<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-24565
GLOBAL CROSSING LTD.
(Exact name of registrant as specified in its charter)
BERMUDA 98-0189783
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
WESSEX HOUSE
45 REID STREET
HAMILTON HM12, BERMUDA
(Address of principal executive offices)
(441) 296-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [X]
The number of shares, $0.01 par value each, of the registrant's common stock
outstanding as of April 27, 1999: 435,289,611 shares.
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
For The Quarter Ended March 31, 1999
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to A Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 1999 March 31, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
REVENUES $ 178,183 $ -
------------ ------------
EXPENSES:
Cost of capacity sold 69,387 -
Operations, administration and maintenance 11,861 -
General and administrative 22,625 2,372
Stock related expense 16,716 638
Sales and marketing 9,758 784
Network development 4,905 -
Provision for doubtful accounts 1,864 -
------------ ------------
137,116 3,794
------------ ------------
OPERATING INCOME (LOSS) 41,067 (3,794)
EQUITY IN LOSS OF AFFILIATES (2,736) -
INTEREST INCOME (EXPENSE):
Interest income 14,392 95
Interest expense (23,779) (23)
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 28,944 (3,722)
Provision for income taxes (16,142) -
------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 12,802 (3,722)
Cumulative effect of change in accounting principle, net of
income tax benefit of $1,400 (14,710) -
------------ ------------
NET LOSS (1,908) (3,722)
Preferred stock dividends (13,044) (4,407)
------------ ------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (14,952) $ (8,129)
============ ============
NET LOSS PER COMMON SHARE:
Loss applicable to common shareholders before
cumulative effect of change in accounting principle
Basic $ (0.00) $ (0.02)
============ ============
Diluted $ (0.00) $ (0.02)
============ ============
Cumulative effect of change in accounting principle
Basic $ (0.04) $ -
============ ============
Diluted $ (0.04) $ -
============ ============
Net loss applicable to common shareholders
Basic $ (0.04) $ (0.02)
============ ============
Diluted $ (0.04) $ (0.02)
============ ============
Shares used in computing basic loss per share 410,797,073 331,845,633
============ ============
Shares used in computing diluted loss per share 410,797,073 331,845,633
============ ============
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
3
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- ------------------
(Unuadited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 564,348 $ 806,593
Restricted cash and cash equivalents 69,668 77,190
Accounts receivable, net of allowance for
doubtful accounts of $6,097 as of March 31,
1999 and $4,233 as of December 31, 1998 95,528 71,195
Other assets and prepaid costs 36,925 21,637
---------- ----------
Total current assets 766,469 976,615
Restricted cash and cash equivalents 422,933 367,600
Accounts receivable 70,884 43,315
Capacity available for sale 577,273 574,849
Property, plant and equipment, net 45,400 5,500
Construction in progress 532,653 428,207
Deferred finance costs, net of accumulated amortization
of $13,437 as of March 31, 1999 and $10,130
as of December 31, 1998 42,527 45,757
Investment in affiliates 187,458 177,334
Other assets 44,200 20,000
---------- ----------
Total assets $2,689,797 $2,639,177
========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs $ 143,363 $ 129,081
Accounts payable and accrued liabilities 30,602 31,990
Accrued interest 29,501 10,053
Deferred revenue 42,455 44,197
Income taxes payable 6,433 15,604
Current portion of long term debt 9,774 6,393
Current portion of obligations under inland
services agreements and capital leases 11,536 14,572
---------- ----------
Total current liabilities 273,664 251,890
Long term debt 248,475 269,598
Senior notes 796,588 796,495
Deferred revenue 50,725 25,325
Obligations under inland services agreements and
capital leases 16,158 24,520
Deferred income taxes 31,779 9,654
---------- ----------
Total liabilities 1,417,389 1,377,482
---------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK --
5,000,000 shares issued and outstanding, $100
liquidation preference per share (including
accrued dividends of $17,300 as of March 31, 1999
and $4,375 as of December 31, 1998, net of
unamortized issuance costs of $16,881 as of March 31,
1999 and $17,000 as of December 31, 1998) 500,419 487,375
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, 600,000,000 shares authorized, par
value $.01, 433,100,674 and 432,776,246 shares
issued as of March 31, 1999 and December 31,
1998, respectively 4,331 4,328
Treasury stock, 22,033,758 shares (209,415) (209,415)
Other shareholders' equity 1,067,044 1,067,470
Accumulated deficit (89,971) (88,063)
---------- ----------
771,989 774,320
---------- ----------
Total liabilities and shareholders' equity $2,689,797 $2,639,177
========== ==========
</TABLE>
See accompanying notes to these unaudited condensed consolidated balance sheets.
4
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 1999 March 31, 1998
--------------------------- ---------------
(Unaudited)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss applicable to common shareholders $ (14,952) $ (8,129)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Cumulative effect of change in accounting principle 14,710 -
Equity in loss of affiliates 2,736 -
Depreciation and amortization 211 30
Provision for doubtful accounts 1,864 -
Stock related expenses 16,716 -
Preferred stock dividends 13,125 4,407
Amortization of discount on preferred shares
and senior notes 13 -
Capacity available for sale excluding cash
expenditures for investing activities 58,539 -
Deferred income taxes 22,125 -
Currency translation account (4,930) -
Changes in operating assets and liabilities:
Increase in accounts receivable (53,766) -
Increase in other assets and prepaid costs (39,488) (11,779)
Increase (decrease) in deferred revenue (14,642) 9,225
Decrease in income taxes payable (9,171) -
Increase (decrease) in accounts payable and
accrued liabilities (1,388) 2,384
Decrease in obligations under inland services agreements (11,143) (7,642)
--------- ---------
Net cash used in operating activities (19,441) (11,504)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 834 1,062
Proceeds from long term debt 9,083 155,113
Repayment of long term debt (26,825) -
Finance costs incurred (77) (247)
Cash reimbursement to certain shareholders - (7,047)
Increase in restricted cash and cash equivalents (47,811) (13,905)
--------- ---------
Net cash provided by (used in) financing activities (64,796) 134,976
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash paid for construction in progress and capacity
available for sale (143,337) (122,187)
Investment in affiliates (12,860) -
Purchases of property, plant and equipment (1,811) -
--------- ---------
Net cash used in investing activities (158,008) (122,187)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (242,245) 1,285
CASH AND CASH EQUIVALENTS, beginning of period 806,593 1,453
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 564,348 $ 2,738
========= =========
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING ACTIVITIES:
Costs incurred for construction in progress and
capacity available for sale $ 180,119 $ 102,445
(Increase) decrease in accrued construction costs (14,282) 28,271
Increase in accrued interest (19,448) (4,361)
Amortization of deferred finance costs (3,307) (1,206)
(Increase) decrease in obligations under capital leases 255 (2,962)
--------- ---------
Cash paid for construction in progress and
capacity available for sale $ 143,337 $ 122,187
========= =========
Purchases of property, plant and equipment $ (38,300) $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid and capitalized $ 6,132 $ 4,446
========= =========
Interest paid (net of capitalized interest) $ 772 $ 4,423
========= =========
Cash paid for taxes $ 1,788 $ -
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
5
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
(1) ORGANIZATION AND BACKGROUND
Global Crossing Ltd. (together with its consolidated subsidiaries, the Company)
is an independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea and
terrestrial digital fiber optic cable systems (the Global Crossing Network).
