<PAGE>
As filed with the Securities and Exchange Commission on July 12, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL CROSSING LTD.
(Exact name of registrant as specified in its charter)
---------------
Bermuda 4813 98-0189783
(State or other
jurisdiction of
incorporation or
organization)
(Primary standard industrial classification number)
(I.R.S. employer identification
number)
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
(441) 296-8600
(Address, including zip code, and telephone number, including area code, of
registrants principal executive offices)
---------------
CT Corporation System
1633 Broadway
New York, NY 10019
(212) 479-8200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
BRIAN M. MCCARTHY, ESQ. ROBERT E. SPATT, ESQ.
Skadden, Arps, Slate, Meagher & Flom Simpson Thacher & Bartlett
LLP 425 Lexington Avenue
300 South Grand Avenue, Suite 3400 New York, NY 10017
Los Angeles, CA 90071 (212) 455-2000
(213) 687-5000
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective
and all other conditions to the merger contemplated by the Agreement and Plan
of Merger, dated as of March 16, 1999, as amended, described in the enclosed
Joint Proxy Statement/Prospectus have been satisfied or waived.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Amount of
Securities Amount To Be Offering Maximum Registration
To Be Registered Registered(1) Price per Unit Offering Price Fee(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share......... 341,974,990 shares Not applicable Not Applicable $3,067,228
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the maximum number of shares to be issued in connection with the
merger, calculated as the product of (a) 187,599,424, the aggregate number
of shares of Common Stock, par value $1.00 per share, of Frontier
Corporation outstanding on June 4, 1999 (other than shares held in
treasury of Frontier Corporation and shares owned by the Registrant which
shall be canceled in the merger) assuming exercise of all stock options
and warrants (whether or not currently exercisable) and (b) 1.8229, the
maximum fraction of a common share of the Registrant issuable in respect
of each share of Common Stock of Frontier Corporation.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) and 457(c) under the Securities Act of 1933, as
amended, and based upon the average of the high and low sales prices of
Common Stock of Frontier Corporation on the New York Stock Exchange
Composite Transactions Tape on July 9, 1999 ($58.8125). Pursuant to Rule
457(b), the registration fee of $3,067,228 is reduced by the fee of
$1,969,222 paid previously to the Commission pursuant to the Securities
Exchange Act of 1934, as amended, in connection with the filing of the
preliminary proxy materials on Schedule 14A. Therefore, the registration
fee payable upon filing of this Registration Statement is $1,098,006.
---------------
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 shall specifically state 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 Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this document is not complete and may be changed. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. We may not sell these securities until +
+that registration statement is effective. This document is not an offer +
+to sell these securities, and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 12, 1999
[GLOBAL CROSSING LETTERHEAD]
, 1999
Dear Shareholder:
The board of directors cordially invites you to attend the 1999 Annual
General Meeting of Shareholders, which we will hold at , local time, on ,
1999, at .
At the annual meeting, we will ask you to consider proposals to approve an
increase in the authorized share capital and to approve the issuance of shares
of Global Crossing common stock pursuant to a merger agreement among Global
Crossing, Frontier Corporation and a wholly owned subsidiary of Global
Crossing. As a result of the merger, each share of Frontier common stock will
be converted into the right to receive that number of shares of Global Crossing
common stock equal to the exchange ratio. The exchange ratio will equal $63.00
divided by the average of the volume weighted averages of the trading prices of
Global Crossing common stock on the Nasdaq National Market for the 15 trading
days randomly selected by Global Crossing and Frontier from a specified 30-day
trading period before closing. However, the exchange ratio will not be less
than 1.1095 shares or greater than 1.8229 shares. If the average trading price
of Global Crossing's common stock is less than $34.5625, Frontier may, but is
not required to, terminate the merger agreement, unless Global Crossing elects
to increase the merger consideration in the form of cash or additional shares
of Global Crossing common stock to ensure that Frontier shareholders receive
consideration having a value, based on the average trading price, of $63.00 per
share.
We will also ask you to consider the other proposals described in the Notice
of 1999 Annual General Meeting of Shareholders and in the accompanying
document.
Global Crossing's management believes that the proposed merger will jump
start Global Crossing into the next phase of its strategic development--fully
integrated services on a global basis--and ideally positions Global Crossing to
meet the growing demand for bandwidth to handle Internet, data, video and voice
transmissions and produce outstanding value for its customers, shareholders and
employees. The combined company will be led by a management team with top
executives from Global Crossing and Frontier.
The board of directors of Global Crossing has unanimously approved the terms
of the merger agreement and the merger and unanimously recommends you vote FOR
the increase in authorized share capital and the issuance of shares of Global
Crossing common stock in the merger.
It is important that your shares be represented at the annual meeting,
whether or not you plan to attend the annual meeting in person. Please
complete, sign and date the enclosed proxy card and return it in the
accompanying prepaid envelope to ensure that your shares will be represented at
the annual meeting.
Thank you for your continued support.
[signature] [signature]
GARY WINNICK LODWRICK M. COOK
Co-Chairman of the Board of Directors
Co-Chairman of the Board of Directors
Neither the Securities and Exchange Commission nor
any state securities regulators have approved or
disapproved of the shares of Global Crossing common
stock to be issued in the merger or determined if
this document is truthful or complete. Any
representation to the contrary is a criminal offense.
See "Risk Factors" beginning on page 30 for some of the matters you should
consider.
This document is dated , 1999 and is first being mailed to shareholders
on or about , 1999.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this document is not complete and may be changed. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. We may not sell these securities until +
+that registration statement is effective. This document is not an offer +
+to sell these securities, and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 12, 1999
[GLOBAL CROSSING LOGO]
-----------
Notice of 1999 Annual General Meeting of Shareholders
-----------
We will hold the Annual General Meeting of Shareholders (the "annual
meeting") of Global Crossing Ltd. at , on , 1999, at , local
time, for the following purposes:
To receive the report of the independent auditors of Global Crossing and the
financial statements for the year ended December 31, 1998 and to vote on the
following:
1. To consider and act upon a proposal to approve an increase in the
authorized share capital of Global Crossing to 3,000,000,000 shares of
common stock, par value $0.01 per share, and 20,000,000 shares of preferred
stock, par value $0.01 per share, of Global Crossing;
2. To consider and act upon a proposal to approve the issuance of shares
of Global Crossing common stock, par value $.01 per share, in the merger;
3. To consider and act upon proposals to amend and restate the bye-laws of
Global Crossing;
4. To elect four class A directors, six class B directors and five class C
directors and, subject to the completion of the merger and with effect
immediately after the merger, one additional class A director, one
additional class B director and two additional class C directors who are
currently directors of Frontier;
5. To consider and act upon a proposal to amend the 1998 Global Crossing
Ltd. Stock Incentive Plan for the purpose of increasing the number of
authorized shares of Global Crossing common stock reserved for issuance
under that plan;
6. To ratify Global Crossing's existing compensation plan for its outside
directors;
7. To ratify the appointment of Arthur Andersen & Co. as independent
auditors of Global Crossing for the year ending December 31, 1999 and
authorize the board of directors to determine their remuneration; and
8. To transact any other business that may properly come before the
meeting and any adjournment or postponement of the meeting.
Only shareholders of record at the close of business on , 1999, which
has been fixed as the record date for notice of the meeting, are entitled to
receive notice of the meeting. All shareholders of record on the date of the
meeting are entitled to attend and vote at the meeting.
We urge you to attend the meeting in person or by proxy. If you do not expect
to attend the meeting, please vote by completing, signing and dating the
enclosed proxy card and returning it promptly in the reply envelope provided.
By order of the Board of Directors,
JAMES C. GORTON
Secretary
, 1999
Important: Please sign, date and return the enclosed proxy card as soon as
possible. The proxy is revocable and will not be used if you give written
notice of revocation to the Secretary of Global Crossing not less than one hour
before the time fixed for the beginning of the meeting, if you lodge a later
dated proxy or if you attend and vote at the meeting.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this document is not complete and may be changed. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. We may not sell these securities until +
+that registration statement is effective. This document is not an offer +
+to sell these securities, and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 12, 1999
[Frontier Corporation Logo]
, 1999
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders of
Frontier Corporation which we will hold at 10:30 a.m., local time, on ,
1999, at .
As you may know, on March 16, 1999, Frontier entered into a merger agreement
which was amended on May 16, 1999, with Global Crossing Ltd. and a subsidiary
of Global Crossing pursuant to which Frontier will become a wholly owned
subsidiary of Global Crossing. The purpose of this special meeting is to adopt
the merger agreement and approve the merger transaction described in the merger
agreement.
In the merger, your shares of Frontier common stock will be exchanged for a
number of shares of Global Crossing common stock. The number of shares you will
receive will be based on the volume weighted averages of the trading prices of
the Global Crossing common stock for 15 randomly selected trading days during a
30 trading day period ending one trading day before the conditions to the
merger are satisfied or waived. If the average trading price is at least
$34.5625 and not more than $56.7813, the value of the shares of Global Crossing
common stock you receive for each Frontier share will be $63.00, based on the
average trading price. You will not receive less than 1.1095 Global Crossing
shares for each Frontier share or, subject to the next sentence, more than
1.8229 Global Crossing shares for each Frontier share. If the average trading
price is less than $34.5625, Frontier may terminate the merger agreement unless
Global Crossing elects to increase the merger consideration to ensure that you
receive consideration having a value, based on the average trading price, of
$63.00 per share, but it is not required to terminate the merger agreement. If
we do not complete the merger by December 31, 1999, the value of the merger
consideration will be increased by a specified interest factor, except if the
average trading price is above $56.7813.
On [July 1, 1999], the Global Crossing common stock, which is listed on the
Nasdaq National Market under the symbol "GBLX," closed at $[40.00] per share.
Based on that Global Crossing trading price, the shares of Global Crossing
common stock that you would receive for each Frontier share would have a value
of $[63.00].
We believe this transaction represents an exciting strategic combination.
Your board of directors has unanimously determined that the merger is in the
best interest of Frontier and its shareholders and recommends that you adopt
the merger agreement with Global Crossing.
Please review carefully this entire document. You should consider the matters
discussed under the caption "Risk Factors" beginning on page 30 of the enclosed
document before voting.
In order to vote at the special meeting, please either attend the special
meeting, complete, sign and date the enclosed proxy and return it in the
accompanying postage-paid envelope or cast your vote by telephone or
electronically over the Internet.
Sincerely,
[signature]
Joseph P. Clayton
Chief Executive Officer
The Securities and Exchange Commission and the state
securities regulators have not approved or
disapproved the shares of Global Crossing common
stock to be issued in the merger or determined if
this document is accurate or complete. Any
representation to the contrary is a criminal offense.
This document is dated , 1999 and was first mailed to
shareholders on or about , 1999.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this document is not complete and may be changed. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. We may not sell these securities until +
+that registration statement is effective. This document is not an offer to +
+sell these securities, and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 12, 1999
[Frontier Corporation Logo]
Notice of Special Meeting of Shareholders
to Be Held , 1999
We will hold a special meeting of shareholders of Frontier Corporation at
10:30 a.m., local time, on , 1999, at for the following purpose:
To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of March 16, 1999, as amended, among Global Crossing Ltd.,
GCF Acquisition Corp. and Frontier and on any other matters which may
properly come before the meeting or which are incident to the conduct of the
meeting. In the merger, Frontier will merge with GCF Acquisition Corp. and
become a wholly owned subsidiary of Global Crossing and all outstanding
shares of Frontier common stock, other than shares held by the parties to
the merger agreement and Global Crossing's subsidiaries, will be converted
into the right to receive a number of shares of Global Crossing common stock
based on an exchange ratio that will be calculated shortly before the
merger.
Shareholders of record at the close of business on , 1999 are entitled
to vote their shares at the special meeting and any adjournments or
postponements of it. Each share of Frontier common stock will entitle the
record holder to one vote on each matter put to a vote at the special meeting.
We cannot complete the merger unless the holders of two-thirds of the
outstanding shares of Frontier common stock vote to adopt the merger agreement.
You will need an admission card to gain entry to the special meeting. If you
are planning to attend the special meeting, please check the appropriate box on
the proxy card. Your admission card will be available at the registration table
at the special meeting. The special meeting will be sign language interpreted
for the hearing impaired.
For more information about the merger, please review the accompanying
document and the merger agreement attached as Annex A. A copy of this document
is also available on Frontier's web site which can be found at:
http://www.frontiercorp.com.
Your vote is very important. Please either vote electronically or sign and
date the enclosed proxy card and return it promptly in the enclosed return
envelope, whether or not you plan to attend the meeting. The accompanying
envelope requires no postage if mailed in the United States. If you do not
specify your vote on your submission, your shares will be voted FOR the
adoption of the merger agreement. If you fail to submit a proxy or vote
electronically or if you abstain from voting, it will have the effect of a vote
against the adoption of the merger agreement. You may revoke your proxy and
vote in person if you decide to attend the special meeting.
Please do not send in any stock certificates at this time.
By action of the Board of Directors,
JOSEPHINE S. TRUBEK
Corporate Secretary
<PAGE>
To find any of the principal sections identified below, simply bend the
document slightly to expose the black tabs and open the document to the tab
which corresponds to the title of the section you wish to read.
Table of contents
Questions & answers about the merger
Summary; Risk factors; The meetings
The merger; The U S WEST merger; The merger agreement; Related agreements
Unaudited pro forma financial information
The companies; Global Crossing common stock; Shareholder information
Global Crossing annual meeting proposals and related information
Additional information
Financial statements of Global Crossing and Global Marine
Annexes
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions & Answers about the Merger................................................. 1
Summary.............................................................................. 3
The companies...................................................................... 3
What you will receive in the merger................................................ 4
Ownership of Global Crossing after the merger...................................... 6
Tax consequences................................................................... 6
Board recommendations.............................................................. 6
Interests of members of Frontier's board of directors and management in the
merger............................................................................ 6
Opinions of financial advisors..................................................... 6
Record date for voting; Required votes............................................. 7
Conditions to the completion of the merger......................................... 7
Termination of the merger agreement; Fees payable.................................. 8
Regulatory matters................................................................. 9
Accounting treatment............................................................... 9
No appraisal rights................................................................ 9
Trading of Global Crossing common stock............................................ 9
U S WEST merger.................................................................... 9
Selected historical financial information.......................................... 11
Selected unaudited pro forma financial information................................. 20
Comparative per share data......................................................... 27
Market prices and dividends........................................................ 28
Risk Factors......................................................................... 30
Cautionary Statement Regarding Forward-Looking Statements............................ 39
The Global Crossing Annual Meeting................................................... 40
General............................................................................ 40
Date, time and place............................................................... 40
Matters to be considered at the meeting............................................ 40
Record date; votes per share....................................................... 41
Quorum............................................................................. 41
Votes required..................................................................... 42
How shares will be voted at the annual meeting..................................... 42
How to revoke a proxy.............................................................. 43
Solicitation of proxies.......................................................... 43
1998 audited financial statements; Annual report................................. 43
The Frontier Special Meeting......................................................... 44
General.......................................................................... 44
Date, time and place............................................................. 44
Matter to be considered at the special meeting................................... 44
Record date...................................................................... 44
Vote required.................................................................... 44
How shares will be voted at the special meeting.................................. 44
Voting at the special meeting.................................................... 45
Methods of voting................................................................ 45
How to revoke a proxy............................................................ 45
Solicitation of proxies.......................................................... 45
The Merger........................................................................... 47
What you will receive in the merger.............................................. 47
Background of the merger......................................................... 47
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Recommendation of the Global Crossing board of directors; Reasons for
the merger............................................................. 53
Opinion of Global Crossing's Financial Advisors......................... 55
Recommendation of the Frontier board of directors; Reasons for the
merger................................................................. 64
Opinion of Frontier's financial advisor................................. 66
Interests of members of Frontier's board of directors and management in
the merger............................................................. 75
Certain federal income tax and Bermuda tax consequences ................ 77
Anticipated accounting treatment........................................ 83
Regulatory approvals.................................................... 83
No appraisal rights..................................................... 84
Quotation on the Nasdaq National Market................................. 84
Litigation.............................................................. 84
Resales of Global Crossing common stock................................. 84
The U S WEST Merger....................................................... 86
The Merger Agreement...................................................... 92
The merger.............................................................. 92
Effective time of the merger............................................ 92
Exchange procedures..................................................... 92
Frontier preferred stock................................................ 93
Stock options and warrants.............................................. 93
Representations and warranties.......................................... 93
Covenants............................................................... 94
No solicitation of transactions......................................... 96
Board of directors' covenant to recommend............................... 97
Transition planning; Continued operations of Frontier................... 97
Services agreement...................................................... 97
Reasonable best efforts................................................. 98
Employee benefits....................................................... 98
Indemnification and insurance........................................... 98
Conditions to the completion of the merger.............................. 98
Termination; Possible exchange ratio increase........................... 99
Termination fees........................................................ 102
Other expenses.......................................................... 102
Amendments and waivers.................................................. 102
Alternative merger structure............................................ 104
Related Agreements........................................................ 104
Stock option agreement.................................................. 104
Voting agreement........................................................ 105
Unaudited Pro Forma Condensed Combined Financial Statements .............. 107
The Companies............................................................. 119
Global Crossing Ltd. ................................................... 119
Overview.............................................................. 119
Recent developments................................................... 119
Business activity..................................................... 120
The Global Crossing network........................................... 121
Atlantic Crossing..................................................... 122
Pacific Crossing...................................................... 123
Mid-Atlantic Crossing................................................. 123
Pan American Crossing................................................. 123
South American Crossing............................................... 123
Terrestrial capacity.................................................. 124
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional network expansion opportunities............................ 124
Other activities...................................................... 125
Financing plan........................................................ 125
System performance.................................................... 126
Sales and marketing................................................... 126
Summary of principal terms of standard contractual documentation...... 128
Operations, administration and maintenance support ................... 128
Competition........................................................... 129
Suppliers............................................................. 130
Regulation............................................................ 130
Employees............................................................. 131
Financial information by business segment and geographic area......... 131
Frontier Corporation.................................................... 132
Strategy.............................................................. 132
Integrated services................................................... 133
Transmission.......................................................... 135
Local communications services......................................... 136
Global Crossing's Management Discussion and Analysis of Financial
Condition and Results of Operations...................................... 137
Overview................................................................ 137
Revenues and deferred revenues.......................................... 137
Cost of sales........................................................... 138
Operating expenses...................................................... 139
Results of operations for the three months ended March 31, 1999 and
March 31, 1998......................................................... 139
Results of operations for the year ended December 31, 1998 and the
period from March 19, 1997 (date of inception) to December 31, 1997.... 141
Liquidity and capital resources......................................... 144
Inflation............................................................... 146
Year 2000 compliance.................................................... 146
Euro conversion......................................................... 147
Stock Ownership of Management, Directors and 5% Shareholders of Global
Crossing................................................................. 148
Stock Ownership of Management, Directors and 5% Shareholders of Frontier.. 150
Description of Global Crossing Capital Stock.............................. 152
General................................................................. 152
Voting and transfer restrictions........................................ 152
Distributions........................................................... 153
Global Crossing stockholders agreement and registration rights
agreement.............................................................. 153
Some Differences Between Rights of Shareholders of Frontier and Rights of
Shareholders of Global Crossing.......................................... 154
Size and classification of the board of directors....................... 154
Removal of directors; vacancies; alternate directors.................... 154
Meetings of shareholders................................................ 155
Action by written consent of shareholders; shareholder resolutions...... 155
Vote required for extraordinary corporate transaction................... 155
Interested director transactions........................................ 156
Transfer restrictions................................................... 156
Business combination statutes........................................... 156
Shareholder suits....................................................... 157
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Dissenters' rights....................................................... 157
Dividends................................................................ 158
Voting................................................................... 158
Preemptive rights........................................................ 158
Amendments to corporate governance documents............................. 158
Limitations on directors' liability...................................... 159
Rights of inspection..................................................... 159
Repurchase of untraced shares............................................ 160
Indemnification of Global Crossing by shareholders for some taxes and
other impositions....................................................... 160
Indemnification of officers and directors................................ 160
Indemnification of shareholders by Global Crossing for some taxes........ 161
Rights agreement......................................................... 161
"Anti-Greenmail"......................................................... 161
Listing.................................................................. 161
Proposals to Global Crossing Shareholders To Be Voted on at the Global
Crossing Annual Meeting................................................... 162
Proposal No. 1: Increase in Global Crossing's authorized share capital... 162
Proposal No. 2: Issuance of shares of Global Crossing common stock in the
merger.................................................................. 164
Proposals Nos. 3 and 4: Amendment and restatement of Global Crossing bye-
laws.................................................................... 164
Proposal No. 3: Amendment and restatement of Global Crossing bye-laws
(other than bye-laws 34(2), 63, 130 and 148)........................... 164
Proposal No. 4: Amendment and restatement of Global Crossing bye-laws
34(2), 63, 130 and 148................................................. 166
Proposal No. 5: Election of directors.................................... 168
Proposal No. 6: Amendment of the 1998 Global Crossing Ltd. Stock
Incentive Plan ......................................................... 171
Proposal No. 7: Ratification of outside directors' compensation.......... 174
Proposal No. 8: Ratification of Arthur Andersen & Co. as Global
Crossing's independent auditors for 1999 and approval of the board of
directors' authority to determine their remuneration.................... 174
Receipt of financial statements.......................................... 175
Global Crossing Executive Compensation..................................... 176
Compensation committee report............................................ 176
Summary compensation table............................................... 178
Certain compensation arrangements........................................ 178
Compensation of outside directors........................................ 179
Option grants in last fiscal year........................................ 180
Aggregated option exercises in last fiscal year and fiscal year-end
option values........................................................... 181
Compensation committee interlocks and insider participation.............. 181
Compliance with Section 16 of the Exchange Act........................... 181
Comparison of cumulative total returns................................... 182
Some Global Crossing Transactions.......................................... 183
Transactions with Pacific Capital Group and its affiliates............... 183
Transactions with Canadian Imperial Bank of Commerce and its affiliates.. 185
Transactions with Worldport.............................................. 185
Transactions with Telecommunications Development Corporation............. 186
Legal Matters.............................................................. 187
Experts.................................................................... 187
Submission of Future Shareholder Proposals................................. 187
Global Crossing.......................................................... 187
Frontier................................................................. 188
Where You Can Find More Information........................................ 188
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Global Crossing Financial Statements....................................... F-1
Global Marine Financial Statements......................................... F-47
</TABLE>
<TABLE>
<S> <C> <C>
Annex A Agreement and Plan of Merger and Consent and Amendment No. 1
Annex B Stock Option Agreement
Annex C Voting Agreement
Annex D-1 Opinion of Salomon Smith Barney, dated as of March 16, 1999
Annex D-2 Opinion of Salomon Smith Barney, dated as of May 16, 1999
Annex E Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex F Opinion of Morgan Stanley & Co. Incorporated
Annex G Resolutions of Global Crossing's board of directors in connection with the annual meeting
Annex H 1998 Global Crossing Ltd. Stock Incentive Plan
</TABLE>
v
<PAGE>
Questions & Answers
about the Merger
Q: Why are the two companies proposing the merger?
A: Global Crossing and Frontier believe that the merger will create an
innovative, highly competitive company with an integrated high capacity global
telecommunications and Internet network. Global Crossing and Frontier believe
that the combined company will be well-positioned to
. meet the growing bandwidth demand worldwide required to handle Internet,
data, video and voice transmissions,
. capitalize on future growth opportunities and
. provide more comprehensive products, services and support to customers
across both the Internet and the public communications networks.
To review the reasons for the merger in greater detail, see pages 53 through
54 and 64 through 66.
Q: What do I need to do now?
A: Global Crossing shareholders:
After you carefully read this document, please indicate on the enclosed proxy
card how you want to vote. Sign and mail the proxy card in the enclosed return
envelope as soon as possible, so that your shares may be represented at the
Global Crossing annual meeting.
Frontier shareholders:
First, carefully read this document. There are several ways your shares can be
represented at the Frontier special meeting. You can indicate on the enclosed
proxy card how you want to vote and then sign and mail the proxy card in the
enclosed return envelope as soon as possible. You can also cast your vote
electronically by telephone by calling the number on your proxy card or over
the Internet by going to the web site designated on your proxy card.
Q: If my broker holds my shares in "street name," will my broker vote my
shares?
A: Your broker will not vote your shares unless you follow the directions your
broker provides to you regarding how to vote your shares.
Q: What do I do if I want to change my vote?
A: You can change your vote by sending in a notice of revocation or a later-
dated, signed proxy card to your company's Secretary before your shareholders
meeting or by attending the meeting in person and voting. Frontier
shareholders can also change their vote by voting by telephone or Internet at
a later time.
Q: What do I need to do to get my Global Crossing shares?
A: After the merger is completed we will send Frontier shareholders written
instructions for exchanging their stock certificates. Frontier shareholders
should not send in their stock certificates now. Global Crossing shareholders
will keep their existing certificates.
Q: Will I continue to receive a dividend on my shares after the merger?
A: Global Crossing does not currently pay cash dividends on its common stock
and does not anticipate paying dividends in the foreseeable future.
Q: When do you expect to complete the merger?
A: We expect to complete the merger in the third calendar quarter of 1999. We
are working toward completing the merger as quickly as possible and expect to
do so shortly after the meetings, provided that we have obtained the
regulatory approvals necessary for the merger.
Q: Isn't Global Crossing merging with U S WEST? How will that merger affect
what I will receive in the merger?
A: Global Crossing and U S WEST have entered into a merger agreement in a
separate transaction. However, the Global Crossing--U S WEST merger cannot
close until after the Global Crossing--Frontier merger closes. As a result,
Frontier shareholders will receive Global Crossing shares in the Global
Crossing--Frontier merger. As a shareholder of Global Crossing after the
merger, you will have the opportunity to vote on the Global Crossing--U S WEST
merger. Your vote to approve the Global Crossing--Frontier merger does not
1
<PAGE>
constitute a vote to approve the Global Crossing-- U S WEST merger. If the U S
WEST merger becomes effective, your Global Crossing shares will be converted
into the right to receive shares of the new company formed in connection with
that merger. For more information about the U S WEST merger, see "The U S WEST
Merger" beginning on page 86.
Q: Who should I call with questions?
A: Global Crossing shareholders:
Investor Relations--Global Crossing
Attention: Jensen Chow
(310) 385-5200
Frontier shareholders:
Innisfree M&A Incorporated
[1-800- - ]
Investor Relations--Frontier
1-800-573-2473
2
<PAGE>
Summary
This summary highlights selected information from this document. It does not
contain all of the information that is important to you. We urge you to read
carefully the entire document and the other documents referred to in this doc-
ument to fully understand the merger. More information on Global Crossing is
included in this document beginning on page 119. For a guide as to where you
can obtain more information on Frontier, see "Where You Can Find More Informa-
tion" on page 188.
Overview
Global Crossing, Frontier and a wholly owned subsidiary of Global Crossing
entered into a merger agreement on March 16, 1999. The merger agreement was
amended on May 16, 1999 in connection with Global Crossing entering into a
merger agreement with U S WEST, Inc. Under the terms of the merger agreement,
at the closing, shares of Frontier common stock will be converted into the
right to receive a number of shares of Global Crossing common stock based on
an exchange ratio that will be calculated shortly before the closing. Upon
completion of the merger, Frontier will become a wholly owned subsidiary of
Global Crossing.
The companies
Global Crossing Ltd. (Page 119)
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
(441) 296-8600
Global Crossing is the world's first independent global provider of state-
of-the-art Internet and long distance telecommunications facilities and re-
lated services utilizing a network of undersea and terrestrial digital fiber
optic cable systems. Global Crossing offers "one-stop shopping" for its cus-
tomers to multiple destinations worldwide and currently operates as a "carri-
er's 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.
Upon completion, the currently announced segments of the Global Crossing
network will directly connect Asia, North America, Europe, Central America,
South America and the Carribean and, in addition, will provide terrestrial
services to major cities in the United States, Europe, South America and Ja-
pan. 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.
On July 2, 1999, Global Crossing acquired the Global Marine business of Ca-
ble & Wireless plc. Global Marine is the world's largest undersea cable in-
stallation and maintenance company with a fleet of 13 cable ships, represent-
ing approximately 33% of the world's total, 21 submersible vehicles and 1,200
employees servicing approximately 35% of the world's undersea cable miles.
On May 16, 1999, Global Crossing entered into a merger agreement with U S
WEST which we describe below under "--U S WEST Merger" on page 9. The merger
with U S WEST will not occur before the closing of the Global Crossing--Fron-
tier merger. At the appropriate time, all of Global Crossing's then current
shareholders, including Frontier shareholders who retain the Global Crossing
shares they receive in this merger, will be able to vote on the U S WEST merg-
er.
Frontier Corporation (Page 132)
180 South Clinton Avenue
Rochester, New York 14646-0700
(716) 777-1000
Frontier's subsidiaries provide integrated telecommunications services in-
cluding Internet, Internet Protocol and data applications, long distance, lo-
cal telephone and enhanced services to business, carrier, web-centric and
targeted residential customers nationwide and in some foreign countries.
Through its Integrated Services segment, Frontier is one of the nation's
largest long distance
3
<PAGE>
companies and its Frontier Optronics NetworkSM is nearing completion. When
completed, Frontier Optronics NetworkSM will consist of approximately 20,000
route miles: the core fiber network will offer more than 13,000 miles of dense
wave division multiplexed optical fiber capacity and another 3,000 miles are
currently under construction in the southeast United States. In addition,
4,000 miles of network are available through network swaps.
What you will receive in the merger (Page 47)
Global Crossing shareholders:
After the merger each share of Global Crossing common stock will remain out-
standing.
Frontier shareholders:
When we complete the merger, each Frontier share will be canceled and each
Frontier shareholder will receive for each share of Frontier common stock a
number of shares of Global Crossing common stock based on a floating exchange
ratio, subject to a collar:
<TABLE>
<CAPTION>
If the average
Global Crossing This is the number of
trading price during Global Crossing
the measurement shares to be issued for
period is: each Frontier share:
-------------------- -----------------------
<S> <C>
more than $56.7813...................................... 1.1095
between $34.5625 and $56.7813........................... $63.00 divided by
the average Global
Crossing trading
price during the
measurement period
(a number between
1.1095 and 1.8229),
subject to increase
if the closing
occurs after
December 31, 1999 as
described below
less than $34.5625...................................... 1.8229, subject to
Frontier's walk-away
right and Global
Crossing's top-up
right and subject to
increase if the
closing occurs after
December 31, 1999,
as described below
</TABLE>
The floating exchange ratio is intended to provide you with shares of Global
Crossing common stock valued at $63.00, based on the average trading price of
the Global Crossing common stock during the measurement period, so long as
that average Global Crossing trading price remains between $34.5625 and
$56.7813. The measurement period for purposes of determining the exchange ra-
tio is 15 randomly selected trading days during a 30 trading-day period ending
one trading day before the conditions to the merger are satisfied or waived.
In addition, the collar means that the number of shares of Global Crossing
common stock that Frontier shareholders will receive for each Frontier share
in the merger will
. never be less than 1.1095, regardless of what happens to Global Crossing's
stock price during the measurement period, and
. never be more than 1.8229 except as described in the next two paragraphs.
Walk-Away Right/Top-Up Right. If the average trading price of the Global
Crossing common stock during the measurement period is less than $34.5625,
Frontier may, but is not required to, terminate the merger agreement unless
Global Crossing agrees to increase the merger consideration. If Frontier
elects to terminate the merger agreement, Global Crossing may elect to in-
crease the merger consideration so that Frontier shareholders will receive
consideration having a value, based on the average trading price of the Global
Crossing common stock during the measurement period, of $63.00 for each share
of Frontier common stock. Global Crossing may use additional shares of Global
Crossing common stock to increase the merger consideration or may also use
cash or a combination of cash and stock under some circumstances with Fron-
tier's consent.
Interest Factor. If the merger closing does not occur by December 31, 1999,
the value of the shares of Global Crossing common stock to be received by
Frontier shareholders in the merger will be increased by an interest factor
equal to 7% per annum, compounded daily, from and after December 31, 1999 to
the effective time of the merger. This interest factor will not apply if the
average trading price for the Global Crossing common stock during the measure-
ment period is more than $56.7813. Therefore, if the merger closes after De-
cember 31, 1999, Frontier shareholders will receive for each Frontier share
. a number of Global Crossing shares with a value of $63.00, as increased by
the 7% per annum
4
<PAGE>
interest factor, if the average trading price during the measurement period
is between $34.5625 and $56.7813,
. 1.8229 Global Crossing shares, increased by the 7% per annum interest fac-
tor, if the average trading price during the measurement period is less than
$34.5625, or
. 1.1095 Global Crossing shares, without any increase for the 7% per annum in-
terest factor, if the average trading price is more than $56.7813.
For purposes of the examples contained in this document, we have assumed that
the closing will occur by December 31, 1999 unless we have indicated other-
wise.
Calculation of the Exchange Ratio. Assuming the average Global Crossing
trading price during the measurement period is $[40.00], which was the trading
price of the Global Crossing common stock on [July 1], 1999, because the price
is between $34.5625 and $56.7813, the exchange ratio would be [1.5750]. Based
on that Global Crossing stock price, the value of the merger consideration per
share of Frontier common stock would be $[63.00]. The initial value of the
shares of Global Crossing common stock you receive in the merger may be more
or less than the value based on the average price because the trading price of
the Global Crossing common stock at closing may be higher or lower than the
average trading price during the measurement period or because the average
trading price may be outside the collar.
The table below shows a range of assumed average trading prices of Global
Crossing common stock along with entries showing the corresponding exchange
ratios and values of the shares of Global Crossing common stock that would be
issued in the merger in exchange for one share of Frontier common stock, based
on the assumed average trading prices presented in the first column of the ta-
ble.
Because the calculation of the exchange ratio depends on when we complete
the merger, the actual number of shares of Global Crossing common stock issua-
ble in the merger for each share of Frontier common stock may be different
from the examples listed in the table below and in this document. In addition,
the values of the Global Crossing common stock are illustrative only and do
not represent the actual amount per share of Global Crossing common stock that
might be realized by any Frontier shareholder on or after the effective time
of the merger. Frontier shareholders are urged to obtain and review current
market quotations for Global Crossing common stock.
Table of Illustrative Values
<TABLE>
<CAPTION>
Illustrative
Assumed value of
Global merger
Crossing consideration
average per share of
trading Exchange Frontier
price ratio common stock
-------- -------- -------------
<S> <C> <C> <C>
$60.00 1.1095 $66.57
59.00 1.1095 65.46
58.00 1.1095 64.35
57.00 1.1095 63.24
Minimum
Exchange Ratio 56.7813 1.1095 63.00
56.00 1.1250 63.00
55.00 1.1455 63.00
54.00 1.1667 63.00
53.00 1.1887 63.00
52.00 1.2115 63.00
51.00 1.2353 63.00
50.00 1.2600 63.00
49.00 1.2857 63.00
48.00 1.3125 63.00
47.00 1.3404 63.00
46.00 1.3696 63.00
45.00 1.4000 63.00
44.00 1.4318 63.00
43.00 1.4651 63.00
42.00 1.5000 63.00
41.00 1.5366 63.00
40.00 1.5750 63.00
39.00 1.6154 63.00
38.00 1.6579 63.00
37.00 1.7027 63.00
36.00 1.7500 63.00
35.00 1.8000 63.00
Maximum
Exchange Ratio 34.5625 1.8229 63.00
Walk-Away
Right/Top-Up
Right 34.00 1.8229 61.98
33.00 1.8229 60.16
32.00 1.8229 58.33
31.00 1.8229 56.51
30.00 1.8229 54.69
</TABLE>
5
<PAGE>
Ownership of Global Crossing after the merger
Assuming that the closing occurs by December 31, 1999, Global Crossing will
issue between approximately [192,292,189] shares and [315,934,593] shares of
common stock in the merger since the exchange ratio can vary between 1.1095 and
1.8229. These shares will represent between approximately [32]% and [43]% of
the outstanding shares of Global Crossing common stock immediately after the
merger. This information is based on the number of outstanding shares of Fron-
tier on [June 4], 1999 and the number of outstanding shares of Global Crossing
on [June 25], 1999, without taking into account shares issuable upon exercise
of stock options or warrants.
Tax consequences (Page 77)
We expect the merger to qualify as a tax-free reorganization for United
States federal income tax purposes. In general, Frontier shareholders will not
recognize any gain or loss on the exchange of Frontier common stock for Global
Crossing common stock, except to the extent they receive cash instead of frac-
tional shares or otherwise as merger consideration.
There will be no Bermuda tax of any kind payable in respect of the exchange
of shares in the merger. We urge Frontier shareholders to consult their own tax
advisors to discuss the tax consequences of the merger.
Board recommendations
Global Crossing (Page 53):
The Global Crossing board of directors unanimously recommends that you vote
FOR the proposals to approve the increase in authorized share capital and the
share issuance, FOR the director nominees to be elected and FOR each other pro-
posal presented at the 1999 annual meeting.
Frontier (Page 64):
The Frontier board of directors unanimously recommends that you vote FOR the
proposal to adopt the merger agreement.
Interests of members of Frontier's board of directors and management in the
merger (Page 75)
Some Frontier directors, officers and executives have interests in the merger
that may be different from, or in addition to, the interests of other Frontier
shareholders. These interests include employment agreements and stock options.
In addition, some Frontier directors and executive officers will become Global
Crossing directors or executive officers after the merger. You should be aware
of these interests because they may conflict with yours. These interests in-
clude:
. nineteen of Frontier's officers and executives will become entitled to
enhanced severance benefits, including cash payments and other benefits under
specified circumstances, upon the termination of their employment following
the merger,
. all stock options held by directors and employees of Frontier will vest and
become immediately exercisable,
. when we complete the merger, four of the current directors of Frontier will
be appointed to the Global Crossing board of directors, and
. Joseph P. Clayton will become a Vice Chairman of Global Crossing, and Rolla
P. Huff will become President and Chief Operating Officer of North American
Operations of Global Crossing.
Opinions of financial advisors
Global Crossing (Page 55):
Salomon Smith Barney and Merrill Lynch, Pierce, Fenner & Smith Incorporated
each delivered an opinion to the Global Crossing board of directors that, as of
March 16, 1999, the original exchange ratio was fair from a financial point of
view to Global Crossing. In addition, Salomon Smith Barney delivered an opinion
to the Global Crossing board of directors that, as of May 16, 1999, the ex-
change ratio, as revised in connection with the Global Crossing--U S WEST merg-
er, was fair from a financial point of view to Global Crossing. Merrill Lynch
was not requested to deliver and did not deliver an opinion regarding the re-
vised exchange ratio because it represented U S WEST in the Global Crossing--U
S WEST merger. These opinions are not recommendations to any Global Crossing
shareholder as to how to vote. We have attached these opinions as
6
<PAGE>
Annexes D-1, D-2 and E to this document. You should read them in their entire-
ty.
Frontier (Page 66):
Morgan Stanley & Co. Incorporated delivered an opinion to the Frontier board
of directors that, as of March 16, 1999, the original exchange ratio was fair
from a financial point of view to Frontier's shareholders. In addition, Morgan
Stanley delivered an opinion to the Frontier board of directors that, as of
May 16, 1999, the exchange ratio, as revised in connection with the Global
Crossing--U S WEST merger, was fair from a financial point of view to Fron-
tier's shareholders. This opinion is not a recommendation as to how any Fron-
tier shareholder should vote with respect to the merger. We have attached the
May 16, 1999 opinion to this document as Annex F. You should read it in its
entirety.
Record date for voting; Required votes
Global Crossing shareholders (Page 41):
You can vote at the 1999 annual meeting of Global Crossing shareholders if
you own Global Crossing common stock on the date of the meeting. You will be
entitled on a poll to one vote per share. If, however, you hold more than 9.5%
of all outstanding shares of Global Crossing common stock, your voting power
will be limited. You will also be entitled to any additional votes that may be
allocated to your shares pursuant to a formula contained in the Global Cross-
ing bye-laws, but you will not be allocated any additional votes if you own
more than 9.5% of the outstanding shares.
The approval of at least a majority of all outstanding shares of Global
Crossing common stock is required to adopt the proposals relating to the in-
crease in authorized share capital, the share issuance and each other proposal
presented at the annual meeting, with the exception of some proposed amend-
ments to the Global Crossing bye-laws, which require the approval of 75% of
all outstanding shares of Global Crossing common stock.
Shareholders representing more than a majority of the voting power of Global
Crossing have entered into a voting agreement with Frontier in which they
agreed to vote in favor of both the proposal to increase the authorized share
capital of Global Crossing and the proposal to issue Global Crossing shares in
the merger. The vote of these shareholders will be sufficient to approve these
two proposals without any further vote by any other Global Crossing sharehold-
er. We have attached a copy of the voting agreement as Annex C to this docu-
ment. You should read it in its entirety.
Frontier shareholders (Page 44):
You can vote at the special meeting of Frontier shareholders if you owned
Frontier common stock at the close of business on , 1999. The approval
of two-thirds of the outstanding shares of Frontier common stock is required
to adopt the merger agreement.
Conditions to the completion of the merger (Page 98)
The completion of the merger depends on the satisfaction or waiver of a num-
ber of conditions, including the following:
. adoption of the merger agreement by Frontier's shareholders,
. approval by Global Crossing's shareholders of the increase of its authorized
share capital and of the issuance of the Global Crossing shares in the merg-
er,
. the absence of legal prohibitions to the merger,
. the absence of any stop order suspending the effectiveness of the registra-
tion statement relating to the Global Crossing shares to be issued in the
merger and approval of those shares for trading on the Nasdaq National Mar-
ket,
. receipt of all FCC and state public utility commission approvals without the
imposition of conditions that would reasonably be expected to have a mate-
rial adverse effect on Global Crossing and its subsidiaries after the merg-
er, other than approvals which, if not obtained, would not reasonably be ex-
pected to result in a material adverse effect on Global Crossing and its
subsidiaries after the merger,
7
<PAGE>
. expiration or termination of the waiting period applicable to the merger un-
der the Hart-Scott-Rodino Act, which was terminated on May 11, 1999,
. receipt of the approval of the issuance and subsequent free transferability
of Global Crossing shares by the Bermuda Monetary Authority, which approval
was received on July 1, 1999,
. receipt of opinions with respect to the tax-free nature of the merger,
. redemption of all outstanding Frontier preferred stock, which was redeemed on
July 1, 1999, and
. material compliance by Global Crossing and Frontier with their obligations,
and the truth and correctness of the representations made by each of them,
under the merger agreement.
Termination of the merger agreement; Fees payable (Pages 99 and 102)
1. Global Crossing and Frontier may agree to terminate the merger agreement at
any time if both companies agree.
2. Either Global Crossing or Frontier may also terminate the merger agreement
if:
. the merger is not completed by March 16, 2000, except that if all the
conditions to completing the merger have been satisfied or waived other
than the conditions relating to FCC and state public utility commission
approvals, then Global Crossing cannot terminate for this reason,
. a governmental entity permanently prohibits the merger or has finally de-
termined not to issue an order required to fulfill the conditions de-
scribed in the fifth and sixth bullet points above under "Conditions to
the completion of the merger,"
. the Frontier shareholders do not adopt the merger agreement, or
. the Global Crossing shareholders do not approve the proposals to increase
its authorized share capital and issue Global Crossing shares in the
merger.
3. Global Crossing may terminate the merger agreement if, before the Frontier
special meeting, the Frontier board of directors withdraws or adversely mod-
ifies its approval of the merger or approves or recommends a superior pro-
posal. Frontier is required to pay Global Crossing a $270 million termina-
tion fee if Frontier terminates the merger agreement for this reason.
4. Frontier may terminate the merger agreement:
. at any time before the Frontier special meeting if the Frontier board of
directors approves a superior proposal; however, Frontier must have com-
plied with the relevant provisions of the merger agreement relating to
not soliciting alternative proposals to acquire Frontier. Frontier may
only exercise this termination right if it pays Global Crossing a $270
million termination fee and complies with specified notice and waiting
period provisions in the merger agreement, or
. if the average share price of Global Crossing common stock to be used in
calculating the exchange ratio is less than $34.5625, unless Global
Crossing agrees to increase the merger consideration so that Frontier
shareholders receive consideration having a value, based on the average
trading price of Global Crossing common stock during the measurement pe-
riod, of $63.00 per share.
Frontier's board of directors cannot assure you that it would exercise its
right to terminate the merger agreement if the average price was less than
$34.5625. If the Frontier board of directors exercises its right to terminate
the merger agreement for this reason, Global Crossing's board of directors can-
not assure you that it would increase the merger consideration. Adoption of the
merger agreement by Frontier's shareholders and approval by Global Crossing's
shareholders of the increase in the authorized share capital and the issuance
of Global Crossing shares in the merger will give
. the Frontier board of directors the power but not the obligation to decide to
complete the merger if the average trading price of the Global Crossing com-
mon stock during the measurement period is less than $34.5625 and
8
<PAGE>
.the Global Crossing board of directors the power but not the obligation to de-
cide to increase the merger consideration in the event that the Frontier board
of directors exercises its right to terminate the merger agreement.
These powers can be exercised by the Frontier board of directors and the
Global Crossing board of directors without any further action or resolicitation
of the Frontier shareholders or the Global Crossing shareholders.
Frontier is also required to pay Global Crossing a $270 million termination
fee if the merger agreement is terminated under specified circumstances after a
third party makes a proposal to acquire Frontier and Frontier enters into an
acquisition agreement within 12 months following termination.
In addition, on March 16, 1999, Frontier and Global Crossing entered into a
stock option agreement under which Frontier has granted to Global Crossing an
option to purchase up to 19.9% of the Frontier common stock at a price of
$62.00 per share, exercisable only upon the occurrence of specified events when
a termination fee would be payable by Frontier to Global Crossing under the
merger agreement.
The fee and the stock option could discourage other companies from trying or
proposing to combine with Frontier. The total fees payable to Global Crossing
under the merger agreement and the profit realizable by Global Crossing under
the stock option agreement is limited to $275 million. We have attached the
stock option agreement to this document as Annex B. You should read it in its
entirety.
Regulatory matters (Page 83)
The completion of the merger is subject to regulatory requirements, including
expiration or termination of the waiting period under the Hart-Scott-Rodino
Act, which was terminated on May 11, 1999. The completion of the merger is also
subject to obtaining required regulatory approvals from the FCC and some state
public utilities commissions.
Accounting treatment (Page 83)
The merger will be accounted for using the purchase method of accounting.
No appraisal rights (Page 84)
Under the New York Business Corporation Law, Frontier shareholders are not
entitled to appraisal rights in connection with the merger. Under Bermuda law,
Global Crossing shareholders are not entitled to appraisal rights in connection
with the merger.
Trading of Global Crossing common stock (Page 84)
Global Crossing's common stock is currently trading on the Nasdaq National
Market and the Bermuda Stock Exchange. The shares of Global Crossing common
stock to be issued in the merger will also trade on the Nasdaq National Market
and the Bermuda Stock Exchange.
U S WEST merger (Page 86)
On May 16, 1999, Global Crossing entered into a merger agreement with U S
WEST. Pursuant to the U S WEST merger agreement, a new parent holding company
will be formed and each of U S WEST and Global Crossing will become subsidiar-
ies of that holding company. The U S WEST merger is conditioned upon the prior
completion of the Global Crossing--Frontier merger. In the U S WEST merger,
each share of Global Crossing common stock will be converted into shares of one
of two classes of common stock of the new parent holding company or of a combi-
nation of both. Holders of Global Crossing common stock will have the option to
elect to receive either
.shares of a class of common stock that reflect the new holding company's
local service provider business,
. shares of a class of common stock that reflect the new holding company's
global service provider business, or
. a combination of those shares.
U S WEST stockholders will also have the right to make a similar election.
All elections will be subject to proration if either class of common stock is
oversubscribed.
The closing of the U S WEST merger depends on a number of closing conditions,
including
9
<PAGE>
approval of Global Crossing shareholders and U S WEST stockholders, receipt of
regulatory approvals and other consents and receipt of opinions from Global
Crossing's and U S WEST's respective counsel as to the tax-free nature of the
transaction. We do not expect that the conditions to the Global Closing--U S
WEST merger will be satisfied before mid-2000.
As shareholders of Global Crossing after the merger, current Frontier share-
holders, to the extent they continue to hold Global Crossing shares as of the
record date for the meeting to approve the U S WEST merger, will receive a
proxy statement and be entitled to vote on the U S WEST merger. Your vote to
adopt the merger agreement with Global Crossing does not constitute a vote to
approve the U S WEST merger agreement. The shareholders of Global Crossing who
agreed to vote in favor of the Global Crossing--Frontier merger also signed an
agreement with U S WEST agreeing to vote shares they then hold in favor of the
U S WEST merger. Subject to a number of factors, including the actual number
of Global Crossing shares issued to Frontier shareholders in the Global Cross-
ing--Frontier merger and the number of shares then held by those existing
Global Crossing shareholders, the vote of the Global Crossing shareholders may
be enough to approve the U S WEST merger without the vote of any other Global
Crossing shareholder.
As part of its agreement with Global Crossing, on June 21, 1999, U S WEST
completed a tender offer pursuant to which U S WEST purchased 39,259,305
shares of Global Crossing common stock for $62.75 in cash per share. U S WEST
has agreed to vote the shares that it purchased in the tender offer in favor
of the Global Crossing--Frontier merger and the Global Crossing--U S WEST
merger.
On June 13, 1999, Qwest Communications International Inc. announced a
proposal to acquire all the outstanding stock of U S WEST, which proposal was
revised on June 23, 1999. If the U S WEST board of directors were to deem the
Qwest acquisition proposal to be superior to the Global Crossing--U S WEST
merger, under specified circumstances U S WEST may terminate its merger
agreement with Global Crossing. In that case, U S WEST would be required to
pay Global Crossing a termination fee of $850 million.
10
<PAGE>
Selected historical financial information
Selected historical financial information for Global Crossing, Global Marine,
Frontier and U S WEST have been provided in the following tables. This selected
historical financial information has been derived from the audited and
unaudited financial statements of Global Crossing, Global Marine, Frontier and
U S WEST for the periods presented. This information is only a summary and
should be read together with the more detailed historical financial information
included or incorporated by reference in this document. You can find financial
information included in this document beginning on page F-1. For instructions
on how to obtain information incorporated by reference, see "Where You Can Find
More Information" on page 188.
Global Crossing selected historical financial information
The table below shows the selected historical financial information for
Global Crossing. This information has been prepared using the consolidated
financial statements of Global Crossing as of the dates indicated and for each
of the fiscal years in the period from inception, March 19, 1997, to December
31, 1998 and for the three months ended March 31, 1999 and 1998. The
consolidated income statement data below for each of the fiscal years in the
period from inception, March 19, 1997, to December 31, 1998 and the
consolidated balance sheet data as of December 31, 1998 and 1997 have been
derived from financial statements audited by Arthur Andersen & Co., independent
public accountants, which are included in this document beginning on page F-13.
We derived the remaining data from unaudited consolidated financial statements,
which are included in this document beginning on page F-1.
In reading the following selected historical financial information, please
note the following:
. During the three-month period ended March 31, 1999, Global Crossing
recorded a $15 million expense (net of tax benefit) due to the adoption
of Statement of Position 98-5, "Reporting on the Cost of Start-Up
Activities." See the "Cumulative effect of change in accounting
principles" item in the Statement of Operations Data.
. During the year ended December 31, 1998, Global Crossing recognized $37
million from a total of $94 million of stock-related expense relating to
stock options and rights to purchase stock issued during that period
which entitle the holders to purchase common stock. The remaining $57
million will be recognized as follows: $28 million in 1999, $21 million
in 2000 and $8 million in 2001. See the "Stock related expense" item in
the Statement of Operations Data.
. The "Termination of advisory services agreement" item in the Statement
of Operations Data includes a charge for the termination of the advisory
services agreement as of June 30, 1998. See "Some Global Crossing
Transactions" on page 183. Global Crossing acquired the rights from
those entitled to fees payable under the advisory services agreement in
consideration for the issuance of common stock having an aggregate value
of $135 million and the cancellation of approximately $3 million owed to
Global Crossing under a related advance agreement. As a result of this
transaction, Global Crossing recorded a non-recurring charge in the
approximate amount of $138 million during the year ended December 31,
1998. In addition, Global Crossing recognized as an expense
approximately $2 million of advisory fees incurred prior to termination
of the contract.
. The "Provision for income taxes" item in the Statement of Operations
Data reflects income taxes on profits earned during the year ended
December 31, 1998 in jurisdictions where Global Crossing has a taxable
presence. A significant portion of our operating losses have been
incurred in non-taxable jurisdictions, and, therefore, these operating
losses cannot be applied to offset our future taxable earnings.
. On May 18, 1998, a portion of the proceeds from the issuance of the 9
5/8% Senior Notes due 2008 of Global Crossing Holdings Ltd. was used to
repurchase the 12% Senior Notes Due 2004 of Global Telesystems Holdings
Ltd. Global Crossing recognized an extraordinary loss of approximately
$20
11
<PAGE>
million in connection with this repurchase, comprised of a repurchase
premium of approximately $10 million and the write-off of approximately
$10 million of unamortized deferred financing costs. See the
"Extraordinary loss on retirement of senior notes" item in the Statement
of Operations Data.
. The preferred stock dividends for the year ended December 31, 1998
include dividends from both the 10 1/2% Senior Exchangeable Preferred
Stock due 2008 of Global Crossing Holdings and the 14% Senior Increasing
Rate Redeemable Exchangeable Preferred Stock of Global Telesystems
Holdings. The Global Crossing Holdings preferred stock is mandatorily
redeemable on December 1, 2008 and exchangeable at any time by Global
Crossing Holdings into notes. The Global Crossing Holdings preferred
stock entitles the holders to receive cumulative compounding dividends
at an annual rate of 10 1/2%. The dividends can be paid in cash or prior
to June 1, 2002 with the issuance of additional Global Crossing Holdings
preferred stock at the option of Global Crossing Holdings.
The holders of the Global Telesystems Holdings preferred stock were
entitled to receive cumulative, compounding dividends at an initial
annual rate of 14%. Preferred stock dividends include cumulative 14%
dividends and amortization of the discount and issuance costs. Global
Crossing used proceeds from the Global Crossing Holdings Senior Notes to
redeem all outstanding Global Telesystems Holdings preferred stock
effective as of June 17, 1998. All dividends prior to the redemption had
been paid through the issuance of additional preferred stock and charged
against additional paid-in capital. See the "Preferred stock dividends"
item in the Statement of Operations Data.
. As a result of the redemption of the Global Telesystems Holdings
preferred stock, Global Crossing incurred a one-time $34 million charge
against additional paid-in capital. The charge consisted of: (1) a $16
million charge for redemption premium and (2) a write-off of $18 million
of unamortized discount and unamortized deferred financing costs. See
the "Redemption of preferred stock" item in the Statement of Operations
Data.
. Construction in progress and capacity available for sale includes direct
and indirect expenditures for construction of the Atlantic Crossing
system and other systems and is stated at cost. Included are costs
incurred under (1) the construction contracts; (2) advisory, consulting
and legal fees; (3) interest, including amortization of debt issuance
costs incurred during the construction phase; and (4) other costs
necessary for developing the Atlantic Crossing system and other systems.
Additionally, Global Crossing granted warrants to Pacific Capital Group,
Inc., a shareholder, and some of its affiliates for the Pacific
Crossing, Mid-Atlantic Crossing and Pan American Crossing systems and
related rights. The $275 million value of the common stock was allocated
to "Construction in progress" in the amount of $112 million and as
"Investment in affiliates" in the amount of $163 million. See the
"Construction in progress, property, plant and equipment and capacity
available for sale" item in the Balance Sheet Data.
. The "Investment in affiliates" item in the Balance Sheet Data includes
$163 million as of December 31, 1998, representing the value of the
warrants described in the bullet point immediately above applicable to
the Pacific Crossing system.
. The December 31, 1998 amount in the "Mandatorily redeemable preferred
stock" item in the Balance Sheet Data includes (1) $500 million of
Global Crossing Holdings preferred stock, less (2) $17 million
reflecting the unamortized issue costs, plus (3) $4 million of accrued
dividends. The December 31, 1997 amount includes (1) $100 million of the
Global Telesystems Holdings preferred stock originally issued, plus (2)
$10 million of Global Telesystems Holdings preferred stock issued as
dividends on the originally issued Global Telesystems Holdings preferred
stock, less (3) $19 million reflecting the unamortized discount and
issue costs, plus $1 million of accrued dividends. Global Crossing
redeemed all outstanding Global Telesystems Holdings preferred stock
effective as of June 17, 1998.
12
<PAGE>
<TABLE>
<CAPTION>
Period from
For the Three For the Three March 19, 1997
Months Ended Months Ended Year ended (Date of Inception) to
March 31, 1999 March 31, 1998 December 31, 1998 December 31, 1997
-------------- -------------- ----------------- ----------------------
(unaudited) (unaudited)
(in thousands, except share and per share information)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 178,183 $ -- $ 424,099 $ --
----------- ----------- ----------- -----------
Expenses:
Cost of capacity sold... 69,387 -- 178,492 --
Operations,
administration and
maintenance............ 11,861 -- 18,056 --
Sales and marketing..... 9,758 784 26,194 1,366
Network development..... 4,905 -- 10,962 78
General and
administrative......... 22,625 2,372 26,844 1,657
Stock related expense... 16,716 -- 39,374 --
Provision for doubtful
accounts............... 1,864 -- 4,233 --
Termination of advisory
services agreement..... -- -- 139,669 --
----------- ----------- ----------- -----------
137,116 3,794 443,824 3,101
----------- ----------- ----------- -----------
Operating income
(loss)................. 41,067 (3,794) (19,725) (3,101)
Equity in loss of
affiliates............. (2,736) (3,794) (2,508) --
Interest income
(expense):
Interest income........ 14,392 95 29,986 2,941
Interest expense....... (23,779) (23) (42,880) --
Provision for income
taxes.................. (16,142) -- (33,067) --
----------- ----------- ----------- -----------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 12,802 (3,722) (68,194) (160)
Extraordinary loss on
retirement of senior
notes.................. -- -- (19,709) --
----------- ----------- ----------- -----------
Cumulative effect of
change in accounting
principle.............. (14,710) -- -- --
----------- ----------- ----------- -----------
Net loss................ (1,908) (3,722) (87,903) (160)
Preferred stock
dividends.............. (13,044) (4,407) (12,681) (12,690)
Redemption of preferred
stock.................. -- -- (34,140) --
----------- ----------- ----------- -----------
Net loss applicable to
common shareholders.... $ (14,952) $ (18,129) $ (134,724) $ (12,850)
=========== =========== =========== ===========
Net Loss per Common
Share:
Loss applicable to
common shareholders
before extraordinary
item and cumulative
effect of change in
accounting principle
Basic and diluted...... $ (0.00) $ (0.02) $ (0.32) $ (0.04)
=========== =========== =========== ===========
Extraordinary item
Basic and diluted...... $ -- $ -- $ (0.06) $ --
=========== =========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and diluted...... $ (0.04) $ -- $ -- $ --
=========== =========== =========== ===========
Net loss applicable to
common shareholders
Basic and diluted...... $ (0.04) $ (0.02) $ (0.38) $ (0.04)
=========== =========== =========== ===========
Shares used in computing
basic and diluted loss
per share.............. 410,797,073 331,845,633 358,735,340 325,773,934
=========== =========== =========== ===========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
December 31,
March 31, ---------------------
1999 1998 1997
----------- ---------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Current assets including cash and cash
equivalents and restricted cash and cash
equivalents................................ $ 766,469 $ 976,615 $ 27,744
Long term restricted cash and cash
equivalents................................ 422,933 367,600 --
Long term accounts receivable............... 70,884 43,315 --
Construction in progress, property, plant
and equipment and capacity available for
sale....................................... 1,155,326 1,008,556 518,519
Deferred finance, net of accumulated
amortization............................... 42,527 45,757 25,934
Investment in affiliates.................... 187,458 177,334 --
Other assets................................ 44,200 20,000 --
---------- ---------- ---------
Total assets............................... $2,689,797 $2,639,177 $ 572,197
========== ========== =========
Current liabilities......................... $ 273,664 $ 251,890 $ 90,817
Long term debt.............................. 248,475 269,598 162,325
Senior notes................................ 796,588 769,495 150,000
Deferred revenue............................ 50,725 25,325 --
Obligations under inland service agreements
and capital leases......................... 16,158 24,520 3,009
Deferred income taxes....................... 31,779 9,654 --
---------- ---------- ---------
Total liabilities.......................... 1,417,389 1,377,482 406,151
Mandatorily redeemable preferred stock...... 500,419 487,375 91,925
Shareholders' equity........................
Common stock............................... 4,331 4,328 3,258
Treasury stock............................. (209,415) (209,415) --
Other shareholders' equity................. 1,067,044 1,067,470 71,023
Accumulated deficit........................ (89,971) (88,063) (160)
---------- ---------- ---------
Total shareholders' equity.................. 771,989 774,320 74,121
---------- ---------- ---------
Total liabilities and shareholders' equity.. $2,689,797 $2,639,177 $ 572,197
========== ========== =========
</TABLE>
Global Marine selected historical financial information
The table below shows selected historical financial information for Global
Marine. This information has been prepared using the combined financial
statements of Global Marine as of the dates indicated and for each of the
fiscal years in the five-year period ended March 31, 1999. The combined income
statement data below for each of the three fiscal years ended March 31, 1999
and the combined balance sheet data at March 31, 1999 and 1998 were derived
from financial statements audited by KPMG Audit Plc, chartered accountants,
which are included in this document beginning on page F-47.
<TABLE>
<CAPTION>
Years ended March 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues............. $347,335 $280,705 $288,813 $ 231,614 $ 127,725
Income from continuing
operations.................... 47,051 22,730 30,140 42,134 17,337
Total assets................... 753,333 740,181 614,345 548,419 380,502
Long term obligations.......... $261,923 $331,742 $263,420 $ 225,702 $ 88,718
</TABLE>
14
<PAGE>
Frontier selected historical financial information
The table below shows selected historical financial information for Frontier.
This information has been prepared using the consolidated financial statements
of Frontier as of the dates indicated and for each of the fiscal years in the
five-year period ending December 31, 1998 and for the three months ended March
31, 1999 and 1998. The consolidated income statement data below for each of the
fiscal years in the five-year period ending December 31, 1998 and the
consolidated balance sheet data as of December 31, 1994 through December 31,
1998 have been derived from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, which are incorporated by
reference in this document. We derived the remaining data from unaudited
consolidated financial statements, which are incorporated by reference in this
document. For instructions on how to obtain information incorporated by
reference, see "Where You Can Find More Information" on page 188.
Revenues have been impacted by the following acquisitions for the periods
presented:
. On February 27, 1998, Frontier acquired GlobalCenter Inc., a leading
provider in digital distribution, Internet and data services
headquartered in Sunnyvale, California. Frontier acquired all of the
outstanding shares of GlobalCenter and issued 6.4 million shares to
effect this merger. At the time of the merger, GlobalCenter had 1.1
million stock options and warrants outstanding as converted into
Frontier equivalents. This transaction was accounted for using the
pooling of interests method of accounting and, accordingly, historical
information has been restated to include GlobalCenter.
. In August 1995, Frontier merged with ALC Communications Corporation.
Frontier exchanged two shares of its common stock for each ALC common
share. The total shares issued by Frontier to effect the merger were
69.2 million. In March 1995, Frontier acquired American Sharecom Inc.
Frontier acquired all of the outstanding shares of American Sharecom for
approximately 8.7 million shares of Frontier common stock. The
transactions were accounted for as poolings of interests and,
accordingly, historical information has been restated to include ALC and
American Sharecom.
. In 1995, Frontier paid $318.4 million in cash for several acquisitions
that were accounted for as purchases. These purchase acquisitions were
Minnesota Southern Cellular Telephone Company, ConferTech International,
Inc., WCT Communications, Inc., Enhanced Telemanagement, Schneider
Communications, Inc. and Schneider Communications' 80.8 percent interest
in LinkUSA Corporation and Link-VTC, Inc. In February 1996, Frontier
acquired the remaining 19.2 percent interest in LinkUSA Corporation for
$2.3 million in cash, and in June 1996 made a payment of $4.3 million to
Link-VTC, Inc. in settlement of the original earnout agreement.
The following extraordinary, unusual or infrequently occurring items have
impacted net income for the periods presented:
. In the first quarter of 1998, Frontier recorded a pre-tax charge of $6.5
million associated with the acquisition of GlobalCenter. These charges
included investment banker, legal fees and other direct costs.
. In October 1997, Frontier recorded a pre-tax charge of $86.8 million
consisting of a restructuring charge of $43.0 million and a provision
for asset and lease impairments of $43.8 million. The restructuring
charge was primarily associated with a workforce reduction, program
cancellations and discontinuing some product lines. The provision for
asset and lease impairments primarily relates to long term assets and
some lease obligations Frontier was in the process of disposing of or
exiting.
. In March 1997, Frontier recorded a $96.6 million pre-tax charge
primarily related to the write-off of certain leased network facilities
no longer required as a result of the migration of Frontier's major
carrier customer's one-plus traffic volume to other networks and
Frontier's overall network integration efforts.
15
<PAGE>
. In November 1996, Frontier recorded a $48.8 million pre-tax charge. This
charge included $28.0 million for the curtailment of specified Frontier
pension plans and a $20.8 million charge primarily to the write-off of
unrecoverable product development costs for its conference calling
product line.
. In December 1996, Frontier, through GlobalCenter, recorded a pre-tax
charge of $18.9 million related to the write-off of in-process product
development costs associated with the 1996 merger with GCIS, an Internet
management services company.
. Frontier's 1995 operating results reflect pre-tax acquisition related
charges of $114.2 million associated with the integration of a number of
long distance companies acquired during the year, including the August
1995 merger with ALC Communications.
. Frontier determined in 1995 that Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," was no longer applicable based upon changes in regulation,
increasingly rapid advancements in telecommunications technology and
other factors creating competitive markets. As a result of the
discontinuance of FAS 71, Frontier recorded a non-cash extraordinary
charge of $112.1 million, net of an income tax benefit of $68.4 million,
as of September 30, 1995. Frontier also recorded a $9.1 million loss on
the early extinguishment of debt in 1995.
16
<PAGE>
<TABLE>
<CAPTION>
Three Months Three Months Year Ended December 31,
Ended Ended -------------------------------------------------------------
March 31, 1999 March 31, 1998 1998 1997 1996 1995 1994
-------------- -------------- ---------- ----------- ---------- ----------- -----------
(unaudited)
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Income:
Revenues................ $ 674,832 $631,998 $2,593,558 $ 2,374,809 $2,588,519 $ 2,150,328 $ 1,667,545
Costs and expenses...... 594,651 563,984 2,276,162 2,288,651 2,220,296 1,865,492 1,341,919
Operating income........ 80,181 68,014 317,396 86,158 368,223 284,836 325,626
Interest expense........ 15,219 13,431 55,318 48,239 43,312 53,572 50,216
Other income, net of
other expense.......... 5,901 4,548 45,025 38,070 15,850 14,991 20,922
Income taxes............ 30,961 25,217 129,560 44,188 142,556 101,126 109,078
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles............. 39,902 33,914 177,543 31,801 198,205 145,129 187,254
Extraordinary items..... -- -- -- -- -- (121,208) --
Cumulative effect of
changes in accounting
principles............. -- -- (1,755) -- (8,018) (1,477) (7,197)
Consolidated net
income................. 39,902 33,914 175,788 31,801 190,187 22,444 180,057
Dividends on preferred
stock.................. 251 251 (1,005) (1,019) (1,182) (1,191) (1,187)
Income applicable to
common stock........... $ 39,651 $ 33,663 $ 174,783 $ 30,782 $ 189,005 $ 21,253 $ 178,870
Earnings per common
share:
Basic earnings per
share:
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles............ .23 .20 $ 1.03 $ .18 $ 1.19 $ .94 $ 1.26
Net income............. .23 .20 1.02 .18 1.14 .14 1.21
Diluted earnings per
share:
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles............ .23 .20 1.02 .18 1.18 .88 1.16
Net income............. .23 .20 1.01 .18 1.13 .13 1.11
Cash dividends declared
per common share....... $ .05 $ .223 $ .89 $ .875 $ .855 $ .835 $ .815
Consolidated Balance
Sheets (at period end):
Current assets.......... $ 589,949 $ 566,674 $ 490,305 $ 477,761 $ 524,200 $ 673,826
Property, plant and
equipment, net......... 1,833,276 1,677,559 1,046,884 975,982 883,046 1,034,442
Goodwill and customer
base, net.............. 475,493 484,015 517,754 538,296 550,081 222,442
Deferred and other
assets................. 349,747 330,495 432,977 237,353 154,088 130,084
Total assets........... $3,248,465 $3,058,743 $ 2,487,920 $2,229,392 $ 2,111,415 $ 2,060,794
Current liabilities..... $ 580,041 $ 567,697 $ 492,978 $ 424,397 $ 506,073 $ 305,698
Long-term debt.......... 1,463,612 1,350,821 934,681 677,570 618,867 661,549
Deferred income taxes... 48,500 40,046 10,927 2,542 15,644 98,217
Deferred employee
benefits obligation.... 84,879 81,925 74,965 57,573 58,385 46,001
Preferred stock......... 18,286 18,770 20,126 22,611 22,769 22,777
Shareholders' equity,
exclusive of preferred
stock.................. 1,053,147 999,484 954,243 1,044,699 889,677 926,552
Total liabilities and
shareholders' equity.. $3,248,465 $3,058,743 $ 2,487,920 $2,229,392 $ 2,111,415 $ 2,060,794
</TABLE>
17
<PAGE>
U S WEST selected historical financial information
The table below shows selected historical financial information for U S WEST.
This information has been prepared using the consolidated financial statements
of U S WEST as of the dates indicated and for each of the fiscal years in the
five-year period ending December 31, 1998 and for the three months ended March
31, 1999 and 1998. The consolidated income statement data below for each of the
fiscal years in the three-year period ending December 31, 1998 and the
consolidated balance sheet data as of December 31, 1998 and 1997 have been
derived from financial statements audited by Arthur Andersen LLP, independent
public accountants, which are incorporated by reference in this document. The
consolidated income statement data below for each of the fiscal years in the
two-year period ending December 31, 1995 have been derived from financial
statements audited by PricewaterhouseCoopers LLP, independent accountants. We
derived the remaining data from unaudited consolidated financial statements,
which are incorporated by reference in this document. For instructions on how
to obtain information incorporated by reference, see "Where You Can Find More
Information" on page 188.
In reading the following selected historical financial information, please
note the following:
. On October 25, 1997, the board of directors of the former parent
company, which we refer to as "Old U S WEST," adopted a proposal to
separate Old U S WEST into two independent companies, which we refer to
as the "Separation." 1998 income includes Separation expenses of $68
million ($0.13 per diluted share) associated with the Separation of Old
U S WEST into two independent companies and an asset impairment charge
of $21 million ($0.04 per diluted share). 1997 income includes a $152
million regulatory charge ($0.31 per diluted share) related primarily to
the 1997 Washington State Supreme Court ruling that upheld a Washington
rate order, a gain of $32 million ($0.07 per diluted share) on the sale
of an interest in Bell Communications Research, Inc. and a gain of $48
million ($0.10 per diluted share) on the sales of local telephone
exchanges. 1996 income includes a gain of $36 million ($0.07 per diluted
share) on the sales of local telephone exchanges and the current effect
of $15 million ($0.03 per diluted share) from adopting Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." 1995
income includes a gain of $85 million ($0.18 per diluted share) on the
sales of local telephone exchanges and costs of $8 million ($0.02 per
diluted share) associated with the 1995 Recapitalization discussed in
the fourth bullet point below. 1994 income includes a gain of $51
million ($0.11 per diluted share) on the sales of local telephone
exchanges.
. 1997 net income was reduced by an extraordinary charge of $3 million
($0.01 per diluted share) for the early extinguishment of debt. 1996 net
income includes a gain of $34 million ($0.07 per diluted share) for the
cumulative effect of the adoption of FAS No. 121. 1995 net income was
reduced by an extraordinary item of $8 million ($0.02 per diluted share)
for the early extinguishment of debt.
. Pro forma income reflects the incremental interest expense from the
beginning of the period through the date of Separation associated with
Old U S WEST indebtedness, including the U S WEST Dex, Inc. indebtedness
which was refinanced at the time of the Separation. The pro forma
earnings per diluted share amounts also reflect the issuance of
approximately 16,341,000 shares of common stock, net of the redemption
of approximately 305,000 fractional shares, issued in connection with
the contribution of U S WEST Dex, Inc. into U S WEST as if the shares
had been issued at the beginning of the period indicated.
. The historical average shares outstanding assume a one-for-one
conversion of historical U S WEST Communications Group common shares
outstanding into shares of U S WEST as of the date of Separation. The
1998 historical average common shares outstanding include the issuance
of approximately 16,341,000 shares of common stock, net of redemption of
approximately 305,000
18
<PAGE>
fractional shares, issued in connection with the contribution of U S
WEST Dex, Inc. into U S WEST. Effective November 1, 1995, each share of
common stock of Old U S WEST was converted into one share each of U S
WEST Communications Group common stock and U S WEST Media Group common
stock, which we refer to as the "1995 Recapitalization." Earnings per
common share and dividends per common share for 1995 and 1994 have been
presented on a pro forma basis to reflect the two classes of stock as if
they had been outstanding since January 1, 1994.
. 1998 debt includes $3,900 million of Old U S WEST indebtedness U S West
refinanced in connection with the contribution of U S WEST Dex, Inc.
into U S WEST.
<TABLE>
<CAPTION>
Three months
ended March 31, Years ended December 31,
------------------ ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(unaudited)
(in millions, except share and per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $ 3,182 $ 3,009 $ 12,378 $ 11,479 $ 11,168 $ 10,508 $ 10,132
Operating expenses...... 2,389 2,194 9,329 8,703 8,356 7,931 7,616
Operating income........ 793 815 3,049 2,776 2,812 2,577 2,516
Income before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 793 815 1,508 1,527 1,501 1,431 1,403
Net income.............. 397 434 1,508 1,524 1,535 1,423 1,403
Pro forma income........ * * 1,436 1,365 1,339 * *
Historical earnings per
share:
Basic.................. 0.79 0.89 3.05 3.16 3.21 3.02 3.09
Diluted................ $ 0.78 $ 0.89 $ 3.02 $ 3.12 $ 3.17 $ 2.98 $ 3.03
Average common shares
outstanding
(thousands):
Basic.................. 503,306 484,964 494,395 482,751 477,549 470,716 453,316
Diluted................ 508,121 489,113 498,798 491,232 488,591 481,933 463,801
Pro forma earnings per
share:
Basic.................. * * $ 2.86 * * * *
Diluted................ * * $ 2.84 * * * *
Pro forma average common
shares outstanding
(thousands):
Basic.................. * * 501,827 * * * *
Diluted................ * * 506,230 * * * *
Dividends per common
share.................. $ 0.535 $ 0.535 $ 2.14 $ 2.14 $ 2.14 $ 2.14 $ 2.14
Total assets............ 18,709 17,851 18,407 17,667 17,279 16,960 16,317
Total debt.............. $ 10,035 $ 5,521 $ 9,919 $ 5,715 $ 6,545 $ 6,782 $ 6,147
Debt to total capital
ratio.................. 91.3% 56.9% 92.9% 56.7% 61.6% 65.0% 64.7%
Capital expenditures.... * * $ 2,905 $ 2,672 $ 2,831 $ 2,770 $ 2,513
</TABLE>
- -------
* Information has not been presented.
19
<PAGE>
Selected unaudited pro forma financial information
The following unaudited pro forma condensed combined financial information of
Global Crossing, Global Marine and Frontier, which we refer to as "Pro Forma
Global Crossing," and unaudited pro forma condensed financial information of U
S WEST and Pro Forma Global Crossing, which we refer to as "Pro Forma U S WEST
with Global Crossing," have been prepared to demonstrate how these companies or
businesses might have looked if the Global Crossing--Frontier merger and the
Global Crossing--U S WEST merger and merger-related transactions had been
completed as of the dates or at the beginning of the periods presented.
We have prepared the pro forma financial information using the purchase
method of accounting. We expect that we will have reorganization and
restructuring expenses and potential synergies relating to our long distance
business and increased opportunities to earn more revenue as a result of
combining our companies. The unaudited pro forma information does not reflect
these expenses and synergies.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma information also
does not attempt to show how the combined company would actually have performed
had the companies been combined throughout these periods. If the companies had
actually been combined in prior periods, these companies and businesses might
have performed differently. You should not rely on pro forma financial
information as an indication of the results that would have been achieved if
the transactions outlined in this document had taken place earlier or the
future results that the companies will experience after completion of the
transactions.
Currently, some types of long distance service now being provided by Frontier
cannot be provided by a Regional Bell Operating Company within its region. This
limitation applies to U S WEST. In connection with the Global Crossing--U S
WEST merger after the Global Crossing--Frontier merger is completed, Global
Crossing and U S WEST will seek necessary regulatory approvals to permit the
entity resulting from the Global Crossing--U S WEST merger to continue to
provide these long distance services in the U S WEST region. If these approvals
are not obtained, Global Crossing/Frontier expects that it will take other
actions to comply with the applicable restrictions. These actions could include
disposition, by sale, exchange or otherwise, of accounts for the affected
services and of some related assets. These actions would be subject to state
and federal regulatory approvals. The revenues of Frontier arising from the
provision of these services in the U S WEST region, during the year ended
December 31, 1998 and the three months ended March 31, 1999, represented less
than 2% of the Pro Forma U S WEST with Global Crossing operating revenues
during the equivalent periods shown in the tables below. See "The U S WEST
Merger--Regulatory issues relating to some types of long distance service" on
page 90.
Global Crossing and Frontier estimate, including based on information
received from U S WEST, that the Global Marine acquisition, the Global
Crossing--Frontier merger and the Global Crossing--U S WEST merger and related
transactions will result in fees and expenses totaling approximately $195
million. The Pro Forma Global Crossing information includes $95 million of
these fees and expenses. The remaining $100 million is included in the Pro
Forma U S WEST with Global Crossing information.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements of Global
Crossing, Global Marine, Frontier and U S WEST, which, in the case of Global
Crossing and Global Marine, are included in this document and, in the case of
Frontier and U S WEST, are incorporated by reference in this document.
20
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------
<S> <C>
Operating revenues......................................... $ 948,509
------------
Operating expenses:
Operating, selling, general and administrative........... 722,619
Stock related expense.................................... 16,716
Depreciation and amortization............................ 130,157
------------
869,492
------------
Operating income........................................... 79,017
Equity in income of affiliates............................. 2,452
Other income (expense):
Interest expense......................................... (53,792)
Interest income.......................................... 16,284
Other income............................................. 148
------------
Income before taxes and cumulative effect of change in
accounting principle...................................... 44,109
Provision for income taxes............................... (49,404)
------------
Loss before cumulative effect of change in accounting
principle................................................. (5,295)
Preferred stock dividends................................ (13,044)
Redemption of preferred stock............................ (183)
------------
Loss applicable to common shareholders before cumulative
effect of change in accounting principle (Basic).......... (18,522)
Diluted earnings adjustment.............................. --
------------
Loss applicable to common shareholders before cumulative
effect of change in accounting principle (Diluted)........ $ (18,522)
============
Loss per common share:
Loss applicable to common shareholders before cumulative
effect of change in accounting principle
Basic.................................................. $ (0.03)
============
Diluted................................................ $ (0.03)
============
Shares used in computing information applicable to common
shareholders
Basic.................................................. 628,226,109
============
Diluted................................................ 628,226,109
============
</TABLE>
21
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Fiscal Year 1998
----------------
<S> <C>
Operating revenues........................................... $ 3,364,992
------------
Operating expenses:
Operating, selling, general and administrative............. 2,548,346
Termination of Advisory Services Agreement................. 139,669
Stock related expense...................................... 39,374
Depreciation and amortization.............................. 510,807
------------
3,238,196
------------
Operating income............................................. 126,796
Equity in income of affiliates............................... 18,935
Other income (expense):
Interest expense........................................... (157,374)
Interest income............................................ 38,863
Other income............................................... 23,230
------------
Income before taxes, extraordinary item, and cumulative
effect of change in accounting principle.................... 50,450
Provision for income taxes................................. (168,059)
------------
Loss before extraordinary item and cumulative effect of
change in accounting principle.............................. (117,609)
Preferred stock dividends.................................. (12,681)
Redemption of preferred stock.............................. (34,323)
------------
Loss applicable to common shareholders before extraordinary
item and cumulative effect of change in accounting principle
(Basic)..................................................... (164,613)
Diluted earnings adjustment................................ --
------------
Loss applicable to common shareholders before extraordinary
item and cumulative effect of change in accounting principle
(Diluted)................................................... $ (164,613)
============
Loss per common share:
Loss applicable to common shareholders before extraordinary
item and cumulative effect of change in accounting
principle
Basic.................................................... $ (0.29)
============
Diluted.................................................. $ (0.29)
============
Shares used in computing information applicable to common
shareholders
Basic.................................................... 576,164,376
============
Diluted.................................................. 576,164,376
============
</TABLE>
22
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Cash and cash equivalents....................................... $ 162,536
Other current assets............................................ 859,911
-----------
Total current assets.......................................... 1,022,447
Restricted cash and cash equivalents............................ 422,933
Accounts receivable............................................. 70,884
Capacity available for sale..................................... 577,273
Property, plant and equipment, net.............................. 2,242,430
Construction in process......................................... 532,653
Goodwill and other intangibles, net............................. 11,343,639
Other assets, net............................................... 436,474
Investment in affiliates........................................ 224,777
-----------
Total assets.................................................. $16,873,510
===========
Current liabilities............................................. $ 1,034,802
Long term debt.................................................. 2,284,740
Senior notes.................................................... 796,588
Deferred income taxes........................................... (72,310)
Postretirement and other post-employment benefit obligations.... 84,879
Deferred credits and other...................................... 184,753
-----------
Total liabilities............................................. 4,313,452
-----------
Mandatorily redeemable preferred stock.......................... 500,419
-----------
Shareholders' equity
Preferred stock............................................... --
Common stock.................................................. 6,505
Other shareholders' equity.................................... 12,430,780
Unearned compensation......................................... (78,260)
Treasury stock................................................ (209,415)
Accumulated deficit........................................... (89,971)
-----------
Total shareholders' equity...................................... 12,059,639
-----------
Total liabilities and shareholders' equity.................... $16,873,510
===========
</TABLE>
23
<PAGE>
Pro Forma U S WEST with Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------
<S> <C>
Operating revenues......................................... $ 4,130,509
-------------
Operating expenses:
Operating, selling, general and administrative........... 2,509,619
Stock related expense.................................... 16,716
Depreciation and amortization............................ 848,276
-------------
3,374,611
-------------
Operating income........................................... 755,898
Equity in income of affiliates............................. 2,452
Other income (expense):
Interest expense......................................... (251,294)
Interest income.......................................... 16,284
Other expense............................................ (852)
-------------
Income before taxes and cumulative effect of change in
accounting principle...................................... 522,488
Provision for income taxes............................... (274,627)
-------------
Income before cumulative effect of change in accounting
principle................................................. 247,861
Preferred stock dividends................................ (13,044)
Redemption of preferred stock............................ (183)
-------------
Income applicable to common shareholders before cumulative
effect of change in accounting principle................ $ 234,634
=============
Income per common share:
Income applicable to common shareholders before
cumulative effect of change in accounting principle
Basic.................................................. $ 0.19
=============
Diluted................................................ $ 0.18
=============
Shares used in computing information applicable to common
shareholders
Basic.................................................. 1,228,435,267
=============
Diluted................................................ 1,281,354,935
=============
</TABLE>
24
<PAGE>
Pro Forma U S WEST with Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Fiscal Year
1998
-------------
<S> <C>
Operating revenues.............................................. $ 15,742,992
-------------
Operating expenses:
Operating, selling, general and administrative................ 9,678,346
Termination of Advisory Services Agreement.................... 139,669
Stock related expense......................................... 39,374
Depreciation and amortization................................. 3,174,282
-------------
13,031,671
-------------
Operating income................................................ 2,711,321
Equity in income of affiliates.................................. 18,935
Other income (expense):
Interest expense.............................................. (878,384)
Interest income............................................... 38,863
Other expense................................................. (63,770)
-------------
Income before taxes, extraordinary item and cumulative effect of
change in accounting principle................................. 1,826,965
Provision for income taxes.................................... (1,011,949)
-------------
Income before extraordinary item and cumulative effect of change
in accounting principle........................................ 815,016
Preferred stock dividends..................................... (12,681)
Redemption of preferred stock................................. (34,323)
-------------
Income applicable to common shareholders before extraordinary
item and cumulative effect of change in accounting principle... $ 768,012
=============
Income per common share:
Income applicable to common shareholders before extraordinary
item and cumulative effect of change in accounting principle
Basic....................................................... $ 0.63
=============
Diluted..................................................... $ 0.60
=============
Shares used in computing information applicable to common
shareholders
Basic....................................................... 1,217,118,297
=============
Diluted..................................................... 1,269,514,725
=============
</TABLE>
25
<PAGE>
Pro Forma U S WEST with Global Crossing
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
Cash and cash equivalents.......................................... $ 98,536
Other current assets............................................... 3,359,911
-----------
Total current assets............................................. 3,458,447
Restricted cash and cash equivalents............................... 422,933
Accounts receivable................................................ 70,884
Capacity available for sale........................................ 577,273
Property, plant and equipment, net................................. 17,340,430
Construction in process............................................ 532,653
Goodwill and other intangibles, net................................ 29,922,636
Other assets, net.................................................. 1,511,474
Investment in affiliates........................................... 224,777
-----------
Total assets..................................................... $54,061,507
===========
Current liabilities................................................ $ 7,850,629
Long term debt..................................................... 11,926,740
Senior notes....................................................... 796,588
Deferred income taxes.............................................. 709,186
Postretirement and other post-employment benefit obligations....... 2,716,879
Deferred credits and other......................................... 1,039,753
-----------
Total liabilities................................................ 25,039,775
-----------
Mandatorily redeemable preferred stock............................. 500,419
-----------
Shareholders' equity:
Preferred stock.................................................. --
Common stock..................................................... 12,291
Other shareholders' equity....................................... 28,494,022
Accumulated other comprehensive income........................... 15,000
-----------
Total shareholders' equity......................................... 28,521,313
-----------
Total liabilities and shareholders' equity....................... $54,061,507
===========
</TABLE>
26
<PAGE>
Comparative per share data
Presented below is the income/loss from operations before extraordinary item
and cumulative effect of changes in accounting principle, book value per common
share and cash dividends per common share data for Global Crossing and Frontier
on an historical basis and a pro forma basis. We combined historical
consolidated financial information of Global Crossing, Global Marine and
Frontier using the purchase method of accounting for business combinations. See
"Unaudited Pro Forma Condensed Combined Financial Statements" beginning on page
107.
The unaudited Frontier equivalent pro forma information was calculated by
multiplying the corresponding unaudited Pro Forma Global Crossing consolidated
data by an assumed exchange ratio of [1.26], which is the exchange ratio if the
average trading prices of Global Crossing common stock during the measurement
period is $[50]. This information shows how each share of Frontier common stock
would have participated in net earnings and book value of Global Crossing if
the merger had been completed at January 1, 1998. These amounts, however, do
not necessarily reflect future per share levels of net earnings or book value
of Global Crossing.
<TABLE>
<CAPTION>
Fiscal First
Year Quarter
1998 1999
------ -------
<S> <C> <C>
Global Crossing historical
Loss per share:
Basic........................................................ $(0.32) $(0.00)
Diluted...................................................... (0.32) (0.00)
Book value per common share.................................... 1.89 1.88
Cash dividends declared per common share....................... -- --
Frontier historical
Earnings per share:
Basic........................................................ 1.03 0.23
Diluted...................................................... 1.02 0.23
Book value per common share.................................... 5.93 6.21
Cash dividends declared per common share....................... 0.89 0.05
Unaudited Pro Forma Global Crossing
Loss per share:
Basic........................................................ (0.29) (0.03)
Diluted...................................................... (0.29) (0.03)
Book value per common share.................................... * 19.19
Unaudited Frontier equivalent pro forma
Earnings per share:
Basic........................................................ (0.37) (0.04)
Diluted...................................................... (0.37) (0.04)
Book value per common share.................................... * 24.18
</TABLE>
- --------
* Information not provided
27
<PAGE>
Market prices and dividends
The Global Crossing common stock trades on both the Nasdaq National Market
and the Bermuda Stock Exchange under the symbol "GBLX." Frontier common stock
is listed on the New York Stock Exchange under the symbol "FRO."
The table below shows, for the calendar quarters indicated, the reported high
and low sale prices of Global Crossing common stock as reported on the Nasdaq
National Market and the Frontier common stock as reported on the New York Stock
Exchange Composite Transactions Tape, in each case based on published financial
sources and the dividends, if any, declared on the stock. Share amounts and
values for Global Crossing common stock take into account the two-for-one stock
split in the form of a stock dividend effective March 9, 1999. The third
quarter 1998 information for Global Crossing covers the period between August
14, the date of the initial public offering of the Global Crossing common
stock, through September 30.
<TABLE>
<CAPTION>
Global Crossing Common Stock Frontier Common Stock
-------------------------------------------------------------
Market Price Cash Market Price Cash
---------------------- Dividends -------------- Dividends
High Low Declared High Low Declared
---------- ---------- ------------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Calendar 1997
First Quarter.......... -- -- -- $23.25 $17.75 $.2175
Second Quarter......... -- -- -- 20.50 15.38 .2175
Third Quarter.......... -- -- -- 24.19 19.00 .2175
Fourth Quarter......... -- -- -- 25.00 20.00 .2225
Calendar 1998
First Quarter.......... -- -- -- 33.44 24.44 .2225
Second Quarter......... -- -- -- 33.00 28.31 .2225
Third Quarter.......... $ 12.75 $ 8.00 -- 36.75 24.13 .2225
Fourth Quarter......... 23.50 8.63 -- 34.13 24.81 .2225
Calendar 1999
First Quarter.......... 62.63 18.94 -- 54.94 33.19 .0500
Second Quarter......... 64.25 39.63 -- 60.38 49.13 .0500
Third Quarter (through
[July 9], 1999)....... [43.38] [39.50] -- [59.94] [58.38] --
</TABLE>
28
<PAGE>
The following table presents trading information for the Global Crossing
common stock and Frontier common stock on March 16, 1999 and [July 9], 1999.
March 16, 1999 was the last full trading day before our announcement of the
signing of the merger agreement. [July 9], 1999 was the last practicable
trading day for which information was available before the date of this
document. The equivalent pro forma price of Frontier common stock is also
presented below for each price. The equivalent pro forma price for each date
was determined by multiplying the applicable price of Global Crossing common
stock by the exchange ratio that would result if the applicable price of Global
Crossing common stock shown were the average trading price of Global Crossing
common stock during the measurement period. We cannot assure you what the
market prices of the Global Crossing common stock will be at the merger date or
during the period when the exchange ratio is calculated. You should obtain
current market quotations.
<TABLE>
<CAPTION>
Frontier
Global Crossing Frontier Equivalent Pro
Common Stock Common Stock Forma
--------------- ------------ --------------
<S> <C> <C> <C>
Closing price on March 16, 1999.... $ 51 1/2 $ 44 5/8 $63
Closing price on [July 9], 1999.... $[40 7/16] $[58 3/4] $63
</TABLE>
Global Crossing does not anticipate paying cash dividends on its common stock
in the foreseeable future. The terms of some debt instruments of Global
Crossing limit its ability to pay cash dividends. Future cash dividends, if
any, will be at the discretion of the Global Crossing board of directors and
will depend upon, among other things, Global Crossing's operations, capital
requirements and surplus, general financial condition, contractual restrictions
and those other factors the Global Crossing board of directors may deem
relevant. See "Global Crossing's Management Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 137.
29
<PAGE>
Risk Factors
Shareholders of Global Crossing and Frontier should consider the following
factors, in addition to the other information contained in this document.
Risks Relating to the Merger
The successful integration of Frontier's business and the achievement of
expected benefits cannot be assured
We expect that the merger will result in benefits arising out of the
creation of a seamless global network of telecommunications facilities and
services. Even though Global Crossing and Frontier have little direct overlap
of employees, markets, customers, products or facilities, we also expect the
merger to result in some operating efficiencies and cost savings related to
the transport of communications and information over long distances. Achieving
the benefits of the merger will depend in part upon the integration of the
businesses of Global Crossing and Frontier in an efficient manner. We cannot
assure you that this will happen or that it will happen in a timely manner.
Global Crossing has not previously had significant experience integrating the
operations of acquired companies. The consolidation of operations will require
substantial attention from management. The diversion of management attention
and any difficulties encountered in the transition and integration process
could have a material adverse effect on the revenues, levels of expenses and
operating results of the combined company. We cannot assure you that the
combined company will realize any of the anticipated benefits of the merger.
Since the market price of the Global Crossing common stock will vary, Frontier
shareholders cannot be sure of the value of the Global Crossing common stock
to be received in the merger
If the average trading price of the Global Crossing common stock during the
measurement period for determining the exchange ratio is less than $34.5625,
Frontier shareholders will receive less than $63.00 in value of Global
Crossing common stock for each share of Frontier common stock in the merger,
unless the Frontier board of directors chooses to terminate the merger
agreement and Global Crossing chooses to increase the value of the merger
consideration. Frontier shareholders will not be able to vote against the
merger if the trading price of the Global Crossing common stock falls below
$34.5625 after the Frontier special meeting and the Frontier board of
directors will not be required to terminate the merger agreement if the
average trading price during the measurement period is below $34.5625. In
addition, the number of shares of Global Crossing common stock that Frontier
shareholders will receive in the merger will not be adjusted for changes in
Global Crossing's stock price if the average trading price during the
measurement period is above $56.7813. As a result, the value of the Global
Crossing shares received by Frontier shareholders in the merger will also vary
with fluctuations in the Global Crossing stock price above this level.
Also, the exchange ratio is based on an average price of the Global Crossing
common stock during the measurement period shortly before the closing.
Accordingly, because the market price of Global Crossing common stock will
fluctuate and may increase or decrease during the period from the end of the
measurement period to the effective time of the merger, and from the effective
time until Global Crossing delivers certificates representing Global Crossing
shares to Frontier shareholders, the value of the Global Crossing common stock
actually received by Frontier shareholders may be more or less than the
average trading price or the value of the Global Crossing common stock at the
effective time of the merger.
Because the closing of the merger may happen at a date later than the
shareholder meetings, we cannot assure you that the price of the Global
Crossing common stock on the date of the meetings will be indicative of its
price at the closing of the merger.
30
<PAGE>
Pendency of or failure to complete the Global Crossing--U S WEST merger may
affect the Global Crossing stock price
The pendency of or failure to complete the Global Crossing--U S WEST merger
could have the effect of causing the prices at which shares of Global Crossing
common stock trade before and after the merger to be greater or less than the
trading prices that would otherwise prevail. In addition, substantial delay in
completing, or failure to complete, the Global Crossing--U S WEST merger could
have a material impact on the trading price of the Global Crossing common
stock received in the merger.
Pendency of the Global Crossing--U S WEST merger may affect the timing of the
receipt of regulatory approvals for the merger
Although regulators will generally have an opportunity to consider
separately the Global Crossing--U S WEST merger after the merger, the
anticipated timing of receipt of regulatory approvals required for the merger
could be delayed if one or more regulatory authorities decides that it will
review aspects of the Global Crossing--U S WEST merger in connection with the
merger.
Risks relating to the business and operations of Global Crossing
Global Crossing has a limited operating history
Global Crossing was organized in March 1997 and has a limited operating
history. Global Crossing's financial information relates principally to a
period in which it was constructing and developing the Atlantic Crossing
system and, until May 1998, had minimal revenues and operating costs. Despite
recognizing approximately $424 million in revenues, Global Crossing has
incurred a net loss applicable to common shareholders of approximately $89.971
million for the period from March 19, 1997, its date of inception, through
March 31, 1999, due primarily to the termination of some advisory services
agreements, the incurrence of stock-related expense, the extraordinary loss on
the retirement of some senior notes, preferred stock dividends and the
redemption of some preferred stock. Global Crossing has financed its net
losses, debt service, capital expenditures and other cash needs to date
through operations, the proceeds of sales of common stock and mandatorily
redeemable preferred stock and the issuance of debt. Global Crossing will
require substantial additional capital in order to carry out its business
plan.
Global Crossing's significant indebtedness could adversely affect it by
leaving it with insufficient cash to fund operations and impairing its ability
to obtain additional financing
The amount of Global Crossing's debt could have important consequences for
its future, including, among other things:
. cash from operations may be insufficient to meet the principal and
interest on its indebtedness as it becomes due,
. payments of principal and interest on borrowings may leave it with
insufficient cash resources for its operations, and
. restrictive debt covenants may impair its ability to obtain additional
financing.
Global Crossing has incurred a high level of debt. As of March 31, 1999,
Global Crossing and its consolidated subsidiaries had a total of $1,417
million of total liabilities, including approximately $1,083 million in senior
indebtedness, of which $258 million was secured. Global Crossing's direct
subsidiary, Global Crossing Holdings, also has mandatorily redeemable
preferred stock outstanding with a face value of $500 million. In addition,
Global Crossing's Pacific Crossing joint venture entered into an $850 million
non-recourse credit facility, under which it had incurred $312 million of
indebtedness as of March 31, 1999. Global Crossing also incurred additional
indebtedness of $600 million in connection with its acquisition of Global
Marine.
Global Crossing's ability to repay its debt depends upon a number of
factors, many of which are beyond its control. In addition, Global Crossing
relies on dividends, loan repayments and other intercompany cash flows from
its subsidiaries to repay its obligations. Global Crossing's operating
subsidiaries have entered into a senior secured corporate credit facility.
Accordingly, the payment of dividends from these operating subsidiaries and
the making and repayments of loans and advances are subject to statutory,
contractual and other restrictions.
31
<PAGE>
In addition, if Global Crossing is unable to generate sufficient cash flow
to meet its debt service requirements, Global Crossing may have to renegotiate
the terms of its long-term debt. Global Crossing cannot assure you that it
would be able to successfully renegotiate those terms or refinance its
indebtedness when required or that satisfactory terms of any refinancing would
be available. If Global Crossing were not able to refinance its indebtedness
or obtain new financing under these circumstances, Global Crossing would have
to consider other options, such as:
. sales of some assets to meet its debt service obligations,
. sales of equity,
. negotiations with its lenders to restructure applicable indebtedness, or
. other options available to it under applicable law.
Global Crossing may encounter difficulties in completing its cable systems
Global Crossing's ability to achieve its strategic objectives will depend in
large part upon the successful, timely and cost-effective completion of its
planned cable systems as well as on achieving substantial capacity sales on
these systems once they become operational. The construction of the Global
Crossing systems will be affected by a variety of factors, uncertainties and
contingencies, many of which are beyond Global Crossing's control including:
. its ability to manage their construction effectively,
. its ability to obtain all construction and operating permits and
licenses,
. third-party contractors performing their obligations on schedule, and
. its ability to enter into favorable construction contracts with a
limited number of suppliers.
These factors may significantly delay or prevent completion of one or more
of the Global Crossing systems, which could have a material adverse effect on
Global Crossing's business, financial condition and results of operations.
Global Crossing cannot assure you that each of its systems will be completed
at the cost and in the time frame currently estimated by Global Crossing, or
even at all. Although Global Crossing awards contracts for construction of its
systems to 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, Global Crossing cannot
assure you that the actual construction costs or the time required to complete
these systems will not exceed its current estimates. These circumstances could
have a material adverse effect on Global Crossing's results of operations or
financial condition.
Global Crossing depends upon the continued success of its sales and marketing
capabilities
Global Crossing's success will depend substantially on sales of capacity on
its systems. Although Global Crossing's sales and marketing efforts have
resulted to date in substantial sales of undersea and terrestrial capacity on
its systems, Global Crossing cannot be certain that it will continue to be
successful in selling capacity or that it will be able to realize its business
plan. Furthermore, even if Global Crossing realizes its plan, it still may not
be able to sustain operating profitability or generate sufficient cash flow to
service its indebtedness.
If Global Crossing is unable to effectively sell capacity on its cable
systems, its results of operations will be materially adversely affected.
Global Crossing's ability to achieve its business objectives depends in large
part upon its sales and marketing capabilities. Global Crossing has assembled
a dedicated sales and marketing force. Global Crossing depends upon the
ability of these employees to effectively market and sell capacity. We cannot
be certain that Global Crossing will be able to effectively sell capacity on
its cable systems.
32
<PAGE>
Global Crossing's revenue growth plan depends on product and service expansion
Global Crossing intends to grow revenues and profits by:
. upgrading capacity on its planned systems,
. developing additional undersea cable projects,
. developing or purchasing additional terrestrial fiber capacity, and
. introducing new services.
If Global Crossing is unable to effect these upgrades, develop additional
cable projects, develop or obtain additional terrestrial capacity or introduce
new services, its business, financial condition and results of operations
could be adversely affected.
Some of Global Crossing's capacity purchase contracts are terminable under
specified circumstances
Under some capacity purchase agreements for the Atlantic Crossing system,
the customer may terminate the agreement if, among other things, Global
Crossing does not obtain and hold specified governmental authorizations,
approvals, consents, licenses and permits. Purchase agreements for Global
Crossing's other systems may contain similar provisions. If a substantial
number of purchase agreements are terminated for these or other reasons,
Global Crossing's business, financial condition and results of operations
could be materially adversely affected.
Global Crossing faces competition along its routes
The international telecommunications industry is highly competitive. Global
Crossing faces competition from existing and planned systems along each of its
planned routes. Global Crossing also competes with satellite providers,
including existing geosynchronous satellites and low- and medium-earth orbit
systems now under construction. Global Crossing 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. We cannot
assure you that Global Crossing will be able to compete successfully against
systems to which prospective customers have made long-term commitments.
Global Crossing's principal shareholders may be able to materially influence
the outcome of shareholder votes
As of June 25, 1999, Pacific Capital Group had a 21.68% beneficial ownership
interest in Global Crossing. Global Crossing has entered into various
transactions with Pacific Capital Group and assumed the on-going development
of some of its systems from an affiliate of Pacific Capital Group. Mr. Gary
Winnick, co-chairman of the Global Crossing board of directors, controls
Pacific Capital Group and its subsidiaries. In addition, several of Global
Crossing's other officers and directors are affiliated with Pacific Capital
Group. Furthermore, as of June 25, 1999, Canadian Imperial Bank of Commerce
had a 19.96% beneficial ownership interest in Global Crossing. Canadian
Imperial Bank of Commerce and its affiliates have acted as underwriter, lender
or initial purchaser in several of Global Crossing's financial transactions in
connection with the development and construction of the Global Crossing
systems. Several members of the Global Crossing board of directors are
employees of an affiliate of Canadian Imperial Bank of Commerce.
As of June 25, 1999, Pacific Capital Group and Canadian Imperial Bank of
Commerce collectively beneficially owned 41.64% of the outstanding Global
Crossing common stock. Accordingly, Pacific Capital Group and Canadian
Imperial Bank of Commerce may be able to materially influence the outcome of
matters submitted to a vote of Global Crossing shareholders, including the
election of directors.
Officers and directors own a substantial portion of Global Crossing and may
have conflicts of interest
Global Crossing's executive officers and directors have substantial equity
interests in Global Crossing. As of June 25, 1999, all of Global Crossing's
directors and executive officers as a group collectively beneficially owned
72.90% of the outstanding common stock of Global Crossing, including shares
beneficially owned by Pacific Capital Group and Canadian Imperial Bank of
Commerce. Some of these individuals have also received amounts from Global
Crossing due to advisory services fees paid to Pacific Capital Group and its
affiliates.
33
<PAGE>
Some of Global Crossing's directors and executive officers also serve as
officers and directors of other companies. Additionally, some of Global
Crossing's officers and directors are active investors in the
telecommunications industry. Service as a director or officer of Global
Crossing and as a director or officer of another company could create
conflicts of interest when the director or officer is faced with decisions
that could have different implications for Global Crossing and the other
company. A conflict of interest could also exist with respect to allocation of
time and attention of persons who are directors or officers of both Global
Crossing and another company. The pursuit of these other business interests
could distract these officers from pursuing opportunities on Global Crossing's
behalf. These conflicts of interest could have a material adverse effect on
Global Crossing's financial condition.
Global Crossing must complete the transition to an operating company
The transition from a development stage company to an operating company
places significant demands on Global Crossing's management and operations.
Global Crossing is in the process of expanding the management and operational
capabilities necessary for this transition.
Global Crossing's ability to manage this transition successfully will depend
on, among other things:
. expanding, training and managing Global Crossing's employee base,
including attracting, retaining and motivating highly skilled personnel,
. taking over or outsourcing its customer interface and operations,
administrative and maintenance systems,
. procuring terrestrial capacity to provide connectivity to inland cities,
and
. controlling expenses.
We cannot assure you that Global Crossing will succeed in developing all or
any of these capabilities, and any failure to do so could have a material
adverse effect on its results of operations.
Global Crossing is growing rapidly in a changing industry
Part of Global Crossing's strategy is to 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 to exist in the global
marketplace. Global Crossing expects each of its currently announced systems
to be operational between now and 2001. As a result of this aggressive
strategy, Global Crossing is experiencing rapid expansion and expects it to
continue for the foreseeable future. This growth has increased Global
Crossing's operating complexity. At the same time, the international
telecommunications industry is changing rapidly due to, among other things:
. the easing of regulatory constraints,
. the privatization of established carriers,
. the expansion of telecommunications infrastructure,
. the globalization of the world's economies, and
. the changing technology for wired, wireless and satellite communication.
Much of Global Crossing's planned growth is predicated upon the growth in
demand for international telecommunications capacity. We cannot assure you
that this anticipated demand growth will occur.
Global Crossing faces pricing uncertainties
Advances in fiber optic technology have resulted in significant per circuit
price declines in the fiber optic cable transmission industry. Recent changes
in technology caused prices for circuits to go down even further. If there is
less demand than Global Crossing projects or a bigger drop in prices per
circuit than it projects, there could be a material adverse effect on its
business, financial condition and results of operations. We cannot assure
34
<PAGE>
you, even if Global Crossing's projections with respect to those factors are
realized, that Global Crossing will be able to implement its strategy or that
its strategy will be successful in the rapidly evolving telecommunications
market.
Global Crossing confronts several system operational risks
Each of the Global Crossing systems will be subject to the risks inherent in
a large-scale, complex fiber optic telecommunications system. The operation,
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. We
cannot assure you that, even if built to specifications, the Global Crossing
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.
Each of the Global Crossing systems either has or is expected to have a
design life of generally 25 years; however, we cannot assure you of the actual
useful life of any of these systems. A number of factors will affect the
useful life of each of the Global Crossing systems, including, among other
things:
. quality of construction,
. unexpected damage or deterioration, and
. technological or economic obsolescence.
Failure of any of the Global Crossing systems to operate for its full design
life could have a material adverse effect on its business, financial condition
and results of operations.
Global Crossing depends on its key personnel
Global Crossing's future success depends on the skills, experience and
efforts of the officers and key technical and sales employees. As some of
these officers and employees are new, we cannot be certain that Global
Crossing will be able to integrate new management into its existing
operations. In addition, competition for these individuals is intense, and
Global Crossing may not be able to attract, motivate and retain highly skilled
qualified personnel. Global Crossing does not have "key person" life insurance
policies covering any of its employees.
Global Crossing faces risks associated with international operations
Because Global Crossing will derive substantial revenues from international
operations and intends to have substantial physical assets in several
jurisdictions along the routes of its planned systems, its business is subject
to risks inherent in international operations, including:
. political and economic conditions,
. unexpected changes in regulatory environments,
. exposure to different legal standards, and
. difficulties in staffing and managing operations.
Global Crossing has not experienced any material adverse effects with
respect to its foreign operations arising from these factors. However,
problems associated with these risks could arise in the future. Finally,
managing operations in multiple jurisdictions may place further strain on
Global Crossing's ability to manage its overall growth.
Global Crossing is subject to government regulation in various jurisdictions
Global Crossing will, in the ordinary course of development, construction
and operation of its fiber optic cable systems, be required to obtain and
maintain various permits, licenses and other authorizations in both the United
States and in international jurisdictions where its cables land and exist.
35
<PAGE>
. Undersea cable landing or similar licenses will be required in many of
the jurisdictions where the Global Crossing systems will land and exist.
These licenses are typically issued for a term of years, subject to
renewal. Moreover, the licenses may subject Global Crossing's business
and operations to varying forms of regulation, which could change over
time. If Global Crossing fails to obtain or renew a license or if there
is a material change in the nature of the regulation to which Global
Crossing is subject, there could be a material adverse effect on its
business, financial condition and results of operations.
. Global Crossing must obtain construction and operating licenses during
the construction phase of each of its cable systems. Although Global
Crossing intends that the construction contracts for each of its
undersea cable systems impose the burden of acquiring and maintaining
construction licenses and permits on the contractor for each of these
systems, Global Crossing cannot assure you that the contractors will
successfully obtain all permits and licenses. If Global Crossing or any
contractor fails to obtain or maintain any construction or operating
permit or license, there could be a material adverse effect on Global
Crossing's business, financial condition and results of operations.
Global Crossing depends on third parties for many functions
Global Crossing depends and will continue to depend upon third parties to:
. construct some of its systems and provide equipment and maintenance,
. provide access to a number of origination and termination points of the
Global Crossing systems in various jurisdictions,
. construct and operate landing stations in a number of those
jurisdictions,
. acquire rights of way,
. provide terrestrial capacity to its customers through contractual
arrangements, and
. act as joint venture participants with regard to some of its current and
potential future systems.
We cannot assure you that third parties will perform their contractual
obligations or that they will not be subject to political or economic events
which may have a material adverse effect on Global Crossing's business,
financial condition and results of operations.
Global Crossing cannot predict its future tax liabilities
Global Crossing believes that a significant portion of the income derived
from its undersea systems will not be subject to tax by any of (1) Bermuda,
which currently does not have a corporate income tax, or (2) some other
countries in which Global Crossing conducts activities or in which customers
of Global Crossing are located. However, Global Crossing bases this belief
upon
. the anticipated nature and conduct of its business, which may change,
and
. its understanding of its position under the tax laws of the various
countries in which it 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.
We cannot predict the amount of tax to which Global Crossing may become
subject and cannot be certain that any of these factors would not have a
material adverse effect on its business, financial condition and results of
operations.
Global Crossing shareholders may be subject to Foreign Personal Holding
Company, Passive Foreign Investment Company, Controlled Foreign Corporation
and Personal Holding Company rules
Global Crossing believes that neither it nor any of its non-United States
subsidiaries is a foreign personal holding company and does not expect that
either it or any of its affiliates will become a foreign personal holding
36
<PAGE>
company. However, we cannot assure you in this regard. If a shareholder of
Global Crossing is a United States person and Global Crossing or one of its
non-United States subsidiaries is classified as a foreign personal holding
company, then that shareholder would be required to pay tax on its pro rata
share of Global Crossing's or its relevant non-United States subsidiary's
undistributed foreign personal holding company income. Global Crossing intends
to manage its affairs so as to attempt to avoid or minimize having income
imputed to United States persons under these rules, to the extent this
management of its affairs would be consistent with its business goals.
