional Acceptance, it would not be reasonable to
believe that the Contractor will be able to provide the System
which is Ready for Provisional Acceptance, within 200 days after
the Scheduled System RFS Date or (b) the Contractor fails to
cause the System to be Ready for Commercial Acceptance or
Provisional Acceptance within 200 days after the Schedule RFS
Date;
2. If the other Party defaults on any of its payment obligations and
does not cure such default within a period of thirty (30) days
(or such longer period as the non-breaching Party may authorize
in writing) after receipt of written notice demanding cure
(subject to dispute provisions);
<PAGE>
34
3. If the other Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the
foregoing;
4. If an involuntary case or other proceeding shall be commenced
against the other Party seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered
against the other Party.
B. If this Contract is terminated by the Purchaser as provided in Sub-
Article 13(A), the Purchaser, in addition to any other rights provided in this
Article and upon payment to Contractor of all monies due and owing as set forth
in clauses 1 and 2 of Sub-Article 13(C) below, may require the Contractor to
transfer title and deliver to the Purchaser in the manner and to the extent
directed by the Purchaser any completed equipment, material or supplies, and
such partially completed cable and materials, parts, tools, dies, jigs,
fixtures, plans, drawings, information, and contract rights (hereinafter
collectively "Manufacturing Materials") as the Contractor has had specifically
produced or specifically acquired for the performance of such part of this
Contract as has been terminated and which, if this Contract had been completed,
would have been required to be furnished to the Purchaser; and the Contractor
shall, upon the direction of the Purchaser, protect and preserve property in the
Contractor's possession in which the Purchaser has an interest.
C. If the Contract is terminated by Contractor as provided in Sub-Article
13(A), the Purchaser shall pay, in addition to any other damages payable
pursuant to Sub-Article 13(E) below, the total of:
1. the cost of settling and paying claims rising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 13(C)(2) below which are properly chargeable to the
terminated portion of this Contract; and
2. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this
<PAGE>
35
Contract and for termination and settlement of contracts
thereunder, together with reasonable storage, transportation and
other costs incurred in connection with the protection,
preservation and disposition of property proper to this Contract.
D. Force Majeure events pursuant to Article 17 (Force Majeure) shall not
constitute a default or provide a basis for termination under this Article.
E. Regardless of any termination of this Contract as provided in Sub-
Article 13(A), neither Party shall be relieved from any liability for damages or
otherwise which may have been incurred by reason of any breach of this Contract.
F. Without limitation to the foregoing, in the event that Purchaser
terminates this Contract pursuant to Sub-Article 13(A), the Contractor shall be
liable to Purchaser (without duplication) for the total of all costs and
expenses reasonably incurred by Purchaser in completing the Work or in
correcting deficiencies in the Work to the extent that the payments made to
Contractor pursuant to this Contract, together with such costs and expenses,
exceed the Contract Price.
ARTICLE 14 TERMINATION FOR CONVENIENCE
- ---------------------------------------
A. The performance of Work under this Contract may be terminated by the
Purchaser in whole, or in part, at its discretion. The Purchaser shall deliver
to the Contractor a written notice specifying the extent to which performance of
Work under this Contract is terminated, and the date upon which such termination
becomes effective (a "Notice of Termination"). Upon termination, the Purchaser
will make payment to Contractor of all monies due and owing as set forth in Sub-
Article 14(D) below.
B. After receipt of such Notice of Termination, and except as otherwise
directed by the Purchaser, the Contractor shall:
1. Stop Work under this Contract on the date and to the extent
specified in the Notice of Termination;
2. Place no further orders or contracts for materials, services or
facilities except as may be necessary for completion of such
portion of Work under this Contract as is not terminated;
3. Use reasonable efforts to terminate all orders and contracts to
the extent that they relate to the performance of Work terminated
by the Notice of Termination;
4. Assign to the Purchaser, in the manner, at the time, and to the
extent directed by the Purchaser, all of the Contractor's rights,
title and interest under the orders and contracts so terminated;
<PAGE>
36
5. Use reasonable efforts to settle all outstanding liabilities and
all claims arising out of such termination of orders and
contracts, with the Purchaser's approval or ratification to the
extent required;
6. Transfer title and deliver to the Purchaser in the manner, at the
time and to the extent (if any) directed for the fabricated or
unfabricated parts, work in process, completed work, supplies and
other material produced as a part of, or acquired in connection
with, the performance of the Work terminated by the Notice of
Termination;
7. Use reasonable efforts to sell, in the manner, at the time, to
the extent and at the price or prices directed or authorized by
the Purchaser, any property of the types referred to in Sub-
Article 13(B)(6) above provided, however, that the Contractor:
-------- -------
(a) shall not be required to extend credit to any buyer; and
(b) may acquire any such property under the conditions
prescribed by and at a price approved by the Purchaser;
and provided further that the net proceeds of any such transfer
-------- -------
or disposition shall be applied in reduction of any payments to
be made by the Purchaser to the Contractor under this Contract
or, if no such payments are due, paid in such other manner as the
Purchaser may direct;
8. Complete performance of such part of the Work which was not
terminated by the Notice of Termination; and
9. Take such action as may be necessary, or as the Purchaser may
reasonably direct, for the protection and preservation of the
property related to this Contract which is in the Contractor's
possession and in which the Purchaser has acquired or may acquire
an interest.
C. After such Notice of Termination, the Contractor shall submit to the
Purchaser a written termination claim. Such claim shall be submitted promptly,
but, unless otherwise extended, in no event later than six months from the
effective date of termination.
D. In the settlement of any such partial or total termination claim, the
Purchaser shall pay to the Contractor the total of:
1. (i) all amounts invoiced in accordance with the Contract plus,
for Work or Supplies which have been done or provided but which
have not been invoiced, an amount calculated by reference to the
prices set forth in the Provisioning Schedule and to the amount
of such Work or Supplies done or provided;
<PAGE>
37
2. the cost of settling and paying claims arising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 14(D)(4) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection and disposition of property proper to this
Contract.
E. In arriving at the amount due to the Contractor under this Article 14,
all unliquidated payments made to the Contractor, any liability which the
Contractor may have to the Purchaser, and the agreed price for, or the proceeds
of sale of any materials, supplies or other things acquired by the Contractor or
sold, pursuant to the provisions of this Article 14, and not otherwise recovered
by or credited to the Purchaser shall be deducted.
F. The Purchaser may, from time to time, under such terms and conditions
as they prescribe approve partial payments and payments on account against costs
incurred by the Contractor in connection with the terminated portion of this
Contract. If such payments total in excess of the amount finally agreed or
determined to be due under this Article 14, such excess shall be refunded, upon
demand, by the Contractor to the Purchaser.
G. For a period of one year after final settlement under this Contract,
the Contractor shall preserve and make available to the Purchaser at reasonable
times at the Contractor's office, but without direct charge to the Purchaser,
all supporting books, records and documents required to be kept relating to the
terminated Work.
ARTICLE 15 SUSPENSION
- ----------------------
A. The Purchaser may, at its convenience, order the Contractor to suspend
all or part of the Work for such period of time as the Purchaser determines to
be appropriate. If, as a result of such Suspension, the Contractor incurs
additional costs or losses in the discharge of its responsibilities under this
Contract, and where such suspension, losses or costs are not caused by the
Contractor's act or omission and could not have been reasonably prevented by the
Contractor, the Contractor shall be allowed an equitable adjustment to the
Contract Price or the Provisioning Schedule in Appendix 1 and an equitable
extension in the time required for performance.
B. Upon the occurrence of:
(i) an Event of Default by the Purchaser;
<PAGE>
38
(ii) any transfer prior to the Date of Final Acceptance of any portion
of the System except in accordance with Article 37; or
(iii) any supplement executed by a Transferee shall not be in full
force and effect;
the Contractor, in addition to any other rights provided in Article 13, may
suspend performance of its obligations and all Work and (in the case of clause
(i)) Upgrade Work.
C. Every forty-five (45) days, during the period of Suspension, the
Parties shall meet formally and review the circumstances surrounding the
Suspension including without limitation, the anticipated date of re-commencing
Work.
D. Thereafter, if the Suspension continues for a total of one hundred and
eighty (180) days, the Contractor may terminate the Contract by notice to the
Purchaser and the Contract shall be deemed to have been terminated by Purchaser,
effective on the date of Contractor's notice, in accordance with Sub-Article
13(A) and the remaining provisions of Article 13 shall apply.
ARTICLE 16 TITLE AND RISK OF LOSS
- ----------------------------------
A. Except as provided in Article 18 (Intellectual Property), Article 20
(Safeguarding of Information and Technology) and Article 21 (Export Control),
title to all Supplies provided by the Contractor hereunder for incorporation in
or attachment to a Segment shall pass to and vest in the Purchaser in accordance
with Article 9 (Acceptance). Risk of loss or damage to all Supplies provided by
the Contractor for incorporation in or attachment to such Segment shall pass to
and vest in the Purchaser in accordance with Article 9. Upon termination of this
Contract pursuant to Article 13 (Termination for Default) or 14 (Termination for
Convenience), the Purchaser may require, upon full payment of all amounts due
thereunder (provided that, without limiting Purchaser's obligation to make any
--------
such payment, if this Contract is terminated by Purchaser because of a
Bankruptcy Event full payment shall not be required prior to the transfer of
title), that title to the equipment, materials and supplies, which has not
previously passed to the Purchaser, pass to the Purchaser, free and clear of all
liens, claims, charges and other encumbrances other than those deriving through
Purchaser.
B. Upon the passage of title in accordance with the terms of Article 13
(except a transfer described in the proviso of the last sentence of Sub-Article
16(A)), the Contractor warrants that all parts, materials, and equipment to
which title has passed will be free and clear of all liens, claims, charges and
other encumbrances other than those deriving through the Purchaser.
ARTICLE 17 FORCE MAJEURE
- -------------------------
A. The Contractor shall not be responsible for any loss, damage, delay or
failure of performance resulting directly or indirectly from any cause which is
beyond its reasonable control ("Force Majeure"), including but not limited to:
delay in obtaining or failure to obtain
<PAGE>
39
any Permits (subject to the provisions of Sub-Article 7(D)); acts of God or of
the public enemy; acts or failure to act of any governmental authority; war or
warlike operations, civil war or commotion, mobilizations or military call-up,
and acts of similar nature; revolution, rebellions, sabotage, and insurrections
or riots; fires, floods, epidemics, quarantine restrictions; strikes, and other
labor actions; freight embargoes; unworkable weather; trawler or anchor damage;
damage caused by other marine activity such as fishing, marine research and
marine development; acts or omissions of transporters; or the acts or failure to
act of any of the Purchaser, of its representatives or agents, provided that (i)
--------
a loss by Contractor of employees (other than by reasons of Force Majeure), (ii)
strikes and other labor actions involving the Contractor's own work force, (iii)
the first 5 days of unworkable weather (unless any such day occurs during the 30
days immediately preceding the then Scheduled System RFS Date or Scheduled
Segment S RFS Date), (iv) the failure (other than by reason of force majeure) of
any subcontractor, supplier or transporter to perform its obligations to
Contractor (including on account of insolvency) unless such supplies or
transportation or other services are generally unavailable in the marketplace,
(v) the unavailability of any raw materials or components, unless such raw
materials or components are generally unavailable in the marketplace or are
unavailable by reason of force majeure or (vi) any increase in Contractor's
costs, shall not in and of itself constitute Force Majeure.
B. If any such Force Majeure causes an increase in the time required for
performance of any of its duties or obligations, the Contractor shall be
entitled to an equitable extension of time for completion of the Work or the
Upgrade Work, as the case may be.
C. Increase in cost due to Purchaser will be as provided for in Article
12, Purchaser's Obligations.
D. The Contractor shall inform the Purchaser promptly with written
notification, and in all cases within fourteen (14) days of discovery and
knowledge, of any occurrence covered under this Article and shall use its
reasonable efforts to minimize such additional delays. The Contractor shall
promptly provide an estimate of the anticipated time required to complete the
Work or the Upgrade Work. Contractor shall be entitled to an extension of time
equal to at least one day for each day of delay resulting from the Force Majeure
condition.
E. Within thirty (30) days of receipt of such a notice from Contractor,
the Purchaser and the Independent Engineer may provide a written response. The
absence of a response shall be deemed as acceptance of Contractor's notice and
request for additional time.
F. If a Force Majeure continues for a total of two hundred (200) days,
either Party may terminate the Contract by notice to the other and the Contract
shall be deemed to have been terminated by Purchaser, effective on the date of
the terminating Party's notice, in accordance with Sub-Article 14(A) and the
remaining provisions of Article 14 shall apply to such termination.
ARTICLE 18 INTELLECTUAL PROPERTY
- ---------------------------------
A. Ownership
<PAGE>
40
All right, title, and interest in and to all Intellectual Property
(excluding Project Patent Rights) created or developed by Contractor in the
course of its performance under this Contract that is (a) specifically and
exclusively applicable to the System or a System Upgrade; and (b) either (i)
embodied in Deliverable Technical Material (as that term is defined in Sub-
Article 18(B) below) or (ii) embodied in the System or a System Upgrade (the
"Project Intellectual Property"), is and shall remain the sole property of
Purchaser. All right, title and interest in and to all Intellectual Property
created or developed by Contractor before commencing its performance under this
Contract, or created or developed by Contractor exclusively in connection with
activities other than its performance under this Contract, or created or
developed by Contractor in the course of its performance under this Contract
that is not Project Intellectual Property, and all Project Patent Rights
(collectively, the "Contractor Intellectual Property"), is and shall remain the
sole property of Contractor. Unless otherwise expressed in this Contract, no
license is implied or granted herein to Purchaser to any Contractor Intellectual
Property by virtue of this Contract, nor by the transmittal or disclosure of any
such Contractor Intellectual Property to Purchaser. Any Contractor Intellectual
Property disclosed, furnished, or conveyed to Purchaser that is marked as
"Proprietary" or "Confidential" (or if transmitted orally is identified as being
proprietary or confidential in a subsequent writing) shall be treated in
accordance with the provisions of Article 20 (Safeguarding of Information and
Technology). As used herein, "Intellectual Property" means any information,
computer or other apparatus programs, software, specifications, drawings,
designs, sketches, tools, market research or operating data, prototypes,
records, documentation, works of authorship or other creative works, ideas,
concepts, methods, inventions, discoveries, improvements, or other business,
financial and/or technical information (whether or not protectable or
registrable under any applicable intellectual property law). As used herein,
"Project Patent Rights" means all inventions, discoveries, methods and
improvements of a patentable nature created or developed by Contractor in the
course of its performance under this Contract. Project Intellectual Property
will include the materials to be listed in a Schedule to be created mutually by
the Parties within thirty (30) days of execution of this Contract, as it may be
amended from time to time by mutual agreement of the Parties.
B. Licenses
Contractor shall furnish to Purchaser, upon the transfer of title to
any portion of the System or a System Upgrade pursuant to Article 9, copies of
all technical information, specifications, drawings, designs, sketches, tools,
operating data, records, documentation and/or other types of engineering or
technical data or information reasonably relating to the operation, maintenance
or repair of each component of such portion of the System or System Upgrade as
delivered by Contractor (the "Deliverable Technical Material"). Contractor
grants to Purchaser a perpetual, royalty-free, non-transferable (except under
the circumstances specified in Sub-Article 18(F) below) license to use and
reproduce those Deliverable Technical Materials owned, controlled, or developed
by Contractor and all Contractor Intellectual Property included in or necessary
to use all the Deliverable Technical Materials for purposes of fulfilling
Purchaser's obligations under this Contract and using and operating the System
(as upgraded by any System Upgrades) supplied by Contractor with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using and operating the
<PAGE>
41
System (as upgraded by any System Upgrades), but with no right to sublicense.
Contractor grants to Purchaser a perpetual, royalty-free, non-transferable
(except under the circumstances specified in Sub-Article 18(F) below) license to
use and reproduce those portions of Deliverable Technical Materials owned or
controlled by third parties (but only to the extent of any rights which may have
been granted to Contractor by such third parties) for the purpose of fulfilling
Purchaser's obligations under this Contract and using and operating the System
supplied by Contractor with the right to employ third parties (under appropriate
written obligations respecting confidentiality) to assist Purchaser in
fulfilling its obligations under this Contract and in using and operating the
System (as upgraded by any System Upgrades), but with no right to sublicense.
Except as set forth in this provision, no license under Contractor's patents,
copyrights, trade or service marks, trade secrets or other intellectual property
rights protectable under law in the United States or any foreign country is
granted to Purchaser. It is expressly understood that it shall not be a
violation of this license for Purchaser, on its own behalf or through third
parties (under appropriate written obligations respecting confidentiality)
specifically employed for the purpose, to use and reproduce Deliverable
Technical Material that is not Project Intellectual Property to modify the
System (as upgraded by any System Upgrades) or connect the System (as upgraded
by any System Upgrades) to other systems, provided that Purchaser may not use
the Deliverable Technical Materials that is not Project Intellectual Property in
achieving such modification or interconnection for any purpose other than
determining the technical configuration, systems interface and/or
interoperability requirements of the System (as upgraded by any System Upgrades)
as delivered by Contractor (subject to the rights of third parties therein and
thereto), and subject to the limitations on Contractor's obligations as set
forth in Articles 10(D) and 19(A) concerning any such modification or
interconnection.
C. Deliverable Software
Contractor shall furnish to the Purchaser, upon transfer of title to
any portion of the System or System Upgrade pursuant to Article 9, copies of all
computer or other apparatus programs and software, in executable form, and
related documentation relating to the operation, maintenance, or repair of the
computer systems of such portion of the System or System Upgrade, as the case
may be, as delivered by Contractor (the "Deliverable Software"). In the case of
Contractor Intellectual Property, such copies of programs and software shall
consist solely of executable code provided in offline media (e.g., tapes, or
diskettes) for restoration purposes, sufficient to operate, maintain or repair
the computer systems of such portion of the System or System Upgrade, as the
case may be, as delivered by Contractor, and in the case of Project Intellectual
Property, such programs and software shall be delivered in both source and
object code forms. Contractor shall furnish to Purchaser, from time to time
during the Warranty Period or any Upgrade Warranty Period, copies of all
computer or other apparatus programs and software, in executable form (and in
the case of Project Intellectual Property, in source code form), and related
documentation that Contractor may develop to correct errors or to maintain
Deliverable Software previously furnished to Purchaser, which shall also be
treated as Deliverable Software for purposes of this Contract upon delivery
thereof to Purchaser. Contractor grants to Purchaser a perpetual, royalty-free,
non-transferable (except under the circumstances specified in Sub-Article 18(F)
below) license to use and reproduce the Deliverable Software Materials owned,
controlled, or
<PAGE>
42
developed by Contractor for the purpose of fulfilling Purchaser's obligations
under this Contract and using and operating the System (as upgraded by any
System Upgrades) supplied by Contractor with the right to employ third parties
(under appropriate written obligations respecting confidentiality) to assist
Purchaser in fulfilling its obligations under this Contract and in using and
operating the System (as upgraded by any System Upgrades), but with no right to
sublicense. Contractor grants to Purchaser a perpetual, royalty-free, non-
transferable (except under the circumstances specified in Sub-Article 18(F)
below) license to use and reproduce those portions of Deliverable Software owned
or controlled by third parties (but only to the extent of any rights which may
have been granted to Contractor by such third parties) for the purpose of
fulfilling Purchaser's obligations under this Contract and using and operating
the System (as upgraded by any System Upgrades) supplied by Contractor with the
right to employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using and operating the System (as upgraded by any System
Upgrades), but with no right to sublicense. These licenses shall be limited to
the right to use Deliverable Software that is not Project Intellectual Property
only with the particular type of computer equipment or substantially similar
replacement equipment for which such Deliverable Software was provided in the
System (as upgraded by any System Upgrades) as supplied by Contractor.
1. Confidentiality
Purchaser shall keep the Deliverable Software that is not Project
Intellectual Property confidential in accordance with Article 20
(Safeguarding of Information and Technology) and Article 21
(Export Control) to the extent that such Deliverable Software is
designated as Confidential Information by its owner and agrees to
use its best efforts to see that its employees, consultants, and
agents, and other users of such software, comply with the
provisions of this Contract. Purchaser also agrees to refrain
from taking any steps, such as reverse assembly or decompilation,
to derive a source code equivalent of any object code that is
furnished by Contractor, provided that Contractor continues to
maintain the Deliverable Software that is not Project
Intellectual Property in accordance with the terms of a support
and maintenance agreement to be entered into on such terms to be
agreed upon by the Parties, which terms shall in all events
contain assurances of support and maintenance at least as
favorable to Purchaser as those contained in the Operating,
Administration and Maintenance Agreement concerning AC-1 or is
willing and able to enter into an agreement to maintain the
Deliverable Software upon terms reasonably comparable to the
pertinent terms of the initial agreement to be entered into by
the Parties with regard to support and maintenance after the
expiration or termination thereof or does not go insolvent or
bankrupt to thereby trigger *. In the case of insolvency or
bankruptcy of Contractor, Purchaser shall limit any derivation of
a source code equivalent to that portion of the Deliverable
Software that is Contractor Intellectual Property. Purchaser
shall not under any circumstances take any steps to derive a
source code
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
43
equivalent from that portion of the Deliverable Software
comprising commercial, off-the-shelf software developed or
provided by third parties.
2. Backup Copies
Purchaser may make and retain two archive copies in executable
form of the Deliverable Software that is not Project Intellectual
Property. Any copy will contain the same copyright notice and
proprietary markings as are on the original software and shall be
subject to the same restrictions as the originals.
3. Termination of Software Licenses
In the event of (i) use by the Purchaser of Deliverable Software
that is not Project Intellectual Property in a manner other than
that permitted in Sub-Article 18(C) or (ii) any other material
breach of this Article 18 by Purchaser that in either event is
not cured within sixty (60) days from receipt by Purchaser of
written notice of such impermissible use or breach, Contractor,
at its option, may terminate the rights granted to Purchaser
pursuant to this Article, upon written notice to Purchaser, which
termination shall take effect no sooner than sixty (60) days
following receipt by Purchaser of a subsequent written notice of
termination. Upon termination, Purchaser shall either return or
destroy, at Contractor's option, all copies of Deliverable
Software that is not Project Intellectual Property furnished
under this Contract.
4. Indemnification
In the event of (i) use by Purchaser of Deliverable Software that
is not Project Intellectual Property furnished hereunder other
than that permitted in Sub-Article 18(C) or (ii) any other
material breach of this Article 18 by Purchaser, the Purchaser
shall indemnify and hold Contractor harmless from any and all
third party claims resulting therefrom whether arising from a
defect in the software or otherwise.
D. Trademarks, Tradenames, etc.
No rights are granted herein to either Party to use any identification
(such as, but not limited to tradenames, trademarks, service marks or symbols,
and abbreviations, contractions, or simulations thereof) owned or used by the
other Party or its parent company or its affiliates to identify itself or its
affiliates or any of its products or services. Each Party agrees that it will
not, without the prior written permission of the other Party, use such
identification in advertising, publicity, packaging, labeling, or in any other
manner to identify itself or any of its products, services, or organizations, or
represent directly or indirectly that any product, service, or organization of
it is a product, service, or organization of the other Party or its affiliates,
or that any product or service of a Party is made in accordance with or utilizes
any intellectual property of the other Party or its affiliates.
<PAGE>
44
E. DISCLAIMER, LIMITATION OF LIABILITY
CONTRACTOR REPRESENTS THAT ANY INFORMATION OR INTELLECTUAL PROPERTY
FURNISHED IN CONNECTION WITH THIS CONTRACT SHALL BE TRUE AND ACCURATE TO THE
BEST OF ITS KNOWLEDGE AND BELIEF, BUT CONTRACTOR SHALL NOT BE HELD TO ANY
LIABILITY FOR UNINTENTIONAL ERRORS OR OMISSIONS THEREIN. EXCEPT AS EXPRESSLY
PROVIDED, CONTRACTOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSLY OR
IMPLIEDLY. BY WAY OF EXAMPLE, BUT NOT OF LIMITATION, CONTRACTOR AND ITS PARENT
COMPANY AND AFFILIATES MAKES NO REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF INFORMATION OR
INTELLECTUAL PROPERTY DISCLOSED OR PROVIDED HEREUNDER WILL NOT INFRINGE ANY
PATENT OR OTHER INTELLECTUAL PROPERTY RIGHT OF A THIRD PARTY. EXCEPT AS
OTHERWISE PROVIDED IN THIS CONTRACT, CONTRACTOR AND ITS PARENT AND AFFILIATES
SHALL NOT BE HELD TO ANY LIABILITY WITH RESPECT TO ANY CLAIM BY PURCHASER OR ANY
THIRD PARTY CLAIM AGAINST PURCHASER ON ACCOUNT OF, OR ARISING FROM, PURCHASER'S
USE OF INFORMATION OR INTELLECTUAL PROPERTY DISCLOSED OR PROVIDED BY CONTRACTOR.
F. Transferability
The licenses granted to Purchaser by Contractor in the Deliverable
Technical Materials and Deliverable Software are personal and non-transferable,
except that Purchaser may assign or transfer such licenses to an affiliated
entity under common control with the Purchaser or to any entity succeeding to
Purchaser's entire interest in the System (as upgraded by any System Upgrades)
as a result of reorganization or restructuring of the Purchaser or in the event
of a change of control of the Purchaser.
G. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
45
*
ARTICLE 19 INFRINGEMENT
- -----------------------
A. The Contractor agrees to defend or settle at its own expense all suits
for infringement of any patent, copyright, trademark or other form of
intellectual property right in any country of the world, for the use and
operation of the System (as upgraded by any System Upgrades) as supplied by
Contractor and for any component part thereof or material or equipment used
therein (or the manufacture of any material or the normal use thereof) provided
by the Contractor or on its behalf pursuant to this Contract and will hold the
Purchaser harmless from all expense of defending any such suit and all payments
for final judgment assessed on account of such infringement, except such
infringement or claim arising from:
1. The Contractor's adherence to the Purchaser's directions in the
design and configuration of the System (as upgraded by any System
Upgrades) or to use materials, parts or equipment of the
Purchaser's selection; or
2. Such material, parts or equipment furnished to the Contractor by
the Purchaser, other than in each case, items of the Contractor's
design or selection or the same as any of the Contractor's
commercial merchandise or in processes or machines of the
Contractor's design or selection used in the manufacture of such
standard products or parts; or
3. Use of the System (as upgraded by any System Upgrades) or the
materials, parts or equipment furnished by Contractor other than
for the purposes indicated in, or reasonably to be inferred from,
this Contract or in conjunction with other products; or
4. Modification of the System (as upgraded by any System Upgrades)
or the materials, parts or equipment furnished by the Contractor,
or connection of the System to another system by any person or
entity other than Contractor, without prior expressed written
approval by Contractor.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
46
B. The Purchaser will, at its own expense, defend all suits against the
Contractor for such excepted infringement and hold the Contractor harmless from
all expense of defending any such suit and from all payments by final judgment
assessed against the Contractor on account of such excepted infringement.
C. The Contractor and the Purchaser agree to give each other prompt
written notice of claims and suits for infringement, full opportunity and
authority to assume the sole defense, including appeals and, upon request and at
its own expense, the other agrees to furnish all information and assistance
available to it for such defense.
D. If all or any portion of the System (as upgraded by any System
Upgrades) or any material, part or equipment provided by the Contractor or on
its behalf is held to constitute an infringement (excluding such excepted
infringements specified in Sub-Article 19(A)) and is subject to an injunction
restraining its use or any order providing for its delivery up to or
destruction, or if in respect of any such claim of infringement the Contractor
deems it advisable to do so, the Contractor shall at its own expense either:
1. Procure for the Purchaser the right to retain and continue to use
the System, the affected portion thereof, or any such material,
part or equipment without interruption for the Purchaser;
2. Replace or modify the System, the affected portion thereof, or
any material, part or equipment so that it becomes noninfringing
while continuing to meet the Performance Requirements or
3. If the remedies specified in Sub-Articles 19(D)(1) an 19(D)(2)
are not feasible, refund to the Purchaser the full purchase price
paid for the System, the affected portion thereof, or any
material, part or equipment found to be infringing.
E. In no event shall the Purchaser make any admission or settle any claim
in relation with any claim for infringement without Contractor's consent.
ARTICLE 20 SAFEGUARDING OF INFORMATION AND TECHNOLOGY
- ------------------------------------------------------
A. In performance of this Contract, it may be mutually advantageous to
the Parties hereto to share certain specifications, designs, plans, drawings,
software, market research or operating data, prototypes, or other business,
financial, and or/technical information related to products, services, or
systems which are proprietary to the disclosing Party or its affiliates (and in
the case of Contractor, Contractor's parent company) (together with this
Contract and related documents, "Information"). The Parties recognize and agree
that Information includes information that was supplied in contemplation hereof
prior to execution of this Contract, and further agree that Information includes
information in both tangible and intangible form.
B. Unless such Information was previously known to the Party receiving
such Information free of any obligation to keep it confidential, or such
Information has been or is
<PAGE>
47
subsequently made public through other than unauthorized disclosure by the
receiving Party or is independently developed by the receiving Party (as
documented by the records of the receiving Party), it shall be kept confidential
by the Party receiving such Information, shall be used only in the performance
of this Contract, and may not be used for any other purposes except upon such
terms as may be agreed upon in writing by the Party owning such Information. The
receiving Party may disclose such Information to other persons, upon the
furnishing Party's prior written authorization, but solely to perform acts which
this Article expressly authorizes the receiving Party to perform itself and
further provided such other person agrees in writing (a copy of which writing
will be provided to the furnishing Party at its request) to the same conditions
respecting disclosure and use of Information contained in this Article and to
any other reasonable conditions requested by the furnishing Party. Nothing
herein shall prevent a Party from disclosing Information (a) upon the order of
any court or administrative agency, (b) upon the request or demand of, or
pursuant to any regulation of, any regulatory agency or authority, (c) to the
extent reasonably required in connection with the exercise of any remedy
hereunder and (d) to a Party's legal counsel or independent auditors.
C. The Purchaser may disclose Information to its lenders and their
representatives in connection with obtaining financing for the System, provided
that each such lender or third party enters into a confidentiality agreement
containing terms and conditions similar to those in this Contract. Any such
disclosure of Information shall be subject to the restrictions in Sub-Article
20(B).
ARTICLE 21 EXPORT CONTROL
- -------------------------
The Parties acknowledge that any products, software, and technical
information (including, but not limited to, services and training) provided by
either Party under this Contract are or may be subject to export laws and
regulations of the United States and destination countries and any use or
transfer of such products, software and technical information must be authorized
under those Laws. The Parties agree that they will not use, distribute, transfer
or transmit the products, software or technical information (even if
incorporated into other products) except in compliance with export Laws. If
requested by either Party, the other Party agrees to sign all necessary export-
related documents as may be required to comply with export Laws.
ARTICLE 22 LIQUIDATED DAMAGES
- -----------------------------
A. If the System is not Ready for Commercial Acceptance or Provisional
Acceptance by the Scheduled System RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the
Contractor;
<PAGE>
48
then Contractor shall pay to Purchaser for each day of delay, for up to 200
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Contract Price for the System less
that portion of the Initial Contract Price allocable to Segment S, provided that
prior to the Scheduled System RFS Date, the Date of Provisional Acceptance for
Segment S has occurred.
B. If Segment S is not Ready for Commercial Acceptance or Provisional
Acceptance within fifteen (15) days (the "Grace Period") following the Scheduled
Segment S RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations)
2. Article 17 (Force Majeure); or
3. Other Arrangements as agreed between the Purchaser and Contractor;
then Contractor shall pay to Purchaser for each day of delay following the
expiration of the Grace Period, for up to 200 days, by way of pre-estimated and
liquidated damages for the delay and not as penalty, an amount equal to * of
that portion of the Initial Contract Price of the System allocable to Segment S.
C. If a System Upgrade is not Ready for Commercial Acceptance or
Provisional Acceptance by the Scheduled Upgrade Date, as it may have been
extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the
Contractor;
then Contractor shall pay to Purchaser for each day of delay, for up to 90 days,
by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Upgrade Price for such System
Upgrade.
ARTICLE 23 LIMITATION OF LIABILITY/INDEMNIFICATION
- ---------------------------------------------------
A. NOTWITHSTANDING ANY OTHER PROVISION IN THIS CONTRACT, AND IRRESPECTIVE
OF ANY FAULT, NEGLIGENCE OR GROSS NEGLIGENCE OF ANY KIND, IN NO EVENT SHALL
EITHER PARTY OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE
FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, RELIANCE OR SPECIAL (INCLUDING
PUNITIVE) DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUE, LOSS OF
BUSINESS OPPORTUNITY OR THE COSTS ASSOCIATED WITH THE USE OF RESTORATION
FACILITIES RESULTING FROM ITS FAILURE TO PERFORM PURSUANT TO THE TERMS AND
CONDITIONS OF THIS CONTRACT.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
49
B. EXCEPT AS SET FORTH BELOW IN THE LAST TWO SENTENCES OF THIS SUB-
ARTICLE 23(B), THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY, WHETHER IN TORT,
CONTRACT OR OTHERWISE, EXCEPT FOR CLAIMS RELATING TO SYSTEM UPGRADES, SHALL NOT
EXCEED * OF THE CONTRACT PRICE. THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY FOR
CLAIMS RELATING TO SYSTEM UPGRADES (IF CONTRACTOR CAN PROVE THAT THE SYSTEM WAS
DESIGNED WITH SUFFICIENT TRANSMISSION MARGIN AND THUS SUCH CLAIMS DO NOT ARISE
UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B)) SHALL NOT EXCEED * OF THE APPLICABLE
UPGRADE PRICE. THE FOREGOING LIMITATION SHALL NOT APPLY TO CLAIMS UNDER SUB-
ARTICLES 19(A) AND 23(C). IF CONTRACTOR CANNOT PROVE THAT THE SYSTEM WAS
DESIGNED WITH SUFFICIENT TRANSMISSION MARGIN FOR A SYSTEM UPGRADE, THE
CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY FOR CLAIMS ARISING UNDER CLAUSE (ii) OF
SUB-ARTICLE 10(B) SHALL NOT EXCEED *.
C. Contractor, at its expense, shall defend, indemnify and hold harmless
Purchaser, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, prior to risk of loss passing to Purchaser,
the operation and maintenance of the System, to the extent such losses were
caused by the negligence or willful misconduct of the Contractor, its
subcontractors, employees or agents. The defense, indemnification and save
harmless obligation is specifically conditioned on the following: (i) Purchaser
providing prompt notification in writing of any such claim or demand when it
obtains Actual Knowledge thereof, unless such failure shall not have materially
impaired Contractor's ability to defend against such claim; (ii) Contractor
having control of the defense of any such action, claim or demand and of all
negotiations for its settlement or compromise; and (iii) Purchaser cooperating,
at Contractor's expense, in a reasonable way to facilitate the defense of such
claim or demand or the negotiations for its settlement.
D. Purchaser, at its expense, shall defend, indemnify and hold harmless
Contractor, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, after risk of loss passes to Purchaser, the
operation or maintenance of the System, to the extent such losses were caused by
the negligence or willful misconduct of the Purchaser, its subcontractors,
employees or agents (other than Contractor). The defense, indemnification and
save harmless obligation is specifically conditioned on the following (i)
Contractor providing prompt notification in writing of any such claim or demand
when it obtains Actual Knowledge thereof, unless such failure shall not have
materially impaired Purchaser's ability to defend against such claim; (ii)
Purchaser having control of the defense of any such action, claim or demand and
of all negotiations for its settlement or compromise; and (iii) Contractor
cooperating, at Purchaser's expense, in a reasonable way to facilitate the
defense of such claim or demand or the negotiations for its settlement.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
50
ARTICLE 24 COUNTERPARTS
- ------------------------
This Contract may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
ARTICLE 25 DESIGN AND PERFORMANCE RESPONSIBILITY
- -------------------------------------------------
A. The Contractor shall be solely responsible for the design of and for
all details of the System and the System Upgrades and for the adequacy thereof.
B. The Contractor's responsibility for design of the System and the
System Upgrades shall not in any way be diminished nor shall the Contractor's
design approach be restricted or limited by the Purchaser's acceptance of the
Contractor's guidance or recommendations as to engineering standards and design
specifications, or by the Purchaser's suggestions or recommendations on any
aspect of the design.
C. Purchaser shall use reasonable efforts in assisting the Contractor to
obtain in a timely manner accurate information required for the Contractor to
perform the Work and the Upgrade Work, which Contractor cannot expeditiously and
cost-effectively obtain from any source other than the Purchaser.
ARTICLE 26 PRODUCT CHANGES
- ---------------------------
The Contractor may at any time make changes to the System or System
Upgrades furnished pursuant to this Contract, or modify the drawings and
published specifications relating thereto, or substitute equipment of later
design, provided the changes, modifications, or substitutions under normal and
proper use do not impact upon the form, fit, expected life or function of the
System as provided in the System Performance Requirements.
ARTICLE 27 RISK AND INSURANCE
- ------------------------------
A. The Contractor shall at all times maintain, after the date which is 30
days from the date hereof, and upon request, the Contractor shall furnish the
Purchaser with certificates, or other reasonable evidence, that Contractor
maintains, the following insurance or has adequate self-insurance (other than as
required to comply with any statutory insurance requirements); provided, that
--------
the following insurance coverages may be combined or in different form so long
as Contractor maintains insurance consistent with the following requirements:
1. Workmen's Compensation and Employers Liability Insurance (with a
limit of not less than * for any one incident or series of
incidents arising from one event or such higher limit as may be
required by the laws of any jurisdiction) covering the officers
and employees of the Contractor for all compensation or other
benefits required of the Contractor by the laws of any nation or
political sub-division thereof to
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
51
which the Contractor and its operations under this Contract are
subject in respect of injury of death of any such employee.
2. Comprehensive General Public Liability Insurance, covering
personal injury and/or property damage, with combined single
limits of not less than * for claims of injury or death of any
persons or loss of or damage to property resulting from any one
accident. This insurance to be extended to provide Marine
Comprehensive General Liability including liabilities arising out
of the operation of subsea equipment.
3. Comprehensive Automobile Liability insurance covering all
vehicles and automotive equipment owned, hired, or in the custody
and control of Contractor and complying with all applicable
legislation with limits not less than * combined single limit for
the death or injury of any person per accident and not less than
* for the loss or damage to property resulting from any one
accident.
4. All Risk Insurance in respect of all property of Contractor, its
respective officers, agents and employees connected with the
performance of the Work against all loss or damage from whatever
cause.
5. Conventional Marine Hull and Machinery Insurance including War
Risks or any vessel(s) owned, operated or chartered by the
Contractor, in an amount equal to the full value thereof. In the
event of damage to or loss of such vessel(s), the Contractor
agrees to look to its insurance carrier for payment of such loss
or damage and hereby releases the Purchaser and waives any claims
against the Purchaser for the loss of such vessel(s) unless due
to the negligence of Purchaser, its agent or representatives
(other than Contractor).
6. All vessels are to be entered in a Mutual Protection and
Indemnity Association with a full and unlimited entry or to have
Marine Protection and Indemnity Insurance with a limit of not
less than * including coverage far illness, injury or death of
crew members (unless covered under Workmen's Compensation
Insurance), Contractual Liability Coverage, Collision and Tower's
Liability, Removal of Wreck and Debris and Third Party Liability.
7. Excess Liability Coverage over that required in Sub-Articles
27(A)(1), (2) and (3) with minimum limits of * for any one
accident or occurrence.
8. Specialist Operations Insurance with a limit of not less than
* as per London Wording 1993 or equivalent.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
52
9. Transit Insurance including inland, air, and Marine Cargo
coverage including War (other than on land) in an amount
sufficient to cover the expected highest value of any one
shipment. Coverage to include Institute Cargo Clauses, all risks
1.1.63, Institute War Clauses, London Malicious Damage Clause,
and Institute Strikes Riots and Civil Commotion Clauses or their
equivalent.
10. Marine Cargo or equivalent is required to protect, for full cost,
against all risks of physical loss or damage to the plant,
equipment and supplies to be included in the System (other than
War Risks) beginning with when each such item is ready for
shipping and ending when the submersible plant and equipment are
placed overside the cable laying vessel and when the equipment
and supplies are delivered to the cable stations, central
offices, or network operation center. The coverage continues to
cover cable lying on the seabed.
11. Sea Bed or equivalent coverage (including an Old Mines and
Torpedoes Clause, including other derelict weapons of War) is
required to protect, for full cost, against all risks of physical
loss or damage to the submersible plant and equipment described
in Sub-Article 27(A)(10) above. See last paragraph.
12. War Risks or equivalent coverage is required to protect against
damage to, seizure by and/or destruction of the System by means
of war, piracy, takings at sea and other warlike operations until
discharge of the submersible plant and equipment. For the
purposes of this Article "discharge of the submersible plant and
equipment" shall be deemed to take place when the plant and
equipment reaches the sea bottom, as far as the submersible plant
and equipment is concerned, and when the plant is off-loaded in
the respective terminal country, as far as non-submersible plant
is concerned.
13. Pollution Liability (EIL) insurance for installation operations
and as arising from the use of vessels in an amount not less than
* or such higher sum as may be required to meet any legal
requirement in area of operations.
The Comprehensive General Liability Insurance required pursuant to
Sub-Article 27(A)(2) above, shall include Contractual Liability Coverage which
shall specifically apply to the obligations assumed by the Contractor under the
Terms and Conditions of this Contract.
B. 1. All the foregoing insurances shall be effected with a
creditworthy insurer and shall be endorsed to provide Purchaser
with at least thirty (30) days prior written notice of
cancellation or material change.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
53
2. All the foregoing insurances shall name Purchaser as an
additional insured as to operations hereunder, in which event the
Contractor's insurance shall be primary to any insurance carried
by Purchaser.
3. The limits specified herein are minimum requirements and shall
not be construed in any way as limits of liability or as
constituting acceptance by Purchaser of such responsibility for
financial liabilities in excess of such limits. The Contractor
shall bear all deductibles applicable to any insurance.
4. If it is judicially determined that the monetary limits of
insurance required hereunder or of any indemnity voluntarily
assumed under the Terms and Conditions of this Contact which the
Contractor agrees will be supported either by available liability
insurance or voluntarily self-insured, in part or whole, exceeds
the maximum limits permitted under applicable law, it is agreed
that said insurance requirements or indemnity shall automatically
be amended to conform to the maximum monetary limits permitted
under such law.
5. Contractor shall take reasonable steps to provide that any sub-
contractor engaged by it has in effect or will effect Employer's
Liability, Workmen's Compensation, Hull and Machinery and
Protection and Indemnity insurances and any other insurances
required by law, together with such other insurances as the
Contractor may consider necessary.
6. If the Contractor fails to effect or keep in force any of the
insurances required under this Contract, Purchaser may effect and
keep in force any such insurances and pay such premiums as may be
necessary for that purpose and from time to time deduct the
amount so paid by Purchaser from any money due or which may
become due to the Contractor hereunder or recover the same as a
debt due from the Contractor, provided that Purchaser is not in
Default.
7. Each Party shall give the other prompt notification of any claim
with respect to any of the insurances to be provided hereunder,
accompanied by full details giving rise to such claim. Each Party
shall afford the other all such assistance as may be required for
the preparation and negotiation of insurance claims.
8. Contractor shall report to Purchaser as soon as practicable all
accidents or occurrences resulting in injuries to Contractor's
employees or third parties, or damage to property of third
parties, arising out of our during the course of services for
Purchaser by Contractor.
C. The Contractor may organize such levels of deductibles, excesses and
self-insurance as it considers appropriate and which are within prudent industry
standards.
<PAGE>
54
D. The insurance requirements of this Article 27 will remain in place
with respect to each Segment, the System or System Upgrade, as the case may be,
and will not in any way be diminished or reduced until the transfer of title and
risk of loss shall have passed to Purchaser of such Segment, System or System
Upgrade, as the case may be, even in the event of the sale of substantially all
the assets of the Contractor by way of a merger, consolidation or sale of
assets.
ARTICLE 28 PLANT AND WORK RULES
- -------------------------------
Employees and agents of each Party shall, while on the premises of the
other or its subcontractors, comply with all plant rules and governmental
regulations.
ARTICLE 29 RIGHT OF ACCESS
- --------------------------
A. The Contractor shall, upon reasonable notice of not less than ten (10)
working days, during normal business hours and in a manner to avoid any
disruption of the work on the premises including performance of other contracts,
permit access by the Purchaser or its Quality Assurance (QA) Representative
(other than a competitor of the Contractor or any affiliate of a competitor) to
the Contractor's premises where the work will be performed, and will use its
best endeavors to secure rights of access to premises of its subcontractors
where the work will be performed, having subcontracts or orders in the amount
of, or equivalent to * or more, in accordance with the Contractor's contractual
arrangements with its subcontractors, and allow the Purchaser or its QA
Representative to:
1. audit the Contractor's quality assurance system and its
application to the Work and Upgrade Work, including manufacture,
development and raw materials and components provision;
2. inspect all parts of the Work and Upgrade Work to the extent
reasonably practicable to ensure that their quality meets the
Technical Specification.
This right of access shall allow for the Purchaser and/or its QA representative
(up to a total of three (3) persons). The Purchaser shall provide the name(s),
nationality and title of each such visitor prior to the visit. The Contractor
shall not be responsible for any costs, including travel and accommodation
costs, of the Purchaser or its representatives.
B. The right of access shall also allow for the Purchaser and/or
representatives (up to a total of three (3) persons) to be aboard the vessel(s)
during installation and the route survey, provided accommodations are available.
The Contractor shall not be responsible for any costs of the Purchaser or its
representatives, except for living expenses on board the vessel which includes
one (1) daily telex or fax, all other travel and accommodation costs for the
Purchaser or its QA Representatives shall be for the account of the Purchaser.
C. Any right of access shall not be construed as creating any obligation
requiring the Contractor or its subcontractors to disclose trade secrets or
proprietary information.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
55
Further, such right of access may be conditioned on the execution of a
confidentiality and non-disclosure agreement and/or subject to routine building
or security rules, regulations or procedures.
D. Any exercise of any right of the Purchaser hereunder to inspect,
audit, visit or to serve any part of the Work or System Upgrades shall not be
construed as limiting any obligation of Contractor hereunder, including without
limitation, under Articles 1 and 10 hereof.
E. Contractor will have access to the System as necessary to accomplish
its responsibilities under this Contract and in order to make repairs and to
make System Upgrades. Contractor will provide reasonable notice of its need for
access and will take reasonable steps to minimize disruptions to the operation
of the System.
F. Contractor shall give the Purchaser reasonable prior written notice of
each monthly project management review meeting with respect to the status of the
construction and/or installation of the System, and Purchaser's representatives
(up to three such representatives) and the Independent Engineer shall at their
cost be permitted to attend and participate in such meetings.
ARTICLE 30 QUALITY ASSURANCE
- ----------------------------
All equipment, material and supplies provided under this Contract
shall be inspected and tested by representatives designated by the Contractor to
the extent reasonably practical to assure that the quality of the equipment,
materials and supplies being incorporated is sufficient to realize the System
Performance Requirements. The inspection and test program established for such
equipment, materials and supplies shall be consistent with commercial practices
normally employed by the Contractor in the construction of submarine cable
systems. The foregoing shall not be construed as limiting any of the
Contractor's obligations under this Contract.
ARTICLE 31 DOCUMENTATION
- ------------------------
The Contractor shall furnish to the Purchaser one copy of the standard
documentation in the English language for the System provided hereunder. Such
documentation shall be provided prior to the Acceptance testing. Additional
copies of the documentation are available at additional cost.
ARTICLE 32 TRAINING
- -------------------
The Contractor will provide, as part of the Initial Contract Price,
until the Date of Final Acceptance, any and all training, as more particularly
described in the training section of Appendix 6, necessary for the operation and
maintenance of the System.
<PAGE>
56
ARTICLE 33 SETTLEMENT OF DISPUTES/ARBITRATION/LITIGATION
- --------------------------------------------------------
A. The Parties shall endeavor to settle amicably by mutual discussions
any disputes, differences, or claims whatsoever related to this Contract.
B. Failing such amicable settlement, any controversy, claim or dispute
arising under or relating to this Contract, including the existence, validity,
interpretation, performance, termination or breach thereof, shall, if both
Parties agree in writing thereto, finally be settled by arbitration in
accordance with the International Arbitration Rules of the American Arbitration
Association ("AAA"). Unless the Parties agree to a sole arbitrator, there shall
be three (3) arbitrators, with each Party appointing one arbitrator, who
collectively will select a third. The language of the arbitration shall be
English. The Arbitrator will not have authority to award punitive damages to
either Party. Each Party shall bear its own expenses, but the Parties shall
share equally the fees and expenses of the Arbitration Tribunal and the AAA.
This Contract shall be enforceable, and any arbitration award shall be final,
and judgment thereon may be entered in any court of competent jurisdiction. In
any such arbitration, the decision in any prior arbitration under this Contract
shall not be deemed conclusive of the rights as among themselves of the Parties
hereunder. The arbitration shall be held in New York, New York, U.S.A.
C. 1. If both Parties do not agree to arbitration pursuant to paragraph
(B) above, then either Party may institute suit in the Supreme
Court of the State of New York sitting in New York County or the
United States District Court of the Southern District of New
York, or any appellate court from any thereof.
2. Each Party hereby irrevocably and unconditionally submits to the
non-exclusive jurisdiction of any New York State or Federal court
sitting in The City of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating
to this Contract, and each Party hereby irrevocably and
unconditionally agrees that all claims in respect of such action
or proceeding may be heard and determined in such New York State
court or, to the extent permitted by law, in such Federal court.
Each Party hereby irrevocably and unconditionally waives, to the
fullest extent it may effectively do so, any defense of an
inconvenient forum to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on
account of the place of residence or domicile of either Party.
The Contractor hereby irrevocably and unconditionally appoints CT
Corporation System (the "New York Process Agent"), with an office
----------------------
on the date hereof at 1633 Broadway, New York, New York, as its
agent to receive on behalf of the Contractor and its respective
property service of copies of the summons and complaint and any
other process which may be served in any such action or
proceeding in any such New York State or Federal court and agrees
promptly to appoint a successor New York Process Agent in The
City of New York (which successor Process Agent shall accept such
<PAGE>
57
appointment in a writing prior to the termination for any reason
of the appointment of the initial New York Process Agent). In any
such action or proceeding in such New York State or Federal court
sitting in The City of New York, such service may be made on the
Contractor by delivering a copy of such process to the Contractor
in care of the appropriate Process Agent at such Process Agent's
above address and by depositing a copy of such process in the
mails by certified or registered air mail, addressed to the
Contractor at its address referred to in Article 35 of this
Contract (such service to be effective upon such receipt by the
appropriate Process Agent and the depositing of such process in
the mails as aforesaid). The Contractor hereby irrevocably and
unconditionally authorizes and directs such Process Agent to
accept such service on its behalf. As an alternate method of
service, the Contractor also irrevocably and unconditionally
consents to the service of any and all process in any such action
or proceeding in such New York State or Federal court sitting in
The City of New York by mailing of copies of such process to the
Contractor, as the case may be, by certified or registered air
mail at its address referred to in Article 35 of this Contract.
The Contractor agrees that, to the fullest extent permitted by
applicable law, a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
3. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
--------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.