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 systems under development by the Company
will form a state-of-the-art interconnected worldwide high capacity fiber optic
network. The systems completed or under development will form a state-of-the-
art interconnected worldwide high capacity fiber optic network: Atlantic
Crossing-1 (AC-1) and the recently announced Atlantic Crossing-2 (AC-2),
undersea systems connecting the United States and Europe; Pacific Crossing (PC-
1), an undersea system connecting the United States and Asia; Mid Atlantic
Crossing (MAC), an undersea system connecting the eastern United States and the
Caribbean; Pan American Crossing (PAC), an undersea system connecting the
western United States, Mexico, Panama, Venezuela and the Caribbean; South
American Crossing (SAC), an undersea and terrestrial system connecting the major
cities of South America to MAC, PAC and the rest of the Global Crossing Network;
Pan European Crossing (PEC), a terrestrial system connecting 24 European cities
to AC-1; and a terrestrial system (GAL) to be operated by Global Access Ltd.,
connecting certain cities in Japan to PC-1. The undersea component of this
initial portion of the Global Crossing Network totals 74,500 km and the
terrestrial component adds 13,400 km for a total of 87,900 km. We are in the
process of developing several new undersea and terrestrial cable systems and
evaluating other business development opportunities which will complement the
Global Crossing Network.
(2) BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
as of March 31, 1999 and for the three months ended March 31, 1999 and 1998,
include the accounts of the Company and its subsidiaries. All material inter-
company balances and transactions have been eliminated. The unaudited interim
condensed consolidated financial statements reflect all adjustments, consisting
of normal recurring items, which are, in the opinion of management, necessary to
present a fair statement of the results of the interim period presented. The
results of operations for any interim period are not necessarily indicative of
results for the full year.
These condensed 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, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements do not
include all footnotes and certain financial presentation normally required under
generally accepted accounting principles. Therefore, these financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1998.
(3) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted Statement of Position 98-5 (SOP 98-5), "Reporting on the
Cost of Start-Up Activities," issued by the American Institute of Certified
Public Accountants, during the three months ended March 31, 1999. SOP 98-5
requires that certain start-up expenditures previously capitalized during system
development must now be expensed. The Company incurred a one-time charge during
the three months ended March 31, 1999 of $15 million (net of tax benefit) that
represents start-up costs incurred and capitalized during previous periods.
During the three months ended March 31, 1999, the Company incurred $4 million of
start-up expenditures, which were expensed as incurred.
(3) NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133) which is effective for periods beginning
after June 15, 1999. Management does not expect the impact of the adoption of
SFAS 133 on the Company's financial position or results of operations to be
material.
6
<PAGE>
(4) NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
Basic Earnings Per Share (EPS) is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. The weighted average number of common shares outstanding
totaled 410,797,073 and 331,845,633 for the three months ended March 31, 1999
and 1998, respectively. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted. The dilutive effect of the assumed exercise of stock options and
convertible securities were anti-dilutive for the three months ended March 31,
1999 and 1998, respectively.
(5) SHAREHOLDERS' EQUITY
Stock Option Plan. During the three months ended March 31, 1999, the Company
granted stock options for an aggregate of 7,614,434 shares of common stock under
the Stock Incentive Plan, of which 4,000,000 options were issued to a key
executive. On March 31, 1999, stock options covering 34,119,784 shares of
common stock were outstanding. Details of the Stock Option Plan are included in
the Company's Annual Report on Form 10-K, for the fiscal year ended December 31,
1998.
The Company recognized $17 million and $1 million of stock compensation expense
during the three months ended March 31, 1999 and 1998, respectively, relating to
options issued under its Stock Incentive Plan, plus certain stock related
expense related to stock options and rights to purchase stock awarded to
consultants and a key executive, accounted for under SFAS No. 123. The Company
records the excess of the fair market value of the rights over the purchase
price as unearned stock compensation. The unearned stock compensation is being
recognized as an expense over the vesting period of the rights.
(6) SEGMENT INFORMATION
The Company is a provider of Internet and long distance telecommunications
facilities and related services supplying its customers with global "point-to-
point" connectivity. As such, the Company is engaged in only one business
segment worldwide and derives its revenues from customers located in the
following geographic regions: the Americas, Europe and Asia Pacific. The
Company also maintains long-lived assets in these regions; however, the majority
of these assets are in international waters. In addition, the Company derives
all of its revenues from companies in the Internet and long distance
telecommunications industry and, as a result, has concentration of credit risk
in this industry.
(7) CONCENTRATION OF RISKS
During the three months ended March 31, 1999, there were two customers that
accounted for 19% and 15%, respectively, of total revenues.
As of March 31, 1999, the Company had two customers representing 15% and 11% of
outstanding receivables, respectively.
(8) RECLASSIFICATIONS
Certain prior year amounts have been reclassified in the condensed consolidated
financial statements for consistent presentation.
(9) SIGNIFICANT EVENTS
Lucent Agreement
On January 26, 1999, the Company signed a technology agreement with Lucent
Technologies Inc. (Lucent) that will give the Company access to Lucent's
terrestrial and undersea fiber optic technology. In addition, the Company
entered into a supply contract with Lucent to provide fiber and equipment for
PEC. As part of the supply contract, Lucent will provide certain financing for
PEC. The agreement with Lucent also provides for financing of future systems if
they are selected as the contractor.
Stock dividend
On February 3, 1999, the Board of Directors declared a 2-for-1 common stock
split in the form of a stock dividend to shareholders of record on February 16,
1999 effective March 9, 1999. All share information presented in these unaudited
condensed consolidated financial statements gives retroactive effect to this
stock dividend.
7
<PAGE>
South American Crossing
On March 11, 1999, the Company announced plans for the development of SAC, an
18,000 km undersea and terrestrial fiber optic network directly linking the
major cities of South America through MAC and PAC to the United States, Mexico,
Central America, the Carribean, Asia and Europe. The Company expects that SAC
will cost approximately $1,130 million to construct. Service is scheduled to
commence in the fourth quarter of 2000, with full ring completion expected in
the first quarter of 2001. The Company plans to build SAC in three phases. The
first two phases, providing Argentina and Brazil with connectivity to the Global
Crossing Network, are scheduled to commence service in the fourth quarter of
2000. The final phase, completing the loop around the continent, is scheduled
for completion in the first quarter of 2001. The undersea portion of SAC is
currently planned to be wholly-owned, while the terrestrial portion is expected
to be constructed through joint-venture arrangements.