Global Crossing believes that it is not a passive foreign investment company
and does not expect to become a passive foreign investment company in the
future. However, we cannot assure you in this regard. In addition, this belief
is based, in part, on interpretations of existing law that Global Crossing
believes are reasonable, but which have not been approved by any taxing
authority. If Global Crossing were a passive foreign investment company, then
a shareholder of Global Crossing that is a United States person could be
liable to pay tax at the then prevailing rates on ordinary income plus an
interest charge upon some distributions by Global Crossing or when that
shareholder sold the Global Crossing capital stock at a gain.
Furthermore, additional tax considerations would apply if Global Crossing or
any of its affiliates were a controlled foreign corporation or a personal
holding company.
Global Crossing does not plan on paying dividends
Global Crossing does not anticipate paying cash dividends on its common
stock in the foreseeable future. Global Crossing's ability to pay dividends is
limited by some of its debt instruments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
capital resources."
Large Global Crossing shareholders face voting and transfer restrictions
Global Crossing's bye-laws provide that each share of Global Crossing common
stock will have one vote. However, if the shares controlled by any person
constitute more than 9.5% (or, in the case of Canadian Imperial Bank of
Commerce and its affiliates, more than 35%) of the voting power of the
outstanding shares, the voting rights of that shareholder's shares will be
limited to 9.5% (or 35% in the case of Canadian Imperial Bank of Commerce and
its affiliates) and the additional votes of those shares will be allocated to
the other holders of common stock on a pro rata basis. The other holders who
were allocated these additional votes may not exceed the above limitation as a
result of this allocation.
The bye-laws also prohibit any transfer of shares of common stock that,
subject to specified exceptions, would result in a natural person beneficially
owning shares in excess of 5% of the outstanding shares of common stock or a
group of persons or any person other than a natural person beneficially owning
shares in excess of 9.5% of the outstanding shares of common stock, without
the approval of a majority of the members of the board of directors and
shareholders holding at least 75% of the votes of all outstanding shares of
Global Crossing common stock. These voting and transfer restrictions could
make it difficult for any person or group of persons acting in concert (other
than specified existing shareholders) to acquire a substantial ownership
position in, or control of, Global Crossing.
Global Crossing's stock performance may be volatile
Historically, the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. A number of factors
could cause the market price of Global Crossing common stock to fluctuate
substantially including:
. quarterly variations in operating results,
. competition,
. announcements of technological innovations or new products by Global
Crossing or its competitors,
. product enhancements by Global Crossing or its competitors,
37
<PAGE>
. regulatory changes,
. any differences in actual results and results expected by investors and
analysts,
. changes in financial estimates by securities analysts, and
. other events or factors.
In addition, the stock market has experienced volatility that has affected
the market prices of equity securities of many companies, and that often has
been unrelated to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of Global Crossing's
common stock.
38
<PAGE>
Cautionary Statement Regarding Forward-Looking Statements
Global Crossing and Frontier have included forward-looking statements
throughout this document. These statements describe their attempt to predict
future occurrences. Global Crossing and Frontier use the words "believe,"
"anticipate," "expect," "intend" and similar expressions to identify forward-
looking statements. These statements also include references to cost savings,
benefits, revenues and earnings estimated to result from the merger and
estimated costs of combining Global Crossing and Frontier. Forward-looking
statements are subject to a number of risks, assumptions and uncertainties.
For Global Crossing and Frontier, these risks, assumptions and uncertainties,
which may cause actual results to differ materially from those predicted by
the forward-looking statements, include:
. the ability to complete systems within currently estimated time frames
and budgets,
. the ability to sell capacity on systems,
. the successful transition of Global Crossing from a system development
company to an operating company,
. the ability to compete effectively in a rapidly evolving and price
competitive marketplace,
. international, national and local general economic and market
conditions,
. the size and growth of the overall telecommunications market,
. new product and service development and introduction,
. changes in consumer preferences,
. existing governmental regulations and changes in the nature of
telecommunications regulation in the United States and other countries,
. the loss of significant customers, employees or suppliers,
. changes in business strategy or development plans,
. the ability to attract and retain qualified personnel, and
. the successful integration of Global Crossing and Frontier.
This list provides only an example of some of the risks, uncertainties and
assumptions that may affect the forward-looking statements of Global Crossing
and Frontier. If any of these risks or uncertainties materialize or fail to
materialize, as applicable, or if the underlying assumptions prove incorrect,
actual results may differ materially from those projected in the forward-
looking statements.
39
<PAGE>
The Global Crossing Annual Meeting
General
We are furnishing this document to holders of Global Crossing common stock
in connection with the solicitation of proxies by the Global Crossing board of
directors for use at the annual meeting of Global Crossing shareholders and
any adjournment or postponement of the meeting.
Date, time and place
We will hold the Global Crossing annual meeting at on , 1999 at ,
local time, subject to any adjournments or postponements.
Matters to be considered at the meeting
For more information regarding the proposals described below, see "Proposals
to Global Crossing Shareholders To Be Voted on at the Global Crossing Annual
Meeting" beginning on page 162.
The merger proposals
At the Global Crossing annual meeting, the shareholders of Global Crossing
will consider and vote upon two merger-related proposals:
. to approve an increase in the authorized share capital of Global
Crossing to 3,000,000,000 shares and
. to approve the issuance of shares of Global Crossing common stock to
Frontier shareholders in the merger.
We are submitting these proposals for the approval of shareholders of Global
Crossing pursuant to Global Crossing's bye-laws and the requirements of the
National Association of Securities Dealers applicable to companies with
securities quoted on the Nasdaq National Market.
Other proposals
In addition, at the Global Crossing annual meeting, the shareholders of
Global Crossing will consider and vote upon:
. a proposal to authorize 20,000,000 shares of preferred stock, par value
$0.01 per share;
. a proposal to amend a number of the bye-laws of Global Crossing and to
restate them;
. a proposal to elect Abbott L. Brown, Thomas J. Casey, William E. Conway
and Barry Porter as class A directors with terms expiring in 2000;
. a proposal to elect Robert Annunziata, Lodwrick M. Cook, Geoffrey J.W.
Kent, David L. Lee, Bruce Raben and Jack M. Scanlon as class B directors
with terms expiring in 2001;
. a proposal to elect Jay R. Bloom, Dean C. Kehler, Michael R. Steed,
Hillel Weinberger and Gary Winnick as class C directors with terms
expiring in 2002;
. a proposal to elect, subject to the merger closing, the following
persons who are currently Frontier directors as directors of Global
Crossing: [ ] as a class A director with a term beginning
immediately after the closing and expiring in 2000, [ ] as a class
B director with a term beginning immediately after the closing and
expiring in 2001 and [ ] and [ ] as class C directors, each with
a term beginning immediately after the closing and expiring in 2002;
. a proposal to amend the 1998 Global Crossing Ltd. Stock Incentive Plan
for the purpose of increasing the number of authorized shares of Global
Crossing common stock reserved for issuance under that plan;
. a proposal to ratify Global Crossing's existing compensation plan for
its outside directors;
40
<PAGE>
. a proposal to ratify the appointment of Arthur Andersen & Co. as
independent auditors of Global Crossing for the year ending December 31,
1999 and authorize the Global Crossing board of directors to determine
their remuneration; and
. any other business which may properly come before the annual meeting or
any adjournment or postponement thereof.
Record date; votes per share
The Global Crossing board of directors has fixed the close of business on
, 1999 as the record date for the determination of Global Crossing
shareholders entitled to notice of the annual meeting. On that date, the
outstanding voting shares of capital stock of Global Crossing consisted of
shares of common stock. However, all holders of record of shares of Global
Crossing common stock on the date of the Global Crossing annual meeting will
be entitled to attend and vote at the meeting.
On a poll, each share entitled to vote at the meeting, other than shares
held by holders of greater than 9.5% of all outstanding shares of Global
Crossing common stock whose voting power will be limited as described in the
next two paragraphs, will be entitled to one vote plus any additional votes
that may be allocated to each share based on a formula contained in the Global
Crossing bye-laws and described in the next two paragraphs.
For purposes of the following discussion, when we refer to "Controlled
Shares" we mean, among other things, all shares of Global Crossing common
stock that a shareholder is deemed (1) to own directly, indirectly or
constructively pursuant to Section 958 of the Internal Revenue Code or (2) to
own beneficially directly or indirectly as a result of the possession of sole
or shared voting power within the meaning of Section 13(d) of the Securities
Exchange Act of 1934 and the rules and regulations under that act.
Under the Global Crossing bye-laws, on a poll each share of common stock
will have one vote, except that if, and so long as, the Controlled Shares of
(1) any shareholder constitute more than 9.5% of the voting power of all
outstanding shares of Global Crossing common stock or (2) Canadian Imperial
Bank of Commerce and its affiliates constitute more than 35% of the voting
power of all outstanding shares of Global Crossing capital stock, the voting
rights with respect to the Controlled Shares owned by that shareholder will be
limited, in the aggregate, to a voting power of 9.5% or, in the case of
Canadian Imperial Bank of Commerce and its affiliates, collectively, to 35%
based on a formula contained in the bye-laws. The additional votes that could
be cast by that shareholder or the Canadian Imperial Bank of Commerce and its
affiliates if there were no restrictions on voting rights will be allocated to
the other holders of common stock, pro rata based on their number of shares of
common stock. However, no shareholder that has been allocated any additional
votes may exceed the limitation on voting rights as a result of that
allocation. See "Description of Global Crossing Capital Stock--Voting and
transfer restrictions."
On the record date for notice of the annual meeting, each share of Global
Crossing common stock, other than shares held by any 9.5% or larger
shareholder, would have been entitled on a poll to approximately votes.
Quorum
The presence in person or by proxy of at least two shareholders entitled to
vote and holding shares representing more than 50% of the votes of all
outstanding shares of Global Crossing common stock will constitute a quorum at
the annual meeting.
Abstentions and shares held by brokers that are represented at the annual
meeting without specific instructions by shareholders on how to vote those
shares will be counted as present for purposes of determining whether there is
a quorum at the annual meeting.
41
<PAGE>
Votes required
Approval of each of the proposals requires the affirmative vote of at least
a majority of all outstanding shares of Global Crossing common stock, except
in the case of the proposed amendments of
(1) bye-laws 34(2) and 63(2), (3) and (4) regarding the voting and
transfer of share restrictions,
(2) bye-laws 63(1) and 130 regarding the Global Crossing board of
directors' authority to establish a record date for shareholders entitled
to vote at annual and special meetings of shareholders and
(3) bye-law 148 regarding minimum voting requirements for bye-law
amendments,
which in each case require the affirmative vote of at least 75% of all
outstanding shares of Global Crossing common stock to be approved. Some of the
proposed bye-law amendments, if approved, will become effective only if and
when the merger is complete.
Shareholders who beneficially own shares of Global Crossing common stock
representing over a majority of the voting power of Global Crossing after
giving effect to the voting limitations of large shareholders entered into a
voting agreement with Frontier on March 16, 1999 which was reaffirmed on May
16, 1999. Under the voting agreement, these shareholders have agreed to vote
in favor of both the proposal to increase the authorized share capital of
Global Crossing and the proposal to issue shares of Global Crossing common
stock in the merger. As a result, the vote of these shareholders will be
sufficient to approve these two proposals without any further vote by any
other Global Crossing shareholder. See "Related Agreements--Voting agreement."
As of [June 25], 1999, directors and executive officers of Global Crossing
were entitled to vote approximately [73]% of the outstanding votes entitled to
be cast by Global Crossing shareholders at the annual meeting after giving
effect to the voting limitations of large shareholders. Each director and
executive officer of Global Crossing has indicated that he or she intends to
vote his or her shares of common stock for the proposal to increase Global
Crossing's authorized share capital and for the proposal to issue shares of
Global Crossing common stock in the merger.
How shares will be voted at the annual meeting
Shares of Global Crossing common stock represented by a proxy properly
executed and received before the vote at the Global Crossing annual meeting
will be voted at the meeting on a poll in the manner directed on the proxy
card, unless the proxy is revoked in advance of the vote.
Properly executed blank proxy cards will be voted (1) in favor of the
proposals described in the notice of the 1999 annual meeting to Global
Crossing shareholders and (2) in the discretion of the authorized proxies with
respect to any other business that may properly come before the annual meeting
or any adjournment or postponement of the meeting.
Abstentions and shares held by brokers and represented at the annual meeting
without specific instructions by shareholders on how to vote those shares will
not be voted and will have the effect of a vote against the merger-related
proposals and the other proposals to be voted on at the annual meeting.
To be valid, proxy cards must be received at the principal executive offices
of Global Crossing at Wessex House, 45 Reid Street, Hamilton HM12 Bermuda,
Attention of Secretary, by , local time, on , 1999. As an alternative to
appointing a proxy, a Global Crossing shareholder which is a corporation may
appoint any person to act as its representative by delivering written evidence
of that appointment, which must be received at Global Crossing's principal
executive offices not later than one hour before the time fixed for the
beginning of the meeting. A representative so appointed may exercise the same
powers, including voting rights, as the appointing corporation could exercise
if it were an individual shareholder.
42
<PAGE>
How to revoke a proxy
You may revoke your proxy at any time before it is voted by (1) so notifying
the Secretary of Global Crossing in writing at the address of Global
Crossing's principal executive offices not less than one hour before the time
fixed for the beginning of the meeting, (2) signing and dating a new and
different proxy card or (3) voting your shares in person or by an appointed
agent or representative at the meeting. You may not revoke your proxy by
merely attending the Global Crossing annual meeting.
The Global Crossing board of directors is not currently aware of any
business that will be brought before the annual meeting other than the
proposals described in the notice of the 1999 annual meeting to Global
Crossing shareholders. If, however, other matters are properly brought before
the Global Crossing annual meeting or any adjournment or postponement of the
meeting, the persons appointed as proxies will have discretionary authority to
vote the shares represented by duly executed proxies in accordance with their
discretion and judgment.
Solicitation of proxies
Global Crossing will bear the costs of soliciting proxies from the holders
of Global Crossing common stock. Proxies will initially be solicited by Global
Crossing by mail, but directors, officers and selected other employees of
Global Crossing may also solicit proxies by personal interview, telephone,
telegraph or e-mail. Directors, executive officers and any other employees of
Global Crossing who solicit proxies will not be specially compensated for
those services, but may be reimbursed for out-of-pocket expenses incurred in
connection with the solicitation. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting materials to
beneficial owners and will be reimbursed for their reasonable out-of-pocket
expenses incurred in sending proxy materials to beneficial owners. Global
Crossing's transfer agent, First Chicago Trust Company of New York, has agreed
to assist Global Crossing in connection with the tabulation of proxies.
1998 audited financial statements; Annual report
Under the Global Crossing bye-laws and Bermuda law, audited financial
statements must be presented to shareholders at an annual meeting. To fulfill
this requirement, Global Crossing will present at the annual meeting audited
consolidated financial statements for the fiscal year 1998. Global Crossing
has included copies of those financial statements in this document.
Representatives of Arthur Andersen & Co. Global Crossing's independent
auditors, will be present at the annual meeting and available to respond to
appropriate questions. These representatives will have the opportunity to make
a statement at the annual meeting if they desire to do so.
43
<PAGE>
The Frontier Special Meeting
General
We are furnishing this document to holders of Frontier common stock for use
at a special meeting of Frontier shareholders and any adjournments or
postponements of the meeting.
Date, time and place
We will hold a special meeting of Frontier shareholders on , 1999, at
10:30 a.m., local time, at , subject to any adjournments or postponements
thereof.
Matter to be considered at the special meeting
At the Frontier special meeting, Frontier shareholders will be asked to
consider and vote on a proposal to adopt the merger agreement. You are urged
to read the copy of the merger agreement attached to this document as Annex A.
Representatives of PricewaterhouseCoopers LLP, Frontier's independent
auditors, are expected to be present at the Frontier special meeting and
available to respond to appropriate questions. These representatives will be
given the opportunity to make a statement at the Frontier special meeting if
they desire to do so.
Record date
Only holders of record of Frontier common stock at the close of business on
, 1999 will be entitled to receive notice of and to vote at the Frontier
special meeting. As of the Frontier record date, there were outstanding
shares of Frontier common stock.
Vote required
The affirmative vote by holders of two-thirds of the outstanding shares of
Frontier common stock is required in order to adopt the merger agreement.
Therefore, if you fail to submit a proxy or vote electronically or if you
abstain from voting, it will have the effect of a vote against the adoption of
the merger agreement. Each share of Frontier common stock is entitled to one
vote. Holders of a majority of the shares entitled to vote at the Frontier
special meeting, present in person or by proxy, will constitute a quorum for
the transaction of business at the Frontier special meeting.
As of [ ], 1999, Frontier's current directors and executive officers
beneficially owned a total of approximately shares of Frontier common
stock, or approximately % of the issued and outstanding shares of Frontier
common stock on that date.
The shareholders present at the Frontier special meeting, in person or by
proxy, may by a majority vote adjourn the meeting despite the absence of a
quorum. In the event of an absence of a quorum, Frontier expects that the
meeting will be adjourned or postponed to solicit additional proxies.
How shares will be voted at the special meeting
All shares of Frontier common stock represented by properly executed proxies
received before or at the Frontier special meeting, and not revoked, will be
voted as specified in the proxies. Properly executed proxies that do not
contain voting instructions will be voted FOR the adoption of the merger
agreement.
Frontier will count a properly executed proxy marked "ABSTAIN" as present
for purposes of determining whether there is a quorum at the Frontier special
meeting. Abstentions, however, will have the same effect as a vote against the
adoption of the merger agreement.
44
<PAGE>
Under New York Stock Exchange rules, your broker cannot vote your shares of
Frontier common stock without specific instructions from you. Unless you
follow the directions your broker provides to you regarding how to instruct
your broker to vote your shares, your shares will not be voted and will have
the effect of a vote against the adoption of the merger agreement.
The Frontier board of directors is not currently aware of any other business
to be brought before the Frontier special meeting. If, however, other matters
are properly brought before the Frontier special meeting or any adjournment or
postponement of the meeting, the people appointed as proxies will have
discretionary authority to vote the shares represented by duly executed
proxies in accordance with their discretion and judgment.
The people named as proxies by a shareholder may propose and vote for one or
more adjournments of the Frontier special meeting to permit further
solicitations of proxies in favor of adoption of the merger agreement; except
that no proxy which is voted against the adoption of the merger agreement will
be voted in favor of any adjournment.
Voting at the special meeting
Whether or not you plan to attend the special meeting, please take the time
to vote your shares as soon as possible. Your prompt voting by telephone,
electronically or by mail may save Frontier the expense of a second mailing.
Each proxy which is properly completed will be voted at the special meeting.
If you return a proxy by mail or vote by telephone or electronically over the
Internet and do not specify your vote, your shares will be voted as
recommended by the Frontier board of directors. Specifically, if your proxy
does not specify a choice, your shares will be voted FOR the adoption of the
merger agreement.
Methods of voting
All shareholders may vote by mail. Shareholders of record can also vote by
telephone or electronically over the Internet. Shareholders who hold their
shares through a bank or broker can vote by telephone or electronically over
the Internet if that option is offered by the bank or broker.
. Voting by mail. Shareholders may sign, date and mail their proxies in
the postage-paid envelope provided.
. Voting by telephone or Internet. Shareholders of record may vote by
using the toll-free number listed on the proxy card or electronically
over the Internet. Telephone and/or Internet voting is also available to
shareholders who hold their shares through a Frontier Corporation
benefit plan. The telephone and Internet voting procedures verify
shareholders through the use of a control number that is provided on
each proxy card. Both procedures allow you to vote your shares and to
confirm that your shares have been properly recorded. Please see your
proxy card for specific instructions.
How to revoke a proxy
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy.
You may revoke your proxy at any time before its use by delivering to the
Corporate Secretary of Frontier a signed notice of revocation or a later-dated
signed proxy or by voting by telephone or Internet at a later time or by
attending the Frontier special meeting and voting in person. Attendance at the
Frontier special meeting will not itself constitute the revocation of a proxy.
Solicitation of proxies
Frontier will pay the cost of solicitation of proxies for the Frontier
special meeting. In addition to solicitation by mail, Frontier will arrange
for brokerage houses and other custodians, nominees and fiduciaries to send
the proxy materials to beneficial owners, and Frontier will, upon request,
reimburse the brokerage houses and
45
<PAGE>
custodians for their reasonable expenses. Frontier has retained Innisfree M&A
Incorporated to aid in the solicitation of proxies and to verify some of the
records related to the solicitations. Innisfree will receive customary fees,
and expense reimbursement for its services. To the extent necessary in order
to ensure sufficient representation at its meeting, Frontier or its
representatives may request by telephone, facsimile, electronic mail or the
Internet the return of proxy cards. The extent to which this will be necessary
depends entirely on how promptly proxy cards are returned. We urge you to send
in your proxies as soon as possible.
46
<PAGE>
The Merger
What you will receive in the merger
At the effective time of the merger, a direct wholly owned subsidiary of
Global Crossing will be merged with and into Frontier. As a result of the
merger, Frontier will continue as the surviving corporation of the merger and
will become a wholly owned subsidiary of Global Crossing.
At the effective time of the merger, each issued and outstanding share of
Frontier common stock, other than shares owned or held directly or indirectly
by Global Crossing or directly by Frontier, which will be canceled, will be
converted into the right to receive a number of shares of Global Crossing
common stock equal to the exchange ratio. The exchange ratio will be equal to
the number, rounded to the nearest 1/10,000, obtained by dividing $63.00, as
increased by 7% per annum, compounded daily, from and after December 31, 1999
to and including the effective time of the merger, by the average, rounded to
the nearest 1/10,000, of the volume weighted averages, rounded to the nearest
1/10,000, of the trading prices of the Global Crossing common stock for 15
trading days randomly selected by lot by Frontier and Global Crossing during
the 30 trading days ending on the trading day before the date that all
conditions to closing have been satisfied or waived. However, the merger
agreement provides that the exchange ratio will not be less than 1.1095, when
the average trading price is more than $56.7813, or, except as described in
the next sentence, greater than 1.8229, as increased by 7% per annum,
compounded daily, from and after December 31, 1999 to and including the
effective time of the merger, when the average trading price is less than
$34.5625. The exchange ratio will remain 1.1095, without any increase for the
7% per annum interest factor, if the average trading price during the
measurement period is more than $56.7813.
If the average price of Global Crossing common stock during the measurement
period is less than $34.5625, Frontier may, but is not required to, terminate
the merger agreement unless Global Crossing elects to increase the merger
consideration so that the value of the merger consideration to be received by
Frontier shareholders, based on the average price during the measurement
period, is equal to $63.00.
Global Crossing will not issue fractional shares of Global Crossing common
stock in the merger. Instead, Frontier shareholders who would otherwise have
been entitled to receive a fraction of a share of Global Crossing common stock
will receive cash, without interest, in an amount equal to the product of the
fractional part of a share of Global Crossing common stock multiplied by the
last sales price per share of the Global Crossing common stock reported on the
Nasdaq National Market on the closing date.
As an example, if the closing occurs on or before December 31, 1999 and you
own 100 shares of Frontier common stock and assuming that the average trading
price during the measurement period is $[40.00], which was the closing price
of the Global Crossing common stock on [July 1], 1999, the exchange ratio
would be [1.5750], or $63 divided by $[40.00]. This would translate into
[157.5] shares of Global Crossing common stock. Since cash will be paid
instead of fractional shares, you would receive [157] shares of Global
Crossing common stock and a check for an amount equal to the fractional share
multiplied by the last sales price of Global Crossing common stock on the
closing date. Using this same trading price, if the closing occurs on March
31, 2000, the exchange ratio would be [1.6027], or $64.1060 divided by
$[40.00]. $64.1060 is equal to $63.00 plus the 7% per annum interest factor
compounded daily from January 1, 2000 through March 31, 2000. In this case,
you would receive [160] shares of Global common stock and cash instead of the
fraction of a share.
Background of the merger
In light of the rapid changes in the telecommunications and Internet
industries, including industry consolidation and globalization, it had become
a regular practice of the Frontier board of directors to review periodically
with senior management Frontier's position relative to its traditional peers
and new entrants in the industry, changes in the competitive landscape and
technology as well as the strategic alternatives available to Frontier in
order for it to remain competitive and enhance shareholder value. In
connection with this ongoing review of its long-term strategic plans, Frontier
had been considering a wide range of strategic options, including
47
<PAGE>
internal growth through the buildout and aggressive marketing of its existing
network to existing and emerging telecommunications and information service
providers, growth through various strategic alliances, acquisitions or
combinations and potential corporate restructuring transactions. In
furtherance of these objectives, from time to time Frontier has had contact
with various parties to explore on a preliminary basis several of these
alternatives, including some discussions with one or more parties during the
time periods described below.
In October of 1998, at a Morgan Stanley investors' conference, Barry Porter,
a Senior Vice President of Global Crossing, suggested to Rolla Huff, then
Chief Financial Officer of Frontier, that Frontier and Global Crossing
consider the possibility of engaging in strategic partnerships. A few weeks
later, Thomas Casey, a Vice Chairman of Global Crossing, contacted Joseph
Clayton, Chief Executive Officer of Frontier, and requested a meeting to
discuss a number of potential mutually beneficial business arrangements,
including purchases or swaps of capacity, other commercial arms'-length
business transactions and the possibility of a strategic transaction involving
the two companies.
On November 17, 1998, Mr. Casey met with Mr. Huff, Jonathan Horowitch, Vice
President-Corporate Development of Frontier, and R. Charles Mancini, Vice
President-Network Financial Management of Frontier. At the meeting, the
representatives of each company discussed generally their respective
businesses and various potential strategic business arrangements that might
benefit both Frontier and Global Crossing. In addition, Mr. Casey raised the
possibility of a "merger of equals" business combination transaction involving
a share-for-share exchange of Frontier shares for Global Crossing shares
following which either Frontier shareholders or Global Crossing shareholders
would own a majority of the resulting company, based on the respective
capitalizations of the two companies at that time.
At its regularly scheduled executive committee meeting on November 23, 1998,
the executive committee of the Frontier board of directors was briefed on
recent discussions with various entities, including Global Crossing, regarding
potential strategic transactions.
During the next few weeks, there were various meetings and discussions among
representatives of Global Crossing, Frontier, Merrill Lynch, one of Global
Crossing's financial advisors, and Morgan Stanley & Co. Incorporated,
Frontier's financial advisor, regarding possible transaction structures and
the strategic objectives that could be achieved through such a transaction. At
a meeting held on November 30, 1998, Mr. Casey indicated that Global Crossing
was contemplating a transaction based upon one of two alternative structures,
the first involving consideration consisting of a combination of cash and
Global Crossing common stock, subject to a collar, and shares of Frontier's
local exchange company following a split-off of that company, and the other
proposal involving cash and Global Crossing common stock, subject to a collar.
The collar mechanism would provide for a range of exchange ratios, subject to
a maximum ratio and a minimum ratio, at which one share of Frontier common
stock would be exchanged for shares of Global Crossing common stock. The
collar would enable the value of the shares of Global Crossing common stock to
remain fixed so long as the average trading price of the Global Crossing
common stock during a period of time shortly before the closing remained
within the endpoints of the collar. Mr. Huff indicated that Frontier would
need to better understand the structure of Global Crossing's financing of any
transaction involving cash and that, in any such transaction, Frontier would
not bear the risk of that financing not being obtained.
On December 5, 1998, Global Crossing engaged Salomon Smith Barney as its
financial advisor in addition to Merrill Lynch.
On December 8, 1998, Global Crossing and Frontier executed a confidentiality
agreement, effective as of November 30, 1998, covering the exchange of
nonpublic information between the companies for the purpose of evaluating a
potential strategic combination.
On December 15, 1998, at a regularly scheduled meeting of the Frontier board
of directors, Mr. Huff, in connection with updating the Frontier board of
directors on the progress with respect to the various strategic
48
<PAGE>
alternatives discussed at an earlier meeting in October and at the November
executive committee meeting, briefly reviewed the discussions with Global
Crossing and other entities to date.
On December 18, 1998, representatives of Global Crossing and its financial
advisors discussed its financing plans with Frontier and its representatives.
On December 30, 1998, representatives of Global Crossing and its financial
advisors met with representatives of Frontier and its financial advisor to
discuss Global Crossing's business plan and to hold further discussions
regarding the respective valuations of Global Crossing and Frontier and the
appropriate mechanisms to protect the value of the consideration to be
received by Frontier shareholders.
Representatives of Global Crossing and Frontier and their respective
financial advisors again met on January 11, 1999 to discuss a potential
combination of the two companies and the potential valuation of Frontier. At
the end of the meeting, the parties determined that there was a difference in
views as to the appropriate value to be placed on the stock of Frontier and
discussions with respect to a business combination transaction were terminated
with no expectation that they would be resumed in the immediate future.
Frontier subsequently focused on the pursuit of other strategic alternatives
designed to enhance shareholder value, including those described below.
On January 25, 1999, at its regularly scheduled meeting, the Frontier board
of directors was updated on the status of the prior discussions with Global
Crossing. Representatives of Morgan Stanley gave a presentation on Global
Crossing, including a discussion of Global Crossing's business, strategy and
financial results, the strategic rationale for a transaction between Global
Crossing and Frontier, an analysis of Frontier's current position and a review
of other potential strategic and capitalization alternatives, including a
possible spin-off transaction. At the meeting, presentations were also made
regarding a change in Frontier's dividend policy. After discussion and
consideration, the Frontier board of directors decided to adopt a reduction in
the dividend to be paid on the Frontier common shares effective with the next
quarterly dividend to be declared and it determined to continue studying the
possibility of a spin-off.
Although discussions regarding a business combination between Global
Crossing and Frontier had broken off, Frontier and Global Crossing continued
to discuss other mutually beneficial business arrangements, including shared
capacity and network swaps. In mid-February 1999, during a meeting to discuss
these arrangements, the possibility of a business combination was again
discussed. Mr. Huff suggested that Frontier might be willing to resume
discussions if Global Crossing provided increased value to Frontier
shareholders and offered appropriate collar protection.
On March 2, 1999, Mr. Casey telephoned Mr. Clayton to arrange a meeting to
discuss a potential business combination. On March 3, 1999, Messrs. Clayton
and Huff met with Robert Annunziata, the Chief Executive Officer of Global
Crossing, and Mr. Casey. At the meeting, the parties renewed discussions
regarding potential transaction structures and valuations based on the current
price of Global Crossing common stock, which at the close of trading on the
day of the meeting was $31.5625 (adjusted for the March 9 stock split). At the
meeting, the parties agreed that any transaction would be structured to
provide consideration to Frontier shareholders based on a fixed value of
Global Crossing shares, with the value of the consideration to be protected
through a collar mechanism.
Following the meeting, Messrs. Clayton and Huff telephoned the members of
the executive committee of the Frontier board of directors to report on these
discussions. Frontier also contacted, and authorized Morgan Stanley to
contact, other potential acquirors, none of whom made a proposal to acquire
Frontier.
By March 8, 1999, Global Crossing's stock price had increased to $37.50
(adjusted for the March 9 stock split). During the week of March 8th, Mr. Huff
called Mr. Casey to discuss the recent increases in Global Crossing's stock
price. Mr. Huff informed Mr. Casey that, as a result of the increase in Global
Crossing's stock price, the level of value and the structure of the value
assurance protection that the parties had been discussing
49
<PAGE>
were no longer appropriate. Accordingly, before any transaction could be
agreed upon, Global Crossing would have to reconsider the levels of value
being discussed to increase the consideration to be paid to Frontier
shareholders to take into account the increase in Global Crossing stock price.
Also, Global Crossing would need to consider adjusting the collar mechanism so
that the increase in price did not eliminate the protection against a decline
in Global Crossing stock price that had previously been discussed and so that
Frontier shareholders would still have an opportunity to share in future
increases in Global Crossing's stock price. The parties agreed to continue
conducting due diligence and defer further discussions of the pricing issues
until near the end of the contract negotiations.
Also during the week of March 8th, representatives of Global Crossing and
Frontier and their respective legal and financial advisors conducted due
diligence on each other, including tax due diligence to determine the
feasibility of Global Crossing completing a tax-free reorganization. In the
beginning of that week, Skadden, Arps, Slate, Meagher & Flom LLP, Global
Crossing's legal advisor, also delivered a draft merger agreement to Frontier
and Simpson Thacher & Bartlett, Frontier's legal advisor. During the remainder
of that week, there were numerous meetings and telephone calls between senior
management of both parties and their respective legal and financial advisors
to negotiate the terms of the merger agreement and the related agreements.
On March 12, 1999, when the price of Global Crossing's common stock was
$49.375, representatives of Global Crossing suggested that Global Crossing at
that time would be prepared to offer, subject to board approval, completion of
due diligence and the negotiation of satisfactory definitive agreements,
shares of Global Crossing common stock valued at $62.00, based on the average
trading prices for the Global Crossing common stock during a period shortly
before the merger, for each share of Frontier common stock, with a 30%
downside collar and a 15% upside collar, all based on the Global Crossing
closing price of $49.375 on that date. As a result, Frontier shareholders
would receive $62.00 per share, based on that average trading price, so long
as Global Crossing's average trading price was between $34.5625 and $56.7813.
In addition, Frontier would have the right, but not the obligation, to
terminate the merger agreement if the Global Crossing average trading price
during the applicable measurement period was below $34.5625, unless Global
Crossing agreed to provide additional consideration to ensure that Frontier
shareholders would receive $62.00 in value in the merger, based on the average
trading price. Frontier shareholders would also be able to participate in an
increase in Global Crossing's stock price above $56.7813.
On March 13th and 14th, Messrs. Clayton and Huff contacted each member of
the Frontier board of directors to update him or her on the discussions that
had taken place during the past two weeks. Also on those dates,
representatives of Frontier and Global Crossing and their legal counsel
continued to negotiate the terms of a definitive merger agreement and the
related agreements and continued due diligence.
On March 15, 1999, the Frontier board held a meeting to review the terms of
the proposed merger. At the beginning of the meeting, Simpson Thacher &
Bartlett advised the Frontier board regarding its fiduciary duties with
respect to any potential transaction involving Global Crossing. Senior
management of Frontier updated the Frontier board on the negotiations that had
taken place during the last two days. The Frontier board of directors was also
informed of the status of contacts with other potential acquirors as to any
interest in a potential business combination with Frontier and it discussed
its other strategic alternatives, including the alternative of engaging in no
transaction. Representatives of Simpson Thacher & Bartlett reviewed the terms
of the proposed merger agreement, stock option agreement and voting agreement.
Representatives of Morgan Stanley reviewed in detail with the Frontier board
of directors their financial and valuation analyses of the Global Crossing
proposal as well as provided a brief summary of certain of the restructuring
options. The Frontier board also discussed the break-up fee requested by
Global Crossing as well as the stock option and, after discussions with senior
management and its advisors, concluded that those deal protections would not
meaningfully impair the possibility of a superior alternative transaction.
After further discussion, the Frontier board authorized senior management to
pursue discussions to finalize a definitive merger agreement and stock option
agreement with Global Crossing.
50
<PAGE>
On March 16, 1999, the Global Crossing board of directors met to consider
the terms and conditions of a proposed merger with Frontier. At the meeting,
Skadden, Arps, Slate, Meagher & Flom LLP and Appleby Spurling & Kempe advised
the Global Crossing board of directors regarding its fiduciary duties with
respect to any potential merger transaction involving Frontier. Several
presentations were then made by Global Crossing senior management regarding,
among other things, an overview of Frontier, strategy for the combined company
and the results of due diligence. Representatives of management and Skadden,
Arps, Slate, Meagher & Flom LLP reviewed the terms of the proposed merger
agreement, the stock option agreement and the voting agreement. The board of
directors also discussed the deal protection benefits provided by the break-up
fee and the stock option agreement. Representatives of Merrill Lynch and
Salomon Smith Barney reviewed in detail their financial and valuation analyses
of the merger proposal and rendered their respective opinions that the
original exchange ratio was fair from a financial point of view to Global
Crossing. After further discussion and consideration, the Global Crossing
board of directors unanimously determined that the merger was fair to Global
Crossing and approved the merger agreement, the stock option agreement and the
voting agreement and the transactions contemplated by the merger agreement,
the stock option agreement and the voting agreement, including the increase in
authorized share capital and the issuance of shares of Global Crossing common
stock in the merger.
On March 16, 1999, the Frontier board of directors met to continue its
consideration of the Global Crossing proposal. The Frontier board was updated
on the discussions held since the previous day and on a few changes to the
terms of the merger agreement. In addition, Morgan Stanley gave a presentation
that provided additional analysis of the Global Crossing proposal and rendered
its opinion as to the fairness from a financial point of view of the original
exchange ratio to Frontier shareholders. Following discussion among the board
members, Messrs. Annunziata and Casey joined the meeting to elaborate on
Global Crossing's strategy and rationale for the transaction and to answer
questions raised by the directors. After Messrs. Annunziata and Casey departed
and following further discussion and consideration, the Frontier board of
directors unanimously determined that the merger was fair to and in the best
interests of Frontier and its shareholders and adopted the merger agreement
and approved the merger and the stock option agreement and the transactions
contemplated by the merger agreement and the stock option agreement.
Following the Frontier board meeting, the merger agreement, the stock option
agreement and the voting agreement were executed. The parties issued a joint
press release announcing the proposed merger before the opening of business on
March 17, 1999.
During late April, representatives of Global Crossing disclosed to
representatives of Frontier that Global Crossing was holding preliminary
discussions with U S WEST regarding a possible business combination. At the
beginning of the week of May 10, 1999, representatives of Global Crossing
contacted representatives of Frontier to inform them of a proposed transaction
between Global Crossing and U S WEST and to request Frontier's consent to the
transaction pursuant to specified provisions of the merger agreement.
Throughout the remainder of that week, representatives of Global Crossing and
its legal and financial advisors held various meetings with representatives of
Frontier and its legal and financial advisors to discuss the terms of the
proposed transaction and the impact of that transaction on the pending merger
with Frontier. After discussion and negotiation, Global Crossing and Frontier
agreed to specified amendments to the merger agreement, including, among other
things, an increase in the fixed value per share consideration to be received
by Frontier shareholders in the merger to $63.00 so long as the cash tender
offer to be made by U S WEST to purchase Global Crossing shares was completed
and an increase in the value of the consideration by a 7% per annum interest
factor if the Frontier merger did not close by December 31, 1999 and the
average trading price of the Global Crossing common stock during the
measurement period was not greater than $56.7813.
On May 16, 1999, the Frontier board of directors had a telephonic meeting to
consider whether to consent to the Global Crossing--U S WEST transaction. At
that meeting, management of Frontier described the structure of the
transaction with U S WEST and the potential impact on the merger with
Frontier, representatives of Simpson Thacher & Bartlett described the proposed
amendments to the terms of the Frontier merger agreement and representatives
of Global Crossing and its legal and financial advisors provided additional
information and answered questions regarding the proposed U S WEST
transaction. Representatives of Salomon Smith Barney,
51
<PAGE>
Global Crossing's financial advisor, gave a presentation regarding financial
aspects of the proposed U S WEST merger that they planned to make to the
Global Crossing board of directors and informed the Frontier board of
directors that Salomon Smith Barney would be rendering an opinion to the
Global Crossing board of directors as to the fairness from a financial point
of view of the consideration to be received by Global Crossing shareholders in
the U S WEST merger. Representatives of Morgan Stanley also gave a
presentation with respect to the U S WEST merger and the amended terms of the
Global Crossing-Frontier merger agreement and rendered its opinion as to the
fairness from a financial point of view of the revised exchange ratio to the
Frontier shareholders. Following additional discussion, the board of directors
of Frontier determined by the unanimous vote of all directors present that
Frontier should consent to Global Crossing entering into the merger agreement
with U S WEST and approved the amendment to the merger agreement.
On May 16, 1999, the Global Crossing board of directors met to consider,
among other things, the terms and conditions of the proposed merger with U S
WEST and the terms and conditions of the amendment to the merger agreement.
Global Crossing's financial and legal advisors attended the meeting. Senior
management of Global Crossing and representatives of Skadden Arps reviewed
with the board of directors of Global Crossing the terms and conditions of the
amendment to the merger agreement, as well as various matters relating to the
proposed merger with U S WEST, and reviewed related legal considerations.
Salomon Smith Barney addressed various financial aspects of the proposed U S
WEST merger. In addition, Salomon Smith Barney orally rendered its opinion
that, as of May 16, 1999, the revised exchange ratio, as set forth in the
amendment to the merger agreement, was fair from a financial point of view to
Global Crossing. Extensive discussion followed relating to the financial and
legal aspects of the amendment to the merger agreement and the U S WEST
transaction. After discussion, Global Crossing's board of directors
unanimously approved the amendment to the merger agreement, as well as the
merger with U S WEST and the various definitive agreements related to that
merger.
Before the opening of business on May 17, 1999, the parties executed the
amendment to the merger agreement and Global Crossing and U S WEST entered
into a merger agreement and related agreements.
On June 13, 1999, Frontier received an unsolicited acquisition proposal from
Qwest Communications International Inc. to acquire all of the common stock of
Frontier. Qwest offered to pay $20 in cash and issue 1.181 shares of Qwest
common stock for each share of Frontier common stock. On June 13, Qwest also
announced a proposal to acquire all of the outstanding stock of U S WEST. In
Qwest's June 13 proposal to Frontier, Qwest stated that it would increase the
consideration payable for Frontier common stock to $20 in cash and 1.226
shares of Qwest common stock if U S WEST accepted Qwest's proposal. However,
Qwest also stated that it would offer to enter into an agreement to acquire
Frontier whether or not Qwest concluded its transaction with U S WEST.
On June 17, 1999, Frontier issued a press release announcing that its board
of directors had reviewed the unsolicited acquisition offer made by Qwest and
had determined to take no action with respect to the offer at that time.
Frontier's board of directors directed Frontier's management to monitor events
relating to the Qwest proposal.
On June 23, 1999, Qwest submitted a revised acquisition proposal to
Frontier. Qwest offered to deliver cash and Qwest common stock having a value
of $68 for each share of Frontier common stock consisting of $20 in cash and
the balance in Qwest common stock. Qwest's revised offer included a "collar"
on the price of Qwest common stock between $30.50 and $43.50. Qwest stated
that it would protect the Frontier shareholders' value by paying more cash or
issuing additional shares of Qwest common stock, at Qwest's option, to offset
any decline in Qwest's stock price down to $30.50 per share. On June 23, 1999,
Qwest also delivered a revised offer to U S WEST pursuant to which it
increased the price of its offer and added a collar mechanism.
On June 30, 1999, Frontier announced that in view of all currently available
information and in consultation
with its advisors, the Frontier board of directors had determined that the
revised Qwest proposal "could
52
<PAGE>
reasonably be expected to constitute a superior proposal" for Frontier
shareholders within the meaning of the Global Crossing merger agreement. The
Frontier board of directors further determined that, consistent with its
fiduciary obligations, it was appropriate to more fully inform itself in order
to best serve Frontier's shareholders. Frontier's board of directors directed
Frontier's management and advisors to meet with Qwest and explore the proposal
and also to explore Global Crossing's position with respect to the revised
Qwest proposal. The merger agreement between Frontier and Global Crossing
remains in full force and effect. On July 2, 1999, Frontier entered into a
confidentiality agreement with Qwest.
Recommendation of the Global Crossing board of directors; Reasons for the
merger
The Global Crossing board of directors has unanimously determined that the
merger and the share issuance in the merger are in the best interests of Global
Crossing and its shareholders and has approved the merger agreement. The Global
Crossing board of directors unanimously recommends that shareholders of Global
Crossing vote FOR the increase in the authorized share capital and the share
issuance at the Global Crossing annual meeting.
The Global Crossing board of directors believes that the combined company
following the merger would have the potential to realize long-term enhanced
operating and financial results and a stronger competitive position.
Specifically, the Global Crossing board of directors believes that the
following represent benefits to be realized because of the merger and reasons
for shareholders of Global Crossing to vote FOR approval of the proposals to
increase the authorized share capital and issue the shares of Global Crossing
common stock in the merger:
1. combining with Frontier will accelerate Global Crossing's global
strategy by integrating Frontier's United States terrestrial fiber optic
capacity with Global Crossing's worldwide undersea and terrestrial fiber
optic network, creating a seamless global network of telecommunications
facilities and services,
2. given the complementary nature of Global Crossing's and Frontier's
businesses, the merger will expand Global Crossing's global customer
base and create new revenue sources,
3. Global Crossing will be able to leverage its bandwidth capabilities to
enter into Internet-related businesses and to offer national
asynchronous transfer mode services,
4. Global Crossing's shareholders will have the opportunity to participate
in the potential for diversified and enhanced growth after the merger,
5. Frontier's network infrastructure and computer support systems and
associated business processes will promote rapid deployment of an
integrated voice and data network that will cover North America as well
as the broader global market,
6. Global Crossing will avoid having to incur large build-out costs for
United States terrestrial infrastructure,
7. the technical and marketing knowledge of Frontier's management and
employees will permit Global Crossing to participate in the North
American market immediately and aggressively,
8. the combined company will avoid the need to duplicate sales, marketing
and administrative functions, and
9. the increased scale of activities in the combined company's long-
distance and international operations will result in opportunities to
reduce costs through greater purchasing power and the adoption of best
practices in cost containment related to the transport of communications
and information over long distance.
In the course of deliberations, the Global Crossing board of directors
reviewed with Global Crossing management and outside advisors a number of
additional factors relevant to the merger, including:
1. historical information concerning Global Crossing's and Frontier's
respective businesses, financial performance and condition, operations,
technology, management and competitive position,
53
<PAGE>
2. Global Crossing's view as to the financial condition, results of
operations and businesses of Global Crossing and Frontier before and
after giving effect to the merger based on management due diligence and
publicly available information,
3. reports from management and legal advisors as to the results of their
due diligence investigation of Frontier,
4. current financial market conditions and historical market prices and
trading information with respect to Global Crossing common stock and
Frontier common stock,
5. the consideration to be offered by Global Crossing in the merger and an
analysis of the market value of the Global Crossing common stock to be
issued in exchange for each share of Frontier common stock in light of
comparable merger transactions, and
6. detailed financial analyses and pro forma and other information with
respect to the companies presented by Merrill Lynch and Salomon Smith
Barney in a board presentation, including Merrill Lynch's and Salomon
Smith Barney's respective opinions that the original exchange ratio was
fair, as of March 16, 1999, the date of their opinions, to Global
Crossing from a financial point of view and Salomon Smith Barney's
opinion that the revised exchange ratio was fair, as of May 16, 1999, to
Global Crossing from a financial point of view.
The Global Crossing board of directors also considered the terms of the
merger agreement, the stock option agreement and the voting agreement. In
addition, the Global Crossing board of directors noted that the merger is
expected to be a tax-free transaction and accounted for as a purchase.
The Global Crossing board of directors believed that these factors supported
the board's recommendations of the merger when viewed together with the risks
and potential benefits of the merger.
The Global Crossing board of directors also identified and considered a
variety of potentially negative factors in its deliberations concerning the
merger, including, but not limited to:
1. the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger,
2. the risk that the integration of the two companies' respective
operations and employees might not occur in a timely manner,
3. the risk that, despite the efforts of the combined company, key
technical and management personnel might not remain employed by the
combined company,
4. the risk that the potential benefits sought in the merger might not be
fully realized,
5. the risk that potential growth strategies might not be fully achieved,
and
6. the other risks described under "Risk Factors" beginning on page 30 of
this document.
The Global Crossing board of directors believed that these risks were
outweighed by the potential benefits of the merger.
The foregoing discussion is not an exhaustive list of all factors considered
by the Global Crossing board of directors. Each member of the Global Crossing
board of directors may have considered different factors, and the Global
Crossing board of directors evaluated these factors as a whole and did not
quantify or otherwise assign relative weights to factors considered.
The determination of the Global Crossing board of directors involved
judgments with respect to, among other things, future economic, competitive,
regulatory and financial market conditions and future business decisions which
may not be realized and are inherently subject to significant business,
economic, competitive and regulatory uncertainties, all of which are difficult
to predict and many of which are beyond the control of Global Crossing and
will be beyond the control of Global Crossing after the merger. In deciding
whether or not to approve the merger, shareholders of Global Crossing should
not put undue reliance upon this information. This section contains "forward
looking statements." See "Cautionary Statement Regarding Forward-Looking
Statements" on page 39 and "Risk Factors" on page 30.
54
<PAGE>
Opinion of Global Crossing's Financial Advisors
On March 16, 1999, Salomon Smith Barney and Merrill Lynch delivered their
oral opinions, subsequently confirmed in writing, to the Global Crossing board
of directors to the effect that, as of that date, and based upon the
assumptions made and matters considered as set forth in their opinions, the
original exchange ratio was fair from a financial point of view to Global
Crossing.
On May 16, 1999, Salomon Smith Barney delivered its oral opinion,
subsequently confirmed in writing, to the Global Crossing board of directors
to the effect that, as of that date, the revised exchange ratio was fair from
a financial point of view to Global Crossing. Merrill Lynch was not requested
to deliver and did not deliver an opinion regarding the revised exchange ratio
because it represented U S WEST in the negotiations of the Global Crossing--U
S WEST merger.
Opinion of Salomon Smith Barney
We have attached as Annexes D-1 and D-2 to this document a copy of the
written opinions of Salomon Smith Barney. Global Crossing shareholders are
urged to read carefully Salomon Smith Barney's opinions in their entirety.
In connection with rendering its opinions, Salomon Smith Barney reviewed
publicly available information concerning Global Crossing and Frontier and
other financial information concerning Global Crossing and Frontier, including
financial forecasts and estimated cost savings and synergies resulting from
the merger, that Global Crossing and Frontier provided to Salomon Smith
Barney. Salomon Smith Barney discussed the past and current business
operations, financial condition and prospects of Global Crossing and Frontier
with certain officers and employees of Global Crossing and Frontier. Salomon
Smith Barney also considered other information, financial studies, analyses,
investigations and financial, economic and market criteria that it deemed
relevant.
In its review and analysis and in arriving at its opinions, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of the
information it reviewed, and Salomon Smith Barney did not assume any
responsibility for independent verification of the information. Salomon Smith
Barney assumed the financial forecasts of Global Crossing and Frontier were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Global Crossing and Frontier. Salomon
Smith Barney expressed no opinion with respect to these forecasts or the
assumptions on which they were based. Salomon Smith Barney also assumed that
the merger will be consummated according to the terms of the merger agreement.
Salomon Smith Barney did not make or obtain, or assume any responsibility for
making or obtaining, any independent evaluation or appraisal of any of the
assets or liabilities of Global Crossing or Frontier.
Salomon Smith Barney's opinions are necessarily based upon conditions as
they existed and could be evaluated on the respective dates of the opinions.
Salomon Smith Barney's opinions do not imply any conclusion as to the likely
trading range for Global Crossing common stock following the completion of the
merger, which may vary depending upon, among other factors, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors that generally influence the price of securities. Salomon
Smith Barney's opinions do not address Global Crossing's underlying business
decision to effect the merger. Salomon Smith Barney expressed no view on the
effect on Global Crossing of the merger and related transactions. Further,
Salomon Smith Barney's opinions are directed only to the fairness, from a
financial point of view, of the original exchange ratio and the revised
exchange ratio, respectively to Global Crossing and are not a recommendation
concerning how the holders of Global Crossing common stock should vote on the
proposed issuance of shares of Global Crossing common stock in the merger or
any related matter.
In an engagement letter dated December 5, 1998, Global Crossing agreed to
pay to Salomon Smith Barney: (a) a fee of $250,000, which was payable on the
date of execution of the engagement letter; (b) a fee of $4,000,000, which was
payable on the date of execution of an agreement in principle or definitive
agreement to merge Global Crossing and Frontier; and (c) an additional fee of
$20,000,000, which is payable at the closing if
55
<PAGE>
the merger is completed, minus the $4,250,000 previously received. Global
Crossing also agreed to reimburse Salomon Smith Barney for all reasonable fees
and disbursements of Salomon Smith Barney's counsel and all of Salomon Smith
Barney's reasonable travel and other out-of-pocket expenses incurred in
connection with the merger, or otherwise from Salomon Smith Barney's
engagement. Global Crossing further agreed to indemnify Salomon Smith Barney
and certain related persons against various liabilities, including liabilities
under the federal securities laws, relating to or arising out of its
engagement.
In the past, Salomon Smith Barney has rendered investment banking and
financial advisory services to Global Crossing and Frontier for which Salomon
Smith Barney received customary compensation. In addition, in the ordinary
course of its business, Salomon Smith Barney and its affiliates may actively
trade the securities of Global Crossing and Frontier for its own account and
the accounts of its customers and, accordingly, may at any time hold a long or
short position in their securities. Salomon Smith Barney and its affiliates
may have other business relationships with Global Crossing and Frontier and
their respective affiliates.
Opinion of Merrill Lynch
We have attached as Annex E to this document a copy of the Merrill Lynch
opinion dated March 16, 1999 with respect to the original exchange ratio,
which sets forth the assumptions made, matters considered and certain
limitations on the scope of review undertaken by Merrill Lynch. Each holder of
common stock is urged to read the Merrill Lynch opinion in its entirety. The
opinion was intended for the use and benefit of the Global Crossing board of
directors, was directed only to the fairness from a financial point of view to
Global Crossing of the original exchange ratio, did not address the merits of
the underlying decision by Global Crossing to engage in the merger and does
not constitute a recommendation to any shareholder as to how that shareholder
should vote on the proposed issuance of Global Crossing common stock or any
related matter. The exchange ratio was determined on the basis of negotiations
between Global Crossing and Frontier and was approved by the Global Crossing
board of directors. The summary of the Merrill Lynch opinion set forth in this
document is qualified in its entirety by reference to the full text of the
opinion attached as Annex E. The Merrill Lynch opinion dated March 16, 1999
did not address the revised exchange ratio that was subsequently agreed to
under the merger agreement. Merrill Lynch was not requested to deliver and did
not deliver an opinion with respect to the revised exchange ratio because it
represented U S WEST in the negotiations of the Global Crossing-U S WEST
merger.
In arriving at its opinion, Merrill Lynch, among other things:
1. reviewed certain publicly available business and financial information
relating to Frontier and Global Crossing that Merrill Lynch deemed to be
relevant;
2. reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
Frontier and Global Crossing, as well as the amount and timing of the cost
savings and related expenses, including potential tax expenses, and
synergies expected to result from the merger furnished to Merrill Lynch by
Frontier and Global Crossing, respectively;
3. conducted discussions with members of senior management and
representatives of Frontier and Global Crossing concerning the matters
described in clauses 1 and 2 above, as well as their respective businesses
and prospects before and after giving effect to the merger and the expected
synergies;
4. reviewed the market prices and valuation multiples for Frontier common
stock and Global Crossing common stock and compared them with those of
certain publicly traded companies that Merrill Lynch deemed to be relevant;
5. reviewed the results of operations of Frontier and Global Crossing and
compared them with those of certain publicly traded companies that Merrill
Lynch deemed to be relevant;
6. compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
56
<PAGE>
7. participated in certain discussions and negotiations among
representatives of Frontier and Global Crossing and their financial and
legal advisors;
8. reviewed the potential pro forma impact of the merger;
9. reviewed the merger agreement; and
10. reviewed such other financial studies and analyses and took into
account other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. Merrill Lynch did not assume any responsibility for independently
verifying such information or for undertaking an independent evaluation or
appraisal of any of the assets or liabilities of Frontier or Global Crossing
and was not furnished with any such evaluation or appraisal. In addition,
Merrill Lynch did not assume any obligation to conduct any physical inspection
of the properties or facilities of Frontier or Global Crossing. With respect
to the financial forecast information and the expected synergies furnished to
or discussed with Merrill Lynch by Frontier or Global Crossing, Merrill Lynch
assumed that they were reasonably prepared and reflected the best currently
available estimates and judgment of Frontier's or Global Crossing's management
as to the expected future financial performance of Frontier or Global
Crossing, as the case may be. Merrill Lynch further assumed that the merger
will qualify as a tax-free reorganization for U.S. federal income tax
purposes.
The Merrill Lynch opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of the Merrill
Lynch opinion. Merrill Lynch assumed that in the course of obtaining the
necessary regulatory or other consents or approvals, whether contractual or
otherwise, for the merger, no restrictions, including any divestiture
requirements or amendments or modifications, would be imposed that would have
a material adverse effect on the contemplated benefits of the merger.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by Global Crossing or Global Crossing's board of directors to
solicit, nor did Merrill Lynch solicit, third-party indications of interest
for the acquisition of all or any part of Global Crossing. In addition,
Merrill Lynch expressed no opinion as to the prices at which shares of Global
Crossing common stock would trade following the announcement or consummation
of the merger.
Pursuant to the terms of a letter agreement between Global Crossing and
Merrill Lynch dated March 9, 1999, Global Crossing has agreed to pay Merrill
Lynch the following fees:
1. a fee of $4,250,000 upon the execution of the merger agreement and
2. an additional fee of $20,000,000 payable upon consummation of the
merger, against which the $4.25 million fee referenced above will be
credited.
Global Crossing has also agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of legal counsel, and to indemnify Merrill Lynch and certain
related parties from and against certain liabilities, including liabilities
under the federal securities laws, arising out of its engagement.
Merrill Lynch has, in the past, provided financing services to Global
Crossing, including serving as co-lead underwriter in connection with Global
Crossing's initial public offering in August 1998, and provided financial
advisory and financing services to Frontier, and may continue to do so and has
received, and may receive, fees for the rendering of those services. In
addition, in the ordinary course of Merrill Lynch's business, Merrill Lynch
may actively trade Frontier shares and other securities of Frontier, as well
as Global Crossing shares and other securities of Global Crossing, for its own
account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in these securities. As of March 16, 1999,
certain affiliates of Merrill
57
<PAGE>
Lynch's Asset Management Group held in various funds approximately 4.3% of
Frontier's common stock. Merrill Lynch is also providing financial advisory
services to U S WEST in connection with the Global Crossing--U S WEST merger.
Financial Analyses
The following is a summary of the material portions of the financial and
comparative analyses performed by Salomon Smith Barney and Merrill Lynch which
were jointly presented to Global Crossing's board of directors in connection
with the opinions delivered to Global Crossing's board of directors on March
16, 1999 with respect to the original exchange ratio.
Historical Stock Price Performance. Global Crossing's financial advisors
reviewed the relationship between movements of the price of Frontier's common
stock and the following long distance companies' common stock for the three-
year period ending March 12, 1999:
1. AT&T Corp.;
2. MCI Worldcom, Inc.;
3. Qwest Communications International Inc.; and
4. Sprint Corporation.
Global Crossing's financial advisors also reviewed the relationship between
movements of the price of Frontier's common stock and the following local
telephone companies' common stock for the three-year period ending March 12,
1999:
1. Aliant Communications Inc.;
2. ALLTEL Corporation;
3. Century Telephone Enterprises, Inc.;
4. Cincinnati Bell Inc.;
5. Commonwealth Telephone Enterprises, Inc.; and
6. Telephone & Data Systems, Inc.
Global Crossing's financial advisors also reviewed the relationship between
movements of the price of Frontier's common stock and the S&P 500 for the
three-year period ending March 12, 1999. Global Crossing's financial advisors
noted that over this three-year period Frontier's common stock underperformed
all the above listed companies' common stock and the S&P 500, with the
underperformance becoming more dramatic in the last half of 1998.
Implied Exchange Ratios. Global Crossing's financial advisors calculated a
range of implied valuations for Frontier and Global Crossing by utilizing the
following three principal valuation analyses:
1. Comparable Public Company Analysis. A comparable public company
analysis reviews a business' operating performance and outlook relative to
a group of publicly traded peer companies to determine an implied
unaffected market trading value.
2. Comparable Transaction Analysis. A comparable transaction analysis
provides a valuation range based upon financial information of companies
which have been acquired in selected recent transactions and which are in
the same or similar industries as the business being valued.
3. Discounted Cash Flow Analysis. A discounted cash flow analysis
provides insight into the intrinsic value of a business based on the
projected earnings and capital requirements and the net present value of
the subsequent cash flows anticipated to be generated by the assets of the
business.
Based on these analyses, Global Crossing's financial advisors calculated the
following implied exchange ratios:
Comparable Public Company Valuation. The implied exchange ratio ranged from
0.7029x to 2.0116x based upon a comparison of estimated comparable public
company valuations and including estimated synergies
58
<PAGE>
(resulting primarily from the long distance and Internet/data services
business segments). This range of implied exchange ratios was calculated by
comparing the lowest estimated valuation of Frontier common stock to the
highest estimated valuation of Global Crossing common stock and the highest
estimated valuation of Frontier common stock to the lowest estimated valuation
of Global Crossing common stock.
Comparable Transaction/Discounted Cash Flow Valuation. The implied exchange
ratio ranged from 0.8448x to 1.6267x based upon a comparison of Frontier's
estimated comparable transaction valuation to Global Crossing's discounted
cash flow valuations. This range of implied exchange ratios was calculated by
comparing the lowest estimated valuation of Frontier common stock to the
highest estimated valuation of Global Crossing common stock and the highest
estimated valuation of Frontier common stock to the lowest estimated valuation
of Global Crossing common stock.
Discounted Cash Flow Valuation. The implied exchange ratio ranged from
0.9129x to 1.9427x based upon a comparison of a valuation of Frontier which
combined the discounted cash flow valuation of Frontier's local and integrated
services business, which is comprised of the long distance telephony business
and the Internet/data services business, with the public market valuation of
Frontier's cellular business and excess fiber network, to the discounted cash
flow valuation of Global Crossing, and including estimated synergies
(resulting primarily from the long distance and Internet/data services
business segments). This range of implied exchange ratios was calculated by
comparing the lowest estimated valuation of Frontier common stock to the
highest estimated valuation of Global Crossing common stock and the highest
estimated valuation of Frontier common stock to the lowest estimated valuation
of Global Crossing common stock.
In each case, the ranges of implied exchange ratios were compared to the
original exchange ratio in the merger.
Frontier Valuation
Global Crossing's financial advisors calculated estimated aggregate equity
and per share equity valuation ranges for Frontier by separately analyzing and
calculating the values of Frontier's main business segments, including the
following:
1. Long distance telephony;
2. Local telephony;
3. Cellular telephony;
4. Internet/data services; and
5. Excess fiber network capacity.
Based upon these analyses, which included a comparable public companies
analysis, a comparable transaction analysis and a discounted cash flow
analysis, including estimated synergies (resulting primarily from the long
distance and Internet/data services business segments), and after subtracting
estimated corporate overhead costs, Global Crossing's financial advisors
calculated estimated aggregate equity valuations for Frontier which
corresponded to estimated per share equity valuations for Frontier ranging
from $40.00 to $75.76.
Frontier Long Distance Telephony Segment
Using the analyses described below, Global Crossing's financial advisors
calculated an estimated enterprise valuation for Frontier's long distance
telephony business segment.
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare financial and operating
information and multiples of firm value to 1999 estimated earnings before
interest, taxes, depreciation and amortization, which is referred to as
EBITDA, for Frontier's long distance telephony business segment with the
corresponding financial and operating information and multiples for a group of
publicly traded companies that Global Crossing's financial advisors deemed to
be comparable to Frontier's long distance telephony business segment. Global
Crossing's financial advisors
59
<PAGE>
determined the relevant range of these comparable public company multiples was
9.0x to 11.0x. The companies reviewed in this analysis included the following:
1. AT&T Corp.;
2. IXC Communications, Inc.;
3. Level 3 Communications, Inc.;
4. MCI Worldcom, Inc.;
5. Qwest Communications International Inc.;
6. Sprint Corporation; and
7. Tel-Save.com, Inc.
Comparable Transaction Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare the merger with business
combinations in the long distance telephony industry that they deemed
relevant. Global Crossing's financial advisors compared the transaction value,
which was calculated as the offer value plus total debt plus the value of the
acquiror's minority interest less cash and marketable securities, of each of
these transactions to the forward EBITDA of the acquired company. Global
Crossing's financial advisors determined the relevant range of these
comparable transaction multiples was 11.0x to 13.0x. The transactions reviewed
in this analysis included the following:
1. EXCEL Communications, Inc./Telco Communications Group, Inc.;
2. Worldcom, Inc./MCI Communications Corporation;
3. Teleport Communications Group Inc./ACC Corp.;
4. Qwest Communications International Inc./LCI International, Inc.; and
5. Teleglobe Inc./EXCEL Communications, Inc.
Discounted Cash Flow Analysis. Global Crossing's financial advisors
performed a discounted cash flow analysis for Frontier's combined integrated
services business segment, which includes the long distance telephony and
Internet/data services segments, using Frontier management's projections. The
discounted cash flow was calculated assuming discount rates ranging from 11.0%
to 12.0% and was comprised of the sum of the present values of:
1. the projected unlevered free cash flows for the years 1999 through 2003;
and
2. the 2003 terminal value based upon a range of multiples from 11.0x to
12.0x estimated 2003 EBITDA.
Frontier's Local Telephony Business Segment
Using the analyses described below, Global Crossing's financial advisors
calculated an estimated enterprise valuation for Frontier's local telephony
business segment.
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare financial and operating
information and multiples of firm value to 1999 estimated EBITDA for
Frontier's local telephony business segment with the corresponding financial
and operating information and multiples for the local telephony business
segments of a group of publicly traded companies that Global Crossing's
financial advisors deemed to be comparable to Frontier's local telephony
business segment. Global Crossing's financial advisors determined the relevant
range of these public company multiples was 9.0x to 10.0x. The companies
reviewed in this analysis included the following:
1. Aliant Communications Inc.;
2. ALLTEL Corporation;
3. Ameritech Corporation;
4. Bell Atlantic Corporation;
5. BellSouth Corporation;
6. Century Telephone Enterprises, Inc.;
60
<PAGE>
7. Cincinnati Bell Inc.;
8. Commonwealth Telephone Enterprises, Inc.;
9. GTE Corporation;
10. SBC Communications Inc.;
11. Telephone & Data Systems, Inc.; and
12. U S WEST, Inc.
Comparable Transaction Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare the merger with business
combinations in the local telephony industry that they deemed relevant. Global
Crossing's financial advisors compared the transaction value of each of these
transactions to the forward EBITDA of the acquired company. Global Crossing's
financial advisors determined the relevant range of these comparable
transaction multiples was 9.0x to 10.0x. These transactions included the
following:
1. ALLTEL Corporation/Aliant Communications Inc.;
2. ALLTEL Corporation/GTE Corporation;
3. Ameritech Corporation/Sprint Corporation;
4. Bell Atlantic Corporation/GTE Corporation;
5. Bell Atlantic Corporation/NYNEX Corporation;
6. Century Telephone Enterprises, Inc./Ameritech Corporation (Wisconsin
access lines);
7. Century Telephone Enterprises, Inc./Centel Corporation (Central
Telephone Company of Ohio);
8. Century Telephone Enterprises, Inc./Pacific Telecom Inc.;
9. Citizens Utilities Company/ALLTEL Corporation;
10. Citizens Utilities Company/GTE Corporation;
11. Conestoga Enterprises, Inc./Buffalo Valley Telephone Company;
12. Gallatin River Communications, LLC/Sprint Corporation (Illinois access
lines);
13. GTE Corporation/Centel Corporation;
14. PacifiCorp/Pacific Telecom Inc.;
15. Rochester Telephone Corporation/Centel Corporation (Iowa and Minnesota
access lines);
16. SBC Communications Inc./Ameritech Corporation;
17. SBC Communications Inc./Pacific Telesis Group;
18. SBC Communications Inc./The Southern New England Telephone Company;
19. The Southern New England Telephone Company/The Woodbury Telephone
Company; and
20. Sprint Corporation/Centel Corporation.
Discounted Cash Flow Analysis. Global Crossing's financial advisors
performed a discounted cash flow analysis for Frontier's local telephony
business segment using Frontier management's projections. The discounted cash
flow was calculated assuming discount rates ranging from 9.0% to 10.0% and was
comprised of the sum of the present values of:
1. the projected unlevered free cash flows for the years 1999 though
2003; and
2. the 2003 terminal value based upon a range of multiples from 9.0x to
10.0x estimated 2003 EBITDA.
61
<PAGE>
Frontier's Cellular Business Segment
Global Crossing's financial advisors calculated an estimated enterprise
valuation for Frontier's cellular telephony business segment of approximately
$175 per person in each of Frontier's cellular service areas based on
information supplied by Frontier's management.
Frontier's Internet/Data Business Segment
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare certain financial and
operating information and multiples of firm value to 1999 estimated revenue
for Frontier's Internet/data services business segment with the corresponding
financial and operating information and multiples for a group of publicly
traded companies that Global Crossing's financial advisors deemed to be
comparable to Frontier's Internet/data services business segment. Global
Crossing's financial advisors determined the relevant range of these
comparable public company multiples was 9.0x to 13.0x. The companies reviewed
in this analysis included the following internet service providers:
1. Concentric Network Corporation;
2. Earthlink Network, Incorporated;
3. Globix Corporation;
4. Mindspring Enterprises, Inc.;
5. Network Solutions, Inc.;
6. PSINet, Inc.;
7. Rocky Mountain Internet, Inc.; and
8. Verio Inc.
The companies reviewed in this analysis also included the following data
service providers:
1. Equant, N.V.;
2. Exodus Communications, Inc.;
3. AboveNet Communications, Inc.; and
4. Covad Communications Group, Inc.
Frontier's Excess Fiber Network
Global Crossing's financial advisors calculated an estimated valuation for
Frontier's excess fiber network business segment by comparing this business
segment with companies that Global Crossing's financial advisors deemed
relevant. The companies reviewed in this analysis included the following:
1. IXC Communications, Inc.;
2. Level 3 Communications, Inc.; and
3. Qwest Communications International Inc.
Using this analysis, Global Crossing's financial advisors calculated an
estimated valuation of Frontier's excess fiber network ranging from $5,000 to
$10,000 per excess strand mile.
Global Crossing Valuation
Global Crossing's financial advisors calculated estimated aggregate equity
and per share equity valuation ranges for Global Crossing by utilizing a
comparable public company analysis and a discounted cash flow analysis. Based
upon these analyses, Global Crossing's financial advisors calculated estimated
aggregate fully diluted equity valuations for Global Crossing which
corresponded to estimated per share equity valuations for Global Crossing
ranging from $35.00 to $60.00.
62
<PAGE>
Comparable Public Companies Analysis. Global Crossing's financial advisors
reviewed publicly available information to compare financial and operating
information and multiples of 1999-2001 estimated EBITDA to the compound annual
growth rate in estimated EBITDA over the respective periods from 1999 through
2001 and 1999 through 2003 for Global Crossing with the corresponding
financial and operating information and multiples for a group of publicly
traded companies that Global Crossing's financial advisors deemed to be
comparable to Global Crossing. Global Crossing's financial advisors determined
the relevant range of these comparable public company multiples was .45x to
.90x. The companies reviewed in this analysis included the following:
1. AT&T Corp.;
2. Equant, N.V.;
3. Frontier Corporation;
4. IXC Communications, Inc.;
5. MCI Worldcom, Inc.;
6. Metromedia Fiber Network, Inc.;
7. Qwest Communications International Inc.; and
8. Sprint Corporation.
Using this range of multiples, Global Crossing's financial advisors
calculated an implied per share equity valuation for Global Crossing ranging
from $35.00 to $60.00.
Discounted Cash Flow Analysis. Global Crossing's financial advisors
performed a discounted cash flow analysis for Global Crossing using Global
Crossing management's projections. The discounted cash flow was calculated
assuming weighted average cost of capital rates ranging from 11.0% to 13.0%
and was comprised of the sum of the present values of the following:
1. the projected unlevered free cash flows for the years 1999 through 2008;
and
2. the 2008 terminal value based upon a range of multiples from 7.0x to
9.0x estimated 2008 EBITDA.
Using this analysis, Global Crossing's financial advisors calculated an
implied per share equity valuation for Global Crossing ranging from $39.00 to
$55.00.
Pro Forma Combination Analysis
Pro Forma Stock Ownership Analysis. Global Crossing's financial advisors
reviewed the original exchange ratio and the number of shares of Global
Crossing's common stock to be issued to holders of Frontier common stock based
upon the original base exchange ratio of 1.2557x. This analysis indicated that
current shareholders of Frontier would own approximately 33% of Global
Crossing's common stock after the merger.
The summary set forth above does not purport to be a complete description of
the analyses performed by Global Crossing's financial advisors in arriving at
their respective opinions. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial or summary description.
Global Crossing's financial advisors believe that their analyses must be
considered as a whole and that selecting portions of their analyses and the
factors considered by them, without considering all their factors and
analyses, could create a misleading view of the process underlying the
analyses set forth in their respective opinions. Global Crossing's financial
advisors did not assign relative weights to any of their analyses in preparing
their respective opinions. The matters considered by Global Crossing's
financial advisors in their analyses were based on numerous macroeconomic,
operating and financial assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Global Crossing's and Global Crossing's financial advisors' control and
involve the application of complex methodologies and educated judgment. Any
estimates contained in Global Crossing's financial advisors' analyses are not
necessarily indicative of actual past or future results or values, which may
be significantly more or less favorable than the estimates. Estimated values
63
<PAGE>
do not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future, and the estimates are
inherently subject to uncertainty.
No company utilized as a comparison in the analyses described above is
identical to Frontier or Global Crossing. Also, no transaction utilized in the
analyses described above is identical to the merger of Frontier and Global
Crossing. In addition, various analyses performed by Global Crossing's
financial advisors incorporate projections prepared by research analysts using
only publicly available information. These estimates may or may not prove to
be accurate. An analysis of comparable transactions and publicly traded
comparable companies is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could
affect the public trading value of the comparable companies or company to
which they are being compared.
The Global Crossing board of directors selected Salomon Smith Barney and
Merrill Lynch to act as its financial advisors because of their reputations as
internationally recognized investment banking firms with substantial
experience in transactions similar to the merger and because they are familiar
with Global Crossing and its business. The Global Crossing board of directors
did not impose any limitations on the investigation made or the procedures
followed by Salomon Smith Barney and Merrill Lynch in rendering their
opinions. As part of their respective investment banking businesses, Salomon
Smith Barney and Merrill Lynch are continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes.
Recommendation of the Frontier board of directors; Reasons for the merger
The board of directors of Frontier believes that the merger offers the
Frontier shareholders an opportunity to receive significant value for their
shares of Frontier common stock and to participate in a combined organization
that will be a larger, more diversified company in the Internet and
telecommunications industry and that will be well-positioned to compete
effectively in that industry. The Frontier board of directors has carefully
considered the terms of the proposed merger and has determined that the merger
and the merger agreement are fair to, and in the best interests of, Frontier
and the Frontier shareholders, has adopted the merger agreement and approved
the merger and the other transactions contemplated by the merger agreement and
recommends that the Frontier shareholders vote FOR the adoption of the merger
agreement.
In reaching its decision, the Frontier board of directors consulted with its
financial and legal advisors and with senior management and considered a
number of factors, including, without limitation, the following material
factors:
1. the information and presentations by management of Frontier and its
financial advisor concerning Frontier's and Global Crossing's respective
businesses, assets, management, competitive position and prospects,
2. the financial condition, cash flows and results of operations of
Frontier and Global Crossing, both on a historical and prospective
basis,
3. the original exchange ratio negotiated with Global Crossing, including
the related collar provision which gives Frontier shareholders the
opportunity to participate in the increased value of the Global Crossing
common stock if the value of the stock increases above $56.7813 and
which gave Frontier the ability to terminate the merger agreement if the
value of the Global Crossing common stock to be received by Frontier
shareholders is less than $62.00 during the measurement period, based on
the average trading price,
4. the opportunity for Frontier shareholders to receive Global Crossing
common stock, based on the original $62.00 deal value, valued at a
significant premium to the recent market price of the Frontier common
stock (39% over the closing price on March 16, 1999, the last trading
day before public announcement of the merger agreement, 67% over the
closing price on March 9, 1999, one week before public announcement of
the merger agreement and 80% over the closing price on February 16,
1999, one month before public announcement of the merger agreement),
64
<PAGE>
5. the opportunity for the Frontier shareholders to participate, as holders
of Global Crossing common stock, in a larger, more diversified,
competitive company in the Internet and telecommunications industry,
including participation in the value that may be generated through the
combination of the two companies,
6. the fact that the overlap of the markets, capital investment and
personnel of Frontier and Global Crossing would allow the combined
company to focus on new technology and growth in markets,
7. the opportunity for the facilities of Global Crossing and Frontier to be
seamlessly integrated,
8. the strategic and financial alternatives available to Frontier in the
rapidly changing industry environment, including remaining an
independent company,
9. the written opinion of Morgan Stanley & Co. Incorporated that, subject
to the assumptions and limitations set forth in the opinion, the
original exchange ratio was fair from a financial point of view to the
holders of Frontier common stock, other than Global Crossing and its
affiliates, and the financial presentation made by Morgan Stanley & Co.
Incorporated to the Frontier board of directors in connection with the
delivery of its opinion,
10. the absence of any other firm proposal to engage in a business
combination involving Frontier at the time of the board meeting despite
various contacts between third parties and Morgan Stanley and members
of senior management of Frontier,
11. the ability of Frontier, subject to specified conditions, (a) to
provide information to, and negotiate with, a third party which has
made an unsolicited acquisition proposal and (b) to terminate the
merger agreement if the Frontier board of directors approves a superior
proposal, subject to the payment of a termination fee in an amount
which the Frontier board of directors and its financial advisor
believed would not meaningfully impair the possibility of a competing
transaction,
12. the other terms and conditions of the original merger agreement,
including (a) the limited number of closing conditions which provides
increased certainty that the merger will be completed and (b) the fact
that Global Crossing must close the merger without regard to its stock
price, while, as noted in 3. above, Frontier may, but is not required
to, terminate the merger if the average price of the Global Crossing
common stock during a period shortly before closing is below $34.5625
unless Global Crossing elects to increase the consideration to Frontier
shareholders so that they will receive total consideration valued at
$62.00 per share (following the amendment to the merger agreement,
$63.00 per share), based on that average price,
13. the fact that the merger is intended to be a tax-free exchange to
Frontier shareholders,
14. the fact that Frontier will be able to designate four directors to the
Global Crossing board of directors at the time of the merger and that
Joseph Clayton will be a Vice Chairman of Global Crossing and Rolla
Huff will be President and Chief Operating Officer of North American
Operations of Global Crossing following the merger,
15. the terms and conditions of the stock option agreement,
16. the existence and terms of the agreement of holders of at least 51% of
Global Crossing common stock to vote in favor of the Global Crossing
merger proposals,
17. historical market prices and trading information with respect to the
Frontier common stock and the Global Crossing common stock, and
18. current industry, economic and market conditions.
The discussion of the information and factors considered by the Frontier
board of directors is not intended to be exhaustive. In view of the variety of
material factors considered in connection with its evaluation of the merger,
the Frontier board of directors did not find it practicable to, and did not
quantify or otherwise assign relative weights to, the specific factors
considered in reaching its determination. In addition, individual members of
the Frontier board of directors may have given different weights to different
factors. For a discussion of the
65
<PAGE>
interests of some members of Frontier's management and the Frontier board of
directors, see "The Merger--Interests of members of Frontier's board of
directors and management in the merger."
Opinion of Frontier's financial advisor
Under a letter agreement dated January 6, 1999, Frontier retained Morgan
Stanley to provide financial advisory services to Frontier. On March 16, 1999,
Morgan Stanley delivered its opinion to the Frontier board of directors that,
as of such date and based upon and subject to the various considerations in
the opinion, the original exchange ratio pursuant to the merger agreement was
fair from a financial point of view to holders of shares of Frontier common
stock, other than Global Crossing and its affiliates. On May 16, 1999, in
connection with the approval of the consent and amendment to the merger
agreement, Morgan Stanley delivered its opinion to the Frontier board of
directors that, as of such date and based upon and subject to the various
considerations in the opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to holders of shares of
Frontier common stock, other than Global Crossing and its affiliates. The
opinion delivered on March 16, 1999 was substantially the same as the May 16,
1999 opinion.
We have attached as Annex F to this document the full text of the opinion
dated May 16, 1999, which describes assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by
Morgan Stanley in rendering its opinion. Morgan Stanley's written opinion is
directed to the Frontier board of directors and only addresses the fairness of
the exchange ratio pursuant to the merger agreement from a financial point of
view to holders of shares of Frontier common stock, other than Global Crossing
and its affiliates, as of the date of the opinion. Morgan Stanley's written
opinion does not address any other aspect of the merger and does not
constitute a recommendation to any Frontier shareholder as to how to vote at
the Frontier special meeting. The following is only a summary of the Morgan
Stanley opinion and should not be viewed as a substitute for the Morgan
Stanley opinion. Frontier shareholders are urged to read the entire opinion.
In arriving at its opinions, Morgan Stanley, among other things:
. reviewed certain publicly available financial statements and other
information of Frontier, Global Crossing and U S WEST,
. reviewed certain internal financial statements and other financial and
operating data concerning Frontier, Global Crossing and U S WEST
prepared by the managements of Frontier, Global Crossing and U S WEST,
respectively,
. analyzed certain financial projections for Frontier, Global Crossing and
U S WEST prepared by the managements of Frontier, Global Crossing and U
S WEST, respectively,
. reviewed certain reports prepared by consultants retained by Global
Crossing with respect to demand forecasts for certain markets in which
Global Crossing currently intends to operate and held discussions
regarding such forecasts with one of these consultants,
. analyzed certain financial projections for Frontier contained in certain
securities analysts' research reports that were recommended for review
by the management of Frontier,
. discussed the past and current operations and financial condition and
the prospects of Frontier, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger, or, if applicable the alternative merger, with the senior
executives of Frontier,
. discussed the past and current operations and financial condition and
the prospects of Global Crossing, including information relating to
certain strategic, financial and operational benefits anticipated from
the merger, or, if applicable the alternative merger, and the U S WEST
merger with the senior executives of Global Crossing,
. discussed the past and current operations and financial condition and
the prospects of U S WEST, including information relating to certain
strategic, financial and operational benefits anticipated from the
merger or, if applicable, the alternative merger, and the U S WEST
merger with certain senior executives of U S WEST,
66
<PAGE>
. reviewed the pro forma impact of the merger or, if applicable the
alternative merger, on Global Crossing's cash flow, consolidated
capitalization and financial ratios,
. reviewed the reported prices and trading activity for the Frontier
common stock, the Global Crossing common stock and the U S WEST common
stock,
. compared the financial performance of Frontier and Global Crossing and
the prices and trading activity of the Frontier common stock and the
Global Crossing common stock with those of certain other comparable
publicly-traded companies and their securities,
. compared the prices and trading activity of U S WEST common stock with
those of certain other comparable publicly-traded companies and their
securities,
. reviewed the financial terms, to the extent publicly available, of
certain transactions comparable to the merger,
. participated in discussions and negotiations among representatives of
Frontier and Global Crossing and their financial and legal advisors in
connection with the merger,
. discussed certain tax issues with senior executives of Frontier and
Global Crossing and with Frontier's legal and tax advisors,
. reviewed the merger agreement, the U S WEST merger agreement and certain
related documents, and
. performed such other analyses and considered such other factors as
deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for purposes
of its opinions. With respect to the financial and other operating data and
discussions relating to the strategic, financial and operational benefits
anticipated from the respective transactions, Morgan Stanley assumed that such
financial and operating data were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future operating and
financial performance of Frontier, Global Crossing and U S WEST. Morgan
Stanley relied upon the financial projections for Frontier included in the
securities analysts' research reports reviewed by Morgan Stanley based on its
own independent evaluation of these reports and indications by management of
Frontier that the analyses contained in these reports were reasonably
comprehensive and detailed and were based on assumptions about the trends
influencing Frontier's financial results that were generally consistent with
the assumptions of Frontier's management. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of Frontier,
nor was Morgan Stanley furnished with any appraisals.
Morgan Stanley further assumed with Frontier's consent that, except as
provided below, the transactions contemplated by the merger agreement,
including the merger or, if applicable, the alternative merger, will be
consummated on the terms set forth in the merger agreement, including, among
other things, that the merger or, if applicable, the alternative merger will
be treated as a tax-free reorganization or, if applicable, exchange pursuant
to the Internal Revenue Code. In addition, with the consent of Frontier,
Morgan Stanley relied upon the advice of legal and tax advisors of Frontier as
to certain tax matters relating to the alternative merger. Morgan Stanley's
opinion does not address the impact, if any, of a determination by Frontier
not to exercise its termination rights pursuant to Section 7.1(g) of the
merger agreement, which relates to termination by Frontier if the average
Global Crossing trading price is below $34.5625. In addition, Morgan Stanley
assumed that in connection with the receipt of all necessary regulatory
approvals for the merger or, if applicable, the alternative merger, no
restrictions will be imposed that would have a material adverse effect on
Frontier, Global Crossing or the contemplated benefits expected to be derived
in the merger or, if applicable, the alternative merger. Morgan Stanley's
opinions were necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of, the dates of the
opinions.
The following is a summary of the material financial analyses performed by
Morgan Stanley in preparing its opinions to the Frontier board of directors on
March 16, 1999 and May 16, 1999. Certain of these summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables
67
<PAGE>
alone do not represent a complete description of the financial analyses.
Morgan Stanley used financial estimates for Frontier that were based on
estimates published by securities research analysts in the investment
community in performing some of its analyses. Morgan Stanley used financial
estimates for Global Crossing and U S WEST that were provided by Global
Crossing and U S WEST management, respectively.
Historical Public Market Trading Value. Morgan Stanley reviewed the recent
stock price performance of Frontier based on an analysis of the historical
closing prices and trading volumes during the period from March 12, 1998
through March 12, 1999. The following table summarizes the price performance
of Frontier's common stock over that period:
<TABLE>
<CAPTION>
Historical Frontier
Common Stock Prices
-------------------
<S> <C>
March 12, 1999........................................... $ 40.63
High Price............................................... $ 40.63
Low Price................................................ $ 24.00
Average Price............................................ $ 33.00
Average Daily Trading Volume (8/14/98-3/15/99)........... 646,000
</TABLE>
Morgan Stanley also reviewed the recent stock price performance of Global
Crossing based on an analysis of the historical closing prices and trading
volumes during the period from the Global Crossing initial public offering on
August 14, 1998, through March 15, 1999 and through May 14, 1999. The
following table summarizes the price performance of Global Crossing's common
stock over that period:
<TABLE>
<CAPTION>
Historical Global Crossing
Common Stock Prices
--------------------------
<S> <C>
May 14, 1999..................................... $ 62.29
March 15, 1999................................... $ 56.56
High Price....................................... $ 64.25
Low Price........................................ $ 8.00
Average Daily Trading Volume (8/14/98-3/15/99)... 1,338,000
</TABLE>
Comparative Stock Price Performance. As part of its analysis, Morgan Stanley
reviewed the recent stock price performance of Frontier and compared this
performance with that of groups of the following five competitive
telecommunications infrastructure companies, three long distance companies,
five local exchange companies and Qwest Communications International Inc. on a
stand-alone basis.
<TABLE>
<CAPTION>
Competitive
Infrastructure
Companies Long Distance Companies Local Exchange Companies
-------------- ----------------------- ----------------------------------------
<S> <C> <C>
Global Crossing AT&T Corp. Aliant Communications Inc.
Ltd.
GTS MCI WorldCom, Inc. ALLTEL Corporation
IXC Communica- Sprint Corporation Century Telephone Enterprises, Inc.
tions, Inc.
Level 3 Commu- Cincinnati Bell Inc.
nications,
Inc.
Qwest Commonwealth Telephone Enterprises, Inc.
Communications
International
Inc.
</TABLE>
Morgan Stanley observed that over the period from March 12, 1998, to March
12, 1999, the closing market prices appreciated as set forth below:
<TABLE>
<CAPTION>
% Appreciation
--------------
<S> <C>
Frontier.................................................... 37.4%
Five Competitive Infrastructure Companies (equal-weighted
index)..................................................... 124.9%
Three Long Distance Companies (equal-weighted index)........ 57.2%
Five Local Exchange Companies (equal-weighted index)........ 34.1%
Qwest....................................................... 78.8%
</TABLE>
68
<PAGE>
Morgan Stanley also reviewed the recent stock price performance of Global
Crossing and compared this performance with that of a group of comparable
companies. Morgan Stanley observed that over the period from Global Crossing's
initial public offering on August 14, 1998, to March 12, 1999, the closing
market prices appreciated as set forth below:
<TABLE>
<CAPTION>
Global Crossing and Comparative Companies % Appreciation
----------------------------------------- --------------
<S> <C>
Global Crossing............................................... 287.3%
Allegiance.................................................... 147.7%
Qwest......................................................... 82.9%
MCI WorldCom.................................................. 71.2%
Level 3....................................................... 63.8%
Equant........................................................ 50.4%
Colt.......................................................... 43.7%
</TABLE>
Morgan Stanley also observed that over the period from August 14, 1998 to
May 14, 1999, the closing price of Global Crossing common stock appreciated
381.4%, as compared to 80.9% for an index of peer companies (composed of MCI
WorldCom, Quest, Level 3 and IXC) and 25.9% for the S&P 500 index.
Securities Research Analysts' Future Price Targets. Morgan Stanley reviewed
and analyzed future public market trading price targets for Frontier common
stock prepared and published by a number of securities research analysts
during the periods from July 24, 1998 to January 25, 1999, before the
announcement by Frontier of its intention to reduce its dividend on January
26, 1999, and from January 26, 1999 to March 12, 1999, after the dividend
announcement. Morgan Stanley also reviewed and analyzed future public market
trading price targets for Global Crossing common stock both at the time after
Global Crossing's August 14, 1998 initial public offering and during the
period from December 1, 1998 to March 12, 1999 and from March 18, 1999 to May
14, 1999. These targets reflected each analyst's estimate of the future public
market trading price of Frontier and Global Crossing common stock at the end
of the particular time period considered for each time estimate. Morgan
Stanley discounted, at a cost of equity rate of 11.1%, each Frontier research
analyst's public market price target to March 16, 1999. Morgan Stanley also
reviewed and analyzed the future private market value targets for Frontier
common stock prepared and published by certain securities research analysts in
the period from July 31, 1998 to March 12, 1999, reflecting each analyst's
estimate of the future private market value of Frontier common stock at the
end of the time period considered in such estimate.
<TABLE>
<CAPTION>
Value Range
------------
Low High
----- ------
<S> <C> <C>
Present Value of Frontier Public Market Price Target (1/26/99-
3/12/99)...................................................... $ 37 $ 41
Present Value of Frontier Public Market Price Target (7/24/98-
1/25/99)...................................................... 25 51
Frontier Private Market Value Target........................... 40 59
Present Value of Global Crossing Public Market Price Target
(3/18/99-5/14/99)............................................. 57 81
Global Crossing Public Market Price Target (12/1/98-3/12/99)... 35 35
Global Crossing Public Market Price Target at IPO.............. 14 15
</TABLE>
Morgan Stanley noted that certain securities analysts had their public
market price target for Global Crossing common stock under review as of March
12, 1999.
Morgan Stanley also noted that the public market trading price and private
market value targets published by the securities research analysts do not
reflect current market trading prices and private market value targets for
Frontier or Global Crossing common stock and that these estimate are subject
to uncertainties, including the future financial performance of Frontier and
Global Crossing and future financial market conditions.
Peer Group Comparison. Morgan Stanley reviewed and analyzed the financial
information of four local exchange companies, an index of four Regional Bell
Operating Companies, and three competitive long distance and
telecommunications infrastructure companies to arrive at a sum-of-the parts
value for Frontier based on the implied theoretical public market trading
values for Frontier's integrated services and local exchange business
segments.
69
<PAGE>
Morgan Stanley derived a theoretical value for Frontier's local exchange
business segment based on the financial information for the four local
exchange companies and for an average of the four Regional Bell Operating
Companies, which are Bell Atlantic, BellSouth, SBC, and U S WEST. Morgan
Stanley analyzed, among other things, the current aggregate value, which means
equity value adjusted for capital structure, of each company expressed as a
multiple of earnings before interest, taxes, and depreciation and amortization
expense, which we refer to as "EBITDA," and the current public market price of
each company expressed as a multiple of its earnings per share, which we refer
to as "EPS." As of March 12, 1999 and based on estimates of EBITDA and EPS
taken from selected securities research analysts, the statistics derived from
this analysis are set forth below.
<TABLE>
<CAPTION>
Regional Bell
Operating
Cincinnati Company
ALLTEL Bell Commonwealth Century Average
------ ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
1999 EBITDA Multiple....... 8.9x 9.8x 10.9x 10.7x 8.0x
Price/1999E EPS............ 22.9x 25.3x NM 28.2x 20.6x
</TABLE>
NM = not meaningful
Morgan Stanley derived a theoretical value for Frontier's Integrated
Services Business Segment based on the financial information for the three
competitive long distance and infrastructure telecommunications companies.
Morgan Stanley analyzed, among other things, the current aggregate value,
which means equity value adjusted for capital structure, of each company
expressed as a multiple of revenues and as a multiple of EBITDA, and the ratio
of the multiple of current aggregate value to estimated EBITDA in the calendar
year 1999 to the estimated, long-term EBITDA growth rate. As of March 12, 1999
and based on estimates of revenue, EBITDA and long-term EBITDA growth rates
taken from selected securities research analysts, the statistics derived from
this analysis are set forth below.
<TABLE>
<CAPTION>
MCI
IXC WorldCom Qwest
----- -------- -----
<S> <C> <C> <C>
1999 Revenue Multiple.................................. 2.0x 4.7x 7.5x
1999 EBITDA Multiple................................... 12.4x 14.6x 34.7x
EBITDA Multiple Growth................................. 0.42x 0.89x 1.21x
</TABLE>
Based on peer group comparisons and the corresponding implied value of
Frontier's local exchange company and Integrated Services business segments,
Morgan Stanley derived a theoretical sum-of-the-parts value range for Frontier
of $42 to $46 per share.
Morgan Stanley also reviewed and analyzed the financial information of seven
competitive long distance and telecommunications infrastructure companies and
compared the results to financial information relating to Global Crossing.
Morgan Stanley analyzed, among other things, the current aggregate value of
each company expressed as a multiple of revenues and as a multiple of EBITDA,
and the ratio of the multiple of current aggregate value to estimated EBITDA
in the calendar year 1999 to the estimated, long-term EBITDA growth rate. As
of March 12, 1999 and based on estimates of revenue, EBITDA and long-term
EBITDA growth rates taken from selected securities research analysts, the
statistics derived from this analysis are set forth below.
<TABLE>
<CAPTION>
Global Global
Crossing/ Crossing/
MCI Global Frontier Frontier
Colt Equant GTS IXC Level 3 WorldCom Qwest Crossing (with LEC) (without LEC)
------ ------ ----- ----- ------- -------- ----- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 Revenue Multiple... 16.8x 14.6x 6.3x 2.0x 41.6x 4.7x 7.5x 28.2x 9.5x 10.6x
2000 Revenue Multiple... 10.5x 11.0x 3.7x 1.8x 24.0x 4.1x 6.1x 17.8x 7.6x 8.1x
1999 EBITDA Multiple.... NM 66.3x NM 12.4x NM 14.6x 34.7x 62.6x 33.2x 45.9x
2000 EBITDA Multiple.... 116.8x 39.5x 46.6x 8.5x NM 11.3x 22.1x 29.9x 21.5x 25.3x
1999 EBITDA Multiple
Growth................. NM 1.76x NM 0.42x NM 0.89x 1.21x 1.18x 0.92x 0.98x
2000 EBITDA Multiple
Growth................. NM 1.05x NM 0.29x NM 0.69x 0.77x 0.57x 0.60x 0.54
</TABLE>
NM = not meaningful
70
<PAGE>
No company used in the peer group comparisons is identical to Frontier or
Global Crossing. In evaluating the peer group companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Frontier and Global Crossing such as the
impact of competition on Frontier or Global Crossing and the industry
generally, industry growth and the absence of any material adverse change in
the financial condition and prospects of Frontier or the industry or in the
financial markets in general.
Analysis of Selected Precedent Transactions. As part of its analysis, Morgan
Stanley reviewed the following eight transactions involving emerging growth
long distance and telecommunications infrastructure companies since June 1992:
. June 1992--LDDS Communications, Inc./Advanced Telecommunications, Inc.
. April 1995--Frontier Corporation/ALC Communications Corporation
. June 1997--Excel Communications, Inc./Telco Communications Group, Inc.
. September 1997--LCI International, Inc./USLD Communications Corp.
. November 1997--WorldCom, Inc./MCI Communications Corporation
. November 1997--Teleport Communications Group Inc./ACC Corp.
. March 1998--Qwest Communications International Inc./LCI International,
Inc.
. June 1998--Call-Net Enterprises Inc./Fonorola Inc.
For each of these, Morgan Stanley reviewed the prices paid and calculated
the multiples of one year trailing revenue and EBITDA as well as the premium
to unaffected share price. The table below shows the statistics from this
analysis.
<TABLE>
<CAPTION>
Median High Low
------ ----- -----
<S> <C> <C> <C>
Revenue Multiple....................................... 2.7x 4.0x 1.7x
EBITDA Multiple........................................ 17.3x 35.7x 10.1x
Premium to Unaffected Share Price...................... 52.9% 94.3% 35.2%
</TABLE>
The precedent transactions analysis implied a range of values for Frontier
common stock of $46 to $54 per share.
No transaction used in the analysis of selected precedent transactions is
identical to the merger. In evaluating these transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Frontier and Global Crossing, such as the
impact of competition on Frontier or Global Crossing and the industry
generally, industry growth and the absence of any material adverse change in
the financial condition and prospects of Frontier or Global Crossing or the
industry or in the financial markets in general.
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash flow
analyses, which are analyses of the present value of projected cash flows
using discount rates and terminal year EBITDA multiples, as specified, of
Frontier's businesses. Morgan Stanley analyzed Frontier's business using a
forecast for the period beginning January 1, 1999, and ending December 31,
2007, based on estimates published by securities research analysts. Morgan
Stanley estimated Frontier's discounted cash flow value using discount rates
ranging from 10% to 11% and terminal multiples of estimated 2008 EBITDA
ranging from 9x to 10x. The discounted cash flow analysis implied a range of
values for Frontier common stock of $48 to $59 per share.
Morgan Stanley also performed discounted cash flow analyses of Global
Crossing's businesses. Morgan Stanley analyzed Global Crossing's business
using a forecast for the period beginning January 1, 1999 and ending December
31, 2007, based on estimates provided to Morgan Stanley by Global Crossing
management. Morgan Stanley estimated Global Crossing's discounted cash flow
value using discount rates ranging from 11% to 13% and terminal multiples of
estimated 2008 EBITDA ranging from 9x to 11x. The discounted cash flow
analysis implied a range of values for Global Crossing common stock of $44 to
$59 per share.
71
<PAGE>
Morgan Stanley also reviewed and analyzed the sensitivity of Global
Crossing's discounted cash flow value to changes in the projected future
pricing of STM-1 cable sales and backhaul pricing on the Atlantic Crossing
cable. Morgan Stanley reviewed the effect of various annual pricing declines
as compared to the pricing declines projected by Global Crossing management.
The table below summarizes the discounted cash flow value of Global Crossing's
businesses implied by various annual pricing declines:
<TABLE>
<CAPTION>
Management
Pricing Decline: 15% 20% Case 25% 30%
---------------- ---- ---- ---------- ---- ----
<S> <C> <C> <C> <C> <C>
Discount Cash Flow Midpoint ($Billion)... $9.7 $8.0 $7.7 $6.5 $5.2
% Change in Value........................ 28% 4% -- (15%) (32%)
</TABLE>
Morgan Stanley also reviewed and analyzed the sensitivity of Global
Crossing's discounted cash flow value to changes in the projected demand for
STM-1 cables on the Atlantic Crossing cable. Morgan Stanley reviewed the
effects of STM-1 demand at 75% and 50% of that projected by Global Crossing
management. The table below summarizes the discounted cash flow value range
implied by various levels of demand for STM-1 cables:
<TABLE>
<CAPTION>
Discounted Cash Flow
Range ($Billions)
--------------------
<S> <C>
Management Case......................................... $6.6--$8.7
75% of Demand for STM-1s................................ $5.6--$7.3
50% of Demand for STM-1s................................ $3.9--$5.1
</TABLE>
Exchange Ratio Analysis. Morgan Stanley compared the effective exchange
ratio to the ratio of the closing market prices of Frontier common stock and
Global Crossing common stock on March 12, 1999. Morgan Stanley also compared
this ratio to selected average historical ratios of the closing market prices
of Frontier common stock and Global Crossing common stock over various periods
ending March 12, 1999. The table below shows the results of this analysis:
<TABLE>
<CAPTION>
Market
Price Ratio
-----------
<S> <C>
March 12, 1999................................................... 0.82x
5 prior trading days average..................................... 0.93x
30 prior trading days average.................................... 1.18x
60 prior trading days average.................................... 1.35x
Average since Global Crossing initial public offering............ 1.94x
</TABLE>
Revenue Composition. For purposes of the following discussion, when we refer
to New Global Crossing, we mean the new parent holding company formed in
connection with the U S WEST merger. Morgan Stanley reviewed the projected
revenue composition of New Global Crossing's global service provider and local
service provider businesses. For the purpose of this analysis, Morgan Stanley
referred to information provided to it by the managements of Global Crossing
and U S WEST. Morgan Stanley noted that the projected revenues attributed to
Frontier had not changed since March 14, 1999. The following table summarizes
the projected revenue composition of the global service provider and local
service provider businesses in calendar years 1999 and 2003:
<TABLE>
<CAPTION>
Revenue ($MM) % of Total
-------------- -----------
Global Service 1999E 2003E 1999E 2003E
-------------- ------ ------- ----- -----
<S> <C> <C> <C> <C>
Frontier Integrated Services...................... $2,200 $ 4,905 52% 37%
Global Crossing Assets............................ 1,101 3,509 26% 25%
USW Data and Internet Yellow Pages................ 731 4,113 17% 31%
USW Wireless...................................... 314 934 5% 7%
------ ------- --- ---
Total Revenues.................................... $4,266 $13,506 100% 100%
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Revenue ($MM) % of Total
--------------- -----------
Local Service 1999E 2003E 1999E 2003E
------------- ------- ------- ----- -----
<S> <C> <C> <C> <C>
USW LEC and Yellow Pages......................... $12,392 $13,150 94% 94%
Frontier LEC..................................... 748 896 6% 6%
------- ------- --- ---
Total Revenues................................... $13,140 $14,046 100% 100%
</TABLE>
Contribution Analysis. Morgan Stanley reviewed the projected contribution to
New Global Crossing of various projected U S WEST and Global Crossing/Frontier
capitalization and operating statistics. The statistics were adjusted to
reflect the effect of leverage contributed to New Global Crossing:
<TABLE>
<CAPTION>
Global
Crossing/Frontier U S WEST
----------------- --------
<S> <C> <C>
Aggregate Value................................... 45% 55%
Net Debt.......................................... 20% 80%
Equity Value...................................... 50% 50%
1999E Revenue..................................... 25% 75%
2000E Revenue..................................... 28% 72%
1999E EBITDA...................................... 17% 83%
2000E EBITDA...................................... 23% 77%
1999E EBIT........................................ 16% 84%
2000E EBIT........................................ 18% 82%
</TABLE>
Geographic Overview. As part of its analysis, Morgan Stanley reviewed the
territory covered by U S WEST's local exchange company assets. Morgan Stanley
noted that U S WEST's headquarters were in Denver, and that U S WEST had 16.6
million access lines, 54,483 employees and an equity market capitalization of
$28.157 million as of May 10, 1999.
Historical Public Market Trading Value. Morgan Stanley reviewed the recent
stock price performance of U S WEST based on an analysis of the historical
closing prices and trading volumes during the period from May 14, 1998,
through May 12, 1999. The following table summarizes the price performance of
U S WEST's common stock over that period:
<TABLE>
<CAPTION>
Historical U S WEST
Common Stock Prices
-------------------
<S> <C>
May 14, 1999............................................. $ 62.25
High Price............................................... $ 65.63
Low Price................................................ $ 46.81
Average Price............................................ $ 55.62
Average Daily Trading Volume............................. 1,113,941
</TABLE>
Comparative Stock Price Performance. Morgan Stanley reviewed the recent
stock price performance of US WEST and compared this performance with that of
the S&P 500 and a peer index consisting of Century Telephone, Cincinnati Bell,
Commonwealth Telephone, Bell Atlantic, SBC and BellSouth. Morgan Stanley
observed that over the period from May 14, 1998, to May 12, 1999, the closing
market prices appreciated as set forth below:
<TABLE>
<CAPTION>
% Appreciation
--------------
<S> <C>
U S WEST...................................................... 26.9%
S&P 500....................................................... 19.7%
Peer Index.................................................... 32.4%
</TABLE>
Securities Research Analysts' Future Price Targets. Morgan Stanley reviewed
and analyzed future public market trading price targets for U S WEST common
stock prepared and published by certain securities research analysts during
the periods from April 21, 1999 to May 14, 1999. Morgan Stanley discounted, at
a cost of equity
73
<PAGE>
rate of 10.2%, each U S WEST research analyst's public market price target to
May 16, 1999. The following table summarizes the various research analysts'
price targets and the present value of those price targets:
<TABLE>
<CAPTION>
PV of Price
Firm Price Target Target
---- ------------ -----------
<S> <C> <C>
NationsBanc Montgomery............................ $79 $72
Merrill Lynch..................................... 76 69
Fahnestock........................................ 71 65
Paine Webber...................................... 65 59
CIBC Oppenheimer.................................. 81 74
S.G. Cowen........................................ 66 60
Bear Stearns...................................... 70 64
Lehman Brothers................................... 74 68
Warburg Dillon Road............................... 59 54
Salomon Smith Barney.............................. 57 52
Legg Mason........................................ 67 61
</TABLE>
Peer Group Comparison. Morgan Stanley reviewed and analyzed the financial
information of six local exchange companies and compared that information to U
S WEST's financial information. Morgan Stanley analyzed, among other things,
the current aggregate value (i.e. equity value adjusted for capital structure)
of each company expressed as a multiple of estimated EBITDA in the calendar
year 1999, and the share price of each company expressed as a multiple of
estimated earnings per share in the calendar year 1999. Morgan Stanley also
reviewed the estimated five year growth rates of the various companies and
expressed each company's price to earnings ratio as a multiple of their
estimated five year EPS growth rate. Morgan Stanley also reviewed each
company's price to earnings ratio expressed as a multiple of each company's
total return (defined as the estimated five year EPS growth plus the current
dividend yield). As of May 15, 1999 and based on estimates of EBITDA, earnings
per share and earnings per share growth taken from selected securities
research analysts, the statistics derived from this analysis are set forth
below:
<TABLE>
<CAPTION>
Price/
Aggregate 1999E EPS/ Price/
Value/ Price/ 5-Yr 5-Yr 1999E EPS/
Company 1999E EBITDA 1999E EPS Growth Growth Total Return
------- ------------ --------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Bell Atlantic............ 7.3x 18.6x 9.1% 2.0x 1.6x
BellSouth................ 8.7 23.5 9.0 2.6 2.2
SBC Communications....... 8.6 22.3 12.0 1.9 1.6
Century Telephone........ 9.5 23.4 14.5 1.6 1.6
Commonwealth Telephone... 12.3 NA 12.5 NA NA
Cincinnati Bell.......... 11.0 27.2 15.0 1.8 1.6
U S WEST (@ $54.94)...... 6.6x 17.2x 6.0% 2.9x 1.7x
U S WEST (@ $70.00)...... 7.9 21.9 6.0 3.6 2.4
</TABLE>
No company used in the peer group comparisons is identical to U S WEST. In
evaluating the peer group companies, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of U S WEST such as the impact of competition on U S WEST and the
industry generally, industry growth and the absence of any material adverse
change in the financial condition and prospects of U S WEST or the industry or
in the financial markets in general.
Morgan Stanley performed a variety of financial and comparative analyses
solely for purposes of providing its opinions to the Frontier board of
directors as to the fairness from a financial point of view to the holders of
Frontier common stock of the exchange ratio pursuant to the merger agreement.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Furthermore, selecting any portion of its
analyses,
74
<PAGE>
without considering all analyses, would create an incomplete view of the
process underlying its opinion. In addition, Morgan Stanley may have given
various analyses and factors more or less weight than other analyses and
factors, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Morgan Stanley's
view of the actual value of Frontier or Global Crossing. In performing its
analyses, Morgan Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of Frontier, Global Crossing and U S WEST. Any
estimates contained herein are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by such estimates. The analyses performed were prepared solely as
part of Morgan Stanley's analysis of the fairness of the exchange ratio
pursuant to the merger agreement from a financial point of view to the holders
of Frontier common stock and were conducted in connection with the delivery of
its opinion. The analyses are not intended to be appraisals or to reflect the
prices at which Frontier, Global Crossing or U S WEST might actually be sold
or the price at which their securities may trade.
The merger consideration was determined through arm's-length negotiations
between Frontier and Global Crossing and was approved by the Frontier board of
directors. Morgan Stanley did not recommend any specific merger consideration
to Frontier or that any specific merger consideration constituted the only
appropriate merger consideration for the merger. Morgan Stanley's opinion to
the Frontier board of directors was one of many factors taken into
consideration by the Frontier board of directors in making its determination
to approve the merger. Consequently, the Morgan Stanley analyses described
above should not be viewed as determinative of the opinion of the Frontier
board of directors with respect to the value of Frontier or whether the
Frontier board of directors would have been willing to agree to different
merger considerations.
The Frontier board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking business, is continuously engaged
in the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of Morgan
Stanley's trading, brokerage and financing activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade, make a
market or otherwise effect transactions, for its own account or for the
accounts of customers, in the securities of Frontier, Global Crossing or U S
WEST. In the past, Morgan Stanley and its affiliates have provided financing
services for Frontier and Global Crossing and have received fees for the
rendering of these services. In addition to acting as Frontier's financial
advisor in connection with the merger, Morgan Stanley has within the past two
years participated in the commercial paper syndicate for Frontier and has
acted as co-manager in Frontier's May 21, 1997 $300 million senior note
offering.
Under the letter agreement dated as of January 6, 1999, Morgan Stanley has
provided advisory services and a financial opinion in connection with the
merger and Frontier has agreed to pay a transaction fee to Morgan Stanley of
$ . In addition, Frontier has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and
each person, if any, controlling Morgan Stanley or any of its affiliates
against certain liabilities and expenses, including the fees of its legal
counsel and certain liabilities under the federal securities laws, arising out
of Morgan Stanley's engagement and the transactions in connection therewith.
Morgan Stanley is also providing services relating to various financing or
refinancing transactions subsequent to the date of the merger agreement for
which Frontier has agreed to pay a customary fee.
Interests of members of Frontier's board of directors and management in the
merger
When you consider the recommendation of the Frontier board of directors that
you vote for the adoption of the merger agreement, you should be aware that
certain directors and executive officers of Frontier have interests in the
merger in addition to their interests solely as Frontier shareholders, as
described below. These interests may create potential conflicts of interest.
The Frontier board of directors was aware of these interests when it
considered and adopted and approved the merger agreement and the merger.