D. THE OBLIGATIONS OF EACH PARTY IN RESPECT OF THIS CONTRACT DUE TO ANY
PARTY SHALL, NOTWITHSTANDING ANY JUDGMENT IN A CURRENCY (THE "JUDGMENT
--------
CURRENCY") OTHER THAN DOLLARS, BE DISCHARGED ONLY TO THE EXTENT THAT ON THE
- --------
BUSINESS DAY FOLLOWING RECEIPT BY SUCH PARTY OF ANY SUM ADJUDGED TO BE SO DUE IN
THE JUDGMENT CURRENCY SUCH PARTY MAY IN ACCORDANCE WITH NORMAL
<PAGE>
58
BANKING PROCEDURES PURCHASE DOLLARS WITH THE JUDGMENT CURRENCY; IF THE AMOUNT OF
DOLLARS SO PURCHASED IS LESS THAN THE SUM ORIGINALLY DUE TO SUCH PARTY IN
DOLLARS, EACH PARTY AGREES, AS A SEPARATE OBLIGATION AND NOTWITHSTANDING ANY
SUCH JUDGMENT, TO INDEMNIFY SUCH PARTY AGAINST SUCH LOSS, AND IF THE AMOUNT OF
DOLLARS SO PURCHASED EXCEEDS THE SUM ORIGINALLY DUE TO ANY PARTY TO THIS
CONTRACT, EACH PARTY AGREES TO REMIT TO SUCH PARTY, SUCH EXCESS.
ARTICLE 34 APPLICABLE LAW
- -------------------------
THIS CONTRACT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES, EXCLUDING ITS CONFLICTS OF LAW
PROVISIONS AND EXCLUDING THE CONVENTION FOR THE INTERNATIONAL SALE OF GOODS.
ARTICLE 35 NOTICES
- ------------------
A. Any notices, consent, approval, or other communication pursuant to
this Contract shall be in writing, in the English language, and shall be deemed
to be duly given or served on a Party if sent to the Party at the address
stipulated in Sub-Article 35(B) and if sent by any one of the following means
only:
1. Sent by hand: Such communication shall be deemed to have been
received on the day of delivery provided receipt of delivery is
obtained.
2. Sent by facsimile: Such communication shall be deemed to have
been received, under normal service conditions, twenty-four (24)
hours following the time of dispatch or on confirmation by the
receiving Party, whichever is earlier.
3. Sent by registered or certified mail: Such communication shall be
deemed to have been received, under normal service conditions, on
the day it was received or on the tenth day after it was
dispatched, whichever is earlier.
B. For purposes of this Article, the names, addresses and fax numbers of
the Parties are as detailed below. Any change to the name, address, and
facsimile numbers may be made at any time by giving thirty (30) days prior
written notice.
Tyco Submarine Systems Ltd.
340 Mt. Kemble Avenue
Morristown, New Jersey 07960
Tel: 973-326-3500
Fax: 973-326-2711
<PAGE>
59
GCT Pacific Holdings Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Fax: 441-296-6749/8606
Attn: Cameron Adderly
C. All provisions in this Contract regarding notices, consents, approvals
and other communications to and from, and other actions taken on behalf of, the
Contractor are subject to the provisions of Article 42 hereof.
ARTICLE 36 PUBLICITY AND CONFIDENTIALITY
- ----------------------------------------
A. No information relating to this Contract shall be released by either
Party to any newspaper, magazine, journal or other written, oral or visual
medium without the prior written approval of an authorized representative of the
other Party; provided that, subject to Article 20 (Safeguarding of Information
--------
and Technology) and the following Sub-Article, this Article shall not restrict
either Party from (i) responding to customary press inquiries or otherwise
making public or private statements in the normal course of business, so long as
consistent with a mutually agreed press-release and (ii) assisting in the
obtaining of financing in accordance with Sub-Article 37(C), including the
publication of a financial tombstone.
B. This Contract and any non-public information, written or oral, with
respect to this Contract, "Confidential Information", will be kept confidential
and shall not be disclosed, in whole or in part, to any person other than
affiliates, officers, directors, employees, agents or representatives of a Party
(collectively, "Representatives") who need to know such Confidential Information
for the purpose of negotiating and executing this Contract. Each Party agrees to
inform each of its Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential Information in
accordance with the terms of this Article. Nothing herein shall prevent a Party
from disclosing Confidential Information (a) upon the order of any court or
administrative agency, (b) upon the request or demand of, or pursuant to any
regulation of, any regulatory agency or authority, (c) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (d) to a
Party's legal counsel or independent auditors, (e) prospective lenders to the
Purchaser or Holding Company, and (f) to any actual or proposed assignee of all
or part of its rights hereunder provided that such actual or proposed assignee
agrees in writing to be bound by the provisions of this Article.
ARTICLE 37 ASSIGNMENT; SUBCONTRACTORS
- -------------------------------------
A. Except as provided in this Article, neither Party shall assign this
Contract or any right or interest under this Contract, nor delegate any work or
obligation to be performed under this Contract ("Assignment"), without the other
Party's prior written consent which shall not be unreasonably withheld (it being
understood that it shall be deemed to be reasonable to withhold consent to the
assignment of this Contract or any rights, interest or
<PAGE>
60
obligations hereunder to a competitor of Contractor or an affiliate of a
competitor or uncreditworthy party). Nothing herein shall preclude a Party from
employing a subcontractor in carrying out its obligations under this Contract. A
Party's use of such subcontractor shall not release the Party from its
obligations or liability (including warranties) under this Contract. If a
proposed subcontractor of major equipment (i.e., equipment listed on Exhibit E)
is not listed on Exhibit E hereto, Contractor shall obtain approval thereof from
Purchaser, which approval shall not be unreasonably withheld. Purchaser and
Contractor shall agree on the form and substance of Exhibit E by May 1, 1998.
B. The Contractor has the right to assign all of its rights under this
Contract or to delegate all of its duties hereunder at any time without the
Purchaser's consent to any successor to substantially all the assets of the
Contractor by way of a merger, consolidation or sale of assets provided that in
the case of any assignment or delegation pursuant to this Sub-Article 37(B) such
assignee shall assume in writing all warranties, representations and obligations
of Contractor under this Contract. The Contractor shall give the Purchaser
written notice 30 days prior to the assignment.
C. The Parties acknowledge that Purchaser may finance construction of the
System on a "project finance" basis and that in connection therewith the
financing parties will require that such financing be secured by certain assets
of Purchaser (including but not limited to this Contract). The Purchaser may, in
connection with any such project financing grant a collateral assignment of the
System and/or its rights and obligations under this Contract to any such
financing parties, and in connection therewith, the Contractor will execute and
deliver a Consent, substantially in the form of Exhibit B hereto; provided that
Contractor agrees to make such changes or additions to such form as may be
reasonably requested by such financing parties, and Purchaser, and such
financing parties, may transfer in accordance with such Consent. Contractor will
also deliver an Opinion in the form of Exhibit C hereto, * with respect to the
Guaranty, to Purchaser and such financing parties and such other documents as
are reasonably requested by such financing parties.
D. The Purchaser has the right to assign all of its rights and delegate
all of its duties under this Contract to any other entity to whom all of
Purchaser's rights and interests in the System have been transferred. Purchaser
also has the right (i) to assign all of its rights hereunder with respect to any
particular Landing Assets to any Transferee, (ii) to assign Permits with respect
to such Landing Assets, or have Permits with respect to such Landing Assets
issued in the name of, such Transferee and (iii) to transfer such Landing Assets
or have such Landing Assets transferred directly to, such Transferee; provided
--------
that such Transferee shall execute a supplement to this Contract whereby it
becomes jointly and severally liable, together with Purchaser, for all of
Purchaser's obligations under this Contract. "Landing Assets" means, with
respect to each jurisdiction where a portion of the System is located, all or
part of such portion of the System located therein. It is understood that the
Purchaser, at its option, may assign and transfer rights with respect to Landing
Assets in different jurisdictions to different Transferees. Purchaser shall not
transfer any of its rights under this Contract or the System except in
accordance with the foregoing. Any assignment or transfer not expressly
permitted by Sub-Articles 37(D) or 37(E) shall be of no force and
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
61
effect. Any assignment or transfer which results in any increase in costs or any
loss, damage, delay or failure of performance shall constitute a Force Majeure,
and, without limiting the applicability of Article 17 (Force Majeure), Purchaser
shall be responsible for any increase in costs resulting therefrom.
E. GCT may assign all its right, title and interest hereunder, including
all rights, obligations and liabilities, to a subsidiary formed by GCT and
certain other shareholders.
ARTICLE 38 RELATIONSHIP OF THE PARTIES
- --------------------------------------
All work performed by a Party under this Contract shall be performed
as an independent contractor and not as an agent of the other and no persons
furnished by a Party shall be considered the employees or agents of the other.
Each Party shall be responsible for its employees' compliance with all Laws
while performing under this Contract. This Contract shall not form a joint
venture or partnership between the Parties.
ARTICLE 39 SUCCESSORS BOUND
- ---------------------------
This Contract shall be binding on the Contractor and the Purchaser and
their respective successors and permitted assigns.
ARTICLE 40 ARTICLE CAPTIONS
- ---------------------------
The captions of the Articles do not form part of this Contract and
shall not have any effect on the interpretation thereof.
ARTICLE 41 SEVERABILITY
- -----------------------
If any of the provisions of this Contract shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Contract, but rather the entire Contract shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions and the rights and obligations of the Contractor and the
Purchaser shall be construed and enforced accordingly. In the event such invalid
or unenforceable provision is an essential and material element of this
Contract, the Parties shall promptly negotiate a replacement provision.
ARTICLE 42 *
- ------------
*
ARTICLE 43 SURVIVAL OF OBLIGATIONS
- ----------------------------------
The Parties' rights and obligations, which, by their nature would
continue beyond the termination, cancellation or expiration of this Contract,
including, but not limited to, those contained in Sub-Article 4(B) (Taxes,
Levies and Duties) and Sub-Article 4(C)
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
62
(Withholding Tax), Article 18 (Intellectual Property), Article 20 (Safeguarding
of Information and Technology), Article 21 (Export Control) and Article 23
(Limitation of Liability/Indemnification) shall survive termination,
cancellation or expiration hereof. Article 10 (Warranty) and Article 11
(Contractor Support), shall survive termination, cancellation or expiration
hereof, if and only if, this Contract is terminated by Purchaser pursuant to
Sub-Article 13(A).
ARTICLE 44 NON-WAIVER
- ----------------------
A waiver of any of the terms and conditions of this Contract, or
the failure of either Party strictly to enforce any such term or condition, on
one or more occasions shall not be construed as a waiver of the same or of any
other term or condition of this Contract on any other occasion.
ARTICLE 45 LANGUAGE
- -------------------
This Contract has been executed in the English language and
English will be the controlling language for interpretation of this Contract.
ARTICLE 46 ENTIRE AGREEMENT
- ----------------------------
This Contract supersedes all prior oral or written understanding
between the Parties and constitutes the entire agreement with respect to the
subject matter herein. Any modification, amendment, waiver, approval or consent
given hereunder must be evidenced by a writing signed by authorized
representatives of all Parties.
ARTICLE 47 COMING INTO FORCE
- -----------------------------
A. This Contract between the Purchaser and Contractor will not enter
into force or effect (except that Article 36 is in full force and effect as of
the date hereof) unless and until:
(I) The Guaranty is executed and delivered on or before April 30, 1998,
substantially in the form of Exhibit A hereto;
(II) Purchaser shall have made a draw request to its lenders for the first
portion of the initial payment described in Sub-Article 5(C)(2);
(III) GCT and certain other shareholders shall have formed a Bermuda
subsidiary to be the Purchaser;
(IV) GCT shall have transferred its rights and obligations hereunder to
such Bermuda subsidiary;
(V) GCT and such shareholders shall have executed and delivered equity
contribution agreements satisfactory to such Bermuda subsidiary's lenders;
<PAGE>
63
(VI) Such Bermuda subsidiary shall have executed an original counterpart
of this Contract; and
(VII) The Purchaser, in its sole discretion, has decided to allow this
Contract to come into force and effect. For the avoidance of doubt, it is
understood that pursuant to this clause (VII), the Purchaser may
unilaterally decide to effectively cancel this Contract by not permitting
it to come into force by May 5, 1998.
B. When all the conditions indicated in Sub-Article 47(A) above are
complied with, then the Purchaser shall immediately notify the Contractor, and,
so long as the date of such notice is on or before May 5, 1998, the Contract
shall come into force on the date of such notice.
<PAGE>
64
This Contract is executed by duly authorized representatives of the
Parties as set forth below.
TYCO SUBMARINE SYSTEMS LTD.
By:/s/ Ronald Armstrong
--------------------
Name: Ronald Armstrong
Title: Vice President
Date: April 21, 1998
GCT PACIFIC HOLDINGS, LTD.
By:/s/ R. Evgene Shutter
---------------------
Name: R. Evgene Shutter
Title: President
Date: April 21, 1998
<PAGE>
EXHIBIT 10.4
EXECUTION COPY
_____________________________________
MAC
_____________________________________
PROJECT DEVELOPMENT
AND
CONSTRUCTION CONTRACT
BETWEEN
ALCATEL SUBMARINE NETWORKS
AND
ALCATEL SUBMARINE NETWORKS, INC.
AND
MID-ATLANTIC CROSSING LTD.
_____________________________________
DATED AS OF JUNE 2, 1998
_____________________________________
<PAGE>
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
1 Provision of System............................................... 1
2 Documents Forming the Entire Contract............................. 2
3 Definitions....................................................... 2
4 Contract Price.................................................... 13
5 Terms of Payment by Purchaser..................................... 17
6 Contract Variations............................................... 20
6A Optional Upgrades................................................. 20
6B *................................................................. 24
7 Responsibilities for Permits; Compliance with Laws................ 24
8 Route Survey...................................................... 26
9 Acceptance........................................................ 27
10 Warranty.......................................................... 31
11 Contractor Support................................................ 35
12 Purchaser's Obligations........................................... 35
13 Termination for Default........................................... 36
14 Termination for Convenience....................................... 38
15 Suspension........................................................ 40
16 Title and Risk of Loss............................................ 41
17 Force Majeure..................................................... 41
18 Intellectual Property............................................. 42
19 Infringement...................................................... 47
</TABLE>
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
i
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
20 Safeguarding of Information and Technology....................... 48
21 Export Control................................................... 49
22 Liquidated Damages............................................... 50
23 Limitation of Liability/Indemnification.......................... 50
24 Counterparts..................................................... 51
25 Design and Performance Responsibility............................ 52
26 Product Changes.................................................. 52
27 Risk and Insurance............................................... 52
28 Plant and Work Rules............................................. 55
29 Right of Access.................................................. 56
30 Quality Assurance................................................ 57
31 Documentation.................................................... 57
32 Training......................................................... 57
33 Settlement of Disputes/Arbitration............................... 57
34 Applicable Law................................................... 59
35 Notices.......................................................... 60
36 Publicity and Confidentiality.................................... 61
37 Assignment; Subcontractors....................................... 61
38 Relationship of the Parties...................................... 63
39 Successors Bound................................................. 63
40 Article Captions................................................. 63
41 Severability..................................................... 63
42 * ............................................................... 63
43 Survival of Obligations.......................................... 64
</TABLE>
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
ii
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
44 Non-Waiver....................................................... 64
45 Language......................................................... 64
46 Entire Agreement................................................. 64
</TABLE>
Exhibit A Form of *
Exhibit B Form of Consent and Agreement
Exhibit C-1 Form of Opinion for Contractor
Exhibit C-2 Form of Opinion for Guarantor
Exhibit D Form of Payment Escrow Agreement
Exhibit E Form of Supplement No. 1
Exhibit F Form of Contractor's Invoice Certificate
Exhibit G Examples of Contractor Permits
Exhibit H Examples of Owner Permits
Exhibit I Subcontractors
Exhibit J Optional Long Lead Items
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
iii
<PAGE>
PROJECT DEVELOPMENT AND
CONSTRUCTION CONTRACT
This Project Development and Construction Contract ("Contract") is
made as of this 2nd day of June, 1998 between (i) ALCATEL SUBMARINE NETWORKS
(together with its permitted successors and assigns, "ASN"), a societe anonyme
---
organized and existing under the laws of France, and having its principal office
in Paris, France, and ALCATEL SUBMARINE NETWORKS, INC. (together with its
permitted successors and assigns, "ASNI"), a corporation organized and existing
----
under the laws of the State of Delaware, United States, and having its principal
office in Portland, Oregon, United States (ASN and ASNI are hereinafter
collectively referred to as "Contractor" and are jointly and severally liable
----------
for all obligations and liabilities of Contractor hereunder as more fully set
forth in Article 42 hereof) and (ii) MID-ATLANTIC CROSSING LTD., a corporation
organized and existing under the laws of Bermuda, and having its principal
office in Hamilton, Bermuda (hereinafter "Purchaser").
---------
WHEREAS, Purchaser desires to establish a fiber optic submarine cable
system, to be known as the Mid-Atlantic Crossing Submarine Cable System
(hereinafter, and as more fully defined herein, the "System"), which will be
used to provide service between and among the United States mainland, Bermuda
and St. Croix; and
WHEREAS, subject to the provisions of Article 6B hereof, the System
will consist of the following Segments:
Segment 1: From Brookhaven, New York to Hollywood, Florida;
Segment 2: From Hollywood, Florida to St. Croix;
Segment 3: From St. Croix to Bermuda.
WHEREAS, Contractor is in the business of designing, constructing,
installing, supplying, delivering and manufacturing fiber optic submarine cable
systems and is familiar with the general business of the fiber optic submarine
cable system industry;
WHEREAS, Purchaser seeks to purchase and own the System and wishes to
engage Contractor to perform the Work and Upgrade Work; and
WHEREAS, Contractor is willing to perform the Work and Upgrade Work on
a turn-key, fixed-price basis in accordance with and subject to the terms
hereof.
NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS
ARTICLE 1 PROVISION OF SYSTEM
- ------------------------------
In consideration of the Contract Price and the Upgrade Prices, the
Contractor agrees to undertake the Work and the Upgrade Work and to provide the
Purchaser with the System meeting the System Performance Requirements on or
before the Scheduled RFS Date
<PAGE>
2
and the System Upgrades meeting the requirements of Article 6A, all in
accordance with the terms hereof.
ARTICLE 2 DOCUMENTS FORMING THE ENTIRE CONTRACT
- ------------------------------------------------
This Contract consists of these commercial Terms and Conditions and
the following documents (in the form of attachments, including appendices,
attached hereto), which shall be read and construed as part of the Contract:
. Provisioning Schedule, Appendix 1, Upgrade Provisioning Schedule,
Appendix 1A
. Billing Schedule, Appendix 2, Upgrade Billing Schedule, Appendix 2A
. Plan of Work, Appendix 3, Upgrade Plan of Work, Appendix 3A
. Invoice Format, Appendix 4
. Technical Volume (includes Route Information), Appendix 5
In the event of any inconsistency between the Terms and Conditions and
the above listed documents, the Terms and Conditions shall prevail. The
Appendices listed above have no order of precedence.
ARTICLE 3 DEFINITIONS
- ----------------------
Definitions are as described in the specific Articles. Except as
otherwise defined the following definitions shall apply throughout the Contract:
AAA has the meaning set forth in Sub-Article 33(B).
ACCEPTANCE TESTING means (i) with respect to a Segment or the System,
the tests described in the System Commissioning and Acceptance section of
the Technical Volume or developed pursuant to such section by mutual
agreement of the Parties (with 15 days prior notice to the Independent
Engineer) and designed to verify that such Segment or the System meets the
applicable Performance Requirements and (ii) with respect to any System
Upgrade, the tests described in the System Commissioning and Acceptance
section of the Technical Volume or developed pursuant to such section by
mutual agreement of the Parties (with 15 days prior notice to the
Independent Engineer) and designed to verify that the System Upgrade meets
the applicable Performance Requirements.
ACCESS RIGHTS means all ownership, easement, wayleaves and/or other
property rights, from both private and governmental entities, both on land
and below the surface of the water (including, without limitation,
agreements to use conduits and ducts, install manholes and to lease space
in cable stations) necessary to access, use and occupy cable stations and
the sites for cable stations (including, without limitation, to land and
install the submarine cable and related equipment and to bring such cable
from the ocean to the cable stations) in order for the Purchaser to own,
operate and maintain the System.
<PAGE>
3
ACTUAL KNOWLEDGE means the actual knowledge of any executives with
management responsibility for the Contract.
ASSIGNMENT has the meaning set forth in Sub-Article 37(A).
BANK ESCROW AGENT means Citibank, N.A., in its capacity as escrow
agent under the Payment Escrow Agreement, and its successors in such
capacity.
BANKRUPTCY EVENT means an event specified in Sub-Article 13(A)(3) or
13(A)(4) with Contractor as the "other Party".
BASE SYSTEM means the two fiber pair submarine cable system consisting
of Segments 1, 2 and 3, as described in the second WHEREAS clause of this
Agreement, (at a per fiber pair capacity of 10 Gb/s at the Date of
Commercial Acceptance or the Date of Provisional Acceptance, as the case
may be, of the System, with each fiber pair upgradeable to 80 Gb/s per
fiber pair at the Date of Provisional Acceptance) as more fully described
in the System Description section of the Technical Volume.
BILLING MILESTONES means the billing milestones set forth in Appendix
2.
BILLING SCHEDULE means a billing schedule attached hereto as Appendix
2.
BUS-1 means the fiber optic cable system known as "BUS-1" connecting
Bermuda and Tuckerton, New Jersey.
CABLE STATION AND BEACH ACCESS RIGHTS means, with respect to each of
the cable stations in the System (i) a right to use space in such cable
station sufficient for the Supplies to be installed therein; (ii) the right
of access to such space so that the Contractor may install such Supplies;
(iii) duct space or other right so that Contractor may install the cable
from the beach manhole to such cable station; (iv) access to the beach
manhole(s); and (v) except with respect to the Bermuda cable station, the
right to use any directionally drilled conduit space seaward from the beach
manhole so that the Contractor may install the cable from the sea to such
beach manhole without undertaking directional drilling or other separate
shore-end marine operations.
CERTIFICATE OF COMMERCIAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(D) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Commercial
Acceptance.
CERTIFICATE OF FINAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(E) to Contractor certifying that
the System or a System Upgrade is Ready for Final Acceptance.
CERTIFICATE OF PROVISIONAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(C) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Provisional
Acceptance.
<PAGE>
4
CIF means cost, insurance and freight, as defined in Incoterms.
COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
CONFIDENTIAL INFORMATION has the meaning set forth in Sub-Article
36(B).
CONSENT means a Consent and Agreement to be entered into among
Contractor, Purchaser and the financing parties described in Sub-Article
37(C) and substantially in the form of Exhibit B hereto, with such changes
therein as made pursuant to Sub-Article 37(C) hereto.
CONTRACT means this agreement, specifically consisting of the
documents described in Article 2, and shall be deemed to include any
amendments thereto or Contract Variations pursuant to Article 6 (Contract
Variations).
CONTRACT PRICE means the Initial Contract Price, plus any variations
pursuant to Article 6 (Contract Variations), Article 6B (Optional Systems;
BUS-1 Option) or Article 8 (Route Survey), Taxes as set forth in Sub-
Article 4(B) and other adjustments to the Contract Price provided for in
this Contract.
CONTRACT TAXES has the meaning set forth in Sub-Article 4(B)(1).
CONTRACT VARIATION has the meaning set forth in Sub-Article 6(A).
CONTRACTOR means the entities that have collectively executed this
Contract as the Contractor, jointly and severally, and that will be
responsible for the performance of the Work (and if applicable, Upgrade
Work) under this Contract and shall include their permitted successors
and/or assigns.
CONTRACTOR PERMITS means all Permits that the Contractor needs to
conduct its business and all Permits which the Contractor must acquire in
order to carry out its operations to perform the work. Exhibit G hereto
contains a list of sample Contractor Permits; provided that such list is
not meant to be complete or exclusive.
DATE OF COMMERCIAL ACCEPTANCE, PROVISIONAL ACCEPTANCE OR FINAL
ACCEPTANCE means the date that Purchaser receives a Commissioning Report or
an Upgrade Commissioning Report, as the case may be, demonstrating that a
Segment or the System or a System Upgrade, as the case may be, is Ready for
Commercial Acceptance, Ready for Provisional Acceptance or Ready for Final
Acceptance in accordance with Article 9 (Acceptance).
DEFAULT means an Event of Default or any event, condition or
occurrence which with the giving of notice or passage of time or both would
be an Event of Default.
<PAGE>
5
DELIVERABLE SOFTWARE has the meaning set forth in Sub-Article 18(C).
DELIVERABLE SOFTWARE ESCROW has the meaning set forth in Sub-Article
18(H).
DELIVERABLE TECHNICAL MATERIAL has the meaning set forth in Sub-
Article 18(B).
DISPUTE ACCOUNT means the Dispute Account to be created under the
Payment Escrow Agreement.
EVENT OF DEFAULT has the meaning set forth in Sub-Article 13(A).
EXCLUDED TAX means:
(i) any franchise, excess profits, net worth, capital or capital
gains Tax, as well as any Tax on doing business or imposed on net or gross
income or receipts (including minimum and alternative minimum Taxes
measured by any items of Tax preference), but in each case excluding Taxes
that are or are in the nature of sales, use, excise, license, stamp,
rental, ad valorem, value added or property Taxes (other than property
taxes on property owned by the Contractor and not intended to be
incorporated into the System);
(ii) any Taxes imposed by a jurisdiction other than one in which (a)
the Contractor is or is treated as engaged in activities contemplated by or
in fulfillment of the Contract or (b) the Purchaser or its affiliates has a
nexus to such jurisdiction and the Tax imposed is attributable to that
nexus;
(iii) Taxes imposed on the Contractor as a result of Contractor's
gross negligence or willful misconduct; and
(iv) any import duty, other import related charges, sales or use
tax, VAT or property tax imposed by the United States or any political
subdivision thereof or Taxing authority therein in respect of Supplies
brought into the United States for testing, modification or other similar
purposes prior to being installed or used outside the United States.