Frontier Merger
On March 16, 1999, the Company entered into a definitive agreement and plan of
merger with Frontier Corporation, a New York corporation (Frontier), that will
result in Frontier becoming a wholly-owned subsidiary of the Company or a new
parent holding company of the Company. Frontier is one of the leading providers
of facilities-based integrated communications and Internet services in the
United States. The board of directors of each company has approved the merger.
Completion of the transaction is anticipated to occur during the third quarter
of 1999. The transaction is subject to approval by the shareholders of the
Company and Frontier and to other customary conditions, such as receipt of
regulatory approvals. The Company expects the merger will be accounted for
using the purchase method of accounting.
Atlantic Crossing-2
On March 24, 1999, the Company announced its intention to develop and construct
AC-2, an additional eight fiber pair cable connecting the United States to
Europe. AC-2 will be integrated with the two transatlantic cables of AC-1,
adding a third high-capacity cable across the Atlantic for the Global Crossing
Network and providing AC-2 with self-healing capabilities. The new cable will
cost approximately $750 million and is expected to be in service in the first
quarter of 2001.
(10) SUBSEQUENT EVENTS
Global Marine Acquisition
On April 26, 1999, the Company announced a definitive agreement to acquire the
Global Marine business of Cable & Wireless plc in a transaction valued at
approximately $885 million, consisting of a combination of cash and assumed
indebtedness. Global Marine is an undersea cable installation and maintenance
company. The transaction, which is expected to be completed within 60 days, is
subject to certain regulatory and other approvals. The Company expects the
acquisition will be accounted for using the purchase method of accounting.
Tyco Submarine Systems Agreement
On April 29, 1999, the Company announced a contract with Tyco Submarine Systems
Ltd. (TSSL), valued initially at over $700 million pursuant to which the SAC
cable system will be designed, manufactured and installed by TSSL. The contract
provides for options for Global Crossing to purchase future upgrades to the
initial base system, in order to substantially increase the capacity of the base
system. Lucent will supply fiber and equipment to TSSL for the SAC system, as
well as financing to the Company under terms of a previous agreement between
Lucent and the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND March 31,
1998
Revenues. During the three months ended March 31, 1999, the Company recognized
revenues of $173 million on sales of capacity relating to AC-1, in addition to
revenues from operation and maintenance services of $5 million. The full AC-1
ring was completed in February 1999. There were no sales or related costs
recognized in the three months ended March 31, 1998, as the Company was in its
development stage.
Cost of capacity sold. For the three months ended March 31, 1999, the Company
recognized $69 million in cost of capacity sold, resulting in a gross margin on
capacity sales of 60%. Non-cash cost of undersea capacity sold was $53 million
during the three months ended March 31, 1999. The Company calculates cost of
undersea capacity sold for AC-1 based on the ratio of the period's actual
revenue to total expected future revenues given a minimum projected sales
capacity of 512 circuits times the unamortized construction cost of the system.
This calculation of cost of sales matches costs with the relative value of each
sale. Cost of capacity sold also includes the cost of terrestrial capacity sold,
a cash expense, during the three months ended March 31, 1999, of $16 million.
Operations, administration and maintenance (OA&M). The Company incurred OA&M
costs on AC-1 of $12 million during the three months ended March 31, 1999. The
Company has entered into an agreement with TSSL relating to operations,
administration and maintenance of AC-1 which limits the Company's total OA&M
expense for the system. Following the AC-1 full system ready-for-service date,
the Company anticipates that its OA&M costs will be largely recovered through
charges to its customers under the terms of Capacity Purchase Agreements (CPAs).
There were no OA&M costs in the three months ended March 31, 1998, as the
Company was in its development stage.
General and administrative. General and administrative expenses totaled $23
million during the three months ended March 31, 1999 and was comprised
principally of salaries, employee benefits and recruiting fees reflecting the
Company's staffing for multiple systems, travel, professional fees, insurance
costs, occupancy costs, plus depreciation and amortization. During the three
months ended March 31, 1998, the Company incurred general and administrative
costs of $2 million.
Stock related compensation expense. The Company recognized $17 million and $1
million of stock compensation expense during the three months ended March 31,
1999 and 1998, respectively, relating to options issued under its Stock
Incentive Plan, plus certain stock related expense related to stock options and
rights to purchase stock awarded to consultants and a key executive, accounted
for under SFAS No. 123.
Sales and marketing. During the three months ended March 31, 1999, the Company
incurred sales and marketing expenses of $10 million, including commissions to
TSSL of $8 million incurred on revenues recognized during this period. During
the three months ended March 31, 1998, the Company incurred sales and marketing
costs of $1 million. The increase from 1998 was due to additions in headcount,
occupancy costs, plus marketing costs, commissions paid and other promotional
expenses to support the Company's rapid growth.
Network development. The Company incurred network development costs during the
three months ended March 31, 1999 of $5 million relating to network development,
and this amount is comprised principally of salaries and professional fees. No
such costs were incurred during the three months ended March 31, 1998.
Equity in loss of affiliates. In April 1998, the Company entered into a joint
venture to construct an undersea cable system, PC-1. PC-1 is owned and operated
by Pacific Crossing Ltd. (PCL). The Company has an economic interest in PCL
represented by a 50% direct voting interest and, through one of the joint
venture partners, owns a further 8% economic non-voting interest. In December
1998, a wholly-owned subsidiary of the Company entered into a joint venture to
construct and operate GAL. The $3 million loss is comprised of a loss of $2
million representing the Company's 58% equity in the loss of PCL and a loss of
$1 million representing the Company's 49% equity in Global Access Ltd. for the
three months ended March 31, 1999.
Interest income. The Company earned interest income of $14 million and $0.1
million in the three months ended March 31, 1999 and 1998, respectively. Such
interest income represents earnings on cash raised from financings and on CPA
deposits.
Interest expense. During the three months ended March 31, 1999, the Company
incurred $29 million in interest costs, including the amortization of finance
costs and debt discount. Of this amount, the Company capitalized to
construction in progress interest of $5 million, and expensed $24 million.
During the three months ended March 31, 1998, the Company incurred interest
costs of $4 million, substantially all of which was capitalized to construction
in progress.
Provision for income taxes. The income tax provision of $16 million for the
three months ended March 31, 1999, provides for taxes on profits earned from
capacity sales and OA&M revenues where subsidiaries of the Company have a
presence in taxable jurisdictions. During the three months ended March 31,
1998, the Company incurred operating losses, which related to non-taxable
jurisdictions and therefore, such losses could not be applied against future
taxable earnings. Accordingly, no tax provision or deferred tax benefit was
recorded as of March 31, 1998.