75
<PAGE>
Employment Agreements
In connection with the merger agreement, Frontier amended its employment
agreements with eighteen of its executives. Another executive has an
employment agreement with Frontier which was not amended. These agreements
include change of control provisions. Each of the employment agreements will
provide the executives with enhanced severance benefits in specified
situations. The executives are entitled to receive enhanced severance benefits
if, following a change in control:
. they voluntarily terminate their employment for any reason within one
year, or
. Frontier terminates the executive's employment without cause or the
executive terminates his or her employment for good reason.
Pursuant to the employment agreements, the merger will constitute a change
of control of Frontier.
The enhanced severance benefits that an executive would receive under the
circumstances described above are:
. payment of all accrued compensation plus a pro rata bonus equal to the
greatest of (1) the premier bonus for the fiscal year of the termination
of employment, but no lower than the premier bonus level established and
in effect before March 16, 1999, (2) the bonus paid or payable in
respect of the year before the year of the termination of employment or
(3) the bonus paid with respect to the fiscal year before the year of
the change of control;
. payment of an amount equal to three times, or, in some cases, two times
or one times, the sum of (a) the executive's base salary, (b) the
executive's bonus, except in one agreement, (c) the annual value of the
perquisites received by the executive, (d) payment of the annual
Frontier contributions which would have made on the executive's behalf
to the 401(k) retirement savings plan, and (e) the value of the annual
allocation which would have been made to Frontier's Supplemental
Retirement Savings Plan; and
. a continuation of general employee benefits, including life insurance,
medical and dental plans, vision and hospitalization benefits for 36
months, or, in some cases, 24 months or 12 months, following the date of
termination.
The employment agreements also contain restrictive covenants, including non-
compete and non-solicitation covenants, which are in effect during an
executive's employment. The employment agreements, as amended, provide that,
following a change of control, these restrictive covenants will no longer be
effective following a termination of the executive's employment. In addition,
some of the executives may be entitled to receive "gross-up" payments to
offset taxes that may be imposed on the payments and other benefits the
executives receive under the employment agreements, and some of the executives
will be entitled to age and service credits under Frontier's pension and
retirement plans.
Effects of the merger under Frontier stock option plans
The merger agreement provides that, at the effective time of the merger, all
stock options then held by the employees will vest and become immediately
exercisable. In addition, each of the Frontier Corporation Employees' Stock
Option Plan, the Frontier Corporation Management Stock Incentive Plan, the
Frontier Corporation Directors Stock Incentive Plan and the Frontier Omnibus
Incentive Plan provide that upon a change of control, all stock options will
become immediately exercisable and all restrictions on restricted stock will
immediately lapse. The merger will result in a change of control for purposes
of the option plans. See "The Merger Agreement--Stock options and warrants."
Effects of the merger under other Frontier plans
Following a change of control, the participants in the Frontier Corporation
Directors Common Stock Deferred Growth Plan and the Frontier Corporation Plan
For The Deferral of Directors Fees will have the choice whether to receive
their payouts in cash or in stock of the successor. Participants who join the
Global Crossing board of directors may continue their accounts in these two
plans.
76
<PAGE>
The merger will result in a change of control for purposes of both of these
plans.
Board of directors and officers of Global Crossing
Under the merger agreement, Global Crossing has agreed that, at or before
the effective time of the merger, the Global Crossing board of directors will
take all action necessary to:
. elect four individuals to be designated by Frontier as members of the
Global Crossing board of directors to serve in specified classes of
directors with staggered terms,
. elect Joseph P. Clayton as Vice Chairman of Global Crossing, and
. elect Rolla P. Huff as President and Chief Operating Officer of North
American Operations of Global Crossing.
In addition, Global Crossing has agreed that, if the U S WEST merger is
completed, at least two of the individuals designated by Frontier as Global
Crossing board members will be included as Global Crossing's representatives
on the board of the parent company resulting from the U S WEST merger.
Indemnification and insurance
Under the merger agreement and subject to specified limitations, the
surviving corporation of the merger will maintain the current provisions
regarding indemnification of officers, directors and employees of Frontier as
provided in Frontier's certificate of incorporation or by-laws for a period of
six years from the effective time of the merger. In addition, the merger
agreement provides that the surviving corporation of the merger will maintain,
with specified limitations, the current directors' and officers' liability
insurance and fiduciary liability insurance policies of Frontier, or policies
no less advantageous to the insured, for a period of six years from the
effective time. See "The Merger Agreement--Indemnification and insurance."
Certain federal income tax and Bermuda tax consequences
Federal income tax consequences
The following discussion is a summary of the material U.S. federal income
tax consequences to U.S. persons of the exchange of Frontier common stock for
Global Crossing common stock in the merger and the ownership of Global
Crossing common stock. The discussion which follows is based on the U.S.
Internal Revenue Code, applicable Treasury regulations, administrative rulings
and pronouncements and judicial decisions as of the date of this document, all
of which could change. Any change, which may be retroactive, could alter the
tax consequences we discuss in this document. Our discussion of tax
consequences is also based on representations made by Global Crossing,
Frontier and the acquisition subsidiary of Global Crossing. If any of these
representations is inaccurate, the tax consequences of the merger could differ
from those described in this document.
The discussion below, except where specifically noted, does not address the
effects of any state, local or non-United States tax laws. In addition, the
discussion below relates to persons who hold Frontier common stock and will
hold Global Crossing common stock as capital assets. The tax treatment of a
Frontier shareholder may vary depending upon the shareholder's particular
situation, and some shareholders may be subject to special rules not discussed
below. These shareholders would include, for example
. insurance companies,
. tax-exempt organizations,
. financial institutions,
. broker-dealers,
. shareholders who are foreign persons and
77
<PAGE>
. individuals who received Frontier common stock pursuant to the exercise
of employee stock options or otherwise as compensation.
In addition, this discussion does not address all of the tax consequences to
any Frontier shareholder who will own 5% or more of either the total voting
power or the total value of the outstanding Global Crossing common stock after
the merger, determined after we take into account ownership under the
applicable attribution rules of the U.S. Internal Revenue Code and applicable
Treasury regulations. We will refer to these shareholders as "5% transferee
shareholders."
Consequences of the merger
The obligations of Global Crossing and Frontier to complete the merger are
conditioned on the receipt of opinions from their respective counsel, Skadden,
Arps, Slate, Meagher & Flom LLP for Global Crossing and Simpson Thacher &
Bartlett for Frontier. These opinions will be based on facts, representations
and assumptions as counsel may reasonably deem relevant, to the effect that
. the merger will be treated for federal income tax purposes as a
reorganization with the meaning of Section 368 of the Internal Revenue
Code;
. Global Crossing, Frontier and the acquisition subsidiary will each be a
party to that reorganization; and
. no gain or loss will be recognized by a shareholder of Frontier as a
result of the merger, except with respect to any cash received in the
merger; provided, that, in the case of any 5% transferee shareholder,
the 5% transferee shareholder enters into a "gain recognition agreement"
in accordance with applicable Treasury regulations.
Based on those conclusions, the following additional federal income tax
consequences would arise:
. Receipt of Cash. If, in addition to Global Crossing common stock, a
Frontier shareholder receives cash in the merger, other than cash
received in payment for a fractional share, a Frontier shareholder will
realize gain measured by the excess, if any, of (1) the sum of the
amount of that cash and the fair market value of the Global Crossing
shares received in the merger over (2) the shareholder's tax basis in
the Frontier shares. However, any gain realized will be taxable only to
the extent of the cash received. Any gain recognized by a Frontier
shareholder generally will be capital gain and will be treated as long-
term capital gain if the Frontier shares have been held for more than
one year. However, the gain could be treated as ordinary dividend income
if, taking into account applicable constructive ownership rules, a
Frontier shareholder's percentage interest in Global Crossing after the
merger is not less than what that Frontier shareholder's percentage
interest in Global Crossing would have been had the shareholder received
only Global Crossing shares instead of cash in the merger. This could
happen, for example, because of a purchase of additional Global Crossing
shares by the Frontier shareholder or a related person or because of a
share repurchase by Global Crossing from other Global Crossing
shareholders.
. Tax basis. The tax basis to a Frontier shareholder of the Global
Crossing common stock received in exchange for Frontier common stock
pursuant to the merger, including any fractional share interest in
Global Crossing common stock for which cash is received, will equal the
Frontier shareholder's tax basis in the Frontier common stock
surrendered in exchange therefor, increased by the amount of taxable
gain, if any, on the exchange and decreased by the amount of any cash
received, other than cash received in payment for a fractional share.
. Holding period. The holding period of a Frontier shareholder for the
Global Crossing common stock received pursuant to the merger will
include the holding period of the Frontier common stock surrendered in
exchange for the Global Crossing shares.
78
<PAGE>
. Fractional shares. A Frontier shareholder who receives cash in payment
for a fractional share interest in Global Crossing common stock pursuant
to the merger will be treated as having received the cash in exchange
for the fractional share interest and generally will recognize capital
gain or loss on the deemed exchange in an amount equal to the difference
between the amount of cash received and the basis of the Frontier stock
allocable to that fractional share.
Ownership of Global Crossing common stock
. Distributions. Distributions made to U.S. Holders on or with respect to
Global Crossing common stock will be treated as dividends and be taxable
as ordinary income to the extent that those distributions are made out
of Global Crossing's current or accumulated earnings and profits as
determined for U.S. federal income tax purposes. Subject to the passive
foreign investment company rules discussed below, to the extent that the
amount of any distribution exceeds Global Crossing's accumulated
earnings and profits for a taxable year, the excess will be treated as a
tax-free return of capital which reduces the Global Crossing
shareholders' tax basis in the Global Crossing common stock to the
extent of the tax basis, and thereafter as capital gain from the sale or
exchange of property. Global Crossing shareholders that are corporations
generally will not be entitled to claim a dividends received deduction
with respect to distributions by Global Crossing because Global Crossing
is a foreign corporation. Global Crossing does not currently pay
dividends on its common stock and does not anticipate paying dividends
in the foreseeable future. See "Summary--Market prices and dividends."
For so long as Global Crossing 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 (1) foreign source "passive income" or, in the case of some
Global Crossing shareholders, foreign source "financial services income" or
(2) United States source income, in proportion to the earnings and profits of
Global Crossing in the year of the distribution allocable to foreign and
United States sources, respectively. For this purpose, Global Crossing 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 Global Crossing is
owned, directly or indirectly, by U.S. persons.
Disposition. Subject to the passive foreign investment company and
controlled foreign corporations rules discussed below, gain or loss realized
by a Global Crossing shareholder on the sale, exchange or other taxable
disposition of Global Crossing common stock will be subject to U.S. federal
income taxation as capital gain or loss in an amount equal to the difference
between the amount realized on that sale, exchange or other disposition and
the shareholder's adjusted tax basis in the Global Crossing common stock
surrendered. The gain or loss will be long term capital gain or loss if the
shareholder's holding period for its Global Crossing common stock is more than
one year. Any gain or loss so realized generally will be United States source.
Passive Foreign Investment Company. In general, Global Crossing will be
classified as a "passive foreign investment company" for any taxable year if
either (1) at least 75% of Global Crossing's gross income is passive income or
(2) at least 50% of the value (determined on the basis of a quarterly average)
of Global Crossing's assets produce or are held for the production of passive
income. Global Crossing believes that it is not a passive foreign investment
company and does not expect to become a passive foreign investment company in
the future for U.S. federal income tax purposes, although Global Crossing
cannot assure you in this regard. See "Risk Factors--Global Crossing
shareholders may be subject to Foreign Personal Holding Company, Passive
Foreign Investment Company, Controlled Foreign Corporation and Personal
Holding Company rules." This conclusion is a factual determination made
annually and is subject to change. In addition, it is based, in part, on
interpretations of existing law that Global Crossing believes are reasonable,
but which have not been approved by any taxing authority.
If Global Crossing is classified as a passive foreign investment company in
any year with respect to which a United States person is a shareholder, Global
Crossing generally will continue to be treated as a passive foreign investment
company with respect to that shareholder in all succeeding years, regardless
of whether it continues
79
<PAGE>
to meet the income or asset test described above, subject to certain possible
shareholder elections that may apply in some circumstances.
If Global Crossing is treated as a passive foreign investment company:
. Distributions made by Global Crossing during a taxable year to a U.S.
Holder with respect to Global Crossing stock that are "excess
distributions", which are defined generally as the excess of the amount
received with respect to that stock in any taxable year over 125% of the
average received in the shorter of either the three previous years or
the shareholder's holding period before the taxable year, must be
allocated ratably to each day of the shareholder's holding period. The
amounts allocated to the current taxable year and to taxable years
before the first year in which Global Crossing was classified as a
passive foreign investment company are included as ordinary income in
the shareholder'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 shareholder in that prior year and
the tax is subject to an interest charge at the rate applicable to
deficiencies in income taxes.
. The entire amount of any gain realized upon the sale or other
disposition, including for these purposes, a pledge of Global Crossing
stock will be treated as an excess distribution made in the year of sale
or other disposition. As a result, that gain will be treated as ordinary
income and, to the extent allocated to years before the year of sale or
disposition, will be subject to the interest charge described above. In
addition, shareholders who acquire their Global Crossing stock from
decedents generally will not receive a "stepped up" basis in the stock.
Instead, these shareholders will have a tax basis equal to the lower of
the fair market value of the stock or the decedent's basis.
The special passive foreign investment company tax rules described above
will not apply to a Global Crossing shareholder if
1. The Global Crossing shareholder elects to have Global Crossing treated
as a "qualified electing fund," which we refer to as a "qualified electing
fund election," and Global Crossing provides certain information to its
shareholders. If Global Crossing is treated as a passive foreign investment
company, it intends to notify its shareholders and to provide to its
shareholders all information that may be required to make the qualified
electing fund election effective.
A shareholder that makes a qualified electing fund election will be taxable
currently on its pro rata share of Global Crossing's ordinary earnings and net
capital gain, at ordinary income and capital gain rates, respectively, for
each taxable year of Global Crossing during which it is treated as a passive
foreign investment company, regardless of whether or not distributions were
received. The shareholder's basis in the Global Crossing 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 Global Crossing stock and will not be taxed again as a
distribution to the shareholder.
2. The shareholder makes a mark to market election. The mark to market
election is only available with respect to stock that is regularly traded on
specified 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.
In general, an electing shareholder will include in each year as ordinary
income the excess, if any, of the fair market value of that 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 that 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 shareholder's basis in the stock will be
adjusted to reflect any of these income or loss amounts. Any gain or loss on
the sale of the Global Crossing stock will be ordinary income or loss, except
that a loss will be ordinary loss only to the extent of the previously
included net mark to market gain.
80
<PAGE>
A shareholder who owns Global Crossing stock during any year that Global
Crossing is a passive foreign investment company must file IRS Form 8621.
Shareholders are urged to consult their tax advisors concerning the U.S.
federal income tax consequences of holding stock of Global Crossing if it is a
passive foreign investment company, including the advisability and
availability of making any of the elections described above.
Foreign Personal Holding Company. A foreign corporation will be classified
as a foreign personal holding company if
. 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; we refer to this as the "shareholder test" and
. 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; we refer to this as the "income test."
It is possible that Global Crossing or one of its non-United States
subsidiaries will meet the income test in a given year. However, Global
Crossing does not expect that the shareholder test will be met after the
merger. Accordingly, it is not expected that Global Crossing or any of its
non-United States subsidiaries will be treated as a foreign personal holding
company, although we cannot assure you in this regard. Global Crossing intends
to manage its affairs so as to attempt to avoid or minimize having income
imputed to its shareholders under these rules, to the extent this management
of its affairs is consistent with its business goals.
If Global Crossing or one of its non-United States subsidiaries were
classified as a foreign personal holding company, all shareholders, including
certain indirect holders, regardless of their percentage ownership, would be
required to include in income, as a dividend, their pro rata share of Global
Crossing's or its relevant non-United States subsidiary's undistributed
foreign personal holding company income if they were holders on the last day
of Global Crossing's taxable year or, if earlier, the last day on which Global
Crossing satisfied the shareholder test. Foreign personal holding company
income is generally equal to taxable income with certain adjustments. In
addition, if Global Crossing were classified as a foreign personal holding
company, shareholders who acquire their Global Crossing stock from decedents
would not receive a "stepped-up" basis in that stock. Instead, these
shareholders would have a tax basis equal to the lower of the fair market
value of the stock or the decedent's basis.
Personal Holding Company. A corporation classified as a personal holding
company is subject to a 39.6% tax on its undistributed personal holding
company income. Foreign corporations like Global Crossing determine their
liability for personal holding company tax by considering only (1) gross
income derived from United States sources and (2) gross income that is
effectively connected with a United States trade or business. A corporation
will be classified as a personal holding company if
. 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
measured by value, directly or indirectly and
. the corporation receives at least 60% of its adjusted gross income from
certain passive sources.
However, if a corporation is a foreign personal holding company or a passive
foreign investment company, it cannot be a personal holding company. It is
possible that Global Crossing or one of its non-United States subsidiaries
will meet the income test in a given year. However, it is not expected that
the shareholder test will be met after the merger. Accordingly, it is not
expected that Global Crossing or any of its non-United States subsidiaries
will be treated as a personal holding company, although we cannot assure you
in this regard. Global Crossing intends to manage its affairs so as to attempt
to avoid or minimize the imposition of the personal holding company tax, to
the extent this management of its affairs is consistent with its business
goals.
Controlled Foreign Corporations. For purposes of this discussion, when we
use the term "10% U.S. Shareholders," we mean United States persons who
individually own or are deemed for U.S. federal income tax
81
<PAGE>
purposes to own, pursuant to complex attribution and constructive ownership
rules 10% or more of the voting stock of Global Crossing or any of its non-
United States subsidiaries.
If 10% U.S. Shareholders own, in the aggregate, more than 50%, measured by
voting power or value, of the shares of Global Crossing or any of its non-
United States corporate subsidiaries, directly, indirectly, or by attribution,
Global Crossing or any of its non-United States subsidiaries would be a
controlled foreign corporation. If characterized as controlled foreign
corporations, then a portion of the undistributed income of Global Crossing
and its non-United States subsidiaries may be includible in the taxable income
of 10% U.S. Shareholders of those entities, and a portion of the gain
recognized by 10% U.S. Shareholders on the disposition of their shares in
Global Crossing, which could otherwise qualify for capital gains treatment,
may be converted into ordinary dividend income. It is possible that Global
Crossing and its non-United States subsidiaries may be controlled foreign
corporations or may become controlled foreign corporations in the future.
However, as discussed above, controlled foreign corporation status generally
only has potentially adverse consequences to 10% U.S. Shareholders.
In order to attempt to prevent any United States person from being a 10%
U.S. Shareholder of Global Crossing, the bye-laws of Global Crossing generally
provide, among other things, that no holder of Global Crossing 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 Internal Revenue Code will be allowed to cast votes with respect to more
than 9.5% of the common stock, and some restrictions have been placed on the
transferability of shares. See "Description of Global Crossing Capital Stock--
Voting and transfer restrictions." We cannot assure you that these limitations
will prevent the characterization of Global Crossing or any of its non-United
States subsidiaries as a controlled foreign corporation or of any shareholder
as a 10% U.S. Shareholder. However, a shareholder that owns directly less than
10% of the common stock generally will not be treated as a 10% U.S.
Shareholder unless it is attributed common stock owned by other shareholders.
Information Reporting and Backup Withholding. In general, information
reporting requirements will apply to dividends in respect of the Global
Crossing common stock or the proceeds received on the sale, exchange, or
redemption of the Global Crossing common stock paid within the United States,
and in some cases, outside of the United States, to shareholders other than
certain exempt recipients, such as corporations, and a 31% backup withholding
may apply to the amounts if the shareholder fails to provide an accurate
taxpayer identification number or to report dividends required to be shown on
its U.S. federal income tax returns. The amount of any backup withholding from
a payment to a shareholder will be allowable as a refund or credit against the
shareholder's U.S. federal income tax liability, provided that the required
information or appropriate claim for refund is furnished to the Internal
Revenue Service.
Bermuda tax consequences
In the opinions of Conyers Dill & Pearman, special Bermuda tax counsel for
Frontier, and Appleby, Spurling & Kempe, Bermuda tax counsel for Global
Crossing, there will be no Bermuda
. income, corporation or profits tax,
. withholding tax,
. capital gains tax,
. capital transfer tax,
. estate duty or
. inheritance tax
payable in respect of an exchange of Frontier common stock for Global Crossing
common stock pursuant to the merger. In addition, as of the date of this
document, there is no Bermuda income, corporation or profits tax, withholding
tax, capital gains tax, capital transfer tax, estate duty or inheritance tax
payable in respect of capital gains realized on a disposition of Global
Crossing common stock or in respect of distributions by Global Crossing with
respect to Global Crossing common stock. Under current Bermuda law, Global
Crossing is not
82
<PAGE>
subject to tax on income or capital gains. Furthermore, Global Crossing has
obtained from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act 1966 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 that tax will not be applicable to
Global Crossing or to any of its operations or the shares, debentures or other
obligations of Global Crossing, until March 28, 2016. This undertaking does
not, however, prevent the application of any tax or duty to persons ordinarily
resident in Bermuda or of any tax payable pursuant to The Land Tax Act 1967 of
Bermuda or otherwise payable in relation to land leased to Global Crossing.
Anticipated accounting treatment
For accounting and financial reporting purposes, the merger is intended to
be treated as a purchase by Global Crossing under generally accepted
accounting principles. Under the purchase method of accounting, Frontier's
assets and liabilities, as of the effective date of the merger, will be
recorded at their respective fair values and added to those of Global
Crossing. For purposes of preparing Global Crossing's consolidated financial
statements, Global Crossing will establish a new accounting basis for
Frontier's assets and liabilities based upon the fair values thereof, the
merger consideration and the costs of the transactions. Global Crossing's
management believes that any excess of cost over the fair value of the net
assets of Frontier will be recorded as goodwill. A final determination of the
intangible asset lives and required purchase accounting adjustments, including
the allocation of the purchase price to the assets acquired and liabilities
assumed based on their respective fair values, has not yet been made.
Accordingly, the purchase accounting adjustments made in connection with the
development of the unaudited pro forma financial information appearing
elsewhere in this document are preliminary and have been made solely for
purposes of developing the unaudited pro forma financial information. Global
Crossing has undertaken a study to determine the fair value of some of
Frontier's assets and liabilities and will make appropriate purchase
accounting adjustments upon completion of that study. For financial reporting
purposes, the results of operations of Frontier will be included in the Global
Crossing consolidated statement of operations following the effective time of
the merger and Global Crossing's historical consolidated statements of
operations will not be restated. See "Unaudited Pro Forma Condensed Combined
Financial Statements."
Regulatory approvals
Hart-Scott-Rodino Act
We cannot complete the merger until we give notification and furnish
information to the Federal Trade Commission and the Antitrust Division of the
Department of Justice and the specified waiting period requirements have been
satisfied. We filed the required notification and report forms with the
Federal Trade Commission and the Antitrust Division on April 29, 1999 and the
waiting period was terminated on May 11, 1999. At any time before or after the
effective time of the merger, and notwithstanding that the waiting period has
terminated or the merger may have been consummated, the Federal Trade
Commission, the Antitrust Division or any state could take any action under
the applicable antitrust or competition laws as it deems necessary or
desirable. This action could include seeking to enjoin the completion of the
merger. Private parties may also institute legal actions under the antitrust
laws under some circumstances.
Subsequent to the May 11, 1999 early termination of the waiting period, U S
WEST acquired approximately 9.49% of the outstanding common stock of Global
Crossing, the acquisition of which the Antitrust Division of the Department of
Justice is currently investigating. We do not expect that this investigation
will delay the completion of the Global Crossing--Frontier merger.
FCC and Public Utility Commission approvals
It is a condition to the merger that
. the approval of the Federal Communications Commission and
. approvals of public utility commissions of the states
83
<PAGE>
be obtained without the imposition of conditions reasonably expected to have a
material adverse effect on Global Crossing and some of its subsidiaries,
including, following the merger, Frontier, unless the failure to obtain any
public utility commission approval would not reasonably be expected to have a
material adverse effect on Global Crossing and some of its subsidiaries,
including, following the merger, Frontier.
See "The Merger Agreement--Conditions to the completion of the merger."
Bermuda Monetary Authority
The issuance of Global Crossing shares in the merger and the subsequent free
transferability of the corresponding shares between non-residents of Bermuda
for exchange control purposes must be approved by the Bermuda Monetary
Authority. We obtained that approval on July 1, 1999.
The approval of the Bermuda Monetary Authority is required for the issuance
of shares by any Bermuda company to a non-resident of Bermuda for exchange
control purposes.
Approvals or permissions received from the Bermuda Monetary Authority in
connection with this document do not constitute a guarantee by the Bermuda
Monetary Authority as to the creditworthiness of Global Crossing. Furthermore,
in giving those approvals, the Bermuda Monetary Authority will not be liable
for the performance or default of Global Crossing or of the correctness of any
opinions or statements expressed in this document.
No appraisal rights
Since Global Crossing is not party to the merger between Frontier and Global
Crossing's wholly owned subsidiary, under Bermuda law, Global Crossing
shareholders are not entitled to dissenters' rights of appraisal in connection
with the merger.
Under the New York Business Corporation Law, Frontier shareholders are not
entitled to dissenters' appraisal rights in connection with the merger because
the Frontier common stock was listed on the New York Stock Exchange on the
record date for the Frontier special meeting.
Quotation on the Nasdaq National Market
It is a condition to the merger that the shares of Global Crossing common
stock to be issued in the merger and the other shares to be reserved for
issuance in connection with the merger be approved for trading on the Nasdaq
National Market upon official notice of issuance. The merger agreement
provides that Global Crossing will use its reasonable best efforts to cause
the shares of Global Crossing common stock to be issued in the merger and the
shares of Global Crossing common stock to be reserved for issuance in
connection with the merger to be approved for trading on the Nasdaq National
Market.
Litigation
On June 23 and July 7, 1999, two purported shareholder class action suits
were filed against Frontier and the members of its board in New York State
Supreme Court. These complaints allege, among other things, that the
defendants have breached their fiduciary duties in connection with the
unsolicited bid by Qwest. These complaints seek, among other things, a court
order requiring the defendants to take certain actions with respect to a
merger or acquisition of Frontier, including, but not limited to, engaging in
negotiations with Qwest. Frontier believes that both complaints are without
merit and intends to defend vigorously against the complaints.
Resales of Global Crossing common stock
All shares of Global Crossing common stock received by Frontier shareholders
in the merger will be registered under the Securities Act of 1933 and will be
freely tradeable without restriction by people who will
84
<PAGE>
not be affiliates of Global Crossing after the merger or who were not
affiliates of Frontier on the date of the Frontier special meeting. Any of
those people may resell the Global Crossing common stock received by him or
her in the merger only if the shares are registered for resale under the
Securities Act or an exemption from such registration under the Securities Act
is available. Those people may be permitted to effect resales under the safe
harbor provisions of Rule 145 under the Securities Act, or Rule 144 in the
case of persons who become affiliates of Global Crossing, or as otherwise
permitted under the Securities Act. People who may be deemed to be affiliates
of Frontier or Global Crossing generally include individuals or entities that
control, are controlled by, or are under common control with, Frontier or
Global Crossing, as applicable, and may include some officers and all
directors of that party as well as principal shareholders of Frontier or
Global Crossing, as applicable. We recommend that any of those people obtain
advice of securities counsel before making any resale.
The merger agreement provides that,
. on or before the date of the Frontier special meeting, Frontier will
deliver to Global Crossing a letter identifying all people who may be
deemed to be affiliates of Frontier for purposes of Rule 145 under the
Securities Act and
. on or before the closing date, Frontier will use all reasonable efforts
to cause each of its affiliates to deliver a written agreement to the
effect that the affiliate will not offer or sell or otherwise dispose of
any shares of Global Crossing common stock received in the merger in
violation of the Securities Act or the rules and regulations thereunder.
This document does not cover resales of Global Crossing common stock
received by any person who may be deemed to be an affiliate of Global Crossing
or Frontier.
85
<PAGE>
The U S WEST Merger
On May 16, 1999, Global Crossing entered into a definitive agreement to
merge with U S WEST, a regional Bell operating company operating in 14 western
and midwestern states, which provides a full range of telecommunications
services to more than 25 million customers nationally. Under the Global
Crossing--U S WEST merger agreement, the Global Crossing--U S WEST merger
cannot close until after the Global Crossing--Frontier merger closes.
The U S WEST tender offer
In connection with the merger agreement, on May 21, 1999, U S WEST commenced
a tender offer to purchase 39,259,305 shares of Global Crossing common stock,
representing approximately 9.49% of the outstanding shares of Global Crossing
common stock, at a purchase price of $62.75 per share. The U S WEST tender
offer was completed on June 21, 1999. U S WEST agreed to vote the 39,259,305
shares it acquired in the tender offer, which was completed on June 21, 1999,
in favor of the Global Crossing--Frontier merger and the Global Crossing--U S
WEST merger. See "--The U S WEST merger--Voting agreement" and "Related
Agreements--Voting agreement."
The U S WEST merger
Structure of the U S WEST merger
The U S WEST merger agreement provides that U S WEST and Global Crossing
will form a Delaware corporation. We will refer to this new parent corporation
as New Global Crossing. Promptly after the formation of New Global Crossing, U
S WEST and Global Crossing will cause New Global Crossing to form two wholly
owned subsidiaries. At the effective time of the U S WEST merger, U S WEST
will become a wholly owned subsidiary of New Global Crossing by merging with
one of New Global Crossing's subsidiaries and Global Crossing will become a
wholly owned subsidiary of New Global Crossing through a merger, scheme of
arrangement or amalgamation. As a result, New Global Crossing will be equally
owned by U S WEST shareholders and Global Crossing shareholders. New Global
Crossing will issue two classes of common stock to Global Crossing and U S
WEST shareholders:
. New Global Crossing Class A common stock will reflect New Global
Crossing's local service provider business, which generally includes
private lines and in-region long distance plus the print Yellow and
White Pages directories of New Global Crossing, and
. New Global Crossing Class B common stock will reflect New Global
Crossing's global service provider business, which generally includes
New Global Crossing's undersea and terrestrial fiber optic networks,
frame relay and asynchronous transfer mode networks, competitive local
exchange carrier, DLEC, digital subscriber lines, wireless operations,
Internet Yellow Pages, applications hosting and Internet data
distribution business.
Conversion of shares of stock in the U S WEST merger
In the U S WEST merger,
. each share of Global Crossing common stock and each share of U S WEST
common stock, excluding treasury shares and shares of Global Crossing
common stock owned by U S WEST, including shares of Global Crossing
common stock acquired in the U S WEST tender offer, and shares of U S
WEST common stock owned by Global Crossing, will be converted into
shares of New Global Crossing Class A common stock or New Global
Crossing Class B common stock based on the conversion and election
procedures described below, and
. each option, warrant and any other right to purchase or otherwise
acquire Global Crossing common stock or U S WEST common stock, excluding
any options, warrants or other rights owned by U S WEST or Global
Crossing, will be converted into options, warrants or rights to purchase
or otherwise
86
<PAGE>
acquire New Global Crossing Class A common stock and New Global Crossing
Class B common stock based on the conversion and election procedures
described below. The exercise price of the new options, warrants or
rights will be adjusted in proportion to the ratio of the value of the
New Global Crossing Class B common stock to the value of the New Global
Crossing Class A common stock. We will refer to this ratio as the
tracking stock value ratio.
Tracking stock value ratio
The tracking stock value ratio will be determined through an appraisal
process conducted by nationally recognized independent investment banks
selected by U S WEST and Global Crossing. This ratio represents the
appraisers' assessment of the relative value of the New Global Crossing Class
B common stock to New Global Crossing Class A common stock. In determining the
ratio, the appraisers will employ methodologies and analyses consistent with
those traditionally utilized by investment banking firms in performing public
company valuations.
Election rights and conversion ratio
Each holder of Global Crossing common stock or options, warrants or rights
to purchase or otherwise acquire Global Crossing common stock will have the
right to make a number of elections for New Global Crossing Class A common
stock and New Global Crossing Class B common stock equal to the sum of
. the number of shares of Global Crossing common stock held by the holder
at the effective time of the U S WEST merger, and
. the number of shares of Global Crossing common stock issuable upon
exercise of options, warrants or rights held by the holder at the
effective time of the merger.
Each holder of U S WEST common stock or options, rights or warrants to
purchase or otherwise acquire U S WEST common stock will have the right to
make a number of elections for New Global Crossing Class A common stock and
New Global Crossing Class B common stock equal to the conversion ratio
multiplied by the sum of
. the number of shares of U S WEST common stock held by the holder at the
effective time of the U S WEST merger, and
. the number of shares of U S WEST common stock issuable upon exercise of
options, warrants or rights held by the holder.
The conversion ratio will be determined by dividing (1) the total number of
shares of Global Crossing common stock outstanding on the date of the U S WEST
merger agreement, calculated on a fully diluted basis using the treasury
method of calculation, minus 39,259,305, the number of shares purchased by U S
WEST in the tender offer, by (2) the total number of shares of U S WEST common
stock outstanding on the date of the U S WEST merger agreement, calculated on
a fully diluted basis using the treasury method of calculation. For the
purpose of calculating the conversion ratio, the number of shares of Global
Crossing common stock outstanding on the date of the U S WEST merger agreement
will be deemed to include the number of shares of Global Crossing common stock
to be issued in exchange for shares of Frontier common stock according to the
terms of the merger agreement.
Assuming that
. the maximum number of Global Crossing shares are issued in the Frontier
merger, the conversion ratio will be approximately 1.46 and
. the minimum number of Global Crossing shares are issued in the Frontier
merger, the conversion ratio will be approximately 1.21.
87
<PAGE>
Assuming a conversion ratio of 1.21, a Global Crossing shareholder will
receive 1.00 election right for each Global Crossing share held by him or her,
and a U S WEST shareholder will receive 1.21 election rights for each U S WEST
share held by him or her. This means that each U S WEST shareholder will
receive election rights which entitle him or her to a package of value (Class
A common stock, Class B common stock or a combination of both) per U S WEST
share held that is 1.21 times the package of value (Class A common stock,
Class B common stock or a combination of both) that each Global Crossing
shareholder will receive per Global Crossing share.
Because the per share values of Class A common stock and Class B common
stock may be different, the merger agreement with U S WEST contains formulas
which are designed to ensure that each shareholder receives an equal package
of value per election right, whether he or she selects all Class A common
stock, all Class B common stock or a combination of both, with the relative
values determined based on the appraisal process described above:
. Subject to proration as described in the next paragraph for each
election made for New Global Crossing Class B common stock, the holder
will be entitled to receive a number of shares of that stock equal to a
quotient, the numerator of which is the sum of 1 plus the tracking stock
value ratio and the denominator of which is the tracking stock value
ratio.
. Subject to proration as described in the next paragraph for each
election made for New Global Crossing Class A common stock, the holder
will be entitled to receive a number of shares of that stock equal to
the sum of 1 plus the tracking stock value ratio.
If the Global Crossing--Frontier merger is completed, current Frontier
shareholders will have the right, as Global Crossing shareholders, to vote on
the U S WEST merger and to make elections for New Global Crossing Class A
common stock and New Global Crossing Class B common stock. No later than 30
days before the anticipated closing date of the U S WEST merger, Global
Crossing shareholders will receive election forms and related materials, which
will include the final determination of the tracking stock value ratio. A vote
to adopt the Global Crossing--Frontier merger agreement by Frontier
shareholders does not constitute a vote to approve the U S WEST merger. There
will be a separate vote on the Global Crossing--U S WEST merger. See "--Voting
agreement" below.
The maximum aggregate number of shares of New Global Crossing Class A common
stock or New Global Crossing Class B common stock that may be issued equals
the maximum number of elections that can be made. If the holders of Global
Crossing common stock and U S WEST common stock, and the holders of options,
warrants or rights to purchase Global Crossing common stock or U S WEST common
stock elect, in the aggregate, a number of shares of New Global Crossing Class
A common stock or New Global Crossing Class B common stock which exceed the
this limit, a shareholder electing the oversubscribed class will receive, on a
pro rata basis, fewer shares than elected and will receive instead an equal
value of shares of the other class, with the relative values determined based
on the appraisal process described above.
Other provisions in the U S WEST merger agreement
Representations, warranties and covenants. The U S WEST merger agreement
contains customary representations and warranties by Global Crossing and U S
WEST similar to those made by Global Crossing and Frontier in the merger
agreement. Global Crossing and U S WEST have also agreed to various covenants
relating to the manner in which they may operate their respective businesses
prior to the closing of their proposed transaction. Again, many of these
provisions are similar in nature to those agreed upon between Frontier and
Global Crossing, such as limitations on incurring debt, making extraordinary
capital expenditures or amending corporate governance documents. Among these
provisions is a restriction limiting Global Crossing or U S WEST from
acquiring any corporation, partnership or business or increasing any
investment, if in the aggregate these actions would exceed $3 billion over
what has previously been announced.
No solicitation. Global Crossing and U S WEST each agreed in the U S WEST
merger agreement not to solicit, initiate or encourage specified acquisition
transactions or participate in discussions regarding those
88
<PAGE>
acquisition transactions, except at any time before shareholder approval is
obtained, in response to an unsolicited proposal if:
. it executes a confidentiality agreement with the third party and
. the board of that company determines in good faith
(1) that the proposal is a superior proposal, and
(2) after receipt of advice from outside counsel, that the failure to
participate in discussions or furnish information would result in a reasonable
likelihood that the board would breach its fiduciary duties under applicable
law.
Covenants relating to the Frontier merger. In addition, with respect to the
merger with Frontier, Global Crossing has agreed to:
. use its reasonable best efforts to close the transactions contemplated
by the Frontier merger agreement;
. not take any action which would materially adversely impact the timing
of the closing of the transactions contemplated by the Frontier merger
agreement; and
. not waive or amend any material economic provision of the Frontier
merger agreement without the prior written approval of U S WEST except
in specified circumstances and except that Global Crossing may increase
the merger consideration without consent in the event an a acquisition
proposal is made to Frontier, but, if this increase is in cash, it may
not be in excess of $3 billion without U S WEST's consent.
Conditions to the completion of the U S WEST merger
The closing of the U S WEST merger is subject to the satisfaction of a
number of conditions, including, among others, the following:
. approval of the U S WEST merger by a majority of the votes entitled to
be cast by all holders of Global Crossing common stock and by a majority
of the votes entitled to be cast by all holders of U S WEST common
stock,
. prior completion of the Global Crossing--Frontier merger,
. receipt of all regulatory approvals, including under the Hart-Scott-
Rodino Act, other than those the failure of which to obtain would not
have a material adverse effect on the completion of the U S WEST merger
or on New Global Crossing, U S WEST or Global Crossing,
. the effectiveness of the registration statement relating to the shares
of New Global Crossing to be issued in the U S WEST merger and the
listing of those shares on the New York Stock Exchange or Nasdaq,
. receipt of consents from third parties, other than those the failure of
which to obtain would not have a material adverse effect on New Global
Crossing, U S WEST or Global Crossing, and
. receipt of opinions from counsel for Global Crossing and U S WEST as to
the tax-free nature of the U S WEST merger.
Termination; Termination fees
Global Crossing or U S WEST can terminate the U S WEST merger agreement
. at any time if they mutually agree,
. if the U S WEST merger is not completed by May 16, 2000, or by November
30, 2000 if on May 16, 2000 all conditions to closing are capable of
being fulfilled but the required regulatory approvals have not been
received,
89
<PAGE>
. if the required shareholder approvals are not obtained,
. under specified circumstances relating to the other party failing to
recommend or withdrawing its recommendation of the U S WEST merger and
. under specified circumstances relating to the other party's material
breach of the U S WEST merger agreement.
Each party can also terminate the U S WEST merger agreement under specified
circumstances if it receives a superior acquisition proposal or if the other
party has breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in the U
S WEST merger agreement.
Each party is required to pay an $850 million termination fee to the other
party if that party terminates the merger agreement under specified
circumstances involving an acquisition proposal by a third party. U S WEST is
permitted to reduce this termination fee by up to $250 million so long as U S
WEST purchases at market price and pays in full for capacity on Global
Crossing's systems in an aggregate amount equal to the amount by which the
termination fee is reduced.
Voting agreement
The shareholders who have entered into the voting agreement with Frontier
also entered into a voting agreement with U S WEST, agreeing to vote in favor
of the U S WEST merger. Unlike the voting agreement with Frontier, the U S
WEST voting agreement does not restrict the sale or transfer of shares by the
Global Crossing shareholders who entered into the voting agreement. Under a
separate agreement, U S WEST also agreed to vote the shares that it purchased
in the tender offer, which was completed on June 21, 1999, in favor of the
Global Crossing--Frontier merger and the Global Crossing--U S WEST merger.
Subject to a number of factors, including the number of shares of Global
Crossing common stock issued to Frontier shareholders in the merger and any
sale or transfer of shares by the Global Crossing shareholders who entered
into the voting agreement, the vote of those shareholders and U S WEST may be
enough to approve the U S WEST merger without the additional vote of any other
shareholders, including current Frontier shareholders who become Global
Crossing shareholders.
Regulatory issues relating to some types of long distance service
The Telecommunications Act of 1996 at present limits U S WEST's ability to
provide some types of long distance service, including InterLATA long distance
services that originate in the U S WEST region and 800-type services that
terminate in that region. U S WEST must satisfy specific requirements before
it becomes able to provide these types of long distance service. These
requirements include a 14-point competitive checklist providing for measures
to help competitors offer local services, such as through the resale of U S
WEST's service, purchase of network elements from U S WEST or the use of the
networks of these competitors. In addition to meeting these requirements, U S
WEST must also demonstrate to the FCC that its entry into the long distance
market would be in the public interest.
Frontier is not subject to the limitations on long distance service of the
Telecommunications Act and will continue not to be subject to those
limitations even after the Global Crossing--Frontier merger. Frontier
currently provides InterLATA long distance services that originate in the U S
WEST region and those services represented, during the year ended December 31,
1998 and the three months ended March 31, 1999, less than 2% of the Pro Forma
U S WEST with Global Crossing operating revenues during the equivalent periods
shown on pages 115 and 116. After completion of the Global Crossing--U S WEST
merger, however, the limitations on long distance service of the
Telecommunications Act will apply to Global Crossing/Frontier, unless U S WEST
has authorization to provide the currently prohibited InterLATA long distance
services.
We are unable to determine whether U S WEST will have obtained authorization
to provide these services before the completion of the Global Crossing--U S
WEST merger. If U S WEST fails to obtain authorization, Global
Crossing/Frontier will be required to cease providing InterLATA long distance
services originating in the U S WEST region and 800-type services terminating
in that region upon consummation of their merger with U S WEST or will be
required to take other action that would enable Global Crossing/Frontier to
remain in
90
<PAGE>
compliance with applicable restrictions. In that case, Global
Crossing/Frontier expects that it will take action that could include a sale,
exchange or other disposition of the accounts for the affected services and
related assets not capable of other uses. These actions would be subject to
state and federal regulatory approvals.
Qwest acquisition proposal
On June 13, 1999, Qwest publicly announced a proposal to acquire all the
outstanding stock of U S WEST. Qwest revised its acquisition proposal to U S
WEST on June 23, 1999 and filed with the Securities and Exchange Commission a
letter from its Chief Executive Officer, Joseph P. Nacchio, to Solomon
Trujillo, U S WEST's Chief Executive Officer, describing the revised proposal.
Based on that letter, Qwest has proposed to offer to U S WEST shareholders
Qwest common stock with a value of $69 for each share of U S WEST common
stock. In that letter, Qwest's offer is subject to a collar on the price of
Qwest common stock between $30.50 and $43.50, with Qwest agreeing to pay more
cash or issue additional shares, at its option, to offset any decline in
Qwest's stock price down to $30.50 per share.
If the U S WEST board of directors were to deem Qwest's acquisition proposal
to be superior to the Global Crossing-U S WEST merger, under specified
circumstances U S WEST may terminate its merger agreement with Global
Crossing. In that case, U S WEST would be required to pay Global Crossing a
termination fee of $850 million. U S WEST would be permitted to reduce the
termination fee by up to $250 million if U S WEST purchased at market price
and paid in full for capacity on Global Crossing's systems in an aggregate
amount equal to the amount by which the termination fee would be reduced.
91
<PAGE>
The Merger Agreement
This section is a summary of the material terms of the merger agreement, as
amended, a copy of which is attached as Annex A to this document. The
following description does not purport to be complete and is qualified in its
entirety by reference to the merger agreement. You should refer to the full
text of the merger agreement for details of the merger and the terms and
conditions of the merger agreement.
The merger
When the merger occurs, GCF Acquisition Corp., a direct wholly owned
subsidiary of Global Crossing, will be merged with and into Frontier in
accordance with the New York Business Corporation Law. As a result of the
merger, Frontier will be a wholly owned subsidiary of Global Crossing.
Each share of Frontier common stock issued and outstanding immediately
before the merger, other than shares owned or held directly or indirectly by
Global Crossing or directly by Frontier, which will be canceled, will be
converted into the right to receive a number of shares of Global Crossing
common stock equal to the exchange ratio. See "The Merger--What you will
receive in the merger". Each holder of a certificate representing any shares
of Frontier common stock will no longer have any rights with respect to the
shares of Frontier common stock, except the right to receive Global Crossing
common stock and any cash included in the merger consideration. Global
Crossing common stock is described beginning on page 152.
Under the terms of the merger agreement, at the effective time of the
merger:
. the certificate of incorporation of the surviving corporation will be
amended so that its provisions will be the same as the certificate of
incorporation of GCF Acquisition Corp., the acquisition subsidiary,
. the by-laws of GCF Acquisition Corp. will be the by-laws of the
surviving corporation, and
. the officers of Frontier as of the effective time will be the officers
of the surviving corporation and the directors of GCF Acquisition Corp.
as of the effective time will be the directors of the surviving
corporation.
Effective time of the merger
The merger will become effective when we file a certificate of merger with
the New York Department of State. However, we may agree to a later effective
time, and specify that time in the certificate of merger. We will file the
certificate of merger on the second business day after the satisfaction or
waiver of all conditions in the merger agreement, other than conditions that
cannot be satisfied until the closing date. See "--Conditions to the
completion of the merger."
Exchange procedures
After the effective time of the merger, First Chicago Trust Company of New
York, as the exchange agent, will mail to each person who held shares of
Frontier common stock at the time of the merger a letter of transmittal.
Frontier shareholders should use this letter of transmittal in forwarding
Frontier stock certificates. This letter will include instructions for the
exchange of Frontier stock certificates for Global Crossing stock
certificates. After surrendering a Frontier stock certificate together with
the letter of transmittal, and any other documents the exchange agent
reasonably requires, the holder of a Frontier stock certificate will be
entitled to receive a Global Crossing stock certificate. Frontier shareholders
should not send in their Frontier common stock certificates until they receive
a letter of transmittal.
In addition to a certificate representing Global Crossing common stock, the
holder of a surrendered Frontier stock certificate will receive a check in the
amount of cash the holder is entitled to receive, including
92
<PAGE>
. cash paid instead of fractional shares,
. any dividends or other distributions on the shares of Global Crossing
common stock that have a record date after the merger, and a payment
date before the holder surrenders the Frontier common stock certificate
and
. any cash payable as a result of the cash top-up described under "--
Termination; Possible exchange ratio increase."
However, no cash will be paid until the holder of the Frontier common stock
certificate surrenders that certificate. The holder will also receive any
dividends or other distributions with a record date after the merger but
before the surrender, and a payment date after the surrender. In each case,
taxes will be withheld as required.
After the merger, there will be no transfers on the transfer books of
Frontier of shares of Frontier common stock that were outstanding immediately
before the merger.
Any Global Crossing stock certificates and any cash deposited by Global
Crossing with the exchange agent that remain unclaimed by former Frontier
shareholders twelve months after the merger will be delivered to the surviving
corporation. Any former Frontier shareholders who have not complied with the
exchange procedures before the first anniversary of the merger may look only
to Global Crossing and the surviving corporation for payment of the merger
consideration and any cash instead of fractional shares and unpaid dividends
or distributions on the shares of Global Crossing common stock. Neither Global
Crossing, GCF Acquisition Corp., Frontier or the exchange agent will be liable
to you for any amount delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
No interest will be paid or accrued on any cash payable instead of
fractional shares, as unpaid dividends and distributions with respect to
unexchanged shares or otherwise as merger consideration.
If your Frontier stock certificates have been lost, stolen or destroyed, you
will only be entitled to obtain shares of Global Crossing common stock by
making an affidavit and, if required by the surviving corporation, by posting
a bond in an amount sufficient to protect the surviving corporation against
claims related to your Frontier stock certificate.
Frontier preferred stock
In the merger agreement, Frontier agreed to redeem all of its outstanding
preferred stock before the date of the Frontier special meeting. On July 1,
1999, Frontier redeemed all of its outstanding preferred stock.
Stock options and warrants
In the merger, each option and warrant to buy shares of Frontier common
stock will become an immediately exercisable option or warrant to buy, on the
same terms and conditions, the number of shares of Global Crossing common
stock as the holder of the option or warrant would have been entitled to
receive in the merger if the holder would have exercised the option or warrant
in full immediately before the merger. The price per share subject to each
option and warrant will be equal to the exercise price for the option or
warrant divided by the number of shares of Global Crossing common stock deemed
purchasable under the option or warrant, which will not include fractional
shares.
Representations and warranties
The merger agreement contains essentially reciprocal representations and
warranties made by each of us to the other, including representations and
warranties relating to:
. organization, standing and power,
. capitalization,
93
<PAGE>
. power and authority to enter into and consummate the transactions under
the merger agreement,
. absence of conflicts between organizational documents, laws and
agreements and the transactions under the merger agreement,
. governmental consents in connection with the transactions under the
merger agreement,
. filings with the Securities and Exchange Commission, financial
statements and incurrence of liabilities since December 31, 1998,
. information supplied for this document,
. board of directors approval and required shareholder vote,
. rights agreement, in the case of Frontier only,
. brokers and finders fees with respect to the merger,
. receipt of fairness opinions,
. litigation,
. compliance with applicable laws,
. tax matters, and
. employee benefit plans.
The merger agreement also contains representations and warranties relating
to GCF Acquisition Corp.'s organization and corporate power, power and
authority to enter into and consummate the transactions under the merger
agreement, absence of conflicts between its organizational documents and the
transactions under the merger agreement and the absence of business activities
of GCF Acquisition Corp. other than in connection with the completion of the
transactions contemplated by the merger agreement.
All representations and warranties of Global Crossing, Frontier and GCF
Acquisition Corp. expire at the effective time of the merger.
Covenants
Conduct of business of Frontier pending the completion of the merger
Frontier has agreed that, until the completion of the merger, except as
otherwise permitted by the merger agreement or if Global Crossing consents in
writing, which consent will not be unreasonably withheld or delayed, it and
its subsidiaries will
. carry on its business in the usual, regular and ordinary course in all
material respects and use all reasonable efforts to preserve intact its
present lines of business, maintain its rights, franchises and licenses
and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its ongoing business
will not be impaired in any material respect,
. not (1) enter a new material line of business or (2) incur capital
expenditures other than those incurred or committed to in the ordinary
course of business consistent with past practice, which together with
all expenditures incurred or committed for fiscal year 1999, do not
exceed $900 million,
. not declare any dividends on its common stock, other than the regular
quarterly dividend in the amount of $.05 per share,
. not split, combine or reclassify its capital stock or repurchase its
capital stock, other than specified permitted exceptions,
. not issue additional capital stock or securities convertible into or
exercisable for, or any rights, warrants or options to acquire any
capital stock, with specified permitted exceptions, including upon the
exercise of stock options,
94
<PAGE>
. not amend (in the case of subsidiaries, in any material respect) its
organizational documents,
. not make any acquisitions, except that Frontier may make acquisitions
related to the communications or internet business providing for
consideration not in excess of $500 million and Frontier Internet
Ventures Inc. may make up to $30 million of acquisitions,
. not make any material dispositions of its assets, other than in the
ordinary course of business and other specified permitted exceptions,
. except in the ordinary course of business consistent with past practice,
not make any investments,
. not incur any indebtedness except under existing facilities or
refinancings of existing facilities,
. not take any action that would adversely affect the tax-free nature of
the merger,
. not (1) increase the compensation of its senior executive officers,
except in the ordinary course of business consistent with past practice,
or as required by an existing agreement or (2) make any increase in
employee benefits,
. not take specified other actions that could reasonably be expected to
prevent the satisfaction of any of the conditions to the merger,
. not change its methods of accounting or income tax elections, except as
required by generally accepted accounting principles, and
. not modify the rights agreement, other than as expressly provided in the
merger agreement.
Conduct of business of Global Crossing pending completion of the merger
Global Crossing has agreed that, until the completion of the merger or as
provided below, except as otherwise permitted by the merger agreement or if
Frontier consents in writing, which consent will not be unreasonably withheld
or delayed, it and its subsidiaries will
. carry on its business in the usual, regular and ordinary course in all
material respects and use all reasonable efforts to preserve intact its
present lines of business, maintain its rights, franchises and licenses
and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its ongoing business
will not be impaired in any material respect,
. not enter a new material line of business that is not related to the
communications business other than incidentally as part of a larger
acquisition within an existing line of business,
. not declare any dividends on its common stock,
. not repurchase its capital stock, subject to specified permitted
exceptions,
. not issue additional capital stock or securities convertible into or
exercisable for, or any rights, warrants or options to acquire any
capital stock, except (1) upon the exercise of stock options, (2)
issuance of stock options and (3) other issuances so long as the
issuances do not cause the shares of Global Crossing common stock
subject to the voting agreement described below to constitute less than
51% of the voting power of Global Crossing,
. not amend its organizational documents, except for the increase in its
authorized share capital and the bye-law amendments discussed in this
document,
. not make any acquisitions, except that Global Crossing may make
acquisitions that provide for consideration of no more than $2.5 billion
per acquisition and $8.5 billion in the aggregate, of which no more than
$7.5 billion in the aggregate can consist of voting equity securities,
and except that Global Crossing may not issue Global Crossing common
stock in acquisitions if it would cause the voting power of the shares
subject to the voting agreement to constitute less than 51% of the
voting power of Global Crossing,
. not make any material dispositions of its assets, other than in the
ordinary course of business and other specified permitted exceptions,
95
<PAGE>
. other than in the ordinary course of business, not make any investments,
. not take any action that would adversely affect the tax-free nature of
the merger, including in connection with structuring or completing the U
S WEST merger and the transactions contemplated by that merger,
. not take specified other actions that could reasonably be expected to
prevent the satisfaction of any of the conditions to the merger,
. not change its methods of accounting or income tax elections, except as
required by generally accepted accounting principles, and
. not enter into any merger or similar agreement under which Global
Crossing shareholders would receive consideration for their shares
unless (1) the transaction will be completed after the merger, (2) the
consideration to be received by Global Crossing shareholders would be no
less than $34.5625 and (3) the transaction would not result in the
merger failing to be tax-free.
Global Crossing has also agreed that during the measurement period for
determining the exchange ratio, it will not and will not announce an intention
to:
. acquire Global Crossing common stock in the open market,
. sell, issue or redeem any shares of Global Crossing common stock subject
to specified exceptions, or take action prohibited by Regulation M under
the Securities Act of 1933,
. enter into any material acquisition or disposition, or
. except as required by applicable law or list requirements of the Nasdaq
National Market, make any announcement which would reasonably be
expected to have the effect of resulting in a change in the trading
price of the Global Crossing common stock.
No solicitation of transactions
In the merger agreement, Frontier has agreed that neither it nor any of its
subsidiaries nor any of the officers and directors of it or its subsidiaries
will, and that it will direct and use its best efforts to cause its and its
subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its subsidiaries) not
to, directly or indirectly:
. initiate, solicit, encourage or knowingly facilitate, including by way
of furnishing information, any inquiries or the making of any proposal
or offer with respect to:
--a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Frontier or
any of its subsidiaries, or
--any purchase or sale of all or any significant portion of the assets
or more than 20% of Frontier or its subsidiaries' common stock,
. have any discussion with or provide any confidential information or data
to any person relating to any proposals or offers described above which
we will refer to as an "acquisition proposal," or
. engage in any negotiations concerning any acquisition proposal or accept
an acquisition proposal.
However, if Frontier receives an unsolicited bona fide written acquisition
proposal and the Frontier special meeting has not occurred, the Frontier board
of directors may
. withdraw or modify in any adverse manner the approval of the merger
agreement and the merger or
. engage in discussions or negotiations with, or provide any information
to, the person making the acquisition proposal,
if the Frontier board of directors concludes in good faith that the
acquisition proposal, in the case of the first bullet point above would, if
completed, constitute a superior proposal or in the case of the second bullet
point above, could reasonably be expected to constitute a superior proposal.
96
<PAGE>
We refer to a "superior proposal" as a bona fide written proposal with
respect to:
. a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Frontier, or
. any purchase or sale of all or any significant portion of the assets of
Frontier and its subsidiaries, taken as a whole, or more than 50% of
Frontier's common stock,
which the Frontier board of directors concludes in good faith, after
consultation with its financial advisors and legal counsel, taking into
account all legal, financial, regulatory and other aspects of the proposal and
the person making the proposal,
. would, if completed, result in a transaction that is more favorable to
the Frontier shareholders, in their capacities as shareholders, from a
financial point of view, than the transactions contemplated by the
merger agreement and
. is reasonably capable of being completed.
In addition, before providing any information or data to any person making
an acquisition proposal, the Frontier board of directors must receive an
executed confidentiality agreement from that person on terms substantially
similar to those contained in the confidentiality agreement between Frontier
and Global Crossing, except as to standstill provisions, in which case Global
Crossing will get the benefit of any favorable changes to the standstill
provisions.
Frontier has also agreed that it will notify Global Crossing of any inquiry,
proposal or offer before providing any information or data to any person or
entering into discussions or negotiations with any person making the inquiry,
proposal or offer and to keep Global Crossing informed, on a current basis, of
the status and terms of any proposals, offers, discussions or negotiations.
Frontier has also agreed to terminate any existing activities, discussions or
negotiations with any parties conducted before the date of the merger
agreement with respect to any acquisition proposal.
Board of directors' covenant to recommend
Subject to the provisions described above under "--No solicitation of
transactions" and the right of Frontier to terminate the merger agreement to
accept a superior proposal described under "--Termination; Possible exchange
ratio increase," Frontier has agreed that its board of directors will
recommend adoption of the merger agreement by Frontier shareholders.
Global Crossing has agreed that its board of directors will recommend
approval of the transactions contemplated by the merger agreement by the
shareholders of Global Crossing.
Transition planning; Continued operations of Frontier
We have agreed to create a committee that will be responsible for
coordinating transition planning and implementation relating to the merger.
The initial representatives of Global Crossing are Jack M. Scanlon, David L.
Lee, Abbott L. Brown and James C. Gorton, and the initial representatives of
Frontier are Robert L. Barrett, James G. Dole, Rolla P. Huff and R. Charles
Mancini. We have also agreed to maintain the headquarters of Frontier
Telephone of Rochester, Inc. in Rochester, New York.
Services agreement
Frontier and Global Crossing agreed to use reasonable good faith efforts as
soon as practicable after the execution of the merger agreement to negotiate a
services agreement whereby each party will provide specified services to the
other party. Frontier and Global Crossing entered into such an agreement on
May 6, 1999, which was amended on May 25, 1999.
97
<PAGE>
Reasonable best efforts
We have agreed to use our reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, including the Hart-
Scott-Rodino Antitrust Act and the laws and regulations of the FCC, public
utility commissions and local franchising authorities, to complete the merger
and the other transactions contemplated by the merger agreement as soon as
practicable after the date of the merger agreement. Global Crossing is not
required to sell or otherwise dispose of, or permit the sale or other
disposition of, any assets of Global Crossing, Frontier or any of their
subsidiaries, whether as a condition to obtaining any approval from a
governmental entity or any other person or for any other reason, if Global
Crossing reasonably determines that the sale or other disposition would have
or is likely to have a material adverse effect on Global Crossing and its
subsidiaries, including the surviving corporation and its subsidiaries, taken
together, after the merger.
Employee benefits
After the merger, Global Crossing has agreed to cause the surviving
corporation and its subsidiaries to, for at least two years after the
effective time, provide benefits which, in the aggregate, are no less
favorable than the benefits provided, in the aggregate, under the Frontier
benefit plans before the merger, but Global Crossing will not be required to
continue any particular benefit plan or prevent the amendment or termination
of any plan other than the Employee Telecommunications Benefit program, the
Educational Assistance Fund, the Educational Assistance Program, the Executive
Perquisite program and the Change in Control Severance Plan for Salary Band
Levels 25 and Above for a period of two years after the effective time.
The parties have also agreed that the transition committee described above
will also jointly determine how a retention program of $35 million in the
aggregate to Frontier employees will be administered.
Indemnification and insurance
After the merger, the surviving corporation will maintain for a period of
six years after the effective time of the merger:
. the current provisions regarding elimination of liability of directors
and indemnification of officers, directors and employees contained in
the certificate of incorporation and by-laws of Frontier, and
. the current policies of directors' and officers' liability insurance and
fiduciary liability insurance for acts and omissions occurring before
the merger maintained by Frontier; provided, that the surviving
corporation may substitute policies of at least the same coverage and
amounts containing terms and conditions which are, in the aggregate, no
less advantageous to the covered persons, but if the annual premium is
more than 200% of the last annual premiums currently paid by Frontier,
Global Crossing must obtain a policy with the greatest coverage
available for a cost not exceeding that amount.
Frontier may satisfy the obligations in the second bullet point above by
buying a "tail" policy before the closing covering those matters for a premium
that is not more than the total premium stated above.
Conditions to the completion of the merger
We may complete the merger only if each of the following conditions is met:
. the holders of two-thirds of the outstanding shares of Frontier common
stock adopt the merger agreement and the holders of a simple majority of
the votes of all outstanding shares of Global Crossing common stock
approve the increase in authorized shares and the share issuance,
. there is no law, order or injunction issued by a court or other
governmental entity of competent jurisdiction making the merger illegal
or otherwise prohibiting completion of the merger, except that this will
not be a condition for any party whose failure to fulfill its
obligations described above under "--Reasonable best efforts" is the
cause of, or results in, that order or injunction,
98
<PAGE>
. all approvals for the merger from the FCC and from the public utility
commissions are obtained without the imposition of conditions that would
reasonably be expected to have a material adverse effect on Global
Crossing and its subsidiaries, including the surviving corporation and
its subsidiaries, other than those approvals the failure of which to be
obtained would not reasonably be expected to have a material adverse
effect on Global Crossing and its subsidiaries, including the surviving
corporation and its subsidiaries,
. the waiting period applicable to the merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 terminates or expires, which waiting
period was terminated on May 11, 1999,
. the registration statement on Form S-4 of which this document is a part
continues to be effective under the Securities Act and the shares of
Global Crossing common stock to be issued and reserved for issuance in
the merger are approved upon official notice of issuance for quotation
on the Nasdaq National Market,
. the Bermuda Monetary Authority approves the share issuance and the
subsequent free transferability of the corresponding shares between
nonresident persons for exchange control purposes, which the Bermuda
Monetary Authority did on July 1, 1999,
. the representations and warranties of the other party in the merger
agreement that are qualified as to material adverse effect were true and
correct on the date of the merger agreement and as of the closing date,
except to the extent they speak as of a specified date,
. the representations and warranties of the other party that are not
qualified as to material adverse effect were true and correct in all
material respects on the date of the merger agreement and on the closing
date, except (1) to the extent they speak as of a specified date and (2)
this condition will be satisfied so long as all failures to be true and
correct, taken together, would not reasonably be expected to have a
material adverse effect on that party,
. the other party has complied with its agreements and covenants under the
merger agreement at or before the closing date that are qualified as to
materiality and has complied in all material respects with all its other
agreements and covenants that are not so qualified as to materiality,
. each party received from its counsel a written opinion dated as of the
closing date with respect to the tax-free nature of the merger, and
. Global Crossing's obligation to complete the merger is also subject to
Frontier redeeming its preferred stock, which Frontier did on July 1,
1999.
For purposes of the merger agreement, a "material adverse effect" means any
adverse change, circumstance or effect that is or is reasonably likely to be
materially adverse to the business, financial condition or results of
operations of a person and its subsidiaries, taken as a whole, other than any
change, circumstance or effect relating to the economy or securities markets
in general or the industries in which Global Crossing or Frontier operate and
not specifically relating to them.
Termination; Possible exchange ratio increase
(1) We may terminate the merger agreement and abandon the merger at any time
before we complete the merger by our mutual written consent.
(2) Either of us may also terminate the merger agreement if:
. the merger does not occur before March 16, 2000, except as described
below under "--Alternative Merger," but that the right to terminate the
merger agreement will not be available (a) if the party desiring to
terminate has failed to fulfill any obligation that has been the cause
of, or resulted in, the failure of the merger to occur on or before
March 16, 2000 and (b) to Global Crossing if all of the conditions to
completing the merger have been satisfied or waived other than (1) those
that cannot be satisfied until the closing date so long as it is
reasonably apparent that those conditions will be able to
99
<PAGE>
be satisfied and (2) the condition relating to FCC and public utility
commission approvals described in the third bullet under "--Conditions
to the completion of the merger,"
. any governmental entity either (1) issues a final and nonappealable
order, decree or ruling or takes any other action permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement or (2) fails to issue an order,
decree or ruling or to take any other action, in each case which is
necessary to fulfill the conditions contained in the third and fourth
bullets under "--Conditions to the completion of the merger" above, and
the denial of a request to issue the order, decree, ruling or take such
other action is final and nonappealable; but the right to terminate the
merger agreement will not be available if the party desiring to
terminate has failed to comply with its obligations described above
under "--Reasonable best efforts" that has been the cause of the action
or inaction," or
. the shareholders of the other party fail to approve the matters required
to be approved by them.
(3) Global Crossing may terminate the merger agreement if the Frontier board
of directors, before the Frontier special meeting, withdraws or modifies in
any adverse manner its approval and recommendation of the merger or approves
or recommends a superior proposal pursuant to the provisions described under
"--No solicitation of transactions."
(4) Frontier may terminate the merger agreement if:
(a) at any time before the Frontier special meeting, the Frontier board
of directors, approves a superior proposal; provided that
. Frontier has complied with the provisions described under "--No
solicitation of transactions,"
. the Frontier board of directors concludes in good faith, after
considering any changes to the terms of the merger agreement which
are offered by Global Crossing during the period described in the
next bullet point, on the basis of the advice of its financial
advisors and outside counsel, that the proposal is a superior
proposal, and
. before terminating the merger agreement, Frontier complies with
specified notice and waiting periods which give Global Crossing a
chance to negotiate with Frontier to adjust the terms of the merger
agreement.
Frontier may exercise this termination right only if it has paid Global
Crossing the $270 million termination fee described below under "--Termination
fees," or
(b) the Frontier board of directors so determines by a vote of the
majority of the members of the entire Frontier board of directors, at any
time during the three business day period beginning on the date before all
closing conditions have been satisfied or waived, other than conditions
that cannot be satisfied or waived until the closing, if the average
trading price of the Global Crossing common stock during the measurement
period is less than $34.5625, provided that
. Frontier must give Global Crossing written notice of its intention to
terminate, which will be effective three business days after delivery
and which can be withdrawn by Frontier at any time before it becomes
effective
. during the two business day period beginning with the delivery of
that notice, Global Crossing will have the option of providing
additional merger consideration to ensure that Frontier shareholders
receive $63.00 in value, based on the average Global Crossing trading
price, by either:
1. adjusting the exchange ratio to equal $63.00 divided by the
average price during the measurement period, rounded to the nearest
1/10,000,
100
<PAGE>
2. paying merger consideration equal to the exchange ratio as in
effect and paying cash to make up the difference between $63.00 and
the value based on the average trading price, of the Global Crossing
shares to be delivered or
3. using any combination of cash and Global Crossing shares to
provide $63.00 of value, based on the average trading price of the
Global Crossing common stock during the measurement period.
However, Global Crossing can only use cash consideration
. if the use of the cash will not cause the merger to fail to qualify
as a tax-free reorganization and,
. if the U S WEST merger agreement has not been terminated, with the
consent of Frontier, which will not be unreasonably withheld, except
that Frontier can withhold its consent in its sole discretion if the
use of cash would cause the conditions relating to the delivery of
tax opinions to fail to be satisfied.
Global Crossing can exercise this option by delivering written notice to
Frontier at any time during the two business day period. If Global Crossing
elects to adjust the exchange ratio as described above, then the merger
agreement will not terminate.
It is not possible to know until the date on which we calculate the exchange
ratio if the average trading price of the Global Crossing common stock during
the measurement period will be less than $34.5625. The Frontier board of
directors has not decided whether it would exercise its right to terminate the
merger agreement if the average trading price of the Global Crossing common
stock were less than $34.5625. The Global Crossing board of directors has not
decided whether it would exercise its related right to increase the merger
consideration in the event Frontier chooses to terminate the merger agreement.
We cannot assure you that the Frontier board of directors would exercise its
right to terminate the merger agreement if the average trading price of the
Global Crossing common stock were less than $34.5625 and if the Frontier board
of directors does elect to terminate the merger agreement, we cannot assure
you that Global Crossing will elect to increase the merger consideration.
Frontier shareholders should be aware that the average trading price will be
calculated on the date before the satisfaction and waiver of all of the
closing conditions, other than those that cannot be satisfied or waived until
the closing date, based on the average of the volume weighted averages of the
trading prices of Global Crossing common stock for 15 randomly selected
trading days during the 30 trading days ended on the trading day before the
date before the satisfaction and waiver of all of the closing conditions,
other than those that cannot be satisfied or waived until the closing date.
Accordingly, because the market price of Global Crossing common stock will
fluctuate and may increase or decrease during the period from the end of the
measurement period to the effective time of the merger as well as during the
period from the effective time of the merger until the date certificates
representing shares of Global Crossing common stock are delivered to Frontier
shareholders in exchange for shares of Frontier common stock after the
completion of the merger, the value of the Global Crossing common stock
actually received by holders of Frontier common stock may be more or less than
the average trading price or the value of the Global Crossing common stock at
the effective time of the merger resulting from the exchange ratio, including
as the exchange ratio may be adjusted as described above. This means that the
stated value of $63.00 per share of Frontier common stock may not be the
actual value of the shares on the closing date or when you receive the shares.
Adoption of the merger agreement by the Frontier shareholders at the
Frontier special meeting and approval of the share issuance and the increase
in authorized shares by the Global Crossing shareholders at the Global
Crossing annual meeting will give the Frontier board of directors and the
Global Crossing board of directors, respectively, the power to elect to
. complete the merger in the event the average price is less than
$34.5625, in the case of the Frontier board of directors, or
101
<PAGE>
. increase the exchange ratio in the event Frontier elects to exercise its
termination right, in the case of the Global Crossing board of
directors,
without any further action by, or resolicitation of, the Frontier shareholders
or the Global Crossing shareholders, as the case may be.
Termination fees
The merger agreement obligates Frontier to pay Global Crossing a termination
fee of $270 million if:
. Frontier terminates the merger agreement because its board of directors
approves a superior proposal under the circumstances described in clause
(a) of paragraph (4) under "--Termination; Possible exchange ratio
increase,"
. Frontier or Global Crossing terminate the merger agreement because of
the failure of Frontier shareholders to adopt the merger agreement by
the required vote and all of the following occur:
1. any time after the date of the merger agreement and before this
termination, an acquisition proposal is made with respect to Frontier, and
2. within 12 months of this termination, Frontier enters into a
definitive agreement with any third party relating to an acquisition
proposal or an acquisition proposal is completed,
. Global Crossing terminates the merger agreement because the Frontier
board of directors, before the Frontier special meeting, withdraws or
modifies in any adverse manner its approval and recommendation of the
merger or approves or recommends a superior proposal, or
. Global Crossing terminates the merger agreement because the merger does
not occur by March 16, 2000 under the terms described in the first
bullet point under paragraph (2) under "--Termination; Possible exchange
ratio increase" or Frontier or Global Crossing terminate the merger
agreement because any governmental entity does not allow the merger as
described in the second bullet point under paragraph (2) under "--
Termination; Possible exchange ratio increase" and all of the following
occur:
1. at any time after the date of the merger agreement and before this
termination, an acquisition proposal is made with respect to Frontier,
2. following the existence of that acquisition proposal and before this
termination, Frontier intentionally breaches (and does not cure after
notice of the breach) any of its material covenants or agreements in the
merger agreement in any material respect and
3. within 12 months of this termination, Frontier enters into a
definitive agreement with any third party with respect to an acquisition
proposal or an acquisition proposal is completed.
Other expenses
All expenses incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid by the party
incurring the expense.
The merger agreement provides that expenses incurred in connection with the
filing, printing and mailing of this document will be shared equally by us and
that if the merger is completed, the surviving corporation will pay, or cause
to be paid, any and all property or transfer taxes imposed on Frontier or its
subsidiaries and any real property transfer tax imposed on any holder of
shares of capital stock of Frontier resulting from the merger.
Amendments and waivers
The parties may amend the merger agreement before the merger, if the
amendment is in writing signed by the parties. After the shareholder approvals
of Frontier and Global Crossing are obtained, the parties cannot make
102
<PAGE>
any amendment to the merger agreement which would require further shareholder
approval without further approval. The conditions to each party's obligation
to complete the merger may be waived by the other party in whole or in part to
the extent permitted by applicable law.
Alternative merger structure
The merger agreement provides for an alternative merger structure to be used
to effect the merger under the circumstances described below. The alternative
merger structure provides for the creation of a new United States holding
company with two subsidiaries. Frontier would become a wholly owned subsidiary
of the new United States holding company by merging with one of the new United
States holding company's subsidiaries and Global Crossing would become a
wholly owned subsidiary of the new United States holding company through a
merger or scheme of arrangement. In connection with the alternative merger
structure, each share of Frontier common stock would be converted into a
number of shares of the new holding company's common stock equal to the
exchange ratio. Each share of Global Crossing common stock would be converted
into one share of the new holding company's common stock. The implementation
of the alternative merger structure will therefore result in current Frontier
shareholders owning the same percentage of the new company as they would own
of Global Crossing under the existing structure except that the new company
will be incorporated under the laws of a state in the United States rather
than Bermuda.
The merger will be completed in accordance with the structure described
elsewhere throughout this document as long as a trigger event occurs and
remains in effect. Under the merger agreement, a trigger event occurs when the
following conditions have occurred and remain satisfied: (1) Global Crossing
has completed a qualifying acquisition and (2) counsel to Frontier and Global
Crossing each confirm that they could render legal opinions as to the tax-free
nature of the merger. On July 2, 1999, Global Crossing completed a qualifying
acquisition. Based on existing circumstances, we do not currently believe that
the alternative merger structure will be required to be effected.
If, however, the alternative merger structure is required to be effected, we
intend to take any action required by law to effect such structure, including,
if necessary, providing you with additional information regarding the
alternative merger structure.
If we were required to implement the alterative merger structure because the
trigger event was no longer in effect, the date described in the second bullet
point of paragraph (2) under "--Termination; Possible exchange ratio increase"
will be 180 days after the date on which the trigger event is no longer in
effect instead of March 16, 2000.
103
<PAGE>
Related Agreements
Stock option agreement
General
Frontier and Global Crossing have entered into a stock option agreement
giving Global Crossing the right to acquire shares of Frontier. The stock
option agreement may prevent a third party from completing a pooling of
interests transaction with Frontier and would make alternative transactions,
including a merger with another company, significantly more expensive than
would otherwise be the case. Accordingly, the stock option agreement may
discourage third parties from proposing alternative transactions that may be
more advantageous than the merger for Frontier shareholders.
The stock option agreement gives Global Crossing an option to purchase
shares of Frontier common stock at an exercise price of $62.00 per share. The
maximum number of shares that Global Crossing may purchase under the option is
19.9% of the shares of Frontier common stock outstanding at the time of
exercise. Based on the number of shares outstanding on the date of the merger
agreement, the option allows Global Crossing to purchase 34,291,944 shares.
We have attached the stock option agreement to this document as Annex B. We
urge you to read the full text of the stock option agreement.
When the option may be exercised
The option will become exercisable when the merger agreement is terminated
in a circumstance under which Global Crossing would or could be entitled to
receive a termination fee from Frontier. These circumstances are described
under "The Merger Agreement--Termination fees." If the merger agreement is
terminated under circumstances which could result in Global Crossing becoming
entitled to receive a termination fee described in the second or fourth bullet
points under "The Merger Agreement--Termination fees," the option will not
become exercisable until Frontier enters into a definitive agreement with a
third party with respect to an acquisition proposal or completes an
acquisition proposal during the twelve months after termination of the merger
agreement.
Events terminating the right to exercise
The right to exercise the option terminates if we complete the merger. The
right to exercise the option also terminates in three other circumstances:
1. 15 months after the option first becomes exercisable,
2. termination of the merger agreement under circumstances which do not
result in Global Crossing becoming entitled to receive a termination fee from
Frontier, and
3. 12 months after termination of the merger agreement under circumstances
which would result in Global Crossing becoming entitled to receive a
termination fee under the second or fourth bullet points under "The Merger
Agreement--Termination fees" unless, during that period, the option becomes
exercisable.
Repurchase
. At the option of Global Crossing. At any time after the termination fee
is paid or becomes due and payable from Frontier under the merger
agreement, at Global Crossing's request, Frontier will repurchase the
option and all, but not less than all, of the shares of Frontier common
stock issued upon the exercise of the option.
. At the option of Frontier. At any time after the option becomes
exercisable, Frontier may, at its election, repurchase the option or
all, but not less than all, of the shares of Frontier common stock
issued upon the exercise of the option.
104
<PAGE>
The repurchase will be made at a price per share equal to the highest of:
. the highest price per share at which a tender or exchange offer for
Frontier has been completed,
. the highest price per share to be paid by a third party under an
agreement with Frontier for an acquisition proposal, and
. the highest closing price per Frontier share as reported on the New York
Stock Exchange during the 60 business days before the date of
repurchase.
In each case, the exercise price for the repurchased options will be
deducted from the total repurchase price paid. The value of any noncash
consideration will be determined in good faith by an independent nationally
recognized investment banking firm selected by Global Crossing and reasonably
acceptable to Frontier.
Limitation on total profit
The total profit that Global Crossing can realize from the stock option
agreement would be equal to the sum of the following amounts received from:
. the sale of shares purchased under the option, less the purchase price
for those shares,
. the repurchase of the option by Frontier, and
. any termination fee received under the merger agreement.
The stock option agreement limits Global Crossing's total profit from the
option and the termination fee to $275 million.
Registration rights
Global Crossing may demand on two occasions that Frontier file a
registration statement, including a shelf registration statement, to register
the shares of Frontier common stock that it may acquire upon the exercise of
the option. The registration rights terminate two years after the first
exercise of the option.
Adjustments
The type and number of option securities will be adjusted appropriately if
any change in Frontier's common stock occurs involving reclassifications,
recapitalizations, stock dividends, dividends, split-ups, combinations,
subdivisions, exchanges or similar events.
Transfer
Global Crossing may not transfer the exercise of rights or the option to any
person without Frontier's prior written consent.
Voting agreement
Principal shareholders of Global Crossing representing over a majority of
the voting power of Global Crossing common stock have agreed with Frontier to
be present, in person or by proxy, and vote all of the voting securities of
Global Crossing which are beneficially owned by them or which these
shareholders have, directly or indirectly, the right to vote, in favor of the
increase in the number of authorized shares and the share issuance and any
action required in furtherance of these matters and the merger and, if
applicable, the alternative merger. These shareholders have also agreed to
vote against any action or agreement that would reasonably be expected to
result in a failure of the conditions relating to representations, warranties
and covenants of Global Crossing to be satisfied. In connection with the
execution of the U S WEST merger agreement and the amendment to the merger
agreement, the shareholders reaffirmed these obligations under the voting
agreement. In addition, U S WEST agreed to vote the 39,259,305 shares it
acquired in the tender offer for Global Crossing shares which was completed on
June 21, 1999, in favor of the merger.
105
<PAGE>
As of the date of the voting agreement, these shareholders beneficially
owned 319,063,570 shares of Global Crossing common stock, representing
approximately 72% of the voting power of the outstanding Global Crossing
common stock after giving effect to the voting limitations on 9.5% or larger
shareholders contained in the Global Crossing bye-laws. The voting agreement
permits the shareholders to transfer beneficial or record ownership of the
shares subject to the agreement, so long as the transfer does not result in
less than 51% of the voting power of the Global Crossing shares to be subject
to the voting agreement. In that case, shareholders can only transfer their
shares if the transferee agrees to be bound by the voting agreement with
respect to the transferred shares.
Each shareholder also agreed in the voting agreement that during the period
during which the average price of the Global Crossing stock will be determined
for purposes of calculating the exchange ratio, the shareholder will not, and
will not announce an intention to:
. acquire any shares of Global Crossing common stock in the open market,
. sell any shares of Global Crossing common stock,
. take any other action prohibited by Regulation M under the Securities
Act of 1933, or
. make any announcement which would reasonably be expected to have the
effect of resulting in a change in the trading prices of the Global
Crossing common stock.
As of , 1999, the shareholders that are parties to the voting agreement
together beneficially owned shares of Global Crossing common stock,
representing approximately % of the outstanding voting power of the Global
Crossing common stock as of that date. In addition, as of , 1999, U S WEST
owned shares of Global Crossing common stock, representing approximately
% of the outstanding voting power of the Global Crossing common stock as of
that date.
The voting agreement will terminate on the earliest of
. the completion of the merger,
. the termination of the merger agreement in accordance with its terms,
and
. the full and irrevocable approval of the increase of authorized shares,
the share issuance and the alternative merger.
Because the shares subject to the voting agreement represent more than a
simple majority of the votes of all outstanding shares of Global Crossing
common stock, we expect that the proposals relating to the share issuance and
the increase in the number of authorized shares will be approved at the Global
Crossing annual meeting, even if no other shareholder votes to approve those
proposals. The voting agreement is attached as Annex C to this document. You
should read it entirely.
106
<PAGE>
Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined financial information
of Global Crossing, Global Marine and Frontier, which we refer to as "Pro
Forma Global Crossing," and unaudited pro forma condensed financial
information of U S WEST and Pro Forma Global Crossing, which we refer to as
"Pro Forma U S WEST with Global Crossing," have been prepared to demonstrate
how these companies or businesses might have looked if the Global Crossing--
Frontier merger and the Global Crossing--U S WEST merger and merger related
transactions had been completed as of the dates or at the beginning of the
periods presented.
We have prepared the pro forma financial information using the purchase
method of accounting. We expect that we will have reorganization and
restructuring expenses and potential synergies relating to our long distance
business as a result of combining our companies. The unaudited pro forma
information does not reflect these expenses and synergies.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma information also
does not attempt to show how the combined company would actually have
performed had the companies been combined throughout these periods.
Currently, some types of long distance service now being provided by
Frontier cannot be provided by a Regional Bell Operating Company within its
region. This limitation applies to U S WEST. In connection with the Global
Crossing--U S WEST merger after the Global Crossing--Frontier merger is
completed, Global Crossing and U S WEST will seek necessary regulatory
approvals to permit the entity resulting from the Global Crossing--U S WEST
merger to continue to provide these long distance services in the U S WEST
region. If these approvals are not obtained, Global Crossing/Frontier expects
that it will take other actions to comply with the applicable restrictions.
These actions could include disposition, by sale, exchange or otherwise, of
accounts for the affected services and of some related assets. These actions
would be subject to state and federal regulatory approvals. The revenues of
Frontier arising from the provision of these services in the U S WEST region,
during the year ended December 31, 1998 and the three months ended March 31,
1999, represented less than 2% of the Pro Forma U S WEST with Global Crossing
operating revenues during the equivalent periods shown in the tables below.
See "The U S WEST Merger--Regulatory issues relating to some types of long
distance service" on page 90.
Pursuant to the purchase agreement of Global Marine, Global Crossing
acquired the net assets of Global Marine for approximately $870 million.
Pursuant to the terms of the Global Crossing--Frontier merger, each holder
of Frontier common stock will be entitled to receive that number of shares of
Global Crossing common stock equal to the exchange ratio. The unaudited Pro
Forma Global Crossing financial statements have been prepared assuming an
exchange ratio of [1.26] shares of Global Crossing common stock for each share
of Frontier common stock outstanding or an estimated purchase price of $11.4
billion assuming a Global Crossing share price of $[50] per share. Fees and
expenses related to the merger and merger related transactions totaling $95
million are included in the Pro Forma Global Crossing information. The actual
exchange ratio may vary as described in this document. These unaudited pro
forma condensed combined financial statements are preliminary and subject to
change based on the review of a final study to determine the fair values of
Frontier's and Global Marine's net assets.
Pursuant to the terms of the Global Crossing--U S WEST merger, a new parent
holding company will be formed and each share of Global Crossing, including
the shares received by Frontier shareholders in the merger, and U S WEST will
be converted into shares of the parent holding company. The unaudited Pro
Forma U S WEST with Global Crossing financial statements have been prepared
assuming an exchange ratio of
107
<PAGE>
approximately [1.27], based on an average trading price of Global Crossing
common stock of $[55], which was the trading price of the Global Crossing
common stock several days before and after the announcement of the U S WEST
and Global Crossing merger. Fees and expenses related to the U S WEST and
Global Crossing merger totaling $100 million are included in the Pro Forma U S
WEST with Global Crossing information. These unaudited pro forma condensed
combined financial statements are preliminary and subject to change based on
the review of a final study to determine the fair values of Global Crossing,
Frontier and Global Marine net assets.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements of Global
Crossing, Global Marine, Frontier and U S WEST which, in the case of Global
Crossing and Global Marine, are included in this document and, in the case of
Frontier and U S WEST, incorporated by reference in this document.
The unaudited pro forma condensed combined financial statements are
presented for comparative purposes only and are not intended to be indicative
of actual results had the transactions occurred as of the dates indicated
above nor do they purport to indicate results which may be attained in the
future.
108
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Balance Sheet
as of March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Total
Global Crossing Pro Forma
Global Crossing Global Pro Forma with Global Frontier Pro Forma Global
Historical (1) Marine (1) Adjustments Marine Historical (1) Adjustments Crossing
--------------- ---------- ----------- --------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........ $ 564,348 $ 4,371 $(270,000)(2) $ 258,719 $ 97,286 $ (18,469)(5) $ 162,536
(5,000)(4) (90,000)(4)
(35,000)(13) (85,000)(8)
Accounts receivable,
net................ 95,528 72,377 -- 167,905 437,802 -- 605,707
Inventories and
supplies........... -- 13,716 -- 13,716 9,772 -- 23,488
Deferred directory
costs.............. -- -- -- -- -- -- --
Deferred tax
assets............. -- -- -- -- 13,080 -- 13,080
Prepaid and other... 106,593 79,034 -- 185,627 32,009 -- 217,636
---------- -------- --------- ---------- ---------- ----------- -----------
Total current
assets............. 766,469 169,498 (310,000) 625,967 589,949 (193,469) 1,022,447
Restricted cash and
cash equivalents.... 422,933 -- -- 422,933 -- -- 422,933
Accounts receivable.. 70,884 -- -- 70,884 -- -- 70,884
Capacity available
for sale............ 577,273 -- -- 577,273 -- -- 577,273
Property, plant and
equipment, net...... 45,400 363,754 -- 409,154 1,833,276 -- 2,242,430
Construction in
process............. 532,653 -- -- 532,653 -- -- 532,653
Goodwill and other
intangibles, net.... -- 36,486 (36,486)(2) 649,399 475,493 (475,493)(3) 11,343,639
649,399 (2) 10,694,240 (3)
Other assets, net.... 86,727 146,277 (146,277)(13) 86,727 349,747 -- 436,474
Investment in
affiliates.......... 187,458 37,319 -- 224,777 -- -- 224,777
---------- -------- --------- ---------- ---------- ----------- -----------
Total Assets........ $2,689,797 $753,334 $156,636 $3,599,767 $3,248,465 $10,025,278 $16,873,510
========== ======== ========= ========== ========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt..... $ 9,774 $ -- $ -- $ 9,774 $ 9,245 $ -- $ 19,019
Accrued construction
costs.............. 143,363 -- -- 143,363 27,347 -- 170,710
Accounts payable and
accrued expenses... 60,103 104,707 -- 164,810 517,881 -- 682,691
Other current
liabilities........ 60,424 49,043 -- 109,467 52,915 -- 162,382
---------- -------- --------- ---------- ---------- ----------- -----------
Total current
liabilities........ 273,664 153,750 -- 427,414 607,388 -- 1,034,802
Long term debt....... 248,475 -- 600,000 (2) 848,475 1,436,265 -- 2,284,740
Senior notes......... 796,588 -- -- 796,588 -- -- 796,588
Deferred income
taxes............... 31,779 38,350 -- 70,129 48,500 (190,939)(6) (72,310)
Postretirement and
other postemployment
benefit
obligations......... -- -- -- -- 84,879 -- 84,879
Deferred credits and
other............... 66,883 264,147 (146,277)(13) 184,753 -- -- 184,753
---------- -------- --------- ---------- ---------- ----------- -----------
Total Liabilities... 1,417,389 456,247 453,723 2,327,359 2,177,032 (190,939) 4,313,452
---------- -------- --------- ---------- ---------- ----------- -----------
Manditorily
Redeemable Preferred
Stock............... 500,419 -- -- 500,419 -- -- 500,419
---------- -------- --------- ---------- ---------- ----------- -----------
Shareholders' equity:
Preferred stock..... -- -- -- -- 18,286 (18,286)(5) --
Common stock........ 4,331 89,000 (89,000)(2) 4,331 172,574 (170,400)(3) 6,505
Other shareholders'
equity............. 1,145,304 -- -- 1,145,304 615,340 (579,077)(3) 12,430,780
10,869,276 (3)
(36,263)(7)
416,200 (8)
Unearned
compensation....... (78,260) -- -- (78,260) (36,263) 36,263 (7) (78,260)
Treasury stock...... (209,415) -- -- (209,415) (231) 231 (3) (209,415)
Retained earnings
(accumulated
deficit)........... (89,971) 208,087 (208,087)(2) (89,971) 305,875 (183)(5) (89,971)
(275,692)(3)
(30,000)(4)
Accumulated other
comprehensive
income............. -- -- -- -- (4,148) 4,148 (3) --
---------- -------- --------- ---------- ---------- ----------- -----------
Total shareholders'
equity............. 771,989 297,087 (297,087) 771,989 1,071,433 10,216,217 12,059,639
---------- -------- --------- ---------- ---------- ----------- -----------
Total liabilities
and shareholders'
equity............ $2,689,797 $753,334 $ 156,636 $3,599,767 $3,248,465 $10,025,278 $16,873,510
========== ======== ========= ========== ========== =========== ===========
</TABLE>
109
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Three Months Ended March 31, 1999
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Total Pro
Global Crossing Forma
Global Crossing Global Pro Forma with Global Frontier Pro Forma Global
Historical(1) Marine(1) Adjustments Marine Historical(1) Adjustments Crossing
--------------- --------- ----------- --------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES...... $ 178,183 $95,494 $ -- $ 273,677 $ 674,832 $ -- $ 948,509
----------- ------- -------- ----------- ----------- -------- -----------
OPERATING EXPENSES:
Operating, selling,
general and
administrative........ 120,400 70,112 -- 190,512 532,107 -- 722,619
Stock related
expense............... 16,716 -- -- 16,716 -- 16,716
Depreciation and
amortization.......... -- 5,854 (330)(2) 9,583 62,544 (8,809)(3) 130,157
4,059 (2) 66,839 (3)
----------- ------- -------- ----------- ----------- -------- -----------
137,116 75,966 3,729 216,811 594,651 58,030 869,492
----------- ------- -------- ----------- ----------- -------- -----------
OPERATING INCOME
(LOSS)................. 41,067 19,528 (3,729) 56,866 80,181 (58,030) 79,017
EQUITY IN INCOME (LOSS)
OF AFFILIATES.......... (2,736) 947 -- (1,789) 4,241 -- 2,452
Other income (expense):
Interest expense....... (23,779) (2,794) (12,000)(9) (38,573) (15,219) -- (53,792)
Interest income........ 14,392 240 -- 14,632 1,652 -- 16,284
Other income
(expense)............. -- 140 -- 140 8 -- 148
----------- ------- -------- ----------- ----------- -------- -----------
Income (loss) before
taxes and cumulative
effect of change in
accounting principle... 28,944 18,061 (15,729) 31,276 70,863 (58,030) 44,109
Provision (benefit)
for income taxes...... (16,142) (7,366) 5,065 (14) (18,443) (30,961) -- (49,404)
----------- ------- -------- ----------- ----------- -------- -----------
Income (loss) before
cumulative effect of
change in accounting
principle.............. 12,802 10,695 (10,664) 12,833 39,902 (58,030) (5,295)
Preferred stock
dividends............. (13,044) -- -- (13,044) (251) 251 (10) (13,044)
Redemption of
preferred stock....... -- -- -- -- -- (183)(5) (183)
----------- ------- -------- ----------- ----------- -------- -----------
Income (loss) applicable
to common shareholders
before cumulative
change in accounting
principle (Basic)...... (242) 10,695 (10,664) (211) 39,651 (57,962) (18,522)
Diluted earnings
adjustment............ -- -- -- -- 90 (90)(11) --
----------- ------- -------- ----------- ----------- -------- -----------
Income (loss) applicable
to common shareholders
before cumulative
change in accounting
principle (Diluted).... $ (242) $10,695 $(10,664) $ (211) $ 39,741 $(58,052) $ (18,522)
=========== ======= ======== =========== =========== ======== ===========
Income (loss) per common
share:
Income (loss)
applicable to common
shareholders before
cumulative effect of
change in accounting
principle
Basic................ $ (0.00) $ (0.00) $ 0.23 $ (0.03)
=========== =========== =========== ===========
Diluted.............. $ (0.00) $ (0.00) $ 0.23 $ (0.03)
=========== =========== =========== ===========
Shares used in
computing information
applicable to common
shareholders
Basic................ 410,797,073 410,797,073 171,548,022 628,226,109 (12)
=========== =========== =========== ===========
Diluted.............. 410,797,073 410,797,073 175,437,187 628,226,109 (12)
=========== =========== =========== ===========
</TABLE>
110
<PAGE>
Pro Forma Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1998
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Total
Global Global Pro Forma
Crossing Global Pro Forma Crossing with Frontier Pro Forma Global
Historical (1) Marine (1) Adjustments Global Marine Historical (1) Adjustments Crossing
-------------- ---------- ----------- ------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES..... $ 424,099 $347,335 $ -- $ 771,434 $ 2,593,558 $ -- $ 3,364,992
----------- -------- -------- ----------- ----------- --------- -----------
OPERATING EXPENSES:
Operating, selling,
general and
administrative....... 264,781 233,209 -- 497,990 2,050,356 -- 2,548,346
Termination of
Advisory
Services Agreement... 139,669 -- -- 139,669 -- -- 139,669
Stock related
expense.............. 39,374 -- -- 39,374 -- -- 39,374
Depreciation and
amortization......... -- 38,730 (1,318)(2) 53,647 225,806 (36,002)(3) 510,807
16,235 (2) 267,356 (3)
----------- -------- -------- ----------- ----------- --------- -----------
443,824 271,939 14,917 730,680 2,276,162 231,354 3,238,196
----------- -------- -------- ----------- ----------- --------- -----------
OPERATING INCOME
(LOSS)................ (19,725) 75,396 (14,917) 40,754 317,396 (231,354) 126,796
EQUITY IN INCOME (LOSS)
OF AFFILIATES......... (2,508) 4,732 -- 2,224 16,711 -- 18,935
Other income (expense):
Interest expense...... (42,880) (11,176) (48,000)(9) (102,056) (55,318) -- (157,374)
Interest income....... 29,986 3,793 -- 33,779 5,084 -- 38,863
Other income
(expense)............ -- -- -- -- 23,230 -- 23,230
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss) before
taxes, extraordinary
item and cumulative
effect of change in
accounting principle.. (35,127) 72,745 (62,917) (25,299) 307,103 (231,354) 50,450
Provision (benefit)
for income taxes..... (33,067) (25,693) 20,261 (14) (38,499) (129,560) -- (168,059)
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle............. (68,194) 47,052 (42,656) (63,798) 177,543 (231,354) (117,609)
Preferred stock
dividends............ (12,681) -- -- (12,681) (1,005) 1,005 (10) (12,681)
Redemption of
preferred stock...... (34,140) -- -- (34,140) -- (183)(5) (34,323)
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss)
applicable to common
shareholders before
extraordinary item and
cumulative change in
accounting principle
(Basic)............... (115,015) 47,052 (42,656) (110,619) 176,538 (230,532) (164,613)
Diluted earnings
adjustment........... -- -- -- -- 360 (360)(11) --
----------- -------- -------- ----------- ----------- --------- -----------
Income (loss)
applicable to common
shareholders before
extraordinary item and
cumulative change in
accounting principle
(Diluted)............. $ (115,015) $ 47,052 $(42,656) $ (110,619) $ 176,898 $(230,892) $ (164,613)
=========== ======== ======== =========== =========== ========= ===========
Income (loss) per
common share:
Income (loss)
applicable to common
shareholders before
extraordinary item
and cumulative effect
of change in
accounting
principle............
Basic................. $ (0.32) $ (0.31) $ 1.03 $ (0.29)
=========== =========== =========== ===========
Diluted............... $ (0.32) $ (0.31) $ 1.02 $ (0.29)
=========== =========== =========== ===========
Shares used in
computing information
applicable to
common shareholders
Basic................. 358,735,340 358,735,340 170,625,733 576,164,376 (12)
=========== =========== =========== ===========
Diluted............... 358,735,340 358,735,340 173,940,531 576,164,376 (12)
=========== =========== =========== ===========
</TABLE>
111
<PAGE>
Pro Forma Global Crossing
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. These columns represent the historical results of operations and financial
position. With respect to the information included in the Unaudited Pro
Forma Condensed Combined Statement of Operations for the year ended
December 31, 1998, the Global Marine information is for the fiscal year
ended March 31, 1999.
2. These adjustments reflect the elimination of Global Marine's shareholder's
equity accounts, the excess consideration over the net assets acquired
(goodwill) and the related amortization expense. The preliminary goodwill
is calculated as follows (in thousands):
<TABLE>
<S> <C> <C>
Purchase price....................................... $ 870,000
Lease termination fees............................... 35,000
Estimated Global Crossing transaction costs.......... 5,000
---------
Estimated total consideration........................ 910,000
Historical net tangible book value of Global Marine:
Historical Global Marine net assets at March 31,
1999.............................................. $(297,087)
Historical goodwill and other intangibles, net..... 36,486
---------
(260,601)
---------
Preliminary goodwill................................. $ 649,399
=========
</TABLE>
Global Crossing paid (Pounds)550 million (approximately $870 million) in
connection with the transaction. The Company partially financed the
acquisition of Global Marine through the incurrence of debt in the amount
of $600 million with an interest rate of approximately 8%. Global Crossing
has tentatively considered the carrying value of the acquired assets to
approximate fair value, with all excess of such acquisition costs being
attributable to goodwill. Global Crossing is in the process of fully
evaluating the assets acquired and, as a result, the purchase price
allocation among the tangible and intangible (and their related useful
lives) assets acquired may change. Goodwill associated with the transaction
is currently anticipated to be amortized over a 40-year life.
3. These adjustments reflect the elimination of Frontier's shareholders'
equity accounts, the excess consideration over the net assets acquired
(goodwill) and the related amortization expense. The preliminary goodwill
is calculated as follows (in thousands, except per share amounts):
<TABLE>
<S> <C> <C>
Shares of Frontier common stock outstanding at
March 31, 1999.................................. 172,574
Less: Treasury shares............................ (11)
-----------
Shares of Frontier to be exchanged............... 172,563
Frontier exchange ratio.......................... 1.26
-----------
Shares of Global Crossing to be issued........... 217,429
Assumed Global Crossing market price at exchange
date............................................ $ 50
-----------
10,871,450
Acceleration of stock option vesting and other
compensation.................................... 501,200
Tax benefit related to the acceleration of
unearned compensation and vesting of stock
options......................................... (190,939)
Estimated Global Crossing transaction costs...... 60,000
-----------
Estimated total consideration.................... 11,241,711
Historical net tangible book value of Frontier
Historical Frontier net assets at March 31,
1999.......................................... $(1,071,433)
Historical goodwill and other intangibles,
net........................................... 475,493
Estimated Frontier transactions costs.......... 30,000
Preferred stock redemption..................... 18,469
-----------
(547,471)
-----------
Preliminary goodwill............................. $10,694,240
===========
</TABLE>
112
<PAGE>
Pro Forma Global Crossing
Notes to Unaudited Pro Forma Condensed Combined Financial Statements--
(Continued)
Global Crossing will issue 217,429,036 shares of its common stock at an
assumed ratio of 1.26 shares of Global Crossing common stock for each share
of Frontier common stock outstanding assuming a market price of Global
Crossing common stock of $50.00 per share. The actual exchange ratio may
vary as described in this document. Global Crossing has tentatively
considered the carrying value of the acquired assets to approximate their
fair value, with all of the excess of such acquisition costs being
attributable to goodwill. Global Crossing is in the process of fully
evaluating the assets to be acquired and, as a result, the purchase price
allocation among the tangible and intangible (and their related useful
lives) assets acquired may change. Goodwill associated with the merger is
currently anticipated to be amortized over a 40-year life.
4. The pro forma financial statements give effect to an estimated $60 million
and $30 million in direct transaction costs on behalf of Global Crossing
and Frontier, respectively, in connection with the merger. Also, Global
Crossing incurred approximately $5 million of direct transaction costs in
connection with the Global Marine acquisition.
5. These adjustments represent the redemption of Frontier's 5.00%, 5.65%,
4.60% and 5.50% Series redeemable preferred stock prior to completion of
the merger at their respective premiums of the total amount outstanding.
The preferred stock was redeemed on July 1, 1999.
6. This adjustment represents the deferred tax benefit relating to Frontier's
unearned compensation and the acceleration of Frontier's stock options
based upon Global Crossing's effective tax rate for the year ended
December 31, 1998.
7. This adjustment represents the effect of the accelerated vesting of
Frontier's unearned compensation as a result of the merger.
8. This adjustment records the excess fair value of vested stock options
issued by Global Crossing in exchange for vested and unvested outstanding
options of Frontier and other compensation.
9. This amount reflects the assumed interest expense, assuming an 8% interest
rate, incurred on the $600 million debt assumed issued as of the earliest
date presented in connection with the acquisition of Global Marine.
10. This adjustment assumes that Frontier's preferred stock dividends would
not have been incurred, as Frontier's preferred stock would have been
redeemed as of the earliest date presented.
11. To eliminate diluted earnings adjustment due to the combined net loss
position.
12. Pro forma per share data are based on the number of Global Crossing common
shares that would have been outstanding had the merger occurred at the
earliest date presented.
13. This adjustment represents the termination of certain lease arrangements
due to change of control provisions and related costs.
14. These adjustments represent the tax benefit resulting from the interest
expense assumed in connection with the debt issued for the acquisition of
Global Marine.
113
<PAGE>
Pro Forma U S WEST with Global Crossing
Unaudited Pro Forma Condensed Combined Balance Sheet
as of March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Total Pro Tender Total Pro Forma
U S WEST Forma Global Offer Pro Forma U S WEST with
Historical (1) Crossing (1) Adjustments Adjustments Global Crossing
-------------- ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 36,000 $ 162,536 $ -- $ (100,000)(4) $ 98,536
Accounts receivable,
net................... 1,700,000 605,707 -- -- 2,305,707
Inventories and
supplies.............. 236,000 23,488 -- -- 259,488
Deferred directory
costs................. 276,000 -- -- -- 276,000
Deferred tax assets.... 161,000 13,080 -- -- 174,080
Prepaid and other...... 127,000 217,636 -- -- 344,636
------------ ----------- ----------- ------------ ------------
Total current
assets.............. 2,536,000 1,022,447 -- (100,000) 3,458,447
Restricted cash and cash
equivalents............ -- 422,933 -- -- 422,933
Accounts receivable..... -- 70,884 -- -- 70,884
Capacity available for
sale................... -- 577,273 -- -- 577,273
Property, plant and
equipment, net......... 15,098,000 2,242,430 -- -- 17,340,430
Construction in
process................ -- 532,653 -- -- 532,653
Goodwill and other
intangibles, net....... -- 11,343,639 -- (11,373,639)(2) 29,922,636
29,952,636 (2)
Investments............. -- -- 2,463,521 (6) (2,463,521)(6) --
Other assets, net....... 1,075,000 436,474 -- -- 1,511,474
Investment in
affiliates............. -- 224,777 -- -- 224,777
------------ ----------- ----------- ------------ ------------
Total Assets......... $ 18,709,000 $16,873,510 $ 2,463,521 $ 16,015,476 $ 54,061,507
============ =========== =========== ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt........ $ 1,393,000 $ 19,019 $1,463,521 (6) $ 503,306 (3) $ 3,378,846
Accrued construction
costs................. -- 170,710 -- -- 170,710
Accounts payable and
accrued expenses...... 3,079,000 682,691 -- -- 3,761,691
Other current
liabilities........... 377,000 162,382 -- -- 539,382
------------ ----------- ----------- ------------ ------------
Total current
liabilities......... 4,849,000 1,034,802 1,463,521 503,306 7,850,629
Long-term debt.......... 8,642,000 2,284,740 1,000,000 (6) -- 11,926,740
Senior notes............ -- 796,588 -- -- 796,588
Deferred income taxes... 811,000 (72,310) -- (29,504)(5) 709,186
Postretirement and other
postemployment benefit
obligations............ 2,632,000 84,879 -- -- 2,716,879
Deferred credits and
other.................. 855,000 184,753 -- -- 1,039,753
------------ ----------- ----------- ------------ ------------
Total Liabilities.... 17,789,000 4,313,452 2,463,521 473,802 25,039,775
------------ ----------- ----------- ------------ ------------
Manditorily Redeemable
Preferred Stock........ -- 500,419 -- -- 500,419
------------ ----------- ----------- ------------ ------------
Shareholders' equity:
Preferred stock........ -- -- -- -- --
Common stock........... 5,004 6,505 -- 782 (2) 12,291
Other shareholders'
equity................ 547,996 12,430,780 -- 15,744,812 (2) 28,494,022
(151,306)(3)
(78,260)(7)
Unearned
compensation.......... -- (78,260) -- 78,260 (7) --
Treasury stock......... -- (209,415) -- 209,415 (2) --
Retained earnings
(accumulated
deficit).............. 352,000 (89,971) -- 139,971 (2) --
(352,000)(3)
(50,000)(4)
Accumulated other
comprehensive
income................ 15,000 -- -- -- 15,000
------------ ----------- ----------- ------------ ------------
Total shareholders'
equity.............. 920,000 12,059,639 -- 15,541,674 28,521,313
------------ ----------- ----------- ------------ ------------
Total liabilities and
shareholders'
equity.............. $ 18,709,000 $16,873,510 $ 2,463,521 $ 16,015,476 $ 54,061,507
============ =========== =========== ============ ============
</TABLE>
114
<PAGE>
Pro Forma U S WEST with Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Three Months Ended March 31, 1999
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Total
Pro Forma
U S WEST Global
Historical Crossing Pro Forma Pro Forma
(1) (1) Adjustments Combined
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES...... $ 3,182,000 $ 948,509 $ -- $ 4,130,509
----------- ----------- --------- -------------
OPERATING EXPENSES:
Operating, selling,
general and
administrative....... 1,787,000 722,619 -- 2,509,619
Stock related ex-
pense................ -- 16,716 -- 16,716
Depreciation and amor-
tization............. 602,000 130,157 (71,085)(2) 848,276
187,204 (2)
----------- ----------- --------- -------------
2,389,000 869,492 116,119 3,374,611
----------- ----------- --------- -------------
OPERATING INCOME
(LOSS)................. 793,000 79,017 (116,119) 755,898
EQUITY IN INCOME (LOSS)
OF AFFILIATES.......... -- 2,452 -- 2,452
Other income (expense):
Interest expense...... (153,000) (53,792) (44,502)(8) (251,294)
Interest income....... -- 16,284 -- 16,284
Other income
(expense)............ (1,000) 148 -- (852)
----------- ----------- --------- -------------
Income (loss) before
taxes and cumulative
effect of change in
accounting principle... 639,000 44,109 (160,621) 522,488
Provision (benefit)
for income taxes..... (242,000) (49,404) 16,777 (10) (274,627)
----------- ----------- --------- -------------
Income (loss) before
cumulative effect of
change in accounting
principle.............. 397,000 (5,295) (143,844) 247,861
Preferred stock
dividends ........... -- (13,044) -- (13,044)
Redemption of
preferred stock...... -- (183) -- (183)
----------- ----------- --------- -------------
Income (loss) applicable
to common shareholders
before cumulative
effect of change in
accounting principle... $ 397,000 $ (18,522) $(143,844) $ 234,634
=========== =========== ========= =============
Income (loss) per common
share:
Income (loss)
applicable to common
shareholders before
cumulative effect of
change in accounting
principle............
Basic............... $ 0.79 $ (0.03) $ 0.19
=========== =========== =============
Diluted............. $ 0.78 $ (0.03) $ 0.18
=========== =========== =============
Shares used in
computing information
applicable to common
shareholders.........
Basic............... 503,306,000 628,226,109 1,228,435,267 (9)
=========== =========== =============
Diluted............. 508,121,000 628,226,109 1,281,354,935 (9)
=========== =========== =============
</TABLE>
115
<PAGE>
Pro Forma U S WEST with Global Crossing
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1998
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Total
Pro Forma
U S WEST Global
Historical Crossing Pro Forma Pro Forma
(1) (1) Adjustments Combined
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES...... $12,378,000 $ 3,364,992 $ -- $ 15,742,992
----------- ----------- ---------- -------------
OPERATING EXPENSES:
Operating, selling,
general and
administrative....... 7,130,000 2,548,346 -- 9,678,346
Termination of
Advisory Services
Agreement............ -- 139,669 -- 139,669
Stock related ex-
pense................ -- 39,374 -- 39,374
Depreciation and amor-
tization............. 2,199,000 510,807 (284,341)(2) 3,174,282
748,816 (2)
----------- ----------- ---------- -------------
9,329,000 3,238,196 464,475 13,031,671
----------- ----------- ---------- -------------
OPERATING INCOME
(LOSS)................. 3,049,000 126,796 (464,475) 2,711,321
EQUITY IN INCOME (LOSS)
OF AFFILIATES.......... -- 18,935 -- 18,935
Other income (expense):
Interest expense...... (543,000) (157,374) (178,010)(8) (878,384)
Interest income....... -- 38,863 -- 38,863
Other income (ex-
pense)............... (87,000) 23,230 -- (63,770)
----------- ----------- ---------- -------------
Income (loss) before
taxes, extraordinary
item and cumulative
effect of change in
accounting principle... 2,419,000 50,450 (642,485) 1,826,965
Provision (benefit)
for income taxes..... (911,000) (168,059) 67,110 (10) (1,011,949)
----------- ----------- ---------- -------------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 1,508,000 (117,609) (575,375) 815,016
Preferred stock divi-
dends................ -- (12,681) -- (12,681)
Redemption of pre-
ferred stock......... -- (34,323) -- (34,323)
----------- ----------- ---------- -------------
Income (loss) applicable
to common shareholders
before extraordinary
item cumulative effect
of change in accounting
principle.............. $ 1,508,000 $ (164,613) $ (575,375) $ 768,012
=========== =========== ========== =============
Income (loss) per common
share:
Income (loss)
applicable to common
shareholders before
extraordinary item
and cumulative effect
of change in
accounting principle
Basic............... $ 3.05 $ (0.29) $ 0.63
=========== =========== =============
Diluted............. $ 3.02 $ (0.29) $ 0.60
=========== =========== =============
Shares used in
computing information
applicable to common
shareholders
Basic............... 494,395,000 576,164,376 1,217,118,297 (9)
=========== =========== =============
Diluted............. 498,798,000 576,164,376 1,269,514,725 (9)
=========== =========== =============
</TABLE>
116
<PAGE>
Pro Forma U S WEST with Global Crossing
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. These columns represent the historical results of operations and financial
position of U S WEST and the Pro Forma Global Crossing amounts.