FINAL COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
FINAL SURVEY REPORT means the final survey report described in the
Route Survey, Cable Loading and Marine Operations section of the Technical
Volume.
FORCE MAJEURE has the meaning set forth in Sub-Article 17(A).
*
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
6
*
INCOTERMS means the International Chamber of Commerce, Guide to
Incoterms (1990).
INDEPENDENT ENGINEER means Conexart Technologies, Inc. or a similarly
qualified successor in the capacity as the engineer to the financing
sources specified in Sub-Article 37(C) who has agreed to be bound by the
confidentiality provisions of this Contract and who is not affiliated with
a competitor of Contractor.
INFORMATION has the meaning set forth in Sub-Article 20(A).
INITIAL CONTRACT PRICE has the meaning set forth in Sub-Article
4(A)(1).
INITIAL UPGRADE PRICE has the meaning set forth in Sub-Article
4(A)(2).
INTELLECTUAL PROPERTY has the meaning set forth in Sub-Article 18(A).
LANDING LICENSES means, in the United States, a License to Land and
Operate a Submarine Cable System pursuant to the Submarine Cable Landing
Act, 47 U.S.C. 34-39 and, in Bermuda, the comparable license which is
required under Bermuda law.
LAWS means any laws, ordinances, regulations, rules, orders,
proclamations, requirements of governmental authorities or treaties.
MANUFACTURING MATERIALS has the meaning set forth in Sub-Article
13(B).
NEXUS TAX means any Tax imposed by way of withholding in respect of or
in lieu of an Excluded Tax, but only to the extent such Tax would not have
been imposed but for the nexus (other than as a consequence of the
activities of the Contractor) of the Purchaser or its affiliate to the
jurisdiction imposing the Tax.
NON-SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
NOTICE OF TERMINATION has the meaning set forth in Sub-Article 14(A).
OPTION PERIOD has the meaning set forth in Sub-Article 6A(B).
OPTIONAL LONG LEAD ITEMS means those items of the Supplies, set forth
in Exhibit J, that would be used in the Optional System but not the Base
System and which the Contractor must irrevocably commit to pay for in order
to maintain the Scheduled RFS Date if Purchaser shall elect the Optional
System on or prior to the Optional System Date.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
7
OPTIONAL LONG LEAD ITEMS PRICE means the amount up to * of which * is
payable on the date which is three business days after this Contract is
executed and delivered by all Parties and * is payable on June 30, 1998,
unless prior to such date Purchaser shall notify Contractor that it will
not elect the Optional System.
OPTIONAL ROUTE SURVEY means a marine route survey of the portion of
the Optional System from St. Croix to Brookhaven, New York.
OPTIONAL ROUTE SURVEY PRICE has the meaning set forth in Article 8C.
OPTIONAL SYSTEM means the System; provided that Segment 3 of the Base
System shall be replaced by a Segment 3 which bypasses Bermuda and directly
connects St. Croix with Brookhaven, New York.
OPTIONAL SYSTEM PRICE has the meaning set forth in Article 6B.
OWNER PERMITS means all Permits that the Owner needs to own and
operate the System. Exhibit H hereto contains a sample list of Owner
Permits; provided that such list is not meant to be complete or exclusive.
PARTY(IES) means either of the Purchaser and/or the Contractor, as
appropriate.
PAYMENT ESCROW AGREEMENT means that Escrow Agreement to be entered
into among the Prime Contractor, Purchaser, and the Bank Escrow Agent,
substantially in the form of Exhibit D hereto, with such changes therein as
are reasonably requested by the Bank Escrow Agent, as amended modified or
supplemented from time to time.
PERFORMANCE REQUIREMENTS means (i) with respect to a Segment or the
System, the applicable System Performance Requirements set forth or to be
developed by mutual agreement pursuant to the Transmission Performance
section of the System Description section of the Technical Volume, (ii)
with respect to any System Upgrade, the System Performance Requirements set
forth in or to be developed by mutual agreement pursuant to the Technical
Volume or (iii) in each case, such other Segment, System or System Upgrade
performance levels as mutually agreed by the Parties, including impairment
budgets.
PERMITS means all Access Rights, permits, pipeline and cable crossing
agreements, approvals, "no objections", permissions-in-principle,
authorizations, consents, customs clearances, registrations, certificates,
rights-of-way, certificates of occupancy, licenses, including without
limitation, landing licenses, orders, vessel and crew authorizations/visas,
permission for the operation of navigational aids and radio systems and
similar authorizations necessary to complete the Work and operate and
maintain the System (other than any of the foregoing (i) relating to the
ownership, operation and maintenance of the System and not necessary until
after the System is Ready for Final Acceptance, (ii) which is or would be
needed by Purchaser to engage
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
8
in any business outside the business of developing, owning and operating a
submarine cable system or (iii) which is or would be needed at any time by
any purchaser or lessee of capacity on the System).
PRIME CONTRACTOR has the meaning set forth in Article 42 hereof.
PROVISIONING SCHEDULE means the price schedule attached hereto in
Appendix 1.
PURCHASER means Mid-Atlantic Crossing Ltd. and shall include its
permitted successors and assigns.
READY FOR COMMERCIAL ACCEPTANCE means
(i) for any Segment, that
(a) if the System is not at the same time also Ready for
Commercial Acceptance, the Purchaser has consented, in its
sole discretion, to accept such Segment as Ready for
Commercial Acceptance,
(b) such Segment has the ability to carry commercial traffic
between the two landing points of such Segment meeting
performance criteria of ITU-T G.826 as defined in the
System Performance section of the Technical Volume and has
line monitoring and protection switching capability,
(c) Contractor has tested and provided for STM-1
interconnectivity capability to the Segment terminal
equipment according to ITU-T G.826,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to
be performed by it, and
(e) all Permits are obtained for such Segment, and
(ii) for the System, that
(a) the System has the ability to carry commercial traffic
throughout the System (operating at 10 Gb/s per fiber
pair) meeting performance criteria of ITU-T G.826 as
defined in the System Performance section of the Technical
Volume, has line monitoring and per Segment protection
switching capability and has network management
capability,
<PAGE>
9
(b) Contractor has tested and provided for STM-1
interconnectivity capability to the System terminal
equipment according to ITU-T G.826,
(c) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required
to be performed by it,
(d) if the Optional System is chosen, the System has self-
healing ring protection capability, and
(e) all Permits are obtained for the System and
(iii) for any System Upgrade, the System is Ready for Commercial
Acceptance at the capacity specified for such System Upgrade.
READY FOR FINAL ACCEPTANCE means
(i) for the System, that
(a)(I) the System has successfully and continuously (other than
by reason of Force Majeure in which case the test period
shall be extended for a time period agreed between the
Parties) functioned in compliance with the System
Performance Requirements during the period of ninety
(90) consecutive days after the Date of Provisional
Acceptance or
(II) if the System shall have failed to meet the System
Performance Requirements at any time during such period
(other than by reason of Force Majeure), the Contractor
has corrected such failure and the System has
successfully and continuously (other than by reason of
Force Majeure in which case the test period shall be
extended for a time period agreed between the Parties)
functioned in compliance with the System Performance
Requirements for such additional period of time not to
exceed ninety (90) days (and not to end prior to the
date 90 days after the Date of Provisional Acceptance)
as reasonably determined by the Independent Engineer as
being sufficient to confirm that such failure has been
corrected and that no other failures are likely to
appear and
(b) all deficiencies noted in the Certificate of Provisional
Acceptance have been corrected (other than minor
deficiencies which will not affect the operation of the
System, in respect of which an equitable adjustment to
the Contract Price will be made) and
<PAGE>
10
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property) and
(ii) for any System Upgrade, that
(a)(I) the System Upgrade has successfully functioned in
compliance with the System Performance Requirements
during the period of ninety (90) days after the Date of
Provisional Acceptance of the System Upgrade or
(II) if the System Upgrade shall have failed to meet the
System Performance Requirements during such period, the
Contractor has corrected such failure and the System
Upgrade has successfully functioned in compliance with
the System Performance Requirements for such additional
period of time not to exceed ninety (90) days as
reasonably determined by the Independent Engineer as
sufficient to confirm that such failure has been
corrected and
(b) all deficiencies noted in the Certificate of Provisional
Acceptance have been corrected (other than minor
deficiencies which will not affect the operation of the
System, in respect of which an equitable adjustment of
the Contract Price will be made) and
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property).
READY FOR PROVISIONAL ACCEPTANCE means
(i) with respect to any Segment,
(a) if the System is not, at the same time, also Ready for
Provisional Acceptance, the Purchaser has consented, in
its sole discretion, to accept such Segment as Ready for
Provisional Acceptance,
(b) such Segment is complete in all material respects (and
in any event is Ready for Commercial Acceptance),
(c) the results of Acceptance Testing of such Segment
demonstrate that such Segment has satisfied the System
Performance Requirements,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required
to be performed by it,
<PAGE>
11
(e) all Permits are obtained for such Segment, and
(ii) with respect to the System, the System is complete in all
material respects (and in any event is Ready for Commercial
Acceptance), all Segments are Ready for Provisional Acceptance
with per Segment protection capability and line monitoring and
network management capability and, if the Optional System has
been chosen, all Segments have self-healing ring protection
capability, and
(iii) with respect to any System Upgrade, the results of Acceptance
Testing of such System Upgrade demonstrate that such System
Upgrade is complete in all material respects and is sufficient
to realize the Performance Requirements.
REPRESENTATIVES has the meaning set forth in Article 36(B).
RETAINAGE means an amount equal to * of the Initial Contract Price,
or in the case of a Segment, the contract value of such Segment.
RETESTING has the meaning set forth in Sub-Article 9(B)(3).
ROUTE SURVEY means the route survey described in the Route Survey,
Cable Loading and Marine Operations section of the Technical Volume.
SCHEDULED RFS DATE has the meaning set forth in Sub-Article 9(A).
SCHEDULED UPGRADE DATE means for any System Upgrade, the date by which
the Contractor agrees such System Upgrade will be Ready for Provisional
Acceptance or Commercial Acceptance.
SEGMENT means Segment 1, Segment 2 or Segment 3, as the case may be.
SEGMENT 1 means the Segment of the System from Brookhaven, New York to
Hollywood, Florida, and landing in locations capable of interconnecting
with major telecommunications carriers.
SEGMENT 2 means the Segment of the System from Hollywood, Florida to
St. Croix, and landing in locations capable of interconnecting with major
telecommunications carriers.
SEGMENT 3, subject to Article 6B, means the Segment of the System from
St. Croix to Bermuda and landing in locations capable of interconnecting
with major telecommunications carriers.
SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
12
SHIP PERIOD has the meaning set forth in Sub-Article 10(A).
SOFTWARE ESCROW AGREEMENT has the meaning set forth in Sub-Article
18(H).
SUPPLIES means any and all materials, plant, machinery, equipment,
hardware and items supplied by the Contractor under this Contract.
SUSPENSION means a suspension in pursuant to Sub-Article 15(A) or
15(B).
SYSTEM means the Base System, unless the Purchaser has elected the
Optional System, in which case, the System shall mean the Optional System.
SYSTEM PERFORMANCE REQUIREMENTS has the meaning set forth in the
System Description section of the Technical Volume.
SYSTEM UPGRADE has the meaning set forth in Sub-Article 6A(A).
TAX means any tax, duty, levy, charge or custom (including, without
limitation, any sales or use tax, VAT or octroi duty relating to the
Contract items and fiscal stamps connected with Contract legalization)
imposed or collected by any taxing authority or agency (domestic or
foreign).
TECHNICAL VOLUME means the Technical Volume attached hereto as
Appendix 5.
TRANSFEREE means any entity to which purchaser assigns rights
hereunder pursuant to Sub-Article 37(D) hereof.
TRANSFEREE SUPPLEMENT means a supplement to this Contract to reflect
assignments to Transferees, to be in substantially the form of Exhibit E
attached hereto, with such changes as the parties may mutually agree upon.
UPGRADE BILLING SCHEDULE means the billing schedule attached hereto as
Appendix 2A.
UPGRADE COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
UPGRADE PERIOD has the meaning set forth in Sub-Article 6A(E).
UPGRADE PLAN OF WORK means the plan of work attached hereto as
Appendix 3A.
UPGRADE PRICE means, for any System Upgrade, the Initial Upgrade Price
for such System Upgrade, plus any variations pursuant to Article 6
(Contract Variations),
<PAGE>
13
Taxes as set forth in Sub-Article 4(B) and other adjustments to such
Upgrade Price provided for in this Contract.
UPGRADE PROVISIONING SCHEDULE means the provisioning schedule attached
hereto as Appendix 1A.
UPGRADE WARRANTY PERIOD has the meaning set forth in Sub-Article
10(A).
UPGRADE WORK means the activities and services to be performed or
provided by Contractor under Article 6A (Optional Upgrades).
*
WARRANTY PERIOD has the meaning set forth in Sub-Article 10(A).
WORK means all activities and services (other than the activities and
services specified in this Contract to be provided by Purchaser) necessary
to be performed or provided in developing, planning, designing,
manufacturing, constructing, delivering, installing and testing the System,
until the System is Ready for Final Acceptance, including without
limitation, designating, coordinating and obtaining all Permits, except for
the Landing Licenses and the Cable Station and Beach Access Rights. Whether
or not used in conjunction with the term "Supplies", the term "Work" shall
always be deemed to include the provision of the relevant Supplies, unless
the context requires otherwise.
YEAR 2000 COMPLIANT means, when used with respect to any software or
materials, that such software or materials will operate accurately and,
without interruption, accept, possess and in all manner retain full
functionality when referring to, or involving, any year or date in the
twentieth or twenty first centuries.
ARTICLE 4 CONTRACT PRICE
- --------------------------
A. Contract Price
1. The initial Contract Price for the Work, in United States Dollars
(US$) is a fixed fee of * dollars (the "Initial Contract Price").
The Initial Contract Price does not include the cost of optional
upgrades which are described in Article 6A (Optional Upgrades),
any contract variations as provided for in Article 6 (Contract
Variations), any Taxes, the increased cost of the Optional
System, the increased cost, if any, of the Optional Route Survey
and the external costs and expenses of obtaining Owner Permits,
as described in Article 7. The Initial Contract Price includes
all charges for CIF, all costs and expenses incurred in obtaining
all Contractor Permits and all internal costs of obtaining
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
14
Owner Permits and all costs and expenses incurred with respect to
preparation of cable stations.
2. The initial Upgrade Price for any Upgrade Work, in United States
Dollars (US$) is the fixed fee set forth in Sub-Article 6A(G),
payable as set forth in Appendix 2A (the "Initial Upgrade
Price"). No Initial Upgrade Price includes the cost of any
contract variations as provided for in Article 6 (Contract
Variations) or any Taxes.
3. The Provisioning Schedule sets forth the Contractor's breakdown
of the Initial Contract Price among various aspects of the Work.
If the actual cost of any aspect of the Work is greater or less
than that set forth in the Provisioning Schedule, such fact shall
not cause any change in the Initial Contract Price. At its
discretion, the Purchaser may direct the Contractor to deliver
either universal joints or Alcatel proprietary joints as spares,
in such quantities as provided in the Provisioning Schedule; such
direction may be given during the course of the Work, but not
later than such date as the Parties shall mutually agree, and
such direction, whichever spare joint type is selected, shall not
cause any change in the Initial Contract Price.
4. The Contractor and the Purchaser will share equally the costs and
expenses of the Payment Escrow Agent.
5. The Contractor will not arrange for any Permit which requires
payments to be made by the Purchaser or made after the System is
Ready for Provisional Acceptance, without the prior written
consent of the Purchaser.
B. Taxes, Levies and Duties
1. The Initial Contract Price and each Initial Upgrade Price, as
stated in Sub-Article 4(A) above, excludes any Tax. The Contract
Price and each Upgrade Price shall without duplication be
adjusted for any Tax imposed on or in connection with this
Contract (including, without limitation, the execution and
delivery of this Contract, the Work, the Upgrade Work and the
Supplies, but excluding any Excluded Taxes) (any such Taxes,
other than Excluded Taxes, are hereinafter referred to as
"Contract Taxes"). Contractor has provided a good faith estimate
of the Contract Taxes payable by the Purchaser; it being
understood that the Contractor shall have no liability under this
Contract or otherwise to the Purchaser for any errors or
omissions in such estimate or any losses arising therefrom. The
Contractor shall be responsible for any Excluded Tax that might
be incurred by the Contractor as well as any Tax described in
clause (iv) of the definition of Excluded Tax.
<PAGE>
15
2. The Purchaser will be ultimately responsible for the payment of
all Contract Taxes (including, without limitation, Contract Taxes
that are VAT, octroi duties relating to Contract items and fiscal
stamps, etc. connected with Contract legalizations to the
authorities in their countries). In the case of any Contract
Taxes paid by the Contractor, the Contractor shall submit payment
on the Purchaser's behalf and Contractor will be reimbursed by
the Purchaser in accordance with Article 5 (Terms of Payment by
Purchaser).
3. The Contractor agrees to use reasonable efforts, including,
without limitation, by registering for VAT and any applicable
sales Taxes in any country, state or other jurisdiction where
legally required, to cooperate with and assist Purchaser in its
efforts (i) to have Supplies which are the subject of this
Contract made exempt from Contract Taxes, whether in the
manufacture of the Supplies or related to the importation or
location or installation of the Supplies, (ii) to request
revisions, drawbacks, remissions, reclassifications or the like
to the jurisdictions identified by the Purchaser; or (iii) to
reduce or eliminate Contract Taxes (including the provision of
applicable certifications and forms) and to obtain any available
refunds of Contract Taxes, provided that the Contractor shall not
---------
be required to act other than in accordance with the relevant
Laws then in force. The Purchaser shall reimburse the Contractor,
in accordance with Article 5, for any reasonable costs (including
the reasonable fees and expenses of legal counsel, accountants
and other advisors) incurred by the Contractor under this Sub-
Article 4(B)(3) provided that Purchaser was notified and has
--------
consented to the incurrence of such costs, fees and expenses.
Contractor shall not be required to cooperate with and assist
Purchaser in its efforts under this Sub-Article 4(B)(3) or to
take any action hereunder which in the Contractor's good faith
judgment would incur any costs or if in Contractor's good faith
judgment it would be advisable to obtain the advice of counsel,
accountants or other advisors prior to cooperating with or
assisting purchaser or taking any action, unless in each case,
Purchaser has agreed to reimburse Contractor under the foregoing
proviso.
4. Prior to the Date of Provisional Acceptance with respect to the
System or any System Upgrade, the Contractor shall provide
evidence of having made all payments for Taxes included in the
Contract Price or Upgrade Price or described in clause (iv) of
the definition of Excluded Taxes, other than VAT due on payments
of the Contract Price or Upgrade Price made on or after the Date
of Provisional Acceptance of the System or System Upgrade, which
evidence shall be provided within sixty (60) days of the date of
each such payment.
<PAGE>
16
5. As part of Work or any Upgrade Work, the Contractor shall obtain
at its expense, on Purchaser's behalf, any import license or
other official authorization and carry out all customs
formalities necessary for the importation or exportation of goods
in connection with such Work or Upgrade Work. The Purchaser
agrees to be the Importer or Exporter of Record or designate an
Importer or Exporter of Record/Consignee on its behalf. Purchaser
must provide a Letter of Authorization from any third party
designate stating it agrees to be the Importer or Exporter of
Record on Purchaser's behalf and identify the name and address of
the designated Importer or Exporter of Record.
6. The Supplies to be installed or held on land shall be delivered
to the agreed point at the named place of destination and shall
be consigned to the Purchaser.
C. Withholding Tax
1. If withholding for any Tax is required in respect of any payment
to the Contractor, the Purchaser shall (i) withhold the
appropriate amount from such payment, (ii) pay such amount to the
relevant authorities in accordance with the applicable Laws and
(iii) in the case of any such withholding in respect of a
Contract Tax or a Nexus Tax and subject to the Contractor's
satisfying the obligations set forth in the last sentence of this
Sub-Article 4(C)(1), pay the Contractor an additional amount such
that the net amount received by the Contractor is the amount the
Contractor would have received in the absence of such
withholding. In such a case, the Purchaser shall provide to the
Contractor, as soon as reasonably practicable, a certified copy
of an official tax receipt for any Tax which is retained from any
payment due to the Contractor or for any Tax which is paid on
behalf of the Contractor. All such receipts shall be in the name
of the Contractor. The Contractor agrees to complete accurately
and timely provide to the Purchaser or, if required, to the
applicable Taxing authority, such forms, certifications or other
documents as may be requested in timely manner by Purchaser, in
order to allow it to make payments to the Contractor without any
deduction or withholding on account of withholding Taxes (or at a
reduced rate thereof) or to receive a refund of any amounts
deducted or withheld on account of withholding Taxes.
2. If the Contractor shall become aware that it is entitled to
receive a refund or credit from a relevant taxing or governmental
authority in respect of a Contract Tax or Nexus Tax as to which
the Purchaser has paid an additional amount pursuant to Sub-
Article 4(C)(1) above, the Contractor shall promptly notify the
Purchaser of the availability of such refund or credit and shall,
within 30 days after receipt of a request by the Purchaser
(whether as a result of notification that it has made to
<PAGE>
17
the Purchaser or otherwise), make a claim to such taxing or
governmental authority for such refund or credit at the
Purchaser's expense. If the Contractor receives a refund or
credit in respect of a Contract or Nexus Tax as to which the
Purchaser has paid an additional amount pursuant to Sub-Article
4(C)(1) above, or if, as a result of the Purchaser's payment of
such additional amounts, the Contractor or any other member of an
affiliated group, as defined in section 1504(a) of the Code, of
which the Contractor is a member, receives a credit against Taxes
imposed on its income or franchise taxes imposed on it by the
country under the laws of which it is organized or any political
subdivision thereof, the Contractor shall promptly notify the
Purchaser of such refund or credit and shall within 30 days from
the date of receipt of such refund or benefit of such credit pay
over the amount of such refund or benefit of such credit
(including any interest paid or credited by the relevant taxing
or governmental authority with respect to such refund or credit)
to the Purchaser (but only to the extent of the additional
payments made by the Purchaser under Sub-Article 4(C)(1) above
with respect to the Contract or Nexus Tax giving rise to such
refund or credit), net of all out-of-pocket expenses of the
Contractor; provided, however, that the Purchaser, upon the
-------- -------
request of the Contractor agrees to repay the amount paid over to
the Purchaser (plus penalties, interest or other charges due to
the appropriate authorities in connection therewith) to the
Contractor in the event the Contractor is required to repay such
refund or credit to such relevant authority.
ARTICLE 5 TERMS OF PAYMENT BY PURCHASER
- -----------------------------------------
A. General Conditions of Payment
1. All payments shall be made and all invoices shall be rendered in
US Dollars (US$). The Purchaser shall be responsible for and
shall pay all costs and fees for payment, as well as the banking
and wiring costs. All banking documents and correspondence must
be in English.
B. Invoice Procedures
1. All invoices for Work shall be submitted according to the Billing
Schedule, provided, that the appropriate Billing Milestones have
--------
been achieved. All invoices for Work shall have a certificate in
the form of Appendix 4A attached.
2. Any Contract Variations shall be invoiced and paid in accordance
with the terms of the Contract Variation as specified in Article
6 (Contract Variations).
<PAGE>
18
3. Invoices for Upgrade Work shall be submitted according to the
Upgrade Billing Schedule and shall be paid in accordance with
this Article 5.
4. Invoices for amounts not described in Sub-Sections 1-3 above,
which may become payable hereunder shall be submitted after
applicable costs have been incurred or such other time as may be
specified in this Contract. Such invoices shall be payable at a
reasonable bank rate of exchange applicable at the time such
costs were paid by the Contractor, and shall be accompanied by a
certificate of the Contractor explaining such amount and
certifying that it is payable.
5. The Contractor shall render all invoices to the following address
or facsimile number:
Mid-Atlantic Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Facsimile: 441-296-6749/8606
Attn: Cameron Adderley
with a copy to
Conexart Technologies, Inc.
124 Rue de Charante
Saint Lambert
Quebec, Canada J4S 1K3
Facsimile: 514-466-1093
Attn: Mr. Martin Fournier
C. Payment Procedures
1. The Purchaser shall pay the Contractor, and the Contractor shall
accept payment, in accordance with this Article 5 (Terms of
Payment by Purchaser). All payments due and owing to the
Contractor shall be paid to the Prime Contractor (and each
invoice shall so provide) and payment to the Prime Contractor
shall be deemed payment to the Contractor. Any amounts received
by the Prime Contractor shall be deemed to have been received by
the Prime Contractor in its capacity as agent of the Contractor.
The Prime Contractor shall pay such amounts to the Contractor net
of any applicable taxes or levies that may be imposed on the
Contractor.
2. Purchaser agrees to pay an initial payment to Contractor in the
amount of *. Within three business days of the time this Contract
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
19
is executed and delivered by all Parties, the first portion of
the initial payment, in the amount of * shall be paid by
Purchaser to Contractor. Failure to receive this payment shall
entitle Contractor to immediately suspend Work hereunder. The
second portion of the initial payment, in the amount of * shall
be paid by Purchaser to Contractor on July 14, 1998.
3. Invoices given to the Purchaser (and the Independent Engineer) on
or before the last day of any month shall, subject to Sub-Article
5(C)(5) below, be due and payable on the last day of the next
month or such other time as may be specified in this Contract.
4. Invoices not paid when due shall accrue late payment charges from
the day, following the day, on which payment was due until the
day on which it is paid. Invoices for such extended payment
charges shall not be issued for an amount less than U.S. $1,000.