9
<PAGE>
Cumulative effect of change in accounting principle. The Company adopted
Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of Start-Up
Activities," issued by the American Institute of Certified Public Accountants,
during the three months ended March 31, 1999. SOP 98-5 requires that certain
start-up expenditures previously capitalized during system development must now
be expensed. The Company incurred a one-time charge during the three months
ended March 31, 1999 of $15 million (net of tax benefit) that represents start-
up costs incurred and capitalized during previous periods.
Net loss. During the three months ended March 31, 1999 the Company reported a
net loss of $2 million compared to a net loss of $4 million in the three months
ended March 31, 1998.
Preferred stock dividends. Preferred stock dividends for the three months ended
March 31, 1999 and 1998, were $13 million and $4 million, respectively.
Net loss applicable to common shareholders. During the three months ended March
31, 1999, the Company reported a net loss applicable to common shareholders of
$15 million, resulting in large part from $13 million of dividends on preferred
stock. During the three months ended March 31, 1998, the Company reported a net
loss applicable to common shareholders of $8 million resulting in a large part
from $4 million of dividends on preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Restricted cash and cash equivalents. At March 31, 1999, restricted cash and
cash equivalents includes: $231 million for PC-1 construction, $63 million for
PEC construction, $56 million for MAC construction, $38 million for funding
future interest payable on the senior notes and $104 million received pursuant
to CPAs restricted under the terms of the AC-1 credit facility.
As of March 31, 1999, the approximately $750 million initial cost of AC-1 had
been fully financed. The first contracted upgrade has been fully funded through
operating cash flow.
We estimate the total cost of developing and deploying AC-2, PC-1, MAC, PAC,
SAC, PEC and GAL to be approximately $4,945 million (excluding costs of
potential future upgrades and the amounts capitalized with respect to the
warrants issued in exchange for the rights to certain of such systems) which is
comprised of $750 million for AC-2, $1,200 million for PC-1, $330 million for
MAC, $495 million for PAC, $1,130 million for SAC, $850 million for PEC and $190
million for GAL. PC-1 will be financed by total equity investments of $400
million (we expect to provide approximately $231 million), with the remaining
$800 million of estimated costs to be financed through non-recourse project
indebtedness at the PC-1 level. We have funded our 49% interest in GAL from
cash on hand. With respect to MAC and PAC, we have made equity investments of
$110 million and $200 million, respectively. We have obtained $220 million in
non-recourse project financing from certain lenders to finance the remaining
construction costs of MAC. We expect to finance the remaining estimated $295
million in costs for PAC through either non-recourse indebtedness for which we
have negotiated a contractual commitment or through other corporate borrowings
for which we have commitments.
During October 1998, we announced the development of PEC for which the
construction costs are estimated to be $850 million. A portion of these costs
will be paid from the proceeds of the recent issuance by our direct subsidiary,
Global Crossing Holdings Ltd. (GCH), of 10 1/2% Senior Exchangeable Preferred
Stock due 2008 (GCH Preferred Stock). Further, we expect to raise additional
capital required to finance this system through a combination of commercial bank
borrowings, non-recourse project debt, vendor financing and sales of dark fiber.
In this regard, we have entered into an agreement with Cable & Wireless for the
sale of more than $100 million of dark fiber on PEC. During January 1999, we
entered into a supply contract with Lucent to provide fiber and equipment for
this system and, as part of this contract, Lucent will also furnish financing
along with project management and integration services. On May 5, 1999, we
borrowed approximately $400 million under the Lucent facility.
The Company has raised or expects to raise the additional capital required to
finance AC-2, SAC and any additional cable systems through a combination of
commercial bank borrowings, non-recourse project financings, public and private
offerings of debt and equity securities, vendor financing, and sales of dark
fiber on PEC. We have traditionally secured project indebtedness for
approximately 65% of system costs. The actual amounts of our future capital
requirements will depend on certain factors including the cost of developing our
cable systems, the speed of developing our systems and the pricing of our
services. There can be no assurance that financing for such systems will be
available to us or, if available, that such financing can be obtained on a
timely basis or on terms acceptable to us.
The Company has extended financing to customers in connection with certain CPAs.
The financing terms provide for installment payments over a limited number of
periods of up to four years. The Company believes that its extension of
financing to its customers will not have a material effect on the Company's
liquidity.
Cash used in operating activities was $19 million for the three months ended
March 31, 1999 and $12 million for the three months ended March 31, 1998, and
principally represents sales and marketing, network development and general and
administrative expenses paid less cash received from deposits and payments for
activated capacity pursuant to signed CPAs, plus interest income received.
Cash used in financing activities was $65 million for the three months ended
March 31, 1999, and primarily represents the repayments of borrowings under the
AC-1 credit facility and the increase in amounts held in restricted cash and
cash equivalents. Cash provided by financing activities of $135 million for the
three months ended March 31, 1998, primarily relates to proceeds from borrowings
under the AC-1 credit facility, less the increase in the restricted cash and
cash equivalents.
10
<PAGE>
Cash used in investing activities was $158 million and $122 million for the
three months ended March 31, 1999, and for the three months ended March 31,
1998, respectively, and represents cash paid for Construction in Progress and
cash investments in affiliates.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
YEAR 2000 COMPLIANCE
We believe that our computer information systems are Year 2000 (Y2K) compliant.
We have established a Y2K compliance task force. The task force has identified
no potential material adverse effect on the two core components of our services:
(1) transmission of capacity and (2) management and maintenance of the
transmission paths. Our anticipated worst case scenario is failure of our
Network Operations Center. In the event the worst case scenario occurs
management of the network can be performed at the terminal stations with the
network element managers or at the equipment bays with the craft interface
terminal, in each case at minimal additional cost.
We are also subject to external forces that generally affect industry and
commerce, such as utility, transportation or other infrastructure failures and
interruptions. In addition to reviewing our own systems, we are submitting
requests to third party service providers to obtain information as to their
compliance efforts. We have received assurances from our major suppliers, TSSL
and Lucent, stating Y2K compliance status of their respective systems regarding
AC-1 (our only active system at this time). In addition, we received assurance
from Alcatel Submarine Networks, a supplier to MAC, that Alcatel is also Y2K
compliant. In the event that any of our material third party service providers
do not successfully and timely achieve Y2K compliance, our business or
operations could be adversely affected. We are developing contingency plans to
address any potential Y2K compliance failure due to significant third party
failures, although no such failure is expected. To date, response from material
third party service providers has not shown any of them to be non-compliant with
Y2K readiness plans.
We believe that costs of addressing our Y2K compliance will not have a material
adverse impact on our financial condition or results of operations.
EURO CONVERSION
On January 1, 1999, a single currency called the Euro was introduced in Europe.