2. These adjustments reflect the elimination of Global Crossing's
shareholders' equity accounts, the excess consideration over the net
assets acquired (goodwill) and the related amortization expense. The
preliminary goodwill is calculated as follows (in thousands, except per
share amounts):
<TABLE>
<S> <C> <C>
Pro Forma Global Crossing shares outstanding
at March 31, 1999........................... 628,496
Less: Shares acquired as part of tender
offer....................................... (39,259)
-----------
589,237
Global Crossing exchange ratio............... 1.00
-----------
Shares of Global Crossing to be exchanged.... 589,237
Average U S WEST exchange price per share.... $ 44
-----------
25,926,428
Cash paid for shares acquired in tender
offer....................................... 2,463,521
Value of Pro Forma Global Crossing stock
options and warrants........................ 2,178,191
Tax benefit related to unearned compensation
and stock options........................... (29,504)
Estimated U S WEST transaction costs......... 50,000
-----------
Estimated total consideration................ 30,588,636
Pro Forma net tangible book value of Global
Crossing:
Pro Forma Global Crossing net assets at March
31, 1999.................................... $(12,059,639)
Goodwill and other intangibles, net.......... 11,373,639
Estimated Global Crossing transaction costs.. 50,000
------------
(636,000)
-----------
Preliminary goodwill......................... $29,952,636
===========
</TABLE>
We have tentatively considered the carrying value of the acquired assets
to approximate their fair value, with all of the excess of such acquisition
costs being attributable to goodwill. We are in the process of fully
evaluating the assets to be acquired and, as a result, the purchase price
allocation among the tangible and intangible (and their related useful
lives) assets acquired may change. Goodwill associated with the merger is
currently anticipated to be amortized over a 40-year life.
The average U S WEST exchange price per share is based on the average
market price of U S WEST common stock several days before and after the
announcement of the U S WEST merger adjusted by the exchange ratio of 1.27.
3. This adjustment is to record the payment of a special dividend of $1 per
share of outstanding U S WEST common stock by U S WEST in connection with
the merger with Global Crossing.
4. The pro forma financial statements gives effect to an estimated $50
million and $50 million in direct transaction costs on behalf of U S WEST
and Global Crossing, respectively.
5. These adjustments represent the deferred tax benefit relating to Global
Crossing's unearned compensation and stock options based upon U S WEST's
effective tax rate for the year ended December 31, 1998.
6. These adjustments represent the U S WEST tender offer to purchase
39,259,305 shares of Global Crossing common stock for $62.75 in cash per
share and the elimination of the resulting investment in Global
117
<PAGE>
Pro Forma U S WEST with Global Crossing
Notes to Unaudited Pro Forma Condensed Combined Financial Statements--
(Continued)
Crossing by U S WEST. In connection with the tender offer, U S WEST
anticipates financing approximately $2.5 billion, of which $1 billion is
expected to be long term.
7. This adjustment represents the effect of the accelerated vesting of Global
Crossing's unearned compensation as a result of the merger.
8. These adjustments reflect the assumed interest expense incurred, assuming
6% interest rate, on approximately $3 billion of debt assumed issued by U
S WEST as a result of the tender offer and special dividend.
9. Pro forma per share data are based on the number of Pro Forma U S WEST
with Global Crossing common shares that would have been outstanding had
the merger occurred at the earliest date presented.
10. These adjustments represent the tax benefit resulting from the interest
expense assumed in connection with the approximate $3 billion debt issued
by U S WEST.
118
<PAGE>
THE COMPANIES
Global Crossing Ltd.
The following briefly describes the business of Global Crossing. Additional
information regarding Global Crossing is contained in its filings with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934. See "Where You Can Find More Information" on page 188.
Overview
Global Crossing is the world's first independent global provider of state-
of-the-art Internet and long distance telecommunications facilities and
related services utilizing a network of undersea and terrestrial digital fiber
optic cable systems (the "Global Crossing network"). Global Crossing offers
"one-stop shopping" for its customers to multiple destinations worldwide and
currently 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 completed or under development
will form a state-of-the-art interconnected worldwide high capacity fiber
optic network: Atlantic Crossing ("AC-1") and 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 to be operated
by Global Access Ltd. connecting certain cities in Japan to PC-1 ("GAL"). 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. Global Crossing is 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.
Recent developments
On July 5, 1999, Global Crossing announced an agreement with the government
of the Republic of Ireland to build an undersea fiber optic cable system that
will link two of Global Crossing's Irish telehouses, via two diverse fiber
cables, to cities in Europe and North America through the Global Crossing
network. The Irish government will be the system's anchor customer under an
$80-million capacity purchase agreement. Global Crossing will provide
installation and maintenance for the undersea portion of the Irish system
through its recently acquired Global Marine subsidiary.
On July 2, 1999, Global Crossing acquired the Global Marine business of
Cable & Wireless in a transaction valued at approximately $870 million,
consisting of a combination of cash and assumed indebtedness. Global Marine
currently provides services, including maintenance under a number of long-term
contracts, to cables built by more than 100 carriers and is the world's
largest undersea cable installation and maintenance company with a fleet of 13
cable ships, representing approximately 33 percent of the world's total, 21
submersible vehicles and 1,200 employees servicing approximately 35 percent of
the world's undersea cable miles. Global Crossing financed the acquisition
with committed bank financing in the amount of approximately $600 million and
the remainder with cash on hand.
Also on July 2, 1999, Global Crossing entered into a $3 billion senior
secured corporate credit facility with several lenders and The Chase Manhattan
Bank as administrative agent. The facility will be utilized to finance or
refinance construction of some of Global Crossing's cable systems previously
anticipated to be financed on a per-system basis, to fund future growth of
Global Crossing and for general corporate purposes. On July 7, 1999, Global
Crossing, through Global Crossing Holdings, borrowed amounts under this
facility sufficient to retire the existing credit facilities for the AC-1 and
MAC systems and financing provided by Lucent relating to the SAC system, as
well as to finance the acquisition of Global Marine.
119
<PAGE>
On June 4, 1999, Global Crossing announced that it had been selected to
provide marine operations and to act as project manager of Africa ONE, an
estimated $1.6 billion cable system consisting of a self-healing ring around
the continent of Africa connecting more than two dozen coastal-country landing
points and, through terrestrial fiber, microwave or satellite facilities,
additional countries without landing points, including interior countries.
Global Crossing will provide marine operations through its new Global Marine
subsidiary.
On May 16, 1999, Global Crossing entered into a definitive agreement to
merge with U S WEST in a merger of equals. The new company will be a global
and local service provider and has, including Frontier, a current pro forma
market capitalization of more than $75 billion. Global Crossing shareholders,
including the former Frontier shareholders, and U S WEST shareholders will
each have approximately an aggregate 50% ownership in the combined entity. The
Global Crossing--U S WEST merger is subject to a number of conditions,
including the completion of the Global Crossing--Frontier merger and receipt
of regulatory and other approvals. As part of the transaction, U S WEST made a
cash tender offer for approximately 39 million shares, or approximately 9.49%,
of Global Crossing common stock. The tender offer was completed, with U S WEST
acquiring 39,259,305 shares, on June 21, 1999. See "The U S WEST Merger."
Business activity
The business of Global Crossing is designed to meet the varying needs of the
global telecommunications market. Global Crossing offers customers the ability
to purchase capacity on demand and by doing so (1) eliminating their need to
commit the substantial capital which would be required to build cable capacity
and (2) decreasing the risks associated with forecasting their future capacity
requirements. Compared with traditional cable systems, Global Crossing offers
more comprehensive, flexible and low-cost purchasing alternatives designed to
meet current market requirements of international carriers and Internet
Service Providers ("ISPs"), including direct international city-to-city
connectivity, the ability to purchase capacity periodically and discounts
based upon aggregate volume purchased on the Global Crossing network.
Each of the systems completed or under development is upgradable through the
addition of optical and electronic equipment to capacities significantly
beyond its initial capacity at a fraction of the original system cost. These
upgrades are expected to lead to lower unit cost of capacity and lower prices,
resulting in significant growth in market demand for telecommunications
capacity. In addition, Global Crossing is currently evaluating other undersea
and terrestrial cable projects intended to further its strategy of developing
an integrated global network to serve more than 100 of the largest
metropolitan communications markets worldwide.
Global Crossing anticipates that future revenues, beyond those obtained from
the sale of the initial capacity on its first eight cable systems and its
Global Marine operations, will come from several sources. First, since each of
the systems Global Crossing is building is upgradable, this additional
capacity can be sold. Global Crossing also expects to build new systems
providing service to additional geographic areas. In addition, if the full
upgradable capacity of its initial systems is reached, Global Crossing expects
to build or acquire additional systems to meet future demand. As its global
network is developed, Global Crossing expects to generate additional revenues
by broadening its product line to include many forms of bandwidth services.
Global Crossing's predecessor, Global Crossing Ltd., LDC, which has been
renamed as Global Crossing (Cayman) Ltd. ("Old Global Crossing"), was formed
in March 1997 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 and privatization of
foreign telecommunications companies has further contributed to increased
demand for such international cable capacity. Additionally, Global Crossing
believes other technological developments, such as improvements in "last mile"
access technology, including xDSL, cable modems, broadband wireless technology
and the increasing video content of Internet applications, will result in
further capacity demand growth.
Global Crossing started development of the Global Crossing network in March
1997, when Global Crossing contracted for the construction of AC-1, a 14,300
km digital fiber optic undersea cable system that links New York, the United
Kingdom, the Netherlands and Germany. This system offers 40 gigabytes per
second ("Gbps")
120
<PAGE>
of initial service capacity, upgradable to a minimum of 80 Gbps. AC-1 started
service on its United States to United Kingdom segment in May 1998, and the
full system, consisting of a four fiber pair self-healing ring, was completed
in February 1999.
In April 1998, Global Crossing entered into a joint venture which contracted
for the construction of PC-1, a 21,000 km digital fiber optic undersea cable
system that will link the United States and Japan and will initially offer 80
Gbps of service capacity, upgradable to a minimum of 160 Gbps. PC-1,
consisting of a four fiber pair self-healing ring, is scheduled to start
initial service in December 1999. In June 1998, Global Crossing contracted for
the construction of MAC, a 7,300 km digital fiber optic undersea cable system
consisting of a two fiber pair self-healing ring that will connect New York,
Florida and the Caribbean and will initially offer 20 Gbps of service
capacity, upgradable to a minimum of 40 Gbps. In addition, in July 1998,
Global Crossing contracted for the construction of PAC, a 9,500 km two fiber
pair digital undersea cable that will connect California, Mexico, Panama,
Venezuela and the Caribbean and will initially offer 20 Gbps of service
capacity, upgradable to a minimum of 40 Gbps. In March 1999, Global Crossing
announced SAC, a 16,000 km, four fiber pair self-healing ring undersea cable
and 2,000 km four fiber pair terrestrial system that upon completion will link
the major cities of South America to the rest of the Global Crossing network
through MAC and PAC and will initially offer 40 Gbps of service capacity
upgradable to a minimum of 80 Gbps. Global Crossing is also developing PEC, a
10,000 km terrestrial system with 24 to 72 fiber pairs that, upon completion,
will be a self-healing ring linking 24 European cities with AC-1. Global
Crossing also recently obtained a 49% economic interest in Global Access Ltd.,
which is constructing GAL, a 1,300 km fiber optic terrestrial system that will
connect PC-1 at its Japanese landing points in Shima and Ajigaura with Tokyo,
Osaka and Nagoya. Finally, in March 1999, Global Crossing announced its
intention to develop and construct AC-2, an additional 6,500 km eight fiber
pair cable connecting the United States to Europe. AC-2 will be integrated
with the two 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.
Once completed, the undersea and terrestrial segments of the Global Crossing
network will form an integrated worldwide network with multiple access points
offering low-cost capacity. In addition to the announced segments of the
Global Crossing network, Global Crossing has made, and expects to continue to
make, acquisitions of fiber capacity which complement the Global Crossing
fiber optic network and which address customer demands for global city-to-city
connectivity. Global Crossing intends to pursue such connectivity in more than
100 of the largest metropolitan communications markets worldwide.
The Global Crossing network
As part of Global Crossing's mission to create an independent, global,
state-of-the-art fiber optic cable network, connecting major cities worldwide,
the Global Crossing network is being engineered and constructed as an
integrated network along the most heavily trafficked international corridors
in the world with undersea networks, including AC-1 and AC-2 (United States to
Europe) and PC-1 (United States to Asia). Furthermore, during 1998 Global
Crossing announced plans to build and integrate terrestrial networks into this
global network structure, including PEC (trans-Europe) and GAL (trans-Japan).
MAC, SAC and PAC will directly connect the Caribbean, South America and
Central America to the network. Of the fiber optic cable systems currently
operational or under development, AC-1, AC-2, MAC, PAC and PEC are wholly-
owned projects, while PC-1 and GAL are being developed through joint ventures
with one or more partners, principally Marubeni. Global Crossing has a 58%
economic interest in PC-1 and a 49% economic interest in Global Access Ltd.,
which is constructing GAL. Marubeni will manage the development, sales and
operations associated with GAL. 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.
Global Crossing has successfully marketed capacity on its systems to
licensed telecommunications providers, including post, telephone and telegraph
companies ("PTTs"), ISPs and established and emerging telecommunications
companies. Global Crossing customers now total more than 33 international
telecommunications carriers, including AT&T, MCI Worldcom Inc., Deutsche
Telekom AG, GTE, Cable & Wireless, Equant NV, Qwest, Teleglobe Canada Inc.,
Swisscom AG, PTT Telecom BV, Telia AB, Level 3 Communications, Inc. and a
number of emerging telecommunications companies.
121
<PAGE>
The following table contains information regarding the system cost, initial
ready for service ("RFS") date and ownership structure of the Global Crossing
systems. Information relating to AC-1 is based upon historical results, while
information for all other systems is estimated.
<TABLE>
<CAPTION>
System Cost(1)
System (millions) RFS Date(1) Ownership Structure
- ------ -------------- -------------------------- ---------------------------
<S> <C> <C> <C>
AC-1 $ 750 February 1999 (Full Ring) Wholly Owned
AC-2 750 March 2001 Wholly Owned
March 2000 (Initial)
PC-1 1,200 March 2000 (Full Ring) Joint Venture
December 1999 (Initial)
MAC 330 December 1999 Wholly Owned
PAC 495 February 2000 Wholly Owned
SAC 1,130 December 2000 (First Phase) Wholly Owned (undersea)
March 2001 (Full Ring) Joint Venture (terrestrial)
PEC 850 December 1999 (First Phase) Wholly Owned
GAL 190 December 1999 (First Phase) Joint Venture
------
$5,695
======
</TABLE>
- --------
(1) Total system costs include anticipated financing costs, but exclude the
costs of potential future upgrades and any amount capitalized with respect
to the warrants issued in exchange for the rights to some of these
systems. See Note 10 to the Global Crossing audited consolidated financial
statements. 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.
Atlantic Crossing
AC-1, Global Crossing's first undersea fiber optic cable in the Atlantic
region, is a 14,300 km four fiber pair self-healing ring that connects 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 initially offers 40 Gbps of service capacity,
which is upgradable to a minimum of 80 Gbps using DWDM technology. AC-1
started service on its United States to United Kingdom segment during May
1998, and the full system was completed during February 1999.
The total cost of AC-1 excluding upgrade payments was approximately $750
million. Furthermore, Global Crossing recently entered into a $50 million
contract with Tyco Submarine System Ltd. ("TSSL") to upgrade AC-1 capacity
from 40 Gbps to 80 Gbps. In addition to the contract with TSSL for
construction of the system, Global Crossing has entered into other agreements
with TSSL for services and support associated with operations, administration
and maintenance of the system.
Global Crossing has successfully marketed capacity on AC-1 and entered into
capacity purchase agreements with customers providing for contract sales
representing approximately 35% of the sales capacity of 512 circuits on the
AC-1 system as of December 31, 1998. In the case of AC-1, Global Crossing
generally grants customers who have entered into capacity purchase agreements
options to acquire additional capacity on AC-1. The amount of such future
capacity depends upon a number of factors, including upgrades to the system,
future prices for AC-1 capacity and the amount of unsold capacity on certain
future dates. The timing of payments by purchasers under capacity purchase
agreements generally depends on when customers request activation of the
capacity acquired.
On March 24, 1999, Global Crossing 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 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. AC-2 would significantly increase the capacity that Global
Crossing would be able to offer customers on the transatlantic route.
122
<PAGE>
Pacific Crossing
PC-1, Global Crossing's first undersea fiber optic cable in the Pacific
region, is being developed as a 21,000 km, four fiber pair self-healing ring.
When completed, it will connect California and Washington in the western
United States with two landing sites in Japan. PC-1 is designed to operate
initially at 80 Gbps of service capacity, upgradable to a minimum of 160 Gbps,
using DWDM technology.
In April 1998, Global Crossing executed a construction contract with TSSL
for the construction of PC-1, which provides for a system completion date of
July 2000 at a total cost of approximately $1,200 million, excluding potential
future upgrades and amounts capitalized with respect to warrants issued in
exchange for the rights to construct PC-1. Equity investments in PC-1 are
currently estimated at $400 million of which Global Crossing will provide
approximately $231 million, with the remaining $800 million to be financed
through incurrence of non-recourse project indebtedness. The credit agreement
for the financing of such indebtedness was executed in July 1998.
Mid-Atlantic Crossing
MAC is being developed as a 7,300 km two fiber pair self-healing ring that,
upon completion, will connect New York, the Caribbean and Florida. MAC will be
connected to AC-1 via its cable station in Brookhaven, New York and to SAC via
its cable station anticipated to be constructed in St. Croix, United States
Virgin Islands, providing connectivity between Europe, the eastern United
States, the Caribbean and South America. This system is being designed to
operate initially at 20 Gbps of service capacity, upgradable to a minimum of
40 Gbps using DWDM technology.
In June 1998 and October 1998, Global Crossing executed contracts with
Alcatel Submarine Networks and TSSL, respectively, for the construction of
MAC, which provides for a system completion date of December 1999 at a total
cost of approximately $330 million, excluding potential future upgrades and
amounts capitalized with respect to warrants issued in exchange for the rights
to construct MAC. Global Crossing intends to finance MAC with an approximately
$110 million equity contribution along with either approximately $220 million
of bank indebtedness under its existing corporate credit facility or through
other corporate financing.
Pan American Crossing
PAC is being developed as a 9,500 km two fiber pair cable that, upon
completion, will connect California, Mexico, Panama, Venezuela and the
Caribbean. PAC is being designed to interconnect with PC-1 through our landing
station anticipated to be constructed in Grover Beach, California, with MAC
through our landing station anticipated to be constructed in St. Croix, United
States Virgin Islands and with SAC through our landing station anticipated to
be constructed in Fort Amador, Panama. Global Crossing anticipates that PAC
will cross Panama via an existing terrestrial right-of-way. PAC is being
designed to operate initially at 20 Gbps of service capacity, upgradable to a
minimum of 40 Gbps using DWDM technology.
In July 1998, Global Crossing executed a contract with TSSL for the
construction of PAC which provides for a system completion date of February
2000 at an estimated total cost of $495 million, excluding potential future
upgrades and amounts capitalized with respect to warrants issued in exchange
for the rights to construct PAC. Global Crossing intends to finance PAC either
with an approximately $200 million equity contribution and bank indebtedness
of approximately $295 million under its existing corporate credit facility or
through other corporate financing.
South American Crossing
On March 11, 1999, Global Crossing 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 SAC to the United
States, Mexico, Central America, the Caribbean, Asia and Europe. Global
Crossing expects that SAC
123
<PAGE>
will cost approximately $1,130 million to construct and will commence service
in 2000. Global Crossing 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.
Upon construction, the undersea portion of SAC will constitute a state-of-
the-art four-fiber pair, self-healing ring, built using advanced DWDM
technology. Undersea portions of the ring are expected to connect to landing
sites at St. Croix (United States Virgin Islands), Fortaleza (Brazil), Rio de
Janeiro (Brazil), Santos (Brazil), Las Toninas (Argentina), Valparaiso
(Chile), Lurin (Peru), Buenaventura (Colombia) and Fort Amador (Panama).
Terrestrial segments are expected to connect to most major South American
cities, including Rio de Janeiro, Sao Paulo (Brazil), Buenos Aires
(Argentina), Santiago (Chile), Lima (Peru), Cali (Colombia) and Bogota
(Colombia). The SAC ring is expected to be completed on its southern-most end
by a terrestrial link across the Andes between Las Toninas and Valparaiso. The
PAC system from Panama to St. Croix is expected to complete the ring.
Initially, SAC is expected to have a capacity of 40 Gbps and to be upgradable,
using DWDM technology, to a minimum of 80 Gbps.
Terrestrial capacity
In addition to the undersea segments of the Global Crossing network, Global
Crossing has acquired or constructed, and expects to continue to acquire or
construct, terrestrial fiber capacity to complement its undersea cable systems
and complete a global network to meet customer demands for worldwide city-to-
city connectivity.
Pan European Crossing. Global Crossing announced plans to build PEC which,
upon completion, will be a self-healing ring offering connectivity between AC-
1 and 24 European cities, including London, Paris, Strasbourg, Amsterdam,
Rotterdam, Antwerp, Brussels, Berlin, Frankfurt, Munich, Stuttgart, Hamburg,
Hanover, Dusseldorf, Cologne and Copenhagen. Global Crossing also plans to
connect additional European cities to this system. PEC is initially planned as
a 10,000 km system with 24 to 72 fiber pairs as well as spare conduits. Global
Crossing is currently negotiating with various parties for the acquisition of
rights of way and the acquisition or construction of conduits. Furthermore,
Lucent Technologies, Inc. will supply fiber and equipment as well as project
management and integration services. Based on these arrangements, Global
Crossing believes that the construction costs for the system will be
approximately $850 million, excluding potential future upgrades. Global
Crossing will develop PEC in several phases, initially providing connectivity
among 24 cities. The initial phase has an anticipated completion date during
December 1999. The second phase will add five cities and has an anticipated
completion date in 2000.
Global Access Ltd. Global Crossing recently obtained a 49% interest in
Global Access Ltd., a company which will own and operate GAL, a fiber optic
terrestrial system being developed in Japan that, among other things, will
connect the PC-1 cable stations with three cities in Japan. Through GAL,
Global Crossing intends to offer terrestrial services to PC-1 customers at
prices substantially lower than those currently available. GAL is initially
planned as a 1,300 km system. Global Access Ltd. is currently negotiating with
various parties for the construction of GAL and, based on those negotiations,
Global Crossing believes that the construction costs for GAL will be
approximately $190 million. The initial expected RFS date for the first phase
of GAL's development is December 1999.
Purchased Capacity. Global Crossing has acquired terrestrial connectivity
between AC-1 landing stations in the United States and the United Kingdom to
provide city-to-city service from New York City to London and has also entered
into agreements to provide terrestrial service in Germany and the Netherlands.
Additional network expansion opportunities
Global Crossing is in the process of planning several new cable systems and
evaluating other business development opportunities which will complement the
Global Crossing network. There can be no assurance that
124
<PAGE>
Global Crossing will ultimately elect to proceed with such opportunities or,
if Global Crossing does so, that such opportunities will help it achieve and
sustain operating profitability.
The demand for capacity on the routes served by the Global Crossing network
and other cable systems are projected to have substantial growth, greatly
exceeding current usage and available capacities. To address such demand,
Global Crossing plans to evaluate and, as appropriate, build or acquire
additional systems on such routes. It is anticipated that such systems, where
possible, will be restored on the existing systems and will achieve further
cost efficiencies through the use of existing landing stations.
Other activities
Neptune Acquisition. During November 1998, Global Crossing's indirect
subsidiary, GC Pacific Landing Corp., entered into an agreement and plan of
merger with Neptune Communications, L.L.C. and its wholly owned subsidiary,
Neptune Communications Corp. ("NCC"), whereby, in April 1999, GC Pacific
Landing merged with and into NCC in exchange for 2,239,642 shares of Global
Crossing common stock. Neptune is controlled by The Carlyle Group, an
international investment firm, and was formed to pursue opportunities in the
undersea cable business. Carlyle's managing director William Conway serves on
the Global Crossing board of directors.
Possible Investments. The Global Crossing board of directors has approved in
principle the making of minority investments in telecommunications companies
and ISPs that do not compete with Global Crossing in its core business and
that are current or prospective purchasers of capacity on the Global Crossing
network. Such investments may consist of purchases of equity securities for
either cash or exchanges of capacity on the Global Crossing network. Such
investments may be managed either by Global Crossing directly or, if the
Global Crossing 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 Global Crossing's senior management to such
investments.
Financing plan
As of March 31, 1998, the approximately $750 million initial cost of AC-1
had been fully financed. The first contracted upgrade will be funded through
operating cash flow. All remaining amounts outstanding under the AC-1 non-
recourse project finance credit facility were refinanced in July 1999 through
Global Crossing's new senior secured corporate credit facility.
Global Crossing estimates 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
warrants issued in exchange for the rights to construct PC-1, MAC and PAC,
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 of which Global Crossing expects to provide
approximately $231 million, with the remaining $800 million of estimated costs
to be financed initially through non-recourse project indebtedness at the PC-1
level. Global Crossing has financed its 49% interest in GAL through cash on
hand. With respect to MAC and PAC, Global Crossing has made equity investments
of approximately $110 million in MAC and $200 million in PAC, respectively,
with the remaining estimated $220 million in costs for MAC and $295 million in
costs for PAC to be financed either through bank indebtedness under its
existing corporate credit facility or through other corporate financing.
During October 1998, Global Crossing 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 December 1998 issuance by
Global Crossing Holdings of 10% Senior Exchangeable Preferred Stock (the "GCH
Preferred Stock"). Further, Global Crossing expects to raise additional
capital required to finance this system through a
125
<PAGE>
combination of commercial bank borrowings, non-recourse project debt, vendor
financing and sales of dark fiber. In this regard, Global Crossing signed an
agreement with Cable & Wireless for the sale of more than $100 million of dark
fiber on PEC. During January 1999, Global Crossing entered into a supply
contract with Lucent to provide fiber and equipment for this system and, as
part of this contract, Lucent agreed to furnish financing along with project
management and integration services. On May 5, 1999, Global Crossing borrowed
approximately $400 million under the Lucent facility for the construction of
PEC, which was refinanced in July 1999 through Global Crossing's new senior
secured corporate credit facility.
Global Crossing financed the approximately $870 million Global Marine
acquisition, which was completed in July 1999, with approximately $600 million
in bank financing under its new senior secured corporate credit facility and
the remainder with cash on hand.
System performance
AC-1, AC-2, PC-1, MAC, SAC, PEC and GAL are each designed to be installed
with self-healing ring technology to optimize system availability and
performance. Both span and ring switching protection are provided. Span
switching protects a system against failures which affect individual fibers.
Ring switching protects a system against complete failures between terminating
landing sites. Because such technology will protect any single system failure
in less than 300 milliseconds, no single system failure would have any
material effect on customer service. Accordingly, the estimated system
availability on any point-to-point link on such systems is 99.995%. The AC-1
system has experienced, mostly prior to RFS, a number of faults, generally
resulting from commercial fishing activity or shipping, causing the system to
rely on its ring switching protection capability. Because of the self-healing
ring architecture of the AC-1 system and the proper performance of its ring
switching protection capability, which protects and reroutes traffic from
single failures, such faults did not result in any loss of customer traffic.
Similar failures could occur in the future and, in the event of simultaneous
failures on two or more segments, loss of customer traffic would occur.
As undersea and terrestrial cable systems achieve greater capacities, that
is as they carry more traffic along their transmission paths, it has become
more important to provide a "self-restoration solution" because existing
systems do not have enough capacity to provide restoration for these new high
performance cable systems. Single span systems must enter into reciprocal
arrangements either with other fiber-optic operators or with satellite
carriers to pick up and deliver a portion or all of the traffic if a system
failure should occur. Providing self-restoration through Global Crossing's
ring design with the switching techniques described above offers a
distinguishing advantage over single span systems with external restoration.
With respect to PAC, which does not employ self-healing ring technology,
Global Crossing is exploring options to enter into restoration arrangements
with terrestrial fiber optic cable operators to protect against traffic
interruptions. Global Crossing may enter into similar arrangements to protect
against catastrophic system malfunction on its other cable systems.
Sales and marketing
Global Crossing markets capacity on its systems to telecommunications
providers, including PTTs, ISPs and established and emerging
telecommunications companies. Its current customers represent a broad array of
telecommunications companies.
Global Crossing's initial sales strategy emphasizes the sale of capacity on
an Indefeasible Right of Use ("IRU") basis, whereby the customer purchases a
unit of capacity for the remaining design life of a particular cable system.
On AC-1, Global Crossing is selling capacity in an increment of 155 megabits
per second (Mbps), known as an STM-1, for the 25-year design life of the
system. For the other Global Crossing cable systems, Global Crossing expects
to sell capacity to customers at the STM-1 level, as well as in smaller
increments, based
126
<PAGE>
upon the demand levels along some routes. Global Crossing has instituted a
tiered pricing schedule for all of its systems which provides for volume
discounts, as well as allowing customers to reduce their average circuit cost
as more circuits are purchased.
Global Crossing has made selective wholesale acquisitions of terrestrial
capacity, enabling customers to achieve city-to-city connectivity through the
Global Crossing network at prices significantly lower than if such customers
had attempted to purchase such terrestrial capacity independently. For AC-1
customers, Global Crossing enters into contractual arrangements providing
terrestrial capacity between its landing stations in the United States and the
United Kingdom, and New York City and London, respectively. In addition,
Deutsche Telekom and Royal PTT Nederland ("KPN") provide terrestrial capacity
directly to Global Crossing's AC-1 customers in Germany and the Netherlands,
respectively. Furthermore, through SAC, GAL and PEC, Global Crossing plans to
provide terrestrial connectivity directly on its own network to cities in
South America, Japan and Europe.
To facilitate sales of capacity on the Global Crossing network as well as to
increase market awareness and name recognition, Global Crossing is
establishing regional sales and marketing companies initially in the United
States, the United Kingdom and Asia. Customers will soon be able to purchase
capacity anywhere on the Global Crossing network by signing a single capacity
purchase agreement with any of the regional sales and marketing companies.
Global Crossing has been able to recruit and train a full-service sales and
marketing team of professionals who had previously worked at traditional
telecommunications companies, emerging telecommunications companies and
submarine cable design and construction companies. In total, Global Crossing
employed 21 marketing professionals as of December 31, 1998, with offices in:
Hamilton, Bermuda; Los Angeles and San Francisco, California; Morristown, New
Jersey; Miami, Florida; London, England; Amsterdam, the Netherlands; Tokyo,
Japan; and Buenos Aires, Argentina.
During the pre-operational period for AC-1, in which Global Crossing
generated significant pre-sales of capacity, Global Crossing held project
information meetings, otherwise known as data gathering meetings, in order to
better educate potential customers about AC-1 and its other planned cable
systems. Attendees of such meetings were affiliated with both existing and
prospective customers and represented a variety of sectors of the
telecommunications industry. Global Crossing expects to continue to organize
at least one major international conference per year in order to provide
customers with updated information on the Global Crossing network. Global
Crossing will also continue to host regional project information meetings
focusing on specific regions as Global Crossing expands coverage in new
geographic areas.
Global Crossing plans to reinforce customer awareness through a variety of
marketing campaigns, including international conferences and regional
marketing events, participation in key industry and user group conferences,
trade shows, speaking engagements, press conferences and promotional
campaigns. In addition, Global Crossing's marketing team engages in regular
visits to current and prospective customers to obtain a greater understanding
of their individual needs and promote the advantages of the Global Crossing
network.
Due to the breadth of the Global Crossing network, Global Crossing is
uniquely positioned to offer worldwide capacity to its customers. Many
customers acknowledge that their need for large bandwidth is increasing, but
they are often doubtful with regard to the precise routes where their
particular growth will take place. In order to stimulate customer loyalty and
leverage this uncertainty, Global Crossing has developed the Global Crossing
Network Offer, which allows customers who can make a multi-year dollar
denominated commitment to Global Crossing's network the flexibility to
activate capacity where they need it in a "just-in-time" manner in return for
volume discounted pricing. As Global Crossing's network continues to expand,
Global Crossing is exploring other marketing programs that will provide
further benefits to its customers and position Global Crossing as the
broadband infrastructure provider of choice.
Global Crossing is also planning to offer its customers services in addition
to the long term IRUs which Global Crossing currently sells to its customers.
Such offerings may include intermediate term capacity leases, metered
bandwidth and internet transit services. Global Crossing expects to begin
offering these products and services before the end of 1999.
127
<PAGE>
Summary of principal terms of standard contractual documentation
Capacity Purchase Agreements (CPAs)
In general, a CPA provides for the sale of capacity on an IRU basis, whereby
the purchaser acquires a unit of capacity for the remaining design life of a
particular system, generally 25 years from the RFS date of the system. Upon
execution of a CPA Global Crossing generally receives cash for 10% of the
purchase price immediately, with the balance of the purchase price due upon
activation of the capacity. A limited number of CPAs provide for payment of
the purchase price in installments over two to four years. Each customer is
required to pay its allocable share of the cost of operating, maintaining and
repairing the system each year. Performance under CPAs is conditioned upon
achieving the RFS date for a system and upon the obtaining of certain
approvals, consents, governmental authorizations, licenses and permits. In
some CPAs, customers who have purchased capacity on systems prior to the date
the system has self-healing ring capacity have contractually required full
self-healing ring capability as a legal condition which, if not satisfied,
would enable them to terminate the CPA and require us to refund capacity
payments.
In general, neither party is liable to the other under a CPA for
consequential, incidental, indirect or special damages sustained by reason of
(1) any failure in or breakdown on the system or the facilities associated
with the system, (2) the failure of any inland carrier to perform the terms
and conditions of any agreement to which it and the purchaser are parties or
(3) any interruption of service, whatever the cause and however long it lasts.
CPAs are generally subject to an arbitration clause.
Inland Services Agreements (ISAs)
Global Crossing has entered into agreements with some terrestrial fiber
cable providers to purchase terrestrial capacity on such systems for resale to
its customers. In general, the term of each ISA is 25 years starting in 1998
or until the system is retired, whichever occurs first. In some cases, Global
Crossing 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."
Operations, administration and maintenance support
Global Crossing is developing its own worldwide operations, administration
and maintenance ("OA&M") support center to serve each of its cable systems.
Such support will be handled through three work centers: a Customer Care
Center ("CCC"), a Network Operations Center ("NOC") and a Technical Support
Center ("TSC"). The CCC is located in Bermuda and it is anticipated that both
the NOC and TSC will be located in the United Kingdom.
Customer Care Center. The CCC will provide capacity purchasers with a single
point of contact for service provisioning, interconnect coordination support,
billing and billing inquiries and adjustments.
Network Operations Center. The NOC handles operations, administrative and
maintenance activities for each of the Global Crossing cable systems,
including new services provisioning, network performance, repair and
restoration activities. Capacity provisioning which relates to activation of
overall capacity on our system, or allocation of capacity to large users, is
also performed by the NOC. 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
project management, status of services provisioning, system performance and
interconnection arrangements.
Pursuant to the AC-1 Operations, Administration & Maintenance agreement,
TSSL will provide OA&M support on behalf of AC-1 for a term of eight years
following the commencement of commercial operations. As
128
<PAGE>
of December 31, 1998, Global Crossing was committed under the AC-1 OA&M
agreement to make payments totaling approximately $247 million. This agreement
is extendable at Global Crossings option for two additional periods of 8 1/2
years each.
As a result of Global Crossing's acquisition of Global Marine, Global
Crossing expects to be able to provide installation and maintenance services
to its own undersea cable systems. Global Marine operates a fleet of 13 cable
ships and 21 submersible vehicles and has approximately 1,200 employees in the
field.
Competition
Existing and Planned Cable Systems
The routes addressed by Global Crossing's planned systems are currently
served by several cable systems as well as satellites. Currently, there are
several fiber optic transatlantic cable systems, each of which competes
directly with AC-1. Primary future sources of transatlantic competition for
Global Crossing may result from, among others, (1) TAT-14, a transatlantic
cable system which is being developed by its consortium members, including
British Telecom, AT&T, France Telecom and Deutsche Telekom, (2) Flag Atlantic-
1, a transatlantic system which is being developed by Flag Telecom and Global
Telesystems Group Inc., (3) Gemini, a transatlantic cable system being
operated and marketed by MCI WorldCom, Inc. and Cable & Wireless, (4) a
transatlantic cable system being developed by Level 3 and (5) Hibernia, a
transatlantic cable system being developed by Worldwide Fiber Inc. Global
Crossing believes that such other cable systems will compete directly with
Global Crossing's Atlantic capacity and the commitments of the developers and
other carriers on these systems could substantially reduce estimated demand
for capacity on its systems.
Similarly, there are several cable systems currently operating between the
United States and Asia, the route to be served by PC-1. PC-1 may face
competition in the transpacific market from, among others, (1) the China-U.S.
Cable Network, a transpacific system being developed as a "private cable
system" by fourteen large carriers, including SBC Communications Inc., MCI
WorldCom Inc., AT&T and Sprint, most of which have traditionally sponsored
consortium cables and (2) the Japan-U.S. Cable Network, a transpacific system
being developed by a consortium of major telecommunications carriers,
including MCI WorldCom Inc., AT&T, Kokusai Denshin Denwa Co. Ltd., Nippon
Telegraph and Telephone Corp., Cable & Wireless and GTE. Although Global
Crossing 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. Moreover, while a number of the participants in these cable
systems have purchased capacity on the other Global Crossing systems, it is
likely that these participants will seek to satisfy their capacity
requirements for traffic between the United States and Asia with the systems
they are sponsoring and not with PC-1.
In addition, Global Crossing will face competition on its planned trans-
European network. There are several carriers, including Viatel, KPN-Qwest, MCI
WorldCom, Inc., a joint venture between Deutsche Telekom and France Telecom,
British Telecom, Hermes and a joint venture between Level 3 and COLT Telecom
Group plc, which are currently planning or building trans-European network
assets.
Other regional and global systems are being considered by developers,
including Project Oxygen, a global system being evaluated by the CTR Group,
Ltd. In addition, Global Crossing may face competition from existing and
planned regional systems and satellites on its MAC, PAC and SAC routes, where
entrants are vying for purchases from a small but rapidly growing customer
base.
Satellite Transmission
When comparing cable transmission against satellite transmission, Global
Crossing 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, attributable in part to higher capacity and longer expected
equipment life than satellite
129
<PAGE>
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, CyberStar and SpaceWay, which are seeking to
provide high bandwidth transmission networks. Due to (1) the significant
initial costs related to these systems, (2) the risks relating to satellite
launch systems and (3) the significantly lower transmission capacity versus
current fiber optic systems, Global Crossing believes that the new satellite
systems will not be able to offer competitive cost per unit of transmission
capacity in the dense metropolitan markets Global Crossing is targeting.
Further, Global Crossing believes it will have at least four 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 Kokusai Denshin Denwa-Submarine Cable Systems
("KDD-SCS"). Cable & Wireless and Pirelli also have a presence in the industry
and there are a number of smaller suppliers which have focused primarily on
regional routes or non-repeatered systems. TSSL completed construction of AC-
1, is responsible for the design and installation of PAC and, together with
KDD-SCS (as a subcontractor), is responsible for design and installation of
PC-1. Alcatel and TSSL are responsible for the design and construction of MAC.
There are multiple suppliers available for terrestrial systems. As a result of
Global Crossing's acquisition of Global Marine, Global Crossing will be a
major supplier of installation and maintenance services for its undersea cable
systems.
Regulation
In the ordinary course of development, construction and operation of our
fiber optic cable systems, Global Crossing will be required to obtain and
maintain various permits, licenses and other authorizations both in the United
States and in international jurisdictions where its cables land or in the
territories in which terrestrial fiber optic systems are being constructed,
and Global Crossing will be subject to applicable telecommunications
regulations in such jurisdictions. In particular, submarine cable landing or
similar licenses as well as other infrastructure construction authorizations
will be required in many of the jurisdictions where Global Crossing's planned
undersea cable systems will land or terrestrial segments will be constructed.
Global Crossing is both filing applications for cable landing licenses with
the FCC and, where necessary, regulatory agencies in other countries, and,
where available, is seeking private carriage status for these systems. These
licenses are typically issued for a term of years, in the case of the FCC-
issued cable landing licenses, 25 years, and are subject to renewal. The law
of several international jurisdictions limits foreign ownership, direct or
indirect, of entities holding cable landing licenses, or building terrestrial
infrastructures. In connection with the implementation of the World Trade
Organization ("WTO") Basic Telecommunications Agreement, the FCC adopted
regulations establishing an open entry standard for applicants from WTO member
countries, including a rebuttable presumption that applications from carriers
from WTO member countries do not pose concerns that would justify denial of an
application on competitive grounds. In addition, Global Crossing and, in some
cases, its joint venture partners, are obtaining licenses from a number of
jurisdictions to construct, operate, and sell capacity on terrestrial fiber
optic cable systems.
Construction of each of Global Crossing's cable systems also requires the
acquisition and maintenance of various environmental and other construction
related permits and licenses in the ordinary course of business. Global
Crossing's undersea construction contracts are generally "turnkey"
arrangements, whereby the contractor is obligated to obtain and maintain all
such licenses and permits. Although Global Crossing expects that the
construction contracts for each of its other planned undersea cable systems
will impose the burden of acquiring
130
<PAGE>
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.
Employees
As of March 31, 1999, Global Crossing had approximately 198 employees.
Global Crossing considers its relations with its employees to be good.
Financial information by business segment and geographic area
See Note 7 of Global Crossing's condensed consolidated financial statements
on page F-5 and Note 3 of Global Crossing's consolidated financial statements
on page F-25 for information regarding Global Crossing's revenues and assets
by business segment and geographic region.
131
<PAGE>
Frontier Corporation
Frontier provides integrated telecommunications services including Internet,
Internet Protocol ("IP") and data applications, long distance, local telephone
and enhanced services to business, carrier, web-centric and targeted
residential customers nationwide and in some international countries. Although
a predecessor company dates to 1899, Frontier was incorporated in 1920 under
the laws of New York State to take over and unify the properties of a
predecessor company and some properties of the New York Telephone Company
which were located in the same general territory. Frontier is headquartered in
Rochester, New York.
Through its integrated services business, Frontier is one of the nation's
largest long distance companies. Frontier provides domestic and international
voice, data products, video and audio conferencing, digital distribution
services, Internet service and other communications products. Frontier's
customers for these services are primarily small to mid-size business
customers, carrier customers, web-centric customers and targeted consumer
markets.
Frontier's local communications services business consists of 34 local
telephone companies that, as of December 31, 1998, serve over one million
access lines in thirteen states. Frontier is one of the largest local exchange
service providers in the United States.
Frontier also owns a 50% interest in the Upstate Cellular Network, a
wireless joint venture with Bell Atlantic in upstate New York and Pennsylvania
that is managed by Frontier and is accounted for using the equity method of
accounting.
Strategy
Frontier's strategy is to be the premier provider of integrated
telecommunications solutions in its target markets. Frontier markets itself to
customers as a single source provider of integrated communications services,
such as long distance, local, cellular, paging, data, Internet and enhanced
services. Frontier anticipates that public policy will continue to evolve in
favor of greater competition and, as a result, Frontier has been positioning
itself to compete aggressively in a marketplace with numerous new competitors.
Construction of the initial 13,000-mile segment of the Frontier Optronics
Network SM, as originally announced in 1996, is expected to be completed on or
around July 15, 1999. Frontier made a commitment to extend this network in
1998, and that extension is expected to be completed in late 1999. Through
swap agreements with Enron Communications and WTCI, Frontier will add
approximately 4,000 additional route miles in the western half of the United
States. These agreements will also permit Frontier to establish additional
redundant SONET rings, further enhancing the reliability and performance of
the network. In addition, in July 1998, Frontier entered into an agreement
with Williams Communications, Inc. to construct an extension of the network
into the southeastern United States. In aggregate, the Frontier Optronics
Network SM will have approximately 20,000 route miles. As of December 31,
1998, approximately 74% of the fiber miles on the original 13,000 route mile
network were in service.
Continuing network integration efforts involving Frontier subsidiaries are
expected to further reduce future network costs as well as provide new revenue
opportunities for Frontier. The combined technology of the Frontier Optronics
NetworkSM and the Nortel DMS-500 switches installed at strategic locations
along the network will enable Frontier to expand its ability to provide
integrated local and long distance services nationwide. In 1998, Frontier
added ATM and IP capabilities to the network which will provide greater speed
and service for data products. In the fourth quarter of 1997, Frontier also
introduced a nationwide frame relay product. This product complements
Frontier's voice services business with a portfolio of additional data
services products. This technology makes Frontier a nationwide facilities-
based provider of integrated local, long distance and data services.
132
<PAGE>
Integrated services
General
Frontier is one of the nation's largest long distance companies. Frontier's
integrated services segment provides domestic and international voice, data
products, video and audio conferencing, digital distribution services,
Internet service and other communications products to primarily small to mid-
size business customers, carrier customers and targeted consumer markets. CLEC
services are currently available in two-thirds of the United States, plus
Washington D.C., providing Frontier with the ability to offer integrated data,
local and long distance services to approximately 72% of the United States
population. In February 1998, Frontier acquired GlobalCenter, Inc., a leading
provider in digital distribution, Internet and data services headquartered in
Sunnyvale, California. The acquisition of GlobalCenter and subsequent
development and integrative work has assisted Frontier in responding to
changes in the nature of calling, expanded use of the Internet and growth of
data transmission.
Frontier operates its own switches, develops and implements its own
products, monitors and deploys its transmission facilities and prepares and
designs its own billing and reporting systems. Frontier focuses primarily on
commercial accounts and some targeted consumer markets. In this segment,
calling volume consists primarily of calls made during normal business hours,
which command peak-hour pricing. Frontier's residential subscribers tend to
make most of their calls in the evening and on weekends, when business usage
is lowest.
Products and services
Frontier provides a variety of integrated telecommunications products and
services to commercial and residential subscribers nationwide designed to meet
the customer's total communications needs. The bulk of Frontier's revenue is
derived from outbound and inbound long distance services which are generally
marketed under the Frontier name. Many of Frontier's integrated products,
however, differ from those of competitors due to the level of value-added
services Frontier offers and the flexibility of product pricing to maintain
competitiveness.
The variety of products and services developed and offered are based upon
market driven requirements of the customer including an expectation that
services can be integrated. They include: digital distribution and data
services, CLEC services, and voice and other value-added services.
Digital Distribution and Data Services. Frontier's data services products
target small to mid-sized businesses and web-centric businesses. Data services
currently include digital private lines, frame relay, dial-up Internet,
dedicated Internet and web-hosting. The acquisition of GlobalCenter has
accelerated Frontier's ability to provide an expanded line of data services.
During 1998, after the acquisition of GlobalCenter, Inc., Frontier expanded
its data services product set that can be segmented into three product lines:
Transport, IP and Application Services. Transport is the means to transfer
data from one location to another. Product offerings within this service
category include dedicated private lines, frame relay, and managed services.
Within the IP product line, Frontier provides the customer with the cost
efficiencies of a public Internet network and the security of a private
network. Applications Services are outsourced applications hosted by the
service provider and integrated into both public and private networks which
enable the customer to access the application at all times. Product offerings
within this category include digital distribution, integrated messaging, and
web site hosting.
Digital distribution involves a combination of transport services,
consulting services and professional expertise aimed at providing customers
with customized Web-based data services.
CLEC services. Frontier provides competitive local telephone service bundled
with Frontier's other integrated services through its CLEC product offering.
The CLEC offering is provided either using Frontier's local switching
equipment in locations where it is available or on a resale basis. As of
December 31, 1998,
133
<PAGE>
Frontier was providing local services as a CLEC, together with a complete
range of long distance products, in 32 states plus Washington, D.C. Most of
that coverage was provided via resale of services of incumbent local exchange
carriers. Within that footprint, CLEC service was also provided initially from
Frontier's own switches in New York, Boston and Minneapolis.
Since then, Frontier expanded its coverage to approximately two-thirds of
the United States and turned up facilities-based service in a total of
thirteen metropolitan areas by the end of 1998. Facilities-based service is
being offered in cities that are on the Frontier Optronics Network SM, which
will provide Frontier with the opportunity to expand its offerings of combined
local and long distance services into additional markets, control access
costs, and leverage the network. The number of CLEC lines currently provided
by Frontier makes it one of the largest CLEC's in the United States.
Value-added services. Frontier's value-added services are aimed primarily at
the business subscriber, although Frontier also offers products for
residential customers. Value-added services provide cost-effective solutions
for both simple and complex communications applications and include calling
cards, teleconferencing, broadcast fax, voice mail and cellular and paging
services.
The calling card is a personal communication tool that can provide access to
teleconferencing, voice mail, information services such as stock quotes and
weather information, Flexible call routing of toll free service, call delivery
for immediate or future message delivery, directory assistance and travel
connections to hotel, car and airline reservation systems. Using a calling
card, customers can call to any domestic and most international locations from
the U.S. or numerous international locations. In addition, the calling card
product enables customers to dial 100 frequently called numbers using their
own toll free number and a four-digit preprogrammed PIN.
Frontier conferencing provides a way for three or more people at different
locations to participate in a joint discussion. Several options are available:
800 meet-me, dial-out or dial-in via a Frontier calling card. Frontier's
broadcast fax product enables the user to fax a single document to multiple
locations at the same time and is designed for the larger fax user who
regularly sends information to an established list.
Frontier's Voice Mail Plus with fax mail provides an efficient means of
always being accessible, through the use of outcall or pager notification, and
never missing important calls. With an individual toll-free number, a customer
can save, delete or forward fax and voice messages to other Voice Mail Plus
users or change greetings all on one call. Customers can also store a fax or
automatically print it at a designated fax machine.
Frontier offers nationwide numeric paging through personal toll-free
numbers. When coupled with the flexible call routing feature, nationwide
paging creates a robust travel application. Local paging service is also
available in selected local franchise markets.
Frontier's toll free services are offered primarily to business customers on
a single invoice, although several residential products are available. In
addition to basic 800/888 toll-free applications, Frontier offers MultiPoint,
which allows customers to terminate calls in different locations based on the
four-digit personal identification number the caller enters; GlobalPoint
international service, which completes calls originating in over 40 countries;
and Flex Connect 800, a fractional service which allows multiple residential
customers to reach different terminating locations utilizing a four-digit
security personal identification number. Frontier also provides a robust line
of routing features such as flexible call routing, which allows customers to
change where calls terminate based on their need; routing and blocking
enhancements determined by the area code, area code and exchange or full ten-
digit telephone number of the caller; time of day and day of week routing; and
percent call allocation.
Toll free services also include interactive voice response services,
including TargetLine, a call prompter that routes callers either by menu
options or prompting them to enter digits for extension routing; InstaLink, a
dealer locator routing callers based upon their area code and exchange or zip
code; and PassPort, a network based host interface interactive voice response
solution.
134
<PAGE>
Pricing. Customers subscribe to various products. The nature of the products
determines the price per minute that they pay on their outbound or inbound
long distance calls. Rates typically vary by the volume of usage, the distance
of the calls, the time of day that calls are made, the region that originates
the call and whether or not the product is being provided on a promotional
basis.
Reporting services. Frontier offers a variety of billing options and media
aimed primarily at business customers. When a new commercial account is
opened, the customer is offered the opportunity to custom design the format of
its reports. Frontier also offers customers graphic reports of traffic
patterns on a nationwide basis by state, within state by area of dominant
influence and within area of dominant influence by zip code. Frontier believes
these services are useful to some customers for direct response advertising
and customer service applications. Frontier also offers its proprietary
personal computer reporting service, known as uCommand, which allows customers
to design their own reports, prepare separate itemized bills, do mark-up
reporting and generate numerous other customer reports.
800 services. These services include area code blocking and routing; time of
day routing; Home Connection 800, a fractional 800 service which allows
residential customers to access 800 service utilizing a four-digit security
PIN; Multi-Point 800 service, which allows customers to use accounting codes
on an 800 number or route a single 800 number to numerous locations
simultaneously; Follow-Me 800, which allows customers to change call routing
and TargetLine 800, which routes calls to the closest location a customer
identifies and provides custom prompts based upon a customer specific
database.
Transmission
Frontier endeavors to have sufficient switching capacity, local access
circuits, and integrated services circuits at and between its network
switching centers to permit subscribers to obtain access to the switching
centers and its integrated services circuits on a basis which exceeds industry
standards regarding clarity, busy signals or delays.
The network currently utilizes a variety of transmission circuits to
complete long distance calls. The Frontier Optronics Network SM will reduce
the number of transmission facilities leased and provide for a more dependable
and cost-effective transmission system. Currently, Frontier Optronics
Network SM facilities have been completed in Texas, California, Nevada, Utah,
Colorado, Kansas, Missouri, Ohio, Pennsylvania, New York, Illinois, Wisconsin,
New Mexico, Arizona, Oregon, Washington, Nebraska, Iowa, Indiana, Michigan,
New Jersey, Maryland, Kentucky, Tennessee, Oklahoma and Massachusetts.
Completion of the expanded Frontier Optronics Network SM is expected in late
1999.
In addition to the Optronics transmission circuits, the network is comprised
of digital microwave systems located in California, New York and Pennsylvania
for which Frontier holds FCC licenses, and facilities that have been leased on
a fixed price basis under primarily short-term contracts. While Frontier still
has a number of longer term lease contracts, a substantial number of these
contracts have annual "mark-to-market," "circuit portability," and "commitment
buy-out" clauses and Frontier renegotiates contracts when it is appropriate to
do so. These provisions function to keep the price Frontier pays at or near
current market rates. An important aspect of Frontier's operation is planning
the mix of the types of circuits and transmission capacity to be used for each
network switching center so that calls are completed on a basis which is cost
effective for Frontier without compromising prompt service and high quality to
subscribers.
Frontier's network switching centers house equipment with varying capacities
to meet the anticipated needs of the service origination region or regions
served by the center. The equipment used by Frontier is, for the most part,
designed to permit expansion of its capacity by the addition of standard
components. If the maximum capacity of the equipment in any center is reached,
Frontier upgrades it with higher capacity switching equipment in an effort to
scale the equipment for growth. Frontier is dependent upon local telephone
companies for installing local access circuits and providing related service
when establishing a network switching center. International service is
provided through both Company owned direct circuits and through contracts with
several international long distance companies to provide high quality
international service at competitive rates.
135
<PAGE>
It is anticipated that the Frontier Optronics Network SM will continue to
lower Frontier's current cost structure and expand Frontier's transmission
capabilities. However, Frontier cannot definitively project the change in its
cost structure nor assure that the network will be fully completed as
scheduled.
Local communications services
Frontier's local communications services segment comprises one of the
largest local exchange service providers in the United States. This segment
consists of 34 regulated telephone operating subsidiaries in 13 states,
serving in excess of one million access lines. The local exchange carriers
provide local, toll, access and resale services, sell, install and maintain
customer premises equipment and provide directory services.
Over the last decade, Frontier has invested heavily to install advanced
digital switching platforms throughout all of its switching network, making
Frontier one of the first in the industry to be served by an entirely digital
network for its local exchange companies. Frontier has achieved substantial
cost reductions through the elimination of duplicative services and procedures
and the consolidation of administrative functions. Frontier believes that
additional cost reductions may be obtainable from advanced switching platforms
and outside plant delivery systems. Frontier intends to pursue additional
gains in productivity by investing in these technologies where feasible, and
through reengineering customer service processes.
Of the approximately 1,024,726 access lines in service on December 31, 1998,
721,039 were residential lines and 303,687 were business lines. Long distance
network service to and from points outside of the telephone companies'
operating territories is provided by interconnection with the facilities of
interexchange carriers.
Frontier is pursuing several alternatives to provide expanded broadband
capabilities to its customers. To date, Frontier has installed over 31,000
fiber miles of fiber based network facilities, totaling more than 930 sheath
miles, in the Rochester, New York area to provide its customers with enhanced
capacity and to position Frontier to offer new products. Frontier provides
expanded broadband services to select customers, including video-distance
learning arrangements for educational institutions, and access to SONET based
fiber rings for major business customers.
In connection with its integration strategy, Frontier has developed a
program known as "Frontier Long Distance," whereby Frontier's local exchange
companies resell Frontier's integrated services. Frontier believes that many
customers prefer the convenience of obtaining their long distance service
through their local telephone company and receiving a single bill. Frontier
Long Distance is currently offered in the product lines of most of Frontier's
local telephone exchange companies.
136
<PAGE>
Global Crossing's Management Discussion
and Analysis of Financial Condition and
Results of Operations
Overview
Global Crossing is the world's first independent global provider of state-
of-the-art Internet and long distance telecommunication facilities and related
services utilizing a network of undersea and terrestrial digital fiber optic
cable systems. Global Crossing started development in March 1997, when it
entered into a contract with TSSL for the design, development, construction
and installation of AC-1 and obtained commitments for its initial financing.
AC-1, Global Crossing's first fiber optic cable system, is a four fiber pair
self-healing ring connecting (1) the United States to the United Kingdom, (2)
the United Kingdom to the Netherlands and Germany, (3) the Netherlands to
Germany and (4) Germany to the United States. The first segment of AC-1, the
United States to United Kingdom route, was completed and commenced operations
in May 1998, and the entire AC-1 system commenced operations in February 1999.
Until May 1998, when the United States to United Kingdom segment of AC-1
reached RFS, Global Crossing was a development stage company and since
inception has been involved in the planning, financing, marketing,
organization, development, design and construction of the AC-1 system and
seven other planned systems, which are AC-2, PC-1, MAC, PAC, SAC, PEC and GAL.
See "The Companies--Global Crossing Ltd." beginning on page 119. Global
Crossing achieved a number of significant milestones, including (1) the
recruitment of experienced professionals in undersea cable and
telecommunications operations, (2) the signing of construction contracts on
AC-1, PC-1, MAC and PAC, (3) the execution of the AC-1, PC-1 and MAC credit
facilities and the execution of a financing commitment with respect to PAC,
(4) completion of the AC-1 ring, (5) the issuance by Global Crossing Holdings
of $800 million in principal amount of senior notes ("GCH Senior Notes"), (6)
the initial public offering of Global Crossing common stock, (7) the issuance
by Global Crossing Holdings of $500 million in principal amount of preferred
stock ("GCH Preferred Stock") and (8) the execution of $1,052 million of CPAs
for undersea and terrestrial capacity and dark fiber sales.
Revenues and deferred revenues
Sales revenue and deferred revenue
Customers may enter into CPAs to purchase an IRU in units of capacity on any
of Global Crossing's fiber optic cable systems. The purchase price for such
capacity is non-refundable once the applicable segment purchased is RFS. The
IRU purchased entitles the customer to all rights and obligations of ownership
of the capacity for a period of 25 years after the system RFS date. Where
available on a specific system, Global Crossing's CPAs generally provide that
the system will have self-healing ring capability, which means that, in the
event of interruption, capacity on any segment of a system will be
instantaneously restored either on another system segment or within the same
segment so that the same point-to-point connectivity is maintained.
Revenues from the sale of 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 if the purchaser fails 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 capacity have
paid deposits toward the purchase price, and such amounts have been included
as deferred revenue in the consolidated financial statements. In some CPAs,
customers who have purchased capacity on systems prior to the date the system
has self-healing ring capacity have contractually required full self-healing
ring capability as a legal condition which, if not satisfied, would enable
them to terminate the CPA and requires Global Crossing to refund capacity
payments.
137
<PAGE>
Operating lease revenue and deferred revenue
In addition to sales type leases, Global Crossing may enter into operating
lease agreements to lease capacity on its systems. These agreements may grant
the customer a right to use capacity for periods of time which may be
substantially less than the design life of the capacity, generally 25 years.
Global Crossing will amortize revenues from these operating lease agreements
over the lives of the agreements, with cash received but not yet recognized as
operating revenues, recorded in the consolidated financial statements as
deferred revenue.
OA&M revenue
Pursuant to the terms of its existing CPAs, Global Crossing is obliged to
use commercially reasonable efforts to cause the AC-1 system to be maintained
in efficient working order and in accordance with industry standards. In
exchange for the operating, administration and maintenance services provided
by Atlantic Crossing Ltd. ("ACL"), customers are obligated for the term of
their IRU to pay for their allocable share of the costs for operating and
maintaining the system. Customers appoint members to a system advisory
committee, which is charged with the responsibility of directing the
operations and maintenance of AC-1. Customers pay 110% of ACL's cost to
operate and maintain the system based on their pro rata share of total
capacity subject to annual maximum amounts per circuit purchased of $250,000
per transatlantic circuit and $50,000 per European circuit. Each customer's
pro rata share is effectively calculated by taking the weighted average of
their purchased capacity over total capacity sold multiplied by 110% of actual
costs incurred to customers quarterly in advance based on the prior year's
actual costs. These amounts 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. Undersea OA&M revenues are recognized in the period that the related
services are provided. On an annual basis, the actual OA&M costs Global
Crossing incurs are accumulated and an adjustment is made to true up actual
OA&M revenues so that they equal 110% of actual costs incurred, provided
specified contractual limits have not been reached.
Construction in progress; capacity available for sale; cost of capacity sold
Construction costs incurred with respect to each segment of a cable system
are reflected as "Construction in Progress" in Global Crossing's consolidated
balance sheets until a segment becomes operational, at which time such costs
are reflected as Capacity Available for Sale. Capacity Available for Sale is
recorded at the lower of cost or fair value less cost to sell and is charged
to Cost of Capacity Sold in the period the related revenues are recognized.
Fair value of capacity is derived from a third party consultant's market study
of expected sales of capacity.
Global Crossing records the cost of acquiring terrestrial capacity in
Capacity Available for Sale in amounts equal to the present value of future
payment obligations associated with the acquisition of such terrestrial
capacity, excluding from such payments amounts attributable to operations and
maintenance costs.
Construction in Progress includes direct expenditures for construction of
systems, including advisory, consulting and legal fees, interest during
construction and amortized debt issuance costs incurred during the
construction phase.
Cost of sales
Cost of undersea sales in any period is calculated based on the ratio of
capacity revenues recognized in the period to total expected capacity revenues
over the life of the systems multiplied by the total costs incurred to
construct the system. This calculation of the cost of sales amount matches
costs with the value of each sale relative to total expected revenues. Until
the entire system is completed, for purposes of calculating cost of sales, the
total system costs incurred will include an estimate of remaining costs to be
incurred to complete the entire system. The calculation of cost of undersea
sales is based on total system cost including both the initial system cost and
the cost of system upgrades that management has the intent and ability to
complete, provided the need for such upgrades is supported by an independent
consultant's revenue forecast. Changes in management's
138
<PAGE>
estimate of the total expected revenues to be derived from sales of capacity
will result in adjustments to the calculation of cost of sales. These
adjustments will be recorded on a prospective basis over future periods
commencing with the period during which management revises its estimate. The
cost of terrestrial capacity directly related to undersea sales is charged to
cost of sales in the period that the related revenue is recognized.
Operating type lease cost of sales
Costs relating to operating type lease revenue will be classified as a
depreciable asset and depreciated over the estimated useful life of the
capacity.
Operating expenses
In addition to cost of capacity sold, Global Crossing's operating expenses
principally comprise of sales and marketing, operations and maintenance,
general and administrative and network development costs. Costs relating to
the evaluation of possible additional systems are expensed as incurred.
Results of operations for the three months ended March 31, 1999 and March 31,
1998
Revenues
During the three months ended March 31, 1999, Global Crossing 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 Global Crossing was in
its development stage.
Expenses
Cost of capacity sold. For the three months ended March 31, 1999, Global
Crossing 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. Global Crossing
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. Global Crossing incurred OA&M
costs on AC-1 of $12 million during the three months ended March 31, 1999.
Global Crossing has entered into an agreement with TSSL relating to
operations, administration and maintenance of AC-1 which limits Global
Crossing's total OA&M expense for the system. Following the AC-1 full system
ready-for-service date, Global Crossing anticipates that its OA&M costs will
be largely recovered through charges to its customers under the terms of
capacity purchase agreements. There were no OA&M costs in the three months
ended March 31, 1998, as Global Crossing was in its development stage.
Sales and marketing. During the three months ended March 31, 1999, Global
Crossing 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, Global Crossing 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 Global Crossing's rapid growth.
Network development. Global Crossing 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.
139
<PAGE>
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
Global Crossing's staffing for multiple systems, travel, professional fees,
insurance costs, occupancy costs, plus depreciation and amortization. During
the three months ended March 31, 1998, Global Crossing incurred general and
administrative costs of $2 million.
Stock related expense. Global Crossing 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.
Equity in loss of affiliates. In April 1998, Global Crossing entered into a
joint venture to construct an undersea cable system, PC-1. PC-1 is owned and
operated by Pacific Crossing Ltd. (PCL). Global Crossing 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 Global Crossing entered into a
joint venture to construct and operate GAL. The $3 million loss is comprised
of a loss of $2 million representing Global Crossing's 58% equity in the loss
of PCL and a loss of $1 million representing Global Crossing's 49% equity in
Global Access Ltd. for the three months ended March 31, 1999.
Interest income and interest expense
Interest income. Global Crossing 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, Global
Crossing incurred $29 million in interest costs, including the amortization of
finance costs and debt discount. Of this amount, Global Crossing capitalized
to construction in progress interest of $5 million, and expensed $24 million.
During the three months ended March 31, 1998, Global Crossing 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 Global Crossing have a presence in taxable
jurisdictions. During the three months ended March 31, 1998, Global Crossing
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.
Cumulative effect of change in accounting principle. Global Crossing 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. Global Crossing 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 Global Crossing reported a net
loss of $2 million compared to a net loss of $4 million in the three months
ended March 31, 1998.
140
<PAGE>
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, Global Crossing 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, Global Crossing reported a net loss applicable to common
shareholders of $8 million resulting in a large part from $4 million of
dividends on preferred stock.
Results of operations for the year ended December 31, 1998 and the period from
March 19, 1997 (date of inception) to December 31, 1997
Revenues
During the year ended December 31, 1998, Global Crossing executed
commitments with its customers to purchase capacity on its systems plus the
sale of dark fiber on PEC totaling $911 million, bringing the total since
inception to $1,052 million. Of this amount, Global Crossing recognized
revenues of $418 million on sales of capacity relating to AC-1 for the year
ended December 31, 1998, in addition to revenues from operations and
maintenance services of $6 million. The remaining $634 million of capacity
sales has not yet been reflected as revenue in the consolidated financial
statements because either the segment has not reached RFS or the purchaser has
not obtained the right to use the capacity. During the year ended December 31,
1998, Global Crossing entered into CPAs with 33 international
telecommunications carriers and sold approximately 35% of the sales capacity
of 512 circuits on the AC-1 system.
Expenses
Cost of capacity sold. For the year ended December 31, 1998, Global Crossing
recognized $178 million in cost of capacity sold, resulting in a gross margin
on capacity sales of 57%. Cost of capacity sold for the year ended December
31, 1998 also includes $38 million relating to terrestrial capacity sold which
Global Crossing had purchased from third parties. Global Crossing calculates
undersea cost of capacity sold for AC-1 based on the ratio of the period's
actual revenue to total expected revenues, assuming minimum projected sales
capacity of 512 circuits, multiplied by the construction cost of the system.
This calculation of cost of sales matches costs with the relative value of
each sale. There were no sales or related costs recognized during the period
from March 19, 1997 (date of inception) to December 31, 1997, as Global
Crossing was in its development stage.
Operations, administration and maintenance. Global Crossing incurred OA&M
costs of $18 million during the year ended December 31, 1998. Global Crossing
entered into an agreement with TSSL relating to operations, administration and
maintenance of AC-1, which limits Global Crossings total OA&M expense for the
system. Global Crossing anticipates that its OA&M costs will be largely
recovered through charges to its customers under the terms of CPAs. There were
no OA&M costs during the period from March 19, 1997 (date of inception) to
December 31, 1997, as Global Crossing was in its development stage.
Sales and marketing. During the year ended December 31, 1998, Global
Crossing incurred sales and marketing expenses of $26 million, including
selling commissions of $20 million incurred on capacity sales recognized
during this period. During the period from March 19, 1997 (date of inception)
to December 31, 1997, Global Crossing incurred sales and marketing costs of
approximately $1 million. The increase from 1997 was due to additions in
personnel and occupancy costs, plus marketing, commissions paid and other
promotional expenses to support our rapid growth.
141
<PAGE>
Network development. Global Crossing incurred network development costs
during the year ended December 31, 1998 of $11 million relating to the
development of systems. During the period from March 19, 1997 (date of
inception) to December 31, 1997, these costs were $0.1 million. The increase
from 1997 was due to additional personnel, and costs to explore new projects.
General and administrative. General and administrative expenses totaled $27
million during the year ended December 31, 1998 and were comprised principally
of salaries, employee benefits and recruiting fees for staffing of multiple
systems, travel, insurance costs and rent expenses, plus depreciation and
amortization. During the period from March 19, 1997 (date of inception) to
December 31, 1997, Global Crossing incurred general and administrative costs
of $2 million.
Termination of advisory services agreement with PCG Telecom Services LLC. In
connection with the development and construction of AC-1, Global Crossing
entered into an advisory services agreement with PCG Telecom Services LLC, an
affiliate, providing for the payment by Global Crossing of an advisory fee of
2% of the gross revenues of ACL over a 25 year term. Global Crossing's board
of directors also approved similar advisory fees and authorized Global
Crossing to enter into similar agreements with respect to other cable systems
under development by Global Crossing. Global Crossing has acquired the rights
of the persons entitled to the fees payable under these agreements in
consideration for the issuance to such persons of shares of Global Crossing
common stock, which had at the time of issuance an aggregate value of $135
million, and the cancellation of approximately $3 million owed to Global
Crossing under a related advance agreement. In addition, Global Crossing
recognized approximately $2 million of advisory fees incurred prior to
termination of the contract.
Stock related expense. Through December 31, 1998, Global Crossing recorded
as a charge to paid-in capital $94 million of unearned compensation relating
to awards under Global Crossing's stock incentive plan plus the grant of
certain economic rights and options to purchase common stock granted to a
senior executive. The unearned compensation is being recognized as an expense
over the vesting period of these options and economic rights.
For the year ended December 31, 1998, Global Crossing recognized as an
expense $31 million of stock related compensation relating to Global
Crossing's stock incentive plan and $6 million for the vested economic rights
to purchase common stock and $2 million in respect of shares of common stock
issued during the year. The remaining $57 million of unearned compensation
will be recognized as follows: $28 million in 1999, $21 million in 2000 and $8
million in 2001. Global Crossing's stock incentive plan commenced in January
1998, and therefore no issuances were made during the period from March 19,
1997 (date of inception) to December 31, 1997.
Equity in loss of affiliates. During 1998, Global Crossing entered into
joint venture agreements to construct and operate PC-1 and GAL. PC-1 is owned
and operated by Pacific Crossing Ltd. ("PCL"). Global Crossing has an economic
interest in PCL represented by a 50% direct voting interest and, through one
of the joint venture partners, a further 8% economic non-voting interest.
Global Crossing has a 49% interest in Global Access Ltd., which operates GAL.
Global Crossing's equity in the loss of PC-1 for the year ended December 31,
1998 was $3 million.
Interest income and interest expense
Interest income. Global Crossing reported interest income of $30 million
during the year ended December 31, 1998 and $3 million during the period from
March 19, 1997 (date of inception) to December 31, 1997. Such interest income
represents earnings on cash raised from financings, the IPO, the issuance of
the GCH Preferred Stock, operations and CPA deposits.
Interest expense. During the year ended December 31, 1998, Global Crossing
incurred $93 million in interest costs, including the amortization of finance
costs and debt discount. Of this amount, Global Crossing
142
<PAGE>
capitalized to construction in progress interest of $50 million and expensed
$43 million. During the period from March 19, 1997 (date of inception) to
December 31, 1997, Global Crossing incurred interest expense of $10 million,
which was capitalized to construction in progress.
Provision for income taxes
The income tax provision of $33 million for the year ended December 31, 1998
provides for taxes on profits earned from capacity sales and OA&M revenues
where Global Crossing's subsidiaries have a presence in taxable jurisdictions.
During the period from March 19, 1997 (date of inception) to December 31,
1997, Global Crossing incurred operating losses, which relate to non-taxable
jurisdictions and therefore cannot be applied against future taxable earnings.
Accordingly, no tax provision or deferred tax benefit was recorded as of
December 31, 1997.
Extraordinary item
During May 1998, Global Crossing recognized an extraordinary loss of $20
million in connection with the repurchase of outstanding Global Telesystems
Holdings senior notes (the "GTH Senior Notes"), comprising of a premium of $10
million and a write-off of $10 million of unamortized deferred financing
costs.
Preferred stock dividends
During the year ended December 31, 1998, Global Crossing recorded preferred
stock dividends of approximately $13 million. Preferred stock dividends for
the period from March 19, 1997 (date of inception) to December 31, 1997 were
$13 million. Of the $13 million recorded in 1998, $4 million relates to the
GCH Preferred Stock issued during December 1998.
Redemption of preferred stock
The redemption of Global Telesystems Holdings outstanding preferred stock
(the "GTH Preferred Stock") occurred in June 1998 and resulted in a $34
million charge against equity. This amount was comprised of a $16 million
redemption premium and a write-off of $18 million of unamortized discount and
issuance costs. The redemption premium and write-off of unamortized discount
and issuance costs are treated as a deduction to arrive at net loss applicable
to common shareholders in the consolidated statements of operations.
Net loss and net loss applicable to common shareholders
Global Crossing incurred a net loss of $88 million for the year ended
December 31, 1998, compared to a net loss of $0.2 million in the period from
March 19, 1997 (date of inception) to December 31, 1997. The net loss for the
year ended December 31, 1998 reflects an extraordinary loss on retirement of
the GTH Senior Notes of $20 million and a non-recurring charge of $140 million
relating to the termination of the advisory services agreement with PCG
Telecom Services. Global Crossing's net income before these items was $72
million.
During the year ended December 31, 1998, Global Crossing reported a net loss
applicable to common shareholders of $135 million. This loss reflects
preferred stock dividends of $13 million and the redemption cost of GTH
Preferred Stock of $34 million. During the period from March 19, 1997 (date of
inception) to December 31, 1997, Global Crossing incurred a net loss
applicable to common shareholders of $13 million after GTH Preferred Stock
dividends of $13 million.
Balance sheet as of December 31, 1998
Restricted cash and cash equivalents, both current and long term. At
December 31, 1998, current and long-term restricted cash and cash equivalents
included: (1) $231 million restricted for PC-1 construction, (2) $89 million
received pursuant to CPAs on AC-1 which may be used only in accordance with
the terms of the AC-1 Credit Facility, (3) $66 million restricted for MAC
construction, (4) $38 million reserved for funding future interest payable on
the GCH Senior Notes and (5) $21 million restricted for miscellaneous items.
143
<PAGE>
Capacity available for sale, construction in progress and investment in
affiliates. Global Crossing's investment in capacity available for sale,
construction in progress and investment in affiliates totaled approximately
$1,180 million as of December 31, 1998. This amount includes the value of
system development contributed to Global Crossing by Pacific Capital Group.
Upon Global Crossing's IPO, each PCG Warrant then outstanding was converted
into a fraction of Global Crossing common stock based upon the ratio of the
per share valuation at the time of conversion less the per share exercise
price of the warrants, divided by the per share valuation at the time of
conversion, together with a new warrant (the "New PCG Warrants") to purchase
the remaining fraction of shares at an exercise price equal to $9.50, the
price to public per share of the IPO. These amounts increased additional paid-
in capital by $275 million and was allocated on a pro rata basis to PCL, PAC
and MAC according to the estimated cost of each system. Accordingly, Global
Crossing recorded $163 million as an investment in PCL and $64 million and $48
million as Construction in Progress for PAC and MAC, respectively.
Long term debt and senior notes. The long term debt of $270 million as of
December 31, 1998 represents primarily the long term portion of our
outstanding balance on the AC-1 Credit Facility. The senior notes balance of
$796 million represents the net proceeds from the issuance of the GCH Senior
Notes, adjusted for the unamortized amount of the debt discount.
Mandatorily redeemable preferred stock. The mandatorily redeemable preferred
stock of $487 million as of December 31, 1998 represents the net proceeds
received from the $500 million offering of GCH Preferred Stock during December
1998, less $17 million in fees and issuance costs plus $4 million in accrued
dividends. These fees and issuance costs are being amortized over the term of
the obligation.
During the year ended December 31, 1998, Global Crossing reimbursed an
amount of $7 million to Pacific Capital Group, a shareholder, relating to
system evaluation costs incurred by Pacific Capital Group. This amount was
treated as a dividend and charged against additional paid-in capital.
Liquidity and capital resources
Restricted cash and cash equivalents. At March 31, 1999, restricted cash and
cash equivalents included: $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 GCH 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. All remaining amounts outstanding under the AC-1
non-recourse project finance credit facility were refinanced in July 1999
through Global Crossing's new senior secured corporate credit facility.
Global Crossing estimates 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 some of these 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 (Global Crossing expects 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. Global Crossing has funded
its 49% interest in GAL from cash on hand. With respect to MAC and PAC, Global
Crossing has made equity investments of $110 million and $200 million,
respectively, with the remaining estimated $220 million in costs for MAC and
$295 million in costs for PAC to be financed either through bank indebtedness
under its existing corporate credit facility or through other corporate
financing.
During October 1998, Global Crossing 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 December 1998
144
<PAGE>
issuance by Global Crossing Holdings of GCH Preferred Stock. Further, Global
Crossing expects 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, Global
Crossing has entered into an agreement with Cable & Wireless for the sale of
more than $100 million of dark fiber on PEC. During January 1999, Global
Crossing 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, Global Crossing borrowed approximately $400 million under the
Lucent facility for the construction of PEC, which was refinanced in July 1999
through Global Crossing's new senior secured corporate credit facility.
Global Crossing financed the approximately $870 million Global Marine
acquisition, which was completed in July 1999, with approximately $600 million
in bank financing under its new senior secured corporate credit facility and
the remainder with cash on hand.
Global Crossing 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.
Global Crossing 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. Global Crossing believes that
its extension of financing to its customers will not have a material effect on
Global Crossing'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 provided by operating activities was $209 million for the year ended
December 31, 1998 and $5 million for the period from March 19, 1997 (date of
inception) to December 31, 1997, which principally represents cash received
from deposits and payments for activated capacity pursuant to signed CPAs,
plus interest income, less sales and marketing, network development and
general and administrative expenses paid.
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.
Cash provided by financing activities was $1,027 million for the year ended
December 31, 1998 and primarily represents borrowings under the AC-1 and MAC
credit facilities, proceeds from the issuance of GCH Senior Notes, the GCH
Preferred Stock and Global Crossing's IPO, less amounts paid for finance and
organization costs, the issuance of common and preferred stock, the repayment
of long term debt, the redemption of the GTH Preferred Stock, the retirement
of the GTH Senior Notes and the increase in amounts held in restricted cash
and cash equivalents. At December 31, 1998, Global Crossing's working capital
amounted to $750 million.
During May 1998, Global Crossing obtained $796 million in net proceeds from
the issuance of the GCH Senior Notes due 2008. These proceeds were used (1) to
purchase all of the $150 million aggregate principal amount of outstanding GTH
Senior Notes, (2) to redeem all of the $100 million aggregate principal amount
of outstanding GTH Preferred Stock, (3) to repay in full the $67 million then
outstanding under a bridge credit facility, (4) to make approximately $315
million of equity investments in PC-1, MAC and PAC and (5) for general
corporate purposes, including $74 million to fund a one-year interest reserve
on the GCH Senior Notes. In August 1998, Global Crossing completed its IPO,
from which it received net proceeds of $391 million, and during December 1998,
the GCH Preferred Stock was issued, from which net proceeds of approximately
145
<PAGE>
$483 million were received. Global Crossing has used or intends to use these
proceeds for (1) construction of the Global Crossing Network, (2) investment
in telecommunications companies and ISPs, (3) investments in GAL and (4)
general corporate purposes. As of March 31, 1998, unused proceeds were
invested in short-term, interest-bearing U.S. Government securities and
certain other short term, investment grade securities.
Cash provided by financing activities of $425 million for the period from
March 19, 1997 (date of inception) to December 31, 1997, relates to net
proceeds from the issuance of common stock, GTH Preferred Stock and GTH Senior
Notes and borrowings under the AC-1 credit facility, less finance and
organization costs related to the issuance of common and preferred stock and
the increase in proceeds held in restricted cash and cash equivalents. At
December 31, 1997, Global Crossing's working capital deficit was $63 million.
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.
Cash used in investing activities was approximately $431 million and $429
million for the year ended December 31, 1998 and the period from March 19,
1997 (date of inception) to December 31, 1997, respectively, and represents
cash paid for construction in progress, capacity available for sale and
investments in affiliates.
Global Crossing has extended financing to a small number of customers in
connection with certain CPAs. The financing terms provide for installment
payments over a period of up to four years. Global Crossing believes that its
extension of financing to its customers will not have a material effect on its
liquidity.
Global Crossing believes that its current cash and cash equivalents, credit
facilities and cash generated from operations will satisfy its expected
working capital and capital expenditure requirements through December 31,
1999.
Inflation
Management does not believe that Global Crossing's business is impacted by
inflation to a significantly different extent than the general economy.
Year 2000 compliance
Global Crossing believes that its computer information systems are Year 2000
("Y2K") compliant. Global Crossing has established a Y2K compliance task
force. The task force has identified no potential material adverse effect on
the two core components of it services: (1) transmission of capacity and (2)
management and maintenance of the transmission paths. Global Crossing's
anticipated worst case scenario is failure of its 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. No or minimal additional
cost would be incurred as Global Crossing has already included the cost for
back-up management of the network into the AC-1 business case analysis.
Global Crossing is 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 its own systems, Global
Crossing is submitting requests to third party service providers to obtain
information as to their compliance efforts. Global Crossing has received
assurances from its major suppliers, TSSL and Lucent, stating Y2K compliance
status of their respective systems regarding AC-1, Global Crossing's only
active system at this time. In addition, Global Crossing received assurance
from Alcatel, a supplier to MAC, that Alcatel is also Y2K compliant. In the
event that any of its material third party service providers do not
successfully and timely achieve Y2K compliance, Global Crossing's business or
operations could be adversely affected. Global Crossing is 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.
146
<PAGE>
Global Crossing believes that costs of addressing its Y2K compliance will
not have a material adverse impact on its 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, called 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, but 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 Global Crossing's sales and expenditures are denominated in
United States dollars, management does not believe that the Euro conversion
will have a material adverse impact on its business or financial condition.
Global Crossing does not expect the cost of system modifications to be
material, and it will continue to evaluate the impact of the Euro conversion.
147
<PAGE>
Stock Ownership Of Management, Directors and
5% Shareholders of Global Crossing
The following table sets forth, as of June 25, 1999, information regarding
the beneficial ownership of Global Crossing common stock by (1) each person or
entity who is known to Global Crossing to own beneficially 5% or more voting
common stock of Global Crossing, (2) each director and executive officer of
Global Crossing and (3) all directors and executive officers of Global
Crossing as a group. To Global Crossing's knowledge, each such shareholder has
sole voting and investment power with respect to the shares shown, unless
otherwise noted. Amounts appearing in the table below include (1) all shares
of common stock outstanding as of June 25, 1999, (2) all shares of common
stock issuable upon the exercise of options within 60 days of June 25, 1999
and (3) all shares of common stock issuable upon the exercise of warrants
within 60 days of June 25, 1999. The warrants described below as "New PCG
Warrants" and "Global Crossing Warrants" each represent the right to
immediately purchase shares of Global Crossing common stock at an exercise
price of $9.50 per share.
<TABLE>
<CAPTION>
Beneficial Ownership of Common Stock
------------------------------------------------------------------
Shares Shares
Shares Subject to Subject to Subject
Number of New PCG Global Crossing to Percentage
Shares(1) Warrants Warrants Options of Class
----------- ----------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Pacific Capital Group, 87,601,172 6,050,004 2,515,788 0 21.68%
Inc.(2)................
150 El Camino Drive,
Suite 204
Beverly Hills,
California 90212
Canadian Imperial Bank
of Commerce(3)......... 88,198,248 0 0 375,000 19.96%
161 Bay Street,
8th Floor -- BCE Place
P.P. Box 500
M5J258, Toronto, Canada
U S WEST, Inc. ......... 39,259,305 0 0 0 8.85%
7800 East Orchard Road
Englewood, Colorado
80111
Continental Casualty 36,442,735 0 0 0 8.21%
Company................
CNA Plaza, Floor 23
South
Chicago, Illinois 60685
MRCo, Inc............... 30,109,522 0 697,934 0 6.94%
111 Massachusetts
Avenue NW Washington,
DC 20001
Gary Winnick(4)......... 87,601,172 6,050,004 2,515,788 1,200,000 21.95%
Lodwrick M. Cook........ 3,324,169 950,002 0 182,000 1.00%
Jack M. Scanlon......... 239,520 0 0 1,462,588 *
Thomas J. Casey(5)...... 630,412 0 0 0 *
Robert Annunziata....... 0 0 0 918,424 *
William B. Carter....... 119,760 0 0 825,856 *
Dan J. Cohrs............ 10,000 0 0 708,668 *
David L. Lee(6)......... 18,559,028 1,825,002 663,456 600,000 4.86%
Abbott L. Brown(7)...... 10,460,679 1,450,002 367,666 600,000 2.90%
Barry Porter(8)......... 17,063,809 1,825,002 610,266 600,000 4.53%
James C. Gorton......... 0 0 0 729,606 *
Jack Finlayson.......... 29,984 0 0 665,044 *
Robert Sheh............. 0 0 0 283,685 *
Hillel Weinberger(9).... 38,688,409 0 0 75,000 8.74%
Jay R. Bloom(10)........ 88,198,248 0 0 375,000 19.96%
Dean C. Kehler(10)...... 88,198,248 0 0 375,000 19.96%
Jay R. Levine(10)(11)... 88,198,248 0 0 375,000 19.96%
William P.
Phoenix(10)(11)........ 88,198,248 0 0 375,000 19.96%
Bruce Raben(10)(11)..... 88,198,248 0 0 375,000 19.96%
Michael R. Steed(12).... 30,109,522 0 697,934 75,000 6.96%
William E. Conway(13)... 2,023,677 0 0 75,000 *
Geoffrey J.W. Kent...... 0 0 0 75,000 *
All Directors and
Executive Officers as a
Group.................. 297,033,256 12,100,012 4,855,110 9,450,871 72.90%
</TABLE>
148
<PAGE>
- --------
* Percentage of shares beneficially owned does not exceed one percent.
(1) As of June 25, 1999, 414,728,082 shares of common stock were issued and
outstanding. An additional 11,329,665 shares of common stock would have
been issuable upon the exercise of options within 60 days of June 25,
1999; an additional 12,500,012 shares of common stock would have been
issuable upon the exercise of New PCG Warrants within 60 days of June
25, 1999 and an additional 5,108,358 shares of common stock would have
been issuable upon the exercise of Global Crossing Warrants within 60
days of June 25, 1999.
(2) Includes shares of common stock and common stock warrants owned by GKW
Unified Holdings, a company formed for the benefit of Gary Winnick and
members of his family and managed by Pacific Capital Group.
(3) Includes shares of common stock issuable upon the exercise of options
granted to Global Crossing directors employed by an affiliate of
Canadian Imperial Bank of Commerce.
(4) Includes (a) all shares of common stock and shares of common stock
issuable upon the exercise of warrants owned by GKW Unified Holdings, of
which Pacific Capital Group is manager, (b) all shares of common stock
and shares of common stock issuable upon the exercise of warrants owned
by Pacific Capital Group, of which Mr. Winnick is Chairman and Chief
Executive Officer and (c) all shares of common stock held by Casey
Pacific Holdings LLC, which Pacific Capital Group controls for purposes
of voting.
(5) Includes (a) all shares of common stock owned by Casey Pacific Holdings
LLC, which is beneficially owned by Mr. Casey and (b) all shares of
common stock owned by Casey Global Holdings LLC, which is beneficially
owned by Mr. Casey.
(6) Includes (a) all shares of common stock and shares of common stock
issuable upon the exercise of warrants owned by San Pasqual Corp., of
which Mr. Lee and his family are the sole shareholders and (b) all
shares of common stock and shares of common stock issuable upon the
exercise of warrants owned by the David and Ellen Lee Family Trust, of
which Mr. Lee is a trustee.
(7) Includes (a) all shares of common stock and shares of common stock
issuable upon the exercise of warrants owned by Ridgestone Corp., of
which members of Mr. Brown's family are the sole shareholders and (b)
all shares of common stock and shares of common stock issuable upon the
exercise of warrants owned by the Brown Living Trust, of which Mr. Brown
is a trustee.
(8) Includes all shares of common stock and shares of common stock issuable
upon the exercise of warrants owned by Galenight Corp., of which Mr.
Porter is the sole shareholder.
(9) Includes all shares of common stock owned by Continental Casualty
Company, an affiliate of Loews/CNA Holdings Corp. Mr. Weinberger is an
officer of Loews/CNA Holdings Corp. Includes shares of common stock held
by Global Crossing Trust 1998, with respect to which Mr. Weinberger
serves as trustee, and shares of common stock held by Global Crossing
Partners, of which Mr. Weinberger is a managing partner.
(10) Includes all shares of common stock beneficially owned by Canadian
Imperial Bank of Commerce. Each of Messrs. Bloom, Kehler, Levine,
Phoenix and Raben is employed by an affiliate of Canadian Imperial Bank
of Commerce.
(11) Beneficial ownership of all shares of common stock indicated is
disclaimed.
(12) 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.
(13) Includes all shares of common stock beneficially owned by The Carlyle
Group, of which Mr. Conway is managing director.
149
<PAGE>
Stock Ownership of Management, Directors and
5% Shareholders of Frontier
The following table sets forth the number of shares of Frontier common stock
beneficially owned by each director, by each of the named executive officers
and by directors and officers of Frontier as a group as of May 31, 1999. No
director or officer beneficially owns more than 1% of Frontier's outstanding
shares of common stock. The group's aggregate holdings constitute
approximately 1.7% of Frontier's issued and outstanding common stock.
Management and Directors Stock Ownership Table as of May 31, 1999
<TABLE>
<CAPTION>
Total
Common Stock Beneficial
Name Stock(1) Options(2) Ownership
- ---- --------- ---------- ----------
<S> <C> <C> <C>
Directors:
Patricia C. Barron............................ 14,830 19,399 34,229
Raul E. Cesan................................. 10,506 11,999 22,505
Joseph P. Clayton............................. 485,099 399,999 885,098
Brenda E. Edgerton............................ 13,983 18,449 32,432
Jairo A. Estrada.............................. 30,720 19,999 50,719
Michael E. Faherty............................ 100,468 30,833 131,301
Alan C. Hasselwander (3)...................... 41,297 17,265 58,562
Eric Hippeau.................................. 17,270 0 17,270
Robert Holland, Jr............................ 11,179 11,666 22,845
Douglas H. McCorkindale....................... 18,702 19,999 38,701
James F. McDonald............................. 2,608 0 2,608
Dr. Leo J. Thomas............................. 35,994 19,999 55,993
Named Executive Officers:
Robert L. Barrett............................. 101,314 258,333 359,647
Joseph P. Clayton............................. 485,099 399,999 885,098
Jeremiah T. Carr.............................. 57,929 266,066 317,995
Rolla P. Huff................................. 153,950 66,666 220,616
Donna L. Reeves-Collins....................... 10,152 108,566 118,718
Directors and Executive Officers as a Group
(25 persons)................................. 1,190,600 1,817,435 3,008,035
</TABLE>
- --------
(1) Includes all shares which each director or officer directly, or through
any contract, arrangement, understanding, relationship or otherwise, has
or shares the power to vote or to direct the voting of such shares or to
dispose or to direct the disposition of such shares. Amounts in this
column include both vested and unvested restricted stock granted to
selected executive officers. However, these amounts do not include shares
which each such person has the right to acquire pursuant to options or
other rights.
(2) Includes all shares which such persons have the right to acquire within
the sixty days following May 31, 1999, pursuant to options or other
rights. These amounts do not include shares which such persons have the
right to acquire more than sixty days after that date.
(3) Includes 1,480 shares owned by Mr. Hasselwander's spouse. Mr. Hasselwander
disclaims beneficial ownership of these shares.
150
<PAGE>
Set forth below is the name, address and stock ownership of the only persons
or groups of persons known by Frontier to own beneficially more than 5% of the
outstanding shares of common stock.
5% Shareholders Stock Ownership Table as of December 31, 1998
<TABLE>
<CAPTION>
Number of
Shares of Percent
Name and Address Common of
of Beneficial Owners Stock Class
-------------------- ---------- -------
<S> <C> <C>
Delaware Management Holdings, Inc. (1)..................... 11,512,972 6.71%
2005 Market Street
Philadelphia, Pennsylvania 19103
Scudder Kemper Investments, Inc. (2)....................... 10,379,385 6.10%
345 Park Avenue
New York, New York 10154
</TABLE>
- --------
(1) Delaware Management Holdings, Inc., filed with the Securities and Exchange
Commission a Schedule 13G, dated February 5, 1999, stating that it
beneficially owned as of December 31, 1998 in the aggregate 11,512,972
shares of Frontier's common stock in its capacity as the parent holding
company of Delaware Management Business Trust. In its Schedule 13G filing,
Delaware Management Holdings, Inc. also disclosed that with respect to the
shares it beneficially owns, it has sole voting power with respect to
10,965,172 shares, shared voting power with respect to 547,800 shares,
sole dispositive power with respect to 11,512,972 shares and shared
dispositive power with respect to 0 shares.
(2) Scudder Kemper Investments, Inc. filed with the Securities and Exchange
Commission a Schedule 13G, dated February 12, 1999, stating that it
beneficially owned as of December 31, 1998 in the aggregate 10,379,385
shares of Frontier's common stock. In its Schedule 13G filing, Scudder
Kemper Investments, Inc. also disclosed that, with respect to the shares
it beneficially owns, it has sole voting power with respect to 4,207,085
shares, shared voting power with respect to 5,706,000 shares, sole
dispositive power with respect to 10,270,285 shares and shared dispositive
power with respect to 109,100 shares.
151
<PAGE>
Description of Global Crossing Capital Stock
The following summary is a description of the material terms of Global
Crossing common stock, does not purport to be complete and is subject in all
respects to the applicable provisions of Bermuda law and of the constituent
documents of Global Crossing and each of its subsidiaries. The Global Crossing
memorandum of association and bye-laws are filed as exhibits to the
registration statement of which this document is a part.
Please note that some of the material terms of the Global Crossing common
stock described in this section will change if the proposed amendments to the
Global Crossing bye-laws are adopted at the annual meeting. See "Proposals to
Global Crossing Shareholders To Be Voted on at the Global Crossing Annual
Meeting--Proposals Nos. 3 and 4."
General
Pursuant to its memorandum of association, the authorized share capital of
Global Crossing is $6,000,000, divided into 600,000,000 shares of common stock
par value $.01 per share.
Voting and transfer restrictions
Voting restriction. Each share of Global Crossing common stock has one vote,
except that if any shareholder owns, directly, indirectly or constructively
under Section 958 of the Internal Revenue Code or beneficially directly or
indirectly as a result of the possession of sole or shared voting power within
the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the
rules and regulations promulgated under that act, more than 9.5% of the voting
power of the common stock, or, in the case of Canadian Imperial Bank of
Commerce and its affiliates, collectively, more than 35% of the total voting
power of the Global Crossing capital stock, the number of votes of that
shareholder will be limited to 9.5% of the aggregate voting power of the
Global Crossing common stock, or, in the case of Canadian Imperial Bank of
Commerce and its affiliates, collectively, to 35% of the aggregate voting
power of the Global Crossing capital stock, based on a formula contained in
the bye-laws. The additional votes that could be cast by that shareholder but
for the restrictions on voting rights will be allocated to the other
shareholders, pro rata based on their number of shares of common stock.
Shareholders that have been allocated additional votes may not exceed the
voting limitation as a result of that allocation.
Transfer restriction. The bye-laws also provide that any transfer of shares
of common stock or any interest in those shares that results in a shareholder,
other than Pacific Capital Group, GKW Unified Holdings, Canadian Imperial Bank
of Commerce, Continental Casualty Company or MRCo 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, 5% of the
outstanding shares of common stock, if that shareholder is a natural person,
or otherwise 9.5% of the outstanding shares of common stock, without the
approval of a majority of the members of the board of directors and of
shareholders representing at least 75% of the votes of all outstanding shares
of common stock will not be registered in the share register and will be void
and of no effect.
Amendments to the voting reallocation and transfer restriction provisions of
the bye-laws require the approval of the Global Crossing board of directors
and shareholders holding at least 75% of the votes of all outstanding shares
of common stock. In the event of any amendment to these bye-laws, under
certain circumstances, Global Crossing has the obligation to indemnify and
hold harmless any shareholder who, as a result of that amendment, becomes
subject to treatment as a "U.S. Shareholder" for purposes of Section 951 et
seq. of the Internal Revenue Code from and against all losses, costs, damages,
liabilities and expenses directly or indirectly arising out of that treatment.
These voting reallocation and transfer restrictions could make it difficult
for any person or group of persons acting in concert, other than certain
existing owners, to acquire control of Global Crossing.
152
<PAGE>
Distributions
Holders of common stock are treated equally with respect to all
distributions to shareholders of Global Crossing.
Global Crossing stockholders agreement and registration rights agreement
Global Crossing, Pacific Capital Group, GKW Unified Holdings, affiliates of
Canadian Imperial Bank of Commerce, Continental Casualty Company, MRCo and
some other shareholders of Global Crossing, including some of Global
Crossing's officers and directors and their affiliates, have entered into a
stockholders agreement and a registration rights agreement, each incorporated
by reference as an exhibit to the registration statement of which this
document is a part.
Under the stockholders agreement, Global Crossing has been granted a right
of first refusal on specified private transfers by these shareholders during
the first two years after the consummation of Global Crossing's initial public
offering on August 14, 1998. In addition, subject to the exceptions in the
stockholders agreement, some of these shareholders have rights, which are
referred to as "tag-along rights," permitting these shareholders to
participate, on the same terms and conditions, in some transfers of shares by
any other of these shareholders as follows: (1) Pacific Capital Group, GKW
Unified Holdings and Canadian Imperial Bank of Commerce and their affiliates
and permitted transferees have the right to participate in any transaction
initiated by any of them to transfer 5% or more of the outstanding securities
of Global Crossing and (2) Pacific Capital Group, GKW Unified Holdings,
Canadian Imperial Bank of Commerce, Continental Casualty Company and MRCo and
their affiliates and permitted transferees have the right to participate in
any transaction initiated by any of them to transfer any securities of Global
Crossing if that transaction would result in a change of control of Global
Crossing.
In addition, so long as Gary Winnick, Pacific Capital Group and GKW Unified
Holdings and certain of their transferees collectively beneficially own,
within the meaning of Section 13(d) of the Securities Exchange Act of 1934, at
least 15% of the outstanding shares of Global Crossing common stock, they are
entitled to seek appraisal of the fair value of the Global Crossing common
stock that they beneficially own and the payment of the fair value in cash in
connection with any merger or consolidation of Global Crossing or the sale,
lease or transfer of all or substantially all of the assets of Global
Crossing, if they, in their capacity as shareholders of Global Crossing, did
not vote in favor of or consent to that transaction and beneficially own the
Global Crossing common stock as to which appraisal is sought immediately
before the transaction.
Under the registration rights agreement, the Global Crossing shareholders
who are parties to that agreement and a number of their transferees have
demand and piggyback registration rights and receive indemnification and, in
some circumstances, expense reimbursement from Global Crossing in connection
with an applicable registration.
153
<PAGE>
Some Differences Between Rights of Shareholders of Frontier
and Rights of Shareholders of Global Crossing
Upon completion of the merger, holders of Frontier common stock will become
entitled to receive Global Crossing common stock. Global Crossing is a company
formed under the laws of Bermuda, and Frontier is a corporation incorporated
under the laws of New York. The Companies Act 1981 is the statute that governs
Bermuda companies, and the New York Business Corporation Law is the statute
that governs New York corporations.
The following is a summary of some material differences between the rights
of holders of Frontier common stock and the holders of Global Crossing common
stock. These differences arise from differences between the corporate laws of
the State of New York and Bermuda, as well as differences between the Frontier
restated certificate of incorporation and the Frontier by-laws, on the one
hand, and the Global Crossing memorandum of association and the Global
Crossing bye-laws, on the other hand. See "Description of Global Crossing
Capital Stock." This discussion is not a complete statement of all differences
between rights of holders of Global Crossing common stock and Frontier common
stock. This summary discusses material differences between the laws of Bermuda
and those of New York. It also discusses material differences between the
Global Crossing memorandum of association and bye-laws and the Frontier
restated certificate of incorporation and by-laws. This summary is qualified
by the full text of each document and the Companies Act and the New York
Business Corporation Law. For information as to how to get those documents,
see "Where You Can Find More Information" beginning on page 188.
Size and classification of the board of directors
Global Crossing. Bermuda law permits a company's board of directors to be
divided into classes with staggered terms of office. The Global Crossing bye-
laws provide for three classes of directors with staggered terms. The Global
Crossing bye-laws mandate that Global Crossing have not less than eleven
directors and not more than eighteen. The board of directors currently
consists of seventeen directors. If the proposed amendments to the Global
Crossing bye-laws are adopted, the size of the Global Crossing board of
directors will be increased to a maximum of twenty.
Frontier. The New York Business Corporation Law provides that a
corporations's board of directors may be divided into classes with staggered
terms of offices. Neither the Frontier restated certificate of incorporation
nor the Frontier by-laws provide for a staggered board of directors. The
Frontier certificate of incorporation mandates that Frontier have not less
than nine directors. The Frontier by-laws currently provide for twelve
directors.
Removal of directors; vacancies; alternate directors
Global Crossing. The Global Crossing bye-laws provide that shareholders may
in a special meeting called for that purpose remove a director, provided
notice of the meeting is given to the director not less than 14 days before
the meeting, and the director is entitled to be heard at the meeting. Any
vacancy created by the removal of a director at a special meeting may be
filled at the meeting by the election of another director or, in the absence
of an election, by the board of directors. The Global Crossing bye-laws also
provide that any director will be removed from office (A) upon resolution of
the board, if the director or the director's alternate was absent from board
meetings for more than six consecutive months without permission of the board
or (B) if, after the initial term, that is, the term for any director
commencing on August 13, 1998, no less than three-quarters of the directors
request the director to resign.
Under Global Crossing's bye-laws, any director may appoint any other
director, or any other person approved by resolution of the Global Crossing
board of directors, to act as an alternate director to represent that
director. A director may remove an alternate director appointed by that
director.
154
<PAGE>
Frontier. The New York Business Corporation Law provides that any or all of
the directors of a corporation may be removed for cause by a vote of the
shareholders and that the certificate of incorporation or by-laws may provide
for removal without cause by a vote of the shareholders. Frontier's charter
and by-laws do not permit removal without cause.
New York law provides that vacancies occurring for any reason other than
removal without cause may be filled by vote of the board of directors. If the
number of directors then in office is less than a quorum, those vacancies may
be filled by vote of a majority of the directors then in office. Under the
Frontier by-laws, a director elected to fill a vacancy will hold office until
the next annual meeting of the shareholders and until his or her successor has
been elected and qualified.
Frontier directors are not permitted to appoint alternate directors.
Meetings of shareholders
Global Crossing. Under Bermuda law, an annual meeting must be held once
every calendar year. A special meeting of shareholders may be convened by a
majority of the directors at any time and must be convened upon the request of
shareholders holding not less than one-tenth of the paid up capital of the
company carrying the right to vote at general meetings. In addition, the
proposed amendments to the Global Crossing bye-laws, if adopted, will grant
authority to the chairman or co-chairman of the board of directors to convene
a special shareholder meeting at any time.
Frontier. Under New York law, special meetings may be called by the board of
directors and by any other person or persons authorized to do so by the
corporation's certificate of incorporation or by-laws. The Frontier by-laws
provide that a special meeting may be called only by the board of directors.
At any special meeting, only business related to the purpose or purposes
stated in the notice to shareholders may be transacted.
Action by written consent of shareholders; shareholder resolutions
Global Crossing. Action by written consent of shareholders is permitted in
Bermuda, except for the purpose of removing an auditor or director before the
expiration of his or her term of office. A written resolution must be signed
by all shareholders entitled to attend and vote at a meeting. In addition, the
Global Crossing bye-laws provide that, unless a greater percentage is required
by the Companies Act or by a specific bye-law provision, any matter proposed
for consideration at any general meeting requires the affirmative vote of a
majority of votes that may be cast by all shareholders to be approved. If the
proposed amendments to the bye-laws are approved, ordinary shareholder
resolutions will require the affirmative vote of a majority of the votes cast
at a shareholders' meeting to be adopted.
Frontier. The New York Business Corporation Law provides that shareholders
may take any action without a meeting by written consent only if the consent
is signed by the holders of all the outstanding shares entitled to vote on
that action, unless otherwise provided in the certificate of incorporation.
The Frontier by-laws also provide that with respect to any corporate action,
other than the election of directors, required to be taken by a vote of the
shareholders, the action shall, except as otherwise required by law or by the
Frontier restated certificate of incorporation, be authorized by a majority of
the votes cast at the applicable meeting.
Vote required for extraordinary corporate transaction
Global Crossing. Bermuda law permits an amalgamation between two or more
Bermuda companies or between one or more Bermuda exempted companies and one or
more foreign corporations subject, unless the bye-laws otherwise provide, to
obtaining a majority vote of three-fourths of the shareholders of each company
present and voting in person or by proxy at a meeting called for that purpose
at which the quorum shall be two persons holding more than one-third of the
issued shares. Short form amalgamations are permitted between a holding
company and one or more of its wholly owned subsidiary companies or between
two or more wholly
155
<PAGE>
owned subsidiary companies of the same holding company subject to approval of
the amalgamation by a resolution of the directors of each amalgamating
company. The Global Crossing bye-laws provide that an amalgamation requires
the approval of a simple majority of votes cast at any shareholder's meeting,
subject to specified quorum requirements.
Frontier. The New York Business Corporation Law requires the affirmative
vote of two-thirds of all outstanding shares entitled to vote thereon to
effect a merger, a consolidation, a share exchange or the sale, lease or
disposition of all or substantially all of a corporation's assets. In
addition, under some circumstances, holders of shares of a class or series of
a class are entitled to vote together and to vote as a separate class on the
transaction.
Interested director transactions
Global Crossing. The Global Crossing bye-laws provide that a director may be
a party to, or otherwise interested in, any transaction or arrangement with
Global Crossing or in which Global Crossing is otherwise interested. So long
as the director declares the nature of his or her interest in writing as
required by the bye-laws and the Companies Act, he or she will not be
accountable to Global Crossing for any benefit which he or she derives from a
similar transaction or arrangement. For the purposes of the bye-laws, a
director is deemed to have an interest in a transaction or arrangement with
Global Crossing if he or she is the holder of or is beneficially interested in
5% or more of any class of stock of a company, or of the voting rights
available to shareholders of a company, with which Global Crossing is
proposing to enter into a transaction or arrangement.
Frontier. The New York Business Corporation Law provides that no transaction
between a corporation and one or more of its directors or an entity in which
one or more of its directors are directors or officers or have a financial
interest shall be void or voidable solely for that reason. In addition, no
such transaction shall be void or voidable solely because the director is
present at or votes at the meeting of the board of directors or committee
which authorizes the transaction. In order to avoid such a transaction being
void or voidable, it must, after disclosure of material facts (unless those
facts were known), (1) be approved by the disinterested directors or a
committee of disinterested directors by a vote sufficient for such purpose
without counting the vote of any interested director, or, if the vote of
disinterested directors is insufficient to constitute an act of the board
under New York law, by the unanimous vote of the disinterested directors or
(2) be approved by a vote of the shareholders. Alternatively, the transaction
will not be void or voidable if it is shown to have been fair to the
corporation at the time it was approved by the board, a committee or the
shareholders.
Transfer restrictions
Global Crossing. The Global Crossing bye-laws also provide that transfers to
a shareholder that result in the shareholder beneficially owning more than a
specified percentage of Global Crossing stock will not be registered in the
share register of Global Crossing and shall be void and of no effect unless
the transfer is duly approved. See "Description of Global Crossing Capital
Stock--Voting and transfer restrictions."
Frontier. There are no similar restrictions on transfers of shares under New
York law or Frontier's restated certificate of incorporation or by-laws.
Business combination statutes
Global Crossing. The Companies Act does not contain any business combination
statute similar to the New York statue described below.
Frontier. Under New York law, a corporation is generally prohibited from
engaging in specified business combinations, including specified mergers and
consolidations, dispositions of assets and issuances of securities as well as
a number of other transactions, with an interested shareholder, unless the
business combination, or the purchase of stock by means of which the
interested shareholder became an interested person, is either (1) approved by
the corporation's board of directors in advance, (2) approved by the
affirmative vote of the holders
156
<PAGE>
of a majority of the outstanding voting stock not beneficially owned by the
interested shareholder at a meeting called for that purpose no earlier than
five years after the interested person's stock acquisition date or (3) a
business combination that meets specified conditions. An interested
shareholder generally includes holders of 20% or more of the outstanding
voting stock of the corporation.
Shareholder suits
Global Crossing. The Bermuda courts would permit a shareholder to begin a
derivative action in the name of the company to remedy a wrong done to the
company only (1) where the act complained of is alleged to be beyond the
corporate power of the company or illegal; (2) where the act complained of is
alleged to constitute a fraud against the minority shareholders by those
controlling the company; provided that the majority shareholders have used
their controlling position to prevent the company from taking action against
the wrongdoers; (3) where an act requires approval by a greater percentage of
the company's shareholders than actually approved it; or (4) where there is an
absolute necessity to waive the general rule that a shareholder may not bring
such an action in order that there not be a violation of the company's
memorandum of association or bye-laws.