Extended payment charges shall be computed at the rate of one
percent (1%) per month.
5. In the event that the Purchaser has an objection to any invoice
or other payment obligation or any amount owing by Contractor to
Purchaser shall not have been paid when due, the Purchaser shall
promptly notify the Contractor of such objection and such amount,
and the Purchaser and Contractor shall make every reasonable
effort to settle promptly the dispute concerning the payment(s)
in question. In the event such dispute cannot be settled, the
Prime Contractor and the Purchaser will execute and deliver a
Payment Escrow Agreement substantially in the form of Exhibit D
hereto, with such changes therein as the Payment Escrow Agent may
reasonably request, and the Purchaser will have the right to
withhold payment of the disputed amount(s) (or withhold from the
invoice amount a sum equal to the amount purportedly owing by
Contractor) so long as it deposits, in full, such disputed
amount(s) into the Dispute Account.
(a) Provided such disputed amount is placed into the Dispute
Account in a timely manner, the Purchaser shall not be
deemed to be in breach of or in default for failing to pay
Contractor.
(b) The Payment Escrow Agent will distribute the disputed amount
in accordance with the terms of the Escrow Agreement.
(c) In addition, the prevailing Party shall be entitled to
receive from the Dispute Account an amount equal to the
interest earned by the Payment Escrow Agent on the
distributed, disputed amount, which shall be distributed by
the Escrow Agent under clause (b) above.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
20
6. The Purchaser shall make timely payments for that portion of the
invoice not in dispute in accordance with Sub-Article 5(C) or
such payments will be assessed extended payment charges as set
forth in Sub-Article 5(C)(4). Pending resolution of the dispute,
the Purchaser may not withhold payment (unless also subject to
dispute) on any other invoice concerning different goods and/or
services submitted by Contractor.
ARTICLE 6 CONTRACT VARIATIONS
- -------------------------------
A. Either Party may request, during construction of the System or any
System Upgrade, by written order, a contract variation ("Contract Variation")
requiring additions or alterations to, deviations or deductions from the System
or System Upgrade. If the other Party consents, in its sole discretion, this
change will be formalized as an amendment to this Contract by a Contract
Variation; provided, that the Contractor will not unreasonably withhold its
--------
consent to a Contract Variation requested by the Purchaser.
B. A Contract Variation shall not become effective unless and until the
price adjustment, the terms and schedule of payment and the extension of time
and all other terms have been mutually agreed upon by the Parties (and the
Parties shall act reasonably and in good faith in connection with all such
terms) and such Contract Variation is signed by an authorized representative of
each Party. Each Contract Variation shall be incorporated as an amendment to the
Contract.
C. Contractor may seek a Contract Variation for any change, after the
date hereof, of any Law (except those, and to the extent, affecting only Taxes
or wages) which requires a change in the Work or the Upgrade Work or affects the
costs (other than wages) incurred or to be incurred by the Contractor or any
combination of the foregoing and Purchaser shall agree to any such change in
Work or Upgrade Work as may be required and to an equitable adjustment to the
Contract Price or the applicable Upgrade Price. As of the date hereof, neither
Party has Actual Knowledge of any proposed change in any Law that would require
a change in the Work or the Upgrade Work.
ARTICLE 6A OPTIONAL UPGRADES
- -----------------------------
A. This Article includes the terms and conditions governing an option for
future upgrades to the System (each a "System Upgrade") that may be exercised by
Purchaser during the Option Period.
B. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
21
C. *
D. *
E. *
F. *
G. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
22
*
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
23
*
H. *
I. *
J. *
K. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
24
*
ARTICLE 6B *
- -------------
A. *
B. *
C. *
D. *
ARTICLE 7 RESPONSIBILITIES FOR PERMITS; COMPLIANCE WITH LAWS
- --------------------------------------------------------------
A. The Purchaser shall reasonably cooperate with and assist the
Contractor to obtain all Permits (except those specified in paragraph C below),
to the extent that Purchaser's cooperation and assistance are necessary for
Contractor to expeditiously and cost-efficiently obtain such Permits. The
Purchaser agrees to respond promptly to any such request from Contractor.
Further, the Purchaser agrees that it will not impede or interfere with
Contractor's activities or Contractor's abilities to perform its obligations.
Upon notice from Contractor with respect to a Permit or receipt by Purchaser of
a copy of a Permit, Purchaser shall fulfill all conditions of such Permit and
perform all responsibilities thereunder, except to the extent that such
conditions or responsibilities are those of the Contractor under the Work.
Contractor will inform Purchaser as to any such conditions or responsibilities
that are not
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
25
ordinary and routine and obtain Purchaser's consent thereto prior to arranging
for any such Permit.
B. Subject to paragraph C below, the Contractor shall have the
responsibility for obtaining all Permits, at the Contractor's sole cost and
expense in the case of Contractor Permits. In the case of Owner Permits,
Purchaser shall reimburse Contractor for all "external" costs and expenses
incurred by Contractor in connection with obtaining on behalf of Purchaser all
Owner Permits, such as any application fees, fees of independent engineers or
consultants needed to provide environmental or other required reports and fees
of independent counsel required to obtain such Permits. Such "external" costs
shall not include any overhead changes or costs and expenses of employees of
Contractor, including travel costs. To the extent that Contractor's engineers,
lawyers or other employees have the ability to perform work in obtaining Owner
Permits, Contractor shall not charge for use of independent parties to perform
such work. The Initial Contract Price includes a fee for Contractor to
generally manage obtaining Owner Permits, including to identify Permits, prepare
and file for them, and follow-up on obtaining them, and such activities shall
not be billed to Purchaser. The Contractor will cause all Owner Permits not
issued in the name of Purchaser to be assignable to Purchaser, and to be
assigned to Purchaser at the time title to the System is transferred to
Purchaser pursuant to this Contract. Contractor will cause all Contractor
Permits to provide that any payments thereunder are the obligation of Contractor
and not of Purchaser.
C. The Purchaser shall be responsible for obtaining, at its expense,
Landing Licenses and Cable Station and Beach Access Rights. The Contractor will
cooperate with the Purchaser in connection therewith. If the Purchaser is
having difficulty obtaining any Cable Station and Beach Access Rights,
Contractor agrees to accept a Contract Variation(s) to construct the necessary
replacements therefor. In connection therewith, provided Purchaser notifies
Contractor on or prior to November 1, 1998 that directional drilling is
necessary at any cable station site, Contractor will be responsible for
directional drilling conduit space seaward from the beach manhole at a cost
which will be negotiated in good faith by the Parties, and, in any such case,
there will be no change in the Scheduled RFS Date. If Purchaser notifies
Contractor of the need for any directional drilling after November 1, 1998, the
Contractor will perform such service at a cost which will be negotiated in good
faith by the Parties but the Contractor shall be entitled to an equitable
adjustment in the Scheduled RFS Date.
D. Any delay in obtaining or failure to obtain any Owner Permit shall
constitute a Force Majeure and be treated as described in Article 17 (Force
Majeure), except to the extent such delay is a result of Contractor's negligence
or willful misconduct.
E. Except with respect to variations necessitated by complying with any
changes, enacted after the date hereof, in any Laws (the costs with respect to
which shall be borne by the Purchaser), the Contractor shall be responsible for
the payment of any and all costs incurred as a result of the need to vary
design, drawings, plans or procedures to comply with any of the circumstances
set forth in this Article. The Contractor shall, before making any variations
from the designs, drawings, plans or procedures that may be necessitated by so
complying with any Laws and that would represent a material change to the
overall design of
<PAGE>
26
the System, give to the Purchaser written notice, specifying the variations
proposed to be made, and the reasons for making them. As of the date hereof,
neither Party has Actual Knowledge of any proposed changes in the Laws which
would necessitate any such variation.
F. The Contractor shall (i) give all notices required by any Laws to be
given to any authority and (ii) perform or permit the performance by authorized
persons of any inspection required by the said Laws.
G. As part of the Initial Contract Price, the Contractor shall obtain, at
its own risk and expense, any export and import license and other official
authorization and carry out all customs formalities for the exportation and
importation of goods and, where necessary, for their transit through another
country.
H. Within 30 days after the date of execution of this Contract, the
Contractor will prepare and deliver to the Purchaser a detailed list of Permits
that to its knowledge are required to be obtained under current law in order to
complete the Work and shall update such list from time to time if it becomes
aware of changes in Permit requirements. Such list, as updated from time to
time, shall set forth the projected dates of filing for such Permits and an
estimate of when such Permits are expected to be obtained. Without limiting
Contractor's liabilities in respect of Sub-Articles 7(B) and (G), Contractor
shall have no liability in respect of the accuracy of the information furnished
under this Sub-Article, except in the case of gross negligence or willful
misconduct.
ARTICLE 8 ROUTE SURVEY
- ------------------------
A. The Contractor shall conduct the Route Survey and the Optional Route
Survey, if requested by the Purchaser, and select the cable route for the Base
System and the Optional System, if applicable, in accordance with the
information in the Final Survey Report. Contractor shall be permitted to make
changes, at its discretion, to the route selection, if necessary for operational
reasons without additional cost to Purchaser.
B. Except as provided in paragraph C of this Article 8, any changes to
the route selection requested by Purchaser shall be treated as a Contract
Variation in accordance with Article 6 (Contract Variations).
C. Purchaser shall have the option to cause Contractor to conduct the
Optional Route Survey. If Purchaser shall elect such option on or prior to June
8, 1998, the Initial Contract Price will be increased by the amount of $875,144
(the "Optional Route Survey Price") and the Scheduled RFS Date shall remain
unchanged. If Purchaser shall elect such option after June 8, 1998, Contractor
shall be entitled to an equitable adjustment in cost and the Scheduled RFS Date.
If Purchaser shall elect the Optional System on or prior to June 8, 1998, then
Contractor will conduct the Optional Route Survey without any increase to the
Initial Contract Price or change to the Scheduled RFS Date.
<PAGE>
27
D. If there are any changes to any aspect of the Work due to the Final
Route Survey, Contractor shall bear any resulting increase in costs up to and
including $2,500,000. Purchaser and Contractor shall share equally any such
costs exceeding $2,500,000 but below $5,000,000. Contractor shall bear any such
costs exceeding $5,000,000.
ARTICLE 9 ACCEPTANCE
- ----------------------
A. General
1. The Acceptance Testing shall be performed by the Contractor. The
Purchaser and its designated representatives (including the
Independent Engineer) may observe, at their own expense, the
Contractor's tests and review the test results. Purchaser may
request and conduct any additional tests, at its own expense, but
any delay caused by such process shall be a Force Majeure event.
2. Until the Date of Final Acceptance of the System or if a System
Upgrade is requested by Purchaser, the Date of Final Acceptance
of such System Upgrade, the Purchaser agrees to allow Contractor
access to all Segments of the System.
3. The Purchaser shall issue a Certificate of Commercial Acceptance
in accordance with the provisions of Sub-Article 9(D)(1).
4. Once a Segment of the System, the System, or a System Upgrade is
Ready for Provisional Acceptance, the Purchaser shall issue a
Certificate of Provisional Acceptance, provided, that it is
within the Purchaser's sole discretion as to whether to accept a
Segment instead of the System.
5. Once the System or a System Upgrade is Ready for Final
Acceptance, the Purchaser shall issue a Certificate of Final
Acceptance.
6. The Purchaser shall not unreasonably withhold or delay issuance
of a Certificate of Commercial Acceptance, a Certificate of
Provisional Acceptance or a Certificate of Final Acceptance.
7. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Acceptance of the System will occur by December 30,
1999 (as such date may be extended under Article 6 (Contract
Variations), Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled RFS
Date").
8. The Date of Commercial Acceptance, Provisional Acceptance and
Final Acceptance, as the case may be, shall be deemed to have
occurred with respect to a Segment, the System or a System
Upgrade if a Certificate
<PAGE>
28
of Commercial Acceptance, a Certificate of Provisional Acceptance
or a Certificate of Final Acceptance is issued with respect
thereto.
B. Notice of Acceptance or Rejection
1. Within thirty (30) days of receipt by Purchaser and Independent
Engineer of the Commissioning Report or Upgrade Commissioning
Report, as the case may be, the Purchaser must issue notification
to the Contractor of the following:
(a) issuance of a Certificate of Provisional Acceptance in
accordance with Sub-Article 9(C); or
(b) rejection of a Certificate of Provisional Acceptance, but
instead issuance of a Certificate of Commercial Acceptance
in accordance with Sub-Article 9(D) below; or
(c) rejection of the Segment, the System or System Upgrade in
its existing condition and issuance of neither a Certificate
of Provisional Acceptance nor a Certificate of Commercial
Acceptance, with in the case of the System or System Upgrade
a written explanation of reasons for rejection (it being
understood that acceptance of a Segment instead of the
System is at the sole discretion of the Purchaser).
If the Purchaser (or the Independent Engineer on its behalf)
fails to respond with such notification within thirty (30) days,
then the Date of Provisional Acceptance of the Segment (subject
to Purchaser's consent), the System or System Upgrade shall be
deemed to be the date such Commissioning Report or Upgrade
Commissioning Report, as the case may be, was received by the
Purchaser.
2. On receipt of a notice from the Purchaser pursuant to Sub-
Articles 9(B)(1)(b) or (c) above, the Contractor shall be
entitled to address any disputes and explain any discrepancies to
the Purchaser regarding the results of the Acceptance Testing.
Unless Purchaser, for good cause, rejects such explanation, it
shall issue a new notice pursuant to Sub-Article 9(B)(1) above,
which shall be deemed to have been issued on the date of the
original notice.
3. In case of rejection, and if the explanation by the Contractor as
in Sub-Article 9(B)(2) above is not accepted, for good cause, by
the Purchaser, the Contractor shall carry out the necessary
corrective actions and will effect a new series of Acceptance
Testing ("Retesting"). After receipt by Purchaser and Independent
Engineer of the new Commissioning Report or Upgrade Commissioning
Report, as the case
<PAGE>
29
may be, describing the results of Retesting, the Purchaser will
be granted a new period of thirty (30) days to analyze the new
Report according to the provisions of Sub-Article 9(B)(1) and any
new notice of the Purchaser shall apply from the date the
Purchaser receives such new Commissioning Report or Upgrade
Commissioning Report, as the case may be.
C. Provisional Acceptance
1. The Certificate of Provisional Acceptance may have annexed to it
a list of any outstanding deficiencies to be corrected by the
Contractor.
2. The Contractor shall, as soon as reasonably practicable, correct
such deficiencies and complete the Work or Upgrade Work indicated
on all such listed items so as to comply in all material respects
with the requirements of this Contract, provided that the
Purchaser allows Contractor the necessary access to the
Segment(s) as the Contractor needs to correct such deficiencies
and complete the Work or Upgrade Work. The Contractor shall give
the Purchaser reasonable notice of its requirement for such
access.
D. Commercial Acceptance
1. A Certificate of Commercial Acceptance shall be issued by
Purchaser with respect to a Segment, the System or System Upgrade
if the results of the Acceptance Testing demonstrate that such
Segment, the System or such System Upgrade does not justify the
issuance of a Certificate of Provisional Acceptance, but
nevertheless, such Segment, the System or such System Upgrade is
Ready for Commercial Acceptance; provided, that acceptance of a
--------
Segment instead of the System shall be in the sole discretion of
the Purchaser.
2. Each Certificate of Commercial Acceptance shall have annexed to
it a mutually agreed list of all outstanding items to be
completed by the Contractor.
3. The Contractor shall, as soon as reasonably practicable, remedy
the outstanding items, provided that the Purchaser allows
Contractor the necessary access to the Segment(s) as the
Contractor needs to remedy such outstanding items. The Contractor
shall give the Purchaser reasonable notice of its requirement for
such access. Notwithstanding the above, provided that Contractor
has been allowed access to the Segment(s) as required in Sub-
Article 9(A)(2), the Contractor shall continue to carry the risk
of loss for any outstanding item until such item is no longer
outstanding.
<PAGE>
30
4. When the outstanding items referenced in Sub-Article 9(D)(3)
above have been remedied, and the Segment(s) or System Upgrade is
otherwise Ready for Provisional Acceptance, the Purchaser will
promptly issue a Certificate of Provisional Acceptance; provided,
--------
that acceptance of a Segment instead of the System shall be in
the sole discretion of the Purchaser.
5. The issuance of a Certificate of Commercial Acceptance with
respect to a Segment or System Upgrade shall in no way relieve
the Contractor from its obligation to provide a Segment or System
Upgrade conforming with the Performance Requirements at the time
of the issuance of a Certificate of Commercial Acceptance.
E. Final Acceptance
1. Within thirty (30) days of the date of receipt by Purchaser and
Independent Engineer of the Final Commissioning Report, the
Purchaser shall issue a Certificate of Final Acceptance or reject
such Report. If the Purchaser neither issues a Certificate of
Final Acceptance nor rejects such Report within such thirty (30)
day period, then the Date of Final Acceptance of the System shall
be deemed to be the date such Final Commissioning Report was
received by the Purchaser.
F. Title and Risk of Loss
1. If the Purchaser, in its sole discretion, chooses to accept a
Segment prior to accepting the System, then upon payment of all
amounts listed in the Billing Schedule with respect to a Segment
(other than the Retainage applicable to such Segment) and the
issuance of a Certificate of Commercial Acceptance or a
Certificate of Provisional Acceptance with respect to such
Segment by the Purchaser in accordance with this Contract, title
(free and clear of all liens other than those deriving through or
from the Purchaser) to such Segment shall vest in the Purchaser.
2. Upon (i) payment of all amounts listed in the Billing Schedule
with respect to the System (other than the Retainage) and (ii)
the issuance of a Certificate of Commercial Acceptance or a
Certificate of Provisional Acceptance with respect to the System
by the Purchaser in accordance with this Contract, title (free
and clear of all liens other than those deriving through or from
the Purchaser) to the System shall vest in the Purchaser.
3. Upon payment of the Upgrade Price with respect to a System
Upgrade and the issuance of a Certificate of Commercial
Acceptance or a Certificate of Provisional Acceptance with
respect to such System
<PAGE>
31
Upgrade by the Purchaser in accordance with this Contract, title
to such System Upgrade shall vest in the Purchaser.
4. As from the date of vesting of title in a Segment, the System or
a System Upgrade, the Purchaser shall, except as set forth in the
following sentence, assume the risk of loss in respect of all
parts of such Segment, the System or System Upgrade and
responsibility for its maintenance. As stated in Sub-Article
9(A)(2), the Contractor will be allowed access to such Segment,
and, so long as the Contractor has been allowed access to such
Segment as may be required, the Contractor shall continue to
carry the risk of loss with respect of each item outstanding
under Sub-Article 9(C)(1) and 9(D)(2) until such item is no
longer outstanding.
ARTICLE 10 WARRANTY
- --------------------
A. The Contractor warrants that the System and each System Upgrade,
including its spares, shall be free from defects in supplies, workmanship and
design for a period of * years commencing from the Date of Provisional
Acceptance of the System or such System Upgrade, as the case may be,
(hereinafter Warranty Period" and "Upgrade Warranty Period"), with Ship Costs
being covered for the first * years of the Warranty Period (the "Ship Period")
and the Purchaser being responsible for all Ship Costs thereafter.
1. During the Warranty Period for the System or the Upgrade Warranty
Period for a System Upgrade, the Contractor shall make good, by
repair or replacement, at its sole option, any defects in the
System or such System Upgrade, as the case may be, including any
spares, which may become apparent or be discovered due to
imperfect workmanship, faulty design or faulty material supplied
by the Contractor, or any act, neglect or omission on the
Contractors part.
(a) If at any time within the Warranty Period or the Upgrade
Warranty Period for a System Upgrade any defect occurs which
causes the System or such System Upgrade, as the case may
be, to fail to meet its overall Performance Requirements,
the Contractor shall repair or replace such part or parts.
In making such repairs, Contractor may make changes to the
System or such System Upgrade, as the case may be, or
substitute equipment of later or comparable design, provided
the changes, modifications, or substitutions under normal
and proper use do not cause the System or such System
Upgrade as the case may be to fail to meet the Performance
Requirements.
(b) The Contractor shall use reasonable efforts to minimize the
period of time that any Segment or the System is out of
service
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
32
for testing and repair. The Purchaser agrees to cooperate
with the Contractor to facilitate the Contractor's repair
activity.
(c) It is understood that if there is a problem on the System,
the Purchaser may immediately dispatch the maintenance
authority to effect repairs. If and to the extent that such
problem is determined to be caused by a defect in the System
covered by this warranty, the Contractor shall reimburse the
Purchaser for its actual Non-Ship Costs incurred and, with
respect to any such repair relating to a defect identified
in good faith by Purchaser in writing prior to the end of
the Ship Period, actual Ship Costs incurred.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing and to Sub-Article 10(D), any
repair by the Purchaser shall not in any way diminish
the Contractor's obligation under the warranty. Any
equipment discovered to be defective or faulty and
recovered during a warranty repair shall be returned to
the Contractor at its request.
(d) In the event that the Contractor fails to make the repair or
to make reasonable efforts to minimize the period of time
that the System is out of service for repair, the Purchaser
may repair the System or the System Upgrade and the
Contractor shall reimburse the Purchaser for Non-Ship Costs
and, with respect to any such repair relating to a defect
identified in good faith by Purchaser in writing prior to
the end of the Ship Period, Ship Costs.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing, any repair by the Purchaser
shall not in any way diminish the Contractor's
obligation under the warranty. Any equipment discovered
to be defective or faulty and recovered during a
warranty repair shall be returned to the Contractor at
its request.
<PAGE>
33
2. Contractor shall bear the Ship Costs of only those repairs of the
defects identified in good faith by Purchaser in writing prior to
the end of the Ship Period. However, the Contractor shall bear
the Non-Ship Costs of each repair, replacement or improvement
required during the Warranty Period.
As used herein, "Ship Cost" means the costs of operating a
vessel, including but not limited to running and standing charges
for the vessel (including but not limited to labor charges for
the vessel's crew, at sea insurance, port charges, fuel and lube
oils, consumables, cable loading, cable unloading, navigation and
maritime communications) as well as the costs associated with the
use and operation of a remotely operated vehicle and the tracked
self propelled burial tool and "Non-Ship Costs" means the costs
of making a repair, including the cost of components, equipment
or materials requiring replacement, the cost of any additional
equipment necessary to effect the repair, the cost of making the
repair, including the cost of reburying any previously buried
portion, the cost of labor and engineering assistance or
development required to make the repair and all necessary
associated costs, such as, but not limited to, shipping and
customs and services that may be required to make the repair, but
excluding any of the foregoing which are Ship Costs.
3. The Contractor shall effect all warranty repairs of the System
and shall supply all necessary repair materials. However, the
Contractor may use, with the consent of the Purchaser, which
shall not be unreasonably withheld, the materials needed to
effect a repair from the Purchaser's available spare materials.
The Contractor shall promptly replace in kind such materials
supplied from the Purchaser's spare materials. The replacement
of or reimbursement for such materials shall be made at a time
mutually agreed to by the Purchaser and the Contractor.
4. The Contractor warrants that services furnished hereunder will be
performed in a workmanlike manner using materials free from
defects except when such materials are provided by the Purchaser
(it being understood that all materials arranged for directly by
Contractor, whether or not purchased in the name of Purchaser,
are not materials provided by the Purchaser). If such services
prove to be not so performed and Purchaser notifies the
Contractor within six (6) months from the completion of the
service, the Contractor will promptly correct the defect.
5. Any part which replaces a defective part during the applicable
Warranty Period or Upgrade Warranty Period, shall be subject to
the remaining Warranty Period and Ship Period, if any, or Upgrade
Warranty Period, as the case may be, of the part which was
replaced. However, the Warranty Period shall never exceed *
from the Date of
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
34
Provisional Acceptance of the System and the Upgrade Warranty
Period for any System Upgrade shall never exceed * years
from the Date of Provisional Acceptance of such System Upgrade.
Further, Ship Costs shall be included only with respect to
defects identified in good faith by Purchaser in writing during
the first * from the Date of Provisional Acceptance of the
System.
B. *
C. The warranties provided above in Sub-Articles 10(A) and (B) by the
Contractor shall not apply to defects or failures of performance, which result
from damage caused by acts or omissions of the Purchaser or its agents,
employees or representatives or third parties (other than the Contractor), or
which result from modifications, misuse, neglect, accident or abuse, repair,
storage or maintenance by other than the Contractor or its agents or, use in a
manner not in accordance with the System Description or other causes set forth
in Article 12 (Purchaser's Obligations) or Article 17 (Force Majeure).
D. THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WHICH ARE SPECIFICALLY
DISCLAIMED.
E. The Contractor shall, in accordance with its normal operating
practices, investigate any defective part or parts repaired or replaced pursuant
to this Article 10 to determine the type of defect and the cause of failure of
the part or parts. The Contractor shall provide a written report to the
Purchaser on the results of the investigation, if any.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
35
ARTICLE 11 CONTRACTOR SUPPORT
- ------------------------------
A. For a period of ten (10) years from the applicable Date of Provisional
Acceptance or Date of Commercial Acceptance of the System whichever is earlier,
the Contractor will make available to the Purchaser replacement parts and repair
service for the System as may be reasonably necessary for its operation,
maintenance or repair. Where identical parts cannot be supplied, the Contractor
shall provide fully compatible parts with characteristics equal or superior to
those originally provided by the Contractor. Such parts and services shall be
provided under commercially reasonable conditions of price and delivery.
B. Notwithstanding Sub-Article 11(A), if for any reason the Contractor or
Contractor's suppliers intend to cease or ceases manufacturing or having
manufactured identical or fully compatible replacement parts, the Contractor
shall use reasonable efforts to give one year's prior written notice to the
Purchaser to allow the Purchaser to order from the Contractor any required
replacement parts and shall provide full details of the arrangements to provide
equivalents.