Eleven of the fifteen member countries of the European Union agreed to adopt the
Euro as their common legal currency on that date. Fixed conversion rates
between these countries' existing currencies (legacy currencies) and the Euro
were established as of that date. The legacy currencies are scheduled to remain
legal tender in these participating countries between January 1, 1999 and
January 1, 2002 (not later than July 1, 2002). During this transition period,
parties may settle transactions using either the Euro or a participating
country's legacy currency.
As most of our sales and expenditures are denominated in United States dollars,
management does not believe that the Euro conversion will have a material
adverse impact on our business or financial condition. We do not expect the
cost of system modifications to be material and we will continue to evaluate the
impact of the Euro conversion.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
We have included "forward-looking statements" throughout this quarterly report
filed on Form 10-Q. These statements describe our attempt to predict future
occurrences. We use the words "believe," "anticipate," "expect," "intend" and
similar expressions to identify forward-looking statements. Forward-looking
statements are subject to a number of risks, assumptions and uncertainties, such
as:
o our ability to complete our systems within currently estimated time frames
and budgets,
o our ability to sell capacity on our systems,
o our successful transition from a system development company to an operating
company, and
o our ability to compete effectively in a rapidly evolving and price
competitive marketplace.
This list is only an example of some of the risks, uncertainties and assumptions
that may affect our forward-looking statements. If any of these risks or
uncertainties materialize (or fail to materialize), or if the underlying
assumptions prove incorrect, actual results may differ materially from those
projected in the forward-looking statements.
11
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The table below provides information about our market sensitive financial
instruments and constitutes a "forward-looking statement." Our major market
risk exposure is changing interest rates. Our policy is to manage interest
rates through use of a combination of fixed and floating rate debt. Interest
rate swaps may be used to adjust interest rate exposures when appropriate, based
upon market condition.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair Value
Expected maturity dates 1999 2000 2001 2002 2003 Thereafter Total March 31, 1999
------- ------- -------- ------ ----- ---------- -------- --------------
(in thousands)
DEBT
Non Current - US$ denominated
AC-1 Credit Facility $ 9,774 $88,993 $141,600 $8,690 - - $249,057 $249,057
Average interest rates - variable (1) (1) (1) (1)
MAC Credit Facility - 9,192 - - - - 9,192 9,192
Average interest rates - variable (2) (2) (2) (2)
Senior notes - - - - - 800,000 800,000 888,000
Average interest rates - fixed 9.6%
Mandatorily Redeemable Preferred Stock - - - - - 500,000 500,000 484,375
Average interest rates - fixed 10.5%
Obligations under ISAs and capital
lease obligations:
US$ denominated 11,360 1,010 1,010 1,010 1,010 19,111 34,511 34,511
Average interest rates - fixed 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Sterling, German Mark and Dutch
Guilder denominated 15,628 3,953 4,099 4,261 4,429 134,345 166,715 166,715
Average interest rates - fixed 10.8% 10.8% 10.8% 10.8% 10.8% 10.8%
</TABLE>
- ------
(1) The interest rate is one month LIBOR plus 2.0% which was 7.0% as of March
31, 1999.
(2) The interest rate is one month LIBOR plus 3.0% which was 8.0% as of March
31, 1999.
FOREIGN CURRENCY RISK
Substantially all of the Company's subsidiaries use the U.S. dollar as their
functional currency. Where the U.S. dollar is the functional currency,
translation adjustments are recorded in the accompanying condensed consolidated
statements of operations. None of the Company's translation adjustments were
material as of and for the three months ended March 31, 1999 and 1998.
For those subsidiaries not using the U.S. dollar as their functional currency,
assets and liabilities are translated at exchange rates in effect at the balance
sheet date and income and expense accounts at average exchange rates during the
period. Resulting translation adjustments are recorded directly to a separate
component of shareholders' equity. As of and for the three months ended March
31, 1999 and 1998, the Company incurred a foreign currency translation loss of
$4.9 million and none, respectively.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently subject to any material legal claims or
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During August 1998, we completed our IPO (File No. 333-53393; effective date
August 13, 1998) for which we received net proceeds of approximately $391
million. Through March 31, 1999, we have used $334 million of proceeds from the
IPO for (i) equity investments of approximately $75 million for MAC, $79
million for PEC, $13 million for GAL and $119 million for PAC and (ii) $48
million for general corporate purposes. We intend to use the balance of these
funds for (i) construction of the Global Crossing Network, (ii) investments in
telecommunications companies and ISPs, (iii) investment in Global Access Ltd.,
and (iv) general corporate purposes. As of March 31, 1999, unused proceeds were
invested in short-term, interest-bearing United States government securities and
certain other short term, investment grade securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.8 Employment agreement, dated as of February 19, 1999, between Global
Crossing Ltd. and Robert Annunziata.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, Global Crossing Ltd. filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated February 1, 1999 (date of earliest event
reported), filed on February 2, 1999, for the purpose of reporting, under
Item 5, Global Crossing's results of operations for the fourth quarter and
fiscal year ended December 31, 1998.
2. Current Report on Form 8-K dated February 3, 1999 (date of earliest event
reported), filed on February 3, 1999, for the purpose of reporting, under
Item 5, the announcement of a two-for-one stock split in the form of a
stock dividend with respect to the common stock of Global Crossing Ltd.
3. Current Report on Form 8-K dated February 24, 1999 (date of earliest event
reported), filed on February 24, 1999, for the purpose of reporting, under
Item 5, Robert Annunziata as the new Chief Executive Officer of Global
Crossing Ltd.
4. Current Report on Form 8-K dated March 16, 1999 (date of earliest event
reported), filed on March 19, 1999, for the purpose of reporting, under
Item 5, the execution of an agreement and plan of merger with Frontier
Corporation.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Global Crossing Ltd.,
a Bermuda corporation
By: /s/ Dan J. Cohrs
----------------------
Dan J. Cohrs
Senior Vice President and Chief Financial Officer
May 7, 1999
14
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
DATED AS OF FEBRUARY 19, 1999
BETWEEN GLOBAL CROSSING LTD.
AND
ROBERT ANNUNZIATA
ROBERT ANNUNZIATA ("Executive") and GLOBAL CROSSING LTD. ("Company") hereby
agree as follows:
1. Term. The term of Executive's employment by Company under this Agreement
(the "Term") shall commence on and as of February 22, 1999 for a three-year term
ending February 22, 2002, and continue thereafter for successive one-year terms
(the initial three-year term and each one-year term thereafter, collectively the
"Term"), unless either Company or Executive gives notice to the other at least
six (6) months in advance of the expiration of the current term that it wishes
to terminate this Agreement, in which event this Agreement shall terminate as of
the end of such term, unless earlier terminated as hereafter provided.