There is also a statutory remedy under Section 111 of the Companies Act,
which provides that a shareholder may seek redress of the court as long as he
or she can establish that the company's affairs are being conducted, or have
been conducted, in a manner oppressive or prejudicial to the interests of some
of the shareholders, including himself.
Frontier. Under New York law, a shareholder may institute a lawsuit against
one or more directors, either on his or her own behalf, or derivatively on
behalf of the corporation. The New York Business Corporation Law enables a
corporation to eliminate or limit, and the Frontier restated certificate of
incorporation does so limit, a director's personal liability to the
corporation or the holders of its capital stock for monetary damages for
violations of the director's fiduciary duty to the full extent permitted under
the New York Business Corporation Law.
Dissenters' rights
Global Crossing. Under Bermuda law a dissenting shareholder of a company
participating in an amalgamation, other than an amalgamation between a company
and its wholly owned subsidiary or between two or more wholly owned
subsidiaries of the same holding company, may, in specified circumstances,
receive cash or other consideration in the amount of the fair value of the
shareholder's shares as determined by a court, instead of the consideration he
or she would otherwise receive in that amalgamation.
Frontier. The New York Business Corporation Law grants dissenters' rights to
shareholders, which are rights to receive payment of the fair value of one's
shares determined by judicial appraisal, in the case of specified mergers or
consolidations, a sale of all or substantially all of the corporation's assets
and, in the case of a shareholder whose shares would be adversely affected,
specified amendments to the certificate of incorporation. The right to receive
payment of the fair value is not available, however,
(1) to a shareholder of the surviving corporation in a merger, unless (A)
the certificate of amendment alters or abolishes any preferential rights of
the shares having preferences; or (B) creates, alters or abolishes any
provision or right in respect of the redemption of the shares or any
sinking fund for the redemption or purchase of the shares; or (C) alters or
abolishes any preemptive right of the holder to acquire shares or other
securities; or (D) excludes or limits the right of the holder to vote on
any matter, except as that right may be limited by the voting rights given
to new shares then being authorized of any existing or new class;
(2) to a shareholder of the parent corporation in a merger between the
parent and subsidiary corporation of which the parent owns at least 90% of
the outstanding shares; or
(3) to a shareholder for the shares that were listed on a national
securities exchange or designated as a national market system security by
the National Association of Securities Dealers, Inc. on the record date for
the related meeting.
157
<PAGE>
The New York Business Corporation Law also provides that, in determining the
fair value for payment of shares, the court consider the nature of the
transaction and its effect on the corporation and its shareholders and the
concepts and methods of valuation then customary in the relevant financial and
securities markets.
Dividends
Global Crossing. The Global Crossing bye-laws provide that the board of
directors 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 any interim dividends that appear to the board of
directors to be justified. The board of directors must be satisfied on
reasonable grounds that at the time when the dividends are declared and at the
time when the dividends are paid, Global Crossing is, and would after the
payment be, able to pay its debts as they fall due and that the realizable
value of Global Crossing's assets would not be less than the aggregate of its
liabilities and its issued share capital and share premium accounts.
Frontier. Under the New York Business Corporation Law, a corporation may
declare and pay dividends on its outstanding shares except when currently the
corporation is insolvent or would be made insolvent upon payment of the
dividends or when the declaration, payment or distribution would be contrary
to any restrictions contained in the certificate of incorporation. In general,
dividends may be declared or paid out of surplus only.
Voting
Global Crossing. The Global Crossing bye-laws contain restrictions on voting
shares if a holder owns more than a specified percentage of the voting power.
See "Description of Global Crossing Capital Stock--Voting and transfer
restrictions."
Frontier. The Frontier restated certificate of incorporation and by-laws
contain no similar restriction.
Preemptive rights
Global Crossing. Bermuda law does not require that preemptive rights be
provided for in the bye-laws of the company. Preemptive rights may exist by
contractual arrangement or pursuant to the terms of issue of the shares. The
Global Crossing bye-laws do not contain any provision concerning preemptive
rights, nor has Global Crossing entered into any agreement or arrangement
granting preemptive rights.
Frontier. The New York Business Corporation Law provides, subject to
specified exceptions, preemptive rights to shareholders upon an issuance of
securities which would adversely affect specified interests of the
shareholders; however, the certificate of incorporation of a corporation may
provide otherwise. The Frontier restated certificate of incorporation states
that no holders of shares of Frontier of any class or series, now authorized
or authorized in the future, will have any preemptive rights.
Amendments to corporate governance documents
Global Crossing. Amendments to the memorandum of association of a Bermuda
company must be submitted to a general meeting of the shareholders and will be
effective only to the extent approved by the shareholders at that meeting and,
in respect of certain amendments to a company's objects, by the Bermuda
Minister of Finance. The Global Crossing bye-laws provide that the bye-laws
may be amended by resolution of the board of directors, subject to approval by
shareholder resolution at a general meeting. In some circumstances, the vote
or consent of the holders of 75% of the outstanding shares of capital stock of
Global Crossing and the approval of the majority of the Global Crossing board
of directors are required.
Frontier. Under New York law, amendments to a certificate of incorporation
may be authorized by the vote of a majority of outstanding shares entitled to
vote thereon. New York law also provides for approval by vote of the holders
of a majority of outstanding shares of a particular class of stock in some
circumstances. The
158
<PAGE>
by-laws of Frontier may be amended by a vote of the holders of the shares at
the time entitled to vote in the election of any directors. They may also be
amended by the board of directors of Frontier, but any by-law adopted by the
board of directors may be amended or repealed by the shareholders entitled to
vote in the election of any directors.
Limitations on directors' liability
Global Crossing. Under Bermuda law, a director must observe the statutory
duty of care which requires the director to act honestly and in good faith
with a view to the best interests of the company and exercise the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Directors are also subject to common law fiduciary
duties which require directors to act in what they reasonably believe to be
the best interests of the company and for a proper purpose. Bermuda law
renders void any provision in the bye-laws or any contract between a company
and any director exempting him or her from or indemnifying him or her against
any liability in respect of any fraud or dishonesty of which he or she may be
guilty in relation to the company. The Global Crossing bye-laws contain a
number of provisions limiting the liability of directors as permitted under
Bermuda law.
The Global Crossing bye-laws provide that each shareholder agrees to waive
any claim or right of action he or she may have, whether individually or by or
in the right of Global Crossing, against any director of Global Crossing on
account of any action taken by any director, or the failure of any director to
take any action in the performance of his or her duties with or for Global
Crossing; provided, however, that this waiver does not apply to any claims or
rights of action arising out of the fraud or dishonesty of a director.
Frontier. The New York Business Corporation Law permits a corporation to
limit or eliminate a director's personal liability to the corporation or the
holders of its capital stock for breach of duty. This limitation is generally
unavailable for acts or omissions by a director which (1) were in bad faith,
(2) involved intentional misconduct or a knowing violation of law, or (3)
involved a financial profit or other advantage to which such director was not
legally entitled. The New York Business Corporation Law also prohibits
limitations on director liability for acts or omissions which resulted in a
violation of a statute prohibiting specified dividend declarations, specified
payments to shareholders after dissolution and particular types of loans.
The Frontier restated certificate of incorporation provides for limitations
on directors' liability as permitted by New York law.
Rights of inspection
Global Crossing. Bermuda law provides the public with a right of inspection
of a Bermuda company's public documents at the office of the Registrar of
Companies in Bermuda and provides a Bermuda company's shareholders with a
right of inspection of the company's bye-laws, minutes of general shareholder
meetings and audited financial statements. The register of shareholders is
also open to inspection by shareholders free of charge and, upon payment of a
small fee, by any other person. A Bermuda company is required to maintain its
share register in Bermuda, but if it is a public company, it may establish a
branch register outside Bermuda. A Bermuda company is required to keep at its
registered office a register of its directors and officers which is open for
inspection by members of the public without charge. Bermuda law does not,
however, provide a general right for shareholders to inspect or obtain copies
of any other corporate records.
Frontier. Under the New York Business Corporation Law, any person who has
been a shareholder of record of a corporation, upon at least five days'
written demand, has the right to examine, in person or by agent or attorney,
the corporations minutes of the proceedings of its shareholders and a record
of its shareholders and to make extracts from those records for any purpose
reasonably related to the person's interest as a shareholder. Upon the written
request of any shareholder, the corporation must give or mail to that
shareholder an annual balance sheet and profit and loss statement for the
preceding fiscal year, and, if any interim balance sheet or profit and loss
statement has been distributed to its shareholders or otherwise made available
to the public, the most recent such interim balance sheet or profit and loss
statement.
159
<PAGE>
Repurchase of untraced shares
Global Crossing. The Global Crossing bye-laws provide that Global Crossing
will be entitled to sell at the best price reasonably obtainable, or if the
shares are listed on a stock exchange, to purchase at the trading price as of
the date of purchase, the shares of a shareholder or the shares that a person
is entitled to as a result of death, bankruptcy or otherwise by operation of
law if: (1) during a period of twelve years, at least three dividends have
been declared and all dividends that have been sent in the manner authorized
by the bye-laws remained uncashed; (2) after twelve years, advertisements are
placed both in a national daily newspaper and a newspaper circulating in the
area of the last known address of that shareholder or other person giving
notice of Global Crossing's intention to purchase or sell the shares; (3) for
three months after the advertisements are placed, no information regarding
that shareholder is received; and (4) if the shares are listed on a stock
exchange, notice is given to the stock exchange of Global Crossing's intention
to sell or purchase those shares prior to the publication of the
advertisements.
Global Crossing will hold the proceeds of any such sale for a period of six
years, during which period the applicable shareholder will be a creditor of
Global Crossing and will be entitled, upon request, to payment of the proceeds
from the sale of those shares without interest. After the six-year period
ends, any unclaimed proceeds will become the property of Global Crossing.
Frontier. The Frontier by-laws do not contain any provision regarding
untraced shares.
Indemnification of Global Crossing by shareholders for some taxes and other
impositions
Global Crossing. The Global Crossing bye-laws provide that if any law
imposes or purports to impose any immediate, future or possible liability on
Global Crossing to make any payment in respect of shares held by or
distributions payable or paid to any shareholder, then Global Crossing shall
be fully indemnified by that shareholder or that shareholder's executor or
administrator from that liability. In addition, Global Crossing will have a
lien on all dividends and other money payable in respect of the shares held by
that shareholder until the applicable liability is paid, plus interest, and
may recover as a debt due from that shareholder or his or her administrator
any money paid by Global Crossing as a result of that liability. Global
Crossing may also refuse to register a transfer of any shares until such money
and interest is repaid or set off.
Frontier. Frontier does not have similar indemnification rights under its
corporate governance documents.
Indemnification of officers and directors
Global Crossing. Under Bermuda law, a company is permitted to indemnify any
officer or director out of the funds of the company against (1) any liability
incurred by him or her in defending any proceedings, whether civil or
criminal, in which judgment is given in his or her favor, or in which he or
she is acquitted, or in connection with any application under relevant Bermuda
legislation in which relief from liability is granted to him or her by the
court and (2) any loss or liability resulting from negligence, default, breach
of duty or breach of trust, save for fraud and dishonesty. The Global Crossing
bye-laws contain provisions regarding the indemnification of officers and
directors. The Global Crossing bye-laws generally provide for indemnification
to the extent permitted under Bermuda law.
Frontier. Under the New York Business Corporation Law, indemnification of
directors and officers may be provided to whatever extent is authorized by a
corporation's certificate of incorporation or a by-law or vote adopted by the
shareholders. The New York Business Corporation Law does not permit
indemnification with respect to any matter as to which the director or officer
has been adjudicated not to have acted in good faith in the reasonable belief
that the action taken was in the best interest of the corporation.
The Frontier by-laws currently provide for indemnification of directors and
officers and advancement of indemnified expenses to the fullest extent
permitted under the New York Business Corporation Law.
160
<PAGE>
Indemnification of shareholders by Global Crossing for some taxes
Global Crossing. The Global Crossing bye-laws provide that, if the existing
voting and transfer restrictions in the bye-laws are amended or the board of
directors and shareholders approve a restricted transfer of shares, Global
Crossing will indemnify each shareholder that is treated as a "United States
Shareholder" under Section 951 et. seq. of the Internal Revenue Code as a
result of that amendment from and against all losses, costs, damages,
liabilities and expenses arising out of, directly or indirectly, that
treatment.
Frontier. Frontier does not have similar indemnification obligations under
its corporate governance documents because it is a United States corporation.
Rights agreement
Global Crossing. Global Crossing has not adopted a shareholder rights plan.
Frontier. Frontier has adopted a rights agreement, dated April 9, 1995,
between Frontier and The First National Bank of Boston which contains
provisions that may delay, defer or prevent a takeover of Frontier. In
connection with the merger agreement, Frontier and Bank of Boston entered into
an amendment to the rights agreement, which provides that the rights would not
become exercisable as a result of the approval, execution, delivery or
performance of the merger agreement or the stock option agreement. Immediately
before the completion of the proposed merger, the rights under the rights
agreement will expire.
"Anti-Greenmail"
Global Crossing. Bermuda law does not contain an anti-greenmail statute.
Frontier. The New York Business Corporation Law provides that no domestic
corporation may purchase more than 10% of its stock from a shareholder who has
held the shares for less than two years at any price which is higher than the
market price unless the transaction is approved by both the corporation's
board of directors and a majority of the shares entitled to vote or the
corporation offers to purchase shares from all the holders on the same terms.
Listing
Global Crossing. Global Crossing common stock trades on both the Nasdaq
National Market and the Bermuda Stock Exchange.
Frontier. Frontier common stock is listed on the New York Stock Exchange.
161
<PAGE>
Proposals to Global Crossing Shareholders
To Be Voted on at the Global Crossing Annual Meeting
Please refer to Annex G to this joint proxy statement/prospectus for the
complete text of each proposal to Global Crossing shareholders to be voted on
at the Global Crossing annual meeting.
Proposal No. 1: Increase in Global Crossing's authorized share capital
On June 18, 1999, the Global Crossing board of directors unanimously adopted
a resolution approving an increase in Global Crossing's authorized share
capital from $6,000,000 to $30,200,000 for the purpose of:
. increasing the number of authorized shares of Global Crossing common
stock, par value $0.01 per share, from 600,000,000 shares to
3,000,000,000 shares; and
. authorizing the future issuance of 20,000,000 shares of Global Crossing
preferred stock, par value $0.01 per share.
The Global Crossing board of directors is asking shareholders to approve the
resolution, which is included in Annex G to this document, at the Global
Crossing annual meeting. The Global Crossing bye-laws require that the
resolution be approved by a majority of the aggregate votes of all issued and
outstanding shares of capital stock of Global Crossing.
The merger is conditioned on approval by Global Crossing shareholders of the
increase in the authorized share capital of Global Crossing to create shares
of Global Crossing common stock, which will be issued in the merger to
Frontier shareholders in exchange for shares of Frontier common stock in a
number equal to the exchange ratio. See "The Merger--What you will receive in
the merger." Without this amendment, Global Crossing will not have enough
authorized shares of common stock to issue to Frontier shareholders in the
merger. The Global Crossing board of directors has unanimously determined that
the merger and the increase in Global Crossing's authorized share capital to
effectuate the merger are in the best interests of Global Crossing and its
shareholders. See "The Merger--Recommendation of the Global Crossing board of
directors; Reasons for the merger." Shareholders who beneficially own shares
of Global Crossing common stock representing over a majority of the voting
power of Global Crossing have agreed to vote in favor of proposal no. 1. As a
result, the vote of these shareholders will be sufficient to approve this
proposal without any further vote by any other Global Crossing shareholder.
In addition, the Global Crossing board of directors believes that it is
desirable to have additional authorized shares of common and preferred stock
available for possible future financing and acquisition transactions, stock
dividends or splits, employee benefit plans and other general corporate
purposes. Having authorized shares of common and preferred stock available for
issuance in the future will allow Global Crossing to issue those shares
without the expense and delay of a special shareholder meeting.
Common stock
Of the 2,400,000,000 additional shares of Global Crossing common stock, if
authorized:
. up to approximately [315,934,593] shares will be issued upon closing of
the merger to Frontier shareholders in exchange for their shares of
Frontier common stock, with each Frontier shareholder receiving that
number of shares of Global Crossing common stock equal to the exchange
ratio. See "The Merger--What you will receive in the merger;"
. approximately [17,000,000] shares will be reserved for issuance under
Frontier stock options and warrants which, in the merger, will become
options or warrants to purchase Global Crossing common stock;
. [56,784,270] additional shares will be reserved for issuance under the
1998 Global Crossing Ltd. Stock Incentive Plan (the "1998 Plan"); and
162
<PAGE>
. approximately [2,010,281,137] shares will remain available for possible
future financing and acquisition transactions, stock dividends or
splits, employee benefit plans and other general corporate purposes.
The additional authorized but unissued shares of Global Crossing common
stock could be issued at the discretion of the Global Crossing board of
directors without any further action by the shareholders, except as required
by applicable law or regulation, in connection with acquisitions, efforts to
raise additional capital for Global Crossing and other corporate purposes. The
Global Crossing board of directors has no present plan or intention to issue
any shares of Global Crossing common stock authorized by this proposal, other
than in connection with the merger and the 1998 Plan.
As of , 1999, the total amount of authorized shares of Global Crossing
common stock was 600,000,000 shares, and shares of Global Crossing common
stock were issued and outstanding.
Preferred stock
The preferred stock, if authorized, could be issued at the discretion of the
Global Crossing board of directors without any further action by the
shareholders, except as required by applicable law or regulation, in
connection with acquisitions, efforts to raise additional capital for Global
Crossing and other corporate purposes. The Global Crossing board of directors
has no present plan or intention to issue any shares of preferred stock
authorized by this proposal.
This proposal would authorize the Global Crossing board of directors, from
time to time, to divide the preferred stock into classes or series, to
designate each class or series and to determine for each class or series its
respective rights and preferences, including, without limitation, any of the
following: (1) the rate of dividends and whether dividends were cumulative or
had a preference over the common stock in right of payment; (2) the terms and
conditions upon which shares may be redeemed and the redemption price; (3)
sinking fund provisions for the redemption of shares; (4) the amount payable
in respect of each share upon a voluntary or involuntary liquidation of Global
Crossing; (5) the terms and conditions upon which shares may be converted into
other securities of Global Crossing, including common stock; (6) limitations
and restrictions on payment of dividends or other distributions on, or
redemptions of, other classes of Global Crossing capital stock junior to such
series, including the common stock; (7) conditions and restrictions on the
creation of indebtedness or the issuance of other senior classes of capital
stock; (8) the terms on which shares may be redeemed, if any, and (9) voting
rights. Any series or class of preferred stock could, as determined by the
Global Crossing board of directors at the time of issuance, rank, with respect
to dividends, voting rights, redemption and liquidation rights, senior to the
Global Crossing common stock. The preferred stock to be authorized is of the
type commonly known as "blank-check" preferred stock.
The creation and issuance of preferred stock may constitute a variation of
certain rights of the Global Crossing common stock. It is not possible to
state the precise effects of the authorization of the preferred stock upon the
rights of the holders of Global Crossing common stock until the Global
Crossing board of directors determines the respective preferences, limitations
and relative rights of the holders of the class as a whole or of any series or
class of the preferred stock. These effects might include, without limitation:
(1) reduction of the amount otherwise available for the payment of dividends
on common stock to the extent dividends are payable on any issued preferred
stock; (2) restrictions on dividends on the common stock; (3) rights of any
series or class of preferred stock to vote separately or to vote with the
common stock; (4) conversion of the preferred stock into common stock at such
prices as the Global Crossing board of directors determines, which could
include issuance at below fair market value or original issue price of the
common stock, diluting the book value or per share value of the outstanding
common stock; and (5) the holders of common stock not being entitled to share
in Global Crossing's assets upon liquidation until satisfaction of any
liquidation preference granted to holders of the preferred stock. Holders of
Global Crossing common stock do not have preemptive rights to purchase shares
in future issuances.
163
<PAGE>
Potential antitakeover effect
This proposal may have an anti-takeover effect. The flexibility vested in
the Global Crossing board of directors to authorize the issuance of common
stock and preferred stock in one or more classes or series could enhance the
Global Crossing board of directors' bargaining capability on behalf of Global
Crossing shareholders in a takeover situation and could, under certain
circumstances, be used to render more difficult or discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block
of Global Crossing securities or the removal of incumbent management, even if
such a transaction were favored by the holders of the requisite number of the
then outstanding shares of capital stock. For example, the Global Crossing
board of directors could issue preferred stock having terms that could
discourage an acquisition attempt or other transaction that some, or a
majority, of the shareholders might believe to be in their best interests or
in which shareholders might receive a premium for their stock over market
price. Accordingly, shareholders might be deprived of an opportunity to
consider a takeover proposal which a third party might consider if Global
Crossing did not have authorized but unissued shares of capital stock.
The Global Crossing board of directors recommends a vote FOR proposal no. 1
Proposal No. 2: Issuance of shares of Global Crossing common stock in the
merger
On June 18, 1999, the Global Crossing board of directors unanimously adopted
a resolution approving the issuance of shares of Global Crossing common stock,
par value $0.01 per share, in the merger, subject to completion of the merger.
These shares will not be issued unless the merger is completed. This share
issuance is being submitted for the approval of the shareholders of Global
Crossing pursuant to the requirements of the National Association of
Securities Dealers applicable to companies with securities quoted on the
Nasdaq National Market. The NASD requirements provide that this share issuance
must be approved by a majority of all outstanding shares of Global Crossing
common stock, voting as a single class, at the Global Crossing annual meeting.
The merger cannot be completed unless Global Crossing shareholders approve
the issuance of these shares in the merger. Shareholders who beneficially own
shares of Global Crossing common stock representing over a majority of the
voting power of Global Crossing have agreed to vote in favor of proposal no.
2. As a result, the vote of these shareholders will be sufficient to approve
this proposal without any further vote by any other Global Crossing
shareholder. These shares will be issued to Frontier shareholders in exchange
for their Frontier common stock in a number per Frontier common stock share
equal to the exchange ratio described in this document. See "The Merger--What
you will receive in the merger" and "The Merger Agreement--Termination;
Possible exchange ratio increase."
The Global Crossing board of directors recommends a vote FOR proposal no. 2
Proposals Nos. 3 and 4: Amendment and restatement of Global Crossing bye-laws
The Global Crossing board of directors has approved the amendment and
restatement of the Global Crossing bye-laws. The existing bye-laws have not
been amended since Global Crossing became a public company. The proposed
amendments aim to make the Global Crossing bye-laws more suitable for a public
company and reflect common corporate practice among United States public
companies and public companies that, like Global Crossing, list or trade their
equity shares on a United States securities exchange or the Nasdaq National
Market. Accordingly, the Global Crossing board of directors is asking
shareholders to approve these amendments, which the Global Crossing board has
adopted by resolution included in Annex G.
Proposal No. 3: Amendment and restatement of Global Crossing bye-laws (other
than bye-laws 34(2), 63, 130 and 148)
The following discussion of the proposed amendments is qualified in its
entirety by the full text of the amended bye-laws set forth in Annex G. You
should read Annex G carefully. Under the existing Global Crossing
164
<PAGE>
bye-laws, these amendments require the vote of shares of common stock
representing at least a majority of all outstanding shares of common stock.
Reducing the minimum shareholder voting requirements for certain corporate
actions
The existing bye-laws require the approval of a majority of the votes of all
outstanding shares of capital stock to:
. adopt ordinary shareholder resolutions,
. increase or decrease the authorized capital stock,
. alter the capital stock, including the creation of several classes of
stock, the increase or decrease in par value of capital stock, the
authorization and issuance of non-voting capital stock, the cancellation
of shares of capital stock not previously allocated and the change of
the currency in which the capital stock is denominated,
. alter or abrogate the special rights of a class of shares of capital
stock by (1) reducing the capital paid up on those shares, (2) creating
another class of stock ranking in priority for payment of dividends or
in respect of capital over those shares or (3) creating a class of stock
with more favorable voting rights than those shares; however, the bye-
laws require the approval of at least 75% of the votes of all
outstanding shares of capital stock to alter or abrogate the special
rights of a class by written consent rather than by shareholder vote,
. elect directors, and
. amend the bye-laws with some exceptions that require the approval of at
least 75% of all outstanding shares of capital stock to be amended.
The proposed amendments reduce the minimum shareholder voting requirement to
approve the corporate actions specified above to a majority of all votes cast
at the shareholder meeting at which these corporate actions are being voted
on. These amendments, if adopted, will become effective only if and when the
merger is completed.
Manner of voting
The existing bye-laws provide that shareholders may vote at meetings either
on a poll with one vote per share or by a show of hands with one vote per
shareholder. The proposed amendments provide that voting by shareholders may
be conducted only on a poll.
Notice of special meetings and shareholder director nominations
The existing bye-laws provide that a special shareholders' meeting may be
called by not less than 30 days' notice by the board of directors or by
shareholders representing at least 10% of the paid in capital of Global
Crossing. In addition, the existing bye-laws provide that notice of
shareholder director nominations must be given to Global Crossing not less
than 60 nor more than 90 days before the date of the annual or special
shareholder meeting at which these nominations will be voted on.
The proposed amendments provide that a special shareholders' meeting may be
called by not less than 10 days' notice by the chairman or co-chairman of the
board of directors, in addition to the board of directors and by shareholders
representing at least 10% of the paid in capital of Global Crossing. In
addition, the proposed amendments provide that notice of shareholder director
nominations in connection with an annual shareholder meeting must be received
by Global Crossing not less than 120 nor more than 150 days before the date of
the release of Global Crossing's proxy statement in connection with the prior
year's annual shareholder meeting. The proposed amendments do not provide for
shareholder director nominations in connection with special meetings.
165
<PAGE>
Notice period to shareholders
Under the existing bye-laws, when counting the period of any notice to
shareholders, the date when the notice is sent, on the one hand, and the date
when the notice is received or, if the notice relates to a shareholder
meeting, the date of that meeting, on the other hand, are excluded from the
period of that notice.
The proposed amendments expressly provide that those dates will be counted
in the period of any notice to shareholders.
Number of directors and casual vacancies
The existing bye-laws provide that, at each annual meeting, shareholders
will by resolution determine the minimum and maximum number of directors on
the Global Crossing board of directors. The bye-laws currently provide that
the minimum number of directors is 11 and the maximum number of directors may
not exceed 18. In addition, the existing bye-laws provide that the Global
Crossing board of directors will have a fixed number of class A, B and C
directors. Also, the existing bye-laws provide that the number of casual
vacancies, that is vacancies that may be filled by the board, will be
determined by shareholder resolution.
The proposed amendments fix the maximum number of directors at 20 and the
minimum number at 11, until another shareholder resolution is adopted amending
those numbers. In addition, the proposed amendments provide that all vacancies
on the board of directors will be casual vacancies and that the board of
directors will have the authority to determine by resolution the number of
class A, B, and C directors that will serve on the board from time to time.
Staggered terms
Under the existing bye-laws, class A directors elected at the annual meeting
will serve until the annual meeting in 2002, class B directors will serve
until the annual meeting in 2000 and class C directors will serve until the
annual meeting in 2001. If the proposed amendments are adopted, class A
directors elected at the annual meeting will serve until the annual meeting in
2000, class B directors elected at the annual meeting will serve until the
annual meeting in 2001 and class C directors elected at the annual meeting
will serve until the annual meeting in 2002.
Outside directors' compensation
The existing bye-laws provide that the compensation of Global Crossing's
outside directors will be determined by shareholder resolution. The proposed
amendments provide that the compensation of outside directors will be
determined by the Global Crossing board of directors from time to time.
Potential antitakeover effect
Some of the proposed amendments in proposal no. 3 may have an antitakeover
effect, although this was not the intent of the Global Crossing board of
directors in adopting these amendments. In particular, the proposed amendment
to remove the ability of shareholders to nominate directors at special
meetings may have the effect of delaying consideration of a shareholder
director nomination until the next annual meeting. In addition, the proposed
amendment granting authority to the board of directors to determine the number
of class A, B and C directors from time to time may limit the number of
director nominations that shareholders may make or vote on at shareholder
meetings. The proposed amendment to the notice requirement for director
nominations at annual meetings may have the effect of precluding a director
nomination if the proper notice requirement has not been met.
The Global Crossing board of directors recommends a vote FOR proposal no. 3
Proposal No. 4: Amendment and restatement of Global Crossing bye-laws 34(2),
63, 130 and 148
The following discussion of the proposed amendments is qualified in its
entirety by the full text of the amended bye-laws set forth in Annex G. You
should read Annex G carefully. Under the existing Global Crossing
166
<PAGE>
bye-laws, these amendments require the vote of shares of common stock
representing at least 75% of all outstanding shares of common stock.
Record date for shareholder votes
The existing bye-laws do not provide for the establishment of a record date
for shareholders entitled to vote at shareholder meetings or by written
resolution. As a result, under the current bye-laws, shareholders of record at
the close of business on the date of a shareholder meeting or on the date when
a shareholder resolution is passed by written consent are entitled to vote.
The proposed amendments grant authority to the Global Crossing board of
directors to establish a record date for shareholders entitled to vote at
shareholder meetings and take action by written resolution.
Restrictions on transfers of shares
The existing bye-laws provide that a transfer of shares to any shareholder
that results in a shareholder that is a natural person owning 5% or more of
the outstanding shares of common stock or in any other shareholder owning 9.5%
or more of the outstanding shares of common stock may not be recorded in the
share register unless that transfer is approved by a majority of the directors
and by at least 75% of the votes of all outstanding shares of common stock.
Pacific Capital Group, GKW Unified Holdings, Canadian Imperial Bank of
Commerce, Continental, MRCo and their affiliates are not subject to this
restriction on transfers.
The proposed amendments reduce the minimum shareholder voting requirement to
approve any transfer resulting in any shareholder owning 5% or more, if the
shareholder is a natural person, or otherwise 9.5% or more of the outstanding
shares of common stock to a majority of the votes cast at the shareholder
meeting called to approve that transfer. These amendments, if adopted, will
become effective only if and when the merger is completed.
Limitation on voting rights
The existing bye-laws limit the voting power of large shareholders to 9.5%
of the total voting power of the Global Crossing common stock. Any additional
votes which these large shareholders would be entitled to cast but for this
limitation in the bye-laws are allocated to other shareholders, pro rata based
on their number of shares. Canadian Imperial Bank of Commerce and its
affiliates are the only shareholders exempt from this limitation on voting
rights. Their aggregate voting power is capped under the existing bye-laws at
35% of the total voting power of the Global Crossing capital stock.
The proposed amendments limit the voting power of large shareholders to 9.5%
of the total votes cast in connection with any shareholder action. In
addition, the proposed amendments decrease the cap on the voting power of
Canadian Imperial Bank of Commerce and its affiliates to 20% of the total
votes cast in connection with any shareholder action. These amendments, if
adopted, will become effective only if and when the merger is completed.
Correction of typographical error
In existing bye-law 34(2)(ii), the reference to "maximum percentage" should
read "Maximum Percentage." The proposed amendment makes this correction.
Antitakeover effect
The Global Crossing board of directors does not believe that any of the
foregoing proposed amendments to the bye-laws in proposal no. 4 have an
antitakeover effect.
167
<PAGE>
The Global Crossing board of directors recommends a vote FOR proposal no. 4
Proposal No. 5: Election of directors
The Global Crossing board of directors has made the following director
nominations:
. Abbott L. Brown, Thomas J. Casey, William E. Conway and Barry Porter to
be elected as class A directors with terms expiring in 2000. Messers.
Brown, Casey, Conway and Porter currently serve as directors of Global
Crossing;
. Robert Annunziata, Lodwrick M. Cook, Geoffrey J.W. Kent, David L. Lee,
Bruce Raben and Jack M. Scanlon to be elected as class B directors with
terms expiring in 2001. Messers. Annunziata, Cook, Kent, Lee and Raben
currently serve as directors of Global Crossing; and
. Jay R. Bloom, Dean C. Kehler, Michael R. Steed, Hillel Weinberger and
Gary Winnick to be elected as class C directors with terms expiring in
2002. Messers. Bloom, Kehler, Steed, Weinberger and Winnick currently
serve as directors of Global Crossing.
In addition, the Global Crossing board of directors has made the following
director nominations, subject to the closing of the merger and with effect
immediately after the closing of the merger:
. [ ] to be elected as class A director with a term expiring in 2000;
. [ ] to be elected as class B director with a term expiring in 2001;
and
. [ ] and [ ] to be elected as class C directors with terms
expiring in 2002.
Messers. [ ], [ ], [ ] and [ ] are currently serving as
directors of Frontier.
The Global Crossing board of directors recommends the election of the nominees
Director Nominees
Gary Winnick--Mr. Winnick, 51, founder of Global Crossing, has been Co-
Chairman of the Global Crossing board of directors since January 1998 and,
prior to that date, was Chairman of the Global Crossing board of directors
since March 1997. Mr. Winnick is the founder and has been the Chairman and
Chief Executive Officer of Pacific Capital Group since 1985, having been in
the principal equity investment and merchant banking business since that time.
Lodwrick M. Cook--Mr. Cook, 70, has been Co-Chairman of the Global Crossing
board of directors since January 1998 and Vice Chairman and Managing Director
of Pacific Capital Group since 1997. Prior to joining Pacific Capital Group,
Mr. Cook spent 39 years at Atlantic Richfield Co., serving as President and
Chief Executive Officer from 1985 to 1995 and as Chairman of the board of
directors from 1986 to 1995, when he became Chairman Emeritus. Mr. Cook is
also a member of the board of directors of Castle and Cooke, Litex and Ocean
Energy, Inc.
Thomas J. Casey--Mr. Casey, 46, was elected Vice Chairman of the Global
Crossing board of directors in December 1998 and was appointed Managing
Director of Global Crossing in September 1998. Prior to joining Global
Crossing, Mr. Casey was co-head of Merrill Lynch & Co.'s Global Communications
Investment Banking Group for three years. From 1990 to 1995, Mr. Casey was a
partner and co-head of the telecommunications and media group of the law firm
of Skadden, Arps, Slate, Meagher and Flom.
Jack M. Scanlon--Mr. Scanlon, 57, has been Vice Chairman of the Global
Crossing board of directors since February 1999 and has been a director of
Global Crossing since April 1998. Mr. Scanlon was Chief Executive Officer of
Global Crossing from April 1998 to February 1999. Prior to joining Global
Crossing,
168
<PAGE>
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 and Bell
Laboratories, rising to Group Vice President at AT&T.
Robert Annunziata--Mr. Annunziata, 50, has been Chief Executive Officer of
Global Crossing since February 1999 and a director of Global Crossing since
March 1999. From September 1998 to February 1999, Mr. Annunziata was President
of AT&T's $22 billion business services group, responsible for the AT&T global
network. Prior thereto, Mr. Annunziata was Chairman and Chief Executive
Officer of the Teleport Communications Group from 1983 to 1998. Prior to
joining Teleport, Mr. Annunziata served 17 years at AT&T in a variety of
increasingly senior operations, sales and marketing positions.
David L. Lee--Mr. Lee, 49, has been President and Chief Operating Officer
and a director of Global Crossing since March 1997. He has also been a
managing director of Pacific Capital Group since 1989. Prior to joining
Pacific Capital Group, Mr. Lee was Group Vice President of Finance and
Acquisitions at TRW Information Systems Group.
Barry Porter--Mr. Porter, 41, is Senior Vice President, Corporate
Development and a director of Global Crossing. Mr. Porter has been a director
of Global Crossing since 1997 and has also been a Managing Director of Pacific
Capital Group since 1993. From 1986 to 1993, Mr. Porter was affiliated with
Bear, Stearns & Co. Inc., rising to Senior Managing Director in the investment
banking department.
Abbott L. Brown--Mr. Brown, 55, is Senior Vice President, Corporate Affairs
and a director of Global Crossing. Mr. Brown has been a director of Global
Crossing since 1997 and was a Managing Director and Chief Financial Officer of
Pacific Capital Group from 1994 to 1998. 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.
Jay R. Bloom--Mr. Bloom, 43, a director of Global Crossing since March 1997,
is a Managing Director of CIBC World Markets Corp., 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.
William E. Conway--Mr. Conway, 49, became a director of Global Crossing in
August 1998. 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.
Dean C. Kehler--Mr. Kehler, 42, a director of Global Crossing since March
1997, is a Managing Director of CIBC World Markets Corp. and co-head of its
High Yield Group. In addition, Mr. Kehler is a member of CIBC's Investment
Committee and co-head of CIBC World Markets High Yield Merchant Banking Funds.
Prior to joining CIBC World Markets Corp. 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. From 1979 to 1985, Mr. Kehler was an investment
banker at Lehman Brothers. Mr. Kehler serves on the board of directors of
Booth Creek Group, Inc., Telebanc Financial Corporation and Heating Oil
Partners, L.P.
169
<PAGE>
Geoffrey J.W. Kent--Mr. Kent, 56, a director of Global Crossing since August
1998, is Chairman and Chief Executive Officer of the Abercrombie & Kent Group
of companies and has been associated with these companies since 1967.
Bruce Raben--Mr. Raben, 45, a director of Global Crossing since March 1997,
is a Managing Director of CIBC World Markets Corp. Prior to joining CIBC World
Markets Corp. 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., Evercom, Inc.,
Terex Corporation and Equity Marketing, Inc.
Michael R. Steed--Mr. Steed, 49, a director of Global Crossing since March
1997, is Senior Vice President of Investments for the Union Labor Life
Insurance Company, ULLICO Inc. and its family of companies and President of
Trust Fund Advisors, ULLICO's investment management subsidiary. Mr. Steed
joined ULLICO in November 1992 after serving seven years as President and
Founder of A.F.I.C. Group, Ltd., a financial and investment consulting firm.
From 1983 to 1985, Mr. Steed was the Executive Director of the Democratic
National Committee. Mr. Steed serves as a director of The Lewis & Clark Snake
River Beverage Company.
Hillel Weinberger--Mr. Weinberger, 45, a director of Global Crossing 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.
[Information about the Frontier nominees--To come.]
Some additional executive officers of Global Crossing
In addition to the executive officers who are also directors and are
described above, Global Crossing has the following executive officers:
Dan J. Cohrs--Mr. Cohrs, 45, has been Senior Vice President and Chief
Financial Officer of Global Crossing since May 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
170
<PAGE>
Northwest Airlines and 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.
James C. Gorton--Mr. Gorton, 37, became Senior Vice President and General
Counsel of Global Crossing in July 1998 and Secretary of Global Crossing in
August 1998. From 1994 to 1998, Mr. Gorton was a partner in the New York law
firm of Simpson Thacher & Bartlett and had been associated with the firm since
1986. Mr. Gorton received a J.D. degree from New York University Law School.
Robert B. Sheh--Mr. Sheh, 59, has been Executive Vice President--
Construction & Operations since February 1999. From 1998 to 1999, Mr. Sheh was
Chief Executive Officer of Stone & Webster Engineering Ltd. From 1992 to 1998,
Mr. Sheh served as President and Chief Executive Officer of International
Technology Corporation and as Chairman and Chief Executive of Air & Water
Technologies from 1996 to 1997. From 1989 to 1992, Mr. Sheh served as
President of The Ralph M. Parsons Company, a worldwide engineering and
construction company. Mr. Sheh was associated with The Ralph M. Parsons
Company for over 20 years.
Board meetings and committees
12 meetings, including regularly scheduled and special meetings, of the
Global Crossing board of directors were held during 1998. During this period,
Mr. Phoenix attended 66 2/3% of all meetings of the board of directors. Each
other director attended 75% or more of all meetings of the board of directors
and of the committees on which that director served.
The audit committee and the compensation committee are the standing
committees of the Global Crossing board of directors.
Audit Committee
The audit committee, currently composed of directors Weinberger, Conway and
Kent, met four times during 1998. The principal functions of the audit
committee are to (1) make recommendations concerning the engagement of
independent public accountants; (2) review with the Global Crossing management
and the independent public accountants the plans for, and scope of, the audit
procedures to be utilized and results of audits; (3) approve the professional
services provided by the independent public accountants; (4) review the
adequacy and effectiveness of Global Crossing's internal accounting controls;
(5) review Global Crossing's insurance program; and (6) perform any other
duties and functions required by any organization under which Global
Crossing's securities may be listed.
Compensation Committee
The compensation committee, currently composed of directors Cook, Steed and
Levine, met six times during 1998. The purpose of the compensation committee
is to establish and submit to the Global Crossing board of directors
recommendations with respect to (1) compensation of officers and other key
employees of Global Crossing and (2) awards to be made under the 1998 Plan.
Proposal No. 6: Amendment of the 1998 Global Crossing Ltd. Stock Incentive
Plan
On June 18, 1999, the Global Crossing board of directors unanimously adopted
a resolution to amend the 1998 Plan for the purpose of increasing the number
of authorized shares of Global Crossing common stock, par value $0.01 per
share, reserved for issuance under the 1998 Plan from 33,215,730 shares to
[90,000,000] shares. The Global Crossing board of directors is asking
shareholders to approve the resolution, which is included in Annex G to this
proxy statement. Below is a summary of certain important features of the 1998
Plan. This summary is qualified in its entirety by reference to the full text
of the 1998 Plan in Annex H.
171
<PAGE>
Description of the 1998 Plan
The 1998 Plan is administered by the Global Crossing board of directors,
which may delegate its duties in whole or in part to any subcommittee solely
consisting of at least two individuals who are "non-employee" directors within
the meaning of Rule 16b-3 under the Exchange Act and "outside directors"
within the meaning of Section 162(m) of the Code. The 1998 Plan allows the
board of directors to make awards of stock options, stock appreciation rights,
which can be granted either in conjunction with, or independent of, stock
options, and other stock based awards to any individual who is selected by the
board of directors to participate in the 1998 Plan.
The board of directors has the authority to interpret the 1998 Plan, to
establish, amend and rescind any rules and regulations relating to the 1998
Plan and to make any other determinations that the board of directors deems
necessary or desirable for the administration of the 1998 Plan. The board of
directors may also correct any defect or supply any omission or reconcile any
inconsistency in the 1998 Plan in the manner and to the extent the board of
directors deems necessary or desirable. Any decision of the board of directors
in the interpretation and administration of the 1998 Plan lies within its sole
and absolute discretion and is final, conclusive and binding on all parties
concerned, including participants in the 1998 Plan and their beneficiaries or
successors.
An aggregate of 33,215,730 shares of Global Crossing common stock is
currently authorized for issuance under the 1998 Plan. As of June 3, 1999,
1,310,511 shares of Global Crossing common stock had been issued under the
1998 Plan, 31,826,621 shares were subject to outstanding options granted under
the 1998 Plan and no shares were available for additional stock option grants
or other stock-based awards.
The maximum number of shares for which awards may be granted during a
calendar year is determined by the board of directors from time to time. No
award may be granted under the 1998 Plan after the tenth anniversary of July
1, 1998, but awards granted prior to that date may extend beyond that date.
Stock options. Stock options granted under the 1998 Plan may be non-
qualified or incentive stock options for federal income tax purposes. The
board of directors will set option exercise prices and terms and will
determine the time at which stock options will be exercisable. However, the
term of a stock option may not exceed 10 years.
The board of directors may also grant stock options that are intended to be
incentive stock options, which comply with Section 422 of the Internal Revenue
Code. No incentive stock options may be granted to any participant who, at the
time of the purported grant, owns more than 10% of the total combined voting
power of all classes of capital stock of Global Crossing or any of its
subsidiaries, unless (1) the option price for such stock option is at least
110% of the "fair market value," as described below, of a share on the date of
the grant and (2) the term of that stock option does not exceed the day
preceding the fifth anniversary of the grant date. "Fair market value" is
defined as the mean of the per share closing bid price and the per share
closing asked price on that grant date as quoted on the National Association
of Securities Dealers Automated Quotation System.
Stock appreciation rights. Stock appreciation rights may be granted by the
board of directors to participants as a right in conjunction with the number
of shares underlying stock options granted to participants under the 1998 Plan
or on a stand-alone basis with respect to a number of shares for which a stock
option has not been granted. Stock appreciation rights constitute the right to
receive payment for each share of the stock appreciation rights exercised in
stock or in cash equal to the excess of that share's fair market value on the
date of exercise over the exercise price per share, multiplied by the number
of shares covered (1) in the case of a stock appreciation right independent of
an option, by the stock appreciation right and (2) in the case of a stock
appreciation right granted in conjunction with an option, by the option. The
board of directors will determine the exercise price per share of stock
appreciation rights; however, that price may not be less than the greater of
(1) the fair market value, in the case of a stock appreciation right
independent of an option, of a share of common stock on the grant date and, in
the case of an applicable stock appreciation right granted in conjunction with
an option, of the price of that option and (2) an amount permitted by
applicable laws, rules, by-laws or policies of regulatory authorities or stock
exchanges. The board of directors may also impose, in its discretion,
conditions on the exercisability or transferability of stock appreciation
rights.
172
<PAGE>
The board of directors may also grant limited stock appreciation rights that
are exercisable upon the occurrence of special contingent events. Limited
stock appreciation rights 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 the limited stock
appreciation rights are exercisable.
Other stock-based awards. The board of directors has the authority to grant
other stock-based awards, which may consist of awards of common stock,
restricted stock and awards that are valued in whole or in part by reference
to, or are otherwise based on the fair market value of, shares of common
stock. Other stock-based awards may be granted on a stand-alone basis or in
addition to any other awards granted under the 1998 Plan. The board of
directors will determine the form of other stock-based awards and the
conditions on which they may be dependent, such as the right to receive one or
more shares of common stock or the equivalent value in cash upon the
completion of a specified period of service or the occurrence of an event or
the attainment of performance objectives. The board of directors will also
determine the participants to whom other stock-based awards may be made, the
timing thereof, the number of shares to be awarded, whether such other stock-
based awards will be settled in cash, stock or a combination of cash and stock
and all other terms of such awards.
General. Stock options, stock appreciation rights and restricted stock
awards are not transferable or assignable. Global Crossing may deduct
sufficient sums to pay withholding required for federal, state and local taxes
or other taxes as a result of the exercise of a stock award.
In the event of any stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
stock or other corporate exchange or any distribution to shareholders other
than regular cash dividends, the board of directors may, in its sole
discretion, make a substitution or adjustment, as the board of directors deems
to be equitable, to the number or kind of stock issued or reserved for
issuance under the 1998 Plan pursuant to outstanding awards and the term,
including option price, of such awards.
Except as otherwise provided in a stock award agreement, in the event of a
change in control with respect to Global Crossing, the board of directors may,
in its sole discretion, accelerate a stock award, cause Global Crossing to
make a cash payment in exchange for a stock award or require the issuance of a
substitute stock award.
Certain income tax consequences
Global Crossing has been advised by counsel that the material federal income
tax consequences to Global Crossing and the participants in the 1998 Plan of
the grant and exercise of options and stock appreciation rights under existing
and applicable provisions of the Internal Revenue Code of 1986 and regulations
will generally be as follows:
Incentive stock options. A participant will not realize any taxable income
at the time an incentive stock option is granted or exercised, and Global
Crossing will not receive an income tax deduction at the time of grant or
exercise. If a participant does not sell stock acquired upon the exercise of
an incentive stock option within (1) two years after the date of the grant or
(2) one year after the date of exercise, then a subsequent sale of such stock
generally will be taxed as capital gain or loss. If a participant disposes of
shares acquired upon the exercise of an incentive stock option within the
period set forth in clause (1) or (2) above, then that participant will
generally realize ordinary income in an amount equal to the lesser of (a) the
gain realized by that participant upon such disposition and (b) the excess of
the fair market value of the stock on the date of exercise over the exercise
price. In that event, Global Crossing would generally be entitled to an income
tax deduction equal to the amount recognized as ordinary income by the
applicable participant. Any gain in excess of the amount recognized by the
participant as ordinary income would be taxed as short-term or long-term
capital gain, depending on the holding period.
Non-qualified stock options. A participant will not realize taxable income
upon the grant of a non-qualified stock option, and Global Crossing will not
receive an income tax deduction at such time. Upon exercise of a non-qualified
stock option, the applicable participant will realize ordinary income in an
amount equal to the
173
<PAGE>
excess of the fair market value of the stock on the date of exercise over the
exercise price. Upon a subsequent sale of such stock, the participant will
recognize short-term or long-term capital gain depending on his or her holding
period for the shares. Global Crossing is generally allowed an income tax
deduction at the same time and in the same amount recognized as ordinary
income by the participant.
Stock appreciation rights. Amounts received upon the exercise of a stock
appreciation right are taxed at ordinary rates when received. Global Crossing
is generally allowed an income tax deduction equal to the amount recognized as
ordinary income by the participant.
Other stock-based awards. Amounts received by the participant upon the grant
of other stock-based awards are ordinarily taxed at ordinary rates when
received. However, if such other stock-based awards consist of property
subject to restrictions, the amounts generally will not be taxed until the
restrictions lapse or until the participant makes an election under Section
83(b) of the Internal Revenue Code. Global Crossing is generally allowed an
income tax deduction at the same time and in the same amount recognized as
ordinary income by the participant.
The Global Crossing board of directors recommends a vote FOR proposal no. 6
Proposal No. 7: Ratification of outside directors' compensation
The Global Crossing board of directors is asking shareholders to ratify the
Global Crossing compensation plan for outside directors, which was adopted by
resolution of the Global Crossing Board of directors on June 12, 1998 and is
included in Annex G. Each director who is not an employee of Global Crossing
receives cash compensation of $2,500 for each meeting of the Global Crossing
board of directors that that director attended after February 28, 1998. In
addition, each of directors Bloom, Kehler, Levine, Phoenix, Raben, Steed and
Weinberger received options to purchase 120,000 shares of Global Crossing
common stock. The exercise price of the options is $0.83 per share, and each
such option has a term of 10 years. Each director's first 30,000 options
became immediately exercisable, the next 45,000 options became exercisable on
April 3, 1999 and the remaining 45,000 options will become exercisable on
April 3, 2000, in each case so long as that director continues to be a
director of Global Crossing on that date. On August 13, 1998, each of
directors Conway, Kent and Ogasawara also received options to purchase 120,000
shares of Global Crossing common stock. The exercise price of the options is
$3.33 per share, and each such option has a term of 10 years. Each such
director's first 30,000 options became immediately exercisable, the next
45,000 options will become exercisable on August 13, 1999 and the remaining
45,000 options will become exercisable on August 13, 2000, in each case so
long as that director continues to be a director of Global Crossing on that
date.
The Global Crossing board of directors recommends a vote FOR proposal no. 7
Proposal No. 8: Ratification of Arthur Andersen & Co. as Global Crossing's
independent auditors for 1999 and approval of the board of directors'
authority to determine their remuneration
Under Section 89 of the Companies Act, 1981 of Bermuda, Global Crossing
shareholders have the authority to appoint the independent auditors of Global
Crossing and to authorize the Global Crossing Board of directors to determine
the auditors' remuneration. The Global Crossing board of directors is asking
shareholders to ratify the appointment by the Global Crossing board of
directors of Arthur Andersen & Co. to audit the accounts of Global Crossing
for the fiscal year ending December 31, 1999 and the authority of the Global
Crossing board of directors to determine their remuneration.
The board of directors recommends a vote FOR proposal no. 8
174
<PAGE>
Receipt of financial statements
Under Section 84 of the Companies Act, 1981 of Bermuda, the audited
financial statements of Global Crossing for the year ended December 31, 1998
will be presented at the annual meeting. These statements have been approved
by the directors of Global Crossing. There is no requirement under Bermuda law
that these statements be approved by shareholders, and no such approval will
be sought at the meeting.
175
<PAGE>
Global Crossing Executive Compensation
Compensation committee report
Compensation Philosophy
Global Crossing's compensation philosophy is to relate the compensation of
Global Crossing's executive officers to measures of company performance that
contribute to increased value for Global Crossing's shareholders.
To assure that compensation policies are appropriately aligned with the
value Global Crossing creates for shareholders, Global Crossing's compensation
philosophy for executive officers takes into account the following goals:
. enhancing shareholder value;
. representing a competitive and performance-oriented environment that
motivates executive officers to achieve a high level of individual,
business unit and corporate results in the business environment in which
they operate;
. relating incentive-based compensation to the performance of each
executive officer, as measured by financial and strategic performance
goals; and
. enabling Global Crossing to attract and retain top quality management.
The Compensation Committee of the board of directors, which we will refer to
as the "Committee", periodically reviews the components of compensation for
Global Crossing's executive officers on the basis of this philosophy and
periodically evaluates the competitiveness of its executive officer
compensation program relative to comparable companies. When the Committee
determines that executive officer compensation adjustments or bonus awards are
necessary or appropriate, it makes recommendations to the board of directors.
The board of directors has sole authority to modify executive officer
compensation and award annual bonuses.
Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility
of certain annual compensation payments in excess of $1 million to its
executive officers. It is the objective of the Compensation Committee to
administer compensation plans in compliance with the provisions of Section
162(m) where feasible and where consistent with Global Crossing's compensation
philosophy as stated above.
Executive Compensation Components
The major components of compensation for executive officers, including the
Chief Executive Officer (the "CEO"), are base salary, annual bonuses and stock
option grants. Each component of the total executive officer compensation
package emphasizes a different aspect of Global Crossing's compensation
philosophy.
. Base Salary. Base salaries for executive officers, including the CEO,
are initially set upon hiring by the Co-Chairman and the CEO, based on
recruiting requirements (i.e., market demand), competitive pay
practices, individual experience and breadth of knowledge, internal
equity considerations and other objective and subjective factors.
Increases to base salary are determined by the board of directors upon
the recommendation of the CEO and the Compensation Committee. Increases
are determined primarily on an evaluation of competitive data, the
individual's performance and contribution to Global Crossing and Global
Crossing's overall performance. Base salaries are periodically reviewed
by the Compensation Committee.
. Target Annual Bonuses. Global Crossing relies to a large degree on
annual bonus compensation to attract, retain and reward executives of
outstanding abilities and to motivate them to perform to the full extent
of their abilities. Target bonuses for executive officers, including the
CEO are determined on the basis of competitive bonus levels, level of
responsibility, ability to influence results on a corporate or business
unit level and, on occasion, subjective factors. Annual bonuses for
executive officers are determined by the board of directors upon
recommendations by the CEO and the Compensation Committee.
176
<PAGE>
. Stock Option Grants. The only current long-term incentive opportunity
for executive officers, including the CEO, is the award of stock option
grants awarded under the 1998 Global Crossing Stock Incentive Plan. In
contrast to bonuses that are paid for prior year accomplishments, stock
option grants represent incentives tied to future stock appreciation.
They are intended to provide executive officers with a direct incentive
to enhance shareholder value. Options are awarded at the discretion of
the board of directors, based on recommendations of the CEO and
Compensation Committee, to persons holding key management positions.
Options vest over a three-year period with a maximum term of ten years.
Option grants are determined primarily based on an evaluation of
competitive data and the anticipated contribution that the executive
officer will make to Global Crossing.
The Committee conducts annually a full review of the performance of Global
Crossing and its executive officers in assessing compensation levels. The
Committee considers various qualitative and quantitative indicators of both
Global Crossing and the individual performance of its executive officers. This
review evaluates Global Crossing's performance both on a short- and long-term
basis. The Committee may consider such future quantitative measures as Total
Shareholder Return ("TSR"), Return on Shareholder's Equity ("ROSE"), Return on
Capital Employed ("ROCE") and percent change in operating and net income. The
Committee may also consider qualitative measures such as leadership,
experience, strategic direction and overall contribution to Global Crossing.
In addition, the Committee evaluates compensation in light of the
compensation practices of other companies in the telecommunications industry
and peer group companies as may be determined by the Committee. These
companies are used as a reference standard for establishing levels of base
salary, bonus and stock options. For 1998, executive officer compensation was
targeted at the 75th percentile relative to peer group companies in the
telecom industry.
1999 Executive Compensation Review
Based on the factors set forth above, the Committee recommended that the
board of directors approve salary increases and 1998 bonus awards for all
executive officers, except in the case of Mr. Casey who had recently joined
Global Crossing. The CEO and Co-Chairman recommended against additional stock
option grants to executive officers at this time. The Committee agreed with
that recommendation.
Jack Scanlon held the position of CEO from April 1998 through February 1999.
In determining Mr. Scanlon's salary increase and 1998 bonus award, the
Committee reviewed the performance of Global Crossing against its goals.
During 1998, Global Crossing began operation of the first leg of its global
fiber optic network, held its initial public offering and executed capacity
purchase agreements totaling more than one billion dollars. The Committee
believes that Mr. Scanlon was instrumental in leading Global Crossing to
achieve these milestones.
THE COMPENSATION COMMITTEE
Lodwrick M. Cook
Michael R. Steed
Jay R. Levine
177
<PAGE>
Summary compensation table
The table below sets forth information concerning compensation paid to the
specified executive officers of Global Crossing during the last fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------- ---------------------------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Year Salary Bonus(1) Compensation Award(s) SARs Payouts Compensation(2)
---- -------- ---------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack M. Scanlon*........ 1998 $450,000 $ 480,000 $213,569 -- 3,600,000 -- --
Chief Executive Officer
Thomas J. Casey......... 1998 266,667 533,333 -- -- 2,000,000 -- --
Managing Director
William B. Carter....... 1998 600,000 1,050,000 -- -- 3,000 -- $55,000
President, Global 1997 200,000 750,000 -- -- -- -- --
Crossing Development
Co.
James C. Gorton......... 1998 147,179 710,000 -- -- 1,500,000 -- --
Senior Vice President
and General Counsel
Jack Finlayson.......... 1998 156,923 841,667 -- -- 1,470,000 -- --
President, Global
Crossing International,
Ltd.
</TABLE>
- --------
(1) These amounts reflect a combination of signing bonuses and annual bonuses.
(2) Represents Global Crossing's matching 401(k) contributions.
* Mr. Scanlon resigned as Chief Executive Officer in February 1999 to become
Vice Chairman of Global Crossing.
Certain compensation arrangements
The 1998 Plan provides that, unless otherwise provided in the specific award
agreement, upon a "change in control," certain awards granted under the 1998
Plan may, in the sole discretion of Global Crossing's board of directors, be
deemed to vest immediately. A "change in control" is defined under the 1998
Plan as the occurrence of any of the following: (1) any person or entity,
other than a person or entity holding securities representing 10% or more of
the combined voting power of Global Crossing's outstanding securities as of
July 15, 1998, Global Crossing, any trustee or other fiduciary holding
securities under an employee benefit plan of Global Crossing, or any company
owned, directly or indirectly, by the shareholders of Global Crossing in
substantially the same proportions as their ownership of stock of Global
Crossing, becomes the beneficial owner, as defined under Rule 13d-3
promulgated under the Securities Exchange Act, of securities of Global
Crossing (a) in excess of the interest held by the existing shareholders of
Global Crossing as of July 15, 1998 and (b) representing 30% or more of the
combined voting power of Global Crossing's then outstanding securities; (2)
during any period of 24 months, individuals who at the beginning of such
period constituted the board of directors and any new director, other than any
directors who meet certain exceptions specified in the 1998 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; (3) the shareholders of Global Crossing
approve any transaction pursuant to which Global Crossing is merged or
consolidated with any other company, other than a merger or consolidation
which would result in shareholders of Global Crossing immediately prior
thereto continuing to own more than 65% of the combined voting power of the
voting securities of Global Crossing or such surviving entity, outstanding
after such merger or consolidation; or (4) the shareholders of Global Crossing
approve a plan of complete liquidation of Global Crossing or an agreement for
the sale or disposition by Global Crossing of all or substantially all of
Global Crossing's assets, other than the liquidation of Global Crossing into a
wholly owned subsidiary.
Global Crossing has entered into an employment agreement with Mr. Robert
Annunziata, which provides that Mr. Annunziata will be employed as Chief
Executive Officer of Global Crossing for an initial term of three years until
February 22, 2002 and for successive one-year terms after that date, unless
either Global Crossing or Mr. Annunziata provides at least six months' advance
notice of termination. In connection with his employment,
178
<PAGE>
Mr. Annunziata received stock options to purchase an aggregate of 4,000,000
shares of Global Crossing common stock at an exercise price of $19.81 per
share. These stock options vest in 25% increments starting on February 19,
1999 and on February 22 of each of the first three years of Mr. Annunziata's
employment with Global Crossing, beginning on February 22, 2000. Mr.
Annunziata's employment agreement also provides for additional stock options
to purchase an aggregate of 500,000 shares of Global Crossing common stock,
subject to the Global Crossing board of directors' approval of these
additional options. The exercise price for these additional options is $24.81
per share and became vested on Mr. Annunziata's first day of employment. Upon
a "change in control" of Global Crossing, as defined in the 1998 Plan, vesting
of Mr. Annunziata's stock options to purchase 4,000,000 shares of Global
Crossing common stock will occur immediately, and Mr. Annunziata will be
entitled to terminate his employment agreement and receive a lump sum payment
equal to the sum of two times Mr. Annunziata's then annual base salary and
bonus.
Global Crossing entered into an employment agreement, dated as of April 1,
1998, with Mr. Jack Scanlon, providing for Mr. Scanlon's employment as Global
Crossing's Chief Executive Officer for a term of two years and continuing
thereafter for successive two-year terms, unless either Global Crossing or Mr.
Scanlon provides at least three months' notice in advance of the expiration of
the then current term. Mr. Scanlon voluntarily resigned as Chief Executive
Officer of Global Crossing in February 1999 to become Vice Chairman of Global
Crossing. In connection with his employment agreement, Mr. Scanlon was issued
an option to purchase a total of 3,600,000 shares of Global Crossing common
stock at an exercise price of $0.83 per share. These 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 Global Crossing. Upon a
"change in control" of Global Crossing, as defined in the 1998 Plan, vesting
of all these options will immediately occur, and Mr. Scanlon will 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.
Global Crossing has entered into an employment arrangement with Mr. Jack
Finlayson, which grants Mr. Finlayson the option to sell 300,000 shares of
common stock to Global Crossing at $6.66 per share after two years of
employment.
In September 1998, Mr. Thomas Casey was hired by Pacific Capital Group as
its President. At such time, it was also agreed among Pacific Capital Group,
Global Crossing and Mr. Casey that, in addition to Mr. Casey's role as
President of Pacific Capital Group, Mr. Casey would also serve as Managing
Director of Global Crossing. In connection with such employment, Mr. Casey
received economic rights to 2,000,000 shares of Global Crossing common stock
at an effective price of $2.00 per share. Such rights vest in 33% increments
on the first day of Mr. Casey's employment and on each of the first and second
anniversaries of the first day of Mr. Casey's employment. In connection with
Mr. Casey's dual employment, Global Crossing and Pacific Capital Group
established an arrangement whereby each entity would be responsible for a
portion of Mr. Casey's salary and long-term compensation based upon the
relative amount of time spent by Mr. Casey on matters pertaining to such
entity. Initially, 80% of Mr. Casey's salary and long-term compensation was
allocated to Global Crossing and 20% of such amounts was allocated to Pacific
Capital Group, subject to adjustment and re-allocation on an annual basis. On
March 18, 1999, in recognition of the time spent by Mr. Casey on Global
Crossing matters to such date and his expected ongoing responsibilities with
Global Crossing, the Global Crossing board of directors elected to assume the
full amount of Mr. Casey's salary and long-term compensation, with Mr. Casey
serving full time in his role with Global Crossing as Managing Director and
Vice Chairman of the board of directors.
Compensation of outside directors
Each director who is not an employee of Global Crossing receives cash
compensation of $2,500 for each meeting of the board of directors that such
director attended after February 28, 1998. In addition, each of directors
Bloom, Kehler, Levine, Phoenix, Raben, Steed and Weinberger received options
to purchase 120,000 shares of Global Crossing common stock. The exercise price
of the options is $0.83 per share, and each such option has a term of 10
years. Each directors first 30,000 options became immediately exercisable, the
next
179
<PAGE>
45,000 options became exercisable on April 3, 1999 and the remaining 45,000
options will become exercisable on April 3, 2000, in each case so long as such
director continues to be a director of Global Crossing on such date. On August
13, 1998, each of directors Conway, Kent and Ogasawara also received options
to purchase 120,000 shares of Global Crossing common stock. The exercise price
of the options is $3.33 per share, and each such option has a term of 10
years. Each of such directors first 30,000 options became immediately
exercisable, the next 45,000 options will become exercisable on August 13,
1999 and the remaining 45,000 options will become exercisable on August 13,
2000, in each case so long as such director continues to be a director of
Global Crossing on such date.
Option grants in last fiscal year
The table below sets forth information concerning options granted to the
specified executive officers during the last fiscal year. As of December 31,
1998, options representing a total of 17,386,667 shares of common stock had
been issued to officers or directors of Global Crossing at exercise prices
ranging from $0.83 per share to $9.50 per share.
<TABLE>
<CAPTION>
Potential Realizable Value At
Assorted Annual Rates of Stock
Price
Individual Grants Appreciation for Option Term
--------------------------------------------- -----------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or
Options Employees in Base Expiration
Name Granted Fiscal Year Price Date 0% 5% 10%
- ---- ---------- ------------ -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack M. Scanlon*........ 3,600,000 13.09% $0.83(1) 04/01/08 $ -- $ 1,890,457 $ 4,790,790
Chief Executive Officer
Thomas J. Casey......... 2,000,000 (2) 2.00(3) 09/24/08 18,250,000 32,242,905 53,710,770
Managing Director
William B. Carter....... 3,000,000 10.91 0.83(1) 09/02/07 -- 1,575,381 3,992,325
President, Global
Crossing Development
Co.
James C. Gorton......... 1,500,000 5.45 3.33(1) 06/12/08 -- 3,146,045 7,972,697
Senior Vice President
and General Counsel
Jack Finlayson.......... 1,170,000 4.25 3.33(1) 06/12/08 -- 2,453,915 6,218,703
President, Global 300,000 1.09 9.50(4) 06/12/08 -- 1,7 92,350 4,542,166
Crossing International,
Ltd.
</TABLE>
- --------
(1) Market price on the grant date prior to the date of Global Crossing's
initial public offering of its common stock as determined by the board of
directors.
(2) Thomas J. Casey has been granted economic rights to 2,000,000 shares of
common stock at an effective price of $2.00 per share.
(3) The closing market price per share of common stock on the grant date was
$11.13.
(4) A portion of Mr. Finlaysons options were granted at $9.50 (the initial
public offering price of Global Crossings common stock). For the purpose
of calculating the 5% and 10% potential realizable values, a price of
$9.50 was used.
* Mr. Scanlon resigned as Chief Executive Officer in February 1999 to become
Vice Chairman of Global Crossing.
180
<PAGE>
Aggregated option exercises in last fiscal year and fiscal year-end option
values
The table below sets forth information concerning exercises of stock options
by some executive officers during the last fiscal year and the fiscal year-end
value of such executive officer's unexercised options.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options Options(2)
Shares Acquired Value ------------------------- -------------------------
on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
--------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack M. Scanlon*........ 119,760 $2,115,560 780,240 2,700,000 $16,952,665 $58,664,250
Chief Executive Officer
Thomas J. Casey......... -- -- 666,668 1,333,332 13,708,361 27,416,639
Managing Director
William B. Carter....... 119,760 2,115,560 880,240 2,000,000 19,125,415 43,455,000
President, Global
Crossing Development
Co.
James C. Gorton......... -- -- 375,000 1,125,000 7,210,313 21,630,938
Senior Vice President
and General Counsel
Jack Finlayson.......... 29,984 521,234 555,016 885,000 10,671,570 15,166,838
President, Global
Crossing International,
Ltd.
</TABLE>
- --------
(1) Amounts indicated are based upon the difference between the exercise price
and the closing market price on the exercise date.
(2) Amounts indicated are based upon the difference between the exercise price
and the closing market price per share of common stock of $22.56 on
December 31, 1998.
(3) Amounts indicated are with respect to the economic rights of Mr. Casey to
2,000,000 shares of Global Crossing common stock as referenced above.
* Mr. Scanlon resigned as Chief Executive Officer in February 1999 to become
Vice Chairman of Global Crossing.
Compensation committee interlocks and insider participation
The Compensation committee of the Global Crossing board of directors
consists of Messrs. Cook, Steed and Levine. Messrs. Cook, Steed and Levine
were involved in certain transactions described under "Some Global Crossing
Transactions" below.
Compliance with Section 16 of the Exchange Act
Under the federal securities laws, Global Crossing's directors, officers and
10% shareholders are required to report to the Securities and Exchange
Commission, by specific dates, transactions and holdings in Global Crossing's
common stock. Based solely on its review of the copies of such forms received
by it or written representations from certain reporting persons that no annual
corrective filings were required for those persons, Global Crossing believes
that during fiscal year 1998 all these filing requirements were timely
satisfied.
181
<PAGE>
Comparison of cumulative total returns
The graph below compares the cumulative total shareholder return on Global
Crossing common stock for the period from August 14, 1998, the initial date of
trading of Global Crossing common stock, to December 31, 1998 with the
cumulative total return on each of the Nasdaq National Market Composite Index
and a peer group of other fiber optic cable providers, which includes Qwest,
Level 3 Communications, Inc., Metromedia Fiber Network, Inc., IXC
Communications, Inc. and Equant NV, over the same period. We refer to the
cumulative return of the peer group as the Fiber Index. The graph assumes $100
invested on August 14, 1998 in Global Crossing common stock and $100 invested
on such date in each of the Nasdaq National Market Composite Index and the
Fiber Index.
[LINE GRAPH APPEARS HERE]
STOCK PERFORMANCE
<TABLE>
<CAPTION>
Fiber Index NASDAQ National
DATE GBLX (QWST, LVLT, MFNX, IIXC, ENT) Market Composite Index
<S> <C> <C> <C>
8/14/98 100 100 100
8/31/98 88.82 69.06 83.17
9/30/98 109.87 84.97 93.97
10/31/98 151.32 96.2 98.27
11/30/98 199.34 105.41 108.16
12/31/98 237.5 131.68 121.61
</TABLE>
At 12/31/98. A $100 initial investment is worth: GBLX $237.50
Fiber Index $131.68
Nasdaq Index $121.61
182
<PAGE>
Some Global Crossing Transactions
During 1998, Global Crossing entered into the transactions described below
with affiliates and some of its officers and directors.
Transactions with Pacific Capital Group and its affiliates
Global Crossing entered into certain transactions with Pacific Capital Group
and its affiliates, including PCG Telecom Services LLC ("PCG Telecom") and
Ocean Systems International LLC ("OSI"), in connection with the development by
Pacific Capital Group and its affiliates of several of its systems, including
AC-1, PC-1, PAC and MAC. In January 1998, the Global Crossing board of
directors elected to assume the ongoing development of systems from OSI.
Pacific Capital Group and its affiliates are controlled by Mr. Gary Winnick,
the Co-Chairman of the Global Crossing board of directors and some other
officers and directors of Global Crossing either currently are or at one time
were affiliated with Pacific Capital Group, including Messrs. Cook, Casey,
Lee, Porter and Brown.
Advisory Services Agreements. In August 1998, Global Crossing acquired the
rights to advisory fees payable under certain advisory services agreements
with PCG Telecom in consideration for the issuance, through PCG Telecom, to
the persons entitled to receive such fees of shares of Global Crossing common
stock with an aggregate value at such time of $135 million and the
cancellation of $3 million owed to Global Crossing under a related advance
agreement. All of the obligations of Global Crossing in respect of the
advisory services agreements were terminated. Global Crossing obtained a
fairness opinion from an independent financial advisor in connection with this
transaction. Global Crossing incurred approximately $2 million of advisory
fees under the advisory services agreements prior to their termination. As a
result of this transaction, Global Crossing incurred a charge of approximately
$138 million, which has been reflected in its statement of operations for the
year ended December 31, 1998. Of this amount, $135 million was determined by
applying the 2% advisory fee to projected revenues for Global Crossing's
systems. The present value of the aggregate advisory fees was then calculated
at $155.5 million, using a discount rate of 12% in respect of AC-1 and 15% in
respect of other systems. This amount was subsequently reduced to $135
million. Both the discount rates and the ultimate valuation were determined as
a result of a negotiation process, including a disinterested director of
Global Crossing and the various persons entitled to fees under the advisory
services agreements. The shares of Global Crossing common stock issued in
connection with the termination of Global Crossing's obligations under the
advisory services agreements were received by the following persons in the
following amounts:
<TABLE>
<CAPTION>
Shares of
Recipient Common Stock
--------- ------------
<S> <C>
Gary Winnick (including Pacific Capital Group and PCG
Telecom).................................................. 6,515,154
Canadian Imperial Bank of Commerce......................... 1,340,000
ULLICO..................................................... 733,158
Lodwrick M. Cook........................................... 609,948
Abbott L. Brown............................................ 1,367,422
David L. Lee............................................... 1,822,422
Barry Porter............................................... 1,822,422
----------
Total.................................................... 14,210,526
==========
</TABLE>
PCG Warrants. Old Global Crossing and Pacific Capital Group entered into a
warrant agreement, dated as of January 21, 1998 (the "PCG Warrant Agreement"),
pursuant to which Old Global Crossing issued Pacific Capital Group three
separate warrants (collectively, the "PCG Warrants") providing Pacific Capital
Group with the right to purchase (1) 18,453,184 of Old Global Crossing's Class
B shares of common stock for an aggregate purchase price of $50,000,000; (2)
an additional 9,226,594 of Old Global Crossing's Class B shares of common
183
<PAGE>
stock for an aggregate purchase price of $31,250,000; and (3) an additional
9,226,594 of Old Global Crossing's Class B shares for an aggregate purchase
price of $37,500,000. Such PCG Warrants would entitle Pacific Capital Group to
acquire an additional 10% of the capital stock of Old Global Crossing (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 Global Crossing. In
connection with the issuance of the PCG Warrants, PC-1, MAC and PAC (then
under development) were acquired by Global Crossing, as was the development
team that had been assembled by Pacific Capital Group. Rights under each of
the PCG Warrants were divided among Messrs. Winnick, Cook, Brown, Lee and
Porter in the following percentages: 50%, 8%, 12%, 15% and 15%, respectively.
The board of directors of Old Global Crossing amended the terms of the PCG
Warrants to give each holder the option to convert each share under warrant
into a fraction of a Class B share of common stock of Old Global Crossing
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 (collectively, the
"New PCG Warrants") to purchase the remaining fraction of such Class B share
at an exercise price equal to $9.50, which was the price per share of Global
Crossing common stock on the date of Global Crossing's initial public offering
in August 1998. The New PCG Warrants will terminate on August 13, 2003, five
years from the date of issuance. Prior to Global Crossing's initial public
offering, Pacific Capital Group converted the PCG Warrants in such manner into
Class B shares of common stock of Old Global Crossing and New PCG Warrants,
utilizing the anticipated price per share of Global Crossing common stock at
Global Crossing's initial public offering as the current per share valuation
for such purposes, with Global Crossing assuming the obligations of Old Global
Crossing under the New PCG Warrants (the "PCG Warrant Conversion"). Upon the
PCG Warrant Conversion, Messrs. Winnick, Cook, Brown, Lee and Porter
transferred 200,000, 50,000, 50,000, 50,000 and 50,000 New PCG Warrants,
respectively, to Nelson S. Zand, an employee of Pacific Capital Group at the
time.
Following such transactions, shares of common stock of Old Global Crossing
and New PCG Warrants issued in connection with the conversion of the PCG
Warrants were issued to the following persons in the following amounts:
<TABLE>
<CAPTION>
Shares of
Common Stock
of
Old Global New PPC
Name Crossing Warrants
---- ------------ ----------
<S> <C> <C>
Gary Winnick...................................... 12,203,178 6,050,004
David L. Lee...................................... 3,660,950 1,825,002
Barry Porter...................................... 3,660,950 1,825,002
Abbott L. Brown................................... 2,928,758 1,450,002
Lodwrick M. Cook.................................. 1,952,504 950,002
Nelson S. Zand.................................... 0 400,000
---------- ----------
Total........................................... 24,406,340 12,500,012
========== ==========
</TABLE>
Advance Agreements. Global Crossing entered into an advance agreement, dated
as of March 24, 1998, with PCG Telecom, pursuant to which Global Crossing
agreed to make advances to PCG Telecom in respect of fees owed to PCG Telecom
under the advisory services agreement relating to AC-1 in an amount not to
exceed 1% of the amounts payable under capacity purchase agreements executed
by an affiliate of Global Crossing. This advance agreement was terminated and
the obligation of PCG Telecom to repay $3 million to Global Crossing
thereunder canceled in connection with the termination of the advisory service
agreements discussed above.
184
<PAGE>
Of the $4,669,340 advanced to PCG Telecom under this advance agreement, the
following amounts were paid to directors, executive officers and shareholders
of Global Crossing:
<TABLE>
<CAPTION>
Name Amount
---- ----------
<S> <C>
Gary Winnick................................................ $3,191,630(1)
David L. Lee................................................ 481,130
Barry Porter................................................ 481,130
Abbott L. Brown............................................. 320,754
MRCo, Inc................................................... 194,696
----------
Total..................................................... $4,669,340
==========
</TABLE>
- --------
(1) Includes amounts received by Pacific Capital Group, including
reimbursement of Pacific Capital Group expenses of $1,987,914.
Assignment of Rights. As part of the consideration for the assumption by
Global Crossing of the rights of OSI to the ongoing development of cable
systems, in the first quarter of 1998 Global Crossing paid Pacific Capital
Group $7.0 million for costs incurred by Pacific Capital Group to such date in
connection with such development.
Thomas Casey Employment Arrangements. For a description of Mr. Casey's
employment agreement, see "--Certain compensation arrangements."
Transactions with Canadian Imperial Bank of Commerce and its affiliates
During 1998, Canadian Imperial Bank of Commerce and its affiliates entered
into certain financing transactions with Global Crossing in connection with
the development and construction of our systems. In particular, Canadian
Imperial Bank of Commerce or one of its affiliates: (1) arranged and was the
initial lender under a $200 million bridge facility, which was repaid and
terminated on May 18, 1998; (2) is one of the lead agents under a $482 million
credit facility for AC-1; (3) was an initial purchaser in connection with the
May 1998 issuance by GCH of its $800 million senior notes; (4) together with
other lenders, entered into a credit agreement with an affiliate of Global
Crossing, effective July 30, 1998, for the $850 million non-recourse project
debt financing of PC-1; (5) together with other lenders, issued a $104 million
loan to Pacific Crossing Ltd. to make the initial payments with respect to the
construction contract for PC-1, which was repaid and terminated on July 30,
1998; (6) was an underwriter in the August 1998 initial public offering of
common stock of Global Crossing; (7) was an initial purchaser in the December
1998 offering of Global Crossing Holding's 10 1/2% senior exchangeable
preferred stock due 2008; and (8) together with other lenders, entered into a
credit agreement with MACL, effective November 25, 1998, for the $260 million
non-recourse project debt financing of MAC. During 1998, Global Crossing paid
Canadian Imperial Bank of Commerce and its affiliates approximately $19
million (plus $6 million from a joint venture of Global Crossing) in fees in
connection with these transactions. Canadian Imperial Bank of Commerce has
substantial beneficial ownership in Global Crossing, and certain members of
the board of directors of Global Crossing are employees of an affiliate of
Canadian Imperial Bank of Commerce, including Messrs. Bloom, Kehler, Phoenix,
Raben and Levine.
Transactions with Worldport
During 1998, Global Crossing and Worldport Communications, Inc. entered into
a capacity purchase agreement, pursuant to which Worldport will acquire a
total of seven STM-1s of capacity on AC-1 in a transaction that occurred in
the ordinary course of business of Global Crossing and on terms and conditions
no less favorable to Global Crossing than those contained in its other
capacity purchase agreements. Worldport also executed a memorandum of
understanding to purchase capacity on other systems on the Global Crossing
Network. Certain officers and directors of Global Crossing, including Mr.
Winnick, Mr. Cook, Mr. Scanlon,
185
<PAGE>
Mr. Lee, Mr. Porter, Mr. Brown, Mr. Raben, Mr. Bloom, Mr. Kehler and Mr.
Steed, have direct or indirect equity ownership positions in Worldport,
aggregating less than 10% of the current common stock of Worldport. In
addition, Continental Casualty Corporation, with which Mr. Weinberger is
affiliated, holds warrants to purchase common stock in Worldport, aggregating
less than 1% of the current common stock of Worldport and has also engaged in
certain debt financing transactions with Worldport.
Transactions with Telecommunications Development Corporation
Prior to Global Crossing's initial public offering of common stock,
Telecommunications Development Corporation, a Cayman Islands corporation
("TDC"), owned 22,033,758 shares of Global Crossing common stock, as well as
warrants to purchase an additional 582,954 shares of Global Crossing common
stock. TDC was formed in 1996 for the purpose of making investments in start-
up telecommunications companies and one of the companies in which TDC invested
was Global Crossing. Mr. Lee was the Chairman, and Mr. Winnick was a director
of TDC. Messrs. Lee, Winnick, Brown and Porter beneficially owned a majority
of the outstanding common stock of TDC and approximately 29% of the
outstanding preferred stock of TDC. The balance of such stock was owned by
persons not affiliated with Global Crossing (the "Unaffiliated Shareholders").
TDC informed Global Crossing that, in connection with the August 1998 initial
public offering of Global Crossing common stock, it was undergoing a
reorganization to facilitate the ability of Unaffiliated Shareholders to sell
Global Crossing common stock in the open market following the initial public
offering. In connection with this reorganization, TDC proposed a transaction,
which we refer to as the "TDC Exchange," pursuant to which Global Crossing
acquired the 22,033,758 shares of common stock owned by TDC in exchange for
21,733,758 newly-issued shares of Global Crossing common stock, based on a
$9.50 price per share. The TDC Exchange was intended to enable TDC to achieve
the reorganization without the incurrence of gain for tax purposes. Following
the TDC Exchange, TDC distributed all shares of common stock and warrants for
shares of Global Crossing common stock owned by it to the holders of its
preferred and common stock and then liquidated, which we refer to as the "TDC
Liquidation." The TDC Exchange was approved by a committee of disinterested
members of Global Crossing's board of directors. The benefit to Global
Crossing from the TDC Exchange was that it effectively acquired 300,000 shares
of common stock for no cost. Following the TDC Exchange and TDC Liquidation,
shares of Global Crossing common stock and the warrants originally held by TDC
were issued to the following persons in the following amounts:
<TABLE>
<CAPTION>
Shares of
Common Stock
Underlying
Shares of Global Crossing
Name Common Stock Warrants
---- ------------ ---------------
<S> <C> <C>
Gary Winnick................................. 4,797,080 131,428
David L. Lee................................. 5,433,234 150,300
Barry Porter................................. 1,625,816 44,634
Abbott L. Brown.............................. 541,940 14,878
Non-affiliates............................... 9,335,688 241,714
---------- -------
Total...................................... 21,733,758 582,954
========== =======
</TABLE>
186
<PAGE>
Legal Matters
The validity of the Global Crossing common stock to be issued to Frontier
shareholders pursuant to the merger will be passed upon by Global Crossing's
counsel, Appleby Spurling & Kempe, Hamilton, Bermuda. Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California, special counsel to Global
Crossing, and Simpson Thacher & Bartlett, New York, New York, special counsel
to Frontier, will be delivering opinions concerning U.S. federal income tax
consequences of the merger. Appleby, Spurling & Kempe, and Conyers Dill &
Pearman, Hamilton, Bermuda, special counsel to Frontier, will be delivering
opinions concerning Bermuda income tax consequences of the merger. As of ,
1999, lawyers of Simpson Thacher & Bartlett who have participated in the
preparation of this document beneficially owned shares of Global
Crossing common stock. As of , 1999, lawyers of Appleby, Spurling & Kempe
who have participated in the preparation of this document beneficially owned
shares of Global Crossing common stock.
Experts
The consolidated financial statements of Global Crossing and its
subsidiaries included in the registration statement of which this joint proxy
statement/prospectus is a part have been audited by Arthur Andersen & Co.,
independent public accountants, as indicated in their reports with respect
thereto and are included in this joint proxy statement/prospectus in reliance
upon the authority of said firm as experts in accounting and auditing in
giving said reports.
The consolidated financial statements of Frontier and subsidiaries
incorporated in the registration statement of which this joint proxy
statement/prospectus is a part by reference to the Annual Report on Form 10-K
for the year ended December 31, 1998 and the Form 8-K dated January 26, 1999,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts
in accounting and auditing.
The financial statements of Global Marine included in the registration
statement of which this joint proxy statement/prospectus is a part have been
audited by KPMG Audit Plc, chartered accountants, in reliance upon the
authority of said company as experts in accounting and auditing.
The consolidated financial statements of U S WEST and its subsidiaries
incorporated in the registration statement of which this joint proxy
statement/prospectus is a part by reference to the Annual Report on Form 10-
K/A for the year ended December 31, 1998 have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto and are incorporated in this joint proxy statement/prospectus
in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
Submission of Future Shareholder Proposals
Global Crossing
All proposals of shareholders who wish to bring business before Global
Crossing's 2000 Annual General Meeting of Shareholders must be received by
Global Crossing at its principal executive offices at Wessex House, 45 Reid
Street, Hamilton HM12 Bermuda, not later than , 1999, for inclusion in the
Company's proxy statement and form of proxy relating to such annual meeting.
Upon timely receipt of any such proposal, Global Crossing will determine
whether or not to include such proposal in the proxy statement and proxy in
accordance with applicable regulations and provisions governing the
solicitation of proxies.
Under the Companies Act, any shareholders who represent not less than 5% of
the total voting power of shareholders having the right to vote at the meeting
or who are 100 or more in number may requisition any resolution which may
properly be moved at an annual shareholders' meeting. A shareholder wishing to
move a resolution at an annual meeting is generally required to give notice to
Global Crossing of the resolution at its registered office at least six weeks
before the meeting.
187
<PAGE>
Frontier
In the event we do not complete the merger, there will be an Annual Meeting
of the Frontier shareholders in 2000. In order to be eligible for inclusion in
the proxy materials for Frontier's 2000 Annual Meeting of Common Shareholders,
any shareholder proposal to take action at that meeting must be received at
Frontier's principal executive offices by November 12, 1999. Any such proposal
should be addressed to 180 South Clinton Avenue, Rochester, New York 14646,
Attention: Josephine S. Trubek, Corporate Secretary.
In addition, Frontier's by-laws establish an advance notice procedure with
regard to specified matters, including shareholder proposals not included in
Frontier's proxy statement, to be brought before an annual meeting of
shareholders. In general, in order to bring a matter before the meeting,
notice must be received by the Corporate Secretary of Frontier not less than
60 days nor more than 90 days prior to the anniversary of the immediately
preceding annual meeting.
The notice must contain information as specified in the by-laws concerning
the matters to be brought before that meeting and concerning the shareholder
proposing those matters. If the date of the annual meeting is more than 30
days earlier or more than 60 days later than the anniversary date, notice must
be received not earlier than the 90th day before the annual meeting and not
later than the close of business on the later of the 60th day before the
annual meeting or the 10th day following the day on which the public
announcement of the date of the meeting is first made. However, if a
shareholder complies with the requirements to have a proposal included in the
proxy materials, he or she is deemed to have complied with this advance notice
procedure. If a shareholder who has notified Frontier of his or her intention
to present a proposal at an annual meeting does not appear or send a qualified
representative to present that proposal at the meeting, Frontier need not
present the proposal for a vote at the meeting. In order to provide an
admission card, Frontier asks that if a proposal is to be presented by a
qualified representative, the shareholder advise Frontier of the identity of
the person who will be presenting the proposal.
Where You Can Find More Information
Global Crossing and Frontier file annual, quarterly and other reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Our Securities and Exchange Commission filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
"http://www.sec.gov." You may also visit Global Crossing at
http://www.globalcrossing.com or Frontier at http://www.frontiercorp.com.
Global Crossing filed a registration statement on Form S-4 to register with
the Securities and Exchange Commission the Global Crossing common stock to be
issued to Frontier shareholders in the merger. This document is a part of that
registration statement and constitutes a prospectus of Global Crossing in
addition to being a joint proxy statement of Global Crossing and Frontier for
the Global Crossing and Frontier meetings. As allowed by Securities and
Exchange Commission rules, this document does not contain all the information
you can find in the registration statement or the exhibits to the registration
statement.
The Securities and Exchange Commission allows Frontier to "incorporate by
reference" information into this joint proxy statement/prospectus, which means
that Frontier can disclose important information to you by referring you to
another document filed separately with the Securities and Exchange Commission.
The information incorporated by reference is deemed to be part of this joint
proxy statement/prospectus, except for any information superseded by
information in this proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that Frontier has previously filed with the Securities and Exchange
Commission. These documents contain important information about Frontier and
its finances.
188
<PAGE>
<TABLE>
<CAPTION>
Frontier SEC Filings Period
- -------------------- ------
<S> <C>
Annual Report on Form
10-K Year Ended December 31, 1998
Quarterly Report on Form
10-Q Quarter Ended March 31, 1999
Current Reports on Form
8-K Filed January 26, 1999, March 19, 1999 and May 18, 1999
</TABLE>
Frontier is also incorporating by reference additional documents that it
files with the Securities and Exchange Commission between the date of this
document and the date of the Frontier meeting.
We are also incorporating by reference in this document
. pages 12-13 and pages F-1 to F-32 of U S WEST's Annual Report on Form
10-K for the year ended December 31, 1998, as amended by Form 10-K/A
filed on March 24, 1999, which contain audited financial statements of U
S WEST and its subsidiaries; and
. pages 3-13 of U S WEST's Quarterly Report on Form 10-Q for the three
months ended March 31, 1999, which contain unaudited quarterly financial
statements of U S WEST and its subsidiaries.
Global Crossing has supplied all information contained in this joint proxy
statement/prospectus relating to Global Crossing, and Frontier has supplied
all such information contained or incorporated by reference relating to
Frontier.
If you are a shareholder of Global Crossing, you may obtain, without charge,
a copy of Global Crossing's annual report on Form 10-K for the year ended
December 31, 1998, excluding exhibits, by requesting it in writing from:
Jensen Chow
Investor Relations
Global Crossing Ltd.
150 El Camino Drive
Suite 204
Beverly Hills, CA 90212
If you are a shareholder of Frontier, Frontier may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
Frontier or the Securities and Exchange Commission or the Securities and
Exchange Commission's Internet World Wide Web site described above. Documents
incorporated by reference are available from Frontier without charge,
excluding all exhibits unless Frontier has specifically incorporated by
reference an exhibit in this joint proxy statement/prospectus. Shareholders
may obtain documents incorporated by reference in this document by requesting
them in writing or by telephone from Frontier at the following addresses:
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646-0700
1-800-573-2473
Attn:
If you would like to request documents from us, please do so by
, 1999 to receive them before the Frontier meeting.
You should rely only on the information contained or incorporated by
reference in this document to vote on the Global Crossing proposals and
Frontier's merger proposal. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated , 1999. You should not assume that the
information contained in this document is accurate as of any date other than
such date, and neither the mailing of this document to shareholders nor the
issuance of Global Crossing common stock in the merger shall create any
implication to the contrary.
189
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
GLOBAL CROSSING LTD. AND SUBSIDIARIES
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 1999 and December
31, 1998................................................................. F-1
Condensed Consolidated Statements of Operations for the three months ended
March 31, 1999 and March 31, 1998........................................ F-2
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and March 31, 1998........................................ F-3
Notes to Condensed Consolidated Financial Statements...................... F-4
Report of Independent Public Accountants.................................. F-13
Consolidated Balance Sheets as of December 31, 1998 and 1997.............. F-14
Consolidated Statements of Operations for the year ended December 31, 1998
and for the period from March 19, 1997 (Date of Inception) to December
31, 1997................................................................. F-15
Consolidated Statements of Shareholders' Equity for the year ended
December 31, 1998 and for the period from March 19, 1997 (Date of
Inception) to December 31, 1997.......................................... F-16
Consolidated Statements of Cash Flows for the year ended December 31, 1998
and for the period from March 19, 1997 (Date of Inception) to December
31, 1997................................................................. F-17
Notes to Consolidated Financial Statements................................ F-18
CABLE & WIRELESS GLOBAL MARINE
Report of the Auditors.................................................... F-47
Combined Profit and Loss Account for each of the three years ended March
31, 1999................................................................. F-48
Combined Balance Sheet as of March 31, 1999 and 1998...................... F-49
Combined Statement of Total Recognised Gains and Losses for each of the
three years ended
March 31, 1999........................................................... F-50
Reconciliations of Movements in Net Assets for each of the three years
ended March 31, 1999..................................................... F-51
Combined Cash Flow Statement for each of the three years ended March 31,
1999 .................................................................... F-52
Notes to Combined Financial Statements.................................... F-53
</TABLE>
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 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.
F-1
<PAGE>
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, March 31,
1999 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.
F-2
<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, March 31,
1999 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.
F-3
<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
F-4
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
March 31, 1999
(Unaudited)
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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
F-5
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
March 31, 1999
(Unaudited)
(8) 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.
(9) RECLASSIFICATIONS
Certain prior year amounts have been reclassified in the condensed
consolidated financial statements for consistent presentation.
(10) 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.
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 Acquisition
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.
F-6
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands, except share and per share amounts)
March 31, 1999
(Unaudited)
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.
(11) 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 $870 million, consisting of a combination of cash and assumed
indebtedness. Global Marine is an undersea cable installation and maintenance
company. The transaction was completed on July 2, 1999. The Company expects
the acquisition will be accounted for using the purchase method of accounting.
U S WEST Merger Agreement
On May 16, 1999, the Company entered into a definitive agreement and plan of
merger with U S WEST, Inc., a Delaware corporation (U S WEST). The new company
will be 50% owned by Global Crossing/Frontier shareholders and 50% owned by
U S WEST shareholders. U S WEST provides a full range of telecommunications
services,--including wireline, wireless PCS, data networking, directory and
information services--to more than 25 million customers nationally and in 14
western and midwestern states. The board of directors of each company has
approved the merger. The transaction is subject to approval by the
shareholders of each company 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.
Senior Secured Credit Facility
On July 2, 1999, GCH entered into a $3 billion Senior Secured Credit
Facility. The structure of the Senior Secured Credit Facility is comprised of
a $1 billion 5-year Revolving Credit Facility with an initial interest rate of
LIBOR plus 2.25%, a $1 billion 5-year Multi-Draw Term Loan A with an initial
interest rate of LIBOR plus 2.25% and a $1 billion 8-year Term Loan B with an
initial interest rate of LIBOR plus 2.75%. The initial commitment fee on
undrawn funds is 0.75%. The purpose of the Senior Secured Credit Facility is
to finance or refinance construction of certain Global Crossing cable systems
previously anticipated to be financed on a per-system basis, to fund future
growth of Global Crossing and for general corporate purposes. In connection
with the transaction, the Senior Secured Credit Facility became structurally
senior to the Senior Notes for a consent fee paid directly to the Senior Note
holders of approximately $32 million.
On July 7, 1999, GCH borrowed approximately $1.5 billion ($1.0 billion under
the 8-year Term Loan B and $500 million under the 5-year Multi-Draw Term Loan
A) sufficient to retire the outstanding obligations under the AC-1 Credit
Facility, the MAC Credit Facility and financing provided under the Lucent
Agreement relating to the PEC and SAC system, partially finance the Global
Marine Acquisition as well as providing for current working capital
requirements.
F-7
<PAGE>
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.
F-8
<PAGE>
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.
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%
F-9
<PAGE>
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.
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
F-10
<PAGE>
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:
. our ability to complete our systems within currently estimated time
frames and budgets,
. our ability to sell capacity on our systems,
. our successful transition from a system development company to an
operating company, and
. 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.
F-11
<PAGE>
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>
Fair Value
March 31,
Expected maturity dates 1999 2000 2001 2002 2003 Thereafter Total 1999
- ------------------------ ------ ------- -------- ------ ----- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
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.
F-12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Crossing Ltd.:
We have audited the accompanying consolidated balance sheets of Global
Crossing Ltd. (a Bermuda company) and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended December 31, 1998 and 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 audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide 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. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the year ended December 31, 1998 and 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
February 1, 1999
(Except with respect to the matters
discussed in Note 16, as to which
the dates are March 9, 1999, March 16, 1999 and May 16, 1999)
F-13
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 806,593 $ 1,453
Restricted cash and cash equivalents.... 77,190 25,275
Accounts receivable, net of allowance
for doubtful accounts of $4,233........ 71,195 --
Other assets and prepaid costs.......... 47,137 1,016
---------- --------
Total current assets.................... 1,002,115 27,744
Restricted cash and cash equivalents...... 367,600 --
Accounts receivable....................... 43,315 --
Capacity available for sale............... 574,849 21,200
Construction in progress.................. 428,207 497,319
Deferred finance and organization costs,
net of accumulated amortization of
$10,130
as of December 31, 1998 and $2,247 as of
December 31, 1997........................ 45,757 25,934
Investment in affiliates.................. 177,334 --
---------- --------
Total assets............................ $2,639,177 $572,197
========== ========
LIABILITIES:
Current liabilities:
Accrued construction costs.............. $ 129,081 $ 52,004
Accounts payable and accrued
liabilities............................ 31,990 1,658
Accrued interest........................ 10,053 1,641
Deferred revenue........................ 44,197 5,325
Income taxes payable.................... 15,604 --
Current portion of long term debt....... 6,393 --
Current portion of obligations under
inland services agreements and capital
leases................................. 14,572 30,189
---------- --------
Total current liabilities............... 251,890 90,817
Long term debt............................ 269,598 162,325
Senior notes.............................. 796,495 150,000
Deferred revenue.......................... 25,325 --
Obligations under inland services
agreements and capital leases............ 24,520 3,009
Deferred income taxes..................... 9,654 --
---------- --------
Total liabilities....................... 1,377,482 406,151
---------- --------
MANDATORILY REDEEMABLE PREFERRED STOCK
(5,000,000 shares issued and outstanding
as of December 31, 1998, $100 liquidation
preference per share (including $4,375 in
accrued dividends and net of unamortized
issuance costs of $17,000))............... 487,375 --
---------- --------
MANDATORILY REDEEMABLE PREFERRED STOCK
(109,830 shares issued and outstanding as
of December 31, 1997, $1,000 liquidation
preference per share (including $1,281 in
accrued dividends and net of unamortized
discount and issuance costs of $12,224 and
$6,962, respectively)).................... -- 91,925
---------- --------
SHAREHOLDERS' EQUITY:
Common stock, 600,000,000 shares
authorized, par value $.01,
432,776,246 shares issued as of December
31, 1998 and
325,773,934 shares issued and
outstanding as of December 31, 1997...... 4,328 3,258
Treasury stock, 22,033,758 shares......... (209,415) --
Other shareholders' equity................ 1,067,470 71,023
Accumulated deficit....................... (88,063) (160)
---------- --------
774,320 74,121
---------- --------
Total liabilities and shareholders'
equity................................. $2,639,177 $572,197
========== ========
</TABLE>
See accompanying notes.
F-14
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended (Date of Inception)
December 31, 1998 to December 31, 1997
----------------- --------------------
<S> <C> <C>
REVENUES............................... $ 424,099 $ --
----------- -----------
EXPENSES:
Cost of capacity sold................ 178,492 --
Operations, administration and
maintenance......................... 18,056 --
Sales and marketing.................. 26,194 1,366
Network development.................. 10,962 78
General and administrative........... 26,844 1,657
Stock related expense................ 39,374 --
Provision for doubtful accounts...... 4,233 --
Termination of Advisory Services
Agreement........................... 139,669 --
----------- -----------
443,824 3,101
----------- -----------
OPERATING LOSS......................... (19,725) (3,101)
EQUITY IN LOSS OF AFFILIATES........... (2,508) --
INTEREST INCOME (EXPENSE):
Interest income...................... 29,986 2,941
Interest expense..................... (42,880) --
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM................ (35,127) (160)
Provision for income taxes........... (33,067) --
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM......... (68,194) (160)
Extraordinary loss on retirement of
senior notes........................ (19,709) --
----------- -----------
NET LOSS............................... (87,903) (160)
Preferred stock dividends............ (12,681) (12,690)
Redemption of preferred stock ....... (34,140) --
----------- -----------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS.......................... $ (134,724) $ (12,850)
=========== ===========
NET LOSS PER COMMON SHARE
Loss applicable to common shareholders
before extraordinary item
Basic and diluted.................... $ (0.32) $ (0.04)
=========== ===========
Extraordinary item
Basic and diluted.................... $ (0.06) $ --
=========== ===========
Net loss applicable to common
shareholders
Basic and diluted.................... $ (0.38) $ (0.04)
=========== ===========
Shares used in computing basic and
diluted loss per share................ 358,735,340 325,773,934
=========== ===========
</TABLE>
See accompanying notes.
F-15
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share information)
<TABLE>
<CAPTION>
Other Shareholders'
Common Stock Treasury Stock Equity
------------------ -------------------- ------------------------
Additional Total
Paid-in Unearned Accumulated Shareholders'
Shares Amount Shares Amount Capital(a) Compensation Deficit Equity
----------- ------ ---------- --------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash in March 1997
(Date of Inception),
net of $1,264 issuance
costs.................. 325,773,934 $3,258 -- $ -- $ 83,713 $ -- $ -- $ 86,971
Preferred stock
dividends.............. -- -- -- -- (12,690) -- -- (12,690)
Net loss for the
period................. -- -- -- -- -- -- (160) (160)
----------- ------ ---------- --------- ---------- -------- -------- --------
Balance, December 31,
1997................... 325,773,934 3,258 -- -- 71,023 -- (160) 74,121
Issuance of common stock
for cash............... 1,575,000 16 -- -- 2,772 -- -- 2,788
Cash reimbursement to
certain shareholders... -- -- -- -- (7,047) -- -- (7,047)
Unearned compensation... -- -- -- -- 93,758 (93,758) -- --
Amortization of
compensation expense... -- -- -- -- 37,111 -- 37,111
PCG Warrants............ 24,406,340 244 -- -- 275,054 -- -- 275,298
Issuance of common stock
in exchange for
termination of Advisory
Services Agreement..... 14,210,526 142 -- -- 134,858 -- -- 135,000
Preferred stock
dividends.............. -- -- -- -- (12,681) -- -- (12,681)
Premium on redemption of
preferred stock........ -- -- -- -- (34,140) -- -- (34,140)
Common stock
transactions with
certain shareholders... 21,733,758 217 22,033,758 (209,415) 209,198 -- -- --
Issuance of common stock
in connection with
initial public
offering, net of
$30,916 issuance
costs.................. 44,420,000 444 -- -- 390,630 -- -- 391,074
Issuance of common stock
from exercise of stock
options................ 656,688 7 -- -- 692 -- -- 699
Net loss................ -- -- -- -- -- -- (87,903) (87,903)
----------- ------ ---------- --------- ---------- -------- -------- --------
Balance, December 31,
1998................... 432,776,246 $4,328 22,033,758 $(209,415) $1,124,117 $(56,647) $(88,063) $774,320
=========== ====== ========== ========= ========== ======== ======== ========
</TABLE>
- --------
(a) Additional Paid-in Capital has been charged retroactively for the par value
of the shares issued as a result of the 2-for-1 stock split effected in the
form of a stock dividend effective on March 9, 1999.
See accompanying notes.
F-16
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period From
March 19, 1997
Year Ended (Date of Inception)
December 31, 1998 to December 31, 1997
----------------- --------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES:
Net loss applicable to common
shareholders......................... $(134,724) $(12,850)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Equity in loss of affiliates.......... 2,508 --
Depreciation and amortization......... 541 39
Provision for doubtful accounts....... 4,233 --
Termination of Advisory Services
Agreement ........................... 135,000 --
Stock related expenses................ 39,374 --
Preferred stock dividends............. 12,681 12,690
Redemption of preferred stock......... 34,140 --
Extraordinary loss on retirement of
senior notes......................... 19,709 --
Capacity available for sale excluding
cash expenditures for investing
activities........................... 123,329 (21,200)
Provision for deferred income taxes... 9,654 --
Changes in operating assets and
liabilities:
Increase in accounts receivable...... (118,743) --
Increase in other assets and prepaid
costs............................... (46,662) (1,032)
Increase in deferred revenue......... 64,197 5,325
Increase in income taxes payable .... 15,604 --
Increase in accounts payable and
accrued liabilities................. 30,332 1,249
Increase in obligations under inland
services agreements................. 17,554 20,900
--------- --------
Net cash provided by operating
activities.......................... 208,727 5,121
--------- --------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Proceeds from issuance of common
stock, net........................... 392,298 73,736
Proceeds from issuance of preferred
stock, net........................... 483,000 92,470
Proceeds from issuance of senior
notes................................ 796,495 150,000
Proceeds from long term debt.......... 290,556 162,325
Repayment of long term debt........... (176,890) --
Retirement of 1997 issued senior
notes................................ (159,750) --
Redemption of 1997 issued preferred
stock................................ (134,372) --
Finance and organization costs
incurred............................. (37,665) (28,181)
Cash reimbursement to certain
shareholders......................... (7,047) --
Increase in restricted cash and cash
equivalents.......................... (419,515) (25,275)
--------- --------
Net cash provided by financing
activities.......................... 1,027,110 425,075
--------- --------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Cash paid for construction in progress
and capacity available for sale...... (413,996) (428,743)
Investment in affiliates.............. (16,701) --
--------- --------
Net cash used in investing
activities.......................... (430,697) (428,743)
--------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 805,140 1,453
CASH AND CASH EQUIVALENTS, beginning of
period................................ 1,453 --
--------- --------
CASH AND CASH EQUIVALENTS, end of peri-
od.................................... $ 806,593 $ 1,453
========= ========
SUPPLEMENTAL INFORMATION ON NON-CASH
FINANCING ACTIVITIES:
Common stock distributed to holders of
preferred stock...................... $ -- $ 13,235
========= ========
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING ACTIVITIES
Costs incurred for construction in
progress and capacity available for
sale................................. $ 607,865 $497,319
Increase in accrued construction
costs................................ (77,077) (52,004)
Increase in accrued interest.......... (8,412) (1,641)
Amortization of deferred finance and
organization costs................... (7,883) (2,223)
(Increase) decrease in obligations
under capital leases................. 11,660 (12,298)
PCG Warrants.......................... (112,157) --
Increase in accrued liabilities....... -- (410)
--------- --------
Cash paid for construction in progress
and capacity available for sale $ 413,996 $428,743
========= ========
SUPPLEMENTAL INFORMATION ON NON-CASH
INVESTING ACTIVITIES:
Cost of investments in affiliates..... $(179,842) $ --
PCG Warrants.......................... 163,141 $ --
--------- --------
$ (16,701) $ --
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid and capitalized......... $ 39,424 $ 8,136
========= ========
Interest paid (net of capitalized
interest)............................ $ 33,854 $ --
========= ========
Cash paid for taxes................... $ 7,809 $ --
========= ========
</TABLE>
See accompanying notes.
F-17
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Throughout these consolidated financial statements, references to "dollars"
and "$"
are to United States dollars.
1. BACKGROUND AND ORGANIZATION
Global Crossing Ltd. (together with its consolidated subsidiaries, "GCL" or
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.
During March 1997, Global Crossing Ltd., LDC ("Old GCL"), formerly GT Parent
Holdings LDC, was incorporated as an exempted limited duration company in the
Cayman Islands. In March 1998, GCL, a Bermuda company, was formed as a wholly-
owned subsidiary of Old GCL. At that time, Old GCL contributed its investment
in Global Telesystems Holdings Ltd. ("GTH") to GCL. During April 1998, GCL
formed a wholly-owned subsidiary, Global Crossing Holdings Ltd. ("GCH"), a
Bermuda company, and contributed its investment in GTH to GCH upon its
formation.
In January 1998, Old GCL effected a 100-for-1 stock split of each of its
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. Prior to GCL's Initial Public Offering ("IPO") in August 1998, GCL
declared a stock dividend to Old GCL resulting in Old GCL holding 1.5 shares
of common stock of GCL for each share of common stock of Old GCL outstanding.
Pursuant to the terms of the Articles of Association of Old GCL and prior to
the Company's IPO, each holder of Class D shares of Old GCL converted such
shares into a fraction of a Class E share of Old GCL based upon a valuation at
the time of such conversion, together with a warrant to purchase the remaining
fraction of such Class E share at an exercise price based upon such market
valuation. In addition, each holder of Class E shares of Old GCL had such
Class E shares converted into Class B shares of Old GCL. Accordingly, each
holder of Class D and Class E shares ultimately received Class B shares, with
the warrants to purchase Class E shares received by former Class D
shareholders then cancelled in exchange for warrants ("New GCL Warrants") to
purchase shares of Common Stock of GCL at an exercise price equal to the IPO
price of $9.50 per share.
Subsequent to the above transaction and prior to the Company's IPO, each
shareholder of Old GCL (other than Canadian Imperial Bank of Commerce
("CIBC"), a major shareholder) exchanged their interests in Old GCL for shares
of common stock of GCL held by Old GCL at a rate of 1.5 shares of common stock
of GCL for each share of common stock of Old GCL ("Old GCL Exchange"). CIBC
did not participate in the above mentioned transaction and continues to
maintain such ownership of GCL through Old GCL, which is now a wholly owned
subsidiary of CIBC.
Because Old GCL, GCL and GCH were entities under common control, the
transfers by Old GCL to GCL and GCL to GCH and the Old GCL Exchange were
accounted for similar to a pooling of interests. The consolidated financial
statements presented have been retroactively restated to reflect these
transactions as if they had occurred as of March 19, 1997 (Date of Inception).
In February 1999, the Board of Directors declared a 2-for-1 split of the
Company's common stock in the form of a stock dividend which was effective on
March 9, 1999. All share information presented in these consolidated financial
statements gives retroactive effect to the 100-for-1 stock split in January
1998, 1.5-for-1 stock dividend in August 1998 and 2-for-1 stock dividend on
March 9, 1999.
F-18
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. The significant
accounting policies are summarized as follows:
a) Principles of Consolidation
The consolidated financial statements include the accounts of GCL and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated. Investments in affiliates, in which GCL has significant influence
but does not exercise control, are accounted for using the equity method.
b) Development Stage Company
The Company was in its development stage until May 1998 when the United
States to United Kingdom segment of the AC-1 system was placed into service
and the Company began generating significant revenues.
Successful future operations are subject to several risks, including the
ability of the Company to ensure the successful, timely and cost-effective
completion of fiber optic cable systems as well as to successfully market and
generate significant revenue from the sale of capacity of the systems. GCL may
encounter problems, delays and expenses, many of which may be beyond its
control. There can be no assurance that the cable systems will be completed
within the time frame and that capacity sales will meet expectations, or that
substantial delays would not adversely affect GCL's achievement of profitable
operations.
c) Cash and Cash Equivalents, Restricted Cash and Cash Equivalents (Current
and Long Term)
The Company considers cash in banks and short term highly liquid investments
with an original maturity of three months or less at the date of purchase to
be cash equivalents.