ARTICLE 12 PURCHASER'S OBLIGATIONS
- -----------------------------------
A. Purchaser agrees to pay all amounts payable by it when due under this
Contract and to perform all of its other obligations under this Contract.
B. In the event the Purchaser establishes a branch office in any of the
relevant jurisdictions, the Purchaser shall be solely responsible to perform all
activities necessary to establish such branch office.
C. If any loss, damage, delay or failure of performance of the System or
a System Upgrade results from the Purchaser's failure to perform its obligations
under this Contract and results in an increase in the costs of performance or
the time required for performance of any of the Contractor's duties or
obligations under this Contract, the Contractor shall be entitled, as
appropriate, to (i) an equitable adjustment in the Contract Price or applicable
Upgrade Price, (ii) an equitable extension of time for completion of its Work or
the Upgrade Work, (iii) reimbursement for all such additional costs incurred,
and (iv) to the extent necessary in light of Purchaser's failure and the
adjustments made in accordance with clauses (i), (ii) and (iii) above, an
equitable adjustment of the Work and/or Upgrade Work.
1. The Contractor shall inform the Purchaser promptly of any
occurrence covered under this Sub-Article 12(C), and shall use
reasonable efforts to minimize any such additional costs or
delay.
2. The Contractor shall promptly provide to the Purchaser an
estimate of the anticipated additional costs and time required to
complete the Work or Upgrade Work and request relief from
contractual obligations or duties, as appropriate. Purchaser
shall, upon notification, make advance payment to Contractor for
the estimated amount of anticipated additional costs; provided
--------
that Purchaser may deposit such amount into
<PAGE>
36
the Dispute Account and Sub-Article 5(C)(5) shall apply.
Contractor shall without limiting Purchaser's obligations in the
foregoing sentence, discuss such costs with Purchaser upon
Purchaser's request.
3. As soon as reasonably practicable after the actual costs become
known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser.
4. If the estimated amount is greater than the amount of actual
costs, then the Contractor shall reimburse the Purchaser. If the
amount of actual costs incurred is greater than the estimated
amount, then the Purchaser shall reimburse the Contractor for any
shortfall in accordance with Article 5 (Terms of Payment of
Purchaser).
ARTICLE 13 TERMINATION FOR DEFAULT
- -----------------------------------
A. Either Party may, by written Notice of Termination for Default,
immediately upon receipt or such later date as specified in the notice,
terminate the whole or any part of this Contract in any one of the following
circumstances (each an "Event of Default"):
1. In the case of the Purchaser, (a) if Contractor materially fails
to comply with the terms and conditions of this Contract and, if
such failure occurs prior to the Date of Commercial Acceptance or
the Date of Provisional Acceptance, it would not be reasonable to
believe that the Contractor will be able to provide the System
which is Ready for Provisional Acceptance, within 200 days after
the Scheduled RFS Date or (b) the Contractor fails to cause the
System to be Ready for Provisional Acceptance within 200 days
after the Schedule RFS Date;
2. If the other Party defaults on any of its payment obligations and
does not cure such default within a period of thirty (30) days
(or such longer period as the non-breaching Party may authorize
in writing) after receipt of written notice demanding cure
(subject to dispute provisions);
3. If the other Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the
foregoing;
<PAGE>
37
4. If an involuntary case or other proceeding shall be commenced
against the other Party seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered
against the other Party.
B. If this Contract is terminated by the Purchaser as provided in Sub-
Article 13(A), the Purchaser, in addition to any other rights provided in this
Article and upon payment to Contractor of all monies due and owing as set forth
in Sub-Article 13(C) below, may require the Contractor to transfer title and
deliver to the Purchaser in the manner and to the extent directed by the
Purchaser any completed equipment, material or supplies, and such partially
completed cable and materials, parts, tools, dies, jigs, fixtures, plans,
drawings, information, and contract rights (hereinafter collectively
"Manufacturing Materials") as the Contractor has had specifically produced or
specifically acquired for the performance of such part of this Contract as has
been terminated and which, if this Contract had been completed, would have been
required to be furnished to the Purchaser; and the Contractor shall, upon the
direction of the Purchaser, protect and preserve property in the Contractor's
possession in which the Purchaser has an interest.
C. If the Contract is terminated by Contractor as provided in Sub-Article
13(A), the Purchaser shall pay the total of:
1. the cost of settling and paying claims arising out of the
termination of Work under the contracts and orders, as provided
in Sub-Article 14(B)(3) below which are properly chargeable to
the terminated portion of this Contract; and
2. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection, preservation and disposition of property
proper to this Contract.
D. Force Majeure events pursuant to Article 17 (Force Majeure) shall not
constitute a default or provide a basis for termination under this Article.
E. Regardless of any termination of this Contract as provided in Sub-
Article 13(A), neither Party shall be relieved from any liability for damages or
otherwise which may have been incurred by reason of any breach of this Contract.
<PAGE>
38
F. Without limitation to the foregoing, in the event that Purchaser
terminates this Contract pursuant to Sub-Article 13(A), the Contractor shall be
liable to Purchaser (without duplication) for the total of all costs and
expenses incurred by Purchaser in completing the Work or in correcting
deficiencies in the Work to the extent that the payments made to Contractor
pursuant to this Contract, together with such costs and expenses, exceed the
Contract Price.
ARTICLE 14 TERMINATION FOR CONVENIENCE
- ---------------------------------------
A. The performance of Work under this Contract may be terminated by the
Purchaser in whole, or in part, at its discretion. The Purchaser shall deliver
to the Contractor a written notice specifying the extent to which performance of
Work under this Contract is terminated, and the date upon which such termination
becomes effective (a "Notice of Termination"). Upon termination, the Purchaser
will make payment to Contractor of all monies due and owing as set forth in Sub-
Article 14(D) below.
B. After receipt of such Notice of Termination, and except as otherwise
directed by the Purchaser, the Contractor shall:
1. Stop Work under this Contract on the date and to the extent
specified in the Notice of Termination;
2. Place no further orders or contracts for materials, services or
facilities except as may be necessary for completion of such
portion of Work under this Contract as is not terminated;
3. Use reasonable efforts to terminate all orders and contracts to
the extent that they relate to the performance of Work terminated
by the Notice of Termination;
4. Assign to the Purchaser, in the manner, at the time, and to the
extent directed by the Purchaser, all of the Contractor's rights,
title and interest under the orders and contracts so terminated;
5. Use reasonable efforts to settle all outstanding liabilities and
all claims arising out of such termination of orders and
contracts, with the Purchaser's approval or ratification to the
extent required;
6. Transfer title and deliver to the Purchaser in the manner, at the
time and to the extent (if any) directed for the fabricated or
unfabricated parts, work in process, completed work, supplies and
other material produced as a part of, or acquired in connection
with, the performance of the Work terminated by the Notice of
Termination;
7. Use reasonable efforts to sell, in the manner, at the time, to
the extent and at the price or prices directed or authorized by
the Purchaser, any
<PAGE>
39
property of the types referred to in Sub-Article 14(B)(6) above
provided, however, that the Contractor:
-------- -------
(a) shall not be required to extend credit to any buyer; and
(b) may acquire any such property under the conditions
prescribed by and at a price approved by the Purchaser;
and provided further that the net proceeds of any such transfer
-------- -------
or disposition shall be applied in reduction of any payments to
be made by the Purchaser to the Contractor under this Contract
or, if no such payments are due, paid in such other manner as the
Purchaser may direct;
8. Complete performance of such part of the Work which was not
terminated by the Notice of Termination; and
9. Take such action as may be necessary, or as the Purchaser may
reasonably direct, for the protection and preservation of the
property related to this Contract which is in the Contractor's
possession and in which the Purchaser has acquired or may acquire
an interest.
C. After such Notice of Termination, the Contractor shall submit to the
Purchaser a written termination claim. Such claim shall be submitted promptly,
but, unless otherwise extended, in no event later than six months from the
effective date of termination.
D. In the settlement of any such partial or total termination claim, the
Purchaser shall pay to the Contractor the total of:
1. all amounts invoiced in accordance with the Contract plus, for
Work or Supplies which have been done or provided but which have
not been invoiced, an amount calculated by reference to the
prices set forth in the Provisioning Schedule and to the amount
of such Work or Supplies done or provided;
2. the cost of settling and paying claims arising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 14(D)(4) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred
<PAGE>
40
in connection with the protection and disposition of property
proper to this Contract.
E. In arriving at the amount due to the Contractor under this Article 14,
all unliquidated payments made to the Contractor, any liability which the
Contractor may have to the Purchaser, and the agreed price for, or the proceeds
of sale of any materials, supplies or other things acquired by the Contractor or
sold, pursuant to the provisions of this Article 14, and not otherwise recovered
by or credited to the Purchaser shall be deducted.
F. The Purchaser may, from time to time, under such terms and conditions
as they prescribe approve partial payments and payments on account against costs
incurred by the Contractor in connection with the terminated portion of this
Contract. If such payments total in excess of the amount finally agreed or
determined to be due under this Article 14, such excess shall be refunded, upon
demand, by the Contractor to the Purchaser.
G. For a period of one year after final settlement under this Contract,
the Contractor shall preserve and make available to the Purchaser at reasonable
times at the Contractor's office, but without direct charge to the Purchaser,
all supporting books, records and documents required to be kept relating to the
terminated Work.
ARTICLE 15 SUSPENSION
- ----------------------
A. The Purchaser may, at its convenience, order the Contractor to suspend
all or part of the Work for such period of time as the Purchaser determines to
be appropriate. If, as a result of such Suspension, the Contractor incurs
additional costs or losses in the discharge of its responsibilities under this
Contract, and where such suspension, losses or costs are not caused by the
Contractor's act or omission and could not have been reasonably prevented by the
Contractor, the Contractor shall be allowed an equitable adjustment to the
Contract Price or the Provisioning Schedule in Appendix 1 and an equitable
extension in the time required for performance.
B. Upon the occurrence of:
(i) an Event of Default by the Purchaser;
(ii) any transfer prior to the Date of Final Acceptance of any portion
of the System except in accordance with Article 37; or
(iii) any supplement executed by a Transferee shall not be in full
force and effect;
the Contractor, in addition to any other rights provided in Article 13, may
suspend performance of its obligations and all Work and (in the case of clause
(i)) Upgrade Work.
C. Every forty-five (45) days, during the period of Suspension, the
Parties shall meet formally and review the circumstances surrounding the
Suspension including without limitation, the anticipated date of re-commencing
Work.
<PAGE>
41
D. Thereafter, if the Suspension continues for a total of one hundred and
eighty (180) days, the Contractor may terminate the Contract by notice to the
Purchaser and the Contract shall be deemed to have been terminated by Purchaser,
effective on the date of Contractor's notice, in accordance with Sub-Article
13(A) and the remaining provisions of Article 13 shall apply.
ARTICLE 16 TITLE AND RISK OF LOSS
- ----------------------------------
A. Except as provided in Article 18 (Intellectual Property), Article 20
(Safeguarding of Information and Technology) and Article 21 (Export Control),
title to all Supplies provided by the Contractor hereunder for incorporation in
or attachment to a Segment shall pass to and vest in the Purchaser in accordance
with Article 9 (Acceptance). Risk of loss or damage to all Supplies provided by
the Contractor for incorporation in or attachment to such Segment shall pass to
and vest in the Purchaser in accordance with Article 9. Upon termination of this
Contract pursuant to Article 13 (Termination for Default) or 14 (Termination for
Convenience), the Purchaser may require, upon full payment of all amounts due
thereunder (provided that, without limiting Purchaser's obligation to make any
--------
such payment, if this Contract is terminated by Purchaser because of a
Bankruptcy Event full payment shall not be required prior to the transfer of
title), that title to the equipment, materials and supplies, which has not
previously passed to the Purchaser, pass to the Purchaser, free and clear of all
liens, claims, charges and other encumbrances other than those deriving through
Purchaser.
B. Upon the passage of title in accordance with the terms of Article 13
(except a transfer described in the proviso of the last sentence of Sub-Article
16(A)), the Contractor warrants that all parts, materials, and equipment to
which title has passed will be free and clear of all liens, claims, charges and
other encumbrances other than those deriving through the Purchaser.
ARTICLE 17 FORCE MAJEURE
- -------------------------
A. The Contractor shall not be responsible for any loss, damage, delay or
failure of performance resulting directly or indirectly from any cause which is
beyond its reasonable control ("Force Majeure"), including but not limited to:
delay in obtaining or failure to obtain any Permits (subject to the provisions
of Sub-Article 7(D)); acts of God or of the public enemy; acts or failure to act
of any governmental authority; war or warlike operations, civil war or
commotion, mobilizations or military call-up, and acts of similar nature;
revolution, rebellions, sabotage, and insurrections or riots; fires, floods,
epidemics, quarantine restrictions; strikes, and other labor actions; freight
embargoes; unworkable weather; trawler or anchor damage; damage caused by other
marine activity such as fishing, marine research and marine development; acts or
omissions of transporters; or the acts or failure to act of any of the
Purchaser, of its representatives or agents, provided that (i) a loss by
--------
Contractor of employees (other than by reasons of Force Majeure), (ii) strikes
and other labor actions involving the Contractor's own work force, (iii) the
first 5 days of unworkable weather (unless any such day occurs during the 30
days immediately preceding the then Scheduled RFS Date), (iv) the failure (other
than by reason of force majeure) of any subcontractor, supplier or transporter
to
<PAGE>
42
perform its obligations to Contractor (including on account of insolvency)
unless such supplies or transportation or other services are generally
unavailable in the marketplace, (v) the unavailability of any raw materials or
components, unless such raw materials or components are generally unavailable in
the marketplace or are unavailable by reason of force majeure or (vi) any
increase in Contractor's costs, shall not in and of itself constitute Force
Majeure.
B. If any such Force Majeure causes an increase in the time or costs
required for performance of any of its duties or obligations, the Contractor
shall be entitled to an equitable extension of time for completion of the Work
or the Upgrade Work, as the case may be, but not any adjustment in the Contract
Price nor any reimbursement for any such additional costs incurred unless such
additional costs are a direct consequence of Purchaser's acts.
C. Increase in cost due to Purchaser will be as provided for in Article
12, Purchaser's Obligations.
D. The Contractor shall inform the Purchaser promptly with written
notification, and in all cases within fourteen (14) days of discovery and
knowledge, of any occurrence covered under this Article and shall use its
reasonable efforts to minimize such additional delays. The Contractor shall
promptly provide an estimate of the anticipated time required to complete the
Work or the Upgrade Work. Contractor shall be entitled to an equitable
extension of time resulting from the Force Majeure condition.
E. Within thirty (30) days of receipt of such a notice from Contractor,
the Purchaser and the Independent Engineer may provide a written response. The
absence of a response shall be deemed as acceptance of Contractor's notice and
request for additional time.
F. If a Force Majeure continues for a total of two hundred (200) days,
either Party may terminate the Contract by notice to the other and the Contract
shall be deemed to have been terminated by Purchaser, effective on the date of
the terminating Party's notice, in accordance with Sub-Article 14(A) and the
remaining provisions of Article 14 shall apply to such termination.
G. Every 45 days during the period of Force Majeure, the Parties shall
meet and review the circumstances surrounding the Force Majeure, including,
without limitation, the anticipated date of recommencing work.
ARTICLE 18 INTELLECTUAL PROPERTY
- ------------------------------------
A. Ownership
All right, title, and interest in and to all Intellectual Property
created or developed specifically for this Contract by Contractor in the course
of its performance under this Contract (the "Project Intellectual Property") is
and shall remain the sole property of Purchaser. All right, title and interest
in and to all Intellectual Property created or developed
<PAGE>
43
by Contractor before commencing its performance under this Contract, or created
or developed by Contractor exclusively in connection with activities other than
its performance under this Contract or in the course of the Work but is not
Project Intellectual Property (collectively, the "Contractor Intellectual
Property"), is and shall remain the sole property of Contractor. Unless
otherwise expressed in this Contract, no license is implied or granted herein to
Purchaser to any Contractor Intellectual Property by virtue of this Contract,
nor by the transmittal or disclosure of any such Contractor Intellectual
Property to Purchaser. Any Contractor Intellectual Property disclosed,
furnished, or conveyed to Purchaser that is marked as "Proprietary" or
"Confidential" (or if transmitted orally is identified as being proprietary or
confidential in a subsequent writing) shall be treated in accordance with the
provisions of Article 20 (Safeguarding of Information and Technology). As used
herein, "Intellectual Property" means any information, computer or other
apparatus programs, software, specifications, drawings, designs, sketches,
tools, market research or operating data, prototypes, records, documentation,
works of authorship or other creative works, ideas, concepts, methods,
inventions, discoveries, improvements, or other business, financial and/or
technical information (whether or not protectable or registrable under any
applicable intellectual property law).
B. Licenses
Contractor shall furnish to Purchaser, upon the transfer of title to
any portion of the System or a System Upgrade pursuant to Article 9, copies of
all technical information, specifications, drawings, designs, sketches, tools,
operating data, records, documentation and/or other types of engineering or
technical data or information relating to the operation, maintenance or repair
of each item of such portion of the System or System Upgrade as delivered by
Contractor (the "Deliverable Technical Material"). Contractor grants to
Purchaser a perpetual, royalty-free, non-transferable (except under the
circumstances specified in Sub-Article 18(G) below) license to use and reproduce
all Contractor Intellectual Property included in or necessary to use the
Deliverable Technical Materials, for the purposes of fulfilling Purchaser's
obligations under this Contract and using, operating or maintaining the System
(as upgraded by any System Upgrades) supplied by Contractor, with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using, operating or maintaining the System (as upgraded by any
System Upgrades). Contractor grants to Purchaser a perpetual, royalty-free,
nontransferable (except under the circumstances specified in Sub-Article 18(G)
below) license to use and reproduce those portions of Deliverable Technical
Materials owned or controlled by third parties (but only to the extent of any
rights which may have been granted to Contractor by such third parties), for the
purpose of fulfilling Purchaser's obligations under this Contract and using,
operating or maintaining the System supplied by Contractor, with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using, operating or maintaining the System (as upgraded by any
System Upgrades), but with no right to sublicense. It is expressly understood
that it shall not be a violation of this license for Purchaser, on its own
behalf or through third parties (under appropriate written obligations
respecting confidentiality) specifically employed for the purpose, to use and
reproduce the Deliverable Technical Material to modify the System (as
<PAGE>
44
upgraded by any System Upgrades) or connect the System (as upgraded by any
System Upgrades) to other systems, subject to the rights of third parties
therein and thereto, and subject to the limitations on Contractor's obligations
as set forth in Articles 10(C) and 19(A) concerning any such modification or
interconnection.
C. Deliverable Software
Contractor shall furnish to the Purchaser, upon transfer of title to
any portion of the System or System Upgrade pursuant to Article 9, copies of all
computer or other apparatus programs and software and related documentation
relating to the operation, maintenance or repair of the computer systems of such
portion of the System or System Upgrade, as the case may be, as delivered by
Contractor (the "Deliverable Software"). All Deliverable Software that is
Project Intellectual Property shall be delivered in both source code and object
code (i.e., executable) form. All Deliverable Software that is Contractor
Intellectual Property shall be delivered in executable form. Contractor shall
also furnish to Purchaser, from time to time during the Warranty Period or any
Upgrade Warranty Period, copies of all computer or other apparatus programs and
software and related documentation that Contractor may develop to correct errors
or to maintain Deliverable Software previously furnished to Purchaser, which
shall also be treated as Deliverable Software in accordance with the terms of
this provision and subject to this Contract upon delivery thereof to Purchaser.
Contractor grants to Purchaser a perpetual, royalty-free, non-transferable
(except under the circumstances specified in Sub-Article 18(G) below) license to
use and reproduce the Deliverable Software that is Contractor Intellectual
Property, for the purposes of fulfilling Purchaser's obligations under this
Contract and using, operating or maintaining the System (as upgraded by any
System Upgrades) supplied by Contractor, with the right to employ third parties
(under appropriate written obligations respecting confidentiality) to assist
Purchaser in fulfilling its obligations under this Contract and in using,
operating or maintaining the System (as upgraded by any System Upgrades).
Contractor grants to Purchaser a perpetual, royalty-free, nontransferable
(except under the circumstances specified in Sub-Article 18(G) below) license to
use and reproduce those portions of Deliverable Software owned or controlled by
third parties (but only to the extent of any rights which may have been granted
to Contractor by such third parties), for the purposes of fulfilling Purchaser's
obligations under this Contract and using, operating or maintaining the System
(as upgraded by any System Upgrades) supplied by Contractor, with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using, operating or maintaining the System (as upgraded by any
System Upgrades), but with no right to sub-license. The license granted to
Purchaser by Contractor in Deliverable Software that is Contractor Intellectual
Property or that is owned or controlled by third parties shall be limited to use
with the particular type of computer equipment or substantially similar
replacement equipment for which such Deliverable Software was provided in the
System (as upgraded by any System Upgrades) as supplied by Contractor.
1. Confidentiality
Purchaser shall keep Deliverable Software that is Contractor
Intellectual Property or that is owned or controlled by third
parties confidential in
<PAGE>
45
accordance with Article 20 (Safeguarding of Information and
Technology) and Article 21 (Export Control), to the extent that
such Deliverable Software is designated as Confidential
Information by its owner, and agrees to use its best efforts to
see that its employees, consultants, and agents, and other users
of such software, comply with the provisions of this Contract.
Purchaser also agrees to refrain from taking any steps, such as
reverse assembly or decompilation, to derive a source code
equivalent of any Deliverable Software that is not Project
Intellectual Property, provided that Contractor does not go
insolvent or bankrupt to thereby trigger *. In the case of
insolvency or bankruptcy of Contractor, Purchaser shall limit any
derivation of a source code equivalent to that portion of the
Deliverable Software that is Contractor Intellectual Property.
Purchaser shall not under any circumstances take any steps to
derive a source code equivalent from that portion of the
Deliverable Software comprising commercial, off-the-shelf
software developed or provided by third parties.
2. Backup Copies
Purchaser may make and retain two archive copies in executable
form of Deliverable Software that is not Project Intellectual
Property. Any copy thereof will contain the same copyright
notice and proprietary markings as are on the original software
and shall be subject to the same restrictions as the originals.
3. Termination of Software Licenses
In the event of (i) use by Purchaser of Deliverable Software that
is not Project Intellectual Property in a manner other than as
permitted in Sub-Article 18(C) or (ii) any other material breach
of this Article 18 by Purchaser that, in either event, is not
cured within sixty (60) days from receipt by Purchaser of written
notice of such impermissible use or breach, Contractor, at its
option, may terminate the rights granted to Purchaser pursuant to
this Article, which termination shall take effect no sooner than
sixty (60) days following receipt by Purchaser of a subsequent
written notice of termination. Upon termination, Purchaser shall
either return or destroy, at Contractor's option, all copies of
Deliverable Software that is not Project Intellectual Property
furnished to Purchaser under this Contract.
4. Indemnification
In the event of (i) use by Purchaser of Deliverable Software that
is not Project Intellectual Property furnished hereunder other
than as permitted in Sub-Article 18(C) or (ii) any other material
breach of this Article 18 by Purchaser, the Purchaser shall
indemnify and hold Contractor harmless from any and all third
party claims resulting therefrom, whether arising from a defect
in the software or otherwise.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
46
D. Trademarks, Tradenames, etc.
No rights are granted herein to either Party to use any identification
(such as, but not limited to tradenames, trademarks, service marks or symbols,
and abbreviations, contractions, or simulations thereof) owned or used by the
other Party or its affiliates to identify itself, its affiliates or any of its
products or services. Each Party agrees that it will not, without the prior
written permission of the other Party, use such identification in advertising,
publicity, packaging, labeling, or in any other manner to identify itself or any
of its products, services, or organizations, or represent directly or indirectly
that any product, service, or organization of it is a product, service, or
organization of the other Party or its affiliates, or that any product or
service of a Party is made in accordance with or utilizes any Intellectual
Property belonging to the other Party or its affiliates.
E. DISCLAIMER, LIMITATION OF LIABILITY
CONTRACTOR REPRESENTS THAT ANY INFORMATION OR INTELLECTUAL PROPERTY
FURNISHED IN CONNECTION WITH THIS CONTRACT SHALL BE TRUE AND ACCURATE TO THE
BEST OF ITS KNOWLEDGE AND BELIEF, BUT CONTRACTOR SHALL NOT BE HELD TO ANY
LIABILITY FOR UNINTENTIONAL ERRORS OR OMISSIONS THEREIN.
F. Representations and Warranties
Contractor represents and warrants, to the best of its knowledge at
the time of delivery, (i) that the Deliverable Technical Materials and
Deliverable Software to be furnished by Contractor under this Contract will not
infringe any rights in Intellectual Property belonging to any third party, (ii)
that Contractor has all necessary rights to furnish such Deliverable Technical
Materials and Deliverable Software to Purchaser for use by Purchaser in
accordance with the terms of this Contract, and (iii) that Purchaser's use of
such Deliverable Technical Materials and Deliverable Software for the purposes
contemplated in this Contract will not, by itself, cause Purchaser to incur any
liability to any third party with respect to Purchaser's use thereof in
accordance with the provisions of this Contract.
G. Transferability
The licenses granted to Purchaser by Contractor in the Deliverable
Technical Materials and Deliverable Software are personal and non-transferable,
except that Purchaser may assign or transfer such licenses to an affiliated
entity under common control with the Purchaser or to any entity succeeding to
Purchaser's entire interest in the System (as upgraded by any System Upgrades)
as a result of reorganization or restructuring of the Purchaser or in the event
of a change of control of the Purchaser.
H. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
47
*
ARTICLE 19 INFRINGEMENT
- ---------------------------
A. The Contractor agrees to defend or settle at its own expense all suits
for infringement of any patent, copyright, trademark or other form of
intellectual property right in any country of the world, for the use and
operation of the System (as upgraded by any System Upgrades) as supplied by
Contractor and for any component part thereof or material or equipment used
therein (or the manufacture of any material or the normal use thereof) provided
by the Contractor or on its behalf pursuant to this Contract and will hold the
Purchaser harmless from all expense of defending any such suit and all payments
for final judgment assessed on account of such infringement, except such
infringement or claim arising from:
1. The Contractor's adherence to the Purchaser's directions in the
design and configuration of the System (as upgraded by any System
Upgrades) or to use materials, parts or equipment of the
Purchaser's selection; or
2. Such material, parts or equipment furnished to the Contractor by
the Purchaser, other than in each case, items of the Contractor's
design or selection or the same as any of the Contractor's
commercial merchandise or in processes or machines of the
Contractor's design or selection used in the manufacture of such
standard products or parts; or
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
48
3. Use of the System (as upgraded by any System Upgrades) or the
materials, parts or equipment furnished by Contractor other than
for the purposes indicated in, or reasonably to be inferred from,
this Contract or in conjunction with other products; or
4. Modification of the System (as upgraded by any System Upgrades)
or the materials, parts or equipment furnished by the Contractor,
or connection of the System to another system by any person or
entity other than Contractor, without prior expressed written
approval by Contractor.
B. The Purchaser will, at its own expense, defend all suits against the
Contractor for such excepted infringement and hold the Contractor harmless from
all expense of defending any such suit and from all payments by final judgment
assessed against the Contractor on account of such excepted infringement.
C. The Contractor and the Purchaser agree to give each other prompt
written notice of claims and suits for infringement, full opportunity and
authority to assume the sole defense, including appeals and, upon request and at
its own expense, the other agrees to furnish all information and assistance
available to it for such defense.
D. If all or any portion of the System (as upgraded by any System
Upgrades) or any material, part or equipment provided by the Contractor or on
its behalf is held to constitute an infringement (excluding such excepted
infringements specified in Sub-Article 19(A)) and is subject to an injunction
restraining its use or any order providing for its delivery up to or
destruction, or if in respect of any such claim of infringement the Contractor
deems it advisable to do so, the Contractor shall at its own expense either:
1. Procure for the Purchaser the right to retain and continue to use
the System, the affected portion thereof, or any such material,
part or equipment without interruption for the Purchaser;
2. Replace or modify the System, the affected portion thereof, or
any material, part or equipment so that it becomes noninfringing
while continuing to meet the Performance Requirements or
3. If the remedies specified in Sub-Articles 19(D)(1) an 19(D)(2)
are not feasible, refund to the Purchaser the full purchase price
paid for the System, the affected portion thereof, or any
material, part or equipment found to be infringing.
E. In no event shall the Purchaser make any admission or settle any claim
in relation with any claim for infringement without Contractor's consent.
ARTICLE 20 SAFEGUARDING OF INFORMATION AND TECHNOLOGY
- ---------------------------------------------------------
<PAGE>
49
A. In performance of this Contract, it may be mutually advantageous to
the Parties hereto to share certain specifications, designs, plans, drawings,
software, market research or operating data, prototypes, or other business,
financial, and or/technical information related to products, services, or
systems which are proprietary to the disclosing Party or its affiliates (and in
the case of Contractor, Contractor's parent company) (together with this
Contract and related documents, "Information"). The Parties recognize and agree
that Information includes information that was supplied in contemplation hereof
prior to execution of this Contract, and further agree that Information includes
information in both tangible and intangible form.
B. Unless such Information was previously known to the Party receiving
such Information free of any obligation to keep it confidential, or such
Information has been or is subsequently made public through other than
unauthorized disclosure by the receiving Party or is independently developed by
the receiving Party (as documented by the records of the receiving Party), it
shall be kept confidential by the Party receiving such Information, shall be
used only in the performance of this Contract, and may not be used for any other
purposes except upon such terms as may be agreed upon in writing by the Party
owning such Information. The receiving Party may disclose such Information to
other persons, upon the furnishing Party's prior written authorization, but
solely to perform acts which this Article expressly authorizes the receiving
Party to perform itself and further provided such other person agrees in writing
(a copy of which writing will be provided to the furnishing Party at its
request) to the same conditions respecting disclosure and use of Information
contained in this Article and to any other reasonable conditions requested by
the furnishing Party. Nothing herein shall prevent a Party from disclosing
Information (a) upon the order of any court or administrative agency, (b) upon
the request or demand of, or pursuant to any regulation of, any regulatory
agency or authority, (c) to the extent reasonably required in connection with
the exercise of any remedy hereunder and (d) to a Party's legal counsel or
independent auditors.
C. The Purchaser may disclose Information to its lenders and their
representatives in connection with obtaining financing for the System, provided
that each such lender or their representative enters into a confidentiality
agreement containing terms and conditions similar to those in this Contract. Any
such disclosure of Information shall be subject to the restrictions in Sub-
Article 20(B).
ARTICLE 21 EXPORT CONTROL
- -----------------------------
The Parties acknowledge that any products, software, and technical
information (including, but not limited to, services and training) provided by
either Party under this Contract are or may be subject to export laws and
regulations of the United States and the destination country(ies) and any use or
transfer of such products, software and technical information must be authorized
under those Laws. The Parties agree that they will not use, distribute, transfer
or transmit the products, software or technical information (even if
incorporated into other products) except in compliance with export Laws. If
requested by either Party, the other Party agrees to sign all necessary export-
related documents as may be required to comply with export Laws.
<PAGE>
50
ARTICLE 22 LIQUIDATED DAMAGES
- ---------------------------------
A. If the System is not Ready for Commercial Acceptance or Provisional
Acceptance by the Scheduled RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Article 15 (Suspension); or
4. Other arrangements as agreed between the Purchaser and the
Contractor;
then Contractor shall pay to Purchaser for each day of delay, for up to 200
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Contract Price for the System.
B. If a System Upgrade is not Ready for Commercial Acceptance or
Provisional Acceptance by the Scheduled Upgrade Date, as it may have been
extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Article 15 (Suspension); or
4. Other arrangements as agreed between the Purchaser and the
Contractor;
then Contractor shall pay to Purchaser for each day of delay, for up to 90 days,
by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Upgrade Contract Price.
ARTICLE 23 LIMITATION OF LIABILITY/INDEMNIFICATION
- ------------------------------------------------------
A. NOTWITHSTANDING ANY OTHER PROVISION IN THIS CONTRACT, AND IRRESPECTIVE
OF ANY FAULT, NEGLIGENCE OR GROSS NEGLIGENCE OF ANY KIND, IN NO EVENT SHALL
EITHER PARTY OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE
FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, RELIANCE OR SPECIAL (INCLUDING
PUNITIVE) DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUE, LOSS OF
BUSINESS OPPORTUNITY OR THE COSTS ASSOCIATED WITH THE USE OF RESTORATION
FACILITIES RESULTING FROM ITS FAILURE TO PERFORM PURSUANT TO THE TERMS AND
CONDITIONS OF THIS CONTRACT.
B. EXCEPT AS SET FORTH BELOW IN THE LAST TWO SENTENCES OF THIS SUB-
ARTICLE 23(B), THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY, WHETHER IN TORT,
CONTRACT OR OTHERWISE, EXCEPT FOR
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
51
CLAIMS RELATING TO SYSTEM UPGRADES, SHALL NOT EXCEED * OF THE CONTRACT PRICE.
THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY FOR CLAIMS RELATING TO SYSTEM
UPGRADES (IF CONTRACTOR CAN PROVE THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT
TRANSMISSION MARGIN AND THUS SUCH CLAIMS DO NOT ARISE UNDER CLAUSE (ii) OF SUB-
ARTICLE 10(B)) SHALL NOT EXCEED * OF THE APPLICABLE UPGRADE PRICE. THE FOREGOING
LIMITATION SHALL NOT APPLY TO CLAIMS UNDER SUB-ARTICLES 19(A) AND 23(C). IF
CONTRACTOR CANNOT PROVE THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT
TRANSMISSION MARGIN FOR A SYSTEM UPGRADE, THE CONTRACTOR'S MAXIMUM AGGREGATE
LIABILITY FOR CLAIMS ARISING UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B) SHALL NOT
EXCEED *.
C. Contractor, at its expense, shall defend, indemnify and hold harmless
Purchaser, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, prior to risk of loss passing to Purchaser,
the operation and maintenance of the System, to the extent such losses were
caused by the negligence or willful misconduct of the Contractor, its
subcontractors, employees or agents. The defense, indemnification and save
harmless obligation is specifically conditioned on the following: (i) Purchaser
providing prompt notification in writing of any such claim or demand when it
obtains Actual Knowledge thereof, unless such failure shall not have materially
impaired Contractor's ability to defend against such claim; (ii) Contractor
having control of the defense of any such action, claim or demand and of all
negotiations for its settlement or compromise; and (iii) Purchaser cooperating,
at Contractor's expense, in a reasonable way to facilitate the defense of such
claim or demand or the negotiations for its settlement.
D. Purchaser, at its expense, shall defend, indemnify and hold harmless
Contractor, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, after risk of loss passes to Purchaser, the
operation or maintenance of the System, to the extent such losses were caused by
the negligence or willful misconduct of the Purchaser, its subcontractors,
employees or agents (other than Contractor). The defense, indemnification and
save harmless obligation is specifically conditioned on the following (i)
Contractor providing prompt notification in writing of any such claim or demand
when it obtains Actual Knowledge thereof, unless such failure shall not have
materially impaired Purchaser's ability to defend against such claim; (ii)
Purchaser having control of the defense of any such action, claim or demand and
of all negotiations for its settlement or compromise; and (iii) Contractor
cooperating, at Purchaser's expense, in a reasonable way to facilitate the
defense of such claim or demand or the negotiations for its settlement.
ARTICLE 24 COUNTERPARTS
- ---------------------------
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
52
This Contract may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
ARTICLE 25 DESIGN AND PERFORMANCE RESPONSIBILITY
- -----------------------------------------------------
A. The Contractor shall be solely responsible for the design of and for
all details of the System and the System Upgrades and for the adequacy thereof.
B. The Contractor's responsibility for design of the System and the
System Upgrades shall not in any way be diminished nor shall the Contractor's
design approach be restricted or limited by the Purchaser's acceptance of the
Contractor's guidance or recommendations as to engineering standards and design
specifications, or by the Purchaser's suggestions or recommendations on any
aspect of the design.
C. Purchaser shall use reasonable efforts in assisting the Contractor to
obtain in a timely manner accurate information required for the Contractor to
perform the Work and the Upgrade Work, which Contractor cannot expeditiously and
cost-effectively obtain from any source other than the Purchaser.
ARTICLE 26 PRODUCT CHANGES
- ------------------------------
The Contractor may at any time make changes to the System or System
Upgrades furnished pursuant to this Contract, or modify the drawings and
published specifications relating thereto, or substitute equipment of later
design, provided the changes, modifications, or substitutions under normal and
proper use do not impact upon the form, fit, expected life or function of the
System as provided in the System Performance Requirements.
ARTICLE 27 RISK AND INSURANCE
- ---------------------------------
A. The Contractor shall at all times maintain, and upon request, the
Contractor shall furnish the Purchaser with certificates, or other reasonable
evidence, that Contractor maintains, the following insurance or has adequate
self-insurance (other than as required to comply with any statutory insurance
requirements):
1. Workmen's Compensation and Employers Liability Insurance (with a
limit of not less than * for any one incident or series of
incidents arising from one event or such higher limit as may be
required by the laws of any jurisdiction) covering the officers
and employees of the Contractor for all compensation or other
benefits required of the Contractor by the laws of any nation or
political sub-division thereof to which the Contractor and its
operations under this Contract are subject in respect of injury
of death of any such employee.
2. Comprehensive General Public Liability Insurance, covering
personal injury and/or property damage, with combined single
limits of not less
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
53
than * for claims of injury or death of any persons or loss of or
damage to property resulting from any one accident. This
insurance to be extended to provide Marine Comprehensive General
Liability including liabilities arising out of the operation of
subsea equipment.
3. All Risk Insurance in respect of all property of Contractor, its
respective officers, agents and employees connected with the
performance of the Work against all loss or damage from whatever
cause.
4. Conventional Marine Hull and Machinery Insurance including War
Risks or any vessel(s) owned, operated or chartered by the
Contractor, in an amount equal to the full value thereof. In the
event of damage to or loss of such vessel(s), the Contractor
agrees to look to its insurance carrier for payment of such loss
or damage and hereby releases the Purchaser and waives any claims
against the Purchaser for the loss of such vessel(s) unless due
to the negligence of Purchaser, its agent or representatives
(other than Contractor).
5. All vessels are to be entered in a Mutual Protection and
Indemnity Association with a full and unlimited entry or to have
Marine Protection and Indemnity Insurance with a limit of not
less than * including coverage far illness, injury or death of
crew members (unless covered under Workmen's Compensation
Insurance), Contractual Liability Coverage, Collision and Tower's
Liability, Removal of Wreck and Debris and Third Party Liability.
6. Specialist Operations Insurance with a limit of not less than
* as per London Wording 1993 or equivalent.
7. Transit Insurance including inland, air, and Marine Cargo
coverage including War (other than on land) in an amount
sufficient to cover the expected highest value of any one
shipment. Coverage to include Institute Cargo Clauses, all risks
1.1.63, Institute War Clauses, London Malicious Damage Clause,
and Institute Strikes Riots and Civil Commotion Clauses or their
equivalent.
8. Marine Cargo or equivalent is required to protect, for full cost,
against all risks of physical loss or damage to the plant,
equipment and supplies to be included in the System (other than
War Risks) beginning with when each such item is ready for
shipping and ending when the submersible plant and equipment are
placed overside the cable laying vessel and when the equipment
and supplies are delivered to the cable stations, central
offices, or network operation center. The coverage continues to
cover cable lying on the seabed.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
54
9. Sea Bed or equivalent coverage (including an Old Mines and
Torpedoes Clause, including other derelict weapons of War) is
required to protect, for full cost, against all risks of physical
loss or damage to the submersible plant and equipment described
in Sub-Article 27(A)(10) above. See last paragraph.
10. War Risks or equivalent coverage is required to protect against
damage to, seizure by and/or destruction of the System by means
of war, piracy, takings at sea and other warlike operations until
discharge of the submersible plant and equipment. For the
purposes of this Article "discharge of the submersible plant and
equipment" shall be deemed to take place when the plant and
equipment reaches the sea bottom, as far as the submersible plant
and equipment is concerned, and when the plant is off-loaded in
the respective terminal country, as far as non-submersible plant
is concerned.
11. Pollution Liability (EIL) insurance for installation operations
and as arising from the use of vessels in an amount not less than
* or such higher sum as may be required to meet any legal
requirement in area of operations.
The Comprehensive General Liability Insurance required pursuant to
Sub-Article 27(A)(2) above, shall include Contractual Liability Coverage which
shall specifically apply to the obligations assumed by the Contractor under the
Terms and Conditions of this Contract.
B. 1. All the foregoing insurances shall be effected with a
creditworthy insurer and shall be endorsed to provide Purchaser
with at least thirty (30) days prior written notice of
cancellation or material change.
2. All the foregoing insurances shall name Purchaser and its lenders
as an additional insured as to operations hereunder, in which
event the Contractor's insurance shall be primary to any
insurance carried by Purchaser.
3. The limits specified herein are minimum requirements and shall
not be construed in any way as limits of liability or as
constituting acceptance by Purchaser of such responsibility for
financial liabilities in excess of such limits. The Contractor
shall bear all deductibles applicable to any insurance.
4. If it is judicially determined that the monetary limits of
insurance required hereunder or of any indemnity voluntarily
assumed under the Terms and Conditions of this Contact which the
Contractor agrees will be supported either by available liability
insurance or voluntarily self-insured, in part or whole, exceeds
the maximum limits permitted
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
55
under applicable law, it is agreed that said insurance
requirements or indemnity shall automatically be amended to
conform to the maximum monetary limits permitted under such law.
5. Contractor shall take reasonable steps to provide that any sub-
contractor engaged by it has in effect or will effect Employer's
Liability, Workmen's Compensation, Hull and Machinery and
Protection and Indemnity insurances and any other insurances
required by law, together with such other insurances as the
Contractor may consider necessary.
6. If the Contractor fails to effect or keep in force any of the
insurances required under this Contract, Purchaser may effect and
keep in force any such insurances and pay such premiums as may be
necessary for that purpose and from time to time deduct the
amount so paid by Purchaser from any money due or which may
become due to the Contractor hereunder or recover the same as a
debt due from the Contractor, provided that Purchaser is not in
Default.
7. Each Party shall give the other prompt notification of any claim
with respect to any of the insurances to be provided hereunder,
accompanied by full details giving rise to such claim. Each Party
shall afford the other all such assistance as may be required for
the preparation and negotiation of insurance claims.
8. Contractor shall report to Purchaser as soon as practicable all
accidents or occurrences resulting in injuries to Contractor's
employees or third parties, or damage to property of third
parties, arising out of our during the course of services for
Purchaser by Contractor.
C. The Contractor may organize such levels of deductibles, excesses and
self-insurance as it considers appropriate and which are within prudent industry
standards.
D. The insurance requirements of this Article 27 will remain in place
with respect to each Segment, the System or System Upgrade, as the case may be,
and will not in any way be diminished or reduced until the transfer of title and
risk of loss shall have passed to Purchaser of such Segment, System or System
Upgrade, as the case may be, even in the event of the sale of substantially all
the assets of the Contractor by way of a merger, consolidation or sale of
assets.
ARTICLE 28 PLANT AND WORK RULES
- --------------------------------
Employees and agents of each Party shall, while on the premises of the
other or its subcontractors, comply with all plant rules and governmental
regulations.
<PAGE>
56
ARTICLE 29 RIGHT OF ACCESS
- ---------------------------
A. The Contractor shall, upon reasonable notice of not less than ten (10)
working days, during normal business hours and in a manner to avoid any
disruption of the work on the premises including performance of other contracts,
permit access by the Purchaser or its Quality Assurance (QA) Representative
(other than a competitor of the Contractor or any affiliate of a competitor) to
the Contractor's premises where the work will be performed, and will use its
best endeavors to secure rights of access to premises of its subcontractors
where the work will be performed, having subcontracts or orders in the amount
of, or equivalent to * or more, in accordance with the Contractor's
contractual arrangements with its subcontractors, and allow the Purchaser or its
QA Representative to:
1. audit the Contractor's quality assurance system and its
application to the Work and Upgrade Work, including manufacture,
development and raw materials and components provision;
2. inspect all parts of the Work and Upgrade Work to the extent
reasonably practicable to ensure that their quality meets the
Specification.
This right of access shall allow for the Purchaser and/or its QA representative
(up to a total of three (3) persons). The Purchaser shall provide the name(s),
nationality and title of each such visitor prior to the visit. The Contractor
shall not be responsible for any costs, including travel and accommodation
costs, of the Purchaser or its representatives.
B. The right of access shall also allow for the Purchaser and/or
representatives (up to a total of three (3) persons) to be aboard the vessel(s)
during installation and the route survey, provided accommodations are available.
The Contractor shall not be responsible for any costs of the Purchaser or its
representatives, except for living expenses on board the vessel which includes
one (1) daily telex or fax, all other travel and accommodation costs for the
Purchaser or its QA Representatives shall be for the account of the Purchaser.
C. Any right of access shall not be construed as creating any obligation
requiring the Contractor or its subcontractors to disclose trade secrets or
proprietary information. Further, such right of access may be conditioned on the
execution of a confidentiality and non-disclosure agreement and/or subject to
routine building or security rules, regulations or procedures.
D. Any exercise of any right of the Purchaser hereunder to inspect,
audit, visit or to serve any part of the Work or System Upgrades shall not be
construed as limiting any obligation of Contractor hereunder, including without
limitation, under Articles 1 and 10 hereof.
E. Contractor will have access to the System as necessary to accomplish
its responsibilities under this Contract and in order to make repairs and to
make System
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
57
Upgrades. Contractor will provide reasonable notice of its need for access and
will take reasonable steps to minimize disruptions to the operation of the
System.
F. Contractor shall give the Purchaser reasonable prior written notice of
each monthly project management review meeting with respect to the status of the
construction and/or installation of the System, and Purchaser's representatives
(up to three such representatives) and the Independent Engineer shall at their
cost be permitted to attend and participate in such meetings.
ARTICLE 30 QUALITY ASSURANCE
- -----------------------------
All equipment, material and supplies provided under this Contract
shall be inspected and tested by representatives designated by the Contractor to
the extent reasonably practical to assure that the quality of the equipment,
materials and supplies being incorporated is sufficient to realize the System
Performance Requirements. The inspection and test program established for such
equipment, materials and supplies shall be consistent with commercial practices
normally employed by the Contractor in the construction of submarine cable
systems. The foregoing shall not be construed as limiting any of the
Contractor's obligations under this Contract.
ARTICLE 31 DOCUMENTATION
- -------------------------
The Contractor shall furnish to the Purchaser one copy of the standard
documentation in the English language for the System provided hereunder. Such
documentation shall be provided prior to the Acceptance testing. Additional
copies of the documentation are available at additional cost.
ARTICLE 32 TRAINING
- --------------------
The Contractor will provide, as part of the Initial Contract Price,
until the Date of Final Acceptance, any and all training necessary for the
operation and maintenance of the System.
ARTICLE 33 SETTLEMENT OF DISPUTES/ARBITRATION/LITIGATION
- ---------------------------------------------------------
A. The Parties shall endeavor to settle amicably by mutual discussions
any disputes, differences, or claims whatsoever related to this Contract.
B. Failing such amicable settlement, any controversy, claim or dispute
arising under or relating to this Contract, including the existence, validity,
interpretation, performance, termination or breach thereof, shall, if both
Parties agree in writing thereto, finally be settled by arbitration in
accordance with the International Arbitration Rules of the American Arbitration
Association ("AAA"). Unless the Parties agree to a sole arbitrator, there shall
be three (3) arbitrators, with each Party appointing one arbitrator, who
collectively will select a third. The language of the arbitration shall be
English. The Arbitrator will not have authority to award punitive damages to
either Party. Each Party shall bear its own expenses,
<PAGE>
58
but the Parties shall share equally the fees and expenses of the Arbitration
Tribunal and the AAA. This Contract shall be enforceable, and any arbitration
award shall be final, and judgment thereon may be entered in any court of
competent jurisdiction. In any such arbitration, the decision in any prior
arbitration under this Contract shall not be deemed conclusive of the rights as
among themselves of the Parties hereunder. The arbitration shall be held in New
York, New York, U.S.A.
C. 1. If both Parties do not agree to arbitration pursuant to paragraph
(B) above, then either Party may institute suit in the Supreme
Court of the State of New York sitting in New York County or the
United States District Court of the Southern District of New
York, or any appellate court from any thereof.
2. Each Party hereby irrevocably and unconditionally submits to the
non-exclusive jurisdiction of any New York State or Federal court
sitting in The City of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating
to this Contract, and each Party hereby irrevocably and
unconditionally agrees that all claims in respect of such action
or proceeding may be heard and determined in such New York State
court or, to the extent permitted by law, in such Federal court.
Each Party hereby irrevocably and unconditionally waives, to the
fullest extent it may effectively do so, any defense of an
inconvenient forum to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on
account of the place of residence or domicile of either Party.
The Contractor hereby irrevocably and unconditionally appoints CT
Corporation System (the "New York Process Agent"), with an office
----------------------
on the date hereof at 1633 Broadway, New York, New York, as its
agent to receive on behalf of the Contractor and its respective
property service of copies of the summons and complaint and any
other process which may be served in any such action or
proceeding in any such New York State or Federal court and agrees
promptly to appoint a successor New York Process Agent in The
City of New York (which successor Process Agent shall accept such
appointment in a writing prior to the termination for any reason
of the appointment of the initial New York Process Agent). In
any such action or proceeding in such New York State or Federal
court sitting in The City of New York, such service may be made
on the Contractor by delivering a copy of such process to the
Contractor in care of the appropriate Process Agent at such
Process Agent's above address and by depositing a copy of such
process in the mails by certified or registered air mail,
addressed to the Contractor at its address referred to in Article
35 of this Contract (such service to be effective upon such
receipt by the appropriate Process Agent and the depositing of
such process in the mails as aforesaid). The Contractor hereby
irrevocably and unconditionally authorizes and directs such
Process Agent to accept such service on its behalf. As an
alternate method of service, the
<PAGE>
59
Contractor also irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding
in such New York State or Federal court sitting in The City of
New York by mailing of copies of such process to the Contractor,
as the case may be, by certified or registered air mail at its
address referred to in Article 35 of this Contract. The
Contractor agrees that, to the fullest extent permitted by
applicable law, a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
3. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
--------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREE MENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.
D. THE OBLIGATIONS OF EACH PARTY IN RESPECT OF THIS CONTRACT DUE TO ANY
PARTY SHALL, NOTWITHSTANDING ANY JUDGMENT IN A CURRENCY (THE "JUDGMENT
--------
CURRENCY") OTHER THAN DOLLARS, BE DISCHARGED ONLY TO THE EXTENT THAT ON THE
- ---------
BUSINESS DAY FOLLOWING RECEIPT BY SUCH PARTY OF ANY SUM ADJUDGED TO BE SO DUE IN
THE JUDGMENT CURRENCY SUCH PARTY MAY IN ACCORDANCE WITH NORMAL BANKING
PROCEDURES PURCHASE DOLLARS WITH THE JUDGMENT CURRENCY; IF THE AMOUNT OF DOLLARS
SO PURCHASED IS LESS THAN THE SUM ORIGINALLY DUE TO SUCH PARTY IN DOLLARS, EACH
PARTY AGREES, AS A SEPARATE OBLIGATION AND NOTWITHSTANDING ANY SUCH JUDGMENT, TO
INDEMNIFY SUCH PARTY AGAINST SUCH LOSS, AND IF THE AMOUNT OF DOLLARS SO
PURCHASED EXCEEDS THE SUM ORIGINALLY DUE TO ANY PARTY TO THIS CONTRACT, EACH
PARTY AGREES TO REMIT TO SUCH PARTY, SUCH EXCESS.