2. Title and Duties. During the Term, Executive shall be employed by
Company as Chief Executive Officer ("CEO") reporting to Lodwrick Cook and Gary
Winnick, Co-Chairmen of the Board of Directors of the Company. Executive shall
devote his full-time attention and energies to the business of the Company;
provided, however, that the foregoing shall not preclude Executive from engaging
in charitable and community affairs, or participating as a director of a non
competing business company, or managing his personal passive investments.
Executive shall perform such duties, which shall not be inconsistent with his
position as CEO of Company, as are assigned to him from time to time by the
Co-Chairmen of the Board of Company, and any other duties undertaken or accepted
by Executive consistent with his position as Chief Executive Officer of the
Company. Every executive officer of the Company (other than the Co-Chairmen and
the Vice Chairmen) designated by the Executive shall report to him. Company
agrees to use its best efforts to cause Executive to be elected to the Board of
Directors of the Company (or its successor in interest), at the next annual
meeting of the Company or earlier if possible, and to nominate Executive as a
member of the management slate at each annual meeting of stockholders during
employment hereunder at which Executive's director class comes up for election.
Executive agrees to serve on the Board if elected. A failure to elect the
Executive to the Board of Directors shall give the Executive the right to
terminate his employment under this Agreement in accordance with Section 11.
3. Salary; Signing Bonus; Loan. (a) Executive shall receive a salary of
$500,000 per annum during the first three (3) years of the Term. Executive's
salary shall be reviewed at least annually and may be increased but not
decreased. Salary payments shall be made in equal installments in accordance
with Company's then prevailing payroll policy.
<PAGE>
(b) Within 10 days from the date of commencement of Executive's employment
with the Company, the Company shall pay to Executive a $10 million signing
bonus, payable in cash. In the event Executive voluntarily resigns or his
employment is terminated pursuant to Section 10(a)(iii) or 10(a)(iv) in the
first year of Executive's employment, Executive shall return one twelfth (1/12)
of the signing bonus to the Company for each full month Executive does not
complete during such first year.
(c) The Company shall make available a full recourse unsecured loan
facility to Executive at the commencement of Executive's employment with the
Company in an aggregate principal amount not to exceed $5 million in order to
allow Executive to purchase shares of the Company's common stock; provided,
however, loans will be available only to the extent the Executive simultaneously
uses his own funds to purchase a like amount of the Company's common stock. The
loans shall bear interest at the minimal rate required to make the loans an arms
length transaction for tax purposes and shall be payable quarterly. The
principal shall be payable after three years or, if earlier, upon the
termination of Executive's employment with the Company or the disposal of the
shares purchased with the proceeds of the loans. The proceeds of the loans shall
be used only to purchase the Company's common stock. The loan facility shall be
available during Executive's employment with the Company and shall be drawable
in minimum $100,000 increments.
4. Annual Bonus. For each year of the Term, Executive will be eligible for
an annual bonus which will be determined by the Board of Directors, but which
shall not be less than $500,000 for any year during the Term. The bonus shall be
reviewed at least annually by the Board of Directors and may be increased but
not decreased.
5. Stock Options. Subject to Board approval, Executive shall be granted
stock options (the "Two Million Options") to purchase an aggregate of Two
Million (2,000,000) shares of common stock of the Company. The Two Million
Options are deemed to be of record as of February 16, 1999 in order to be
eligible for the March 9, 1999 stock split. The Two Million Options shall be
granted in accordance with, and subject to the following:
(a) The exercise price of the Two Million Options shall be equal to the
closing price of the common stock of the Company on the day before this
Agreement is executed and delivered and announced minus Ten Dollars
($10) per share. The Two Million Options may be exercised at any time
after vesting but prior to expiration.
(b) The Two Million Options shall be subject to the terms and conditions of
the 1998 Global Crossing Incentive Stock Option Plan, a copy of which
is attached hereto and incorporated herein by reference as Exhibit "B"
and a Non-Qualified Stock Option Agreement, the form of which is
attached and incorporated herein by reference as Exhibit "C".
<PAGE>
(c) The Two Million Options shall vest in such shares according to the
following schedule:
Tranche No. of Shares Vesting
------- ------------- -------
1 500,000 Immediately upon execution of
this Agreement
2 500,000 February 22, 2000
3 500,000 February 22, 2001
4 500,000 February 22, 2002
The vesting schedule shall be accelerated in the event of a Non-Fault
Termination (as defined in Section 12).
(d) In the event there is a Change of Control at any time during the Term,
then the acceleration of the vesting schedule of the Two Million
Options and the exercisiability of the Two Million Options shall be
governed by the Plan upon such Change of Control.
(e) The Two Million Options shall expire on the earlier of ten years from
the date of grant or the termination date set forth in the Plan after
termination of Executive's employment with Company.
(f) At the end of the initial Term, Executive shall have the right, for a
period of six (6) months thereafter exercisable on ten (10) days
written notice to Company ("Put Period"), to require the Company to
purchase from him up to 2,000,000 shares of the common stock of the
Company held by Executive as a result of the exercise of the Two
Million Options at a purchase price equal to the closing price of the
common stock of the Company on the day before this Agreement is
executed and delivered and announced (which the parties agree is set
forth on Exhibit A hereto).
(g) In the event the outstanding shares of common stock of Company are
changed into or exchanged for a different number or kind of shares or
other securities of Company or of another corporation by reason of
merger, consolidation, other reorganization, reclassification,
combination of shares, stock split-up or stock dividend, rights of the
Two Million Options granted hereunder, the number of subject shares and
the exercise price (and other terms herein relating thereto) shall be
adjusted appropriately.
6. Additional Stock Options. Subject to Board approval, Executive shall
be granted stock options (the "250K Options"; and together with the Two Million
Options, the "Options") to purchase an aggregate of Two Hundred Fifty Thousand
(250,000) shares of common stock of the Company. The 250K Options are deemed to
be of record as of February 16, 1999 in order to be eligible for the March 9,
1999 stock split. The 250K Options shall be granted in accordance with, and
subject to the following:
<PAGE>
(a) The exercise price of the 250K Options shall be equal to the closing
price of the common stock of the Company on the day before this
Agreement is executed and delivered and announced. The 250K Options may
be exercised at any time after vesting but prior to expiration.
(b) The 250K Options shall be subject to the terms and conditions of the
1998 Global Crossing Incentive Stock Option Plan, a copy of which is
attached hereto and incorporated herein by reference as Exhibit "B" and
a Non-Qualified Stock Option Agreement, the form of which is attached
and incorporated herein by reference as Exhibit "C".
(c) The 250K Options shall vest in full on Executive's first day of
employment by the Company.
(d) In the event there is a Change of Control at any time during the Term,
then the exercisability of the 250K Options shall be governed by
Company policy upon such Change of Control.
(e) The 250K Options shall expire on the earlier of ten years from the date
of grant or the termination date set forth in the Plan after
termination of Executive's employment with Company.