Current and long term restricted cash and cash equivalents includes the
following:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
------ ------
(in
millions)
<S> <C> <C>
Funds restricted for PC-1 construction.................... $ 231 $ --
Funds restricted under the AC-1 Credit Facility........... 89 5
Funds restricted for MAC construction..................... 66 --
Funding for future interest on senior notes............... 38 20
Other..................................................... 21 --
----- ------
Total..................................................... 445 25
Less: Current portion of restricted cash and cash
equivalents.............................................. (77) (25)
----- ------
Long term restricted cash and cash equivalents............ $ 368 $ --
===== ======
</TABLE>
F-19
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
d) Revenue and Deferred Revenue, Cost of Sales and Maintenance Costs
i) Revenue and Deferred Revenue
Sales Type Lease Revenue and Deferred Revenue
Customers of the Company can enter into Capacity Purchase Agreements
("CPAs") to purchase an Indefeasible Right of Use ("IRU") in units of capacity
on any of the Company's fiber optic cable systems ("Systems") described in
Note 3. The purchase price for capacity on a System is non-refundable once the
applicable segment purchased on a System is Ready For Service ("RFS"). The IRU
purchased entitles the customer to all rights and obligations of ownership of
the capacity for a period of 25 years after the System RFS date. The Company's
CPAs generally provide that the System will have self-healing ring capability,
which means capacity on any segment of a System will be instantaneously
restored either on another System segment or within the same segment in the
event of interruption so that the same point-to-point connectivity is
maintained.
Revenues from the sale of capacity are recognized in the period that the
rights and obligations of ownership transfer to the purchaser, which occurs
when (i) the purchaser obtains the right to use the capacity, which can only
be suspended if the purchaser fails to pay the full purchase price or fulfill
its contractual obligations, (ii) the purchaser is obligated to pay
Operations, Administration and Maintenance ("OA&M") costs and (iii) the
segment of a System related to the capacity purchased is available for
service. Customers who have entered into CPAs for capacity have paid deposits
toward the purchase price and such amounts have been included as deferred
revenue in the accompanying consolidated balance sheets. In some CPAs,
customers who have purchased capacity on a System prior to the date the System
has self-healing ring capacity have contractually required full self-healing
ring capability as a legal condition which, if not satisfied, would enable
them to terminate the CPA and require the Company to refund capacity payments.
Payments received relating to such CPAs on AC-1 are included in deferred
revenue in the accompanying consolidated balance sheets.
The Company has entered into contracts, called Inland Services Agreements
("ISAs"), to obtain IRUs for terrestrial capacity. The Company in turn sells
this third party terrestrial capacity under separate CPAs to certain customers
for the purpose of extending capacity from certain System landing stations to
major telecommunication cities. The purchase price for terrestrial capacity is
non-refundable and grants the customer an IRU, which entitles the customer to
all rights and obligations of ownership for terms of 25 years after the RFS
date of the related System.
Operating Type Lease Revenue and Deferred Revenue
In addition to sales type leases, the Company may enter into operating lease
agreements to lease capacity on its Systems. These agreements may grant the
customer a right to use capacity for periods of time which may be
substantially less than the design life of the capacity (generally 25 years).
The Company will amortize revenues from these operating lease agreements over
the lives of the agreements, with cash received but not yet recognized as
operating revenue, recorded in the accompanying consolidated balance sheets as
deferred revenue.
OA&M Revenue
Pursuant to the terms of its existing CPAs, the Company is obliged to use
commercially reasonable efforts to cause AC-1 to be maintained in efficient
working order and in accordance with industry standards. In exchange for the
OA&M services provided by Atlantic Crossing Ltd. ("ACL") through the OA&M
agreement with Tyco Submarine Systems Ltd. ("TSSL"), customers are obligated
for the term of the IRU to pay for their allocable share of the costs for
operating and maintaining the System. Customers appoint members to a System
Advisory Committee, which is charged with the responsibility of directing the
operations and maintenance of the System.
F-20
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Customers pay for 110% of ACL's cost to operate and maintain AC-1 based on
their pro-rata share of total capacity subject to annual maximum amounts per
circuit purchased of $250,000 per transatlantic circuit and $50,000 per
European circuit. Their pro-rata share is effectively calculated by taking the
weighted average of purchased capacity over total capacity multiplied by 110%
of actual costs incurred. These OA&M costs are billed to customers quarterly
in advance based on the prior year's actual costs. Payments 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. Undersea OA&M revenues
are recognized in the period the services are provided. On an annual basis,
the actual OA&M costs incurred by the Company are accumulated and an
adjustment is made to true up actual OA&M revenues so that they equal 110% of
actual costs incurred, provided specified contractual limits have not been
reached.
ii) Cost of Sales
Sales Type Lease Cost of Sales
Cost of undersea sales in any period is calculated based on the ratio of
capacity revenues recognized in the period to total expected capacity revenues
over the life of the System multiplied by the total costs incurred to
construct the System. This calculation of cost of sales matches costs with the
value of each sale relative to total expected revenues. Until the entire
System is completed, for purposes of calculating cost of sales, the total
System costs incurred will include an estimate of remaining costs to be
incurred to complete the entire System plus the cost of System upgrades that
management has the intent and ability to complete, provided the need for such
upgrades is supported by a third party consultant's independent revenue
forecast.
During 1998, the Company entered into ISAs to obtain IRUs for terrestrial
capacity for terms of 25 years. Under the IRUs, the Company is required to pay
an up-front non-recurring charge plus, in certain cases, monthly recurring
charges over a 25 year period and, in exchange, obtains all rights and
obligations of ownership. The Company has accounted for the IRUs as capital
leases. The cost of acquiring this terrestrial capacity is charged to cost of
sales in the period that the related revenue is recognized. The Company
capitalized the present value of total future payments (excluding OA&M costs)
in capacity available for sale and recorded an equal amount as an obligation
under ISAs in the accompanying consolidated balance sheets.
Customers who purchased AC-1 capacity prior to February 22, 1999 ("AC-1 RFS
date") were granted 80% of the unsold capacity ("residual capacity"), if any,
12 1/2 years after the AC-1 RFS date. However, based on sales projections
provided by a third party consultant, management believes it is highly
unlikely that there will be a material amount of unsold capacity on AC-1 at
such time. The Company has no constraints on the pricing or structure of sales
of residual capacity and the Company would expect that if such capacity had
any remaining value, it would enter into one or more transactions to dispose
of such capacity prior to such date to realize such remaining value. As a
result, the right to residual capacity is not a substantive right.
In the period in which management has the intent and ability to complete a
System upgrade, the total expected System capacity revenues and cost of the
System used in the cost of sales calculation will change to take into account
the further increase in System cost and in System capacity. The intent and
ability of management to complete a System upgrade is demonstrated by the fact
that (i) the Board of Directors has authorized the purchase of the upgrade,
(ii) the Company has the financial ability to purchase the upgrade and (iii)
there are no regulatory or technology hurdles preventing the completion of the
upgrade. The total expected System capacity revenues used by the Company in
its cost of sales calculation will always be limited by total sales forecasted
by a third party consultant which is updated on an annual basis. The AC-1
System was designed to be upgradable so as to increase the initial design
capacity of 256 circuits available for sale. The Company has contracted with
TSSL to upgrade capacity on AC-1 to 512 circuits. Based on the current third
party consultant's sales forecast, the Company expects to sell all 512
circuits available for sale.
F-21
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition to capacity upgrades, management's estimate of future expected
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 to be derived over the life of a
System. Changes in management's estimate of the total expected revenues to be
derived from sales of capacity result in adjustments to the calculations of
cost of sales which are recorded on a prospective basis over future periods
commencing in 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 AC-1 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.
Operating Type Lease Cost of Capacity
Costs relating to operating type lease revenues will be classified as a
depreciable asset and depreciated over the estimated useful life of the
capacity.
iii) Maintenance Costs
The Company has entered into an OA&M agreement with TSSL whereby TSSL is
obligated to provide operating, administration and maintenance functions to
AC-1, which include management and maintenance of a Network Operating Center,
assumption of vessel costs, obtaining and renewing all operating permits,
providing repair equipment, providing cable protection and ordering and
restocking equipment spares. The OA&M agreement is for an initial term of
eight years with two renewal periods of eight and one half years each at the
Company's option. The OA&M costs related to this agreement are expensed as
incurred.
OA&M costs relating to ISAs are expensed as incurred and the related revenue
is recognized in the period the services are provided.
e) Commissions and Advisory Services Fees
The Company's policy is to record sales commissions and advisory fee
expenses and related payable upon the recognition of revenue so as to
appropriately match these costs with the related revenue. Under the Advisory
Services Agreement ("ASA"), which was terminated by December 31, 1998, the
Company paid PCG Telecom Services LLC ("PCG Telecom") and its affiliates 2% of
revenues for advisory services performed. Under the Sales Agency Agreement
("SAA") the Company pays TSSL a commission based on a percentage of capacity
revenues.
f) Construction in Progress
Costs incurred prior to a segment's completion are reflected as construction
in progress in the accompanying consolidated balance sheets and recorded as
capacity available for sale at the date each segment of the System becomes
operational. Capacity available for sale is recorded at the lower of cost or
fair value less costs to sell and is charged to costs of sales in the period
the related revenues are recognized. Fair value of capacity is derived from a
third party consultant's market study of expected sales of capacity.
Construction in progress includes direct expenditures for construction of a
System and is stated at cost. Capitalized costs include costs incurred under
the construction contract; advisory, consulting and legal fees;
F-22
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
interest; and amortized finance costs incurred during the construction phase.
Once it is probable that a cable system will be constructed, costs directly
identifiable with the cable system under development are capitalized. Costs
relating to the evaluation of new projects incurred prior to the date the
development of the System becomes probable are expensed as incurred.
Interest incurred, which includes the amortization of deferred finance fees
and issuance discount ("interest cost"), are capitalized to construction in
progress in accordance with Statement of Financial Accounting Standards No.
34, "Capitalization of Interest Costs" ("SFAS 34"). Total interest cost
incurred and interest capitalized to construction in progress during the
periods were:
<TABLE>
<CAPTION>
Period from
March 19, 1997
(Date of
Year Ended Inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Interest cost incurred.................... $92,813 $9,777
======= ======
Interest cost capitalized to construction
in progress.............................. $49,933 $9,777
======= ======
</TABLE>
g) Deferred Finance and Organization Costs
Costs incurred to obtain financing 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 through the
issuance of preferred stock have been reflected as a reduction in the carrying
value of the issued preferred stock. The financing costs relating to the debt
are amortized over the shorter of the stated long term or, where the terms of
the loan require earlier repayment, the expected period over which the debt
obligation will be repaid. In 1998, certain preferred stock was redeemed at
which time the remaining balance of unamortized discount and offering costs
was charged against additional paid-in capital. During the construction
period, the amortized portion of deferred financing costs relating to the
senior notes and the long term debt are included in construction in progress
as a component of interest capitalized or recorded as interest expense in
accordance with SFAS 34. The amortized portion of the deferred financing costs
relating to the preferred stock is included as a component of preferred stock
dividends.
h) Translation of Foreign Currencies
Substantially all of the Company's international subsidiaries use their
local currency as their functional currency. For those subsidiaries using the
local currency 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. Where the U.S. dollar is the functional currency,
translation adjustments are recorded in the accompanying consolidated
statements of operations. None of the Company's translation adjustments were
material as of and for the year ended December 31, 1998 and as of and for the
period from March 19, 1997 (Date of Inception) to December 31, 1997.
i) Stock Option Plan
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has
chosen to account for employee stock options under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and,
accordingly, recognizes compensation expense for stock option grants to the
extent that the estimated fair value of the stock exceeds the exercise price
of the option at the measurement date. The compensation expense is
F-23
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
charged against operations ratably over the vesting period of the options. In
addition, the Company records compensation expense for options granted to
individuals other than employees using the fair value approach consistent with
SFAS No. 123.
j) Interest Rate Derivatives
The Company uses a derivative financial instrument for the purpose of
reducing its exposure to adverse fluctuations in interest rates. The
counterparty to the only derivative financial instrument in effect as of
December 31, 1998 is CIBC. The Company is exposed to credit loss in the event
of nonperformance by CIBC. As of December 31, 1998 the Company does not
utilize derivative financial instruments for trading or other speculative
purposes.
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.
As discussed in Note 5, the Company has entered into an interest rate swap
agreement to hedge its exposure to interest rates on its long term debt. Since
this agreement qualifies for hedge accounting, the net cash amounts paid or
received on the agreement are accrued and recognized as an adjustment to
interest expense on the related debt.
k) Net Loss Per Share
Losses per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings Per Share." Share and per share data
presented reflects all stock dividends and stock splits.
The following is a reconciliation of the numerators and the denominators of
the basic and diluted loss per share:
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended (Date of Inception)
December 31, 1998 to December 31, 1997
----------------- --------------------
(In thousands, except share
and per share information)
<S> <C> <C>
Basic and Diluted
Loss before extraordinary item......... $ (68,194) $ (160)
Preferred stock dividends.............. (12,681) (12,690)
Redemption of preferred stock.......... (34,140) --
----------- -----------
Loss applicable to common shareholders
before extraordinary item............. $ (115,015) $ (12,850)
=========== ===========
Weighted average share outstanding:
Basic and diluted...................... 358,735,340 325,773,934
----------- -----------
Loss applicable to common shareholders
before extraordinary item:
Basic and diluted...................... $ (0.32) $ (0.04)
=========== ===========
</TABLE>
Dilutive options and warrants did not have an effect on the computation of
diluted loss per share in 1998 and 1997 since they were anti-dilutive.
F-24
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
l) Income Taxes
The Company recognizes current and deferred income tax assets and
liabilities based upon all events that have been recognized in the
consolidated financial statements as measured by the provision of the enacted
tax laws.
m) Recently Adopted and New Accounting Standards
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 is effective for periods beginning after December 15,
1997. There was no impact to the consolidated financial statements due to the
adoption of SFAS 130 in 1998. The Financial Accounting Standards Board has
also 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 consolidated
financial position or results of operations to be material.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Cost of Start-Up Activities"
("SOP 98-5"). The Company is required to adopt SOP 98-5 during January, 1999.
The adoption of SOP 98-5 will result in a charge against net income in the
statement of operations of the first quarter of 1999 which management
estimates will be approximately $15 million. This charge is comprised
primarily of costs incurred for System startup activities that were previously
capitalized to Systems not yet ready for service. The $15 million charge
represents less than 1% of the projected total costs of the Systems currently
under development by the Company.
n) Reclassifications
Certain prior year amounts have been reclassified in the consolidated
financial statements for consistent presentation.
3. GLOBAL CROSSING NETWORK
GCL 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.
F-25
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial information relating to the Company's consolidated operations by
geographic area was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- -------------------
Long-Lived Long-Lived
Revenues(a) Assets(b) Revenues Assets(b)
----------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
North America
United States...................... $200,489 $ 70,555 $ -- $ 50,169
Canada............................. 68,351 -- -- --
----------------------------------------
268,840 70,555 -- 50,169
----------------------------------------
Europe
The Netherlands.................... 46,832 --
Germany............................ 35,933 --
Other.............................. 72,494 --
----------------------------------------
155,259 161,535 -- 107,412
----------------------------------------
Asia Pacific......................... -- -- -- --
International waters................. -- 770,966 -- 360,937
----------------------------------------
Consolidated......................... $424,099 $1,003,056 $ -- $518,518
======== ========== ======== ========
</TABLE>
- --------
(a) Revenues for the year ended December 31, 1998 by region are classified
according to the location of the customer. During 1998, there was one customer
located in the United States that accounted for 16% of consolidated revenue,
another customer located in Canada that accounted for 16% of consolidated
revenue, and one customer located in the Netherlands that accounted for 11% of
consolidated revenue.
(b) Long-lived assets include capacity available for sale and construction in
progress as of December 31.
Atlantic Crossing ("AC-1")
ACL, formerly Global Telesystems Ltd., an indirect wholly-owned subsidiary
of GCL, entered into a fixed price contract with TSSL for the construction of
AC-1, an upgradeable undersea fiber optic cable ring, connecting New York, the
United Kingdom, the Netherlands and Germany. AT&T Corp. provided ACL with a
guarantee in respect of TSSL's obligations under the contract. Certain
segments of AC-1 were accepted by ACL and made available for commercial
service during 1998. TSSL retains title ownership of segment assets in United
States territory until GT Landing Corp., a United States wholly-owned
subsidiary of ACL, exercises its $10,000 bargain purchase option to purchase
title. Pursuant to the contract, TSSL granted GT Landing Corp. an IRU for the
estimated 25 year life of the system. GT Landing Corp. accounted for the IRU
as a capital lease, since the IRU transfers the risks and rewards of ownership
to GT Landing Corp. The United States assets governed by this IRU includes all
landing station assets (with the exception of the building and land, to which
GT Landing Corp. has title), fiber optic cable located in the United States
and the landing license. The Company entered into a capital lease for the
landing station building and conduit in both Germany and the Netherlands. ACL
entered into a $482 million credit facility to finance, in part, the
construction and financing of AC-1.
Mid-Atlantic Crossing ("MAC")
Mid-Atlantic Crossing Ltd. ("MACL"), an indirect wholly-owned subsidiary of
GCL, entered into fixed price contracts with Alcatel Submarine Networks in
June 1998 and TSSL in October 1998 for the construction of MAC, an upgradeable
undersea fiber optic cable ring connecting New York, the Caribbean and
Florida. The
F-26
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
estimated cost of the System is $330 million and is expected to be ready for
service in December 1999 ("MAC RFS date"). Companies have been incorporated in
each country in which the cable will land in order to own the portion of the
System located in each country and the related territorial waters. MACL
entered into a $260 million credit facility to finance, in part, the
construction and financing of MAC. See Note 5.
Pan American Crossing ("PAC")
In July 1998, the Company, through its indirect wholly-owned subsidiary, Pan
American Crossing Ltd. ("PACL"), entered into a fixed price contract with TSSL
for the construction of PAC, an upgradeable undersea fiber optic cable System
connecting California, Mexico and Panama and the Caribbean. The estimated cost
of the System is $495 million. PACL signed a commitment letter to obtain up to
$300 million of non-recourse indebtedness to finance, in part, the
construction and financing of PAC.
Pan European Crossing ("PEC")
The Company is also developing PEC, a 10,000 km upgradeable terrestrial
fiber optic system connecting 24 European cities to each other and to AC-1.
The construction costs of PEC are estimated to be $850 million. In October
1998, the Company entered into an agreement with VersaTel Telecom Europe B.V.
("VersaTel") whereby the Company will secure ownership of optical fiber
conduits on VersaTel's routes connecting Amsterdam, Brussels and the French
border by March 1999 in exchange for capacity and dark fiber on PEC. In
addition, in October 1998, the Company executed an agreement with Cable &
Wireless PLC for the sale of dark fiber on PEC for a purchase price of over
$100 million. Furthermore, in November 1998, the Company executed an agreement
with GasLINE for the construction of a portion of PEC located in Germany. The
Company is currently negotiating with other parties for the acquisition of
rights of way and the acquisition or construction of conduits. Lucent will
supply fiber and equipment for PEC as well as project management and
integration services.
4. INVESTMENT IN AFFILIATES
In addition to the wholly-owned Systems discussed in Note 3, GCL has
invested in Pacific Crossing Ltd. and Global Access Ltd. (together
"affiliates") which are developing Pacific Crossing ("PC-1") and GAL
respectively, which are also part of the Global Crossing Network.
Investment in Pacific Crossing Ltd. ("PCL")
In April 1998, a wholly-owned subsidiary of GCL entered into a joint venture
to construct PC-1 which is owned and operated by PCL. The Company has an
economic interest in PCL represented by a 50% direct voting interest and,
through one of the joint venture partners, owns a further 8% economic non-
voting interest. PCL entered into a contract in April 1998 with TSSL to
construct PC-1 for a total price of approximately $1,200 million, which will
be financed through a $400 million equity contribution by the joint venture
partners and an $850 million credit facility. In July 1998, an $850 million
aggregate senior secured non-recourse loan facility (the "PCL Credit
Facility") was executed for the construction and financing costs of PC-1. The
PCL Credit Facility is comprised of an $840 million multiple drawdown term
loan facility and a $10 million working capital facility. In July 1998, an
initial drawdown was made on the term loan facility to repay a $104 million
promissory note used for initial construction costs on PC-1 as well as fees
incurred to secure the credit facility. The Company also placed $231 million
into a restricted cash collateral account to satisfy its equity funding
commitment for its 58% joint venture economic interest in PCL.
F-27
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investment in Global Access Ltd.
In December 1998, a wholly-owned subsidiary of GCL entered into a joint
venture, Global Access Ltd., to construct and operate GAL, a terrestrial cable
system connecting Tokyo, Osaka and Nagoya with PC-1. The Company has a 49%
interest in Global Access Ltd.
The investment in affiliates as of December 31, 1998 consists of the following
items:
<TABLE>
<S> <C>
(In thousands)
Carrying value of investment in PCL...................... $ (2,502)
PC-1 development costs................................... 163,141
Carrying value of investment in Global Access Ltd. ...... 16,695
--------------
Investment in affiliates................................. $ 177,334
==============
</TABLE>
The PC-1 development costs represent the estimated unamortized value of the
PCG Warrants as of December 31, 1998 which were granted to Pacific Capital
Group ("PCG") in exchange for the PC-1 system and related rights. In
connection with the formation of PCL, the Company agreed to make available to
PCL the consideration received by the Company in connection with the grant of
the PCG Warrants in addition to the $231 million cash investment to be made by
the Company. See Note 10 for a description of PCG Warrants.
5. LONG TERM DEBT, OBLIGATIONS UNDER INLAND SERVICES AGREEMENTS AND CAPITAL
LEASES
AC-1 Credit Facility
During 1997, ACL entered into a $410 million aggregate senior secured non-
recourse loan facility (the "AC-1 Credit Facility") with a group of banks led
by an affiliate of CIBC and Deutsche Bank AG, for the construction and
financing costs of AC-1. During 1997, the AC-1 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"), to extend AC-1 to include, among
other things, a Netherlands landing site. The AC-1 Credit Facility is secured
by pledges of the stock of ACL and its subsidiaries and security interests in
its assets and revenues. The unused portion of the AC-1 Credit Facility as of
December 31, 1998 was approximately $38 million. Any amounts repaid to the
lenders cannot be re-borrowed, and are effectively permanent reductions in the
AC-1 Credit Facility.
Under the AC-1 Credit Facility, ACL may select loan arrangements as either a
Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The Eurodollar
interest rate is LIBOR plus 2.0% and the ABR interest rate is the greatest of
(a) the Prime Rate, (b) the Base CD Rate plus 1% and (c) the Federal Funds
Effective Rate plus 0.5%, plus 1.0%. As of December 31, 1998, all outstanding
loans were Eurodollar loans. ACL pays a commitment fee of 0.5% per annum on
the unused portion of the AC-1 Credit Facility. The AC-1 Credit Facility
contains various covenants that (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 AC-1 Credit Facility. The AC-1 Credit Facility is repayable in eight semi-
annual installments ("Mandatory Repayment"). All revenues received as of
December 31, 1998 have been used to fund reserve accounts (see Note 2c), and
thereafter were applied against the borrowings. The amount repaid prior to the
AC-1 RFS date was used to reduce the Mandatory Repayment for 1999 to $7
million. The remaining balance is repayable through installments of $100
million in 2000, $141 million in 2001 and $19 million in 2002. Furthermore,
ACL is required to apply against the
F-28
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
borrowings 50% of excess cash flows received after the AC-1 RFS date. If any
Mandatory Repayment amount exceeds the outstanding loan balance, then the
outstanding loan balance will be repaid. Excess cash flow is defined under the
terms of the AC-1 Credit Facility as all cash received from revenues during
the period reduced by the payment of OA&M expenses, commissions under the
Sales Agency Agreement, and transfers to certain reserve accounts.
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.
MAC Credit Facility
During November 1998, MACL entered into a $260 million aggregate senior
secured non-recourse loan facility (the "MAC Credit Facility") with a group of
banks led by CIBC and Deutsche Bank AG, for the construction and financing
costs of MAC. The MAC Credit Facility is comprised of a $250 million multiple
draw down term loan facility (the "MAC Term Facility") and a $10 million
working capital facility (the "MAC Working Capital Facility"). Of the $250
million MAC Term Facility, $31 million is restricted for purposes of funding
the first System upgrade. The MAC Credit Facility is secured by pledges of the
stock of MACL and its subsidiaries and security interests in its assets and
revenues.
Under the MAC Credit Facility, MACL may select loan arrangements as either a
Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The Eurodollar
interest rate is LIBOR plus 3.0% and the ABR interest rate is the greater of
(a) the Prime Rate and (b) the Federal Funds Effective Rate plus 0.5%, plus
2.0%. As of December 31, 1998, all outstanding loans were Eurodollar loans.
MAC Credit Facility contains various covenants that (i) limit further
indebtedness by MACL and its subsidiaries, (ii) limit the ability of MACL to
pay dividends, (iii) require MACL to meet certain minimum capacity sales
levels and (iv) require MACL to meet a minimum interest coverage ratio for the
years 2000 through to the maturity of the MAC Credit Facility. The MAC Credit
Facility is repayable in ten semi-annual installments commencing on the first
August 31, November 30, February 28, or May 31 occurring 165 days after the
MAC RFS date, with $38 million of the principal amount due in the initial
year, $45 million due in the second year, and $59 million due in each of the
third, fourth, and fifth years. If at any semi-annual installment date the
outstanding loan balance is lower than the installment amounts noted in the
previous sentence, then the outstanding loan balance amount will be repaid.
F-29
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long Term Debt
Long term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
AC-1 Credit Facility.................................... $ 266,799 $ 162,325
MAC Credit Facility..................................... 9,192 --
--------- ---------
Total debt.............................................. 275,991 162,325
Less: current portion of long term debt................. (6,393) --
--------- ---------
Long term debt.......................................... $ 269,598 $ 162,325
========= =========
Maturities of long term debt are as follows:
<CAPTION>
Year Ending December 31, (In thousands)
<S> <C> <C>
1999.................................................... $ 6,393
2000.................................................... 99,555
2001.................................................... 150,792
2002.................................................... 19,251
---------
Total................................................... $ 275,991
=========
</TABLE>
Capital Leases and Obligations under Inland Service Agreements
As described in Note 3, the Company has capitalized the minimum lease
payments of the IRU held by GT Landing Corp. on AC-1 assets held in the United
States. The Company has been granted a bargain purchase option to purchase for
$10,000 all rights and title to these assets at any time during the term of
this contract which is 25 years from the AC-1 RFS date. The Company has also
capitalized to construction in progress in the accompanying balance sheets
building and conduit leases in the Netherlands and Germany. As of December 31,
1998, the present value of the payments under these capital leases is $8
million ($12 million as of December 31, 1997).
Contracts to purchase terrestrial capacity have a duration of 25 years which
represents more than 75 percent of the economic life of the asset being
purchased. Certain of these contracts require payments over the 25 year
period. As of December 31, 1998, the present value of the payments under these
contracts (excluding amounts attributable to operations and maintenance) has
been recorded as obligations under ISAs in the accompanying consolidated
balance sheets in the amount of $31 million ($21 million as of December 31,
1997).
F-30
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1998 future minimum payments under these ISAs and capital
leases are as follows:
<TABLE>
<S> <C>
Year Ending December 31, (In thousands)
1999............................................................ $ 18,301
2000............................................................ 13,628
2001............................................................ 5,513
2002............................................................ 5,677
2003............................................................ 5,848
Thereafter until 2023........................................... 163,941
--------------
Total minimum lease payments.................................... 212,908
Less: Amount representing maintenance payments.................. (131,515)
--------------
81,393
Less: Amount representing interest.............................. (42,301)
--------------
Present value of net minimum lease payments..................... $ 39,092
==============
</TABLE>
6. SENIOR NOTES
New Senior Notes
The 9 5/8% senior notes due May 15, 2008 issued by GCH, with a face value of
$800 million ("New Senior Notes"), are general unsecured obligations of GCH
and rank senior to any future subordinated indebtedness of GCH and are equal
in right of payment with any future unsecured senior indebtedness of GCH. GCL
and several of GCH's subsidiaries have issued guarantees in respect of these
New Senior Notes, see Note 14. The first interest payment of $38 million on
the New Senior Notes was paid during November 1998. The Company has set aside
$38 million to fund the second interest payment due May 15, 1999. Interest is
payable semi-annually in arrears on each May 15 and November 15. The New
Senior Notes are redeemable at the option of GCH on May 15, 2003 at 104.813%,
May 15, 2004 at 103.208%, on May 15, 2005 at 101.604% and on May 15, 2006 and
thereafter at par. The New Senior Notes are redeemable at the option of the
holders thereof only upon the occurrence of a change in control in GCL. The
indenture governing the New Senior Notes imposes certain limitations on the
ability of GCH and its subsidiaries to, among other things, (i) incur
additional indebtedness (including senior indebtedness) and (ii) pay certain
dividends and make certain other restricted payments and investments.
Old Senior Notes
The 12% senior notes issued by GTH with a face value of $150 million, due
March 31, 2004, were repurchased in May 1998 with the proceeds from the
issuance of the New Senior Notes. The Company recognized an extraordinary loss
of $20 million on repurchase comprising a premium of approximately $10 million
and a write-off of approximately $10 million of unamortized deferred financing
costs.
7. MANDATORILY REDEEMABLE PREFERRED STOCK
10 1/2% Mandatorily Redeemable Preferred Stock
In December 1998, GCH authorized the issuance of 7,500,000 shares of
preferred stock at a liquidation preference of $100.00 per share plus
accumulated and unpaid dividends. In December 1998, 5,000,000 shares of
F-31
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
GCH Preferred Stock were issued for $500 million in cash and as of December
31, 1998, 5,000,000 shares were issued and outstanding. The Company reserved
for future issuances up to 2,500,000 shares to pay dividends.
The holders of the preferred stock are entitled to receive cumulative, semi-
annual compounding dividends at an annual rate of 10 1/2% of the $100
liquidation preference per share. At the Company's option, accrued dividends
may be paid in cash or paid by issuing additional preferred stock (i.e. pay-
in-kind) until June 1, 2002, at which time they must be paid in cash.
Dividends are payable semi-annually in arrears on each June 1 and December 1.
The preferred stock ranks senior to all common stock of GCH with respect to
dividend rights, rights of redemption or rights on liquidation and on priority
with any future preferred stock of GCH. The preferred stock is junior in right
of payment of all indebtedness of GCH and its subsidiaries. The preferred
stock is non-voting unless the accumulation of unpaid dividends (or if,
beginning on June 1, 2002, such dividends are not paid in cash) on the
outstanding preferred stock is an amount equal to three semi-annual dividend
payments.
The preferred stock has a mandatory redemption on December 1, 2008 at a
price in cash equal to the then effective liquidation preference thereof, plus
all accumulated and unpaid dividends thereon to the date of redemption. The
preferred stock can be redeemed, in whole or in part, at the Company's option
at redemption prices starting at 105.25% of the liquidation preference in
2003, declining to 103.5% in 2004, 101.75% in 2005 and 100% thereafter. During
the period ended December 31, 1998, no dividends were paid and $4 million in
cumulative dividends were accrued and included in preferred stock as of
December 31, 1998.
The certificate of designation governing the preferred stock imposes certain
limitations on the ability of the Company to, among other things, (i) incur
additional indebtedness and (ii) pay certain dividends and make certain other
restricted payments and investments.
14% Mandatorily Redeemable Preferred Stock
In March 1997, GTH authorized 500,000 shares of preferred stock at a
liquidation preference of $1,000 per share. Effective March 25, 1997, 100,000
shares were issued by GTH and there were 109,830 shares as of December 31,
1997 issued and outstanding.
In connection with the issuance of the preferred stock, the holders thereof
purchased an aggregate of 22,500,000 shares of Old GCL's Class A common stock
for total proceeds of $8 million. Additionally, in connection with the
issuance of the preferred stock, the initial purchaser of the preferred stock
received 39,705,900 shares of Old GCL's Class A common stock for no additional
consideration representing 15% of the aggregate number of Old 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 preferred stock.
The fair value of the 39,705,900 shares of Old GCL's Class A common stock
distributed to preferred shareholders was based on the $.33 per share paid by
the holders of preferred stock for the 22,500,000 Old GCL's Class A shares
purchased for cash. The Company recorded the $13 million estimated fair value
of the Old GCL's Class A common stock issued to the purchasers as a discount
in the carrying value of the preferred stock as of December 31, 1997.
F-32
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, proceeds from the issuance of the New Senior Notes were used
to redeem this preferred stock. The redemption resulted in a $34 million
charge against additional paid-in capital comprised of a $16 million
redemption premium and $18 million of unamortized discount and issuance cost
on the preferred stock on the date of the redemption. The redemption premium
and write-off of unamortized discount and issuance costs on the preferred
stock were treated as a deduction to arrive at the net loss applicable to
common shareholders in the consolidated statement of operations.
Preferred stock dividends included the following:
<TABLE>
<CAPTION>
Period from
March 19,
1997 (Date of
Year Ended Inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Preferred stock dividends................. $11,712 $11,112
Amortization of discount on preferred
stock.................................... 618 1,011
Amortization of preferred stock issuance
costs.................................... 351 567
------- -------
$12,681 $12,690
======= =======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
During 1998, the Company adopted a stock option plan under which options to
acquire up to 33,215,730 shares may be granted to directors, officers,
employees and consultants of the Company. The Company accounts for this plan
under APB Opinion No. 25, under which compensation cost is recognized only to
the extent that the market price of the stock exceeds the exercise price.
Terms and conditions of the Company's options, including exercise price and
the period in which options are excisable, generally are at the discretion of
the Compensation and Stock Option Committee of the Board of Directors;
however, no options are exercisable more than ten years after date of grant.
Additional information regarding options granted and outstanding for the
year ended December 31, 1998 is summarized below:
<TABLE>
<CAPTION>
Weighted
Options Average
Available Number of Exercise
For Grant Options Price
----------- ---------- --------
<S> <C> <C> <C>
Balances as of December 31, 1997......... -- -- --
Authorized ............................. 33,215,730
Granted................................. (30,762,466) 30,762,466 $2.85
Exercised............................... (656,688) 1.06
Cancelled............................... 3,253,000 (3,253,000) 1.11
----------- ---------- -----
Options outstanding as of December 31,
1998.................................... 5,706,264 26,852,778 $3.11
</TABLE>
F-33
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize information concerning outstanding and
exercisable options at December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------
Weighted Average Weighted Average Weighted Average
Range of Number Remaining Contractual Exercise Price Number Exercise Price
Exercise Prices Outstanding Life (in years) per Share Exercisable per Share
---------------- ----------- --------------------- ---------------- ----------- ----------------
$0.83 15,717,280 9.2 $ 0.83 4,803,833 $ 0.83
2.00 to 3.33 6,844,598 9.5 3.13 1,625,000 3.33
9.50 to 13.26 4,290,900 9.7 11.44 302,834 11.34
---------------- ----------- --------------------- ---------------- ----------- ----------------
Total 26,852,778 9.3 $ 3.11 6,731,667 $ 1.91
=========== ===================== ================ =========== ================
</TABLE>
During 1998, the Company entered into an employment arrangement with a key
executive, and granted him economic rights to purchase 533,334 shares of
common stock and options to purchase 1,066,667 shares of common stock, in each
case at $2.00 per share. The economic rights vested immediately and the
options will vest over two years. The Company recorded the excess of the fair
market value of these options and rights over the purchase price as unearned
stock compensation in the amount of $15 million during the year ended December
31, 1998. The unearned compensation is being recognized as an expense over the
vesting period of the rights and options.
Through December 31, 1998, the Company recorded in additional paid-in
capital $94 million of unearned compensation, relating to awards under the
stock incentive plan plus the grant of certain economic rights and options to
purchase common stock granted to a senior executive as discussed above. During
the year the Company recognized expense of $31 million of stock related
compensation relating to the stock incentive plan and $6 million for the
vested economic rights to purchase common stock. The remaining $57 million of
unearned compensation will be recognized as follows: $28 million in 1999, $21
million in 2000 and $8 million in 2001. In addition, the Company recognized $2
million in stock related expense for shares issued during the year.
As permitted by SFAS No. 123, the Company accounted for employee stock
options under APB 25 and is recognizing compensation expense over the vesting
period to the extent that the fair value of the stock on the date the options
were granted exceeded the exercise price. Had compensation cost for the
Company's stock-based compensation plans been determined consistent with the
SFAS No. 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>
Period from
March 19, 1997
Year Ended (Date of Inception) to
December 31, 1998 December 31, 1997
----------------- ----------------------
(In thousands, except per
share information)
<S> <C> <C>
Net loss applicable to common
shareholders:
As reported.................. $(134,724) $(12,850)
Pro forma.................... $(141,585) $(12,850)
Basic and diluted net loss per
share:
As reported.................. $(0.38) $(0.04)
Pro forma.................... $(0.39) $(0.04)
</TABLE>
F-34
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under SFAS No. 123, the fair value of each option is estimated on the date
of grant using the Black-Scholes option-pricing model assuming a four year
expected life with the following assumption:
<TABLE>
<CAPTION>
Weighted
Expected Expected Risk Free Average Estimated
Date Granted Dividend Yield Volatility Interest Rate Fair Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
January 21 * 0% 0% 5.45% $0.16
April 03 * 0% 0% 5.45% 3.77
June 12 * 0% 0% 5.45% 4.92
August 09 0% 32% 5.45% 3.19
September 14 0% 32% 5.45% 9.51
September 18 0% 32% 5.45% 3.44
December 01 0% 42% 5.45% 9.77
</TABLE>
- -------------------------------------------------------------------------------
* Option granted prior to the Company's IPO
During 1998, the weighted average fair value of options issued at market value
was $0.88 and those issued less than market value was $5.33.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion the existing models do not necessarily
provide a reliable single measure of the fair value of the Company's options.
401(k) Plan
The Company offers its qualified employees the opportunity to participate in
a defined contribution retirement plan qualifying under the provisions of
Section 401(k) of the Internal Revenue Code. Each eligible employee may
contribute on a tax-deferred basis a portion of their annual earnings not to
exceed certain limits. The Company matches one-half of individual employee
contributions up to a maximum level not exceeding 7.5% of the employee's
compensation. The Company's contributions to the plan vest immediately.
Expenses recorded by the Company relating to its 401(k) plan were
approximately $0.2 million for the year ended December 31, 1998, the first
year of the 401(k) plan.
F-35
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, restricted cash and cash
equivalents, accounts receivable, accrued construction costs, accounts payable
and accrued liabilities, accrued interest, obligations under inland services
agreements and capital leases and long term debt approximate their fair value.
The fair value of the senior notes, mandatorily redeemable preferred stock and
the interest rate swap are based on market quotes and the fair values are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
(In thousands) (In thousands) ---
<S> <C> <C> <C> <C> <C>
Senior notes............ $(796,495) $(834,000) $(150,000) $(150,000)
Mandatorily redeemable
preferred stock........ (487,375) (484,375) (91,925) (91,925)
Interest rate swap...... -- (26) -- (115)
</TABLE>
10. RELATED PARTY TRANSACTIONS
Advisory Services Agreement ("ASA")
ACL entered into the ASA with PCG Telecom, an affiliate of PCG which is a
shareholder of GCL. Under the ASA, PCG Telecom provided ACL with advice in
respect of the development and maintenance of AC-1, development and
implementation of marketing and pricing strategies and the preparation of
business plans and budgets. As compensation for its advisory services, PCG
Telecom received a 2% fee on the gross revenues of the Company over a 25 year
term, subject to certain restrictions, with the first such payment to occur at
the AC-1 RFS date. Advances on fees payable under the ASA were being paid to
PCG Telecom at a rate of 1% on signed CPAs until the ASA was terminated, as
described below. Fees paid under the ASA to PCG Telecom were shared amongst
Union Labor Life Insurance Company ("ULLICO"), PCG, CIBC, and Messrs. Winnick,
Cook, Brown, Lee and Porter, all of whom are shareholders of GCL. Effective
June 1998, GCL acquired the rights under the ASA for common stock and
contributed such rights to the Company as the ASA was terminated. This
transaction was recorded in the consolidated financial statements as an
increase in additional paid-in capital of $135 million and a charge against
operations in the amount of $138 million. The $138 million is comprised of a
$135 million settlement of the fees that would have been payable and the
cancellation of $3 million owed to the Company under a related advance
agreement. The $135 million amount was calculated by applying the 2% advisory
services fee to projected future revenues and discounting the amount relating
to AC-1 revenues by 12% and the amount relating to all other system's revenues
by 15%. The result of this calculation was $156 million, which amount was
subsequently reduced to $135 million. Both the discount rates and the ultimate
valuation were determined as a result of a negotiation process including a non
management director of the Company and the various persons entitled to fees
under the ASA. The Company obtained a fairness opinion from an independent
financial advisor in connection with this transaction. In addition, the
Company incurred approximately $2 million of advisory fees prior to
termination of the contract, for a total expense of $140 million for the year
ended December 31, 1998.
PCG Warrants
Prior to January 21, 1998, PCG and its affiliates began development of
systems other than AC-1, namely PC-1, MAC and PAC. Through January 21, 1998,
such development included assembling a management team, negotiating with
potential suppliers, partners, financing sources, obtaining preliminary market
and feasibility studies and developing technical requirements. During January
1998, the Board determined that it was in the Company's best interests to
pursue these new systems, obtain the results of the work and the employees
then
F-36
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
within the scope of activity of PCG and broaden the goals, objectives and
business plan of the Company. In consideration of PCG transferring the results
of its activities and becoming limited in its future activities in fiber optic
telecommunications other than through GCL, the Board approved and the
shareholders subsequently ratified a transaction whereby PCG received
approximately $7 million (representing PCG's costs related thereto) and Old
GCL entered into a warrant agreement ("PCG Warrants") under which PCG was
issued three separate warrants permitting PCG to purchase (i) 18,453,184 of
Old GCL's Class B shares for an aggregate price of $50 million; (ii) an
additional 9,226,594 of Old GCL's Class B shares for an aggregate price of $31
million; and (iii) an additional 9,226,594 of Old GCL's Class B shares for an
aggregate price of $38 million. The PCG Warrants were granted in exchange for
the rights to commence the development of the new projects that previously had
been under development by an affiliate of PCG.
PCG Warrants became exercisable upon the completion of the IPO. The PCG
Warrants 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 36,906,372 shares available under the PCG Warrants, together
with a new warrant ("New PCG Warrants") to purchase the remaining fraction of
such Class B share at an exercise price equal to the then current per share
valuation. Prior to the IPO, the holders of the PCG Warrants exercised their
warrants to acquire Class B shares by way of the cashless conversion and the
New PCG Warrants were issued with an exercise price based on the per share
valuation at the conversion date.
The Company accounted for the cashless conversion of the PCG Warrants, which
occurred as of June 1998, using the current estimated per share valuation at
the expected conversion date, multiplied by the number of Class B shares
estimated to be converted in exchange for the PCG Warrants. The resulting
value under this calculation is approximately $213 million, which was
allocated to the new systems in exchange for the PCG Warrants. In connection
with the formation of PCL, the Company agreed to make available to PCL the
consideration received by the Company in connection with the grant of the PCG
Warrants, in addition to the $231 million cash investment made by the Company.
Therefore, the Company recorded an increase in its investment in PCL in the
amount of approximately $127 million and an increase in construction in
progress for PAC and MAC in the amounts of approximately $50 million and $36
million, respectively, with a corresponding increase of $213 million in
additional paid-in capital. The $213 million was allocated on a pro rata basis
to the three projects according to the estimated cost of each system. The
Company's accounting for the PCG Warrants is pursuant to Emerging Issues Task
Force 96-18, "Accounting for Equity Instruments with Variable Terms that are
Issued for Consideration other than Employee Services under FASB Statement No.
123" ("EITF 96-18"). Under EITF 96-18, the fair value of equity instruments
issued for consideration other than employee services should be measured using
the stock price or other measurement assumptions as of the date at which a
firm commitment for performance level has been reached. The Company has
recorded the estimated value of the PCG Warrants as of June 1998, since the
IPO was probable at that date. The $213 million value attributed to the PCG
Warrants as of June 1998 was adjusted to the actual value of $275 million on
the date of the IPO based upon the $9.50 price per share of the IPO.
The Company gave accounting recognition for the New PCG Warrants on the date
these warrants were issued, which was the date of the IPO. The Company valued
each of the New PCG Warrants at $3.48 based on an independent valuation based
on the IPO price of $9.50 per share. The New PCG Warrants had a total value of
approximately $43 million. The Company recorded the actual value of the New
PCG Warrants in a manner similar to that described above whereby the total
value was allocated to the investment in PC-1, MAC and PAC based on their
relative total contract costs.
F-37
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other transactions
In 1998, an affiliate of CIBC was one of the initial purchasers of the New
Senior Notes and preferred stock, a member of the PC-1 and MAC credit facility
syndicates, and was also one of the underwriters of the IPO. CIBC and its
affiliates were paid $19 million in fees and credit facility interest during
the year ended December 31, 1998. In 1997, GCL paid an affiliate of CIBC
approximately $25 million in fees related to the financing obtained under the
Old Senior Notes, the AC-1 Credit Facility, and the issuance of the GCH
Preferred Stock. Of the fees incurred, approximately $6 million related to
underwriting and commitment fees pertaining to the issuance of the GTH
Preferred Stock and was recorded as a reduction in the carrying value of the
GTH Preferred Stock, approximately $9 million related to underwriting,
commitment and advisory fees in connection with the issuance of the Old Senior
Notes and approximately $10 million related to fees associated with obtaining
the AC-1 Credit Facility which was recorded as deferred finance costs.
In 1998, the Company signed a CPA with Worldport Communications, Inc.
("Worldport"), to acquire capacity on AC-1. Certain officers and directors of
the Company have direct or indirect equity ownership positions in Worldport,
aggregating less than 10% of the current common stock of Worldport. 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.
The Company recognized $8 million in revenue from their CPAs with the
remaining $50 million to be recognized in future periods.
In 1998, GCL purchased all common shares owned by Telecommunications
Development Corporation ("TDC") in the Company in exchange for 300,000 fewer
newly issued shares of common stock based upon the per share value at the
repurchase date. The transaction benefited GCL since 300,000 fewer shares were
outstanding after the repurchase without any cost to GCL. This transaction was
accounted for as the acquisition of treasury stock and was recorded as $209
million, the fair value of the consideration given. Certain officers and
directors of the Company, held direct or indirect equity ownership positions
in TDC, resulting in these officers and directors having a majority of the
outstanding common stock of TDC. Following this transaction, TDC distributed
all of its shares of common stock and GCL warrants to the holders of its
common stock and was then liquidated.
In 1997, the Company paid $7 million in fees to PCG and certain of its key
executives, who are shareholders of GCL, and another shareholder for services
provided in respect of obtaining the AC-1 Credit Facility, Old Senior Notes
and the GTH Preferred Stock financing. Of the fees paid, $5 million was
allocated to the AC-1 Credit Facility and Old Senior Notes and recorded as
deferred finance costs, $1 million was allocated to the GCH Preferred Stock
and recorded as a reduction in the carrying value of the preferred stock and
$1 million was recorded as common stock issuance costs.
11. TAXES
The Company accounts for income taxes in accordance with Statement of
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended (Date of Inception) to
December 31, 1998 December 31, 1997
----------------- ----------------------
(In thousands)
<S> <C> <C>
Current............................. $23,413 $ --
Deferred............................ 9,654 --
------- -------
Total income tax expense............ $33,067 $ --
======= =======
</TABLE>
F-38
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
Bermuda does not impose a statutory income tax and consequently the
provision for income taxes recorded relates to income earned by certain
subsidiaries of the Company which are located in jurisdictions which impose
income taxes.
Since the Company did not recognize any income for the period March 19, 1997
(Date of Inception) to December 31, 1997, no tax provision was reflected in
earlier periods.
The following is a summary of the significant items giving rise to
components of the Company's deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
------------------- -------------------
Assets Liabilities Assets Liabilities
------- ----------- ------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenue recognition..................... $ -- $ 6,116 $ -- $ --
Fixed assets............................ -- 4,042 -- --
Stock related compensation.............. 504 -- -- --
------- ------- ------- -------
$ 504 $10,158 $ -- $ --
======= ======= ======= =======
</TABLE>
12. COMMITMENTS
As of December 31, 1998, ACL was committed under contracts with TSSL for
remaining construction costs of AC-1 and its upgrades totaling approximately
$75 million and is committed under the OA&M contract with TSSL to quarterly
payments, over the next eight years, totaling approximately $247 million which
will be borne by the Company's customers.
ACL is committed to paying TSSL commissions ranging from 3% to 7% on
revenues received until 2002, subject to certain reductions. The Company also
has a commission sharing agreement with TSSL whereby GCL has primary
responsibility for the marketing and sale of capacity of AC-1 and PC-1 and
will share a percentage of commissions payable to TSSL as consideration for
assuming primary responsibility for the sales effort and marketing of the
Company's projects. The SAA with TSSL will terminate in March 2002 with an
option by the Company to extend it until March 2005.
As of December 31, 1998, MACL was committed under its contracts with Alcatel
Submarine Networks and TSSL for future construction costs totaling
approximately $204 million and as of December 31, 1998 and PACL was committed
under its contract with TSSL for future construction costs totaling
approximately $218 million.
GCL and its subsidiaries have commitments under various operating leases.
Estimated future minimum lease payments on operating leases are approximately
as follows:
<TABLE>
<CAPTION>
Year Ending December 31, (In thousands)
<S> <C>
1999..................................................... $ 4,137
2000..................................................... 4,261
2001..................................................... 3,897
2002..................................................... 3,581
2003..................................................... 3,380
Thereafter............................................... 19,911
-------
Total................................................. $39,167
=======
</TABLE>
F-39
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's unaudited quarterly results are as follows:
<TABLE>
<CAPTION>
1998 Quarter Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31
------------------- ---------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 101,256 $117,693 $205,150
Operating income
(loss)................. (3,794) (123,649) 31,994 75,724
Income (loss) before
extraordinary loss..... (3,722) (135,725) 15,229 56,024
Net income (loss)....... (3,722) (155,434) 15,229 56,024
Net income (loss)
applicable to common
shareholders........... $ (8,129) $ (193,473) $ 15,229 $ 51,649
======== ========== ======== ========
Income (loss) per common
share before
extraordinary item,
basic.................. $ (0.02) $ (0.52) $ 0.04 $ 0.13
======== ========== ======== ========
Net income (loss) per
common share, basic.... $ (0.02) $ (0.58) $ 0.04 $ 0.13
======== ========== ======== ========
Income (loss) per common
share before
extraordinary item,
diluted................ $ (0.02) $ (0.52) $ 0.04 $ 0.12
======== ========== ======== ========
Net income (loss) per
common share, diluted.. $ (0.02) $ (0.58) $ 0.04 $ 0.12
======== ========== ======== ========
<CAPTION>
Period from
March 19, 1997 1997 Quarter Ended
(Date of Inception) ----------------------------------------
to March 31, 1997 June 30 September 30 December 31
------------------- ---------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ --
Operating loss.......... -- (142) (669) (2,290)
Income (loss) before
extraordinary loss..... -- 1,205 485 (1,850)
Net income (loss)....... -- 1,205 485 (1,850)
Net loss applicable to
common shareholders.... $ (195) $ (2,836) $ (3,692) $ (6,127)
======== ========== ======== ========
Net loss per common
share, basic and
diluted................ $ -- $ (0.01) $ (0.01) $ (0.02)
======== ========== ======== ========
</TABLE>
F-40
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. SUMMARIZED FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND
NON-GUARANTOR SUBSIDIARIES
As described in Note 1, because Old GCL, GCL and GCH were entities under
common control, the transfers by Old GCL to GCL and GCL to GCH and the Old GCL
Exchange were accounted for similar to a pooling of interests. Old GCL, GCL
and GTH each provide a guarantee of the New Senior Notes described in Note 6.
Additionally, Global Crossing International, Inc. ("GCI"), a wholly owned
subsidiary of GCH that provides marketing and development services to GCL,
along with its wholly owned subsidiaries, also provide guarantees of the New
Senior Notes. All guarantees are full, unconditional, joint and several. To
the extent companies providing a guarantee have excess cash, dividends or
loans of this cash can be made to GCH without restriction. Two of the
Company's non-guarantor subsidiaries are restricted under long term debt
agreements from making any dividends or loans to GCH effectively for the
duration of such long term debt agreements. Separate financial statements of
each subsidiary guarantor have not been provided because they would not be
meaningful to investors. As of and for the year ended December 31, 1998, the
Company has not included summarized financial information with respect to Old
GCL as it was no longer an entity under common control with the Company and
its subsidiaries.
<TABLE>
<CAPTION>
Elimination
(In thousands) GCL GCH Guarantors Non-guarantors Entries Consolidated
- ------------------------ -------- ---------- ---------- -------------- ----------- ------------
Balance Sheet as of
December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 5,270 $ 828,279 $ 17,266 $ 156,431 $ (5,131) $1,002,115
Restricted cash and cash
equivalents............ -- -- 3,590 364,010 -- 367,600
Accounts receivable,
net.................... -- -- -- 43,315 -- 43,315
Capacity available for
sale................... -- 6,175 11,771 556,903 -- 574,849
Construction in
progress............... -- 2,139 3,134 423,889 (955) 428,207
Deferred finance and
organization costs,
net.................... -- 30,922 -- 17,434 (2,599) 45,757
Investments in and
advances to
subsidiaries........... 772,685 1,211,795 460,728 372,104 (2,817,312) --
Investment in
affiliates............. -- -- -- 177,334 -- 177,334
-------- ---------- -------- ---------- ----------- ----------
Total assets............ $777,955 $2,079,310 $496,489 $2,111,420 $(2,825,997) $2,639,177
======== ========== ======== ========== =========== ==========
Current liabilities..... $ 3,635 $ 11,760 $ 5,965 $ 224,730 $ 5,800 $ 251,890
Long term debt.......... -- -- -- 269,598 -- 269,598
Senior notes............ -- 796,495 -- -- -- 796,495
Deferred revenue........ -- -- -- 25,325 -- 25,325
Obligations under inland
services agreements and
capital leases......... -- -- -- 24,520 -- 24,520
Deferred income taxes... -- -- -- 9,654 -- 9,654
Mandatorily redeemable
preferred stock........ -- 487,375 -- -- -- 487,375
Shareholders' equity.... 774,320 783,680 490,524 1,557,593 (2,831,797) 774,320
-------- ---------- -------- ---------- ----------- ----------
Total liabilities and
shareholders' equity... $777,955 $2,079,310 $496,489 $2,111,420 $(2,825,997) $2,639,177
======== ========== ======== ========== =========== ==========
- -------------------------------------------------------------------------------------------------
</TABLE>
F-41
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Elimination
(In thousands) GCL GCH Guarantors Non-guarantors Entries Consolidated
- ----------------------- --------- -------- ---------- -------------- ----------- ------------
Statement of Operations
For the Year Ended
December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Revenues............... $ -- $ 45 $ 14,004 $423,356 $ (13,306) $ 424,099
--------- -------- --------- -------- --------- ---------
Cost of capacity sold.. -- 552 3,110 174,830 -- 178,492
Operations,
administration and
maintenance........... -- -- -- 18,056 -- 18,056
Termination of Advisory
Services Agreement.... -- 82,194 -- 57,475 -- 139,669
Stock related expense.. 29,033 59 4,851 2,179 3,252 39,374
Selling, general and
administrative........ 11,126 1,161 18,169 40,810 (3,033) 68,233
--------- -------- --------- -------- --------- ---------
40,159 83,966 26,130 293,350 219 443,824
--------- -------- --------- -------- --------- ---------
Operating income
(loss)................ (40,159) (83,921) (12,126) 130,006 (13,525) (19,725)
Other income (expense),
net................... 1,371 (16,834) (6,723) 7,743 (959) (15,402)
Provision for income
taxes................. -- -- (1,132) (31,935) -- (33,067)
Extraordinary loss on
retirement of senior
notes................. -- (9,750) (9,959) -- -- (19,709)
--------- -------- --------- -------- --------- ---------
Net income (loss)
before equity income
(loss) of
subsidiaries.......... (38,788) (110,505) (29,940) 105,814 (14,484) (87,903)
Equity in income (loss)
of subsidiaries....... (49,115) 61,390 107,389 -- (119,664) --
--------- -------- --------- -------- --------- ---------
Net income (loss)...... (87,903) (49,115) 77,449 105,814 (134,148) (87,903)
Preferred stock
dividends............. -- (12,681) -- -- -- (12,681)
Redemption of preferred
stock................. -- -- (34,140) -- -- (34,140)
--------- -------- --------- -------- --------- ---------
Net income (loss)
applicable to common
shareholders $ (87,903) $(61,796) $ 43,309 $105,814 $(134,148) $(134,724)
========= ======== ========= ======== ========= =========
<CAPTION>
Elimination GCL
(In thousands) GCL GCH Guarantors Non-guarantors Entries Consolidated
- ----------------------- --------- -------- ---------- -------------- ----------- ------------
Statement of Cash Flow
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1998
Cash flows from
operating activities.. $ (22) $(19,991) $ (19,159) $247,125 $ 774 $ 208,727
--------- -------- --------- -------- --------- ---------
Cash flows from
financing activities:
Finance and
organization costs
incurred............. -- (32,232) -- (5,433) -- (37,665)
Investment in and
advances from (to)
subsidiaries......... (382,063) (224,765) 150,815 471,710 (15,697) --
Proceeds from issuance
of common stock,
net.................. 392,298 12 24 96 (132) 392,298
Proceeds from issuance
of preferred stock,
net.................. -- 483,000 -- -- -- 483,000
Cash reimbursement to
certain
shareholders......... (7,047) -- -- -- -- (7,047)
Redemption of
preferred stock...... -- -- (134,372) -- -- (134,372)
Proceeds from long
term debt............ -- -- -- 290,556 -- 290,556
Repayment of long term
debt................. -- -- -- (176,890) -- (176,890)
Proceeds from issuance
of senior notes...... -- 796,495 -- -- -- 796,495
Retirement of senior
notes................ -- (159,750) -- -- -- (159,750)
Repayment of debt..... -- (15,055) -- -- 15,055 --
(Increase) decrease in
restricted cash and
cash equivalents,
current and long
term................. -- (37,861) 16,242 (397,896) -- (419,515)
--------- -------- --------- -------- --------- ---------
Net cash provided by
financing
activities.......... 3,188 809,844 32,709 182,143 (774) 1,027,110
--------- -------- --------- -------- --------- ---------
Cash flows from
investing activities:
Cash paid for
construction in
progress and capacity
available for sale .. -- -- (7,205) (406,791) -- (413,996)
Investment in
affiliates........... -- -- -- (16,701) -- (16,701)
--------- -------- --------- -------- --------- ---------
Net cash used in
investing
activities.......... -- -- (7,205) (423,492) -- (430,697)
--------- -------- --------- -------- --------- ---------
Net increase in cash
and cash equivalents.. 3,166 789,853 6,345 5,776 -- 805,140
Cash and cash
equivalents, beginning
of year............... -- -- 1,299 154 -- 1,453
--------- -------- --------- -------- --------- ---------
Cash and cash
equivalents, end of
year.................. $ 3,166 $789,853 $ 7,644 $ 5,930 $ -- $ 806,593
========= ======== ========= ======== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
F-42
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Old Non- Elimination
(In thousands) GCL GCL GCH Guarantors Guarantors Entries Consolidated
- ----------------------- -------- -------- -------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet as of
December 31, 1997
Current assets......... $ 33 $ 12 $ 12 $ 21,307 $ 6,597 $ (217) $ 27,744
Capacity available for
sale.................. -- -- -- 21,200 -- 21,200
Construction in
progress.............. -- -- -- 9,014 488,305 -- 497,319
Investments in and
advances to
subsidiaries.......... 73,964 73,952 73,940 276,897 -- (498,753) --
Deferred finance and
organization costs,
net................... 208 -- 169 10,619 15,107 (169) 25,934
-------- -------- -------- --------- -------- --------- ---------
Total assets........... $ 74,205 $ 73,964 $ 74,121 $ 317,837 $531,209 $(499,139) $ 572,197
======== ======== ======== ========= ======== ========= =========
Current liabilities.... $ 72 $ -- $ -- $ 1,972 $ 88,978 $ (205) $ 90,817
Long term debt......... -- -- -- -- 162,325 -- 162,325
Senior notes........... -- -- -- 150,000 -- -- 150,000
Obligations under
inland service
agreements and capital
leases................ -- -- -- -- 3,009 -- 3,009
Mandatorily redeemable
preferred stock....... -- -- -- 91,925 -- -- 91,925
Shareholders' equity... 74,133 73,964 74,121 73,940 276,897 (498,934) 74,121
-------- -------- -------- --------- -------- --------- ---------
Total liabilities and
shareholders' equity.. $ 74,205 $ 73,964 $ 74,121 $ 317,837 $531,209 $(499,139) $ 572,197
======== ======== ======== ========= ======== ========= =========
Statement of Operation
Period from March 19,
1997 (Date of
Inception) to December
31, 1997
Interest income........ $ -- $ -- $ -- $ 556 $ 2,385 $ -- $ 2,941
Selling, general and
administrative........ 42 -- -- 200 2,859 -- 3,101
-------- -------- -------- --------- -------- --------- ---------
Net income (loss)
before equity income
(loss) of
subsidiaries.......... (42) -- -- 356 (474) -- (160)
Equity in loss of
subsidiaries.......... (118) (118) (118) (474) -- 828 --
-------- -------- -------- --------- -------- --------- ---------
Net loss............... (160) (118) (118) (118) (474) 828 (160)
Preferred stock
dividends............. -- -- -- (12,690) -- -- (12,690)
-------- -------- -------- --------- -------- --------- ---------
Net loss applicable to
common shareholders... $ (160) $ (118) $ (118) $ (12,808) $ (474) $ 828 $ (12,850)
======== ======== ======== ========= ======== ========= =========
<CAPTION>
Old Non- Elimination
(In thousands) GCL GCL GCH Guarantors Guarantors Entries Consolidated
- ----------------------- -------- -------- -------- ---------- ---------- ----------- ------------
Statement of Cash Flows
For the Period from
March 19, 1997
(Date of Inception) to
December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities.. $ -- $ -- $ -- $ 528 $ 4,593 $ -- $ 5,121
-------- -------- -------- --------- -------- --------- ---------
Cash flows provided by
financing activities:
Finance and
organization costs
incurred............. -- -- -- (16,456) (11,725) -- (28,181)
Investment in and
advances to
subsidiaries......... (75,000) (75,000) (75,000) (272,468) -- 497,468 --
Proceeds from issuance
of common stock and
additional paid-in
capital.............. 75,000 75,000 75,000 73,736 272,468 (497,468) 73,736
Proceeds from issuance
of preferred stock... -- -- -- 92,470 -- -- 92,470
Proceeds from long
term debt............ -- -- -- -- 162,325 -- 162,325
Proceeds from issuance
of senior notes...... -- -- -- 150,000 -- -- 150,000
Increase in restricted
cash and cash
equivalents, current
and long term ....... -- -- -- (19,851) (5,424) -- (25,275)
-------- -------- -------- --------- -------- --------- ---------
Net cash provided by
financing
activities.......... -- -- -- 7,431 417,644 -- 425,075
-------- -------- -------- --------- -------- --------- ---------
Cash flows from
investing activities:
Cash paid for
construction in
progress and capacity
available for sale... -- -- -- (6,660) (422,083) -- (428,743)
-------- -------- -------- --------- -------- --------- ---------
Net cash used in
investing
activities.......... -- -- -- (6,660) (422,083) -- (428,743)
-------- -------- -------- --------- -------- --------- ---------
Net increase in cash
and cash equivalents.. -- -- -- 1,299 154 -- 1,453
Cash and cash
equivalents, beginning
of period............. -- -- -- -- -- -- --
-------- -------- -------- --------- -------- --------- ---------
Cash and cash
equivalents, end of
period................ $ -- $ -- $ -- $ 1,299 $ 154 $ -- $ 1,453
======== ======== ======== ========= ======== ========= =========
</TABLE>
F-43
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. OLD GCL COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Information with respect to Old GCL common stock and additional paid-in
capital prior to the Old GCL Exchange is as follows:
Common Stock:
Authorized:
1,000,000,000 Class A common stock of $.00000067 par value
1,000,000,000 Class B common stock of $.00000067 par value
1,000,000,000 Class C common stock of $.00000067 par value
3,000,000,000 Class D common stock of $.00000067 par value
1,000,000,000 Class E common stock of $.00000067 par value
43,000,000,000 undesignated common stock of $.00000067 par value
As discussed in Note 1, in January 1998, Old GCL effected a 100 for 1 stock
split of each of the Class A, B, C and D common stock and undesignated stock
and amended the par value of each share of common stock from $.0001 per share
to $.000001 per share. Shares of common stock of Old GCL outstanding have been
retroactively restated to reflect the equivalent number of shares of GCL that
were issued in the Old GCL Exchange as discussed in Note 1. Class A shares,
Class B shares and Class C shares all had voting rights. On March 25, 1997,
Old GCL issued 22,500,000 Class A shares, 101,250,000 Class B shares,
101,250,000 Class C shares for $.33 per share, resulting in aggregate proceeds
of $75 million. In addition to the 22,500,000 Class A shares issued to the
preference shareholders for cash in connection with the issuance of the
preference shares, a total of 39,705,900 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 92,880 shares of common stock of Old GCL were issued into escrow
for the benefit of the holders of preferred stock. Effective January 21, 1998,
Old GCL authorized 1,000,000,000 new Class E non-voting shares.
Certain of the Class B shareholders were issued a total of 66,176,400 Class
D shares on March 25, 1997. Of the $34 million of proceeds received from the
issuance of Class B shares, $3 million 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 were non-voting shares which carried
special preference rights on the cash distributions made by Old GCL. Class D
shareholders were to receive 10% of cash distributions to common shareholders
once the internal rate of return to Class C shareholders exceeded 10%, and
then increasing to 20% of cash distributions to common shareholders once the
internal rate of return to Class C shareholders exceeded 30%. Effective
January 1998, Class D share rights were amended such that Class D shareholders
received the option to convert each Class D share into one Class E share upon
payment to Old GCL of $.74 per share or to a fraction of a Class E share based
upon a valuation at the time of such conversion, together with a warrant to
purchase the remaining fraction of such Class E share at an exercise price
based upon such market valuation. By granting to holders of the Class D shares
an option to convert such shares into Class E shares, the Company obtained
effective assurance that it could effect a change to a corporate structure in
the event of a major equity event, such as a merger or other business
combination or in the event of an IPO by GCL, of its common stock, since the
holders of the Class D shares would need to exercise their options in order to
participate directly in benefits of a merger or acquisition of the Company or
in order to obtain the benefits of any trading market for the common stock of
the Company; no trading market was expected to develop for the Class D shares.
The grant of the options to Class D shareholders represents an equity
transaction since the Company granted these shareholders amended share rights
in the form of options with new warrants. Since the Company had an accumulated
deficit, the charge
F-44
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
(Formerly Global Crossing Ltd., LDC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
was made against additional paid in capital, which had no impact on the
consolidated financial statements. The Company accounted for the new warrants
as an equity transaction on the date the warrants were issued, which was the
IPO date of August 13, 1998.
In 1998, the Company issued, at a price of $0.33 per share, 900,000 Class B
shares and 675,000 Class E shares. Since the estimated fair value of shares
exceeded the issue price, the Company increased stock related expense and
shareholders' equity by $2 million in 1998.
16. SUBSEQUENT EVENTS
Lucent Agreement
On January 26, 1999, GCL signed a technology agreement with Lucent
Technologies Inc. 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 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 consolidated
financial statements gives retroactive effect to this transaction.
South American Crossing
On March 11, 1999, GCL announced plans for the development of South American
Crossing ("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. GCL
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 Acquisition
On March 16, 1999, GCL 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 GCL or of a new
parent holding company of GCL. 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 GCL 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.
F-45
<PAGE>
Atlantic Crossing-2
On March 24, 1999, GCL announced its intention to develop and construct
Atlantic Crossing-2 ("AC-2"), an additional eight fiber pair cable connecting
the United States to Europe. AC-2 will be integrated with the two 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.
Global Marine Acquisition
On April 26, 1999, Global Crossing announced a definitive agreement to
acquire the Global Marine business of Cable & Wireless plc in a transaction
valued at approximately $870 million, consisting of a combination of cash and
assumed indebtedness. Global Marine is an undersea cable installation and
maintenance company. Global Crossing intends to finance the acquisition with
committed bank financing and cash on hand. The transaction was completed on
July 2, 1999. The Company expects the acquisition to be accounted for using
the purchase method of accounting.
U S WEST Merger Agreement
On May 16, 1999, the Company entered into a definitive agreement and plan of
merger with U S WEST, Inc., a Delaware corporation (U S WEST). The new company
will be 50% owned by Global Crossing/Frontier shareholders and 50% owned by
U S WEST shareholders. U S WEST provides a full range of telecommunications
services,--including wireline, wireless PCS, data networking, directory and
information services--to more than 25 million customers nationally and in 14
western and midwestern states. The board of directors of each company has
approved the merger. The transaction is subject to approval by the
shareholders of each company 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.
Senior Secured Credit Facility
On July 2, 1999, GCH entered into a $3 billion Senior Secured Credit
Facility. The structure of the Senior Secured Credit Facility is comprised of
a $1 billion 5-year Revolving Credit Facility with an initial interest rate of
LIBOR plus 2.25%, a $1 billion 5-year Multi-Draw Term Loan A with an initial
interest rate of LIBOR plus 2.25% and a $1 billion 8-year Term Loan B with an
initial interest rate of LIBOR plus 2.75%. The initial commitment fee on
undrawn funds is 0.75%. The purpose of the Senior Secured Credit Facility is
to finance or refinance construction of certain Global Crossing cable systems
previously anticipated to be financed on a per-system basis, to fund future
growth of Global Crossing and for general corporate purposes. In connection
with the transaction, the Senior Secured Credit Facility became structurally
senior to the Senior Notes for a consent fee paid directly to the Senior Note
holders of approximately $32 million.
On July 7, 1999, GCH borrowed approximately $1.5 billion ($1.0 billion under
the 8-year Term Loan B and $500 million under the 5-year Multi-Draw Term Loan
A) sufficient to retire the outstanding obligations under the AC-1 Credit
Facility, the MAC Credit Facility and financing provided under the Lucent
Agreement relating to the PEC and SAC system, partially finance the Global
Marine Acquisition as well as providing for current working capital
requirements.
F-46
<PAGE>
Report of the Auditors
To the Directors of Cable & Wireless Marine Limited
We have audited the accompanying combined balance sheets of Cable & Wireless
Global Marine at 31 March 1999 and 31 March 1998, and the related combined
profit and loss accounts, reconciliations of movements in net assets and cash
flow statements for each of the years in the three-year period ended 31 March
1999. These combined financial statements are the responsibility of the
management of Cable & Wireless Global Marine. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom, which are substantially consistent with those
of the United States of America. Those standards require that we plan and
perform the audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Cable & Wireless
Global Marine at 31 March 1999 and 31 March 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended 31 March 1999, in conformity with generally accepted accounting
principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States would have affected net income for the two years
ended 31 March 1999 and net assets at 31 March 1999 and 31 March 1998, to the
extent summarised in Note 27 to the combined financial statements.
/s/ KPMG Audit Plc
Chartered Accountants
Registered Auditor
Ipswich, England
26 May 1999
F-47
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED PROFIT AND LOSS ACCOUNT
for the years ended 31 March
<TABLE>
<CAPTION>
Note 1999 1998 1997
---- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Turnover: group and share of joint
ventures......................... 221,092 193,495 202,895
Less: share of joint ventures'
turnover......................... (11,095) (22,542) (20,908)
-------- -------- --------
Group turnover.................... 2 209,997 170,953 181,987
Operating costs................... 3 (162,600) (148,689) (151,042)
-------- -------- --------
Group operating profit............ 47,397 22,264 30,945
Share of operating profit in joint
ventures......................... 3,994 3,165 3,421
-------- -------- --------
51,391 25,429 34,366
(Loss)/profit on sale of fixed
assets........................... (61) 733 27
Profit on disposal of joint
venture.......................... -- 812 --
Interest receivable and similar
income........................... 6 2,293 886 979
Interest payable and similar
charges--group................... 7 (6,757) (3,905) (6,119)
Interest payable and similar
charges--joint ventures.......... (1,133) (808) (2,249)
-------- -------- --------
Profit on ordinary activities
before taxation.................. 2-5 45,733 23,147 27,004
Tax on profit on ordinary
activities....................... 8 (14,292) (8,487) (83)
-------- -------- --------
Retained profit for the financial
year............................. 31,441 14,660 26,921
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-48
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED BALANCE SHEET
at 31 March
<TABLE>
<CAPTION>
Note 1999 1999 1998 1998
---- ------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets......... 9 210,523 211,257
Investments in joint
ventures: 10
Share of gross
assets............... 58,628 39,474
Share of gross
liabilities.......... (35,506) (24,940)
------- -------
23,122 14,534
------- --------
233,645 225,791
Current assets
Stocks.................. 11 8,498 16,252
Debtors................. 12 93,811 77,381
Cash at bank and in
hand................... 2,708 8,877
------- -------
105,017 102,510
Creditors: amounts
falling due within one
year................... 13 (74,405) (59,051)
------- -------
Net current assets...... 30,612 43,459
------- --------
Total assets less
current liabilities.... 264,257 269,250
Creditors: amounts
falling due after more
than one year.......... 14 (71,652) (107,175)
Provisions for
liabilities and
charges:
Deferred taxation....... 15 (2,038) (3,578)
Other provisions........ 16 (1,378) (504)
------- -------
(3,416) (4,082)
------- --------
Net assets.............. 189,189 157,993
======= ========
</TABLE>
These financial statements were approved by the directors on 26 May 1999 and
were signed on its behalf by:
/s/ B. Shine
Director
See accompanying notes to combined financial statements.
F-49
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the years ended 31 March
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Profit for the financial year.......... 31,441 14,660 26,921
Exchange differences on the
retranslation of net investments...... (245) 250 (340)
------ ------ ------
Total recognised gains and losses
relating to the financial year........ 31,196 14,910 26,581
====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-50
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
RECONCILIATIONS OF MOVEMENTS IN NET ASSETS
for the years ended 31 March
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Profit for the financial year.......... 31,441 14,660 26,921
Other recognised gains and losses
relating to the year.................. (245) 250 (340)
Goodwill arising on acquisition written
off................................... -- (3,583) --
------- ------- -------
Net addition to net assets............. 31,196 11,327 26,581
Opening net assets..................... 157,993 146,666 120,085
------- ------- -------
Closing net assets..................... 189,189 157,993 146,666
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
COMBINED CASH FLOW STATEMENT
for the years ended 31 March
<TABLE>
<CAPTION>
Note 1999 1998 1997
---- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
CASH FLOW STATEMENT
Cash flow from operating
activities....................... 18 31,247 30,876 20,223
Dividends from joint ventures..... 431 133 189
Returns on investments and
servicing of finance............. 19 (4,464) (3,019) (5,140)
Taxation.......................... (5,741) (8,713) (8,093)
Capital expenditure and financial
investment....................... 19 (19,948) (9,876) (6,479)
Acquisitions and disposals........ 19 (6,700) (1,541) --
------- ------- -------
Cash (outflow)/inflow before
financing........................ (5,175) 7,860 700
Financing......................... 19 (885) (758) (760)
------- ------- -------
(Decrease)/increase in cash in the
period........................... (6,060) 7,102 (60)
======= ======= =======
Reconciliation of net cash flow to
movement in net debt............. 20
(Decrease)/Increase in cash in the
period........................... (6,060) 7,102 (60)
Cash outflow from decrease in debt
and lease financing.............. 885 758 760
------- ------- -------
Change in net debt resulting from
cash flows....................... (5,175) 7,860 700
New finance leases................ -- (57,300) --
Exchange movement................. 2,191 106 (185)
------- ------- -------
Movement in net debt in the
period........................... (2,984) (49,334) 515
Net debt at the start of the
period........................... (66,915) (17,581) (18,096)
------- ------- -------
Net debt at the end of the
period........................... (69,899) (66,915) (17,581)
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-52
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS
(1) Accounting policies
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Cable & Wireless
Global Marine's financial statements.
Basis of preparation
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules.
The combined financial statements include the financial statements of Cable
& Wireless Marine Limited (the Company) and its subsidiary undertakings,
together with the ship owning division of Cable & Wireless plc and two joint
ventures indirectly owned by Cable & Wireless plc (Sino-British Submarine
Systems and NTT World Engineering Marine) which together constitute the Cable
& Wireless Global Marine business (the Group). The combined financial
statements are made up to 31 March 1999. The acquisition method of accounting
has been adopted. Under this method, the results of subsidiary undertakings
acquired or disposed of in the year are included in the combined profit and
loss account from the date of acquisition or up to the date of disposal.
An associate is an undertaking in which the Group has a long term interest,
usually from 20% to 50% of the equity voting rights, and over which it
exercises significant influence. A joint venture is an undertaking in which
the Group has a long-term interest and over which it exercises joint control.
The Group's share of the profits less losses of associates and of joint
ventures is included in the combined profit and loss account and its interest
in their net assets is included in investments in the combined balance sheet.
In respect of those parts of the business which are not owned by Cable &
Wireless Marine Limited, the investment has been included in the combined
balance sheet at historical cost by crediting the Group's intercompany account
with Cable & Wireless plc with (Pounds)14.8m in 1999 and (Pounds)8.3m in 1998.
Although the Group is not a separate legal entity, the majority of the
businesses included within the combined financial statements are separate
legal entities. These companies are subject to full taxation on their results.
In respect of those parts of the Group which are not separate legal entities a
notional tax charge has been made, based upon results for the period and the
prevailing tax rate. The Group tax provision is therefore prepared on a stand-
alone basis.
The Group is principally financed by inter-company current accounts with
Cable & Wireless plc. A number of individual operations participate in a cash
sweep arrangement operated by the Cable & Wireless plc Group, under which cash
balances are cleared regularly to a central account held by Cable & Wireless
plc. These operations receive or pay interest on their net balance at rates
charged by the Group to approximate their cost of borrowing. The cash position
and financing charges shown in the combined financial statements are therefore
not necessarily representative of the cash position or financing charges under
separate ownership.
The pension cost attributable to the Group has been based upon the
contributions paid to the Cable & Wireless plc pension scheme in respect of
the Group's employees. The charges included in the combined financial
statements reflect the pension arrangements of the Cable & Wireless plc group
and are therefore not necessarily representative of the pension cost of the
group under separate ownership.
Central management and similar costs have been directly attributed to the
individual companies included in the combined financial statements, based upon
charges made by Cable & Wireless plc for those services. The Group was charged
(Pounds)1.5million in the year ended 31 March 1999 in respect of employee
benefits and its allocation of central finance, administration costs,
information systems costs and central management.
F-53
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under Financial Reporting Standard 8, the Group is exempt from the
requirement to disclose transactions between companies which are wholly owned
by Cable & Wireless plc.
Goodwill and negative goodwill
Purchased goodwill (both positive and negative) arising on consolidation in
respect of acquisitions before 1 April 1998, when Financial Reporting Standard
10, Goodwill and intangible assets, was adopted, was written off to reserves
in the year of acquisition. When a subsequent disposal occurs any related
goodwill previously written off to reserves is written back through the profit
and loss account as part of the profit or loss on disposal.
Purchased goodwill (representing the excess of the fair value of the
consideration given over the fair value of the separable net assets acquired)
arising on consolidation in respect of acquisitions since 1 April 1998 is
capitalised. Positive goodwill is amortised to nil by equal annual instalments
over its estimated useful life.
Negative goodwill arising on consolidation in respect of acquisitions since
1 April 1998 is included within fixed assets and released to the profit and
loss account in the periods in which the fair values of the non-monetary
assets purchased on the same acquisition are recovered, whether through
depreciation or sale.
On the subsequent disposal or termination of a business acquired since 1
April 1998, the profit or loss on disposal or termination is calculated after
charging (crediting) the unamortised amount of any related goodwill (negative
goodwill).
Provisions and contingent liabilities
Financial Reporting Standard 12, Provisions, Contingent liabilities and
contingent assets, is mandatory in respect of accounting periods ending after
23 March 1999. This standard requires that provisions must be recognised when
there is a present legal or constructive obligation at the balance sheet date.
These combined financial statements have been prepared in accordance with
FRS 12, and as such the results and balances for the years ended 31 March 1997
and 1998 of certain companies included within the combined financial
statements have been adjusted to be consistent with FRS 12.
Fixed assets and depreciation
Depreciation is provided to write off the cost less the estimated residual
value of tangible fixed assets by equal instalments over their estimated
useful economic lives as follows:
<TABLE>
<S> <C>
Cableships -- up to 30 years or as committed to agreements, whichever is the longer
Ship refits -- 2 1/2 years
Submersibles -- up to 5 years
Plant -- 2 1/2 to 20 years
Leasehold buildings -- up to 25 years
Motor vehicles -- up to 4 years
</TABLE>
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the profit and loss account.
F-54
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Leases
Where the Group enters into a lease which entails taking substantially all
the risks and rewards of ownership of an asset, the lease is treated as a
"finance lease". The asset is recorded in the balance sheet as a tangible
fixed asset and is depreciated over its estimated useful life or the term of
the lease whichever is shorter. Future instalments under such leases, net of
finance charges, are included within creditors. Rentals payable are
apportioned between the finance element, which is charged to the profit and
loss account, and the capital element which reduces the outstanding obligation
for future instalments.
All other leases are accounted for as operating leases' and the rental
charges are charged to the profit and loss account on a straight-line basis
over the life of the lease.
Pensions
The Group participates in group pension schemes operated by Cable & Wireless
plc. The regular cost of providing benefits is charged to operating profit
over the service lives of the members of the schemes on the basis of a
constant percentage of pensionable pay. Variations from regular cost arising
from periodic actuarial valuations are allocated to operating profit over the
expected remaining service lives of the members.
Stocks and work in progress
Stocks are valued at cost less provision for deterioration and obsolescence.
Work in progress on contracts is stated at cost less foreseeable losses less
progress payments received and receivable. Any excess of losses and progress
payments received and receivable over work in progress are included in
creditors.
Long term contracts
Where the outcome of long term contracts can be assessed with reasonable
certainty turnover and profit are recognised in the accounts in appropriate
proportions which reflect the state of completion reached during the year. The
amount by which recorded turnover is in excess of payments received from
customers is included in debtors. Full provision is made for anticipated
losses.
Taxation
The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment
of certain items for taxation and accounting purposes. Provision is made for
deferred tax only to the extent that it is probable that an actual liability
will crystallise in the foreseeable future. Where deferred taxation is
provided, the liability method is used.
(2) TURNOVER
Turnover is principally derived from the installation and maintenance of
submarine telecommunications cables under agreements with cable owners,
including transactions with group companies, and manufacturers.
Details of turnover by geographical market supplied have not been provided
since, in the opinion of the directors, such disclosure would be seriously
prejudicial to the interests of the group.
F-55
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) OPERATING COSTS
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Employee costs.......................... 43,071 37,406 37,070
Pension costs........................... 2,117 2,218 2,579
Hire of plant and machinery............. 30,578 40,905 45,180
Other operating costs................... 66,133 50,270 49,676
Depreciation of tangible fixed assets... 20,621 17,750 16,438
Auditors' remuneration
Statutory audit....................... 56 43 42
Other services........................ 24 97 57
------- ------- -------
162,600 148,689 151,042
======= ======= =======
</TABLE>
In 1999 systems development fees payable to the auditors of (Pounds)1.1m
(1998: (Pounds)0.7m) were capitalised.
Having regard to the special nature of the group's business an analysis of
operating costs in the manner prescribed by the Companies Act 1985 is not
meaningful. In the circumstances, therefore, the directors have as required by
paragraph 3(3) of Schedule 4 to the Companies Act 1985, adapted the prescribed
format to the requirements of the group's business.
(4) REMUNERATION OF DIRECTORS OF THE COMPANY
There are no directors of Cable & Wireless Global Marine as it is not a
separate legal entity. Information regarding the remuneration of the directors
of Cable & Wireless Marine Limited is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Directors' emoluments:
As directors........................... 590 556 586
--- --- ---
590 556 586
=== === ===
</TABLE>
The aggregate of emoluments and amounts receivable under long term incentive
schemes of the highest paid director was (Pounds)237,131 (1998:
(Pounds)188,240, 1997: (Pounds)156,000). He is a member of a defined benefit
scheme, under which his accrued pension at 31 March 1999 was (Pounds)83,177,
and his accrued lump sum was (Pounds)178,219.
<TABLE>
<CAPTION>
Number of
directors
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Retirement benefits are accruing to the following number of
directors under:
Defined benefit schemes................................... 6 7 6
---- ---- ----
The number of directors who exercised share options was:.... 6 5 6
==== ==== ====
</TABLE>
Information relating to directors' share options may be found in note 26.
F-56
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) STAFF NUMBERS AND COSTS
The average number of persons employed by the Group (including directors)
during the period, analysed by category, was as follows:
<TABLE>
<CAPTION>
Number of
employees
-----------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
United Kingdom staff.......................................... 383 316 342
Marine staff.................................................. 835 813 830
----- ----- -----
1,218 1,129 1,172
===== ===== =====
</TABLE>
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Wages and salaries..................... 41,309 35,711 35,149
Social security costs.................. 1,762 1,695 1,921
Pension and other similar costs (see
note 23).............................. 2,117 2,218 2,579
------ ------ ------
45,188 39,624 39,649
====== ====== ======
</TABLE>
(6) INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
On amounts owed by group undertakings... 1,861 -- --
Other interest receiveable.............. 432 886 979
----- --- ---
2,293 886 979
===== === ===
</TABLE>
(7) INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Amounts payable on loans and
overdrafts............................ 163 -- --
On amounts owed to group undertakings.. -- 2,201 4,441
Finance charges payable in respect of
finance leases and hire purchase
contracts............................. 6,594 1,704 1,678
----- ----- -----
6,757 3,905 6,119
===== ===== =====
</TABLE>
(8) TAXATION
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
UK corporation tax...................... 14,098 7,597 6,690
Deferred taxation (note 15)............. (1,540) (25) (6,650)
Double taxation relief.................. (112) (95) (609)
------ ----- ------
12,446 7,477 (569)
Overseas taxation....................... 8 95 560
Adjustments in respect of prior years... 1,628 -- (143)
Share of joint ventures tax............. 210 915 235
------ ----- ------
14,292 8,487 83
====== ===== ======
</TABLE>
F-57
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Land and
Cableships and Motor Vehicles Buildings
Submersibles And Plant Short leasehold Total
-------------- -------------- --------------- ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Cost
At 1 April 1998......... 272,097 41,189 5,835 319,121
Additions............... 11,342 5,604 2,987 19,933
Disposals............... (11,499) (284) -- (11,783)
------- ------ ----- -------
At 31 March 1999........ 271,940 46,509 8,822 327,271
------- ------ ----- -------
Depreciation and
diminution in value
At 1 April 1998......... 85,201 20,417 2,246 107,864
Charge for period....... 14,276 5,611 734 20,621
On disposals............ (11,499) (238) -- (11,737)
------- ------ ----- -------
At 31 March 1999........ 87,978 25,790 2,980 116,748
------- ------ ----- -------
Net book value
At 31 March 1999........ 183,962 20,719 5,842 210,523
======= ====== ===== =======
At 31 March 1998........ 186,896 20,772 3,589 211,257
======= ====== ===== =======
</TABLE>
Cost includes (Pounds)13,550,228 (1998: (Pounds)5,543,719) in respect of
assets not yet in service.
Included in the total net book value of cableships and submersibles is
(Pounds)81,326,000 (1998: (Pounds)84,984,000) in respect of assets held under
finance leases. Depreciation for the year on these assets was
(Pounds)3,657,000 (1998: (Pounds)1,567,000, 1997: (Pounds)1,499,000).
(10) FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
Goodwill on
Joint acquisition of
Ventures joint ventures Total
------------ -------------- ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Cost and net book value
At 1 April 1998...................... 14,534 -- 14,534
Additions............................ 3,100 3,600 6,700
Disposals............................ (149) -- (149)
Income from interests in joint
ventures (before taxation).......... 2,861 -- 2,861
Taxation............................. (210) -- (210)
Dividends received................... (431) -- (431)
Exchange differences................. (183) -- (183)
------ ----- ------
At 31 March 1999..................... 19,522 3,600 23,122
====== ===== ======
</TABLE>
F-58
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Additional information in respect of the group's joint ventures in aggregate
is shown below:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Fixed assets.......................................... 41,694 31,372
Current assets........................................ 13,334 8,102
Liabilities due within one year....................... (6,269) (2,340)
Liabilities due after more than one year.............. (29,237) (22,600)
------- -------
19,522 14,534
======= =======
</TABLE>
The principal companies included within these financial statements are as
follows:
<TABLE>
<CAPTION>
Percentage Country of
holding and registration or
class incorporation Nature of Business
------------ ----------------- ----------------------------
<S> <C> <C> <C>
Subsidiary undertakings
Cable & Wireless Marine
Limited................ 100 ordinary England and Wales Submarine Telecommunications
General Offshore (UK)
Limited*............... 100 ordinary England and Wales Submarine Telecommunications
Vibro-Einspultechnik
Duker und Wasserbau
GmbH*.................. 100 ordinary Germany Submarine Telecommunications
Cable & Wireless Global
Marine Singapore
Limited*............... 100 ordinary Singapore Submarine Telecommunications
General Offshore
Specialized Services
Inc*................... 100 ordinary USA Submarine Telecommunications
Joint ventures
Sembawang Cable Depot
Pte Limited............ 40 ordinary Singapore Cable storage
International Cableship
Pte Limited............ 30 ordinary Singapore Ship operator
Sino-British Submarine
Systems Company
Limited................ 49 ordinary China Submarine Telecommunications
NTT World Engineering
Marine Corporation
(acquired 11 February
1999).................. 25 ordinary Japan Submarine Telecommunications
General Offshore
Corporation Inc
(disposed 29 February
1998).................. 40 ordinary USA Telecommunications Services
</TABLE>
- --------
* Prior to 29 February 1998, the Group had an indirect 40% interest in these
companies through its investment in General Offshore Corporation. On 29
February 1998, the Group acquired the remaining 60% interest in these
companies. The consideration was satisfied by disposing of its interest in
General Offshore Corporation together with an additional cash payment, as
set out in note 21.
F-59
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(11) STOCKS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Raw materials and consumables....................... 3,006 3,998
Work in progress.................................... 5,492 12,254
------ ------
8,498 16,252
====== ======
Work in progress relates to long-term contract
balances and comprises:
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net costs........................................... 10,094 18,656
Applicable payments on account...................... (4,602) (6,402)
------ ------
5,492 12,254
====== ======
</TABLE>
(12) DEBTORS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Amounts falling due within one year
Trade debtors......................................... 44,843 41,571
Amounts owed by group undertakings.................... 25,820 5,559
Amounts owed by joint ventures........................ 1,218 2,369
Other debtors......................................... 11,951 14,533
Corporation tax....................................... 2 1,471
Prepayments and accrued income........................ 9,977 11,878
------ ------
93,811 77,381
====== ======
</TABLE>
(13) CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Obligations under finance leases...................... 955 885
Trade creditors....................................... 13,253 2,999
Amounts owed to group undertakings.................... 13,148 2,836
Amounts owed to joint ventures........................ -- 884
Other creditors including taxation and
social security:
Corporation tax................................... 16,283 8,970
Other taxes and social security................... 351 52
Other creditors................................... 8,707 8,810
Accruals and deferred income.......................... 21,708 33,615
------ ------
74,405 59,051
====== ======
</TABLE>
(14) CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Obligations under finance leases...................... 71,652 74,907
Amounts owed to group undertakings.................... -- 32,268
------ -------
71,652 107,175
====== =======
</TABLE>
F-60
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
The maturity of obligations under finance leases and hire purchase contracts
is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Within one year....................................... 955 885
In the second to fifth years.......................... 5,690 3,894
Over five years....................................... 65,962 71,013
------ ------
72,607 75,792
====== ======
</TABLE>
(15) DEFERRED TAXATION
<TABLE>
<S> <C>
(Pounds)'000
At 1 April 1998................................................... 3,578
Utilised during the year.......................................... (1,540)
------------
At 31 March 1999.................................................. 2,038
============
</TABLE>
Deferred taxation provided in the accounts and the potential liability,
including amounts for which provision has been made, are as follows:
<TABLE>
<CAPTION>
Amounts provided Total potential liability
---------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Accelerated capital
allowances............... 2,038 3,578 25,622 25,636
----- ----- ------ ------
2,038 3,578 25,622 25,636
===== ===== ====== ======
</TABLE>
(16) OTHER PROVISIONS
<TABLE>
<S> <C>
(Pounds)'000
At 1 April 1998................................................... 504
Provided in year.................................................. 1,265
Utilised in year.................................................. (391)
------------
At 31 March 1999.................................................. 1,378
============
</TABLE>
A provision of (Pounds)1,265,000 has been recognised for remodification
costs on the decommissioning of two charter vessels.
(17) COMMITMENTS
Capital commitments at the end of the financial year for which no provision
has been made.
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Commitments in respect of contracts placed............ 1,283 1,357
===== =====
</TABLE>
F-61
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Annual commitments under non-cancellable operating leases are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Land and Land and
buildings Other buildings Other
------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Operating leases which
expire:
Within one year.......... 63 1 97 32
In the second to fifth
years inclusive......... 71 12,620 37 13,451
Over five years.......... 1,223 3,573 1,641 21
----- ------ ----- ------
1,357 16,194 1,775 13,504
===== ====== ===== ======
</TABLE>
(18) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C>
Operating profit....................... 47,397 22,264 30,945
Depreciation........................... 20,621 17,750 16,438
Decrease/(Increase) in stocks.......... 7,754 (638) 5,693
(Increase)/decrease in debtors......... (17,899) 4,796 (35,360)
(Decrease)/Increase in creditors....... (26,626) (13,296) 2,507
------- ------- -------
Net cash inflow from operating
activities............................ 31,247 30,876 20,223
======= ======= =======
</TABLE>
(19) ANALYSIS OF CASH FLOWS
<TABLE>
<CAPTION>
Notes 1999 1998 1997
----- ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C>
Returns on investment and
servicing of finance
Interest received................ 2,293 886 979
Interest paid.................... (163) (2,201) (4,441)
Interest element of finance lease
rental payments................. (6,594) (1,704) (1,678)
------- ------- -------
(4,464) (3,019) (5,140)
======= ======= =======
Capital expenditure and financial
investment
Purchase of tangible fixed
assets.......................... (19,963) (10,616) (10,650)
Sale of tangible fixed assets.... 15 740 4,171
------- ------- -------
(19,948) (9,876) (6,479)
======= ======= =======
Acquisitions and disposals
Purchase of subsidiary
undertaking..................... 21 -- (3,676) --
Net cash acquired with
subsidiaries.................... -- 2,135 --
Purchase of interest in joint
venture......................... 10 (6,700) -- --
------- ------- -------
(6,700) (1,541) --
======= ======= =======
Financing
Capital element of finance lease
rental payments................. (885) (758) (760)
======= ======= =======
</TABLE>
F-62
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(20) ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
At 1 April Other Exchange 31 March
1998 Cash Flow movements translation 1999
------------ ------------ ------------ ------------ ------------
(Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000
<S> <C> <C> <C> <C> <C>
Cash in hand, at bank... 8,877 (6,060) -- (109) 2,708
Finance leases--due
within one year........ (885) 885 (955) -- (955)
Finance leases--due
after one year......... (74,907) -- 955 2,300 (71,652)
------- ------ ---- ----- -------
Total................... (66,915) (5,175) -- 2,191 (69,899)
======= ====== ==== ===== =======
</TABLE>
(21) PURCHASE OF SUBSIDIARY UNDERTAKINGS
In February 1998 the group acquired the shore-end cabling business of
General Offshore Corporation. The net assets acquired, which were equivalent
to their fair values were as follows:
<TABLE>
<CAPTION>
(Pounds)'000
<S> <C>
Net assets acquired
Tangible fixed assets.............................................. 4,390
Stocks............................................................. 2,658
Debtors............................................................ 5,949
Cash at bank and in hand........................................... 2,135
Creditors.......................................................... (11,065)
Deferred taxation.................................................. (312)
-------
3,755
Goodwill........................................................... 3,583
-------
7,338
=======
Satisfied by
Cash............................................................... 3,676
Disposal of 40% interest in General Offshore Corporation........... 3,662
-------
7,338
=======
</TABLE>
(22) CONTINGENT LIABILITIES
Guarantees have been given by the Group on behalf of a former subsidiary
totalling (Pounds)NIL (1998: (Pounds)2,789,000). Guarantees have been given by
the Group in respect of projects totalling (Pounds)303,000 (1998: (Pounds)NIL)
(23) PENSION SCHEME
The Group participates in pension schemes operated by Cable & Wireless plc.
The principal scheme is a defined benefit scheme whereby retirement benefits
are based on employees final remuneration and length of services and is funded
through a separate trustee administered scheme. Contributions to the scheme
are based on pension costs across participating employers as a whole and are
made in accordance with the recommendations of independent actuaries who value
the scheme at regular triennial intervals.
Full details relating to the pension scheme are disclosed in the financial
statements of Cable & Wireless plc.
An actuarial valuation of the scheme was prepared at 31 March 1996 which
disclosed an increased surplus. In view of this, on the actuaries
recommendation, Cable & Wireless plc has reduced its contributions to the
F-63
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
scheme with effect from 1 April 1996. The surplus has been spread over the
remaining service lives of the employees.
The pension cost in the year was (Pounds)2,117,000 (1998:
(Pounds)2,218,000).
(24) ULTIMATE PARENT COMPANY AND CONTROLLING PARTY
The Company is a subsidiary undertaking of Cable & Wireless plc, which is
the ultimate parent company and controlling party. Cable & Wireless plc is
registered in England and Wales.
The only group in which the results of the company are consolidated is that
headed by Cable & Wireless plc. The consolidated accounts of this group are
available to the public and may be obtained from 124 Theobalds Road, London
WC1X 8RX.
(25) RELATED PARTY TRANSACTIONS
During the year ended 31 March 1999, a vessel was chartered from
International Cableships Pte Limited, an associated company, under a finance
lease. Repayments of (Pounds)5,452,000 were due during the year ended 31 March
1999, of which a creditor of (Pounds)28,000 was outstanding at 31 March 1999.
Shareholder loans of (Pounds)3,388,000 were outstanding at 31 March 1999.
F-64
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
(26) DIRECTORS' SHAREHOLDINGS
The beneficial interests of the directors of the Company who held office at
the end of the financial year and of their families in the shares of Cable and
Wireless plc are as follows:
<TABLE>
<CAPTION>
Balance at
1 April Shares Shares
1998 (or acquired disposed
date of or or Balance at
appointment options options 31 March
if later) granted exercised 1999
----------- -------- --------- ----------
<S> <C> <C> <C> <C>
David G Foot....................... 1,577 8,795 3,000 7,372
7,449(a) -- 4,044 3,405(a)
130,124(b) 23,500 -- 153,624(b)
8,147(c) -- -- 8,147(c)
-- (d) 7,515 -- 7,515(d)
8,147(e) -- -- 8,147(e)
Alistair R Grieve.................. -- 54,525 43,690 10,835
5,639(a) 1,208 -- 6,847(a)
103,690(b) 5,000 43,690 65,000(b)
11,405(c) -- -- 11,405(c)
-- (d) 8,417 -- 8,417(d)
11,405(e) -- -- 11,405(e)
Barry C Shine...................... 4,411 1,205 4,384 1,232
2,807(a) 762 1,205 2,364(a)
24,000(b) 9,500 -- 33,500(b)
-- (d) 3,479 -- 3,479(d)
David I Wickham.................... 2,098 73,773 72,898 2,973
3,022(a) -- 875 2,147(a)
123,898(b) 21,500 72,898 72,500(b)
-- (d) 10,521 -- 10,521(d)
Dave C Skentelbery................. -- 8,544 8,282 262
3,239(a) 689 262 3,666(a)
36,000(b) 4,500 6,000 34,500(b)
Stephen R Pettit................... 9,251 111,989 111,986 9,254
5,093(a) -- -- 5,093(a)
310,304(b) 20,000 85,000 245,304(b)
30,550(c) -- -- 30,550(c)
-- (d) 21,844 -- 21,844(d)
30,550(e) -- -- 30,550(e)
</TABLE>
All interests are in fully paid ordinary 25p shares of Cable and Wireless
plc, unless marked (a) which are options to purchase ordinary shares under the
Savings Related Share Option Scheme for employees or (b) which are options to
purchase ordinary shares under the Discretionary Share Option schemes or (c)
C&W Long Term Incentive Plan (LTIP) (notional) or (d) C&W Long Term Incentive
Plan (LTIP) (notional) and (e) C&W Long Term Incentive Plan Transitional
(LTIPTS99) (notional).
F-65
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
The notional award figures granted during the year are based on the maximum
award under the plan. The actual award of shares in the LTIP will be in the
form of a share option, which is exercisable at any point following the end of
the three year performance period to which the grant of the options relate
within seven years of the date of the grant, while the individual remains in
the employment in the group. The LTIPTS99 will be awarded in shares. The plan
has been constituted by written rules and will be operated in conjunction with
an Employee Share Ownership Trust.
(27) SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The Group prepares its combined accounts in accordance with generally
accepted accounting principles in the United Kingdom (UK GAAP), which differ
in certain material respects from US GAAP. The significant differences relate
principally to the following items and the adjustments necessary to restate
net income and net assets in accordance with US GAAP are shown below.
a) Goodwill
Under UK GAAP goodwill arising on acquisition is eliminated directly against
reserves, prior to the adoption of FRS 10 on 1 April 1998. Amounts are
transferred from reserves and charged through the profit and loss account when
the related investments are sold or written down as a result of permanent
diminutions in value. Under US GAAP goodwill is capitalised and amortised by
charges against income over the period, not exceeding 40 years, over which the
benefit arises. For US GAAP, goodwill has been amortised by the Group over 10-
40 years.
Under UK GAAP the profit or loss on the disposal of all or part of a
previously acquired business is calculated after taking account of the gross
amount of any goodwill previously eliminated directly against reserves and not
already charged to profit. Under US GAAP an adjustment to profit or loss on
disposal is required in respect of the unamortised portion of goodwill.
b) Deferred tax
Under UK GAAP provision is made for deferred taxation only when there is a
reasonable probability that the liability will arise in the foreseeable
future. US GAAP requires full provision for deferred income taxes under the
liability method on all temporary differences and, if required, a valuation
allowance is established to reduce gross deferred tax assets to the amount
which is likely to be realised.
Deferred tax also arises in relation to the tax effect of other US GAAP
differences.
c) Pension costs
Under UK GAAP the expected cost of pensions is charged to the profit and
loss account so as to spread the cost of pensions over the expected services
lives of employees. Surpluses arising from actuarial valuations are similarly
spread. Under US GAAP costs and surpluses are similarly spread but based on
prescribed actuarial assumptions which differ in certain respects from those
for UK GAAP.
d) Asset under construction
In March 1999 a cableship under construction was subject to a sale and
leaseback arrangement. Under UK GAAP the advances from the lessor have been
netted off the cost of the asset at 31 March 1999, as the construction
contract had been legally novated to the lessor.
F-66
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under US GAAP the construction cost of the asset at the balance sheet date
and the related advances from the lessor have been included in assets and
liabilities as the lessee is deemed to be the owner of the asset until the
construction is complete.
e) Cross border leasing arrangements
In February 1996, the Group entered into cross border leasing arrangements
with a Special Purpose Entity (SPE) in respect of three owned cableships.
Under UK GAAP the assets and liabilities of the SPE are netted off in the
group's balance sheet and a gain on the transaction is recognised on receipt
of a cash payment.
Under US GAAP the assets and liabilities of the SPE are shown separately
within assets and liabilities as the secondary obligation of the SPE to make
lease payments is not considered to be sufficiently remote to justify netting
off its assets and liabilities. In addition under US GAAP, the gain on the
transaction is deferred and amortised over the primary lease periods of the
cableships.
f) Profit on disposal of joint venture
In February 1998, the Group acquired the remaining 60% of the shore-end
cabling business of General Offshore Corporation. Part of the consideration
for the acquisition was the disposal by the group of its 40% interest in
General Offshore Corporation, the holding company of this business and another
unrelated business. Under UK GAAP a profit of (Pounds)812,000 has been
recognised on this disposal by allocating the deemed consideration between the
two businesses.
Under US GAAP this transaction has been treated as a step-acquisition and
the gain has been reversed with a corresponding reduction in goodwill.
g) Capitalised consultancy fees
Under UK GAAP the Group has capitalised consultancy fees incurred as part of
the selection and installation of a new computer system. Under US GAAP these
costs are expensed as incurred.
h) Cash flows
The Cash Flow Statement is prepared in accordance with the UK Financial
Reporting Standard No 1 Revised, Cash Flow Statements (FRS 1 Revised) for UK
GAAP reporting. Its objective and principles are similar to those set out in
Statement of Financial Accounting Standards (SFAS 95 "Statement of Cash
Flows). The principal difference between the standards is in respect of
classification. Under FRS1 Revised, the group presents its cash flows for:
operating activities; returns on investments and servicing of finance;
taxation; capital expenditure and financial investment; acquisitions and
disposals; equity dividends paid; management of liquid resources; and
financing. SFAS 95 requires only three categories of cash flow activity:
operating; investing and financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS1 Revised would, with the exception of dividends paid, be
included as operating activities under SFAS 95; dividend payments would be
included as a financing activity under SFAS 95. Under FRS1 Revised, cash is
defined as cash in hand and deposits repayable on demand, short term deposits
which are readily convertible into known amounts of cash at or close to their
carrying value are classified as liquid resources. SFAS 95 defines cash and
cash equivalents as cash in hand and short term highly liquid investments with
original maturities of three months or less. Cash flows in respect of short
term deposits with original maturities exceeding three months are included in
investing activities under SFAS 95 and are included in capital expenditure and
financial investment under FRS1 Revised.
F-67
<PAGE>
CABLE & WIRELESS GLOBAL MARINE
NOTES TO FINANCIAL STATEMENTS--(Continued)
The effect of these different accounting principles are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net income as reported under UK GAAP................. 31,441 14,660
US GAAP adjustments:
Amortisation of goodwill............................. (835) (588)
Deferred tax--full provision......................... (1,526) 727
- --tax effect of other US GAAP reconciling items...... 284 64
Pension costs........................................ (533) 173
Amortisation of gain on cross border leasing......... 342 342
Reversal of profit on disposal of joint venture...... -- (812)
Consultancy fees capitalised......................... (726) (723)
------- -------
Net income under US GAAP............................. 28,447 13,843
======= =======
The effect on net assets of the differences between UK GAAP and US GAAP is
as follows:
<CAPTION>
1999 1998
------------ ------------
(Pounds)'000 (Pounds)'000
<S> <C> <C>
Net assets as reported under UK GAAP................. 189,189 157,993
US GAAP adjustments:
Goodwill............................................. 22,606 23,441
Deferred tax--full provision......................... (23,584) (22,058)
- --tax effect of other US GAAP reconciling items...... 1,861 1,577
Pension costs........................................ (398) 135
Vessels under construction........................... 16,300 --
Financing of vessels under construction.............. (16,300) --
Cross border leasing deposits........................ 90,630 90,880
Cross border leasing liabilities..................... (90,630) (90,880)
Unrecognised gain on cross border leasing............ (4,157) (4,499)
Consultancy fees capitalised......................... (1,449) (723)
------- -------
Net assets under US GAAP............................. 184,068 155,866
======= =======
</TABLE>
(28) POST BALANCE SHEET EVENTS
a) Dividend
On 23 April 1999, an interim dividend in respect of the year ended 31 March
2000 of (Pounds)117,700,000 was paid by the Company, which was financed by a
new bank facility and collection of amounts owed by group undertakings.
b) Issue of share capital (unaudited)
On 1 July 1999, the Company issued 3,293,906 new shares to Cable & Wireless
plc for consideration of (Pounds)23,782,000. The proceeds are intended to be
applied for repayment of intercompany balances and additional working capital.
c) Acquisition by Global Crossing (unaudited)
On 2 July 1999, the Group was acquired by Global Crossing and was renamed
Global Marine Systems Limited. The bank facility which financed the dividend
on 23 April was repaid by Global Crossing. The cross border leasing agreement
for three cableships was terminated and a termination payment of approximately
$35 million was paid by Global Crossing.
F-68
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 16, 1999
AMONG
GLOBAL CROSSING LTD.,
GCF ACQUISITION CORP.