ARTICLE 34 APPLICABLE LAW
- --------------------------
THIS CONTRACT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES,
<PAGE>
60
EXCLUDING ITS CONFLICTS OF LAW PROVISIONS AND EXCLUDING THE CONVENTION FOR THE
INTERNATIONAL SALE OF GOODS.
ARTICLE 35 NOTICES
- -------------------
A. Any notices, consent, approval, or other communication pursuant to
this Contract shall be in writing, in the English language, and shall be deemed
to be duly given or served on a Party if sent to the Party at the address
stipulated in Sub-Article 35(B) and if sent by any one of the following means
only:
1. Sent by hand: Such communication shall be deemed to have been
received on the day of delivery provided receipt of delivery is
obtained.
2. Sent by facsimile: Such communication shall be deemed to have
been received, under normal service conditions, twenty-four (24)
hours following the time of dispatch or on confirmation by the
receiving Party, whichever is earlier.
3. Sent by registered or certified mail: Such communication shall be
deemed to have been received, under normal service conditions, on
the day it was received or on the tenth day after it was
dispatched, whichever is earlier.
B. For purposes of this Article, the names, addresses and fax numbers of
the Parties are as detailed below. Any change to the name, address, and
facsimile numbers may be made at any time by giving thirty (30) days prior
written notice.
Alcatel Submarine Networks
30 Rue Pierre Beregovoy
92111 Clichy Cedex
France
Facsimile: 011-33-01-4756-6920
Alcatel Submarine Networks, Inc.
15540 North Lombard Street
Portland, Oregon 97203-6428
Mid-Atlantic Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Facsimile: 441-296-6749/8606
<PAGE>
61
ARTICLE 36 PUBLICITY AND CONFIDENTIALITY
- -----------------------------------------
A. No information relating to this Contract shall be released by either
Party to any newspaper, magazine, journal or other written, oral or visual
medium without the prior written approval of an authorized representative of the
other Party; provided that, subject to Article 20 (Safeguarding of Information
--------
and Technology) and the following Sub-Article, this Article shall not restrict
either Party from (i) responding to customary press inquiries or otherwise
making public or private statements in the normal course of business, so long as
consistent with a mutually agreed press-release and (ii) assisting in the
obtaining of financing in accordance with Sub-Article 37(C), including the
publication of a financial tombstone.
B. This Contract and any non-public information, written or oral, with
respect to this Contract, "Confidential Information", will be kept confidential
and shall not be disclosed, in whole or in part, to any person other than
affiliates, officers, directors, employees, agents or representatives of a Party
(collectively, "Representatives") who need to know such Confidential Information
for the purpose of negotiating and executing this Contract. Each Party agrees to
inform each of its Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential Information in
accordance with the terms of this Article. Nothing herein shall prevent a Party
from disclosing Confidential Information (a) upon the order of any court or
administrative agency, (b) upon the request or demand of, or pursuant to any
regulation of, any regulatory agency or authority, (c) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (d) to a
Party's legal counsel or independent auditors, (e) prospective lenders to the
Purchaser or Purchaser's parent or affiliate companies, and (f) to any actual or
proposed assignee of all or part of its rights hereunder provided that such
actual or proposed assignee agrees in writing to be bound by the provisions of
this Article.
ARTICLE 37 ASSIGNMENT; SUBCONTRACTORS
- --------------------------------------
A. Except as provided in this Article, neither Party shall assign this
Contract or any right or interest under this Contract, nor delegate any work or
obligation to be performed under this Contract ("Assignment"), without the other
Party's prior written consent which shall not be unreasonably withheld (it being
understood that it shall be deemed to be reasonable to withhold consent to the
assignment of this Contract or any rights, interest or obligations hereunder to
a competitor of Contractor or an affiliate of a competitor or uncreditworthy
party). Nothing herein shall preclude a Party from employing a subcontractor in
carrying out its obligations under this Contract. A Party's use of such
subcontractor shall not release the Party from its obligations or liability
(including warranties) under this Contract. If a proposed subcontractor of
major Supplies (i.e. Supplies listed on Exhibit I) is not listed on Exhibit I
hereto, Contractor shall obtain approval thereof from Purchaser, which approval
shall not be unreasonably withheld.
B. The Contractor has the right to assign all of its rights under this
Contract or to delegate all of its duties hereunder at any time without the
Purchaser's consent to any successor to substantially all the assets of the
Contractor by way of a merger, consolidation or sale of assets provided that in
the case of any assignment or delegation pursuant to this
<PAGE>
62
Sub-Article 37(B) such assignee shall assume in writing all warranties,
representations and obligations of Contractor under this Contract. The
Contractor shall give the Purchaser written notice 30 days prior to the
assignment.
C. The Parties acknowledge that Purchaser may finance construction of the
System on a "project finance" basis and that in connection therewith the
financing parties will require that such financing be secured by certain assets
of Purchaser (including but not limited to this Contract). The Purchaser may, in
connection with any such project financing grant a collateral assignment of the
System and/or its rights and obligations under this Contract to any such
financing parties, and in connection therewith, the Contractor will execute and
deliver a Consent, substantially in the form of Exhibit B hereto; provided that
Contractor agrees to make such changes or additions to such form as may be
reasonably requested by such financing parties and Purchaser, and such financing
parties may transfer in accordance with such Consent. *
D. The Purchaser has the right to assign all of its rights and delegate
all of its duties under this Contract to any other entity to whom all of
Purchaser's rights and interests in the System have been transferred. Purchaser
also has the right (i) to assign all of its rights hereunder with respect to any
particular Landing Assets to any Transferee, (ii) to assign Permits with respect
to such Landing Assets, or have Permits with respect to such Landing Assets
issued in the name of, such Transferee and (iii) to transfer such Landing Assets
or have such Landing Assets transferred directly to, such Transferee; provided
--------
that such Transferee shall execute a supplement to this Contract whereby it
becomes jointly and severally liable, together with Purchaser, for all of
Purchaser's obligations under this Contract. "Landing Assets" means, with
respect to each jurisdiction where a portion of the System is located, all or
part of such portion of the System located therein. It is understood that the
Purchaser, at its option, may assign and transfer rights with respect to Landing
Assets in different jurisdictions to different Transferees. Purchaser
contemplates effecting the foregoing assignment pursuant to a Supplement hereto
substantially in the form of Exhibit E hereto, and the Contractor agrees to
execute and deliver such Supplement, with such changes as the Parties mutually
agree. Purchaser shall not transfer any of its rights under this Contract or
the System except in accordance with the foregoing. Any assignment or transfer
by Purchaser not expressly permitted by Sub-Article 37(C) or (D) shall be of no
force and effect. Any assignment or transfer by Purchaser which results in any
increase in costs or any loss, damage, delay or failure of performance shall
constitute a Force Majeure, and, without
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
63
limiting the applicability of Article 17 (Force Majeure), Purchaser shall be
responsible for any increase in costs resulting therefrom.
ARTICLE 38 RELATIONSHIP OF THE PARTIES
- ---------------------------------------
All work performed by a Party under this Contract shall be performed
as an independent contractor and not as an agent of the other and no persons
furnished by a Party shall be considered the employees or agents of the other.
Each Party shall be responsible for its employees' compliance with all Laws
while performing under this Contract. This Contract shall not form a joint
venture or partnership between the Parties.
ARTICLE 39 SUCCESSORS BOUND
- ----------------------------
This Contract shall be binding on the Contractor and the Purchaser and
their respective successors and permitted assigns.
ARTICLE 40 ARTICLE CAPTIONS
- ----------------------------
The captions of the Articles do not form part of this Contract and
shall not have any effect on the interpretation thereof.
ARTICLE 41 SEVERABILITY
- ------------------------
If any of the provisions of this Contract shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Contract, but rather the entire Contract shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions and the rights and obligations of the Contractor and the
Purchaser shall be construed and enforced accordingly. In the event such invalid
or unenforceable provision is an essential and material element of this
Contract, the Parties shall promptly negotiate a replacement provision.
ARTICLE 42 *
- -------------
A. *
B. *
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
64
*
C. *
ARTICLE 43 SURVIVAL OF OBLIGATIONS
- -----------------------------------
The Parties' rights and obligations, which, by their nature would
continue beyond the termination, cancellation or expiration of this Contract,
including, but not limited to, those contained in Sub-Article 4(B) (Taxes,
Levies and Duties) and Sub-Article 4(C) (Withholding Tax), Article 18
(Intellectual Property), Article 20 (Safeguarding of Information and
Technology), Article 21 (Export Control) and Article 23 (Limitation of
Liability/Indemnification) shall survive termination, cancellation or expiration
hereof. Article 10 (Warranty) and Article 11 (Contractor Support), shall survive
termination, cancellation or expiration hereof, if and only if, this Contract is
terminated by Purchaser pursuant to Sub-Article 13(A).
ARTICLE 44 NON-WAIVER
- ----------------------
A waiver of any of the terms and conditions of this Contract, or the
failure of either Party strictly to enforce any such term or condition, on one
or more occasions shall not be construed as a waiver of the same or of any other
term or condition of this Contract on any other occasion.
ARTICLE 45 LANGUAGE
- --------------------
This Contract has been executed in the English language and English
will be the controlling language for interpretation of this Contract.
ARTICLE 46 ENTIRE AGREEMENT
- ----------------------------
This Contract supersedes all prior oral or written understanding
between the Parties and constitutes the entire agreement with respect to the
subject matter herein. Such terms and conditions shall not be modified or
amended except by a writing signed by authorized representatives of all Parties.
* MATERIAL OMITTED AND SEPARATELY FILED UNDER AN APPLICATION FOR CONFIDENTIAL
TREATMENT.
<PAGE>
65
This Contract is executed as of the date first set forth above in
__________, ___________ by a duly authorized representative of ASN, in
___________, ___________ by a duly authorized representative of ASNI, and in
Bermuda by a duly authorized representative of Purchaser, as set forth below.
ALCATEL SUBMARINE NETWORKS
By: /s/ Patrick Realis
----------------------
Name: Patrick Realis
Title: Director - Americas
ALCATEL SUBMARINE NETWORKS, INC.
By: /s/ Warren E. Soloduk
----------------------
Name: Warren E. Soloduk
Title: Senior Commercial Manager
MID-ATLANTIC CROSSING LTD.
By: /s/ K. Eugene Shutler
---------------------
Name: K. Eugene Shutler
Title: President
<PAGE>
EXHIBIT 10.5
ADVISORY SERVICES AGREEMENT
---------------------------
This ADVISORY SERVICES AGREEMENT (this "Agreement"), dated as of March 25,
1997, is made by and between Global Telesystems Ltd., a company organized under
the laws of Bermuda (the "Company") and PCG Telecom Services LLC, a Delaware
limited liability company ("Service Co.").
WHEREAS, the Company is developing a submarine fiberoptic cable system
linking the United States to the United Kingdom, the United Kingdom to Germany
(and/or the Netherlands), and Germany (and/or the Netherlands) to the United
States (the "Cable System").
WHEREAS, the Company has entered into a Project Development and
Construction Contract, an Operations, Administration and Maintenance Agreement
and a Sales Agency Agreement (collectively, the "Contracts") with AT&T Submarine
System, Inc. ("SSI") relating to the Cable System.
WHEREAS, the Company will require technical, business and marketing advice
in connection with the conduct of its business.
WHEREAS, Service Co. is capable of providing such advice and is willing to
provide such advice to the Company in accordance with the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Engagement.
----------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby retains Service Co. to advise it in connection
with the supervision of the development, construction and operation of the Cable
System and marketing and pricing of circuits of the Cable System (the "Advisory
Services") including, without limitation, advice with respect to the following:
(i) the performance by SSI of its obligations under the Contracts, including its
performance in (A) the development, construction and maintenance of the Cable
System and (B) the development and implementation of marketing and pricing
strategies for circuits, and (ii) advice to management of the Company relating
to the preparation of annual budgets and business plan of the Company.
(b) All Advisory Services rendered pursuant to this Agreement shall be
rendered to the executive officers of the Company or to the Board of Directors
of the Company.
<PAGE>
2
(c) Service Co. agrees, during the term of this Agreement, to provide the
Advisory Services to the Company in a diligent and professional manner.
(d) The Company hereby agrees that neither Service Co. nor any of its
officers, directors, employees, representatives, affiliates or agents shall have
any liability as a result of any Advisory Services provided pursuant to this
Agreement (including, without limitation, for the performance of any
investment), except to the extent that such liability results from the gross
negligence or willful misconduct of Service Co. or such other person, as the
case may be. The Company agrees that it will not prosecute any action or
proceeding against Service Co. or any of its officers, directors, employees,
representatives, affiliates or agents except where such claim is based solely on
the gross negligence or willful misconduct of Service Co. or the person against
whom such action or proceeding is brought.
(e) The Company hereby agrees to indemnify and hold harmless Service Co.
and its officers, directors, employees, representatives, affiliates and agents
from any and all liability, loss, cost, damage or expense, including, without
limitation, reasonable attorneys' fees and expenses, that any such indemnified
party may suffer as a result of any claims, demands, costs or judgments arising
out of the provision of, or failure to provide, Advisory Services or other
services hereunder, in each case except to the extent that any such losses are
primarily the result of gross negligence or willful misconduct on the part of
Service Co. or any such indemnified person.
2. Compensation; Expenses.
----------------------
(a) In consideration for providing the Advisory Services to the Company
hereunder, the Company agrees to pay to Service Co. the fees set forth on
Schedule A attached hereto (the "Fee"). The Fee shall be payable in quarterly
- ----------
installments, in arrears, within 30 days of the end of each calendar quarter.
(b) In addition, the Company shall reimburse Service Co. for all out-of-
pocket expenses reasonably incurred by Service Co. in connection with providing
the Advisory Services hereunder, to be paid within 15 days after receipt by the
Company of an itemized invoice with respect to such amount due hereunder. For
purposes of this Agreement, "out-of-pocket" expenses shall include, but not be
limited to, utilities, telecommunications expenses, business travel and
entertainment expenses, training expenses, consulting expenses, accounting and
legal fees and expenses, and postage, courier and other delivery expenses.
3. Termination.
-----------
<PAGE>
3
(a) This Agreement shall continue in force until the twenty-fifth
anniversary of this Agreement. Notwithstanding the foregoing, this Agreement
may be terminated by (i) either party on 30 days' prior written notice to the
other of a material breach by the other of any term of this Agreement, provided,
--------
that the party alleged to have so breached shall be entitled to cure any such
breach during such 30-day period, (ii) by Service Co., upon 30 days' prior
written notice, if the business plan of the Company referred to in Section
1(a)(ii), as finally adopted by the Company, including any modifications thereto
after adoption thereof, for two successive fiscal years of the Company are
materially different from those Service Co. advised the Company's management to
adopt (provided that the business plans that were the subject of Service Co.'s
advice provided for the Company to operate in substantially the same business as
the preceding operating budget of the Company or (iii) by Service Co., upon 270
days' prior written notice.
(b) No such termination shall affect (i) any accrued rights or obligations
of the parties hereunder (including, without limitation, with respect to
payments for services performed prior thereto), (ii) any agreement previously
entered into pursuant to this Agreement, or (iii) this Section or Sections 1(d),
1(e) 4 or 7 or, in the event of termination pursuant to clause (ii) of Section
3(a), Section 2(a). In the event of termination pursuant to clause (ii) of
Section 3(a) the company shall continue to pay to Service Co. the Fees for the
lesser of a period of 10 years after such termination and the term of this
Agreement that, prior to such termination, was remaining.
4. Independent Contractor; Other Business Opportunities.
----------------------------------------------------
(a) It is the intention of the parties hereto that the relation of the
parties shall be that of independent contractors. Service Co. is not authorized
hereby to act as agent on behalf of the Company to negotiate or enter into, or
amend or waive any provision of, any contract or commitment or otherwise to bind
or obligate the Company in any way, and Service Co. shall not purport to do so.
(b) Except with respect to submarine fiber optic cable systems between
North America and Europe (including, without limitation, spurs to the Cable
System), the doctrine of corporate opportunity shall not apply with respect to
Service Co., and Service Co. (which for purposes of this Section 4 shall include
its directors, officers, employees and agents) may, without limitation, (i)
engage in the same or similar activities or lines of business as the Company or
its subsidiaries or develop or market any products or services that compete,
directly or indirectly, with those of the Company and its subsidiaries, (ii)
invest or own any interest publicly or privately in, or develop a business
relationship with, any person engaged in the same or
<PAGE>
4
similar activities or lines of business as, or otherwise in competition with,
the Company or its subsidiaries; (iii) do business with any client or customer
of the Company or its subsidiaries, or (iv) employ or otherwise engage a former
officer or employee of the Company or its subsidiaries. Neither the Company nor
any of its subsidiaries shall have any right by virtue of this Agreement in or
to, or to be offered any opportunity to participate or invest in, any venture
engaged in by Service Co. or any right by virtue of this Agreement in or to any
income or profits derived therefrom.
5. No Guarantee of Obligations; No Third Party Rights. This Agreement is
--------------------------------------------------
not, and nothing herein contained or done pursuant hereto shall be deemed to
constitute, a direct or indirect guarantee by Service Co. of any payment or
performance by the Company of any indebtedness, liability, or obligation of any
kind or character. It is the express intention of the parties hereto that no
creditor of the Company or any other third party shall be deemed to be a third
party beneficiary of or have any rights under or by virtue of this Agreement
other than as expressly provided by Sections 1(d) and 1(e) hereof.
6. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, air courier or
facsimile transmission.
If to the Company:
Global Telesystems Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
Attention: Peter Bubenzer
Facsimile: (441) 292-8666
with a copy (which shall not constitute notice) to:
Appleby, Spurling and Kempe
Cedar House
41 Cedar Avenue
Hamilton HM 12, Bermuda
Attention: Peter Bubenzer
Facsimile: (441) 292-8666
If to Service Co.:
PCG Telecom Services LLC
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Attention: Managing Member
Facsimile: (310) 281-4992
with a copy (which shall not constitute notice) to:
<PAGE>
5
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
Attention: Jeffrey H. Cohen
Facsimile: (213) 687-5600
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; three business days after being
timely dispatched delivery prepaid, if by air courier; and when receipt
acknowledged, if sent by facsimile transmission. Any of the above addresses may
be changed by notice made in accordance with this subsection.
7. GOVERNING LAW; FORUM SELECTION. THIS AGREEMENT SHALL BE GOVERNED BY
------------------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. BY EXECUTING THIS
AGREEMENT, EACH PARTY HERETO SUBMITS TO THE JURISDICTION OF THE STATE OF THE
COURTS OF NEW YORK SOLELY FOR PURPOSES OF ADJUDICATING ITS RIGHTS OR THE RIGHTS
OF THE OTHER PARTY WITH RESPECT TO THIS AGREEMENT. EACH PARTY HEREBY
IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
----- --- ----------
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT. EACH PARTY HEREBY AGREES TO ACCEPT, AT ITS OFFICE AT THE ADDRESS
REFERRED TO IN SECTION 6 HEREOF, SERVICE OF PROCESS IN ANY LEGAL ACTION OR
PROCEEDING INSTITUTED BY ANY PARTY IN THE COURTS OF THE STATE OF NEW YORK WITH
RESPECT TO THIS AGREEMENT.
8. Assignment; Successors. No right or obligation under this Agreement
----------------------
may be assigned or delegated by either party without written consent of the
other. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
9. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same Agreement.
10. Headings. All headings have been inserted for convenience only and
--------
shall in no way modify or restrict any of the terms or conditions hereof.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
GLOBAL TELESYSTEMS LTD.
By: /s/ David Lee
-------------------------
Name: David Lee
Title:
PCG TELECOM SERVICES LLC
By: /s/ Abbott Brown
-------------------------
Name: Abbott Brown
Title: CFO
of Pacific Capital Group,
Inc., its Managing Member
<PAGE>
EXHIBIT 10.6
FIRST AMENDMENT
TO
ADVISORY SERVICES AGREEMENT
FIRST AMENDMENT, dated as of June 27, 1997 (this "Amendment"), to the
---------
Advisory Services Agreement referred to below, between Global Telesystems Ltd.,
a company organized under the laws of Bermuda (the "Company") and PCG Telecom
Services LLC, a Delaware limited liability company ("Service Co.").
W I T N E S S E T H :
-------------------
WHEREAS, the Company and Service Co. are parties to the Advisory Services
Agreement, dated as of March 25, 1997 (as heretofore amended, supplemented or
otherwise modified, the "Existing Agreement"; and as amended by this Amendment
and as may be further amended, supplemented or otherwise modified from time to
time, the "Agreement");
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Agreement; and
WHEREAS, the Company and Service Co. have agreed to amend certain terms of
the Existing Agreement, but only on the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
-------------
defined herein shall have the meanings assigned to them in the Agreement.
2. Amendment to Section 2(a). Section 2(a) of the Existing Agreement is
-------------------------
hereby amended by deleting the second sentence of said Section in its entirety
and by substituting, in lieu thereof, the following:
"The Fee shall be payable in quarterly installments, in arrears, on the last
business day of each February, May, August and November; provided, however,
-------- -------
that the Fee payable in respect of Presale Proceeds (as defined in the Credit
Agreement referred to below) shall not be payable until the earlier of (i) the
Initial Principal Payment Date (as defined in the Credit Agreement) and (ii)
the date of System Final Completion (as defined in the Credit Agreement),
provided that with respect to this clause (ii) only, if the Debt Reserve
Account does not have a balance therein in an amount equal to at least the
amount referred to in clause fourth of Section 8.08(a) of the Credit Agreement
------
as of the date of System Final Completion, no more than $500,000 of the Fee
payable
<PAGE>
2
with respect to Presale Proceeds shall be payable on such date, with the
remainder of such Fee payable on and after the Initial Principal Payment Date
in accordance with Article VIII of the Credit Agreement. For purposes of this
Section 2(a), the 'Credit Agreement' means the Credit Agreement, dated as of
June __, 1997, among the Company, the lenders from time to time parties
thereto, Deutsche Bank AG, New York Branch, and Canadian Imperial Bank of
Commerce, as Lead Agents, Deutsche Bank AG, New York Branch, as the
Administrative Agent, Canadian Imperial Bank of Commerce, as the Syndication
Agent, the Documentation Agent and the Issuing Bank, and Deutsche Morgan
Grenfell Inc. and CIBC Wood Gundy Securities Corp., as the Arrangers, as the
same may be amended, supplemented or otherwise modified from time to time."
3. Conditions Precedent to Effectiveness. This Amendment shall become
-------------------------------------
effective upon its execution and delivery by each of the parties hereto. This
Amendment shall no longer be effective once all obligations under the Credit
Agreement shall have been paid in full and the commitments thereunder shall have
been terminated.
4. Limited Effect. Except as expressly amended as provided for herein,
--------------
the Existing Agreement shall continue to be, and shall remain, in full force and
effect in accordance with its terms. This Amendment shall be limited solely for
the purposes and to the extent expressly set forth herein and nothing herein
express or implied shall constitute an amendment, supplement, modification or
waiver to or of any other term, provision or condition of the Agreement.
5. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK.
6. Counterparts. This Amendment may be executed by the parties hereto on
------------
any number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their properly and duly authorized officers as of
the day and year first above written.
GLOBAL TELESYSTEMS LTD.
By: /s/ David Lee
----------------------------
Name: David Lee
Title:
PCG TELECOM SERVICES LLC
By: /s/ Barry Porter
-----------------------------
Name: Barry Porter
Title:
<PAGE>
Exhibit 21.1
------------
Subsidiaries of the Registrant
SUBSIDIARY JURISDICTION OF
- ---------- ----------------
INCORPORATION
-------------
Global Crossing Holdings Ltd. Bermuda
Global Crossing Development Holdings Ltd. Bermuda
Global Crossing International, Ltd. Bermuda
Global Telesystems Holdings Ltd. Bermuda
Pacific Crossing Holdings Ltd. Bermuda
Mid-Atlantic Crossing Holdings Ltd. Bermuda
Pan American Crossing Holdings Ltd. Bermuda
Global Crossing Holdings UK Limited UK
Global Crossing Marketing USA Inc. Delaware
Atlantic Crossing Ltd. Bermuda
GCT Pacific Holdings, Ltd. Bermuda
Mid-Atlantic Crossing Ltd. Bermuda
Pan American Crossing Ltd. Bermuda
Global Crossing Development Co. Delaware
Global Crossing Marketing (UK) Limited UK
Pacific Crossing Ltd. Bermuda
GT Landing Corp. Delaware
Global Telesystems GmbH Germany
GT Netherlands B.V. Netherlands
GT U.K. Ltd. UK
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Hamilton, Bermuda
July 2, 1998
<PAGE>
EXHIBIT 99.1
June 29, 1998
Global Crossing 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 Ltd. in the Registration Statement on Form S-1 of Global
Crossing Ltd. (file no. 333-53393) filed on May 22, 1998 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ Geoffrey J. W. Kent
__________________________________
<PAGE>
EXHIBIT 99.2
June 27, 1998
Global Crossing 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 Ltd. in the Registration Statement on Form S-1 of Global
Crossing Ltd. (file no. 333-53393) filed on May 22, 1998 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ William E. Conway Jr.
___________________________________
<PAGE>
EXHIBIT 99.3
June 26, 1998
Global Crossing 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 Ltd. in the Registration Statement on Form S-1 of Global
Crossing Ltd. (file no. 333-53393) filed on May 22, 1998 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ Toshiaki Oqasawara
______________________________