(f) In the event the outstanding shares of common stock of Company are
changed into or exchanged for a different number or kind of shares or
other securities of Company or of another corporation by reason of
merger, consolidation, other reorganization, reclassification,
combination of shares, stock split-up or stock dividend, rights of the
250K Options granted hereunder, the number of subject shares and the
exercise price (and other terms herein relating thereto) shall be
adjusted appropriately.
7. Benefits. Executive shall be entitled to receive the following
benefits:
(a) Health care coverage equivalent to that provided to the Company's other
executive officers.
(b) Reimbursement of reasonable living expenses for temporary housing in
the Los Angeles area until permanent accommodations are arranged but
not later than December 31, 1999 and reimbursement of reasonable
relocation expenses.
(c) Monthly first class airfare to Los Angeles for members of Executive's
immediate family (spouse, mother and all children including the child
of his wife, Patricia).
<PAGE>
(d) Private aircraft, if available, or First class airfare and limousine
service to/from residence and/or office in connection with all company
travel and for appropriate trips to New Jersey until permanent living
arrangements are made in Los Angeles as required. No such trips shall
interfere with Executive's reasonable performance of his
responsibilities as Chief Executive Officer.
(e) Four (4) weeks paid vacation each year during the Term. The maximum
accrued vacation shall be 4 weeks.
(f) The Executive shall be treated in the same manner as, and shall be
entitled to such benefits and other perquisites and terms and
conditions of employment no less favorable than those provided to the
most senior officers of the Company.
8. Reimbursement for Expenses. Executive shall be expected to incur
various business expenses customarily incurred by persons holding like
positions, including but not limited to traveling, entertainment and similar
expenses, all of which are to be incurred by Executive in the belief that they
will benefit the Company. Subject to Company's policy regarding the
reimbursement and non-reimbursement of such expenses, Company shall reimburse
Executive for such expenses from time to time, at Executive's request, and
Executive shall account to Company for such expenses.
9. Protection of Company's Interests.
(a) During the Term of Executive's employment by Company, Executive will
not compete in any manner, directly or indirectly, whether as a
principal, employee, consultant, agent, owner or otherwise, with
Company or any affiliate thereof except that the foregoing will not
prevent Executive from holding at any time less that 5% of the
outstanding capital stock of any company whose stock is publicly
traded.
(b) To the extent permitted by law, all rights worldwide with respect to
any and all intellectual or other property of any nature produced,
created or suggested by Executive during the Term of his employment or
resulting from his service shall be deemed to be a work for hire and
shall be the sole and exclusive property of Company. Executive agrees
to execute, acknowledge and deliver to Company, at Company's request,
such further documents as Company finds appropriate to evidence
Company's rights in such property. Any confidential and/or proprietary
information of Company or any affiliate thereof (including, without
limitation, any information relating to the identities, capabilities,
compensatory and contractual arrangements and/or general personnel data
of employees of Company and its affiliates) shall not be used by
Executive or disclosed or made available by
<PAGE>
Executive to any person except as required in the course of his
employment, and upon expiration or earlier termination of the term of
this Agreement, Executive shall return to Company all such information
that exists in written or other physical form (and all copies thereof)
under his control. Executive agrees to sign the Company's standard form
of confidentiality agreement contemporaneously with the execution and
delivery of this Agreement.
10. Termination. In addition to any right to terminate under Section 1
above:
(a) Company shall have the right to terminate Executive's employment with
Company under the following circumstances:
(i) Upon death of Executive;
(ii) Upon notice from the Company to Executive in the event of an
illness or other disability which has totally and permanently
incapacitated him from performing his duties as Executive on a
substantially full-time basis as described in the Company's long
term disability plan;
(iii) For good cause immediately upon notice from Company. Termination
by Company of Executive's employment for "good cause" as used in
this Agreement shall mean actual fraud, embezzlement or
intentional misconduct which has caused demonstrable and serious
injury to the Company; or
(iv) Conviction of a felony or crime of moral turpitude which has
caused serious injury to the Company.
(b) If Executive's employment is terminated pursuant to Section 10(a)(iii)
or 10(a)(iv) above, Executive's rights and Company's obligations
hereunder, and all unvested stock options granted in accordance with
this Agreement which have not already vested shall forthwith terminate
in their entirety, except that, notwithstanding the foregoing, (i) the
expiration date of any Options which have already vested in accordance
with this Agreement shall be 30 days after the date of termination
pursuant to Section 10(a).
(c) If Executive's employment is terminated pursuant to this Section 10 no
Termination Payment (as defined in Section 12) shall be payable.
11. Termination By Executive. Prior to the expiration of the Term,
Executive shall have the right to terminate his employment under this
Agreement upon 30 days' notice to Company given within 60 days
following the occurrence of any of the following events,
<PAGE>
provided that Company shall have 20 days after the date such notice has been
given to Company in which to cure the conduct or cause specified in such notice:
(a) Executive is not elected or retained in accordance with Section 2 as
CEO (reporting to Company's Co-Chairman) and a director of Company;
(b) There is a significant change in the nature or scope of the Executive's
authority, powers, functions, duties or responsibilities;
(c) There is a substantial and continued reduction in the level of support
services, staff, secretarial and other assistance, office space and
accoutrements available to a level below that which is reasonably
necessary for the performance of Executive's duties;
(d) Company shall fail to issue stock pursuant to Executive's stock options
provided for herein or shall reduce his salary or shall deny Executive
eligibility for annual discretionary bonuses, or Company shall fail to
make any compensation payment required hereunder;
(e) A Change of Control shall occur; and
(f) Any breach of this agreement by the Company.
12. Termination Payment. If a Non-Fault Termination (as defined below) of
Executive's employment with Company shall occur other than by means of the death
or disability of Executive, Executive shall be entitled to receive a lump sum
payment equal to the sum of two times the sum of Executive's then annual base
salary and bonus (provided, however, that in no event shall the annual bonus be
less than $500,000) (Termination Payment). The Termination Payment shall be made
to Executive not later than 30 days after the date of such Non-Fault
Termination. "Non-Fault Termination" shall mean Executive's employment with
Company shall be terminated (i) without cause, (ii) be reason of death or total
and permanent disability pursuant to Section 9(a)(i) or (ii) hereof, or (iii)
Executive shall validly terminate his employment pursuant to Section 11 hereof.
Except for Executive's rights under Sections 5(e), 5(f) and 6(e), which shall
remain in full force and effect after any Non-Fault Termination of this
Agreement, and for the acceleration of the vesting of the Two Million Options,
the Termination Payment described in this Section 12 shall be Executive's sole
and exclusive remedy under this Agreement in the event of a Non-Fault
Termination.