AND
FRONTIER CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.1 THE MERGER......................................................... A-1
1.2 CLOSING............................................................ A-1
1.3 EFFECTIVE TIME..................................................... A-2
1.4 EFFECTS OF THE MERGER.............................................. A-2
1.5 CERTIFICATE OF INCORPORATION....................................... A-2
1.6 BY-LAWS............................................................ A-2
1.7 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION.................... A-2
1.8 EFFECT ON CAPITAL STOCK............................................ A-2
1.9 VOTING AGREEMENT................................................... A-3
1.10 ALTERNATIVE TRANSACTION STRUCTURE.................................. A-3
ARTICLE II EXCHANGE OF CERTIFICATES
2.1 EXCHANGE FUND...................................................... A-8
2.2 EXCHANGE PROCEDURES................................................ A-8
2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES................... A-8
2.4 NO FURTHER OWNERSHIP RIGHTS IN FRONTIER COMMON STOCK............... A-9
2.5 NO FRACTIONAL SHARES OF GLOBAL COMMON STOCK........................ A-9
2.6 TERMINATION OF EXCHANGE FUND....................................... A-9
2.7 NO LIABILITY....................................................... A-9
2.8 INVESTMENT OF THE EXCHANGE FUND.................................... A-9
2.9 LOST CERTIFICATES.................................................. A-10
2.10 WITHHOLDING RIGHTS................................................. A-10
2.11 FURTHER ASSURANCES................................................. A-10
2.12 STOCK TRANSFER BOOKS............................................... A-10
ARTICLE III REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF FRONTIER......................... A-10
3.2 REPRESENTATIONS AND WARRANTIES OF GLOBAL........................... A-15
3.3 REPRESENTATIONS AND WARRANTIES OF GLOBAL AND MERGER SUB............ A-20
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF FRONTIER.............................................. A-20
4.2 COVENANTS OF GLOBAL................................................ A-22
4.3 ADVICE OF CHANGES; GOVERNMENTAL FILINGS............................ A-25
4.4 TRANSITION PLANNING; CONTINUED OPERATIONS OF FRONTIER.............. A-25
4.5 SERVICES AGREEMENT................................................. A-25
4.6 CONTROL OF OTHER PARTY'S BUSINESS.................................. A-25
</TABLE>
A-i
<PAGE>
ARTICLE V ADDITIONAL AGREEMENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
5.1 PREPARATION OF PROXY STATEMENT; SHAREHOLDERS MEETINGS............. A-26
5.2 GLOBAL BOARD OF DIRECTORS; OFFICERS; HEADQUARTERS................. A-27
5.3 ACCESS TO INFORMATION............................................. A-27
5.4 REASONABLE BEST EFFORTS........................................... A-27
5.5 ACQUISITION PROPOSALS............................................. A-29
5.6 ASSUMPTION OF FRONTIER STOCK OPTIONS AND WARRANTS; OTHER STOCK
PLANS; EMPLOYEE BENEFITS MATTERS ................................. A-30
5.7 FEES AND EXPENSES................................................. A-31
5.8 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE ........... A-31
5.9 REDEMPTION OF FRONTIER PREFERRED STOCK............................ A-31
5.10 PUBLIC ANNOUNCEMENTS.............................................. A-31
5.11 ACCOUNTANTS' LETTERS.............................................. A-32
5.12 LISTING OF SHARES OF GLOBAL COMMON STOCK.......................... A-32
5.13 VOTING TRUST ..................................................... A-32
ARTICLE VI CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER........ A-32
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF GLOBAL AND MERGER SUB..... A-33
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF FRONTIER.................. A-33
ARTICLE VII TERMINATION AND AMENDMENT
7.1 TERMINATION....................................................... A-34
7.2 EFFECT OF TERMINATION............................................. A-36
7.3 AMENDMENT......................................................... A-36
7.4 EXTENSION; WAIVER................................................. A-36
ARTICLE VIII GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS........ A-37
8.2 NOTICES........................................................... A-37
8.3 INTERPRETATION.................................................... A-38
8.4 COUNTERPARTS...................................................... A-38
8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.................... A-38
8.6 GOVERNING LAW..................................................... A-38
8.7 SEVERABILITY...................................................... A-38
8.8 ASSIGNMENT........................................................ A-38
8.9 SUBMISSION TO JURISDICTION; WAIVERS............................... A-38
8.10 ENFORCEMENT....................................................... A-39
8.11 DEFINITIONS....................................................... A-39
8.12 OTHER AGREEMENTS.................................................. A-40
</TABLE>
A-ii
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Title
------- -----
<C> <S>
A Form of Stock Option Agreement
1.9 Form of Voting Agreement
3.1(k) Form of Affiliate Agreement
4.5 Services Agreement Term Sheet
5.2 Classification of Directors
5.6 Assumption of Frontier Stock Options and Frontier Warrants
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 16, 1999 (this "Agreement"),
among Global Crossing Ltd., a company formed under the laws of Bermuda
("Global"), GCF Acquisition Corp., a New York corporation and a direct wholly-
owned subsidiary of Global ("Merger Sub"), and Frontier Corporation, a New
York corporation ("Frontier").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of Global, Merger Sub and
Frontier have each determined that the merger of Merger Sub with and into
Frontier (the "Merger") is in the best interests of their respective
shareholders, and such Boards of Directors have approved such Merger and the
Alternative Merger (as defined in Section 1.10), upon the terms and subject to
the conditions set forth in this Agreement, pursuant to which each outstanding
share of common stock, par value $1.00 per share, of Frontier ("Frontier
Common Stock") issued and out standing immediately prior to the Effective Time
(as defined in Section 1.3), other than shares owned or held directly or
indirectly by Global or directly by Frontier will be converted into the right
to receive shares of common stock, par value $.01 per share, of Global
("Global Common Stock") as set forth in Section 1.8 or as otherwise provided
in Section 1.10 hereof;
WHEREAS, Global, Merger Sub and Frontier desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to
the transactions contemplated hereby;
WHEREAS, Global, Merger Sub and Frontier intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder;
WHEREAS, the Boards of Directors of Frontier and Global have approved and
concurrently with the execution of this Agreement Frontier and Global will
execute an Agreement in the form attached hereto as Exhibit A (the "Stock
Option Agreement") whereby Frontier will grant Global an option to purchase
shares of Frontier Common Stock upon the terms and conditions provided in such
agreement;
WHEREAS, concurrently herewith certain shareholders of Global (collectively,
the "Principal Shareholders") have agreed to vote their shares in favor of the
transactions contemplated hereby pursuant to the Voting Agreement (as defined
in Section 1.9); and
NOW, THEREFORE in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the New York Business Corporation Law
(the "NYBCL"), Merger Sub shall be merged with and into Frontier at the
Effective Time. Following the Merger, the separate corporate existence of
Merger Sub shall cease and Frontier shall continue as the surviving
corporation (the "Surviving Corporation").
1.2 Closing. The closing of the Merger (the "Closing") will take place on
the second Business Day after the satisfaction or waiver (subject to
applicable law) of the conditions (excluding conditions that, by their terms,
cannot be satisfied until the Closing Date) set forth in Article VI (the
"Closing Date"); provided, however, that
A-1
<PAGE>
if the Average Price is less than $34.5625, then the Closing shall not occur
prior to (i) if Frontier shall not deliver a Termination Notice (as defined in
Section 7.1(g)) to Global in accordance with Section 7.1(g), the second
Business Day following the expiration of the Frontier Evaluation Period (as
defined in Section 7.1(g)), or (ii) if Frontier shall deliver a Termination
Notice to Global in accordance with Section 7.1(g), the second Business Day
following the earlier of (A) Global's delivery of a Global Adjustment
Election, a Cash Top-Up Election or a Combination Election (in each case, as
defined in Section 7(g)) and (B) the expiration of the Global Election Period,
in all cases, unless another time or date is agreed to by the parties hereto.
The Closing shall be held at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 919 Third Avenue, New York, New York 10022, unless another place is
agreed to by the parties hereto.
1.3 Effective Time. As soon as practicable following the Closing, the
parties shall (i) file a certificate of merger (the "New York Certificate of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the NYBCL and (ii) make all other filings or record
required under the NYBCL. The Merger shall become effective at such time as
the New York Certificate of Merger is duly filed with the New York Department
of State in accordance with Section 904 of the NYBCL or at such subsequent
time as Global and Frontier shall agree and as shall be specified in the New
York Certificate of Merger (the date and time the Merger becomes effective
being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger will
have the effects set forth in Section 906 of the NYBCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of Frontier and Merger
Sub shall be vested in the Surviving Corporation, and all debts, liabilities
and duties of Frontier and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.5 Certificate of Incorporation. At the Effective Time, the certificate of
incorporation of the Surviving Corporation shall be amended in accordance with
the NYBCL such that the certificate of incorporation of the Surviving
Corporation shall consist of the provisions of the certificate of
incorporation of Merger Sub.
1.6 By-Laws. The by-laws of Merger Sub as in effect at the Effective Time
shall be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
1.7 Officers and Directors of Surviving Corporation. The officers of
Frontier as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Merger Sub as of the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or otherwise ceasing to be a director
or until their respective successors are duly elected and qualified.
1.8 Effect on Capital Stock.
(a) At the Effective Time by virtue of the Merger and without any action on
the part of the holder thereof, each share of Frontier Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Frontier Common Stock owned or held directly or indirectly by Global or
directly by Frontier, all of which shall be canceled as provided in Section
1.8(c)) shall, except as provided in Section 7.1(g), be converted into the
right to receive that number of shares of Global Common Stock equal to the
Exchange Ratio (as defined below) (the "Merger Consideration"). "Exchange
Ratio" means the quotient (rounded to the nearest 1/10,000) determined by
dividing $62.00 by the Average Price as defined below. "Average Price" means
the average (rounded to the nearest 1/10,000) of the volume weighted averages
(rounded to the nearest 1/10,000) of the trading prices of Global Common Stock
on the Nasdaq National Market ("NASDAQ"), as reported by Bloomberg Financial
Markets (or such other source as the parties shall agree in writing), for the
15 trading days randomly selected by lot by Frontier and Global together from
the 30 consecutive trading days ending on the trading day immediately
preceding the date on which all the conditions to Closing (other than
conditions that, by their terms, cannot be satisfied until the Closing Date so
long as it is reasonably apparent that such conditions
A-2
<PAGE>
will be able to be satisfied on the Closing Date) set forth in Article VI
shall have been satisfied or waived (the "Determination Date"); provided, that
the Exchange Ratio shall not be less than 1.0919, or, unless Global shall have
exercised its rights to make a Global Adjustment Election or a Combination
Election under Section 7.1(g), greater than 1.7939. If prior to the Effective
Time, Global should split or combine the shares of Global Common Stock, or pay
a stock dividend or other stock distribution in shares of Global Common Stock,
or otherwise change the shares of Global Common Stock into any other
securities, or make any other dividend or distribution on the shares of Global
Common Stock, then the Exchange Ratio will be appropriately adjusted to
reflect such split, combination, dividend or other distribution or change.
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Frontier Common Stock
shall cease to be outstanding and shall be canceled and retired and shall
cease to exist, and each holder of a certificate which immediately prior to
the Effective Time represented any such shares of Frontier Common Stock (a
"Certificate") (other than Merger Sub, Global and Frontier) shall thereafter
cease to have any rights with respect to such shares of Frontier Common Stock,
except the right to receive the applicable Merger Consideration in accordance
with Article II upon the surrender of such certificate.
(c) Each share of Frontier Common Stock issued and owned or held directly or
indirectly by Global or directly by Frontier at the Effective time shall, by
virtue of the Merger, cease to be outstanding and shall be canceled and
retired and no stock of Global or other consideration shall be delivered in
exchange therefor.
(d) Each share of common stock, par value $1.00 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall forthwith
cease to exist and shall be converted into one validly issued, fully paid and
non-assessable share of common stock, par value $1.00 per share, of the
Surviving Corporation as of the Effective Time.
1.9 Voting Agreement. Concurrently with the execution and delivery of this
Agreement, Frontier and the Principal Shareholders are executing and
delivering an agreement substantially in the form of Exhibit 1.9 hereto,
pursuant to which, among other things, the Principal Shareholders are agreeing
to vote all of the shares of Global Common Stock owned, beneficially or of
record, by them to approve the Share Issuance and the Global Charter Amendment
(in each case, as defined in Section 3.2(c)(i)) and such shares in the
aggregate constitute, and at the record date for the Global Shareholders
Meeting (as defined in Section 5.1(d)), will constitute at least 51% of the
Combined Voting Power (as defined in Section 8.11).
1.10 Alternative Transaction Structure.
(a) Alternative Merger Notice. Frontier shall be entitled to give Global a
notice to adopt the alternative merger structure (the "Alternative Merger") as
described in Section 1.10(b) (the "Alternative Merger Notice") if (i) the
Applicable Closing Conditions (as defined in Section 8.11) have been
satisfied, (ii) a Trigger Event (as defined in Section 8.11) has not occurred
or is no longer in effect for any reason, and (iii) at least 180 days have
passed since the date of this Agreement; provided, however, that if a Trigger
Event occurs between 180 days and 240 days after the date of this Agreement,
the Alternative Merger Structure Notice shall be deemed terminated if the Form
S-4 which contains the Joint Proxy Statement/Prospectus (as defined in Section
5.1) relating to the Merger could be declared effective by the SEC under the
Securities Act at an earlier time than the Form S-4 which contains the Joint
Proxy Statement/Prospectus relating to the Alternative Merger. Unless the
parties otherwise agree, without action on the part of either Global or
Frontier, an Alternative Merger Notice shall be deemed to have been given on
the date that is 240 days after the date of this Agreement, provided that if a
Trigger Event has not occurred or is no longer in effect for any reason, or,
if a Trigger Event had occurred, on the later date that such Trigger Event is
no longer in effect for any reason. In the event an Alternative Merger Notice
is given or deemed to have been given (the "Alternative Merger Notice Date"),
the Merger contemplated by Section 1.1 of this Agreement shall be restructured
in the manner set forth in this Section 1.10. In such event,
A-3
<PAGE>
all references to the term "Merger" in this Agreement shall be deemed
references to the transactions contemplated by this Section 1.10, all
references to the term "Effective Time" in this Agreement shall be deemed
references to the time at which (i) the certificate of merger is duly filed
with the New York Department of State in accordance with Section 904 of the
NYBCL and (ii) the registration of an amalgamated company and such other
documents as are required by the Companies Act 1981 Bermuda in connection with
the merger are duly filed with the Registrar of Companies Bermuda (or at such
later time as is specified in the certificate of merger) with respect to the
Merger as restructured in the manner contemplated by this Section 1.10 and
except as provided below, Sections 1.8 and 2.5 shall no longer be of any force
or effect and the provisions of this Section 1.10 shall govern the terms of
the Merger. In the event that the Alternative Merger Notice is given or deemed
to be given, references to the term Merger shall be deemed to be a reference
to the Alternative Merger.
(b) The Alternative Merger. In the event an Alternative Merger Notice is
given or deemed to have been given, New Global corporation, a Delaware
corporation ("New Global"), will promptly be formed by and owned equally by
Global and Frontier. Global and Frontier will cause New Global to become a
party to this Agreement. Prior to the Effective Time of the Alternative
Merger, Global and Frontier will cause New Global to incorporate two wholly
owned subsidiaries ("Global Merger Sub", a Bermuda company and "Frontier
Merger Sub", a New York corporation). At the Effective Time of the Alternative
Merger, (i) Global Merger Sub shall be amalgamated with and into Global in
accordance with the Companies Act of 1981 of Bermuda whereupon the separate
existence of Global Merger Sub shall cease, and Global shall continue in the
form of the amalgamated company, and (ii) Frontier Merger Sub shall be merged
with and into Frontier in accordance with New York Law, whereupon the separate
existence of Frontier Merger Sub shall cease, and Frontier shall be the
surviving corporation. Frontier and Global are sometimes referred to herein as
the "Surviving Corporations".
(c) Effect of Alternative Merger on Capital Stock.
(i) At the Effective Time of the Alternative Merger, (A) each share of
Frontier Common Stock outstanding immediately prior to such Effective Time
shall, except as otherwise provided below, be converted into the right to
receive that number of shares of New Global Common Stock, par value $.01 per
share (the "New Global Common Stock"), equal to the Exchange Ratio (as defined
in section 1.8(a)) and (B) each share of Global Common Stock outstanding
immediately prior to such Effective Time shall be converted into the right to
receive 1.0 share of New Global Common Stock. For purposes of the immediately
preceding sentence, any cash transferred to the Frontier shareholders pursuant
to the Cash Top-Up Election or the Combination Election shall be paid by New
Global.
(ii) As a result of the Alternative Merger and without any action on the
part of the holders thereof, at the Effective Time, all shares of Frontier
Common Stock and Global Common Stock shall cease to be outstanding and shall
be canceled and retired and shall cease to exist, and each holder of a
certificate which immediately prior to the Effective Time represented any such
shares of Frontier Common Stock or Global Common Stock (a "Certificate")
(other than New Global, Global Merger Sub, Frontier Merger Sub, Global and
Frontier) shall thereafter cease to have any rights with respect to such
shares of Frontier Common Stock or Global Common Stock, except the right to
receive the applicable Merger Consideration upon the surrender of such
certificate.
(iii) Each share of Frontier Common Stock issued and owned or held directly
or indirectly by Global or directly by Frontier at the Effective Time and each
Share of Global Common Stock issued and owned or held directly or indirectly
by Frontier or directly by Global at the Effective Time shall, by virtue of
the Alternative Merger, cease to be outstanding and shall be canceled and
retired and no stock of New Global or other consideration shall be delivered
in exchange therefor.
(iv) Each share of common stock of Global Merger Sub or Frontier Merger Sub
issued and outstanding immediately prior to the Effective Time shall forthwith
cease to exist and shall be converted into one validly issued, fully paid and
non-assessable share of common stock of the respective surviving corporation
as of the Effective Time.
A-4
<PAGE>
(d) Merger Consideration. The New Global Common Stock to be received as
consideration in the Alternative Merger by holders of Global Common Stock or
Frontier Common Stock is referred to herein as the "Merger Consideration".
(e) Assumption of Stock Options and Warrants. New Global shall assume the
Frontier Stock Options and Frontier Warrants (as defined in Section 3.1(b))
and the Global Stock Options and Global Warrants (as defined in Section
3.2(b)) on the terms set forth in Exhibits 5.6(i) and (ii) hereto
respectively. Frontier and Global agree that each of the company's other stock
plans and treatment of each of the company's officers and employees shall be
as set forth in the respective exhibits. Frontier and Global shall take all
such steps as may be required to cause the transactions contemplated by this
Section 1.10(e) and any other dispositions of Frontier and Global equity
securities (including derivative securities) or acquisitions of New Global
equity securities (including derivative securities) in connection with this
Agreement by each individual who (x) is a director or officer of Frontier or
Global or (y) at the Effective Time, will become a director or officer of New
Global, to be exempt under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, such steps to be taken in accordance with
the No-Action Letter dated January 12, 1999, issued by the SEC to Skadden,
Arps, Slate, Meagher & Flom LLP.
(f) Employee Benefits.
(i) Obligations of New Global; Comparability of Benefits. Each Frontier
and Global Benefit Plan as to which Frontier or Global or any of their
respective Subsidiaries has any obligation with respect to any current or
former employee (the "Frontier Employees" and the "Global Employees"
together the "Employees") shall, as of the Effective Time, be the
obligations of New Global and the respective Surviving Corporations. At the
Effective Time and for at least two years thereafter, New Global shall, or
shall cause the respective Surviving Corporations to, provide benefits, in
the aggregate, that are no less favorable than the benefits provided, in
the aggregate, under Frontier's and Global's respective Benefit Plans (the
"Plans") to the Employees immediately prior to the Effective Time.
Notwithstanding the foregoing, nothing herein shall require (A) the
continuation of any particular Plan or prevent the amendment or termination
thereof (subject to the maintenance, in the aggregate, of the benefits as
provided in the preceding sentence) or (B) New Global or the respective
Surviving Corporations to continue or maintain any stock purchase or other
equity plan related to the equity of Frontier or Global or the respective
Surviving Corporations.
(ii) Pre-Existing Limitations; Deductible; Service Credit. With respect
to any New Global Benefit Plans in which the Employees participate
effective as of the Closing Date or thereafter, New Global shall, or shall
cause each of the Surviving Corporations to: (A) not impose any limitations
more onerous than those currently in effect as to pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Employees under any welfare New Global
Benefit Plan in which such Employees may be eligible to participate after
the Effective Time, (B) provide each Employee with credit for any co-
payments and deductibles paid prior to the Effective Time in satisfying any
applicable deductible or out-of-pocket requirements under any welfare New
Global Benefit Plan in which such employees may be eligible to participate
after the Effective Time, and (C) recognize all service of the Employees
with Frontier and Global respectively for all purposes (including, without
limitation, purposes of eligibility to participate, vesting credit,
entitlement for benefits, and benefit accrual) in any New Global Benefit
Plan in which such employees may be eligible to participate after the
Effective Time, to the same extent taken into account under a comparable
Frontier or Global Plan immediately prior to the Closing Date.
(g) No Fractional Shares of New Global Common Stock.
(i) No certificates or scrip for shares of New Global Common Stock
representing fractional shares of New Global Common Stock shall be issued
upon the surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any rights
of a share holder of New Global or a holder of shares of New Global Common
Stock.
A-5
<PAGE>
(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of Frontier Common Stock exchanged pursuant to the Alternative
Merger who would otherwise have been entitled to receive a fraction of a
share of New Global Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to the product of (A) such fractional
part of a share of New Global Common Stock multiplied by (B) the last sales
price per share of Global Common Stock reported on NASDAQ as reported in
The Wall Street JournaL, Eastern edition, on the Closing Date. As promptly
as practicable after the determination of the amount of cash, if any, to be
paid to holders of fractional interests, the Exchange Agent shall notify
New Global, and New Global shall cause the surviving corporation to deposit
such amount with the Exchange Agent and shall cause the Exchange Agent to
forward payments to such holders of fractional interests subject to and in
accordance with the terms hereof.
(h) Representations and Warranties of New Global. Immediately prior to the
Effective Time of the Alternative Merger, New Global will become a party to
this Agreement and make the following representa tions and warranties to each
of Global and Frontier:
(i) Organization, Standing and Power. At the Effective Time, New Global
will be a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization, and
will have all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted by Frontier
and Global and will be duly qualified and in good standing to do business
in each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary other than
in such jurisdictions where the failure so to qualify or to be in good
standing would not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on New Global.
(ii) Authority; No Conflicts
(A) At the Effective Time, New Global will have all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, subject, in the case
of the issuance of the shares of New Global Common Stock to be issued
in the Merger (the "New Global Share Issuance") and the New Global
certificate of incorporation will provide for authorized shares of New
Global Common Stock of not less than 2 billion shares. The execution
and delivery of this Agreement and the consum mation of the
transactions contemplated hereby will be duly authorized by all
necessary corporate action on the part of New Global. This Agreement
will be duly executed and delivered by New Global and will constitute a
valid and binding agreement of New Global, enforceable against it in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors generally, by general equity
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing.
(B) At the Effective Time, the execution and delivery of this
Agreement by New Global will not, and the consummation by New Global of
the Alternative Merger and the other transactions contemplated hereby
will not, conflict with, or result in a Violation (as defined in
Section 3.1(c)(ii)) pursuant to: (x) any provision of the certificate
of incorporation or by-laws of New Global or any charter document of
any Subsidiary of New Global, or (y) except as would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on New Global, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (C) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or
other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to New Global or any Subsidiary of New Global or
their respective properties or assets.
A-6
<PAGE>
(C) At the Effective Time, no consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity will be required by or with respect to New Global
or any Subsidiary of New Global in connection with the execution and
delivery of this Agreement by New Global or the consummation of the
Alternative Merger and the other transactions contemplated hereby,
except for the Required Consents, and such consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on New Global.
(iii) Board Approval. At the Effective Time, the Board of Directors of
New Global, by resolutions duly adopted at a meeting duly called and held
and not subsequently rescinded or modified in any way, will duly (A)
determine that this Agreement and the Alternative Merger are in the best
interests of New Global and its shareholders, and (B) approve this
Agreement, the Alternative Merger and the issuance of shares of New Global
Common Stock, and (C) recommend that the shareholders of New Global approve
this Agreement and the issuance of shares of New Global Common Stock in the
Alternative Merger.
(iv) Shareholder Vote. Global and Frontier as the holders of all of the
outstanding shares of New Global Common Stock shall vote to approve this
Agreement and the issuance of shares of New Global Common Stock in the
Alternative Merger.
(i) Covenants of Global and Frontier. Prior to the Effective Time of the
Alternative Merger, Global and Frontier shall ensure that New Global, Global
Merger Sub and Frontier Merger Sub take no actions and undertake no operations
except as may be necessary in connection with the consummation of the Merger
and the transactions contemplated hereby.
(j) Modifications to Agreement.
(i) At the time of the Alternative Merger Notice Date, and without any
further action on the part of either Frontier or Global, a new Section
6.2(e) and 6.3(d) to this Agreement will be added as follows:
"New Global shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, and the representations and warranties of New Global
shall be accurate in all material respects at and as of the Effective
Time."
and a new Section 6.1(h) will be added as follows:
"The shares of New Global Common Stock to be issued in the
Alternative Merger and such other shares to be reserved for issuance in
the Alterna tive Merger shall have been approved upon official notice
of issuance for quotation on NASDAQ."
(ii) Global and Frontier agree that in the event of the Alternative
Merger Notice, any and all other appropriate adjustments shall be made to
the other terms and conditions of this Agreement to reflect the
transactions contemplated by this Section 1.10.
(iii) For the purposes of implementing the Alternative Merger, Global and
Global Merger Sub shall enter into an Amalgamation Agreement (the
"Amalgamation Agreement") in accordance with the laws of Bermuda for
presentation to and approval of the shareholders of Global and Global
Merger Sub.
(k) Listing of Shares of New Global Common Stock. New Global shall use its
best efforts to cause the shares of New Global Common Stock to be issued in
the Alternative Merger, and the shares of New Global Common Stock to be
reserved for issuance upon exercise of the Frontier Stock Options, the
Frontier Warrants, the Frontier Convertible Debt (as defined in Section
3.1(b)), and the Global Stock Options and Warrants, to be approved for
quotation, upon official notice of issuance, on NASDAQ.
A-7
<PAGE>
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, Global shall appoint First
Chicago Trust Company of New York or another commercial bank or trust company
having net capital of not less than $100,000,000, or a subsidiary thereof, to
act as exchange agent hereunder for the purpose of exchanging Certificates for
the Merger Consideration (the "Exchange Agent"). At or prior to the Effective
Time, Global shall deposit with the Exchange Agent, in trust for the benefit
of holders of shares of Frontier Common Stock, certificates representing the
Global Common Stock issuable pursuant to Section 1.8 in exchange for
outstanding shares of Frontier Common stock and, if applicable, cash to be
paid as a result of the Cash Top-Up pursuant to Section 7.1(g). Global agrees
to make available to the Exchange Agent from time to time as needed, cash
sufficient to pay cash in lieu of fractional shares pursuant to Section 2.5,
and any dividends and other distributions pursuant to Section 2.3. Any cash
and certificates of Global Common Stock deposited with the Exchange Agent
shall hereinafter be referred to as the "Exchange Fund."
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of a Certificate (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent, and which letter shall be in customary form and have such
other provisions as Global may reasonably specify and (ii) instructions for
effecting the surrender of such Certificates in exchange for the applicable
Merger Consideration. Upon surrender of a Certificate to the Exchange Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) one or more certificates
for Global Common Stock representing, in the aggregate, the whole number of
shares that such holder has the right to receive pursuant to Section 1.8
(after taking into account all shares of Frontier Common Stock then held by
such holder) and (B) a check in the amount equal to the cash that such holder
has the right to receive pursuant to the provisions of this Article II,
including cash in lieu of any fractional shares of Global Common Stock
pursuant to Section 2.5, any dividends and other distributions pursuant to
Section 2.3 and any cash to be paid as a result of a Cash Top-Up pursuant to
Section 7.1(g). No interest will be paid or will accrue on any cash payable
pursuant to Section 2.3, Section 2.5 or as a result of a Cash Top-Up pursuant
to Section 7.1(g). In the event of a transfer of ownership of Frontier Common
Stock which is not registered in the transfer records of Frontier,
certificates for one or more shares of Global Common Stock evidencing, in the
aggregate, the proper number of shares of Global Common Stock and a check in
the proper amount of cash in lieu of any fractional shares of Global Common
Stock pursuant to Section 2.5, any dividends or other distributions to which
such holder is entitled pursuant to Section 2.3, and as a result of a Cash
Top-Up pursuant to Section 7.1(g) may be issued with respect to such Frontier
Common Stock to such a transferee if the Certificate representing such shares
of Frontier Common Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made with respect to shares of Global Common Stock
with a record date after the Effective Time (if any) shall be paid to the
holder of an unsurrendered Certificate with respect to the shares of Global
Common Stock that such holder would be entitled to receive upon surrender of
such Certificate, no cash payment in lieu of fractional shares of Global
Common Stock shall be paid to any such holder pursuant to Section 2.5 and no
cash payment as a result of a Cash Top-Up pursuant to Section 7.1(g) shall be
paid to any such holder, until such holder shall surrender such Certificate in
accordance with Section 2.2. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to such
holder of shares of Global Common Stock issuable in exchange therefor, without
interest, (a) promptly after the time of such surrender, the amount of any
cash payable in lieu of fractional shares of Global Common Stock to which such
holder is entitled pursuant to Section 2.5, the amount of any dividends or
other distributions with a record date after the Effective Time theretofore
A-8
<PAGE>
paid with respect to such whole shares of Global Common Stock and any cash
payment as a result of a Cash Top-Up pursuant to Section 7.1(g), and (b) at
the appropriate payment date, the amount of any dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such shares of Global Common Stock.
2.4 No Further Ownership Rights in Frontier Common Stock. All shares of
Global Common Stock issued and cash paid upon conversion of shares of Frontier
Common Stock in accordance with the terms of Article I and this Article II
(including any cash paid pursuant to Section 2.3, 2.5 or as a result of a Cash
Top-Up pursuant to Section 7.1(g)) shall be deemed to have been issued or paid
in full satisfaction of all rights pertaining to the shares of Frontier Common
Stock.
2.5 No Fractional Shares of Global Common Stock.
(a) No certificates or scrip for shares of Global Common Stock representing
fractional shares of Global Common Stock shall be issued upon the surrender
for exchange of Certificates and such fractional share interests will not
entitle the owner thereof to vote or to have any rights of a shareholder of
Global or a holder of shares of Global Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Frontier Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Global Common
Stock (after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
the product of (i) such fractional part of a share of Global Common Stock
multiplied by (ii) the last sales price per share of Global Common Stock
reported on NASDAQ as reported in The Wall Street Journal, Eastern edition, on
the Closing Date. As promptly as practicable after the determination of the
amount of cash, if any, to be paid to holders of fractional interests, the
Exchange Agent shall notify Global, and Global shall cause the Surviving
Corporation to deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for twelve months after
the Effective Time shall be delivered to the Surviving Corporation or
otherwise on the instruction of the Surviving Corporation, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and Global for the Merger
Consideration with respect to the shares of Frontier Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.8
and Section 2.2, any cash in lieu of fractional shares of Global Common Stock
to which such holders are entitled pursuant to Section 2.5, any dividends or
distributions with respect to shares of Global Common Stock to which such
holders are entitled pursuant to Section 2.3 and any cash payment as a result
of a Cash Top-Up pursuant to Section 7.1(g).
2.7 No Liability. None of Global, Merger Sub, Frontier, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. Except as provided below, the Exchange
Agent shall invest any cash included in the Exchange Fund as directed by the
Surviving Corporation on a daily basis. If Global exercises the Cash Top-Up
Election pursuant to Section 7.1(g), then the Exchange Agent shall invest the
cash included in the Exchange Fund only in one or more of the following
investments as directed by the Surviving Corporation from time to time in (a)
obligations of the United States government maturing not more than 180 days
after the date of purchase; (b) certificates of deposit maturing not more than
180 days after the date of purchase issued by a bank organized under the laws
of the United States or any state thereof having combined capital and surplus
of at least $500,000,000; (c) a money market fund having assets of at least
$3,000,000,000; or (d) tax-exempt or corporate debt obligations maturing not
more than 180 days after the date of purchase given the highest
A-9
<PAGE>
investment grade rating by Standard & Poor's and Moody's Investor Service. Any
interest and other income resulting from such investments shall promptly be
paid to the Surviving Corporation.
2.9 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed Certificate
the applicable Merger Consideration with respect to the shares of Frontier
Common Stock formerly represented thereby, any cash in lieu of fractional
shares of Global Common Stock, and unpaid dividends and distributions on
shares of Global Common Stock deliverable in respect thereof, pursuant to this
Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and Global shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Frontier Common Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations
promulgated thereunder, or any provision of state, local or foreign tax law.
To the extent that amounts are so withheld by the Surviving Corporation or
Global, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Frontier Common Stock in respect of which such deduction and withholding was
made by the Surviving Corporation or Global, as the case may be.
2.11 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Frontier or Merger Sub, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on
behalf of Frontier or Merger Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties
or assets acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
2.12 Stock Transfer Books. At the close of business, New York City time, on
the day the Effective Time occurs, the stock transfer books of Frontier shall
be closed and there shall be no further registration of transfers of shares of
Frontier Common Stock thereafter on the records of Frontier. From and after
the Effective Time, the holders of Certificates shall cease to have any rights
with respect to such shares of Frontier Common Stock formerly represented
thereby, except as otherwise provided herein or by law. On or after the
Effective Time, any Certificates presented to the Exchange Agent, the
Surviving Corporation or Global for any reason shall be converted into the
Merger Consideration with respect to the shares of Frontier Common Stock
formerly represented thereby, any cash in lieu of fractional shares of Global
Common Stock to which the holders thereof are entitled pursuant to Section
2.5, any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.3 and any cash payment as a result of a Cash
Top-Up pursuant to Section 7.1(g).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Frontier. Except as set forth in the
Frontier Disclosure Schedule delivered by Frontier to Global prior to the
execution of this Agreement (the "Frontier Disclosure Schedule"), Frontier
represents and warrants to Global as follows:
(a) Organization, Standing and Power. Each of Frontier and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted and is duly qualified and
in good standing to do business in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification necessary
A-10
<PAGE>
other than in such jurisdictions where the failure so to qualify or to be in
good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect (as defined in Section 8.11) on
Frontier. The copies of the restated certificate of incorporation and by-laws
of Frontier which were previously furnished to Global are true, complete and
correct copies of such documents as in effect on the date of this Agreement.
(b) Capital Structure.
(i) As of March 12, 1999, the authorized capital stock of Frontier
consisted of (A) 300,000,000 shares of Frontier Common Stock, of which
172,321,329 shares were outstanding, (B) 850,000 shares of Cumulative
Preferred Stock, par value $100 per share, of which 53,067 shares of
Cumulative Preferred Stock, 5% Series, 38,492 shares of Cumulative
Preferred Stock, Second 5% Series, 48,044 shares of Cumulative Preferred
Stock, 5.65% Series, 41,514 shares of Cumulative Preferred Stock, 4.60%
Series (collectively, the "Frontier Preferred Stock") and no shares of
Convertible Preferred Stock, 5% Series were outstanding, (C) 4,000,000
shares of Class A Preferred Stock, par value $100 per share, of which no
shares were outstanding, and (D) 3,000,000 shares of Junior Participating
Class A Preferred Stock which were reserved for issuance upon exercise of
the rights (the "Rights") distributed to the holders of Frontier Common
Stock pursuant to the Rights Agreement, dated as of April 9, 1995, between
Frontier and First National Bank of Boston, as Rights Agent, as amended
(the "Rights Agreement"). Since March 12, 1999 to the date of this
Agreement, there have been no issuances of shares of the capital stock of
Frontier or any other securities of Frontier other than issuances of shares
(and accompanying Rights) pursuant to options or rights outstanding as of
March 12, 1999 under the Frontier Benefit Plans (as defined in Section
3.1(o)). All issued and outstanding shares of the capital stock of Frontier
are duly authorized, validly issued, fully paid and non-assessable, and no
class of capital stock is entitled to preemptive rights. There were
outstanding as of March 12, 1999 no options, warrants or other rights to
acquire capital stock from Frontier other than (w) the Rights, (x) options
representing in the aggregate the right to purchase 14,902,015 shares of
Frontier Common Stock (collectively, the "Frontier Stock Options") under
the Directors' Stock Incentive Plan, the Employees' Stock Option Plan, the
Management Stock Incentive Plan, the ALC Communications Corporation 1994
Non-Employee Director Stock Option Plan, the ALC Communications Corporation
1990 Stock Option Plan, the ALC Communications Corporation 1986 Stock
Option Plan, the GlobalCenter, Inc. 1997 Stock Plan Stock Option Agreement
and the (GlobalCenter) Primenet Services for the Internet, Inc. 1995 Stock
Option Plan (collectively, the "Frontier Stock Option Plans"), (y) warrants
to purchase up to 27,699 shares of Frontier Common Stock (the "Frontier
Warrants"), and (z) 10.46% convertible debenture due October 27, 2008 with
the Walters Trust (Canandaigua National Bank) which are Convertible into
Frontier Common Stock at $10.5375 per share (the "Frontier Convertible
Debt"). As of March 12, 1999, Frontier had further reserved 17,857,123
shares of Frontier Common Stock for purchase pursuant to the Frontier Stock
Option Plans, Convertible Debentures and the Frontier Warrants. Other than
pursuant to the Stock Option Agreement, the associated Rights issued with
the shares issued as described above, no options or warrants or other
rights to acquire capital stock from Frontier have been issued or granted
since March 12, 1999 to the date of this Agreement.
(ii) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of Frontier having the right to vote on any matters on
which shareholders may vote ("Frontier Voting Debt") are issued or
outstanding.
(iii) Except as otherwise set forth in this Section 3.1(b) and the Stock
Option Agreement and as contemplated by Section 5.6, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Frontier or any of its Subsidiaries is a party or by which any of them is
bound obligating Frontier or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Frontier or any of its
Subsidiaries or obligating Frontier or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, and except as contemplated by Section 5.9,
A-11
<PAGE>
there are no outstanding obligations of Frontier or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of
Frontier or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) Frontier has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby, subject in the case of the
consummation of the Merger to the adoption of this Agreement by the
Required Frontier Vote (as defined in Section 3.1(g)). The execution and
delivery of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Frontier,
subject in the case of the consummation of the Merger to the adoption of
this Agreement by the Required Frontier Vote. This Agreement and the Stock
Option Agreement have been duly executed and delivered by Frontier and each
constitutes a valid and binding agreement of Frontier, enforceable against
it in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors generally, by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) or by an implied covenant of good faith and
fair dealing.
(ii) The execution and delivery of this Agreement and the Stock Option
Agreement by Frontier does not and the consummation of the Merger by
Frontier and the other transactions contemplated hereby or thereby will
not, conflict with, or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, amendment, cancellation or acceleration of any
obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on any assets
(any such conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation") pursuant to:
(A) any provision of the certificate of incorporation or by-laws of
Frontier or any Subsidiary of Frontier, or (B) except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Frontier, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in paragraph (iii) below, any loan or credit agreement, note,
mortgage, bond, indenture, lease, benefit plan or other agreement, Material
Network Contract (as defined in Section 8.11), obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Frontier or any Subsidiary
of Frontier or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal
or local government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing,
importing or other governmental or quasi-governmental authority (a
"Governmental Entity"), is required by or with respect to Frontier or any
Subsidiary of Frontier in connection with the execution and delivery of
this Agreement and the Stock Option Agreement by Frontier or the
consummation of the Merger and the other transactions contemplated hereby
or thereby, except for those required under or in relation to (A) the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (B) the Communications Act of 1934, as amended (the "Communications
Act"), and any rules and regulations promulgated by the Federal
Communications Commission ("FCC"), (C) state securities or "blue sky" laws
(the "Blue Sky Laws"), (D) the Securities Act of 1933, as amended (the
"Securities Act"), (E) the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (F) the NYBCL with respect to the filing of the New York
Certificate of Merger, (G) laws, rules, regulations, practices and orders
of any state or state public service commissions ("PUCS"), local
franchising authorities, foreign telecommunications regulatory agencies or
similar state or foreign regulatory bodies, (H) rules and regulations of
NASDAQ and the New York Stock Exchange, Inc. (the "NYSE"), (I) antitrust or
other competition laws of other jurisdictions, and (J) such consents,
approvals, orders, authorizations, registrations, declarations and filings
the failure of which to make or obtain would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Frontier. Consents, approvals,
A-12
<PAGE>
orders, authorizations, registrations, declarations and filings required
under or in relation to any of the foregoing clauses (A) through (I) are
hereinafter referred to as "Required Consents."
(d) Reports and Financial Statements.
(i) Frontier and Frontier Telephone of Rochester, Inc., a New York
corporation ("Frontier Sub"), have filed all required reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the "SEC") since January 1, 1998
including Frontier's Current Report on Form 8-K, dated January 26, 1999,
containing Frontier's audited financial statements for the year ended
December 31, 1998 and its proxy statement with respect to the proposed 1999
annual meeting of shareholders of Frontier (collectively, including all
exhibits thereto, the "Frontier Sec Reports"). Other than Frontier Sub, no
Subsidiary of Frontier is required to file any form, report or other
document with the SEC. None of the Frontier SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing), contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Each of the financial statements (including the related notes) included in
the Frontier SEC Reports presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations and
cash flows of Frontier and its Subsidiaries as of the respective dates or
for the respective periods set forth therein, all in conformity with United
States generally accepted accounting principles ("GAAP") consistently
applied during the periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial statements, to
normal and recurring year-end adjustments that have not been and are not
expected to be material in amount. All of such Frontier SEC Reports, as of
their respective dates, complied as to form in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder.
(ii) From December 31, 1998 until the date of this Agreement, Frontier
and its Subsidiaries have not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of Frontier and
its Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the ordinary course of business or
(B) liabilities that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Frontier.
(e) Information supplied.
(i) None of the information supplied or to be supplied by Frontier for
inclusion or incorporation by reference in (A) the registration statement
on Form S-4 (as defined in Section 5.1) to be filed with the SEC by Global
in connection with the issuance of the Global Common Stock in the Merger
will, at the time it becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and (B) the Joint Proxy Statement/Prospectus (as defined in
Section 5.1) included in the Form S-4 relating to the Frontier Shareholders
Meeting and the Global Shareholders Meeting (each, as defined in Section
5.1) and the Global Common Stock to be issued in the Merger will, on the
date it is first mailed to Frontier shareholders or Global shareholders or
at the time of the Frontier Shareholders Meeting or the Global Shareholders
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e), no
representation or warranty is made by Frontier with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Global for inclusion
or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Frontier, by resolutions duly
adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way (the "Frontier Board Approval"), has
A-13
<PAGE>
duly (i) determined that this Agreement, the Stock Option Agreement, the
Merger and the Alternative Merger are in the best interests of Frontier and
its shareholders, (ii) adopted this Agreement and approved the Stock Option
Agreement, the Merger and the Alternative Merger and (iii) recommended that
the shareholders of Frontier adopt this Agreement and approve the Merger or,
if applicable, the Alternative Merger. The Frontier Board Approval constitutes
approval of this Agreement, the Stock Option Agreement, the Merger and the
Alternative Merger for purposes of Section 912 of the NYBCL (assuming that
Global is not an "interested shareholder" under Section 912 of the NYBCL
immediately before the execution and delivery of this Agreement and the Stock
Option Agreement and does not take any other actions to become an "interested
shareholder" thereunder).
(g) Vote Required. The affirmative vote of the holders of two-thirds of the
outstanding shares of Frontier Common Stock (the "Required Frontier Vote") is
the only vote of the holders of any class or series of Frontier capital stock
necessary to adopt this Agreement and approve the transactions contemplated
hereby (assuming that Global is not an "interested shareholder" under Section
912 of the NYBCL immediately before the execution and delivery of this
Agreement and the Stock Option Agreement and does not take any other actions
to become an "interested shareholder" thereunder); provided that the
redemption notice described in Frontier's restated certificate of
incorporation is given and all funds necessary for such redemption are set
aside prior to the Frontier Shareholders Meeting. No vote of the shareholders
of Frontier is required to approve the Stock Option Agreement.
(h) Rights Agreement. The Board of Directors of Frontier has approved an
amendment to the Rights Agreement to the effect that none of Global or its
affiliates or associates shall become an "Acquiring Person" (as defined in the
Rights Agreement) by reason of the execution of this Agreement or the Stock
Option Agreement, the exercise of the option granted thereby or the
consummation of the Merger or the Alternative Merger.
(i) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, except Morgan Stanley & Co.
Incorporated (the "Frontier Financial Advisor"), whose fees and expenses will
be paid by Frontier in accordance with Frontier's agreement with such firm,
based upon arrangements made by or on behalf of Frontier and previously
disclosed to Global.
(j) Opinion of Frontier Financial Advisor. Frontier has received the opinion
of the Frontier Financial Advisor, dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to the holders of Frontier Common Stock, a copy of which
opinion has been made available to Global.
(k) Affiliate Letter and Agreements. On or prior to the date of the Frontier
Shareholders Meeting, Frontier will deliver to Global a letter (the "Frontier
Affiliate Letter") identifying all persons who may, at the time this Agreement
is submitted for adoption by the shareholders of Frontier, be deemed to be
"affiliates" of Frontier for purposes of Rule 145 under the Securities Act
("Rule 145"). On or prior to the Closing Date, Frontier will use all
reasonable efforts to cause each person identified as an "affiliate" in the
Frontier Affiliate Letter to deliver a written agreement (an "Affiliate
Agreement") in substantially the form of Exhibit 3.1(k) attached hereto in
connection with restrictions on affiliates under Rule 145.
(l) Litigation. Except as disclosed in the Frontier SEC Reports and except
for claims, actions, suits, proceedings or investigations which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Frontier, there are no claims, actions, suits, proceedings
or investigations pending or, to Frontier's knowledge, threatened against
Frontier or any of its Subsidiaries, or any properties or rights of Frontier
or any of its Subsidiaries, before any Governmental Entity.
A-14
<PAGE>
(m) No Violation of Law. The business of Frontier and its Subsidiaries is
not being conducted in violation of any statute, law, ordinance, regulation,
judgment, order or decree of any Governmental Entity (including any stock
exchange or other self-regulatory body), or in violation of any permits,
franchises, licenses, authorizations
or consents that are granted by any Governmental Entity (including any stock
exchange or other self-regulatory body), except for possible violations which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Frontier, and except as disclosed in the Frontier
SEC Reports. Except as disclosed in the Frontier SEC Reports and except as
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Frontier, no investigation or review by any
Governmental Entity (including any stock exchange or other self-regulatory
body) with respect to Frontier or its Subsidiaries in relation to any alleged
violation of law or regulation is pending or, to Frontier's knowledge,
threatened, nor has any Govern mental Entity (including any stock exchange or
other self-regulatory body) indicated in writing an intention to conduct the
same. Neither Frontier nor any of its Subsidiaries is subject to any cease and
desist or other order, judgment, injunction or decree issued by, or is a party
to any written agreement, consent agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or has adopted any board resolutions at
the request of, any Governmental Entity that materially restricts the conduct
of its business other than those which would not, individually or in the
aggregate, reason ably be expected to have a Material Adverse Effect on
Frontier, nor has Frontier or any of its Subsidiaries been advised in writing
that any Governmental Entity is considering issuing or requesting any of the
foregoing.
(n) Taxes. All material Federal, state, local, and foreign tax returns
required to be filed by Frontier and its Subsidiaries have been timely filed.
All material taxes shown on such returns as being due or claimed to be due
from Frontier and its Subsidiaries in a written statement have been paid other
than those (i) currently payable without penalty or interest or (ii) being
contested in good faith and by appropriate proceedings timely instituted and
diligently pursued and for which adequate reserves have been established on
the books and records of Frontier and its Subsidiaries, as the case may be, in
accordance with generally accepted accounting principles.
(o) Frontier Benefit Plans
(i) Each deferred compensation and each incentive compensation, equity
compensation plan, "welfare" plan, fund or program (within the meaning of
section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")); "pension" plan, fund or program (within the meaning of
section 3(2) of ERISA); each employment, consulting, continuation,
termination or severance agreement; and each other employee benefit plan,
fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by Frontier
or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with Frontier would be deemed a "single
employer" within the meaning of section 4001(b) of ERISA, or to which
Frontier or an ERISA Affiliate is party, whether written or oral, for the
benefit of any employee or former employee of Frontier or any Subsidiary
(the "Frontier Benefit Plans") is in compliance with all applicable
provisions of ERISA and the Code, and neither Frontier nor any ERISA
Affiliates have any liabilities or obligations with respect to any such
Frontier Benefit Plans, whether or not accrued, contingent or otherwise,
except (x) as described in any of the Frontier SEC Reports or set forth in
Section 3.1(o)(i) of the Frontier Disclosure Schedule or (y) for in stances
of noncompliance or liabilities or obligations that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect on Frontier.
(ii) No amount in excess of $150 million, which amount relates to
"parachute payments" (as defined in the Code) to the nineteen executive
officers of Frontier under the change in control agreements to which each
such executive officer is a party or under the Frontier Benefit Plans in
which such executive officers participate, shall fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
3.2 Representations and Warranties of Global. Except as set forth in the
Global Disclosure Schedule delivered by Global to Frontier prior to the
execution of this Agreement (the "Global Disclosure Schedule"), Global
represents and warrants to Frontier as follows:
A-15
<PAGE>
(a) Organization, Standing and Power. Each of Global and each of its
Subsidiaries is a company, or a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification necessary other than in such jurisdictions where the
failure so to qualify or to be in good standing would not, either individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
on Global. The copies of the memorandum of association and bye-laws of Global
which were previously furnished to Frontier are true, complete and correct
copies of such documents as in effect on the date of this Agreement.
(b) Capital Structure.
(i) As of March 12, 1999, the authorized capital stock of Global
consisted of 600,000,000 shares of Global Common Stock of which 411,357,572
shares were outstanding. Since March 12, 1999 to the date of this
Agreement, there have been no issuances of shares of the capital stock of
Global or any other securities of Global other than issuances of shares
pursuant to options or rights outstanding under the Global Benefit Plans
(as defined in Section 3.2(m)). All issued and outstanding shares of the
capital stock of Global are duly authorized, validly issued, fully paid and
non-assessable, and no class of capital stock is entitled to preemptive
rights. There were outstanding as of March 12, 1999 no options, warrants or
other rights to acquire capital stock from Global other than (A) options
representing in the aggregate the right to purchase 32,403,528 shares of
Global Common Stock issued to current or former employees and directors of
Global and its Subsidiaries pursuant to Global's 1998 Stock Incentive Plan
(the "Global Stock Option Plan") and (B) (i) 12,500,012 warrants expiring
August 13, 2003, exercisable at $9.50 per share of Global Common Stock, and
(ii) 5,108,358 warrants expiring August 13, 2008, exercisable at $9.50 per
share of Global Common Stock (collectively, the "Global Warrants"). No
options or warrants or other rights to acquire capital stock from Global
have been issued or granted since March 12, 1999 to the date of this
Agreement.
(ii) As of the date of this Agreement, no bonds, debentures, notes or
other indebtedness of Global having the right to vote on any matters on
which Shareholders may vote ("Global Voting Debt") are issued or
outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), as of the
date of this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which Global or any of its Subsidiaries is a party or by which any of
them is bound obligating Global or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Global or any of its
Subsidiaries or obligating Global or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, there are no outstanding obligations of Global or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Global or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) Global has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby,
subject, to the approval of the issuance of the shares of Global Common
Stock to be issued in the Merger (the "Share Issuance") and to the adoption
of an amendment to the memorandum of association of Global increasing the
number of authorized shares of Global Common Stock to not less than 2
billion shares (the "Global Charter Amendment") by the Required Global Vote
(as defined in Section 3.2(g)) and the filing of the requisite Memorandum
of Increase with the Registrar of Companies of Bermuda and the approval of
the Share Issuance (and the subsequent free transferability of the
corresponding shares between nonresident persons for exchange control
purposes) by the Bermuda Monetary Authority. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Global, subject to the approval by the shareholders of Global of the Share
Issuance and the Global
A-16
<PAGE>
Charter Amendment. This Agreement has been duly executed and delivered by
Global and constitutes a valid and binding agreement of Global, enforceable
against it in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally, by general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law) or by an implied covenant of good
faith and fair dealing.
(ii) The execution and delivery of this Agreement by Global does not or
will not, as the case may be, and the consummation by Global of the Merger
and the other transactions contemplated hereby will not, conflict with, or
result in a Violation pursuant to: (A) any provision of the memorandum of
association or bye-laws of Global or any other constitient document of any
Subsidiary of Global, or (B) except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Global, subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Global or any Subsidiary
of Global or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Global or any Subsidiary of Global in connection with the
execution and delivery of this Agreement by Global or the consummation of
the Merger and the other transactions contemplated hereby, except for the
Required Consents, filing of the requisite Memorandum of Increase with the
Registrar of Companies of Bermuda and the approval of the Share Issuance
(and of the subsequent free transferability of the corresponding shares
between nonresident persons for exchange control purposes) by the Bermuda
Monetary Authority and such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on Global.
(d) Reports and Financial Statements.
(i) Global and Global Crossing Holdings Ltd. ("Global Holdings") have
filed all required reports, schedules, forms, statements and other
documents required to be filed by it with the SEC since January 1, 1998
(collectively, including all exhibits thereto, the "Global Sec Reports").
No Subsidiary of Global other than Global Holdings is required to file any
form, report or other document with the SEC. None of the Global SEC
Reports, as of their respective dates (and, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such
filing), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the
related notes) included in the Global SEC Reports presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of Global and its Subsidiaries as of
the respective dates or for the respective periods set forth therein, all
in conformity with GAAP consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such Global SEC Reports, as of their respective dates,
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Global has made available to Frontier drafts of the consolidated
financial statements of Global and its Subsidiaries at and for the year
ended December 31, 1998 of Global (in the respective form thereof as of the
date of this Agreement, collectively, the "Global Draft Disclosures"). To
the knowledge of Global, each of the Global Draft Disclosures, including
the financial statements included therein, is in substantially final form,
except that the Global Draft Disclosures do not disclose any information
with respect to this Agreement, the transactions contemplated hereby or the
effect that this Agreement or such transactions might have on the business,
financial condition or results of operations (actual, pro forma or
projected) of
A-17
<PAGE>
Global and its Subsidiaries (collectively, the "Global Transaction
Information"). The Global Draft Disclosures were not prepared for the
purpose of providing to Frontier or any other Person any Global Transaction
Information. To the knowledge of Global, except with respect to Global
Transaction Information, (x) the draft financial statements (including the
related notes) included in the Global Draft Disclosures present fairly, in
all material respects, the consolidated financial position and consolidated
results of operations and cash flows of Global and its Subsidiaries as of
the respective dates or for the respective periods set forth therein, all
in conformity with GAAP consistently applied during the periods involved
except as otherwise noted therein and (y) all of the Global Draft
Disclosures comply as to form in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
(iii) From December 31, 1998 until the date of this Agreement, Global and
its Subsidiaries have not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of Global and its
Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the ordinary course of business or
(B) liabilities that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Global.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Global for
inclusion or incorporation by reference in (A) the Form S-4 will, at the
time the Form S-4 becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (B) the Joint Proxy Statement/Prospectus will, on the
date it is first mailed to Frontier shareholders or Global shareholders or
at the time of the Frontier Shareholders Meeting or the Global Shareholders
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e), no
representation or warranty is made by Global with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Frontier for
inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Global, by resolutions duly
adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly (i) determined that this Agreement, the Merger
and the Alternative Merger are in the best interests of Global and its share
holders, (ii) approved this Agreement, the Merger and the Alternative Merger,
(iii) approved the Global Charter Amendment and the Share Issuance and (iv)
recommended that the shareholders of Global approve the Global Charter
Amendment, the Share Issuance or, if applicable, the Alternative Merger.
(g) Vote Required. The affirmative vote of holders of shares of Global
Common Stock representing a simple majority of votes that may be cast by all
holders of shares of Global Common Stock (the "Required Global Vote") is the
only vote of the holders of any class or series of Global capital stock
necessary to approve the Global Charter Amendment, the Share Issuance and, if
applicable, the Alternative Merger. The Principal Shareholders hold, and as of
the record date for the Global Shareholders Meeting will hold, shares of
Global Common Stock which are subject to the Voting Agreement and that, in the
aggregate, constitute at least 51% of the Combined Voting Power.
(h) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made
by or on behalf of Global,
A-18
<PAGE>
except Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith
Barney (collectively, the "Global Financial Advisors") and Chase Securities
Inc., whose fees and expenses will be paid by Global in accordance with
Global's agreement with such firms based upon arrangements made by or on
behalf of Global and previously disclosed to Frontier.
(i) Opinions of Financial Advisors. Global has received the opinions of the
Global Financial Advisors, dated the date of this Agreement, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to Global, a copy of which opinions have been made available to
Frontier.
(j) Litigation. Except as disclosed in the Global SEC Reports and except for
claims, actions, suits, proceedings or investigations which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Global, there are no claims, actions, suits, proceedings or
investigations pending or, to Global's knowledge, threatened against Global or
any of its Subsidiaries, or any properties or rights of Global or any of its
Subsidiaries, before any Governmental Entity.
(k) No Violation of Law. The business of Global and its Subsidiaries is not
being conducted in violation of any statute, law, ordinance, regulation,
judgment, order or decree of any Governmental Entity (including any stock
exchange or other self-regulatory body), or in violation of any permits,
franchises, licenses, authorizations or consents that are granted by any
Governmental Entity (including any stock exchange or other self-regulatory
body), except for possible violations which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Global.
Except as disclosed in the Global SEC Reports and except as would not,
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect on Global, no investigation or review by any Governmental
Entity (including any stock exchange or other self-regulatory body) with
respect to Global or its Subsidiaries in relation to any alleged violation of
law or regulation is pending or, to Global's knowledge, threatened, nor has
any Governmental Entity (including any stock exchange or other self-regulatory
body) indicated in writing an intention to conduct the same. Neither Global
nor any of its Subsidiaries is subject to any cease and desist or other order,
judgment, injunction or decree issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a
party to any commitment letter or similar undertaking to, or is subject to any
order or directive by, or has adopted any board resolutions at the request of,
any Governmental Entity that materially restricts the conduct of its business
other than those which would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Global, nor has Global or any
of its Subsidiaries been advised in writing that any Governmental Entity is
considering issuing or requesting any of the foregoing.
(l) Taxes. All material Federal, state, local, and foreign tax returns
required to be filed by Global and its Subsidiaries have been filed. All
material taxes shown on such returns as being due or claimed to be due from
Global and its Subsidiaries in a written assessment have been paid other than
those (i) currently payable without penalty or interest or (ii) being
contested in good faith and by appropriate proceedings timely instituted and
diligently pursued and for which adequate reserves have been established on
the books and records of Global and its Subsidiaries, as the case may be, in
accordance with generally accepted accounting principles.
(m) Global Benefit Plans. Each deferred compensation and each incentive
compensation, equity compensation plan, "welfare" plan, fund or program
(within the meaning of Section 3(1) of the ERISA); "pension" plan, fund or
program (within the meaning of section 3(2) of ERISA); each employment,
consulting, continuation, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed
to by Global or by any trade or business, whether or not incorporated (an
"Erisa Affiliate"), that together with Global would be deemed a "single
employer" within the meaning of section 4001(b) of ERISA, or to which Global
or an ERISA Affiliate is party, whether written or oral, for the benefit of
any employee or former employee of Global or any Subsidiary (the "Global
Benefit Plans") is in compliance with all applicable provisions of ERISA and
the Code, and neither Global nor any ERISA Affiliates have any liabilities or
A-19
<PAGE>
obligations with respect to any such Global Benefit Plans, whether or not
accrued, contingent or otherwise, except (x) as described in any of the Global
SEC Reports or (y) for instances of noncompliance or liabilities or
obligations that would not, individually or in the aggregate, have a Material
Adverse Effect on Global. Except with respect to awards granted under the
Global Benefit Plans that are in effect on the date hereof, no employee of
Global will be entitled to any additional benefits or any acceleration of the
time of payment or vesting of any benefits under any Global Benefit Plan as a
result of the transactions contemplated by this Agreement, either alone or in
combination with another event.
3.3 Representations and Warranties of Global and Merger Sub. Global and
Merger Sub represent and warrant to Frontier as follows:
(a) Organization and Corporate Power. Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of New
York. Merger Sub is a direct wholly-owned subsidiary of Global.
(b) Corporate Authorization. Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger Sub of
this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Merger Sub. This Agreement has been duly executed and
delivered by Merger Sub and constitutes a valid and binding agreement of
Merger Sub, enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors
generally, by general equity principles (regardless or whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(c) Non-Contravention. The execution, delivery and performance by Merger Sub
of this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby do not and will not contravene or conflict with the
certificate of incorporation or by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any activities
other than in connection with the organization of Merger Sub, the negotiation
and execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Frontier. During the period from the date of this Agreement
and continuing until the Effective Time, Frontier agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the Frontier Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that Global shall otherwise consent in writing, which consent shall not be
unreasonably withheld or delayed):
(a) Ordinary Course.
(i) Frontier and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights, franchises and licenses and other
authorizations issued by Governmental Entities, and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by Frontier or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.1 shall be deemed a
breach of this Section 4.1(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
A-20
<PAGE>
(ii) Frontier shall not, and shall not permit any of its Subsidiaries to,
(A) enter into any new material line of business or (B) incur or commit to
any capital expenditures other than capital expenditures incurred or
committed to in the ordinary course of business consistent with past
practice and which, together with all such expenditures incurred or
committed for fiscal year 1999, are not in excess of $900 million or, if
the Closing Date has not occurred prior to December 31, 1999, such
additional amounts for any subsequent period as may be consented to by
Global, such consent not to be unreasonably withheld or delayed, or, if
Global shall not have so consented, an amount not greater than an amount
equal to a pro rata portion of Frontier's 1999 capital expenditure budget
included in Section 4.1(a) of the Frontier Disclosure Schedule.
(b) Dividends; Changes in Share Capital. Frontier shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (x) dividends by wholly owned Subsidiaries of Frontier,
(y) the regular dividends on Frontier Common Stock in the amount of $.05 per
share of Frontier Common Stock per quarter, and (z) regular dividends on
Frontier Preferred Stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock,
except for any such transaction by a wholly owned Subsidiary of Frontier which
remains a wholly owned Subsidiary after consummation of such transaction, or
(iii) except for the purchase from time to time by Frontier of Frontier Common
Stock (and the associated Rights) in the ordinary course of business
consistent with past practice in connection with the Frontier Benefit Plans,
or as contemplated in Section 5.9, repurchase, redeem or otherwise acquire any
shares of its capital stock or any securities convertible into or exercisable
for any shares of its capital stock.
(c) Issuance of Securities. Frontier shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class,
or any securities convertible into or exercisable for, or any rights, warrants
or options to acquire, any such shares, or enter into any agreement with
respect to any of the foregoing, other than (i) the issuance of Frontier
Common Stock (and the associated Rights) upon the exercise of stock options or
warrants or in connection with other stock-based benefits plans outstanding on
the date hereof in accordance with their present terms, (ii) issuances by a
wholly owned Subsidiary of Frontier of capital stock to such Subsidiary's
parent, (iii) issuances in accordance with the Rights Agreement or (iv)
issuances of shares, options, rights or other awards in numbers not greater
than those set forth in Section 4.1(c) of the Frontier Disclosure Schedule.
(d) Governing Documents. Except to the extent required to comply with their
respective obligations hereunder, required by law or required by the rules and
regulations of the NYSE, Frontier and its Subsidiaries shall not amend, in the
case of Subsidiaries, in any material respect, or propose to so amend their
respective certificates of incorporation, by-laws or other governing
documents.
(e) No Acquisitions. Except for (i) acquisitions that are part of, related
to or in support of the communications or internet business and provide for
less than $500 million of consideration (excluding assumption of debt) in the
aggregate and (ii) acquisitions or investments that are made by Frontier
Internet Ventures, Inc. that are not in excess of $30 million of consideration
(excluding assumption of debt), Frontier shall not, and shall not permit any
of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets (other
than the acquisition of assets used in the operations of the business of
Frontier and its Subsidiaries in the ordinary course); provided, however, that
the foregoing shall not prohibit (x) internal reorganizations or
consolidations involving existing Subsidiaries of Frontier or (y) the creation
of new Subsidiaries of Frontier organized to conduct or continue activities
otherwise permitted by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Frontier, (ii) dispositions
referred to in Frontier SEC Reports filed prior to the date of this Agreement,
(iii) as may be required by or in conformance with law or regulation in order
to permit or facilitate
A-21
<PAGE>
the consummation of the transactions contemplated hereby or (iv) in the
ordinary course of business, Frontier shall not, and shall not permit any
Subsidiary of Frontier to, sell, lease, encumber (other than in connection
with secured debt) or otherwise dispose of, or agree to sell, lease, encumber
or otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of Frontier) which are material, individually or in the
aggregate, to Frontier.
(g) Investments; Indebtedness. Frontier shall not, and shall not permit any
of its Subsidiaries to, (i) other than in connection with actions permitted by
Section 4.1(e), make any loans, advances or capital contributions to, or
investments in, any other Person, other than by Frontier or an affiliate of
Frontier to or in Frontier or any affiliate of Frontier, (ii) pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than loans, advances, capital
contributions, investments, payments, discharges or satisfactions incurred or
committed to in the ordinary course of business consistent with past practice
or (iii) other than in connection with actions permitted by Section 4.1(e),
create, incur, assume or suffer to exist any indebtedness, issuances of debt
securities, guarantees, loans or advances not in existence as of the date of
this Agreement except pursuant to the credit facilities, indentures and other
arrangements in existence on the date of this Agreement and in the ordinary
course of business, and any other indebtedness existing on the date of this
Agreement, in each case as such credit facilities, indentures, other
arrangements and other existing indebtedness may be amended, extended,
modified, refunded, renewed or refinanced after the date of this Agreement,
but only if the aggregate principal amount thereof is not increased thereby,
the term thereof is not extended thereby and the other terms and conditions
thereof, taken as a whole, are not less advantageous to Frontier and its
Subsidiaries than those in existence as of the date of this Agreement.
(h) Tax-Free Qualification. Frontier shall not, and shall not permit any of
its Subsidiaries to, take any action that would prevent or impede the Merger
from qualifying as a reorganization under Section 368 of the Code.
(i) Compensation. Other than as contemplated by Section 5.6 or by Section
4.1(i) of the Frontier Disclosure Schedule, Frontier shall not, and shall not
permit any of its Subsidiaries to, increase the amount of compensation of any
senior executive officer except in the ordinary course of business consistent
with past practice or as required by an existing agreement, make any increase
in or commitment to increase any employee benefits, issue any additional
Frontier Stock Options, adopt or make any commitment to adopt any additional
employee benefit plan or make any contribution, other than regularly scheduled
contributions, to any Frontier Benefit Plan.
(j) Other Actions. Frontier shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that would reasonably be
expected to, result in, except as otherwise permitted by Section 5.5, any of
the conditions to the Merger set forth in Article VI not being satisfied.
(k) Accounting Methods; Income Tax Elections. Except as disclosed in
Frontier SEC Reports filed prior to the date of this Agreement, or as required
by a Governmental Entity, Frontier shall not change its methods of accounting
in effect at December 31, 1998, except as required by GAAP or changes in GAAP
as concurred to by Frontier's independent auditors. Frontier shall not (i)
change its fiscal year or (ii) make any material tax election, other than in
the ordinary course of business consistent with past practice, without the
prior approval of Global, which approval shall not be unreasonably withheld.
(l) Rights Agreement. Frontier shall not amend, modify or waive any
provision of the Rights Agreement, and shall not take any action to redeem the
Rights or render the Rights inapplicable to any transaction, other than to
permit another transaction that the Frontier Board has determined is a
Superior Proposal (as defined in Section 8.11), to be consummated after
termination of this Agreement.
4.2 Covenants of Global. During the period from the date of this Agreement
and continuing until the Effective Time, Global agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the Global Disclosure Schedule or as
required by a Governmental
A-22
<PAGE>
Entity of competent jurisdiction or to the extent that Frontier shall
otherwise consent in writing, which consent shall not be unreasonably withheld
or delayed):
(a) Ordinary Course.
(i) Global and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by Global or its Subsidiaries with respect to matters specifically
addressed by any other provisions of this Section 4.2 shall be deemed a
breach of this Section 4.2(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Global shall not, and shall not permit any of its Subsidiaries to,
enter into any new material line of business that is not part of, related
to or in support of the communications business, other than incidentally as
part of a larger acquisition within an existing line of business.
(b) Dividends; Changes in Share Capital. Global shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (x) dividends by wholly owned Subsidiaries of Global or
Global Holdings, or (y) dividends to joint venture parties or (ii) repurchase,
redeem or otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock except for
(x) the purchase from time to time by Global of Global Common Stock in the
ordinary course of business required by any Global Benefit Plan on a non-
discretionary basis, or (y) regular purchases pursuant to a stock purchase
plan approved by the Global Board of Directors.
(c) Issuance of Securities. Global shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class,
any Global Voting Debt or any securities convertible into or exercisable for,
or any rights, warrants or options to acquire, any such shares or Global
Voting Debt, or enter into any agreement with respect to any of the foregoing
other than (i) the issuance of Global Common Stock upon the exercise of stock
options or warrants or in connection with other stock-based benefit plans,
(ii) issuances by a wholly owned Subsidiary of Global of capital stock to such
Subsidiary's parent or another wholly owned Subsidiary of Global, (iii)
issuances of options, awards, and amendments to equity-related awards pursuant
to Global benefit plans as in effect from time to time, (iv) issuances made to
newly hired employees of Global or its Subsidiaries, (v) issuances in respect
of any acquisitions, mergers, share exchanges, consolidations, business
combinations or similar transactions by Global or its Subsidiaries permitted
by Section 4.2(e), or (vi) any other issuance of any Global Common Stock;
provided that, with respect to clauses (v) and (vi), any such issuances prior
to the termination of the Voting Agreement would not cause the shares of
Global Common Stock that are subject to the Voting Agreement to constitute, in
the aggregate, less than 51% of the Combined Voting Power.
(d) Governing Documents. Except to the extent required to comply with their
respective obligations hereunder, required by law or required by the rules and
regulations of NASDAQ, Global and its material Subsidiaries shall not amend,
in the case of Subsidiaries, in any material respect, or propose to so amend
their respective certificates of incorporation, bye-laws or other governing
documents, except for the Global Charter Amendment.
(e) No Acquisitions. Global shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than the acquisition
of assets used in the operations of the business of Global and its
Subsidiaries in the ordinary course), except for acquisitions that are part
of, related to or in support of the communications business, which
A-23
<PAGE>
acquisitions Global may enter into in its discretion, so long as (i) such
acquisitions would not, individually or in the aggregate, reasonably be
expected to prevent or materially delay the Merger, (ii) the issuance of any
Global Common Stock in such acquisitions prior to the termination of the
Voting Agreement would not cause the shares of Global Common Stock that are
subject to the Voting Agreement to constitute, in the aggregate, less than 51%
of the Combined Voting Power, (iii) such acquisitions provide less than $2.5
billion of consideration (excluding assumption of debt) per acquisition and
consideration (excluding assumption of debt) no greater than $8.5 billion in
the aggregate, and (iv) no more than $7.5 billion, in the aggregate, of the
consideration provided for such acquisitions consists of Global Common Stock
or other voting equity securities; provided, however, that the foregoing shall
not prohibit (x) internal reorganizations or consolidations involving existing
Subsidiaries of Global or (y) the creation of new Subsidiaries of Global
organized to conduct or continue activities otherwise permitted by this
Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Global, (ii) dispositions
referred to in Global SEC Reports filed prior to the date of this Agreement,
(iii) as may be required by or in conformance with law or regulation in order
to permit or facilitate the consummation of the transactions contemplated
hereby or (iv) in the ordinary course of business, Global shall not, and shall
not permit any Subsidiary of Global to, sell, lease, encumber (other than in
connection with secured debt) or otherwise dispose of, or agree to sell,
lease, encumber or otherwise dispose of, any of its assets (including capital
stock of Subsidiaries of Global) which are material, individually or in the
aggregate, to Global.
(g) Investments. Other than in the ordinary course of business or as
permitted by Section 4.2(e), or as otherwise set forth in the Global SEC
Reports, Global shall not, and shall not permit any of its Subsidiaries to
make any loans, advances or capital contributions to, or investments in, any
other Person, other than by Global or an affiliate of Global (including Global
Holdings) to or in Global or any affiliate of Global.
(h) Tax-Free Qualification. Each of Global and Merger Sub shall not, and
shall not permit any of their Subsidiaries to, take any action that would
prevent or impede the Merger from qualifying as a reorganization under Section
368 of the Code.
(i) Other Actions. Global shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that would reasonably be
expected to, result in any of the conditions to the Merger set forth in
Article VI not being satisfied.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in the
Global SEC Reports filed prior to the date of this Agreement, or as required
by a Governmental Entity, Global shall not change its methods of accounting in
effect at December 31, 1998, except as required by GAAP or changes in GAAP as
concurred to by Global's independent auditors. Global shall not (i) change its
fiscal year or (ii) make any material tax election, other than in the ordinary
course of business consistent with past practice, without the prior approval
of Frontier, which approval shall not be unreasonably withheld.
(k) Certain Transactions. Global agrees that prior to the Closing Date it
shall not, without the prior written consent of Frontier (which consent shall
not to be unreasonably withheld or delayed), agree to enter into any merger,
reorganization, share exchange, business combination or similar transaction
pursuant to which the shareholders of Global will receive any consideration
(whether payable in cash, securities, property or other consideration) in
exchange for their shares of Global Common Stock unless (i) such transaction
is not to be consummated until after the Effective Time or the termination of
this Agreement pursuant to Section 7.1, (ii) the consideration per share of
Global Common Stock payable in connection therewith has a value, as reasonably
determined by, Global of not less than $34.5625 and (iii) either (A) if the
Merger is to be effected as described herein, such transaction will not result
in the Merger failing to qualify as a reorganization under Section 368(a) of
the Code or failing to satisfy the requirements of Section 367 of the Code or
(B) if the Alternative Merger is to be effected pursuant to Section 1.10, such
transaction will not result in the Alternative Merger failing to qualify as a
reorganization under Section 368(a) of the Code, unless the Alternative Merger
otherwise qualifies for non-recognition treatment under Section 351 of the
Code.
A-24
<PAGE>
Notwithstanding anything set forth in this Agreement to the contrary, and in
addition to the restrictions set forth above, during the period during which
the Average Price is to be determined for purposes of calculating the Exchange
Ratio, Global shall not (and shall not announce an intention to) (1) acquire
any Global Common Stock in the open market, (2) sell or issue any shares of
Global Common Stock (other than pursuant to clause (i) of Section 4.2(c)), (3)
redeem or purchase any shares of Global Common Stock, (4) take any other
action prohibited under Regulation M promulgated under the Securities Act, (5)
enter into any material acquisition or disposition transaction or (6) except
as required by applicable law or by obligations pursuant to any listing
agreement with or rules of NASDAQ, make any announcement which would
reasonably be expected to have the effect of resulting in a change in the
trading prices of the Global Common Stock.
(l) Required Global Vote. Notwithstanding anything in this Agreement to the
contrary between the date of this Agreement and the termination of the Voting
Agreement, in no event shall Global take any actions that, taken together with
any transfers of shares by the Principal Shareholders under the Voting
Agreement, cause the shares subject to the Voting Agreement to constitute less
than the Required Global Vote.
4.3 Advice of Changes; Governmental Filings. Each party shall (a) confer on
a regular and frequent basis with the other and (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. Frontier and Global shall file all reports required to be
filed by each of them with the SEC (and all other Governmental Entities)
between the date of this Agreement and the Effective Time and shall (to the
extent permitted by law or regulation or any applicable confidentiality
agreement) deliver to the other party copies of all such reports,
announcements and publications promptly after the same are filed. Subject to
applicable laws relating to the exchange of information, each of Frontier and
Global shall have the right to review in advance, and will consult with the
other with respect to, all the information relating to the other party and
each of their respective Subsidiaries, which appears in any filings,
announcements or publications made with, or written materials submitted to,
any third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as practicable. Each
party agrees that, to the extent practicable and as timely as practicable, it
will consult with, and provide all appropriate and necessary assistance to,
the other party with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and Governmental Entities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other party informed of the status of
matters relating to completion of the transactions contemplated hereby.
4.4 Transition Planning; Continued Operations of Frontier. Frontier and
Global shall collectively appoint eight (8) officers, to be evenly divided
between Frontier and Global, to serve from time to time as their respective
representatives on a committee that will be responsible for coordinating
transition planning and implementation relating to the Merger.
4.5 Services Agreement. Frontier and Global will exercise reasonable good
faith efforts as soon as practicable after execution of this Agreement to
negotiate and finalize a Services Agreement pursuant to which each party shall
provide certain services to the other consistent with the terms included in
the Term Sheet attached as Exhibit 4.5 hereto.
4.6 Control of Other Party's Business. Nothing contained in this Agreement
shall give Frontier, directly or indirectly, the right to control or direct
Global's operations prior to the effective time. nothing contained in this
agreement shall give Global, directly or indirectly, the right to control or
direct Frontier's operations prior to the Effective Time. Prior to the
Effective Time, each of Frontier and Global shall exercise, consistent with
the terms and conditions of this Agreement, complete control and supervision
over its respective operations.
A-25
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; Shareholders Meetings.
(a) As promptly as practicable following the date hereof, Global shall, in
cooperation with Frontier, prepare and file with the SEC preliminary proxy
materials which shall constitute the Joint Proxy Statement/Prospectus (such
proxy statement/prospectus, and any amendments or supplements thereto, the
"Joint Proxy Statement/Prospectus") and a registration statement on Form S-4
with respect to the issuance of Global Common Stock in the Merger (the "Form
S-4"). The Joint Proxy Statement/Prospectus will be included in the Form S-4
as Global's prospectus. The Form S-4 and the Joint Proxy Statement/Prospectus
shall comply as to form in all material respects with the applicable
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder. Each of Global and Frontier shall use all reasonable
efforts to have the Form S-4 cleared by the SEC as promptly as practicable
after filing with the SEC and to keep the Form S-4 effective as long as is
necessary to consummate the Merger. Global shall, as promptly as practicable
after receipt thereof, provide copies of any written comments received from
the SEC with respect to the Joint Proxy Statement/Prospectus to Frontier and
advise Frontier of any oral comments with respect to the Proxy
Statement/Prospectus received from the SEC. Global agrees that none of the
information supplied or to be supplied by Global for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the
time of the Frontier Shareholders Meeting or the Global Shareholders Meeting,
will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Frontier agrees that none of the information supplied or to be
supplied by Frontier for inclusion or incorporation by reference in the Joint
Proxy Statement/Prospectus and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the Frontier Shareholders Meeting
or the Global Shareholders Meeting, will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. For purposes of the foregoing, it
is understood and agreed that information concerning or related to Global and
the Global Shareholders Meeting will be deemed to have been supplied by Global
and information concerning or related to Frontier and the Frontier
Shareholders Meeting shall be deemed to have been supplied by Frontier. Global
will provide Frontier with a reasonable opportunity to review and comment on
any amendment or supplement to the Joint Proxy Statement/Prospectus prior to
filing such with the SEC, and will provide Frontier with a copy of all such
filings made with the SEC. No amendment or supplement to the information
supplied by Frontier for inclusion in the Joint Proxy Statement/Prospectus
shall be made without the approval of Frontier, which approval shall not be
unreasonably withheld or delayed.
(b) Subject to Sections 5.1(c), 5.5 and 7.1(f), Frontier shall, as promptly
as practicable following the execution of this Agreement, duly call, give
notice of, convene and hold a meeting of its shareholders (the "Frontier
Shareholders Meeting") for the purpose of obtaining the Required Frontier Vote
with respect to the transactions contemplated by this Agreement, shall take
all lawful action to solicit the adoption of this Agreement by the Required
Frontier Vote and the Board of Directors of Frontier shall recommend adoption
of this Agreement by the Shareholders of Frontier. Without limiting the
generality of the foregoing but subject to its rights pursuant to Sections 5.5
and 7.1(f), Frontier agrees that its obligations pursuant to the first
sentence of this Section 5.1(b) shall not be affected by the commencement,
public proposal, public disclosure or communication to Frontier of any
Acquisition Proposal.
(c) Notwithstanding Section 5.1(b) hereof, it is the intention of the
parties that the Frontier Shareholders Meeting be scheduled to the extent
reasonably practicable such that it shall occur reasonably proximate to the
Effective Time: provided that to the extent not prohibited by law, Frontier
shall duly call, give notice of, convene and hold the Frontier Shareholders
Meeting within 120 days following the occurrence of a Trigger Event (as
defined in Section 8.11); provided, however, that if a Trigger Event has
occurred and the Applicable Closing Conditions (as defined in Section 8.11)
have been satisfied, then Frontier shall, as promptly as practicable, duly
call, give notice of, convene and hold the Frontier Shareholders Meeting.
A-26
<PAGE>
(d) Global shall, as promptly as practicable following the execution of this
Agreement, duly call, give notice of, convene and hold a meeting of its
Shareholders (the "Global Shareholders Meeting") for the purpose of obtaining
the Required Global Vote, shall take all lawful action to solicit the approval
of the Share Issuance and the Global Charter Amendment by the Required Global
Vote and the Board of Directors of Global shall recommend approval of the
transactions contemplated by this Agreement by the shareholders of Global. Not
withstanding the foregoing, Global shall not be obligated to duly call, give
notice of, convene and hold the Global Shareholders Meeting until such time as
Frontier is obligated to do the same with respect to the Frontier Shareholders
Meeting.
(e) Global may elect to duly call, give notice of, convene and hold the
Global Shareholders Meeting prior to the Frontier Shareholders Meeting (an
"Early Global Meeting") for the purposes of approving the Alternative Merger
(in addition to the Share Issuance and the Global Charter Amendment),
notwithstanding that no Alternative Merger Notice has been delivered to
Global. If Global elects to hold an Early Global Meeting, then Frontier shall
(i) cooperate in the formation of New Global and (ii) assist Global in the
preparation of an appropriate registration statement for the issuance of New
Global Common Stock that will accompany the proxy statement/prospectus for the
Early Global Meeting; provided that Global shall pay the SEC filing fee with
respect thereto. In the event that the Early Global Meeting is held and the
actions presented to Global Shareholders are approved at such meeting, then
subsequently Global shall not call, give notice of, convene or hold any
meeting of Global Shareholders at which action would be taken which would
reasonably be expected to cause the conditions set forth in Section 6.3 to
fail to become satisfied.
5.2 Global Board of Directors; Officers; Head Quarters of Frontier Sub. At
or prior to the Effective Time, the Board of Directors of Global will take all
action necessary to (i) elect four (4) individuals to be designated by
Frontier as members of the Board of Directors of Global to serve in the
classes set forth in Exhibit 5.2 hereto, (ii) elect Joseph P. Clayton as Vice
Chairman of Global and (iii) elect Rolla P. Huff as President and Chief
Operating Officer of North American Operations of Global. The headquarters of
Frontier Sub shall remain in Rochester, New York.
5.3 Access to Information. Upon reasonable notice, each party shall (and
shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the
other party reasonable access during normal business hours, during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, such party shall (and shall
cause its Subsidiaries to) furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities laws, as applicable (other than
documents which such party is not permitted to disclose under applicable law),
and (b) consistent with its legal obligations, all other information
concerning its business, properties and personnel as such other party may
reasonably request; provided, however, that either party may restrict the
foregoing access to the extent that (i) a Governmental Entity requires such
party or any of its Subsidiaries to restrict access to any properties or
information reasonably related to any such contract on the basis of applicable
laws and regulations with respect to national security matters, (ii) any law,
treaty, rule or regulation of any Governmental Entity applicable to such party
requires such party or its Subsidiaries to restrict access to any properties
or information or (iii) such party or its Subsidiaries is bound by a
confidentiality agreement that requires such party or its Subsidiaries to
restrict such access. The parties will hold any such information which is non-
public in confidence to the extent required by, and in accordance with, the
provisions of the letter dated November 30, 1998 between Frontier and Global
(the "Confidentiality Agreement"). Any investigation by Global or Frontier
shall not affect the representations and warranties of Frontier or Global, as
the case may be.
5.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Merger (or the Alternative
Merger, as the case may
A-27
<PAGE>
be) and the other transactions contemplated by this Agreement as soon as
practicable after the date hereof. In furtherance and not in limitation of the
foregoing, each party hereto agrees (i) to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable after the date
hereof and to supply as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and to take
all other actions necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as practicable and (ii)
to file all necessary applications for Required Consents at the FCC, PUCs and
local franchising authorities with respect to the transactions contemplated
hereby as promptly as practical after the date hereof. Nothing in this Section
5.4(a) shall require any of Global and its Subsidiaries to sell or otherwise
dispose of, or permit the sale or other disposition of, any assets of Global,
Frontier or their respective Subsidiaries, whether as a condition to obtaining
any approval from a Governmental Entity or any other Person or for any other
reason, if Global reason ably determines that such sale or other disposition
would reasonably be expected to have a Material Adverse Effect on Global and
its Subsidiaries (including the Surviving Corporation and its Subsidiaries),
taken together, after giving effect to the Merger.
(b) Each of Global and Frontier shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Merger Agreement
under the HSR Act or any other Regulatory Law (as defined below), use its
reasonable best efforts to (i) cooperate in all respects with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a
private party, (ii) promptly inform the other party of any communication
received by such party from, or given by such party to, the FCC, PUCs, the
Antitrust Division of the Department of Justice (the "DOJ") or any other
Govern mental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any
of the transactions contemplated hereby, and (iii) permit the other party to
review any communication given by it to, and consult with each other in
advance of any meeting or conference with, the FCC, PUCs, the DOJ or any such
other Governmental Entity or, in connection with any proceeding by a private
party, with any other Person, and to the extent permitted by the FCC, PUCs,
the DOJ or such other applicable Governmental Entity or other Person, give the
other party the opportunity to attend and participate in such meetings and
conferences. For purposes of this Agreement, "Regulatory Law" means the
Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal
Trade Commission Act, as amended, the Communications Act, Bermuda law
(including the filing of the requisite Memorandum of Increase with the
Registrar of Companies in Bermuda and the approval of the Share Issuance (and
the subsequent free transferability of the corresponding shares between
nonresident persons for exchange control purposes) by the Bermuda Monetary
Authority), and all other federal, state and foreign, if any, statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade or
lessening of competition, whether in the communications industry or otherwise
through merger or acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 5.4(a) and 5.4(b), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, each of
Global and Frontier shall cooperate in all respects with each other and use
its respective reasonable best efforts to contest and resist any such action
or proceeding and to have vacated, lifted, reversed or over turned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing or any other provision of this Agreement,
nothing in this Section 5.4 shall limit a party's right to terminate this
Agreement pursuant to Section 7.1(b) or 7.1(c) so long as such party has up to
then complied in all respects with its obligations under this Section 5.4.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted by
any Governmental Entity or any private party challenging any of the
transactions contemplated hereby as violative of any Regulatory Law, each of
Global and Frontier shall use its
A-28
<PAGE>
reasonable best efforts to resolve any such objections or challenge as such
Governmental Entity or private party may have to such transactions under such
Regulatory Law so as to permit consummation of the transactions contemplated
by this Agreement.
5.5 Acquisition Proposals. Frontier agrees that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, initiate, solicit, encourage or knowingly
facilitate (including by way of furnishing information) any inquiries or the
making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase or
sale of all or any significant portion of the assets or more than 20% of the
common stock of, it or any of its Subsidiaries (any such proposal or offer
(other than a proposal or offer made by Global or an affiliate thereof) being
hereinafter referred to as an "Acquisition Proposal"). Frontier further agrees
that neither it nor any of its Subsidiaries nor any of the officers and
directors of it or its Subsidiaries shall, and that it shall direct and use
its best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly,
have any discussion with or provide any confidential information or data to
any Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal or accept an Acquisition
Proposal. Notwithstanding the foregoing, Frontier or its Board of Directors
shall be permitted to (A) to the extent applicable, comply with Rule 14d-9 and
Rule 14e-2(a) promulgated under the Exchange Act with regard to an Acquisition
Proposal, (B) in response to an unsolicited bona fide written Acquisition
Proposal by any Person, recommend approval of such an unsolicited bona fide
written Acquisition Proposal to the shareholders of Frontier or withdraw or
modify in any adverse manner the Frontier Board Approval, or (C) engage in any
discussions or negotiations with, or provide any information to, any Person in
response to an unsolicited bona fide written Acquisition Proposal by any such
Person, if and only to the extent that, in any such case as is referred to in
clause (B) or (C), (i) the Frontier Shareholders Meeting shall not have
occurred, (ii) the Board of Directors of Frontier concludes in good faith that
such Acquisition Proposal (x) in the case of clause (B) above would, if
consummated, constitute a Superior Proposal (as defined in Section 8.11) or
(y) in the case of clause (C) above could reasonably be expected to constitute
a Superior Proposal, (iii) prior to providing any information or data to any
Person in connection with an Acquisition Proposal by any such Person, the
Board of Directors of Frontier receives from such Person an executed
confidentiality agreement on terms substantially similar to those contained in
the Confidentiality Agreement (except as to the standstill provisions,
provided that if under the aforementioned circumstances Frontier enters into
any such confidentiality agreement without standstill provisions substantially
similar to those contained in the Confidentiality Agreement, then Global shall
to the extent of the difference be relieved of compliance with the
Confidentiality Agreement's standstill provisions), and (iv) prior to
providing any information or data to any Person or entering into discussions
or negotiations with any Person, the Board of Directors of Frontier notifies
Global promptly of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to
be initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such Person and the material terms
and conditions of any proposals or offers. Frontier agrees that it will keep
Global informed, on a current basis, of the status and terms of any such
proposals or offers and the status of any such discussions or negotiations.
Frontier agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Frontier agrees that it
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence of this Section 5.5 of the obligations
undertaken in this Section 5.5. Nothing in this Section 5.5 shall (x) permit
Frontier to terminate this Agreement (except as specifically provided in
Article VII hereof) or (y) affect any other obligation of Frontier under this
Agreement.
A-29
<PAGE>
5.6 Assumption of Frontier Stock Options and Warrants; Other Stock Plans;
Employee Benefits Matters.
(a) Options and Warrants; Other Stock Plans. Global shall assume the
Frontier Stock Options and Warrants on the terms set forth in Exhibit 5.6
hereto. Frontier and Global agree that Frontier's other stock plans and
treatment of Frontier's officers and employees shall be as set forth in
Exhibit 5.6 hereto. Frontier and Global shall take all such steps as may be
required to cause the transactions contemplated by this Section 5.6 and any
other dispositions of Frontier equity securities (including derivative
securities) or acquisitions of Global equity securities (including derivative
securities) in connection with this Agreement by each individual who (a) is a
director or officer of Frontier or (b) at the Effective Time, will become a
director or officer of Global, to be exempt under Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended, including, without
limitation, steps to be taken in accordance with the No-Action Letter dated
January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher & Flom
LLP.
(b) Employee Benefits.
(i) Obligations of Global; Comparability Of Benefits. Each Frontier
Benefit Plan as to which Frontier or any of its Subsidiaries has any
obligation with respect to any current or former employee (the "Frontier
Employees") shall, as of the Effective Time, be the obligations of Global
and the Surviving Corporation. At the Effective Time and for at least two
years thereafter, Global shall, or shall cause the Surviving Corporation
to, provide benefits, in the aggregate, that are no less favorable than the
benefits provided, in the aggregate, under such Frontier Benefit Plans to
the Frontier Employees immediately prior to the Effective Time.
Notwithstanding the foregoing, nothing herein shall require (A) the
continuation of any particular Frontier Plan or prevent the amendment or
termination thereof (subject to the maintenance, in the aggregate, of the
benefits as provided in the preceding sentence) or (B) require Global or
the Surviving Corporation to continue or maintain any stock purchase or
other equity plan related to the equity of Frontier or the Surviving
Corporation; provided, however, that the Surviving Company shall maintain,
for a period of two (2) years following the Effective Time, substantially
in the form in effect at the Effective Time (except for amendments required
by applicable law), the Employee Telecommunications Benefit program, the
Educational Assistance Fund, the Educational Assistance Program, the
Executive Perquisite program and the Change in Control Severance Plan for
Salary Band Levels 25 and Above. In the event of any sale, transfer or
other disposition of any of the businesses or operations of Frontier or the
Surviving Corporation (whether by merger, sale of stock or assets or
otherwise) prior to the second anniversary of the Effective Time, Global
shall cause any such purchaser to assume and perform all obligations of
Global under this Section 5.6(b) for not less than the balance of the
period ending on the second anniversary of the Effective Time.
(ii) Pre-Existing Limitations; Deductible; Service Credit. With respect
to any Global Benefit Plans in which the Frontier Employees participate
effective as of the Closing Date or thereafter, Global shall, or shall
cause the Surviving Corporation to: (A) not impose any limitations more
onerous than those currently in effect as to pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Frontier Employees under any welfare Global
Benefit Plan in which such employees may be eligible to participate after
the Effective Time, (B) provide each Frontier Employee with credit for any
co-payments and deductibles paid prior to the Effective Time in satisfying
any applicable deductible or out-of-pocket requirements under any welfare
Global Benefit Plan in which such employees may be eligible to participate
after the Effective Time, and (C) recognize all service of the Frontier
Employees with Frontier for all purposes (including, without limitation,
purposes of eligibility to participate, vesting credit, entitlement for
benefits, and benefit accrual) in any Global Benefit Plan in which such
employees may be eligible to participate after the Effective Time, to the
same extent taken into account under a comparable Frontier Plan immediately
prior to the Closing Date.
(iii) Change In/Of Control. Frontier and Global agree that, for purposes
of the Frontier Benefit Plans, the consummation of the transactions
contemplated by this Agreement shall constitute a Change in Control or
Change of Control, as applicable under such Frontier Benefit Plans.
A-30
<PAGE>
(iv) Retention Bonus Programs. The transition committee appointed
pursuant to Section 4.4 shall jointly administer how the retention bonus
programs of $35 million in the aggregate to employees of Frontier at the
level of VP-2 and below will be administered.
5.7 Fees And Expenses. Whether or not the Merger is consummated, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
(a) if the Merger is consummated, the Surviving Corporation shall pay, or
cause to be paid, any and all property or transfer taxes imposed on Frontier
or its Subsidiaries and any real property transfer tax imposed on any holder
of shares of capital stock of Frontier resulting from the Merger, (b) Expenses
incurred in connection with the filing, printing and mailing of the Joint
Proxy Statement/Prospectus, which shall be shared equally by Global and
Frontier and (c) as provided in Section 7.2. As used in this Agreement,
"Expenses" includes all out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on
its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing
of the Joint Proxy Statement/Prospectus and the solicitation of shareholder
approvals and all other matters related to the transactions contemplated
hereby.
5.8 Directors' and Officers' Indemnification and Insurance. The Surviving
Corporation shall cause to be maintained in effect in its certificate of
incorporation and by-laws (i) for a period of six years after the Effective
Time, the current provisions regarding elimination of liability of directors
and indemnification of officers, directors and employees contained in the
certificate of incorporation and by-laws of Frontier and (ii) for a period of
six years, the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by Frontier (provided
that the Surviving Corporation may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions which are, in
the aggregate, no less advantageous to the insured) with respect to claims
arising from facts or events that occurred on or before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by Frontier for such insurance; and, provided,
further, that if the annual premiums of such insurance coverage exceed such
amount, the Surviving Corporation shall be obligated to obtain a policy with
the greatest coverage available for a cost not exceeding such amount. The
provisions of the immediately preceding sentence shall be deemed to have been
satisfied if prepaid policies have been obtained by Frontier prior to the
Closing for purposes of this Section 5.8, which policies provide such
directors and officers with coverage for an aggregate period of six years with
respect to claims arising from facts or events that occurred on or before the
Effective Time, including, without limitation, in respect of the transactions
contemplated by this Agreement and for a premium not in excess of the
aggregate of the premiums set forth in the preceding sentence. If such prepaid
policies have been obtained by Frontier prior to the Closing, Global shall and
shall cause the Surviving Corporation to maintain such policies in full force
and effect, and continue to honor Frontier's obligations thereunder.
5.9 Redemption of Frontier Preferred Stock. At or prior to the mailing of
the Joint Proxy Statement/Prospectus by Frontier in accordance with Section
5.1, Frontier shall mail a notice of redemption of the Frontier Preferred
Stock to all holders of the Frontier Preferred Stock and shall set aside all
funds necessary for such redemption prior to the Frontier Shareholders Meeting
and shall take all other actions as are necessary to redeem all the Frontier
Preferred Stock then outstanding, using its own cash, and in compliance with
the applicable provisions as set forth in its restated certificate of
incorporation.
5.10 Public Announcements. Frontier and Global shall use all reasonable
efforts to develop a joint communications plan and each party shall use all
reasonable efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange or NASDAQ, to consult with each other
before issuing any press release or otherwise making any public statement with
respect to this Agreement or the transactions contemplated hereby.
A-31
<PAGE>
5.11 Accountants' Letters. Upon reasonable notice from the other, Frontier
and Global shall use their respective reasonable best efforts to cause
PricewaterhouseCoopers LLP and Arthur Andersen & Co., respectively, to deliver
to Frontier or Global, as the case may be, a letter, dated within two business
days of the Effective Time of the Form S-4 covering such matters as are
requested by Global or Frontier, as the case may be, and as are customarily
addressed in accountant's "comfort" letters. In connection with Frontier's
efforts to obtain such letter, if requested by PricewaterhouseCoopers LLP,
Global shall provide a representation letter to PricewaterhouseCoopers LLP
complying with the statement on Auditing Standards No. 72 ("SAS 72"), if then
required. In connection with Global's efforts to obtain such letter, if
requested by Arthur Andersen & Co., Frontier shall provide a representation
letter to Arthur Andersen & Co. complying with SAS 72, if then required.
5.12 Listing of Shares of Global Common Stock. Global shall use its best
efforts to cause the shares of Global Common Stock to be issued in the Merger
and the shares of Global Common Stock to be reserved for issuance upon
exercise of the Frontier Stock Options to be approved for quotation, upon
official notice of issuance, on NASDAQ.
5.13 Voting Trust. If at any time prior to the Frontier Share holders
Meeting, a third party shall make an unsolicited tender or exchange offer to
acquire control of Frontier, which offer is not recommended by Frontier's
Board of Directors, then Global and Frontier will use their reasonable best
efforts to consummate the transactions contemplated hereby by implementing a
"voting trust" or similar structure permitting consummation of the
transactions contemplated hereby prior to the receipt of final FCC and PUC
approvals.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations of Frontier, Global and Merger Sub to effect the Merger are
subject to the satisfaction or waiver of, on or prior to the Closing Date, of
the following conditions:
(a) Shareholder Approval. (i) Frontier shall have obtained the Required
Frontier Vote in connection with the adoption of this Agreement by the
shareholders of Frontier and (ii) (x) if the Merger is to be effected, Global
shall have obtained the Required Global Vote in connection with the approval
of the Share Issuance and the Global Charter Amendment by the shareholders of
Global, or (y) if the Alternative Merger is to be effected, Global shall have
obtained the required Global Vote in connection with the Alternative Merger.
(b) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Govern mental
Entity of competent jurisdiction shall be in effect, having the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger;
provided, however, that the provisions of this Section 6.1(b) shall not be
available to any party whose failure to fulfill its obligations pursuant to
Section 5.4 shall have been the cause of, or shall have resulted in, such
order or injunction.
(c) FCC and Public Utility Commission Approvals. All approvals for the
Merger from the FCC and PUCs shall have been obtained (i) other than those the
failure of which to be obtained would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Global and its
Subsidiaries (including following the Merger the Surviving Corporation and its
Subsidiaries), taken together, and (ii) without the imposition of conditions
that would individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Global and its Subsidiaries (including following
the Merger, the Surviving Corporation and its Subsidiaries), taken together.
(d) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
A-32
<PAGE>
(e) NASDAQ Listing. The shares of Global Common Stock to be issued in the
Merger and such other shares to be reserved for issuance in connection with
the Merger shall have been approved upon official notice of issuance for
quotation on NASDAQ.
(f) Effectiveness of the Form S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(g) Bermuda Approval. The Share Issuance (and the subsequent free
transferability of the corresponding shares between nonresident persons for
exchange control purposes) shall have been approved by the Bermuda Monetary
Authority.
6.2 Additional Conditions to Obligations of Global and Merger Sub. The
obligations of Global and Merger Sub to effect the Merger are subject to the
satisfaction of, on or waiver by Global, on or prior to the Closing Date, of
the following conditions:
(a) Representations and Warranties. (i) Each of the representations and
warranties of Frontier set forth in this Agreement that is qualified as to
Material Adverse Effect shall have been true and correct on the date of this
Agreement and (except to the extent such representations and warranties speak
as of a specified date) shall also be true and correct on and as of the
Closing Date, and (ii) each of the representations and warranties of Frontier
that is not so qualified shall have been true and correct in all material
respects on the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified date) shall also be
true and correct in all material respects on and as of the Closing Date
provided that clause (ii) of this paragraph (a) shall be deemed satisfied so
long as all failures of such representations and warranties referred to
therein to be so true and correct, taken together, would not reasonably be
expected to have a Material Adverse Effect on Frontier; and Global shall have
received a certificate of the chief executive officer and the chief financial
officer of Frontier to the effect of the foregoing.
(b) Performance of Obligations of Frontier. Frontier shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as to
materiality and shall have performed or complied in all material respects with
all other agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date that are not so qualified as to
materiality, and Global shall have received a certificate of the chief
executive officer and the chief financial officer of Frontier to such effect.
(c) Tax Opinion. Global shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to Global and Merger Sub, on the Closing Date, a
written opinion dated as of such date substantially in the form of (i) Section
6.2(c)(i) of the Global Disclosure Schedule with respect to the Merger or (ii)
Section 6.2(c)(ii) of the Global Disclosure Schedule with respect to the
Alternative Merger, as the case may be. In rendering such opinion, counsel to
Global shall be entitled to rely upon representations of officers of Global
and Frontier satisfactory to it and substantially in the form of Section
6.2(c)(1) of the Global Disclosure Schedule or Section 6.2(c)(2) of the
Frontier Disclosure Schedule, respectively (allowing for such amendments to
the representations as counsel to Global deems necessary or appropriate).
(d) Redemption of Frontier Preferred Stock. Frontier shall have redeemed all
of the Frontier Preferred Stock.
6.3 Additional Conditions to Obligations of Frontier. The obligations of
Frontier to effect the Merger are subject to the satisfaction of, or waiver by
Frontier, on or prior to the Closing Date of the following additional
conditions:
(a) Representations And Warranties. (i) Each of the representations and
warranties of Global and Merger Sub set forth in this Agreement that is
qualified as to Material Adverse Effect shall have been true and correct
A-33
<PAGE>
on the date of this Agreement and (except to the extent such representations
and warranties speak as of a specified date) shall also be true and correct on
and as of the Closing Date, and (ii) each of the representations and
warranties of each of Global and Merger Sub that is not so qualified shall
have been true and correct in all material respects on the date of this
Agreement and (except to the extent such representations and warranties speak
as of a specified date) shall also be true and correct in all material
respects on and as of the Closing Date provided that clause (ii) of this
paragraph (a) shall be deemed satisfied so long as all failures of such
representations and warranties referred to therein to be so true and correct,
taken together, would not reasonably be expected to have a Material Adverse
Effect on Global; and Frontier shall have received a certificate of the chief
executive officer and the chief financial officer of Global to the effect of
the foregoing.
(b) Performance of Obligations of Global. Global shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as to
materiality and shall have performed or complied in all material respects with
all agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date that are not so qualified as to
materiality, and Frontier shall have received a certificate of the chief
executive officer and the chief financial officer of Global to such effect.
(c) Tax Opinion. Frontier shall have received from Simpson Thacher &
Bartlett, counsel to Frontier, on the Closing Date, a written opinion dated as
of such date substantially in the form of (i) Section 6.3(c)(i) of the
Frontier Disclosure Schedule with respect to the Merger or (ii) Section
6.3(c)(ii) of the Frontier Disclosure Schedule with respect to the Alternative
Merger, as the case may be. In rendering such opinion, counsel to Frontier
shall be entitled to rely upon representations of officers of Global and
Frontier satisfactory to it and substantially in the form of Section 6.2(c)(1)
of the Global Disclosure Schedule or 6.2(c)(2) of the Frontier Disclosure
Schedule, respectively (allowing for such amendments to the representations as
counsel to Frontier deems necessary or appropriate).
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of Frontier or Global:
(a) By mutual written consent of Global and Frontier, by action of their
respective Boards of Directors;
(b) By either Frontier or Global if the Effective Time shall not have
occurred on or before the first anniversary date of this Agreement (the
"Termination Date"); provided, however, in the event that a Trigger Event had
occurred and is no longer in effect, the Termination Date shall be the later
of (i) the first anniversary date of this Agreement, or (ii) 180 days after
the date on which the Trigger Event is no longer in effect, provided further,
that the right to terminate this Agreement under this Section 7.1(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement (including without limitation Section 5.4) has to any extent been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before the Termination Date;
(c) By either Frontier or Global if any Governmental Entity (i) shall have
issued an order, decree or ruling or taken any other action (which the parties
shall have used their reasonable best efforts to resist, resolve or lift, as
applicable, in accordance with Section 5.4) permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement, and
such order, decree, ruling or other action shall have become final and
nonappealable or (ii) shall have failed to issue an order, decree or ruling or
to take any other action (which order, decree, ruling or other action the
parties shall have used their reasonable best efforts to obtain, in accordance
with Section 5.4), in each case of (i) and (ii) which is necessary to fulfill
the conditions set forth in subsections 6.1(c) and (d), as applicable, and
such denial of a request to issue such order, decree, ruling or take
A-34
<PAGE>
such other action shall have become final and nonappealable; provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure to comply with Section 5.4
has to any extent been the cause of such action or inaction;
(d) By either Frontier or Global if (i) the approval by the share holders of
Frontier required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the Required Frontier Vote or (ii)
the approval by the shareholders of Global required for the consummation of
the Merger shall not have been obtained by reason of the failure to obtain the
Required Global Vote, in each case upon the taking of such vote at a duly held
meeting of shareholders of Frontier or Global, as the case may be, or at any
adjournment thereof;
(e) By Global if the Board of Directors of Frontier, prior to the Frontier
Shareholders Meeting (i) shall withdraw or modify in any adverse manner the
Frontier Board Approval, (ii) shall approve or recommend a Superior Proposal
pursuant to Section 5.5 or (iii) shall resolve to take any of the actions
specified in clauses (i) or (ii) above;
(f) By Frontier at any time prior to the Frontier Shareholders Meeting, upon
three Business Days' prior notice to Global, if the Board of Directors of
Frontier shall approve a Superior Proposal; provided, however, that (i)
Frontier shall have complied with Section 5.5, (ii) the Board of Directors of
Frontier shall have concluded in good faith, after giving effect to all
concessions which may be offered by Global pursuant to clause (iii) below, on
the basis of the advice of its financial advisors and outside counsel, that
such proposal is a Superior Proposal and (iii) prior to any such termination,
Frontier shall, and shall cause its financial and legal advisors to, negotiate
with Global to make such adjustments in the terms and conditions of this
Agreement as would enable Global to proceed with the transactions contemplated
hereby; provided, however, that it shall be a condition to termination by
Frontier pursuant to this Section 7.l(f) that Frontier shall have made the
payment of the Termination Fee to Global required by Section 7.2(b);
(g) By Frontier, if its Board of Directors so determines by a vote of the
majority of the members of its entire Board, at any time during the three-
Business Day period commencing on the Determination Date (the "Frontier
Evaluation Period"), if the Average Price is less than $34.5625, subject,
however, to the following: (A) if Frontier elects to exercise its termination
right pursuant to this Section 7.1(g), it shall give Global written notice of
its intention to terminate (the "Termination Notice"), which termination shall
be effective at the close of business on the third Business Day following the
delivery of the Termination Notice (which Termination Notice may be withdrawn
by Frontier at any time prior to the effectiveness of such termination), (B)
during the two-Business Day period commencing with the delivery of a
Termination Notice (the "Global Election Period"), Global shall have the
option of (x) adjusting the Exchange Ratio to equal the quotient determined by
dividing $62.00 by the Average Price (rounded to the nearest 1/10,000) by
delivering written notice to Frontier within such two-Business Day period of
its intention to so adjust the Exchange Ratio, (y) paying Merger Consideration
consisting of shares of Global Common Stock equal to the Exchange Ratio and
cash (the "Cash Top-Up") equal to the difference between $62.00 and the
Exchange Ratio multiplied by the Average Price or (z) any combination of an
adjustment in the Exchange Ratio and a Cash Top-Up provided that the sum of
(i) the Cash Top-Up and (ii) the Exchange Ratio, as adjusted, multiplied by
the Average Price, equals $62.00 and (C) if Global makes an election to adjust
the Exchange Ratio pursuant to the preceding clause (B)(x) (a "Global
Adjustment Election"), or to pay Merger Consideration that includes the Cash
Top-Up (the "Cash Top-Up Election") pursuant to the preceding clause (B)(y),
or a combination of an adjustment to the Exchange Ratio and a Cash Top-Up
pursuant to Clause (B)(z) a ("Combination Election"), then this Agreement
shall not terminate pursuant to this Section 7.1(g) and this Agreement shall
remain in effect in accordance with its terms (except as the Exchange Ratio
shall have been so modified or the Merger Consideration so modified), and any
references in this Agreement to "Exchange Ratio" or "Merger Consideration," as
applicable, shall thereafter be deemed to refer to the Exchange Ratio or
Merger Consideration, as applicable, as adjusted pursuant to this Section
7.1(g). Unless the Alternative Merger is consummated pursuant to Section 1.10
hereof and such Alternative Merger qualifies for non-recognition treatment
under Section 351 of the Code, cash paid pursuant to the Cash Top-Up Election
or the Combination Election in accordance with Sections (B)(y) or (B)(z) of
the immediately preceding sentence, shall be less than the amount, taken
together with all other cash to be paid in the Merger or the Alternative
Merger,
A-35
<PAGE>
that would result in the Merger or the Alternative Merger failing to qualify
as a reorganization under Section 368 of the Code and any reduction in the
cash paid pursuant to a Cash Top-Up shall be compensated by an adjustment in
the Exchange Ratio.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by either Frontier or
Global as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Global or
Frontier or their respective officers or directors except with respect to
Section 3.1(i), Section 3.2(h), the second sentence of Section 5.3, Section
5.7, this Section 7.2 and Article VIII.
(b) Global and Frontier agree that Frontier shall pay to Global the sum of
$270 million (the "Termination Fee") solely as follows: (i) if Frontier shall
terminate this Agreement pursuant to Section 7.1(f), (ii) if (A) Frontier or
Global shall terminate this Agreement pursuant to Section 7.1(d)(i) due to the
failure of Frontier's shareholders to approve and adopt this Agreement, (B) at
any time after the date of this Agreement and at or before the time of the
event giving rise to such termination there shall exist an Acquisition
Proposal and (C) within 12 months of the termination of this Agreement,
Frontier enters into a definitive agreement with any third party with respect
to an Acquisition Proposal or an Acquisition Proposal is consummated, (iii) if
Global shall terminate this Agreement pursuant to Section 7.1(e), or (iv) if
(A) Global shall terminate this Agreement pursuant to Section 7.1(b) or
Frontier or Global shall terminate this Agreement pursuant to Section 7.1(c),
(B) at any time after the date of this Agreement and at or before the time of
the event giving rise to such termination there shall exist an Acquisition
Proposal with respect to Frontier, (C) following the existence of such
Acquisition Proposal and prior to any such termination, Frontier shall have
intentionally breached (and not cured after notice thereof) any of its
material covenants or agreements set forth in this Agreement in any material
respect and (D) within 12 months of any such termination of this Agreement,
Frontier shall enter into a definitive agreement with any third party with
respect to an Acquisition Proposal or an Acquisition Proposal is consummated.
(c) The Termination Fee required to be paid pursuant to Section 7.2(b) shall
be made prior to, and shall be a pre-condition to the effectiveness of
termination of this Agreement by Frontier pursuant to Section 7.1(f). Any
other payment required to be made pursuant to Section 7.2(b) shall be made to
Global not later than two Business Days after the entering into of a
definitive agreement with respect to, or the consummation of, an Acquisition
Proposal, as applicable, or a termination pursuant to Section 7.1(e). All
payments under this Section 7.2 to Global shall be made by wire transfer of
immediately available funds to an account designated by Global.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the shareholders of Frontier and Global, but, after any such
approval, no amendment shall be made which by law or in accordance with the
rules of any relevant stock exchange requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
A-36
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-survival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and other agreements in this Agreement
or in any instrument delivered pursuant to this Agreement, including any
rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their
terms apply or are to be performed in whole or in part after the Effective
Time and this Article VIII. Nothing in this Section 8.1 shall relieve any
party for any breach of any representation, warranty, covenant or other
agreement in this Agreement occurring prior to termination.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier service, or (c) on the tenth
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) if to Global or Global Sub, to
Global Crossing Ltd.