13. Assignment. Company may assign this Agreement or all or any part of its
rights hereunder to any entity that succeeds to all or substantially all of
Company's assets or that holds, directly or indirectly, all or substantially all
of the capital stock of Company or that is otherwise a successor in interest to
Company generally, and this Agreement shall insure to the benefit of, and be
binding upon, such assignee or successor in interest. This Agreement is personal
to Executive and Executive may not, without the express written permission of
Company, assign or pledge any rights or obligations hereunder to any person,
firm, corporation or other entity.
<PAGE>
14. No Conflict With Prior Agreements. Executive represents and warrants to
Company that, to the best of his personal knowledge and belief, neither the
execution and delivery of this Agreement, his commencement of employment
hereunder nor the performance of his duties hereunder conflicts with any
contractual commitment on his part of any third party or violates or interferes
with any rights of any third party.
15. Key Man Insurance. Company shall have the right to secure, in its own
name or otherwise, and at its own expense, life, disability, accident or other
insurance covering Executive and Executive shall have no right, title or
interest in or to such insurance. Executive shall assist Company in procuring
such insurance by submitting to reasonable examinations and signing such
applications and other instruments as may be required by the insurance carriers
to which applications is made for any such insurance.
16. Post-Termination Obligation. After the expiration or earlier
termination of the Executive's employment hereunder for any reason whatsoever,
Executive shall not either alone or jointly, with or on behalf of others, either
directly or indirectly, expressly or implied, whether as principal, partner,
agent, shareholder, director, employee, consultant or otherwise, at any time
during a period of two years following such expiration or termination, solicit
in any manner whatsoever the employment or engagement of, either for his own
account or for any other person, firm, company or other entity, any person who
is employed by Company or any affiliated entity, whether or not such person
would commit any breach of his contract of employment by reason of his leaving
the service of Company or any affiliated entity.
17. Reimbursement of Legal Expenses; Personal Automobile.
(a) Company agrees to reimburse Executive for his reasonable out-of-pocket
legal expenses and costs incurred in connection with the negotiation
and preparation of this Agreement.
(b) Promptly after the commencement of Executive's employment with the
Company, the Company shall purchase, on behalf of Executive, a brand-
new 1999 model Mercedes-Benz SL 500 (or car of equivalent value) for
use by the Executive and his spouse.
18. Entire Agreement, Amendment, Waiver, Etc.
(a) This Agreement supersedes all prior and/or contemporaneous agreement
and/or statements, whether written or oral, concerning the terms of
Executive's employment, and no amendment or modification of this
Agreement shall be binding unless set forth in writing signed by
Company and Executive. No waiver by either party of any breach by the
other party of any provision or condition of this Agreement shall be
effective unless in writing and signed by the party effecting the
waiver, and no such waiver shall be deemed a waiver of any similar or
dissimilar provision or condition at the same or any prior or
subsequent time.
<PAGE>
(b) All payments required to be made to Executive hereunder, whether during
the term of his employment hereunder or otherwise, shall be subject to
all applicable federal, state and local tax withholding laws.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of California. In the event of any controversy or
claim by either party hereunder, the prevailing party in any final and
legally binding adjudication (as to which all periods for the filing of
any appeal have expired) with respect to such controversy or claim
shall be entitled to reimbursement from the losing party for reasonable
attorney's fees and costs and for all other reasonable expenses of such
adjudication.
19. Notices. All notices that either party is required or may desire to
give the other shall be in writing and shall be effective (i) upon personal
delivery or (ii) three business days after deposit of the same with the United
States Postal Service for delivery by certified mail, return receipt requested,
addressed to the party to be given notice as follows:
To Company: Global Crossing Ltd.
150 El Camino Dr., Suite 204
Beverly Hills, CA 90212
Attn: Lodwrick Cook, Co-Chairman
To Executive: Robert Annunziata
95 Minnisink Road
Short Hills, NJ 07078
Either party may by written notice designate a different address for giving
notices. The date of mailing of any such notices shall be deemed to be the date
on which such notice is given.
20. Arbitration. Any dispute arising out of this Agreement shall be
determined by arbitration in Los Angeles, California, under the rules of the
American Arbitration Association then in effect and judgement upon any award
pursuant to such arbitration may be enforced in any court having jurisdiction
thereof, provided each of the parties to this Agreement will appoint one person
as an arbitrator to hear and determine the dispute, and if they are unable to
agree, then the two arbitrators so chosen will select a third impartial
arbitrator whose decision will be final and conclusive upon the parties to this
Agreement. Subject to Section 18(c), the expenses of the arbitration proceedings
concluded pursuant to this paragraph will be borne by the parties in such
proportions as the arbitrators decide.
<PAGE>
21. Certain Additional Payments by the Company. Anything in this Agreement
to the contrary notwithstanding, in the event it shall be determined that any
payment, award, benefit or distribution by the Company to or for the benefit of
the Executive would be subject to the excise tax imposed by Section 4999 of the
Code or any corresponding provisions of state or local tax laws as a result of
payment upon a change of control, or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes) imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
payments.
22. Headings. The headings set forth herein are included solely for the
purpose of identification and shall not be used for the purpose of construing
the meaning of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
GLOBAL CROSSING LTD.
/s/ Robert Annunziata /s/ Lodwrick Cook
________________________________ _________________________________
ROBERT ANNUNZIATA LODWRICK COOK,
CO-CHAIRMAN
<PAGE>
Exhibit A
This Exhibit A is the "Exhibit A" referred to in the Employment Agreement, dated
as of February 19, 1999 (the "Employment Agreement"), between Global Crossing
Ltd. and Robert Annunziata (together, the "Parties").
The Parties agree that, for purposes of Sections 5(a), 5(f) and 6(a) of the
Employment Agreement, the day referred to in such Sections as "the day before
this Agreement is executed and delivered and announced" shall be deemed to be
Thursday, February 18, 1999 and the closing share price of the common stock of
Global Crossing Ltd. on such day was $49-5/8 per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 634,016
<SECURITIES> 0
<RECEIVABLES> 101,625
<ALLOWANCES> (6,097)
<INVENTORY> 0
<CURRENT-ASSETS> 766,469
<PP&E> 46,191
<DEPRECIATION> (791)
<TOTAL-ASSETS> 2,689,797
<CURRENT-LIABILITIES> 273,664
<BONDS> 1,061,221
500,419
0
<COMMON> 4,331
<OTHER-SE> 977,073
<TOTAL-LIABILITY-AND-EQUITY> 2,689,797
<SALES> 173,056
<TOTAL-REVENUES> 178,183
<CGS> 69,387
<TOTAL-COSTS> 65,865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,864
<INTEREST-EXPENSE> 23,779
<INCOME-PRETAX> 28,944
<INCOME-TAX> 16,142
<INCOME-CONTINUING> 12,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (14,710)
<NET-INCOME> (1,908)
<EPS-PRIMARY> (0.04)
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