45 Reid Street
Wessex House
Hamilton HM 12, Bermuda
Fax: (441) 296-8606
Attention: James C. Gorton
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Fax: (213) 687-5600
Attention: Brian J. McCarthy
and an additional copy to
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
Fax: (302) 651-3001
Attention: Richard L. Easton
(b) if to Frontier to
Frontier Corporation
180 South Clinton Avenue
Rochester, New York 14646
Fax: (716) 546-7823
Attention: Martin T. McCue
with a copy to
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Fax: (212) 455-2502
Attention: Robert E. Spatt
A-37
<PAGE>
8.3 Interpretation. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement, the Stock Option Agreement and the agreements referred
to in Sections 1.9, 4.5 and 5.3 constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, which shall survive the execution and delivery of
this Agreement.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.8 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void, except that Merger Sub
may assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct wholly owned Subsidiary of
Global without the consent of Frontier, but no such assignment shall relieve
Merger Sub of any of its obligations under this Agreement. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
8.9 Submission To Jurisdiction; Waivers. Each of Global and Frontier
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in
A-38
<PAGE>
the Courts of the State of New York, and each of Global and Frontier hereby
irrevocably submits with regard to any such action or proceeding for itself
and in respect to its property, generally and unconditionally, to the
nonexclusive jurisdiction of the aforesaid courts. Each of Global and Frontier
hereby irrevocably waives, and agrees not to assert, by way of motion, as a
defense, counter claim or otherwise, in any action or proceeding with respect
to this Agreement, (a) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure
to serve process in accordance with this Section 8.9, (b) that it or its
property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise), and (c) to the fullest extent permitted
by applicable law, that (i) the suit, action or proceeding in any such court
is brought in an inconvenient forum, (ii) the venue of such suit, action or
proceeding is improper and (iii) this Agreement, or the subject matter hereof,
may not be enforced in or by such courts. This Agreement does not involve less
than $250,000 and the parties intend that Section 5-1401 of the New York
General Obligations Law shall apply to this Agreement.
8.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the
parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.11 Definitions. As used in this Agreement:
(a) "Applicable Closing Conditions" means the conditions to Closing set
forth in Sections 6.1(b), 6.1(c) and 6.1(d) hereof.
(b) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(d) "Combined Voting Power" means the combined voting power of Global Common
Stock on a fully diluted basis and for purposes of computing such "fully
diluted basis", the following shall be excluded: (i) any options, warrants or
other securities exchangeable or convertible into Global Common Stock
(collectively, "Convertible Voting Securities"), which are not and cannot
become exercisable prior to the earlier of (x) the Termination Date, or (y)
the date of the Global Shareholders Meeting, and (ii) any Convertible Voting
Securities that are held by a shareholder of Global who owns more than 200,000
shares of Global Common Stock that enters into an agreement with Global for
the benefit of Frontier and which gives Frontier the right of specific
performance thereunder, that is reasonably acceptable to Frontier, which
provides that such shareholder shall not exercise any of its Convertible
Voting Securities prior to the earlier of (x) the Termination Date or (y) the
termination of the Voting Agreement.
(e) "Material Adverse Effect" means, with respect to any entity, any adverse
change, circumstance or effect that is or is reasonably likely to be
materially adverse to the business, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole, other than
any change, circumstance or effect relating to (i) the economy or securities
markets in general or (ii) the industries in which Global or Frontier operate
and not specifically relating to Global or Frontier.
(f) "Material Network Contract" means any material contract relating to the
construction, installation (including, but not limited to, any upgrade),
operation, maintenance, provision of capacity for, sale or use of capacity on
(including, but not limited to, the provision for web hosting services)
Frontier's fiber optic network.
(g) "Person" means an individual, corporation, company, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
A-39
<PAGE>
(h) "Subsidiary" when used with respect to any party means any corporation
or other organization, whether incorporated or unincorporated, (i) of which
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any Subsidiary of such party do not have a majority of the
voting interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries.
(i) "Superior Proposal" means a bona fide written Acquisition Proposal which
the Board of Directors of Frontier or Global, as applicable, concludes in good
faith (after consultation with its financial advisors and legal counsel),
taking into account all legal, financial, regulatory and other aspects of the
proposal and the Person making the proposal, (i) would, if consummated, result
in a transaction that is more favorable to Frontier's shareholders (in their
capacities as shareholders) from a financial point of view, than the
transactions contemplated by this Agreement and (ii) is reasonably capable of
being completed (provided that for purposes of this definition the term
Acquisition Proposal shall have the meaning assigned to such term in Section
5.5 except that the references to "20%" in the definition of "Acquisition
Proposal" shall be deemed to be a reference to "50%" and "Acquisition
Proposal" shall only be deemed to refer to a transaction involving Frontier,
or with respect to assets (including the shares of any Subsidiary of Frontier)
of Frontier and its Subsidiaries, taken as a whole, and not any of its
Subsidiaries alone).
(j) "The Other Party" means, with respect to Frontier, Global and means,
with respect to Global, Frontier.
(k) "Trigger Event" occurs when all of the following conditions are and
remain satisfied: (i) Global has consummated an acquisition of a trade or
business outside the United States consistent with its business plan and (ii)
counsel to Global and Frontier confirm that, based upon the facts and
circumstances of such acquisition, they each could render the respective
opinions required by Sections 6.2(c)(i) and 6.3(c)(i) hereof.
8.12 Other Agreements. The parties hereto acknowledge and agree that,
except as otherwise expressly set forth in this Agreement, the rights and
obligations of Frontier and Global under any other agreement between the
parties shall not be affected by any provision of this Agreement.
A-40
<PAGE>
IN WITNESS WHEREOF, Global, Merger Sub and Frontier have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of March 16, 1999.
Global Crosssing Ltd.
/s/ Thomas J. Casey
By: _________________________________
Name: Thomas J. Casey
Office:Vice Chairman
GCF Acquisition Corp.
/s/ Thomas J. Casey
By: _________________________________
Name : Thomas J. Casey
Office:Vice Chairman
Frontier Corporation
/s/ Joseph P. Clayton
By: _________________________________
Name: Joseph P. Clayton
Office:Chief Executive Officer
A-41
<PAGE>
CONSENT AND AMENDMENT NO. 1
Consent and Amendment No. 1, dated as of May 16, 1999 (this "Consent and
Amendment"), among Global Crossing Ltd., a Bermuda company ("Global"), GCF
Acquisition Corp., a New York corporation and a wholly owned subsidiary of
Global ("Merger Sub"), and Frontier Corporation, a New York corporation
("Frontier"), to the Agreement and Plan of Merger, dated as of March 16, 1999
(the "Original Agreement"), among Global, Merger Sub and Frontier. Capitalized
terms used but not defined herein shall have the meanings ascribed to such
terms in the Original Agreement.
WHEREAS, simultaneously with the execution hereof, Global is entering into
an Agreement and Plan of Merger (the "Second Agreement"), dated as of the date
hereof, between Global and US West, Inc. ("US West"), pursuant to which Global
and US West intend to enter into a business combination the primary economic
terms of which are summarized on a term sheet attached hereto as Schedule 1, a
Tender Offer and Purchase Agreement, dated as of the date hereof (the "Tender
Agreement"), between Global and US West, pursuant to which US West will
commence a tender offer for 9.5% of the shares of Global Common Stock at a
price of $62.75 per share and certain related agreements;
WHEREAS, Global has requested that Frontier consent to Global's entering
into the Second Agreement and the Tender Agreement, and Frontier has agreed to
consent thereto upon the terms and subject to the conditions specified in this
Consent and Amendment;
WHEREAS, in consideration for such consent, Frontier has requested and
Global has agreed to amend the Original Agreement on the terms provided
herein; and
WHEREAS, the shareholders of Global who are party to the Voting Agreement
have reaffirmed the Voting Agreement in light of this Consent and Amendment,
which reaffirmation is attached hereto as Exhibit C.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Consent. Frontier hereby consents, pursuant to Sections 4.2(e), 4.2(g)
and 4.2(k) and the first sentence of each of Sections 5.1(a) and 5.4 of the
Original Agreement, to the Second Agreement, on the terms contemplated by the
first recital hereof and reflected in the Second Agreement as it exists on the
date hereof in all material respects in the form attached hereto as Exhibit A,
and to the Tender Agreement, on the terms contemplated by and reflected in the
Tender Agreement as it exists on the date hereof in all material respects in
the form attached hereto as Exhibit B; provided that it is expressly
understood and agreed that Global is representing and covenanting hereby that
(i) the entering into of the Second Agreement and the Tender Agreement and the
consummation of the transactions contemplated thereby (in each case, as the
Second Agreement and the Tender Agreement exist on the date hereof or as such
agreements may be amended, modified or waived after the date hereof) do not
and will not constitute a breach by Global of any provision of the Original
Agreement, including Section 4.2(h) (other than possibly Sections 4.2(e),
4.2(g) and 4.2(k) and the first sentence of each of Sections 5.1(a) and 5.4),
either before or after this Consent and Amendment and regardless of the
consent of Frontier contained herein, (ii) Frontier's consent does not
constitute a consent to or waiver of any breach of any provision of the
Original Agreement, including Section 4.2(h), other than as set forth above
with respect to Sections 4.2(e), 4.2(g) and 4.2(k) and the first sentence of
each of Sections 5.1(a) and 5.4, it being understood that Frontier's consent
does not constitute a waiver or amendment of the ongoing applicability of any
such Sections, and (iii) the record date for the shareholder vote required to
be obtained by Global under the terms of the Second Agreement, the record date
for any election to be made by shareholders under the Second Agreement and the
shareholder meeting to be held in connection therewith, shall each occur after
the Effective Time.
A-42
<PAGE>
2. Amendment to Section 1.8(a) of the Original Agreement. Section 1.8(a) of
the Original Agreement is hereby amended by deleting such Section in its
entirety and inserting in lieu thereof the following:
(a) At the Effective Time by virtue of the Merger and without any action
on the part of the holder thereof, each share of Frontier Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Frontier Common Stock owned or held directly or indirectly by
Global or directly by Frontier, all of which shall be canceled as provided
in Section 1.8(c)) shall, except as provided in Section 7.1(g), be
converted into the right to receive that number of shares of Global Common
Stock equal to the Exchange Ratio (as defined below) (the "Merger
Consideration"). "Exchange Ratio" means the quotient (rounded to the
nearest 1/10,000) determined by dividing $63.00 (or $62.00 in the event
that no shares of Global Common Stock are purchased pursuant to the tender
offer made under the terms of the Tender Agreement or any substitute or
similar offer) (in either case, as increased by 7% per annum, compounded
daily, from and after December 31, 1999 to and including the Effective
Time) (such amount, including such increase, if any, the "Specified Value")
by the Average Price as defined below. "Average Price" means the average
(rounded to the nearest 1/10,000) of the volume weighted averages (rounded
to the nearest 1/10,000) of the trading prices of Global Common Stock on
the Nasdaq National Market ("NASDAQ"), as reported by Bloomberg Financial
Markets (or such other source as the parties shall agree in writing), for
the 15 trading days randomly selected by lot by Frontier and Global
together from the 30 consecutive trading days ending on the trading day
immediately preceding the date on which all the conditions to Closing
(other than conditions that, by their terms, cannot be satisfied until the
Closing Date so long as it is reasonably apparent that such conditions will
be able to be satisfied on the Closing Date) set forth in Article VI shall
have been satisfied or waived (the "Determination Date"); Provided, that
the Exchange Ratio shall not be less than 1.1095 (or 1.0919 in the event
that no shares of Global Common Stock are purchased pursuant to the tender
offer made under the terms of the Tender Agreement or any substitute or
similar offer), or, unless Global shall have exercised its rights to make a
Global Adjustment Election or a Combination Election under Section 7.1(g),
greater than 1.8229 (or 1.7939 in the event that no shares of Global Common
stock are purchased pursuant to the tender offer made under the terms of
the Tender Agreement or any substitute or similar offer) (in the case of
the 1.8229 or the 1.7939, as increased by 7% per annum, compounded daily,
from and after December 31, 1999 to and including the Effective Time). If
prior to the Effective Time, Global should split or combine the shares of
Global Common Stock, or pay a stock dividend or other stock distribution in
shares of Global Common Stock, or otherwise change the shares of Global
Common Stock into any other securities, or make any other dividend or
distribution on the shares of Global Common Stock, then the Exchange Ratio
will be appropriately adjusted to reflect such split, combination, dividend
or other distribution or change.
3. Amendment to Section 1.10(b) of the Original Agreement. Section 1.10(b)
of the Original Agreement is hereby amended by adding the following sentence
at the end thereof:
Alternatively, Global stockholders shall exchange all of their shares
of Global capital stock for New Global capital stock pursuant to a
Scheme of Arrangement in accordance with Bermuda law.
4. Amendment to Section 4.2 of the Original Agreement. Section 4.2 of the
Original Agreement is hereby amended by inserting the words ", except as
otherwise provided herein" after the words "the Effective Time" and before the
words ", Global agrees" in the second line of the first paragraph thereof.
5. Amendment to Section 4.2(d) of the Original Agreement. Section 4.2(d) of
the Original Agreement is hereby amended by inserting the following words at
the end thereof:
; provided that, subject to the prior written consent of Frontier
(which consent shall not be unreasonably withheld or delayed), Global
shall be permitted to change its jurisdiction of incorporation by (i)
achieving a "discontinuance" under the laws of Bermuda and (ii)
continuing in, and being subject to the laws of, any other jurisdiction
A-43
<PAGE>
6. Amendment to Section 4.2(h) of the Original Agreement. Section 4.2(h) of
the Original Agreement is hereby amended by deleting such Section in its
entirety and inserting in lieu thereof the following:
(h) Tax-Free Qualification. Each of Global and Merger Sub shall not, and
shall not permit any of their Subsidiaries to, take any action, whether
before or after the Effective Time, that could prevent or impede the Merger
from qualifying as a reorganization under Section 368 of the Code,
including any action taken in connection with structuring or consummating
the transactions contemplated by the Second Agreement, the Tender Agreement
and any other agreements related thereto either before or after the date
hereof. Any payment of cash or other property to, or on behalf of, a
shareholder of Global in the merger contemplated by the Second Agreement
(including any payment in respect of dissenter's or appraisal rights but
excluding any cash paid in lieu of fractional shares) shall be paid by
Frontier.
7. Amendment to Section 5.2 of the Original Agreement. Section 5.2 of the
Original Agreement is hereby amended by inserting the following sentence at
the end thereof:
Global will cause at least two of the individuals designated by
Frontier pursuant to this Section 5.2 to be included as Global's
representatives on the board of directors of Parent (as defined in the
Second Agreement) pursuant to the Second Agreement.
8. Amendment to Add a New Section 5.14 to the Original Agreement. The
Original Agreement shall be amended by inserting the following new Section
5.14 immediately following Section 5.13 thereof:
5.14 Second Voting Agreement. Global represents that US West has entered
into a voting agreement, dated as of May 16, 1999 (the "Second Voting
Agreement"), with Global pursuant to which US West has agreed to vote any
shares of Global owned by it in favor of the transactions contemplated by
the Original Agreement and this Consent and Amendment and, other than in
specified circumstances, not to sell shares of Global Common Stock owned by
it prior to the consummation of the transactions contemplated in the Second
Agreement. Global agrees to enforce such provisions of the Second Voting
Agreement and that it will not waive any such provisions without the
consent of Frontier.
9. Amendment to Section 7.1(b) of the Original Agreement. Section 7.1(b) of
the Original Agreement is hereby amended by inserting the following words at
the end thereof "; provided, further, that if on the Termination Date all of
the conditions contained in Article VI have been satisfied or waived, other
than (i) conditions that, by their terms, cannot be satisfied until the
Closing Date so long as it is reasonably apparent that such conditions will be
able to be satisfied on the Closing Date and (ii) the condition specified in
Section 6.1(c), then Global shall not have the right to terminate this
Agreement under this Section 7.1(b)."
10. Amendment to Section 7.1(g) of the Original Agreement. Section 7.1(g) of
the Original Agreement is hereby amended by:
a. deleting all references therein to "$62.00" and inserting in lieu thereof
the words "the Specified Value", and
b. adding the following sentence immediately preceding the last sentence:
Notwithstanding anything herein to the contrary if the Second Agreement has
not been terminated, Global shall not make the Cash Top-Up Election or the
Combination Election without the consent of Frontier, which consent shall
not be unreasonably withheld; provided that Frontier may withhold its
consent in its sole discretion if the making of either such election would
result in the conditions set forth in Section 6.2(c) or 6.3(c) of the
Original Agreement from failing to be satisfied (including by reason of the
consummation of the transactions contemplated by the Second Agreement and
the Tender Agreement).
A-44
<PAGE>
11. Amendment to Section 8.5(b) of the Original Agreement. Section 8.5(b) of
the Original Agreement is hereby amended by deleting such section in its
entirety and inserting in lieu thereof the following:
(b) This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement other
than Section 5.8 (which is intended to be for the benefit of the Persons
covered thereby ("Section 5.8 Persons") and may be enforced directly or
indirectly by, or by a representative of, such Persons against Global and
its successors, assigns and parents) and other than Sections 4.2(h) and 5.2
(which are intended to be for the benefit of Persons who, immediately prior
to the Effective Time, were Frontier shareholders ("Former Frontier
Shareholders") and may be enforced directly or indirectly by, or by a
representative of, a Former Frontier Shareholder following the Effective
Time against Global and its successors, assigns and parents). It is the
intent of this Agreement (a) to create a right to direct, indirect and
representative action by Former Frontier Shareholders against Global and
its successors, assigns and parents with respect to Sections 4.2(h) and 5.2
and Section 5.8 Persons with respect to Section 5.8 and (b) that the Former
Frontier Shareholders are third party beneficiaries with respect to Section
4.2(h) and 5.2 and Section 5.8 Persons are third party beneficiaries with
respect to Section 5.8. Global agrees that its agreements contained in
Section 8.9 of the Agreement shall also cover any legal action or
proceeding by a Former Frontier Shareholder or a Section 5.8 Person under
this Section 8.5(b).
12. Authorization, Execution and Delivery; No Conflicts. (a) This Consent
and Amendment has been duly authorized, executed and delivered by each party
hereto and constitutes a valid and binding agreement of each such party,
enforceable against such party in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally, by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant of
good faith and fair dealing.
(b) The execution and delivery of this Consent and Amendment does not or
will not, as the case may be, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in a Violation pursuant
to: (A) any provision of the constituent documents of each party hereto, or
(B) except as would not have a Material Adverse Effect on such party and,
subject to obtaining or making the consents, approvals orders, authorizations,
registrations, declarations and filings referred to in paragraph (c) below,
any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to such party or any Subsidiary of such party or their
respective properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to any party hereto or any Subsidiary of such party in connection with
the execution and delivery of this Consent and Amendment by such party or the
consummation of the transactions contemplated hereby, except for the Required
Consents and such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain would not have
a Material Adverse Effect on such party.
13. Effective Date; No Other Consents or Amendments. Each of the parties
hereto agrees that the consent under and amendments to the Original Agreement
contained herein shall be effective upon execution of this Consent and
Amendment by each party hereto. Except as expressly amended hereby, the
provisions of the Original Agreement are and shall remain in full force and
effect. This Consent and Amendment shall not be deemed to constitute a waiver
of, or consent to, or a modification or amendment of, any other provision of
the Original Agreement except as expressly provided herein or to prejudice any
other right or rights which any party may now have or may have in the future
under or in connection with the Original Agreement. This Consent and Amendment
shall not constitute an agreement or obligation of any party to consent to,
waive, modify or amend any other term, condition, subsection or section of the
Original Agreement.
A-45
<PAGE>
14. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Global, Merger Sub and Frontier have caused this Consent
and Amendment to be executed as of the date first written above by their
respective officers thereunto duly authorized.
Global Crossing Ltd.
/s/ Thomas J. Casey
By: ________________________
Name:Thomas J. Casey
Title:Vice Chairman
GCF Acquisition Corp.
/s/ Thomas J. Casey
By: ________________________
Name:Thomas J. Casey
Title:Vice Chairman
Frontier Corporation
/s/ Joseph P. Clayton
By: ________________________
Name:Joseph P. Clayton
Title:Chief Executive
Officer
A-46
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 16, 1999 (the "Agreement"), by and
between Frontier Corporation, a New York corporation ("Issuer"), and Global
Crossing Ltd., a company formed under the laws of Bermuda ("Grantee").
WHEREAS, Issuer, Grantee and GCF Acquisition Corp., a New York corporation
("Sub"), which is a direct wholly owned subsidiary of Grantee, propose to
enter into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"; capitalized terms used but not defined herein shall have
the meanings set forth in the Merger Agreement), providing for, among other
things, a merger (the "Merger") of Sub with and into Issuer .
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement, Grantee has requested that Issuer agree, and Issuer
has agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, Issuer and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 34,291,944 shares (the "Option Shares") of common stock, par
value $1.00 per share, of Issuer (the "Shares") (being 19.9% of the number of
Shares outstanding on the date hereof before such issuance), together with the
associated purchase rights (the "Rights") under the Rights Agreement, dated as
of April 9, 1995, as amended from time to time, between Issuer and First
National Bank of Boston, as Rights Agent (references to the Option Shares
shall be deemed to include the associated Rights), at a purchase price of
$62.00 per Option Share (such price, as adjusted if applicable, the "Purchase
Price"). The number of Option Shares that may be received upon the exercise of
the Option and the Purchase Price are subject to adjustment as set forth
herein.
2. Exercise of Option. (a) If not in material breach of the Merger
Agreement, Grantee may exercise the Option, in whole or in part, at any time
or from time to time following the occurrence of a Purchase Event (as defined
below); provided that, except as otherwise provided herein, the Option shall
terminate and be of no further force and effect upon the earliest to occur of
(i) the Effective Time, (ii) 15 months after the first occurrence of a
Purchase Event (or if, at the expiration of such 15-months after the first
occurrence of a Purchase Event, the Option cannot be exercised by reason of
any applicable judgment, decree, order, law or regulation, 10 business days
after such impediment to exercise shall have been removed, but in no event
under this clause (ii) later than the second anniversary of the date hereof),
(iii) termination of the Merger Agreement under circumstances which do not and
cannot result in Grantee's becoming entitled to receive the Termination Fee
from Issuer pursuant to Section 7.2(b) of the Merger Agreement; or (iv) 12
months after the termination of the Merger Agreement under circumstances which
could result in Grantee's becoming entitled to receive the Termination Fee
from Issuer pursuant to Section 7.2(b)(ii) or 7.2(b)(iv), unless during such
12-month period, a Purchase Event shall occur. The termination of the Option
shall not affect any rights hereunder which by their terms extend beyond the
date of such termination.
(b) As used herein, a "Purchase Event" means the termination of the Merger
Agreement under any circumstance which would or could entitle Grantee to
receive the Termination Fee from Issuer pursuant to Section 7.2(b) of the
Merger Agreement; provided, that if the Merger Agreement is terminated under
circumstances which could result in Grantee's becoming entitled to receive the
Termination Fee from Issuer pursuant to Section 7.2(b)(ii) or 7.2(b)(iv) a
Purchase Event shall not occur unless and until Issuer shall have entered into
a definitive agreement with a third party with respect to an Acquisition
Proposal or an Acquisition Proposal shall have been consummated during the 12
months following such termination of the Merger Agreement.
B-1
<PAGE>
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 20 business days from such Notice Date for
the closing of such purchase (a "Closing"; and the date of such Closing, a
"Closing Date"); provided that such closing shall be held only if (A) such
purchase would not otherwise violate or cause the violation of applicable law
(including the HSR Act), (B) no law, rule or regulation shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order, decree or ruling issued by a court or
other governmental authority of competent jurisdiction shall be in effect,
which prohibits delivery of such Option Shares (and the parties hereto shall
use their reasonable best efforts to have any such order, injunction, decree
or ruling vacated or reversed) and (C) any prior notification to or approval
of any other regulatory authority in the United States or elsewhere required
in connection with such purchase shall have been made or obtained. If the
Closing cannot be consummated by reason of a restriction set forth in clause
(A), (B) or (C) above, notwithstanding the provisions of Section 2(a), the
Closing shall be held within 10 business days following the elimination of
such restriction.
3. Payment and Delivery of Certificates. On each Closing Date, Grantee shall
pay to Issuer in immediately available funds by wire transfer to a bank
account designated by Issuer an amount equal to the Purchase Price multiplied
by the Option Shares to be purchased on such Closing Date.
(b) At each Closing, simultaneously with the delivery of immediately
available funds as provided in Section 3(a), Issuer shall deliver to Grantee a
certificate or certificates representing the Option Shares to be purchased at
such Closing, which Option Shares shall be free and clear of all liens,
charges or encumbrances ("Liens"), and Grantee shall deliver to Issuer a
letter agreeing that Grantee shall not offer to sell or otherwise dispose of
such Option Shares in violation of applicable law or the provisions of this
Agreement.
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF MARCH 16,
1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Issuer and
its counsel, to the effect that such legend is not required for purposes of
the Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do
not require the retention of such reference.
4. Authorized Stock. Issuer hereby represents and warrants to Grantee that
Issuer has taken all necessary corporate and other action to authorize and
reserve and to permit it to issue, at all times from the date hereof until the
obligation to deliver Shares upon the exercise of the Option terminates, will
have reserved for issuance, upon exercise of the Option, Shares necessary for
Grantee to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional Shares or other
securities which may be issued pursuant to Section 6 upon exercise of the
Option. The Shares to be issued upon due exercise of the Option, including all
additional Shares or other securities which may be issuable upon exercise of
the Option pursuant to Section 6, upon issuance pursuant hereto, shall be duly
and validly issued, fully paid and nonassessable, and shall be delivered free
and clear of all Liens, including any preemptive rights of any shareholder of
Issuer.
B-2
<PAGE>
5. Purchase Not for Distribution. Grantee hereby represents and warrants to
Issuer that any Option Shares or other securities acquired by Grantee upon
exercise of the Option will not be taken with a view to the public
distribution thereof and will not be transferred or otherwise disposed of
except in a transaction registered or exempt from registration under the
Securities Act.
6. Adjustment upon Changes in Capitalization, etc. In the event of any
change in Shares by reason of reclassification, recapitalization, stock split,
split-up, combination, exchange of shares, stock dividend, dividend, dividend
payable in any other securities, or any similar event, the type and number of
Shares or securities subject to the Option, and the Purchase Price therefor
(including for purposes of repurchase thereof pursuant to Section 7), shall be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction, so that Grantee shall receive upon exercise of the
Option the number and class of shares or other securities or property that
Grantee would have received in respect of Shares if the Option had been
exercised immediately prior to such event or the record date therefor, as
applicable. If any additional Shares are issued after the date of this
Agreement (other than pursuant to an event described in the immediately
preceding sentence), the number of Shares subject to the Option shall be
adjusted so that immediately prior to such issuance, it equals 19.9% of the
number of Shares then issued and outstanding.
7. Repurchase of Option and Option Shares. (a) Notwithstanding the
provisions of Section 2(a), at any time commencing upon the first occurrence
of a Repurchase Event (as defined below) and ending 12 months thereafter,
Issuer (or any successor entity thereof) shall:
(i) at the request of Grantee, repurchase from Grantee the Option (if and
to the extent not previously exercised or terminated) at a price equal to
the excess, if any, of (x) the Applicable Price (as defined below) as of
the Section 7 Request Date (as defined below) for a Share over (y) the
Purchase Price (subject to adjustment pursuant to Section 6), multiplied by
the number of Shares with respect to which the Option has not been
exercised (the "Option Repurchase Price"); and
(ii) at the request of an owner of Option Shares from time to time,
repurchase all but not less than all of the Option Shares owned directly or
indirectly by such owner at a price equal to the Applicable Price as of the
Section 7 Request Date multiplied by the number of Option Shares owned
directly or indirectly by such owner (the "Option Share Repurchase Price").
(b) Notwithstanding the provisions of Section 2(a), at any time following
the occurrence of a Purchase Event, Issuer (or any successor entity thereof)
may, at its election, repurchase the Option (if and to the extent not
previously exercised or terminated) or all but not less than all of the Option
Shares at the Option Repurchase Price or the Option Share Repurchase Price, as
the case may be.
(c) In connection with any exercise of rights under this Section 7, Issuer
shall, within 10 business days after the Section 7 Request Date, pay the
Option Repurchase Price or Option Share Repurchase Price, as the case may be,
in immediately available funds, and Grantee or such owner, as the case may be,
shall surrender to Issuer the Option or the Option Shares, as the case may be.
(d) For purposes of this Agreement, the following terms have the following
meanings:
(i) "Applicable Price", as of any date, means the highest of (A) the
highest price per Share paid pursuant to a tender offer or exchange offer
for Shares after the date hereof and on or prior to such date, (B) the
highest price per Share to be paid by any third party for Shares or the
consideration per Share to be received by holders of Shares, in each case
pursuant to an agreement for an Acquisition Proposal with Issuer entered
into on or prior to such date or (C) the highest closing price per Share as
reported on the New York Stock Exchange Inc. ("NYSE") Composite Tape or if
the Shares are not listed on the NYSE, the highest bid price per Share as
quoted on the National Association of Securities Dealers Automated
Quotations System or, if the Shares are not quoted thereon, on the
principal trading market on which such Shares are traded as reported by a
recognized source during the 60 business days preceding such date. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (A) or (B) shall be
B-3
<PAGE>
other than in cash, the value of such consideration shall be determined in
good faith by an independent nationally recognized investment banking firm
selected by Grantee and reasonably acceptable to Issuer.
(ii) A "Repurchase Event" occurs when the Termination Fee is paid or
becomes due and payable to Grantee from Issuer pursuant to Section 7(b) of
the Merger Agreement.
(iii) "Section 7 Request Date" means the date on which Issuer, Grantee or
an owner of Option Shares, as the case may be, exercises its rights under
this Section.
8. Registration Rights. Issuer shall, if requested by Grantee or any owner
of: Option Shares (collectively with Grantee, the "Owners") at any time and
from time to time within two years of the first exercise of the Option, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of securities that have
been acquired by or are issuable to such Owners upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
such Owners, including a "shelf" registration statement under Rule 415 under
the Securities Act or any successor provision, and Issuer shall use all
reasonable efforts to qualify such shares or other securities under any
applicable state securities laws. Issuer shall use all reasonable efforts to
cause each such registration statement to become effective, to obtain all
consents or waivers of other parties which are required therefor and to keep
such registration statement effective for such period not in excess of 180
days from the day such registration statement first becomes effective as may
be reasonably necessary to effect such sale or other disposition. The
obligations of Issuer hereunder to file a registration statement and to
maintain its effectiveness may be suspended for one or more periods of time
not exceeding 30 days in the aggregate if the Board of Directors of Issuer
shall have determined that the filing of such registration statement or the
maintenance of its effectiveness would require disclosure of nonpublic
information that would materially and adversely affect Issuer. Any
registration statement prepared and filed under this Section 8, and any sale
covered thereby, shall be at Issuer's expense except for underwriting
discounts or commissions, brokers' fees and the reasonable fees and
disbursements of Owners' counsel related thereto. The Owners shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If during the time period referred to in the
first sentence of this Section 8 Issuer effects a registration under the
Securities Act of Shares for its own account or for any other stockholders of
Issuer (other than on Form S-4 or Form S-8, or any successor form), it shall
allow the Owners the right to participate in such registration, and such
participation shall not affect the obligation of Issuer to effect two
registration statements for the Owners under this Section 8; provided that, if
the managing underwriters of such offering advise Issuer in writing that in
their opinion the number of Shares requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the offering price, Issuer and the Owners shall each
reduce on a pro rata basis the Shares to be included therein on their
respective behalf. In connection with any registration pursuant to this
Section 8, Issuer and the Owners shall provide each other and any underwriter
of the offering with customary repre sentations, warranties, covenants,
indemnification and contribution in connection with such registration.
9. Listing; Reasonable Best Efforts. (a) If Shares or any other securities
to be acquired upon exercise of the Option are then listed on the NYSE or any
other securities exchange or market, Issuer, upon the request of any Owner,
will promptly file an application to list the Shares or other securities to be
acquired upon exercise of the Options on the NYSE or such other securities
exchange or market and will use its reasonable best efforts to obtain approval
of such listing as soon as practicable.
(b) Issuer will use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advise under applicable laws and regulations to permit the exercise
of the Option or the Substitute Option in accordance with the terms and
conditions hereof, as soon as practicable after the date hereof, including
making any appropriate filing pursuant to the HSR Act and any other applicable
law, supplying as promptly as practicable any additional information and
documentary material that may be requested pursuant to the HSR Act and any
other applicable law, and taking all other actions necessary to cause the
expiration or termination of the applicable waiting periods under the HSR Act
as soon as practicable.
B-4
<PAGE>
10. Limitation of Grantee Profit. (a) Notwithstanding any other provisio
herein, in no event shall Grantee's Total Profit (as defined below) exceed
$275 million (the "Maximum Profit") and, if it otherwise would exceed such
amount, Grantee, at its sole discretion, shall either (i) reduce the number of
Shares subject to the Option, (ii) deliver to Issuer for cancellation Shares
(or other securities into which such Option Shares are converted or
exchanged), (iii) pay cash to Issuer, or (iv) any combination of the
foregoing, so that Grantee's actually realized Total Profit shall not exceed
the Maximum Profit after taking into account the foregoing actions.
(b) For purposes of this Agreement, "Total Profit" shall mean: (i) the
aggregate amount of (A) any excess of (x) the net cash amounts received by
Grantee pursuant to a sale of Option Shares (or securities into which such
shares are converted or exchanged) (including amounts paid to Grantee in
respect of Option Shares repurchased by Issuer pursuant to Section 7) over (y)
the Grantee's aggregate purchase price for such Option Shares (or other
securities), plus (B) any amounts received by Grantee on the repurchase of the
Option by Issuer pursuant to Section 7, plus (C) any Termination Fee received
by Grantee pursuant to Section 7.2(b) of the Merger Agreement, minus (ii) the
amounts of any cash previously paid by Grantee to Issuer pursuant to this
Section 10 plus the value of the Option Shares (or other securities)
previously delivered by Grantee to Issuer for cancellation pursuant to this
Section 10.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Issuer's
obligation to pay, the Termination Fee provided for in Section 7.2(b) of the
Merger Agreement; provided that if and to the extent the Total Profit received
by Grantee would exceed the Maximum Profit following receipt of such payment,
Grantee shall be obligated to comply with the terms of Section 10(a) within 20
days of the latest of (i) the date of receipt of such payment, (ii) the date
of receipt of cash by Grantee pursuant to the sale of Option Shares (or
securities into which such Option Shares are converted or exchanged)
(including amounts paid to Grantee in respect of Option Shares repurchased by
Issuer pursuant to Section 7) and (iii) the date of receipt of cash from the
repurchase of the Option by Issuer pursuant to Section 7.
(d) For purposes of Section 10(a) and clause (ii) of Section 10(b), the
value of any Option Shares delivered by Grantee to Issuer shall be the
Applicable Value.
11. Loss, Theft, Etc. of Agreement. This Agreement (and the Option granted
hereby) is exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of Issuer
for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
Shares purchasable hereunder. The terms "Agreement" and "Option" as used
herein include any other Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft
or destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Agreement, if mutilated, Issuer will execute and
deliver a new Agreement of like tenor and date. Any such new Agreement
executed and delivered shall constitute an additional contractual obligation
on the part of Issuer, whether or not the Agreement so lost, stolen, destroyed
or mutilated shall at any time be enforceable by anyone.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided in Section 9 hereof or in the
Merger Agreement, each of the parties hereto shall bear and pay all expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
B-5
<PAGE>
(c) Entire Agreement; No Third-Party Beneficiary; Severability. Except as
otherwise set forth in the Merger Agreement, this Agreement, together with the
Merger Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or a federal or state regulatory agency to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. If for any
reason such court or regulatory agency determines that the Option does not
permit Grantee to acquire, or does not require Issuer to repurchase, the full
number of Shares as provided in Sections 2 and 7, as adjusted pursuant to
Section 6, it is the express intention of Issuer to allow Grantee to acquire
or to require Issuer to repurchase such lesser number of Shares as may be
permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed therein.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given as set forth in Section 8.2 of the Merger
Agreement.
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed
by each of the parties and delivered to the other party, it being understood
that both parties need not sign the same counterpart.
(h) Assignment. Grantee may not, without the prior written consent of Issuer
(which shall not be unreasonably withheld), assign this Agreement to any other
person. This Agreement shall not be assignable by Issuer except by operation
of law. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
(i) Representations and Warranties. The representations and warranties
contained in Sections 3.1(a) and 3.2(a) of the Merger Agreement, and, to the
extent they relate to this Stock Option Agreement, in Sections 3.1(b), (c),
(f) and (g) of the Merger Agreement, are incorporated herein by reference.
(j) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
(k) Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the
parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity. Both parties further agree to waive any requirement for the securing
or posting of any bond in connection with the obtaining of any such equitable
relief and that this provision is without prejudice to any other rights that
the parties hereto may have for any failure to perform this Agreement.
(l) Captions. The Article, Section and paragraph captions herein are for
convenience only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
(m) Confidentiality Agreement. Issuer hereby waives the restric tions on
Grantee's acquisition of Shares contained in the Confidentiality Agreement to
the extent necessary to permit Grantee to exercise the Option and purchase the
Option Shares as herein provided.
B-6
<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of March 16, 1999.
Global Crossing Ltd.
/s/ Thomas J. Casey
By: _________________________________
Name: Thomas J. Casey
Title: Vice Chairman
Frontier Corporation
/s/ Joseph P. Clayton
By: _________________________________
Name: Joseph P. Clayton
Title: Chief Executive Officer
B-7
<PAGE>
ANNEX C
VOTING AGREEMENT
VOTING AGREEMENT dated as of March 16, 1999 (this "Agreement") among those
shareholders of Global Crossing Ltd, a company formed under the laws of
Bermuda ("Global"), listed on Exhibit A (each a "Shareholder," and
collectively, the "Shareholders"), Frontier Corporation, a New York
corporation (together with its successors and assigns, "Frontier"), and, as to
Section 2 only, Global.
A. Each Shareholder beneficially owns shares of Common Stock, par value $.01
per share, of Global (the "Global Common Stock") set forth opposite such
shareholder's name on Exhibit A. All such shares, together with any other
shares of capital stock of Global such Shareholder hereinafter acquires, are
referred to as the "Subject Shares"; provided that any such share shall cease
to be a "Subject Share" from and after the time that such share is transferred
pursuant to Section 2 and ceases to be subject to the Voting Documents (as
defined below) in accordance with the terms of Section 2.
B. Global, GCF Acquisition Corp., a New York corporation ("Merger Sub"), and
Frontier are, simultaneously with the execution hereof, entering into an
Agreement and Plan of Merger, dated as of March 16, 1999 (the "Merger
Agreement"), providing for, among other things, the merger of Merger Sub with
and into Frontier (the "Merger"). Terms not otherwise defined in this
Agreement have the meanings stated in the Merger Agreement.
C. The Board of Directors of Global has approved an amendment to the
Memorandum of Association of Global to increase the number of authorized
shares of Global Common Stock and the transactions contemplated by the Merger
Agreement including the Merger and the Alternative Merger.
D. The Shareholders and Frontier desire to enter into this Agreement to
provide for, among other things, (1) the obligation of the Shareholders to
vote their respective Subject Shares and any other shares of Global Common
Stock which each Shareholder has the right to vote at the Global Shareholders
Meeting (or an Early Global Meeting) (the "Voting Shares") to approve the
Share Issuance, the Global Charter Amendment and, if applicable, the
Alternative Merger and (2) certain restrictions on the sale or other transfer
of the record ownership or the beneficial ownership, or both, of the Subject
Shares by the Shareholders until the termination of this Agreement. This
Agreement and all other agreements, instruments and other documents executed
and delivered by the Shareholders in connection with this Agreement are
collectively referred to as the "Voting Documents."
E. Each Shareholder acknowledges that Frontier is entering into the Merger
Agreement in reliance on the representations, warranties, covenants and other
agreements of the Shareholders set forth in this Agreement and would not enter
into the Merger Agreement if the Shareholders did not enter into this
Agreement.
AGREEMENT
The parties agree as follows:
SECTION 1. Covenants of the Shareholders
(a) Voting. Until the day following the termination of this Agreement,
subject to the receipt of proper notice and the absence of a preliminary or
permanent injunction or other final order by any United States federal court
or state court or Bermuda court barring such action, each Shareholder shall do
the following:
(1) be present, in person or represented by proxy, at each meeting
(whether annual or special, and whether or not an adjourned or postponed
meeting) of the shareholders of Global, however called, or in connection
with any written consent of the shareholders of Global, so that all Subject
Shares and Voting Shares then entitled to vote may be counted for the
purposes of determining the presence of a quorum at such meetings; and
C-1
<PAGE>
(2) at each such meeting held before the Effective Time and with respect
to each such written consent, vote (or cause to be voted), or deliver a
written consent (or cause a consent to be delivered) covering, all the
Subject Shares held by such Shareholders and all Voting Shares to approve
the Share Issuance and the Global Charter Amendment and any action required
in furtherance thereof and of the Merger and, if applicable, the
Alternative Merger, and against any action which would reasonably be
expected to result in a failure of the conditions described in Section 6.3
of the Merger Agreement to be satisfied.
(b) No Inconsistent Agreements. Until the day following the termination of
this Agreement, each Shareholder shall not enter into any voting agreement or
grant a proxy or power of attorney with respect to the Subject Shares which is
inconsistent with this Agreement.
(c) Review of Merger Agreement. Each Shareholder acknowledges receipt and
review of a copy of the Merger Agreement.
SECTION 2. Transfer of Subject Shares. During the term of this Agreement,
each Shareholder shall not transfer record ownership or beneficial ownership,
or both, of any Subject Shares except in each case to the extent permitted
below and notwithstanding anything else contained herein, at no time will the
shares of Global Common Stock subject to this Agreement be less than the
Required Global Vote. Each and any Shareholder may transfer record ownership
or beneficial ownership, or both, of any Subject Shares, and such shares shall
cease to be subject to the Voting Documents; provided, that (x) if, as a
result of such transfer, less than 51% of the Combined Voting Power would be
subject to the Voting Documents, then the Person to whom record ownership or
beneficial ownership, or both, of such shares shall be transferred shall
execute and deliver to Frontier an agreement reason ably acceptable to
Frontier by which such transferee agrees that such shares shall be Subject
Shares that are subject to the Voting Documents and agrees to be bound by
Sections 1, 2 and 4 of this Agreement with respect to such shares, (y) in any
event, on the record date for the meeting of the shareholders of Global at
which the Share Issuance and the Global Charter Amendment or any other
transaction contemplated by the Merger Agreement including, if applicable, the
Alternative Merger, shall be presented for their approval or with respect to
any written consent in lieu thereof, the Subject Shares shall, in the
aggregate, constitute at least 51% of the Combined Voting Power, and (z) such
Shareholder complies with the notice provisions and receives notice from
Global that such transfer is approved as described below. If a Shareholder
(the "Transferring Shareholder") desires to transfer (the "Proposed Transfer")
any Subject Shares it should deliver written notice (the "Proposed Transfer
Notice") to the Chief Financial Officer or other appropriate official of
Global as designated by the Chief Financial Officer (the "Designated Officer")
no later than 10:00 a.m. Eastern Time on the day of the Proposed Transfer. The
Designated Officer shall within five business days of receipt of the Proposed
Transfer Notice use reasonable efforts to approve the transfer ("Transfer
Approval") only if the Designated Officer determines that the Proposed
Transfer will not cause less than 51% of the Combined Voting Power to be
subject to the Voting Documents. When determining whether to approve a
Proposed Transfer, in whole or in part, pursuant to the preceding sentence,
the Designated Officer shall evaluate the Proposed Transfer Notice on a first
come, first serve basis unless more than one Proposed Transfer Notice is
received that proposes to transfer Subject Shares on the same date, in which
case, if such Proposed Transfers cannot be approved to the full extent of the
Subject Shares covered thereby, but can be approved to a lesser extent, the
Designated Officer shall approve such Proposed Transfers based on a pro rata
allocation of the Subject Shares comprising such Proposed Transfers. Promptly
upon receipt of a Proposed Transfer Notice (but in no event later than two (2)
business days prior to the delivery of the Transfer Approval), the Designated
Officer shall notify the Chief Financial Officer of Frontier of the Proposed
Transfer and provide a calculation showing the percentage of the Combined
Voting Power that will be represented by the shares of Global Common Stock
subject to the Voting Agreement after giving effect to such Proposed Transfer.
If the Designated Officer determines that he or she can grant a Transfer
Approval, such Designated Officer shall deliver written notice of such
Transfer Approval by facsimile to the Transferring Share holder with a copy to
the Chief Financial Officer of Frontier. Notwithstanding the foregoing, in no
event shall any Transferring Shareholder be permitted to transfer any Subject
Shares (other than in compliance with clause (x)) without receiving a Transfer
Approval. For the purposes of this Agreement, the term "transfer" means a
sale, an assignment, a grant, a transfer, a pledge, the creation of a lien or
other disposition of any Subject Shares
C-2
<PAGE>
or any interest of any nature in any Subject Shares, including, without
limitations, the "beneficial ownership" of such Subject Shares (as determined
pursuant to Regulation 13D-G under the Exchange Act).
Notwithstanding anything set forth in this Agreement to the contrary, and in
addition to any restrictions otherwise set forth herein, during the period
during which the Average Price is to be determined for purposes of calculating
the Exchange Ratio, each Shareholder shall not (and shall not announce an
intention to) (1) acquire any Global Common Stock in the open market, (2) sell
any shares of Global Common Stock, (3) take any other action prohibited under
Regulation M promulgated under the Securities Act or (4) make any announcement
which would reason ably be expected to have the effect of resulting in a
change in the trading prices of the Global Common Stock.
SECTION 3. Representations and Warranties of Shareholders. Each Shareholder
severally represents and warrants to Frontier as follows:
(a) Existence and Power. Each Shareholder that is a corporation (1) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of its incorporation and (2) has all requisite corporate
power and authority to execute and deliver each Voting Document to which it is
or may become a party.
(b) Authorization; Contravention. The execution and delivery by each
Shareholder of each Voting Document and the performance by it of its
obligations under each Voting Document have, (1) in the case of each Share
holder that is a corporation, been duly authorized by all necessary corporate
action and (2) do not and will not conflict with or result in a Violation
pursuant to, (A) in the case of each Shareholder that is a corporation, any
provision of its certificate of incorporation or bylaws, or similar
organizational document, or (B) any loan or credit agreement, note, mortgage,
bond, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to such Share holder,
the Subject Shares or any of such Shareholder's other properties or assets.
(c) Binding Effect. Each applicable Voting Document constitutes, or when
executed and delivered by each Shareholder will constitute a valid and binding
obligation of such Shareholder, enforceable against such Shareholder, in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating
to or affecting creditors' rights generally, by general equity principles,
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing.
(d) Ownership. Each Shareholder is the record owner or beneficial owner of
the Subject Shares listed beside its name in Exhibit A, free and clear of
liens except with respect to pledges or other liens that such Shareholder
would be entitled to effect or create as of the date of this Agreement
pursuant to the second sentence of Section 2 and in accordance with the terms
thereof. As of the date of this Agreement, each Shareholder does not own
beneficially or of record any equity securities of Global other than the
Subject Shares. No Shareholder has appointed or granted any proxy which is
still effective with respect to its Subject Shares. Each Shareholder has sole
voting power or power to direct the vote of the Global Common Stock set forth
beside its name on Exhibit A and on the record date and the date of the Global
Shareholders Meeting at which the Share Issuance and the Global Charter
Amendment and, if applicable, the Alternative Merger, shall be presented for
approval, each Shareholder will have sole voting power or power to direct the
vote of all such Shareholder's Subject Shares.
(e) Litigation. There is no action, suit, investigation, complaint or other
proceeding pending against any Shareholder or, to the knowledge of any
Shareholder, threatened against any Shareholder or any other Person that
restricts in any material respect or prohibits (or, if successful, would
restrict or prohibit) the exercise by any party or beneficiary of its rights
under any Voting Document or the performance by any party of its obligations
under any Voting Document.
C-3
<PAGE>
SECTION 4. Miscellaneous Provisions.
(a) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (1) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (2) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier service, or (3) on the tenth
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices
hereunder shall be given to Global and Frontier at its address stated in
Section 8.2 of the Merger Agreement and all notices to the Shareholders shall
be given at its address in the records of Global or, in each case, at any
other address as the party may specify for this purpose by notice to the other
parties.
(b) No Waivers; Remedies; Specific Performance.
(1) No failure or delay by Frontier in exercising any right, power or
privilege under any Voting Document shall operate as a waiver of the right,
power or privilege. A single or partial exercise of any right, power or
privilege shall not preclude any other or further exercise of the right,
power or privilege or the exercise of any other right, power or privilege.
The rights and remedies provided in the Voting Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.
(2) In view of the uniqueness of the agreements contained in the Voting
Documents and the transactions contemplated hereby and thereby and the fact
that Frontier would not have an adequate remedy at law for money damages in
the event that any obligation under any Voting Document is not performed in
accordance with its terms, each of the Shareholders therefore agrees that
Frontier shall be entitled to specific enforcement of the terms of each
Voting Document in addition to any other remedy to which Frontier may be
entitled, at law or in equity.
(c) Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of any Voting Document, and no consent to any departure by any
of the Shareholders or Frontier from any provision of any Voting Document,
shall be effective unless it shall be in writing and signed and delivered by
all the Shareholders and Frontier, and then it shall be effective only in the
specific instance and for the specific purpose for which it is given.
(d) Successors and Assigns; Third Party Beneficiaries.
(1) No party shall assign any of its rights or delegate any of its
obligations under any Voting Document. Any assignment or delegation in
contravention of this Section 4(d) shall be void AB INITIO and shall not
relieve the assigning or delegating party of any obliga tion under any
Voting Document.
(2) The provisions of each Voting Document shall be binding upon and
inure solely to the benefit of the parties hereto, the express
beneficiaries thereof (to the extent provided therein) and their respective
permitted heirs, executors, legal representatives, successors and assigns,
and no other person.
(e) Governing Law. Each Voting Document and all rights, remedies,
liabilities, powers and duties of the parties hereto and thereto, shall be
governed in accordance with the laws of the State of New York without regard
to principles of conflicts of laws.
(f) Severability of Provision. If any term or other provi sion of any Voting
Document is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of such Voting Document shall
nevertheless remain in full force and effect so long as the economic or legal
sub stance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify such Voting Document so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible.
C-4
<PAGE>
(g) Headings and References. Article and section headings in any Voting
Document are included for the convenience of reference only and do not
constitute a part of the Voting Document for any other purpose. References to
parties, express beneficiaries, articles and sections in any Voting Document
are references to parties to or the express beneficiaries and sections of the
Voting Document, as the case may be, unless the context shall require
otherwise. Any of the terms defined in this Agreement may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. The use in this Agreement of the word "include" or "including,"
when following any general statement, term or matter, shall not be construed
to limit such statement, term, or matter to the specific items or matters set
forth immediately following such word or to similar items or matters, whether
or not nonlimiting language (such as "without limitation" or "but not limited
to" or words of similar import) is used with reference thereto, but rather
shall be deemed to refer to all other items or matters that fall within the
broadest possible scope of such general statement, term or matter.
(h) Entire Agreement. The Voting Documents embody the entire agreement and
understanding of the Shareholders and Frontier, and supersede all prior
agreements or understandings, with respect to the subject matters of the
Voting Documents.
(i) Survival. Except as otherwise specifically provided in any Voting
Document, each representation, warranty or covenant of a party contained in
any Voting Document shall remain in full force and effect, notwithstanding any
investigation or notice to the contrary or any waiver by any other party or
beneficiary of a related condition precedent to the performance by the other
party or beneficiary of an obligation under any Voting Document.
(j) Submission to Jurisdiction: Waivers. Each Share holder and Frontier
irrevocably agrees that any legal action or proceeding with respect to any
voting document or for recognition and enforcement of any judgment in respect
hereto or thereof brought by the other party hereto or its successors or
assigns may be brought and determined in the courts of the State of New York,
and each Shareholder and Frontier hereby irrevocably submit with regard to any
such action or proceeding for itself and in respect to its property, generally
and unconditionally, to the non-exclusive jurisdiction of the aforesaid
courts. Each Shareholder and Frontier hereby irrevocably waives, and agrees
not to assert, by way of motion, as a defense, counterclaim or otherwise, in
any action or proceeding with respect to any Voting Document, (a) any claim
that it is not personally subject to the jurisdic tion of the above-named
courts for any reason other than the failure to serve process in accordance
with this Section 4(j), (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or
otherwise), and (c) to the fullest extent permitted by applicable law, that
(i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper and (iii) such Voting Document, or the subject matter hereof or
thereof, may not be enforced in or by such courts. This Agreement does not
involve less than $250,000 and the parties intend that Section 5-1401 of the
New York General Obligations will apply to this Agreement.
(k) Waiver of Jury Trial. Each party, and each express beneficiary of a
Voting Document as a condition of its right to enforce or defend any right
under or in connection with such Voting Document, waives any right to a trial
by jury in any Action to enforce or defend any right under any Voting Document
and agrees that any Action shall be tried before a court and not before a
jury.
(l) Termination. Frontier may terminate this Agreement at any time upon
written notice to each Shareholder. Unless terminated earlier by Frontier or
by mutual agreement of the parties, this Agreement shall terminate upon the
first to occur of (i) consummation of the Merger, (ii) the termination of the
Merger Agreement pursuant to Section 7.1 thereof or (iii) the full and
irrevocable satisfaction of the condition set forth in Section 6.1(a) of the
Merger Agreement with respect to both the Merger and the Alternative Merger.
(m) Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an originals, with the same effect as if
all signatures were on the same instrument.
C-5
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Frontier Corporation
By: /s/ Joseph P. Clayton
---------------------------------
Name: Joseph P. Clayton
Title: Chief Executive Officer
/s/ Abbott L. Brown
-------------------------------------
Brown Living Trust
By: /s/ Abbott L. Brown
---------------------------------
Ridgestone Corp.
By: /s/ Abbott L. Brown
---------------------------------
/s/ Barry Porter
-------------------------------------
Galenight Corp.
By: /s/ Barry Porter
---------------------------------
Continental Casualty Corp.
By: /s/ Hillel Weinberger
---------------------------------
Continental Casualty Corporation
Designated High Yield
By: /s/ Hillel Weinberger
---------------------------------
Global Crossing Trust 1998
By: /s/ Hillel Weinberger
---------------------------------
Hillel Weinberger, as Trustee
C-6
<PAGE>
Global Crossing Partners
By: /s/ Hillel Weinberger
---------------------------------
As general partner
CIBC WG Argosy Merchant Fund 3, LP
By: /s/ Jay R. Bloom
---------------------------------
CIBC Wood Gundy Capital (SFC) Inc.
By: /s/ Jay R. Bloom
---------------------------------
Co-Investment Merchant Fund, LLC
By: /s/ Jay R. Bloom
---------------------------------
Global Crossing Ltd., LDC
By: /s/ Jay R. Bloom
---------------------------------
Canadian Imperial Bank of Commerce
By: /s/ Jay R. Bloom
---------------------------------
/s/ David L. Lee
-------------------------------------
David and Ellen Lee Family Trust
By: /s/ David Lee
---------------------------------
David Lee, Trustee
San Pasqual Corp.
By: /s/ David Lee
---------------------------------
/s/ Gary Winnick
-------------------------------------
C-7
<PAGE>
Pacific Capital Group, Inc.
By: /s/ Gary Winnick
---------------------------------
GKW Unified Holdings, LLC
By: Pacific Capital Group, Inc.
---------------------------------
Manager
By: /s/ Gary Winnick
---------------------------------
/s/ Lodwrick Cook
-------------------------------------
MRCo, Inc.
By: /s/ Michael R. Steed
---------------------------------
As to Section 2 only
Global Crossing Ltd.
By: /s/ Thomas J. Casey
---------------------------------
Name: Thomas J. Casey
Title: Vice Chairman
C-8
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Post Split
Shares
----------
<S> <C>
Brown Living Trust.................................................. 3,435,922
Ridgestone Corp..................................................... 7,765,418
----------
Total Abbott L. Brown............................................. 11,201,340
Barry Porter........................................................ 6,335,780
Galenight Corp...................................................... 11,883,968
----------
Total Barry Porter................................................ 18,219,748
Continental Casualty Corp........................................... 16,795,500
Continental Casualty Corp Designated High Yield..................... 23,279,670
Global Crossing Partners (Hillel Weinberger)........................ 486,630
Global Crossing Trust 1998 (Hillel Weinberger)...................... 2,100,000
----------
Total Continental Casualty........................................ 42,661,800
Total CIBC (including CIBC WG Argosy Merchant Fund 3, LP, CIBC Wood
Gundy Capital (SFC) Inc., Co-Investment Merchant Fund, LLC and
Global Crossing Ltd., LDC)......................................... 97,026,800
David and Ellen Lee Family Trust.................................... 5,233,234
David L. Lee........................................................ 4,869,964
San Pasqual Corp.................................................... 9,900,822
----------
Total David Lee................................................... 20,004,020
GKW Unified Holdings, LLC........................................... 77,195,744
Pacific Capital Group, Inc.......................................... 15,993,406
----------
Total Gary Winnick................................................ 93,189,150
Lodwrick Cook....................................................... 3,580,452
MRCo, Inc. ......................................................... 33,180,260
</TABLE>
C-9
<PAGE>
ANNEX D-1
[Salomon Smith Barney Logo]
March 16, 1999
Board of Directors
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton, Bermuda
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Global Crossing Ltd. ("Global Crossing"), of the consideration to be
provided by Global Crossing in connection with the proposed merger of Frontier
Corporation ("Frontier") with GCF Acquisition Corp. ("Sub"), a wholly owned
subsidiary of Global Crossing (the "Merger"), pursuant to an Agreement and
Plan of Merger, dated as of March 16, 1999 (the "Merger Agreement"), among
Global Crossing, Frontier and Sub. Upon the effectiveness of the Merger, each
issued and outstanding share of common stock, par value $1.00 per share, of
Frontier ("Frontier Common Stock") (other than shares owned or held directly
or indirectly by Global Crossing or directly by Frontier) will be converted
into the right to receive that number of shares of common stock, par value
$0.01 per share, of Global Crossing ("Global Crossing Common Stock") equal to
the quotient of $62.00 divided by the Average Price (as defined in the Merger
Agreement) (the "Exchange Ratio"); provided that the Exchange Ratio will not
be less than 1.0919 or, unless Global Crossing exercises certain rights
provided to it in the Merger Agreement, greater than 1.7939. We understand
that the Merger is expected to qualify, for federal income tax purposes, as a
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
Under certain circumstances described in the Merger Agreement, the Merger
may be restructured (the "Alternative Merger") such that each of Global
Crossing and Frontier will merge with wholly owned subsidiaries of a newly
formed holding company ("New Global Crossing"). Upon the effectiveness of the
Alternative Merger, each issued and outstanding of Frontier Common Stock
(other than shares owned or held directly or indirectly by Global Crossing or
directly by Frontier) will be converted into the right to receive that number
of shares of New Global Crossing common stock equal to the Exchange Ratio and
each issued and outstanding share of Global Crossing Common Stock will be
converted into one share of New Global Crossing common stock. We understand
that the Alternative Merger is expected to qualify, for federal income tax
purposes, for non-recognition treatment under the Internal Revenue Code of
1986, as amended. References in this opinion to the "Exchange Ratio" shall
include the Exchange Ratio in the Alternative Merger and references to the
"Transaction" shall refer to the Merger or the Alternative Merger, as the case
may be.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning Global Crossing and Frontier and certain
other financial information concerning Global Crossing and Frontier, including
financial forecasts and estimated cost savings and synergies resulting from
the Transaction, that were provided to us by Global Crossing and Frontier,
respectively. We have discussed the past and current business operations,
financial condition and prospects of Global Crossing and Frontier with certain
officers and employees of Global Crossing and Frontier, respectively. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by
us for the purpose of this opinion and we have not assumed any responsibility
for independent verification of such information. With respect to the
financial forecasts of
D-1
<PAGE>
Global Crossing and Frontier and the estimated cost savings and synergies
resulting from the Transaction, we have assumed that they have been reasonably
prepared on bases reflecting best currently available estimates and judgments
of the managements of Global Crossing and Frontier, respectively, and we
express no opinion with respect to such forecasts, cost savings or synergies
or the assumptions on which they are based. We also have assumed that the
Transaction will be consummated in accordance with the terms of the Merger
Agreement. We have not made or obtained or assumed any responsibility for
making or obtaining any independent evaluation or appraisal of any of the
assets (including properties and facilities) or liabilities of Global Crossing
or Frontier.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply
any conclusion as to the likely trading range for Global Crossing Common Stock
following the consummation of the Merger or for New Global Crossing common
stock following the consummation of the Alternative Merger, as the case may
be, which may vary depending upon, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and
other factors that generally influence the price of securities. Our opinion
does not address Global Crossing's underlying business decision to effect the
Transaction, and we express no view on the effect on Global Crossing of the
Transaction and related transactions. Our opinion is directed only to the
fairness, from a financial point of view, of the Exchange Ratio of Global
Crossing and does not constitute a recommendation concerning how holders of
shares of Global Crossing Common Stock should vote regarding the proposed
issuance of shares of Global Crossing Common Stock pursuant to the Merger, the
Alternative Merger or any related matter.
We have acted as financial advisor to the Board of Directors of Global
Crossing in connection with the Transaction and will receive a fee for our
services, a significant portion of which is contingent upon consummation of
the Transaction. In the ordinary course of business, we and our affiliates may
actively trade the securities of Global Crossing and Frontier and their
affiliates for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Also, we and our affiliates have previously rendered investment banking and
financial advisory services to Global Crossing and Frontier and certain of
their affiliates for which we have received customary compensation. We and our
affiliates may have other business relationships with Global Crossing,
Frontier and their respective affiliates.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to Global Crossing from a financial
point of view.
Very truly yours,
Salomon Smith Barney Inc.
D-2
<PAGE>
ANNEX D-2
May 16, 1999
Board of Directors
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton, Bermuda
Members of the Board:
You have requested us to confirm, in connection with our opinion addressed
to you dated March 16, 1999, that, in light of the Amendment to the Merger
Agreement (each as defined below), the Exchange Ratio (as defined in the
Merger Agreement), as revised on May 16, 1999 (the "Revised Exchange Ratio"),
is fair from a financial point of view to Global Crossing Ltd. ("Global
Crossing"). We understand that Global Crossing has entered into a Consent and
Amendment dated May 16, 1999 (the "Amendment") to the Agreement and Plan of
Merger dated March 16, 1999 (as so amended, the "Merger Agreement") with
Frontier Corporation ("Frontier") and GCF Acquisition Corp. ("Sub"), a wholly
owned subsidiary of Global Crossing, pursuant to which Frontier will merger
with Sub (the "Merger").
In conducting our review and analysis to provide you our opinion, we
undertook to update the factors we considered in rendering our opinion dated
March 16, 1999. We have assumed and relied upon the accuracy and completeness
of the information reviewed by us for the purpose of this opinion and we have
not assumed any responsibility for independent verification of such
information. With respect to financial forecasts of Global Crossing and
Frontier and estimated cost savings and synergies resulting from the Merger,
we have assumed that they have been reasonably prepared on bases reflecting
best currently available estimates and judgments of the managements of Global
Crossing and Frontier, respectively, and we express no opinion with respect to
such forecasts, cost savings or synergies or the assumptions on which they are
based. We also have assumed that the Merger will be consummated in accordance
with the terms of the Merger Agreement. We have not made or obtained or
assumed any responsibility for making or obtaining any independent evaluation
or appraisal of any of the assets (including properties and facilities) or
liabilities of Global Crossing or Frontier.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply
any conclusion as to the likely trading range for the common stock, par value
$.01 per share, of Global Crossing ("Global Crossing Common Stock") following
the consummation of the Merger, which may vary depending upon, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Our opinion does not address Global Crossing's underlying business
decision to effect the Merger, and we express no view on the effect on Global
Crossing of the Merger and related transactions. Our opinion is directed only
to the fairness, from a financial point of view, of the Revised Exchange Ratio
to Global Crossing and does not constitute a recommendation concerning how
holders of Global Crossing Common Stock should vote regarding the proposed
issuance of Global Crossing Common Stock pursuant to the Merger or any related
matter.
We have acted as financial advisor to the Board of Directors of Global
Crossing in connection with the Merger and are receiving a fee for our
services, a significant portion of which is contingent upon consummation of
the Merger. In the ordinary course of business, we and our affiliates may
actively trade the securities of Global Crossing and Frontier and their
affiliates for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Also, we and our affiliates have previously rendered investment banking and
financial advisory services to Global Crossing and Frontier and certain of
their affiliates for which we have received customary compensation. We and our
affiliates may have other business relationships with Global Crossing,
Frontier and their respective affiliates.
D-3
<PAGE>
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Revised Exchange Ratio is fair to Global Crossing from a
financial point of view.
Very truly yours,
Salomon Smith Barney Inc.
D-4
<PAGE>
ANNEX E
[LOGO TO COME]
March 16, 1999
Board of Directors
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton, Bermuda
Members of the Board of Directors:
Frontier Corporation (the "Company"), Global Crossing Ltd. (the "Acquiror")
and GCF Acquisition Corp., a newly formed, wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), have entered into an Agreement and Plan of
Merger, dated as of March 16, 1999 (the "Agreement"), pursuant to which the
Acquisition Sub will be merged with the Company in a transaction (the
"Merger") in which each outstanding share of the Company's common stock, par
value $1.00 per share (the "Company Shares"), other than any Company Shares
owned or held directly or indirectly by the Acquiror or directly by the
Company, will be converted into the right to receive that number of shares of
the common stock of the Acquiror, par value $0.01 per share (the "Acquiror
Shares"), equal to the quotient of $62.00 divided by the Average Price (as
defined in the Agreement) (the "Exchange Ratio"); provided that the Exchange
Ratio will not be less than 1.0919 or, unless the Acquiror exercises certain
rights provided to it in the Agreement, greater than 1.7939. You have asked us
whether, in our opinion, the Exchange Ratio is fair from a financial point of
view to the Acquiror.
Under certain circumstances described in the Agreement, the Merger may be
restructured (the "Alternative Merger") such that each of the Acquiror and the
Company will merge with wholly owned subsidiaries of a newly formed holding
company ("New Clipper"). Upon effectiveness of the Alternative Merger, each
issued and outstanding Company Share (other than any Company Shares owned or
held directly or indirectly by the Acquiror or directly by the Company) will
be converted into the right to receive that number of shares of New Clipper
common stock equal to the Exchange Ratio, and each issued and outstanding
Acquiror Share will be converted into one share of New Clipper common stock.
References in this opinion to the "Exchange Ratio" shall include the Exchange
Ratio in the Alternative Merger, and references to the "Transaction" shall
refer to the Merger or the Alternative Merger, as the case may be.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company and the Acquiror, as well as the amount and timing of the cost
savings and related expenses, including potential tax expenses, and
synergies expected to result from the Transaction (the "Expected
Synergies") furnished to us by the Company and the Acquiror, respectively;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective businesses
and prospects before and after giving effect to the Transaction and the
Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
E-1
<PAGE>
(5) Reviewed the results of operations of the Company and the Acquiror
and compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Transaction;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or the
Acquiror, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be, and the Expected Synergies. We
have further assumed that the Merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes and that the Alternative Merger will
qualify for U.S. federal income tax purposes as a "transaction" within the
meaning of Section 351 of the Internal Revenue Code of 1986, as amended.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. We have assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Transaction, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Transaction.
In connection with the preparation of this opinion, we have not been
authorized by the Acquiror or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or
any part of the Acquiror.
We are acting as financial advisor to the Acquiror in connection with the
Transaction and will receive a fee from the Acquiror for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Acquiror has agreed to indemnity us for certain
liabilities arising out of our engagement. We have, in the past, provided
financing services to the Acquiror, including serving as co-lead underwriter
in connection with the Acquiror's initial public offering in August 1998, and
provided financial advisory and financing services to the Company, and may
continue to do so and have received, and may receive, fees for the rendering
of such service. In addition, in the ordinary course of our business, we may
actively trade the Company Shares and other securities of the Company, as well
as the Acquiror Shares and other securities of the Acquiror, for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. As of the date hereof,
certain affiliates of Merrill Lynch & Co.'s Asset Management Group held in
various funds approximately 4.3% of the Company Shares.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision
by the Acquiror to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Acquiror as to such shareholder
should vote on the proposed issuance of the Acquiror Shares, the proposed
Alternative Merger or any related matter.
E-2
<PAGE>
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger or at which the shares of New Clipper common stock will trade following
the consummation of the Alternative Merger, as the case may be.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the Acquiror.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
E-3
<PAGE>
ANNEX F
[LOGO TO COME]
May 16, 1999
Board of Directors
Frontier Corporation
180 South Clinton Avenue
Rochester, NY 14646
Members of the Board:
We understand that Frontier Corporation ("Frontier" or the "Company"),
Global Crossing Ltd., ("Global Crossing"), and GCF Acquisition Corp., a wholly
owned subsidiary of Global Crossing ("Acquisition Sub"), propose to enter into
a consent and amendment to the Agreement and Plan of Merger dated as of March
16, 1999 (as so amended, the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Acquisition Sub with and into
Frontier. Pursuant to the Merger, Frontier will become a wholly owned
subsidiary of Global Crossing and each outstanding share of common stock, par
value $1.00 per share (the "Frontier Common Stock") of Frontier, other than
shares held directly or indirectly by Global Crossing or directly by Frontier,
will be converted into the right to receive a certain number of shares of
common stock, par value $.01 per share (the "Global Crossing Common Stock"),
of Global Crossing equal to the Exchange Ratio (as defined in the Merger
Agreement). The terms and conditions of the Merger and an Alternative Merger
are more fully set forth in the Merger Agreement. Capitalized terms used but
not otherwise defined herein shall have the respective meanings ascribed
thereto in the Merger Agreement.
We also understand that Global Crossing and US WEST, Inc. ("USW") propose to
enter into an Agreement and Plan of Merger dated as of May 16, 1999 (the
"Second Merger Agreement") which provides, among other things, for (i) a
tender offer to be made by USW for certain shares of Global Crossing Common
Stock at a price of $62.75 per share (the "Tender Offer"), and (ii) the
subsequent mergers (the "Second Mergers") of each of Global Crossing and USW
with subsidiaries of a new holding company ("Parent") formed for purposes of
the Second Merger Agreement (or, in the case of Global Crossing, the
alternative amalgamation or share exchange described in the Second Merger
Agreement), with the result that each of Global Crossing and USW will be a
wholly owned subsidiaries of Parent. Pursuant to the Second Mergers, each
share of Global Crossing Common Stock shall be converted into the right to
receive shares of Parent Class A Common Stock and/or Parent Class B Common
Stock (each as defined in the Second Merger Agreement) in accordance with the
election procedures set forth in the Second Merger Agreement. We note that the
consummation of the Merger Agreement is not contingent upon the consummation
of the Second Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to such holders of
shares of Frontier Common Stock (other than Global Crossing and its
affiliates).
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company, Global Crossing and USW;
(ii) reviewed certain internal financial statements concerning the
Company, Global Crossing and USW prepared by the managements of the
Company, Global Crossing and USW, respectively;
(iii) analyzed certain financial projections for the Company, Global
Crossing and USW prepared by the managements of the Company, Global
Crossing and USW, respectively;
F-1
<PAGE>
(iv) reviewed certain reports prepared by consultants retained by Global
Crossing with respect to demand forecasts for certain markets in which
Global Crossing currently intends to operate and held discussions regarding
such forecasts with one of these consultants;
(v) analyzed certain financial projections for the Company contained in
certain securities analysts' research reports that were recommended for
review by the management of the Company;
(vi) discussed the past and current operations and financial condition
and the prospects of the Company, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger
or, if applicable, the Alternative Merger, with the senior executives of
the Company;
(vii) discussed the past and current operations and financial condition
and the prospects of Global Crossing, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger or, if applicable, the Alternative Merger, and the Second Mergers
with the senior executives of Global Crossing;
(viii) discussed the past and current operations and financial condition
and the prospects of USW, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger
or, if applicable, the Alternative Merger, and the Second Mergers with
certain senior executives of USW;
(ix) reviewed the pro forma impact of the Merger or, if applicable, the
Alternative Merger on Global Crossing's cash flow, consolidated
capitalization and financial ratios;
(x) reviewed the reported prices and trading activity for the Frontier
Common Stock, the Global Crossing Common Stock and the USW Common Stock;
(xi) compared the financial performance of the Company and Global
Crossing and the prices and trading activity of the Frontier Common Stock
and the Global Crossing Common Stock with those of certain other comparable
publicly-traded companies and their securities;
(xii) compared the prices and trading activity of USW Common Stock with
those of certain other comparable publicly-traded companies and their
securities;
(xiii) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions relating to the Merger;
(xiv) participated in discussion and negotiations among representatives
of the Company and Global Crossing and their financial and legal advisors
in connection with the Merger;
(xv) discussed certain tax issues with senior executives of the Company
and Global Crossing and with the Company's legal and tax advisors in
connection with the Merger;
(xvi) reviewed the Merger Agreement, the Second Merger Agreement and
certain related documents; and
(xvii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial and other operating data and
discussions relating to the strategic, financial and operational benefits
anticipated from the respective transactions, we have assumed that such
financial and operating data have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the future operating
and financial performance of the Company, Global Crossing and USW. We have
relied upon the financial projections for the Company included in the
securities analysts' research reports reviewed by us based on our own
independent evaluation of these reports and indications by management of the
Company that the analyses contained in these reports were reasonably
comprehensive and detailed and were based on assumptions about the trends
influencing the Company's financial results that were generally consistent
with those of the Company's management. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have
we been furnished with any such appraisals.
F-2
<PAGE>
We have further assumed with your consent that, except as provided below,
the transactions contemplated by the Merger Agreement, including the Merger
or, if applicable, the Alternative Merger, will be consummated on the terms
set forth in the Merger Agreement, including, among other things, that the
Merger or, if applicable, the Alternative Merger will be treated as a tax-free
reorganization or, if applicable, exchange pursuant to the Internal Revenue
Code of 1986, as amended. In addition, with the consent of the Company, we
have relied upon the advice of legal and tax advisors to the Company as to
certain tax matters relating to the Alternative Merger. Our opinion does not
address the impact, if any, of a determination by the Company not to exercise
its termination rights pursuant to Section 7.1(g). In addition, we have
assumed that in connection with the receipt of all necessary regulatory
approvals for the Merger or, if applicable, the Alternative Merger, no
restrictions will be imposed that would have a material adverse effect on the
Company, Global Crossing or the contemplated benefits expected to be derived
in the Merger or, if applicable, the Alternative Merger. Our opinion is
necessarily based on economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for the Company, Global
Crossing and USW and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its
entirety in any filing made by the Company in respect of the Merger or, if
applicable, the Alternative Merger with the Securities and Exchange
Commission. In addition, this opinion does not in any manner address either
the prices at which the Global Crossing Common Stock, Parent Class A Common
Stock, or Parent Class B Common Stock will trade following announcement or
consummation of any of the proposed transactions or the fairness of the
consideration to be received by holders of Global Crossing Common Stock
pursuant to the Tender Offer or the Second Mergers and Morgan Stanley
expresses no opinion or recommendation as to how the holders of the Frontier
Common Stock should vote at the shareholders' meetings held in connection with
the Merger or the Alternative Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of the Frontier Common Stock
(other than Global Crossing and its affiliates).
Very truly yours,
Morgan Stanley & Co. Incorporated
/s/ Paul J. Taubman
By: _________________________________
Paul J. Taubman
Managing Director
F-3
<PAGE>
ANNEX G
Resolutions of Global Crossing's board of directors in connection with the
annual meeting
Proposal No. 1: Increase in Global Crossing's authorized share capital
"RESOLVED, subject to shareholder approval in General Meeting, that the
authorized capital of $6,000,000 of Global Crossing Ltd., a Bermuda company
("the Company"), represented by 600,000,000 shares of Common Stock, par value
$0.01 per share, be and is hereby increased from $6,000,000 to $30,200,000 by
the creation of an additional 2,400,000,000 shares of Common Stock, par value
$0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per
share;
RESOLVED, FURTHER, that the Company be and is hereby authorized to issue
from time to time, as determined by resolution of the Board of Directors of
the Company subject to the Company's Bye-laws as in effect at such time, all
the authorized but unissued shares of Common Stock of the Company, par value
$0.01 per share;
RESOLVED, FURTHER, that the Company be and is hereby authorized to issue
from time to time, as determined by resolution of the Board of Directors of
the Company subject to the Company's Bye-laws as in effect at such time, all
the authorized but unissued shares of preferred stock, par value $0.01 each,
of the Company, in one or more classes or series and with such voting powers
(full or limited), designations, preferences and relative, participating
optional or other rights, if any, and with such qualifications, limitations,
restrictions or redemption provisions, if any, as the Board of Directors of
the Company may determine; and
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them,
including, without limitation, to deposit with the Bermuda Registrar of
Companies an applicable Memorandum of Increase of Share Capital of the Company
pursuant to the Companies Act 1981 of Bermuda, and all such actions heretofore
taken are hereby ratified and confirmed as the act and deed of the Company."
Proposal No. 2: Issuance of shares of Global Crossing common stock in the
Global Crossing/Frontier merger
"RESOLVED, subject to shareholder approval in General Meeting, that Global
Crossing Ltd., a Bermuda company (the "Company"), be and is hereby authorized
to issue such number of shares of Common Stock, par value $0.01 each
(collectively, the "Shares"), of the Company, to holders of Common Stock of
Frontier Corporation, a New York corporation ("Frontier"), as shall be
necessary pursuant to the Agreement and Plan of Merger, dated as of March 16,
1999 and amended as of May 16, 1999, among the Company, Frontier and GCF
Acquisition Corp., a New York corporation (as amended, the "Merger
Agreement"), to effectuate the Merger (as defined in the Merger Agreement);
provided, however, that the Closing (as defined in the Merger Agreement) of
the Merger shall have occurred prior to the issuance of the Shares;
RESOLVED, FURTHER, that the Company be and is hereby authorized to issue the
Shares as of such date, to holders of Frontier Common Stock as of such record
date, in such ratio per share of Frontier Common Stock and on such other terms
and conditions as the Company's Board of Directors shall by resolution
determine;
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them,
and all such actions heretofore taken are hereby ratified and confirmed as the
act and deed of the Company."
G-1
<PAGE>
Proposal No. 3: Amendment and restatement of Global Crossing bye-laws (other
than bye-laws 34(2), 63, 130 and 148)
"RESOLVED, subject to shareholder approval in General Meeting, that Bye-law
5 of the Bye-laws of Global Crossing Ltd., a Bermuda company ("the Company"),
in effect as of August 13, 1998 is hereby amended and restated in its entirety
as follows:
"Subject to the Companies Acts and except as otherwise set forth in these
Bye-Laws, all or any of the special rights for the time being attached to
any class of common 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 sanction of a resolution passed at a separate general meeting of the
holders of common shares of that class, voting in person or by proxy and
representing at least a majority of the votes cast by holders of common
shares of that class at such separate general meeting. To any such separate
general meeting, all the provisions of these Bye-Laws as to general
meetings of the Company shall mutatis mutandis apply, but so that the
necessary quorum shall be two or more persons holding or representing by
proxy shares of the relevant class representing a majority of the votes
that may be cast by all holders of shares of that class, that every holder
of shares of the relevant class shall be entitled on a poll to the number
of votes for every such share held by him determined in accordance with
Bye-Laws 62 and 63 and that any holder of shares of the relevant class
present in person or by proxy may demand a poll; provided, however, that if
the Company or a class of common shares shall have only one Shareholder,
one Shareholder present in person or by proxy shall constitute the
necessary quorum. Subject to the Companies Acts and except as otherwise set
forth in these Bye-Laws, all or any of the special rights for the time
being attached to any class or series of preferred 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 requisite consent or vote of the
holders of such class or series as will be set forth in a schedule to the
Bye-Laws relating to such class or series at the time when such class or
series is issued.";
provided, however, that the amended and restated Bye-law 5 shall not come into
effect prior to the Closing (as defined in the Agreement and Plan of Merger,
dated March 16, 1999, as amended on May 16, 1999 (the "Merger Agreement"),
among the Company, Frontier Corporation, a New York corporation, and GCF
Acquisition Corp, a New York corporation) of the Merger (as defined in the
Merger Agreement);
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 49(1) of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"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 or the Chairman or Co-Chairman of the Board may, whenever each thinks
fit, and shall, when requisitioned by shareholders pursuant to the
provisions of the Companies Acts, convene general meetings other than
Annual General Meetings which shall be called Special General Meetings.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 50 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"An Annual General Meeting shall be called by not less than 30 days notice
in writing, and a Special General Meeting shall be called by not less than
10 days notice in writing. The notice shall specify the place, day and time
of the meeting and the nature of the business to be considered. Notice of
every General Meeting shall be given in any manner permitted by Bye-Laws
135 and 136 to all Shareholders other than such as, under the provisions of
these Bye-Laws or the terms of issue of the shares they hold, are not
entitled to receive such notice from the Company and to each Director and
to any Resident Representative who or which has delivered a written notice
upon the Registered Office requiring that such notice be sent to him or
it.";
G-2
<PAGE>
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 62 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"Save where a greater percentage 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 at such meeting;
provided, however, that a resolution to remove any director pursuant to
Bye-Law 85 must be approved by the vote of at least a majority of all
issued and outstanding capital shares of the Company.";
provided, however, that the amended and restated Bye-law 62 shall not come
into effect prior to the Closing of the Merger;
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 78(3) of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"Each of Abbott Brown, William Conway, Jay Levine, William Phoenix and
Barry Porter are hereby designated as "A" Directors for the purposes of
this Bye-law. Each of Lodwrick Cook, Jeffrey Kent, David Lee, Bruce Raben,
and Jack Scanlon are hereby designated "B" Directors, and each of Jay
Bloom, Dean Kehler, Teshiaki Ogasawara, Michael Steed, Hillel Weinberger
and Garry Winnick are hereby designated as "C" Directors. The Board of
Directors shall from time to time by resolution determine the number of A
Directors, B Directors and C Directors.";
RESOLVED, FURTHER, subject to shareholder approval at the General Meeting,
that Bye-law 79 of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"(1) The A Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2000,
at which consideration is made of financial statements for the period
ending 31 December 1999, and thereafter shall serve for a three-year
terms, concluding at the third Annual General Meeting after his
appointment or reappointment.
(2) The B Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2001,
at which consideration is made of financial statements for the period
ending 31 December 2000, and thereafter shall serve for a three-year
terms, concluding at the third Annual General Meeting after his
appointment or reappointment.
(4) The C Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2002,
at which consideration is made of financial statements for the period
ending December 31, 2001, and thereafter shall serve for a three-year
terms, concluding at the third Annual General Meeting after his
appointment or reappointment.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 81 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"No person shall be appointed a Director, unless:--
(a) in the case of an Annual or Special General Meeting, such person is
recommended by the Board; or
(b) in the case of an Annual General Meeting, not less than 120 nor more
than 150 days before the date of the Company's proxy statement released
to Shareholders in connection with the prior year's Annual General
Meeting, notice executed by a Shareholder (not being the person to be
proposed) has been received by the Secretary of the Company of the
intention to propose such person for appointment, setting forth as to
each person whom the Shareholder proposes to nominate for election or
re-election as a Director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class, series and number of shares
of the Company which are beneficially owned by such person, (iv)
particulars which would, if he were so appointed, be required to be
included in the Company's register of Directors and Officers and (v)
all other information relating to such person that is required to be
disclosed in solicitations for proxies for the election of Directors
pursuant to the Rules and Regulations of the Securities and Exchange
Commission under Section 14 of the Securities Exchange Act of 1934 of
the United States of America,
G-3
<PAGE>
as amended, together with notice executed by such person of his
willingness to serve as a Director if so elected; provided, however,
that no Shareholder shall be entitled to propose any person to be
appointed, elected or re-elected Director at any Special General
Meeting.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 82 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"Except as otherwise required by the Companies Acts, the appointment of any
person proposed as a Director shall be effected by a separate resolution
voted on at a General Meeting pursuant to Bye-Law 62 herein.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 84 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"The Company may by Resolution determine (i) the minimum number of
Directors, which shall be not less than 11 and which is hereby set at 11
until such number is amended by a further Resolution and (ii) the maximum
number of Directors, which shall not be more than 20 and which is hereby
set at 20 until such number is amended by a further Resolution, and any
vacancies on the Board shall be deemed casual vacancies for the purposes of
these Bye-Laws. Without prejudice to the power of the Company by Resolution
in pursuance of any of the provisions of these Bye-Laws to appoint any
person to be a Director, the Board, so long as a quorum of Directors
remains in office, shall have power at any time and from time to time to
appoint any individual to be a Director so as to fill a casual vacancy. A
Director so appointed shall hold office only until the next following
Annual General Meeting and shall not be taken into account in determining
the Directors who are to retire by rotation at the meeting. If not
reappointed at such Annual General Meeting, he shall vacate office at the
conclusion thereof.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 91 of the Company's Bye-laws in effect as of August 13, 1998 is hereby
amended and restated in its entirety as follows:
"The ordinary remuneration of the Directors who do not hold executive
office for their services (excluding amounts payable under any other
provision of these Bye-Laws) shall be such amount as the Board may from
time to time by resolution determine and in the absence of a determination
to the contrary such fees shall be deemed to accrue from day to day.
Subject thereto, each such Director shall be paid a fee (which shall be
deemed to accrue from day to day) at such rate as may from time to time be
determined by the Board. Each Director may be paid his reasonable travel,
hotel and incidental expenses in attending and returning from meetings of
the Board or committees constituted pursuant to these Bye-Laws or General
Meetings and shall be paid all expenses properly and reasonably incurred by
him in the conduct of the Company's business or in the discharge of his
duties as a Director. Any Director who, by request, goes or resides abroad
for any purposes of the Company or who performs services which in the
opinion of the Board go beyond the ordinary duties of a Director may be
paid such extra remuneration (whether by way of salary, commission,
participation in profits or otherwise) as the Board may determine, and such
extra remuneration shall be in addition to any remuneration provided for by
or pursuant to any other Bye-Law.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 135 of the Company's Bye-laws in effect as of August 13, 1998 is
hereby supplemented by adding the following sentence at the end of the text of
the existing Bye-law:
"In counting the period of notice that may be served on or delivered to any
Shareholder by the Company pursuant to these Bye-laws, the date of posting
and the date of receipt of the applicable notice shall be included in such
period of notice"; and
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them,
including, without limitation, to cause the Company's Bye-laws to be amended
and restated to reflect the foregoing resolutions, and all such actions
heretofore taken are hereby ratified and confirmed as the act and deed of the
Company."
G-4
<PAGE>
Proposal No. 4: Amendment and Restatement of Global Crossing Bye-laws 34(2),
63, 130 and 148
"RESOLVED, subject to shareholder approval in General Meeting, that Bye-law
34(2)(ii) of the Bye-laws of Global Crossing Ltd., a Bermuda company (the
"Company"), in effect as of August 13, 1998 is hereby amended and restated in
its entirety as follows:
"in the case of any Shareholder who is a natural person, any such
Shareholder beneficially owning, directly, indirectly or constructively
(within the meaning of Section 544 of the Code and Treasury Regulations
promulgated thereunder) common shares in excess of the Maximum Percentage
of the outstanding common shares of the Company, in either case without the
approval of a majority of the members of the Board and without the approval
of a majority of the votes cast by Shareholders at a General Meeting called
to approve that transfer, shall not be registered in the share register of
the Company and shall be void and of no effect.";
provided, however, that the amended and restated Bye-law 34(2)(ii) shall not
come into effect prior to the Closing (as defined in the Agreement and Plan of
Merger, dated March 16, 1999, as amended on May 16, 1999 (as amended, the
"Merger Agreement"), among the Company, Frontier Corporation, a New York
corporation, and GCF Acquisition Corp, a New York corporation) of the Merger
(as defined in the Merger Agreement);
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 63(1) of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"Subject to Bye-law 63(2) and to the limitations imposed by the Board on
voting under Bye-law 130, and subject to any rights or restrictions
attached to any class of shares, at any meeting of the Company, each
Shareholder present in person or by proxy shall vote on a poll and shall be
entitled on a poll to one vote for each share held by him.";
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 63(2), (3) and (4) of the Company's Bye-laws in effect as of August
13, 1998 is hereby amended and restated in its entirety as follows:
"(2) In the case of a Shareholder who is an Over-the-Threshold Shareholder
as defined below, each issued common share constituting a part of the
Controlled Shares of such Shareholder held by such Shareholder shall,
in the context of a particular meeting of shareholders, confer only a
fraction of a vote according to the following formula (the "Cut-back
Formula"): AV multiplied by the applicable percentage set forth in the
definition of "Maximum Vote" divided by CS.
Where; "AV" is the aggregate number of issued and outstanding common
shares represented at the applicable meeting (without regard to
any limitation on the number of votes any such shares may cast).
"CS" is the number of Controlled Shares of such Shareholder.
In determining the votes allocable to common shares beneficially
owned by CIBC, the preceding formula shall be applied to all of
the common shares beneficially owned by persons constituting a
part of CIBC, in the aggregate. In determining the votes
allocable to common shares beneficially owned by any member of a
group (within the meaning of Section 13(d) of the Exchange Act),
the preceding formula shall be applied to all of the common
shares beneficially owned by persons constituting a part of the
group, in the aggregate. Any person (a "Related Holder") who owns
Controlled Shares which are deemed to be owned directly,
indirectly or constructively (within the meaning of Section 958
of the Code and the Treasury Regulations promulgated thereunder)
by one or more Over-the-Threshold Shareholders shall have the
vote allocable to such Controlled Shares held by the Related
Holder reduced, in a manner consistent with this Bye-Law 63(2),
so as to prevent the Over-the-Threshold Shareholders from having
voting power greater than the Maximum Vote applicable to such
Over-the-Threshold Shareholders.
G-5
<PAGE>
A number of votes equal to the excess (the "Re-allocable Votes")
of (i) the number of votes that could have been cast by the
Controlled Shares held by all Over-the-Threshold Shareholders if
the Cut-back Formula were not applicable over (ii) the number of
votes that may be cast by such Controlled Shares after
application of the Cut-back Formula shall be reallocated among
the common shares that are (a) represented at the applicable
meeting, (b) not included in such Controlled Shares and (c) not
held by other Over-the-Threshold Shareholders in accordance with
the following formula (the "Reallocation Formula"):
RV
----------------
AV-ACS
Where: "RV" is the Re-allocable Votes
"AV" is used in the manner defined in the Cut-back-Formula
"ACS" is the aggregate number of Controlled Shares of all Over-
the-Threshold Shareholders
If the application of the Reallocation Formula causes any
Shareholder to become an Over-the-Threshold Shareholder, the Cut-
back Formula shall be applied to such Shareholder's Controlled
Shares (taking into account the additional votes of such shares
after the application of the Reallocation Formula), and the Cut-
back Formula and the Reallocation Formula shall continue to be
applied until there are no Over-the-Threshold Shareholders.
(3) The Board shall have the power and authority to make all determinations
that may be required to effectuate the provisions of this Bye-Law,
including any required determination of the number of Shares that may
be deemed to be held by any Shareholder, and such determinations shall
be conclusive in the absence of manifest error. All record and
beneficial owners of Shares (and all potential transferees of Shares)
shall be deemed to have agreed, by virtue of their ownership thereof,
to provide to the Board, at such times and in such detail as the Board
may reasonably request, any information that the Board may require in
order to make such determinations.
(4) The following definitions shall apply for the purposes of this Bye-Law:
"Maximum Vote" means (x) in the case of all Shareholders other than
CIBC, 9.5% of the total votes cast by holders of common shares of
the Company in connection with any matter being voted on and (y) in
the case of CIBC in the aggregate, 20% of the total votes cast by
holders of common shares of the Company in connection with any
matter being voted on.
An "Over-the-Threshold Shareholder" for the purposes of this Bye-Law
is a Shareholder in respect of whom, by virtue of their holding of
Controlled Shares would, upon giving effect to the principle that
holders of common shares shall have one vote for each common share
so registered, have greater than the Maximum Vote.";
provided, however, that the amended and restated Bye-law 63(2), (3) and (4)
shall not come into effect prior to the Closing of the Merger;
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 130 of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"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, and entitled to
vote at, General Meetings or entitled to express consent to corporate
action in writing without a meeting. Any such record date may be on or at
any time (i) not more than 60 days before any date on which such dividend,
distribution, allotment or issue is declared, paid or made, (ii) not more
than 60 days nor less than 10 days before the date of any such meetings and
(iii) not more than 10 days after the date on which the resolution fixing
the record date for a shareholder action by written consent is adopted by
the Board.";
G-6
<PAGE>
RESOLVED, FURTHER, subject to shareholder approval in General Meeting, that
Bye-law 148 of the Company's Bye-laws in effect as of August 13, 1998 is
hereby amended and restated in its entirety as follows:
"(1) These Bye-Laws may be amended, from time to time, by resolution of the
Board, subject to approval by Resolution at a General Meeting of the
Shareholders.
(2) The vote or consent of the holders of 75% of the outstanding capital
shares of the Company entitled to vote and the approval of a majority
of the Board shall be required to effect:--
(a) any amendments to the provisions of Bye-Laws 3, 34, 62, 63, 85, 86,
91, 92, 141 and this Bye-Law 148, provided that if the provisions
of Bye-Law 3, 34 or 63 are so amended or the Board and Shareholders
upon receipt of a written request for approval approve, by an
actual vote as described in Bye-Law 34(2), an otherwise prohibited
transfer under Bye-Law 34(2), the Company will indemnify each
holder of shares who becomes subject to treatment as a "United
States shareholder" for purposes of Section 951 et. seq. of the
Code as a result of such amendment from and against any and all
losses, costs, damages, liabilities and expenses arising out of,
directly or indirectly, such treatment. Notwithstanding the
foregoing provisions of Bye-Law 148(2)(a), in no event shall the
Company have any indemnity obligation under this Bye-Law with
respect to any transfer of shares for which approval was required
(whether or not granted) pursuant to Bye-Law 34(2) to any holder of
shares who either (i) received such shares in connection with such
transfer or (ii) voted in favor of such transfer; and
(b) any amendment to the maximum or minimum number of Directors
specified in Bye-Law 84."; and
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out the intent and
accomplish the purposes of the resolutions adopted hereby and each of them,
including, without limitation, to cause the Company's Bye-laws to be amended
and restated to reflect the foregoing resolutions, and all such actions
heretofore taken are hereby ratified and confirmed as the act and deed of the
Company.";
Proposal No. 6: Amendment of the 1998 Global Crossing Ltd. Stock Incentive
Plan
"RESOLVED, subject to shareholder approval in General Meeting, that Section
3 of the 1998 Global Crossing Ltd. Stock Incentive Plan (the "1998 Plan") be
and is hereby amended to increase the aggregate number of shares of Common
Stock, par value $0.01 per share, of Global Crossing Ltd., a Bermuda company
(the "Company"), reserved for issuance under the 1998 Plan from 33,215,730
shares to [90,000,000] shares; and
RESOLVED, FURTHER, that each of the proper officers of the Company be and is
hereby authorized, empowered and directed to take any and all actions
necessary, proper or advisable in order fully to carry out and accomplish the
purposes of the resolutions adopted hereby and each of them, including,
without limitation, to cause the 1998 Plan to be amended and restated to
reflect the foregoing resolutions, and all such actions heretofore taken are
hereby ratified and confirmed as the act and deed of the Company."
Proposal No. 7: Ratification of Outside Directors' Compensation
"RESOLVED, that each member of the Board of Directors of the Company (other
than any Director of the Company who is also an employee of the Company) shall
be entitled to receive cash compensation from the Company in the amount of
$2,500 for each properly convened Board of Directors meeting of the Company
attended by such member after the February 28, 1998; and further
"RESOLVED, that the Company grant to each of Jay Bloom, Dean Kehler, Jay
Levine, William Phoenix, Bruce Raben, Michael Steed and Hillel Weinberger, in
their capacities as members of the Board of Directors of the Company, options
to purchase 40,000 Class E Shares of the Company, each such grant to be made
pursuant
G-7
<PAGE>
to, and subject to the terms and conditions of, a stock option agreement
between the Company and such person (setting forth a strike price of $2.50 per
share and setting forth that the first 10,000 options shall immediately vest,
the next 15,000 options shall vest on April 3, 1999 so long as such person
shall be a member of the Board of Directors of the Company on such date and
the final 15,000 shall vest on April 3, 2000 so long as such person shall be a
member of the Board of Directors of the Company on such date) entered into in
accordance with the Company's Stock Option Plan, such stock option agreement
to be in such form as any Officer or Director of the Company executing the
same may approve, such approval to be conclusively evidenced by their
execution."
G-8
<PAGE>
ANNEX H
Global Crossing
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 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;
H-1
<PAGE>
(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: The Board.
(h) Company: Global Crossing Ltd.
(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 1, 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) IS0: 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.
(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.
H-2
<PAGE>
(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: Common Shares of the Company, par value $0.01 per Share.
(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 16,607,865.
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
Shares that were issued and subsequently canceled. 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 may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at 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.
H-3
<PAGE>
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
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
H-4
<PAGE>
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 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 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;
H-5
<PAGE>
(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 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.
H-6
<PAGE>
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.
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.
H-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers.
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 Act of 1981 as in effect
from time to time in Bermuda.
The Companies Act provides that a Bermuda company may indemnify its
directors in respect of any loss arising or liability attaching to them as a
result of any negligence, default, breach of duty or breach of trust of which
they may be guilty. However, the Companies Act also provides that any
provision, whether contained in the company's bye-laws or in a contract or
arrangement between the company and the director, indemnifying a director
against any liability which would attach to him in respect of his fraud or
dishonesty will be void.
The directors and officers of the Registrant are covered by directors' and
officers' insurance policies maintained by the Registrant.
ITEM 21. Exhibits and Financial Statement Schedules.
(i) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 16, 1999, among Global
Crossing Ltd., Frontier Corporation and GCF Acquisition Corp.
(included as Annex A to the joint proxy statement/prospectus included
in this Registration Statement)
2.2 Consent and Amendment No. 1, dated as of May 16, 1999, among Global
Crossing Ltd., Frontier Corporation and GCF Acquisition Corp.
(included as Annex A to the joint proxy statement/prospectus included
in this Registration Statement)
2.3 Agreement and Plan of Merger, dated as of May 16, 1999, between Global
Crossing Ltd. and U S WEST, Inc. (incorporated by reference to Exhibit
2 to the Registrant's current report on Form 8-K dated May 16, 1999)
3.1 Memorandum of Association of Global Crossing Ltd. (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 (File No. 333-53393))
3.2 Amended and Restated Bye-Laws of Global Crossing Ltd. (incorporated by
reference to Exhibit 3.4 to Global Crossing Holdings Ltd.'s
Registration Statement on Form S-4 (File No. 333-61457))
3.3 Certificate of Incorporation of Change of Name of Global Crossing Ltd.
(incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
3.4 Memorandum of Increase of Share Capital for Global Crossing Ltd.
(incorporated by reference to Exhibit 3.4 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
4.1 Form of Certificate for Common Stock (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1
(File No. 333-53393))
4.2 Form of Registration Rights Agreement among the Registrant and the
investors named therein (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement on Form S-1 (File No. 333-
53393))
4.3 Indenture, dated as of May 18, 1998, between Global Crossing Holdings
Ltd. and United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
4.4 Supplemental Indenture, dated as of June 25, 1999, to the Indenture,
dated as of May 18, 1998, between Global Crossing Holdings Ltd. and
United States Trust Company of New York, as Trustee
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
5.1* Opinion of Appleby, Spurling & Kempe as to the legality of the
securities being registered
8.1* Opinion of Appleby, Spurling & Kempe as to tax matters
8.2* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to tax matters
8.3* Opinion of Conyers Dill & Pearman as to tax matters
8.4* Opinion of Simpson Thacher & Bartlett as to tax matters
9.1 Form of Stockholders Agreement among the Registrant and the investors
named therein (incorporated by reference to Exhibit 9.1 to the
Registrant's Registration Statement on Form S-1 (File No. 333-53393))
10.1 1998 Global Crossing Ltd. Stock Incentive Plan (included as Annex H to
the joint proxy statement/prospectus included in this Registration
Statement)
10.2 Project Development and Construction Contract, dated as of March 18,
1997, among AT&T Submarine Systems, Inc. and Global Telesystems Ltd.
(incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
10.3 Project Development and Construction Contract, dated as of April 21,
1998, among Tyco Submarine Systems, Ltd. and Pacific Crossing Ltd.
(incorporated by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
10.4 Project Development and Construction Contract, dated as of June 2,
1998, among Alcatel Submarine Networks and Mid-Atlantic Crossing Ltd.
(incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
10.5 Project Development and Construction Contract, dated as of July 21,
1998, among Tyco Submarine Systems, Ltd. and Pan American Crossing
Ltd. (incorporated by reference to Exhibit 10.5 to the Registrant's
quarterly report on Form 10-Q for the quarter ended September 30, 1998
(File No. 000-24565))
10.6 Employment agreement, dated as of February 19, 1999, between Global
Crossing Ltd. and Robert Annunziata (incorporated by reference to
Exhibit 10.8 to the Registrant's quarterly report on Form 10-Q for the
quarter ended March 31, 1999 (File No. 000-24565))
10.7* Credit Agreement, dated as of July 2, 1999, among Global Crossing
Ltd., Global Crossing Holdings Ltd., the Lenders party thereto and The
Chase Manhattan Bank as Administrative Agent.
21.1* Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of KPMG Audit Plc
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Salomon Smith Barney
23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.7 Consent of Morgan Stanley & Co. Incorporated
23.8* Consent of Appleby, Spurling & Kempe (included in Exhibits 5.1 and
8.1)
23.9* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 8.2)
23.10* Consent of Conyers Dill & Pearman (included in Exhibit 8.3)
23.11* Consent of Simpson Thacher & Bartlett (included in Exhibit 8.4)
24.1 Power of Attorney (included on signature page II-6 of this
Registration Statement)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
99.1 Stock Option Agreement, dated as of March 16, 1999, between Global
Crossing Ltd. and Frontier Corporation (included as Annex B to the
joint proxy statement/prospectus included in this Registration
Statement)
99.2 Voting Agreement, dated as of March 16, 1999, among certain
shareholders of Global Crossing Ltd. named therein, Frontier
Corporation and, as to Section 2 thereof only, Global Crossing Ltd.
(included as Annex C to the joint proxy statement/prospectus included
in this Registration Statement)
99.3 Tender Offer and Purchase Agreement, dated as of May 16, 1999, between
Global Crossing Ltd. and U S WEST, Inc. (incorporated by reference to
Exhibit (c) (2) to U S WEST's Schedule 14D-1 filed with the Securities
and Exchange Commission on May 21, 1999 (File No. 005-55643))
99.4 Voting Agreement, dated as of May 16, 1999, between Global Crossing
Ltd. and U S WEST, Inc. (incorporated by reference to Exhibit (c) (3)
to U S WEST's Schedule 14D-1 filed with the Securities and Exchange
Commission on May 21, 1999 (File No. 005-55643))
99.5 Standstill Agreement, dated as of May 16, 1999, between Global
Crossing Ltd. and U S WEST, Inc. (incorporated by reference to Exhibit
(c) (4) to U S WEST's Schedule 14D-1 filed with the Securities and
Exchange Commission on May 21, 1999 (File No. 005-55643))
99.6 Tender and Voting Agreement, dated as of May 16, 1999, between U S
WEST, Inc. and each of the parties listed on the signature page
thereto (incorporated by reference to Exhibit (c) (5) to U S WEST's
Schedule 14D-1 filed with the Securities and Exchange Commission on
May 21, 1999 (File No. 005-55643))
99.7 Agreement, dated as of May 16, 1999, between U S WEST, Inc., Global
Crossing Ltd. and each person whose name appears on the signature page
thereto (incorporated by reference to Exhibit (c) (6) to U S WEST's
Schedule 14D-1 filed with the Securities and Exchange Commission on
May 21, 1999 (File No. 005-55643))
99.8 Letter Agreement, dated as of May 16, 1999, between U S WEST, Inc. and
Global Crossing Ltd. (incorporated by reference to Exhibit (c) (7) to
U S WEST's Schedule 14D-1 filed with the Securities and Exchange
Commission on May 21, 1999 (File No. 005-55643))
99.9 Form of Proxy for Annual General Meeting of Shareholders of Global
Crossing Ltd.
99.10 Form of Proxy for Special Meeting of Shareholders of Frontier
Corporation
99.11* Consent of [ ] as nominee director
99.12* Consent of [ ] as nominee director
99.13* Consent of [ ] as nominee director
99.14* Consent of [ ] as nominee director
</TABLE>
(ii) Financial Statement Schedules.
- --------
* To be filed by amendment.
II-3
<PAGE>
ITEM 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(c)(1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c)
under the Securities Act, the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section l0(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 under the
Securities Act, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
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
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, l0(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, in the State of California, on July 12, 1999.
Global Crossing Ltd.
By: /s/ Robert Annunziata
----------------------------------
Name: Robert Annunziata
Title: Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Robert Annunziata as his
true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and
anything appropriate or necessary to be done, as fully and for all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gary Winnick Co-Chairman of the Board July 12, 1999
______________________________________ and Director
Gary Winnick
/s/ Lodwrick M. Cook Co-Chairman of the Board July 12, 1999
______________________________________ and Director
Lodwrick M. Cook
/s/ Thomas J. Casey Managing Director, Vice July 12, 1999
______________________________________ Chairman of the Board and
Thomas J. Casey Director
/s/ Jack M. Scanlon Vice Chairman of the Board July 12, 1999
______________________________________ and Director
Jack M. Scanlon
/s/ Robert Annunziata Chief Executive Officer July 12, 1999
______________________________________ and Director
Robert Annunziata
/s/ David L. Lee President, Chief Operating July 12, 1999
______________________________________ Officer and Director
David L. Lee
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Barry Porter Senior Vice President and July 12, 1999
______________________________________ Director
Barry Porter
/s/ Abbott L. Brown Senior Vice President and July 12, 1999
______________________________________ Director
Abbott L. Brown
/s/ Dan J. Cohrs Senior Vice President and July 12, 1999
______________________________________ Chief Financial Officer
Dan J. Cohrs (principal financial
officer and principal
accounting officer)
/s/ Jay R. Bloom Director July 12, 1999
______________________________________
Jay R. Bloom
/s/ William E. Conway Director July 12, 1999
______________________________________
William E. Conway
Director
______________________________________
Dean C. Kehler
/s/ Geoffrey J.W. Kent Director July 12, 1999
______________________________________
Geoffrey J.W. Kent
Director
______________________________________
Jay R. Levine
/s/ William P. Phoenix Director July 12, 1999
______________________________________
William P. Phoenix
/s/ Bruce Raben Director July 12, 1999
______________________________________
Bruce Raben
/s/ Michael R. Steed Director July 12, 1999
______________________________________
Michael R. Steed
/s/ Hillel Weinberger Director July 12, 1999
______________________________________
Hillel Weinberger
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 16, 1999, among Global
Crossing Ltd., Frontier Corporation and GCF Acquisition Corp.
(included as Annex A to the joint proxy statement/prospectus included
in this Registration Statement)
2.2 Consent and Amendment No. 1, dated as of May 16, 1999, among Global
Crossing Ltd., Frontier Corporation and GCF Acquisition Corp.
(included as Annex A to the joint proxy statement/prospectus included
in this Registration Statement)
2.3 Agreement and Plan of Merger, dated as of May 16, 1999, between Global
Crossing Ltd. and U S WEST, Inc. (incorporated by reference to Exhibit
2 to the Registrant's current report on Form 8-K dated May 16, 1999)
3.1 Memorandum of Association of Global Crossing Ltd. (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 (File No. 333-53393))
3.2 Amended and Restated Bye-Laws of Global Crossing Ltd. (incorporated by
reference to Exhibit 3.4 to Global Crossing Holdings Ltd.'s
Registration Statement on Form S-4 (File No. 333-61457))
3.3 Certificate of Incorporation of Change of Name of Global Crossing Ltd.
(incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
3.4 Memorandum of Increase of Share Capital for Global Crossing Ltd.
(incorporated by reference to Exhibit 3.4 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
4.1 Form of Certificate for Common Stock (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1
(File No. 333-53393))
4.2 Form of Registration Rights Agreement among the Registrant and the
investors named therein (incorporated by reference to Exhibit 4.4 to
the Registrant's Registration Statement on Form S-1 (File No. 333-
53393))
4.3 Indenture, dated as of May 18, 1998, between Global Crossing Holdings
Ltd. and United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
4.4 Supplemental Indenture, dated as of June 25, 1999, to the Indenture,
dated as of May 18, 1998, between Global Crossing Holdings Ltd. and
United States Trust Company of New York, as Trustee
5.1* Opinion of Appleby, Spurling & Kempe as to the legality of the
securities being registered
8.1* Opinion of Appleby, Spurling & Kempe as to tax matters
8.2* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to tax matters
8.3* Opinion of Conyers Dill & Pearman as to tax matters
8.4* Opinion of Simpson Thacher & Bartlett as to tax matters
9.1 Form of Stockholders Agreement among the Registrant and the investors
named therein (incorporated by reference to Exhibit 9.1 to the
Registrant's Registration Statement on Form S-1 (File No. 333-53393))
10.1 1998 Global Crossing Ltd. Stock Incentive Plan (included as Annex H to
the joint proxy statement/prospectus included in this Registration
Statement)
10.2 Project Development and Construction Contract, dated as of March 18,
1997, among AT&T Submarine Systems, Inc. and Global Telesystems Ltd.
(incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.3 Project Development and Construction Contract, dated as of April 21,
1998, among Tyco Submarine Systems, Ltd. and Pacific Crossing Ltd.
(incorporated by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
10.4 Project Development and Construction Contract, dated as of June 2,
1998, among Alcatel Submarine Networks and Mid-Atlantic Crossing Ltd.
(incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (File No. 333-53393))
10.5 Project Development and Construction Contract, dated as of July 21,
1998, among Tyco Submarine Systems, Ltd. and Pan American Crossing
Ltd. (incorporated by reference to Exhibit 10.5 to the Registrant's
quarterly report on Form 10-Q for the quarter ended September 30, 1998
(File No. 000-24565))
10.6 Employment agreement, dated as of February 19, 1999, between Global
Crossing Ltd. and Robert Annunziata (incorporated by reference to
Exhibit 10.8 to the Registrant's quarterly report on Form 10-Q for the
quarter ended March 31, 1999 (File No. 000-24565))
10.7* Credit Agreement, dated as of July 2, 1999, among Global Crossing
Ltd., Global Crossing Holdings Ltd., the Lenders party thereto and The
Chase Manhattan Bank as Administrative Agent.
21.1* Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of KPMG Audit Plc
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Salomon Smith Barney
23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.7 Consent of Morgan Stanley & Co. Incorporated
23.8* Consent of Appleby, Spurling & Kempe (included in Exhibits 5.1 and
8.1)
23.9* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 8.2)
23.10* Consent of Conyers Dill & Pearman (included in Exhibit 8.3)
23.11* Consent of Simpson Thacher & Bartlett (included in Exhibit 8.4)
24.1 Power of Attorney (included on signature page II-6 of this
Registration Statement)
99.1 Stock Option Agreement, dated as of March 16, 1999, between Global
Crossing Ltd. and Frontier Corporation (included as Annex B to the
joint proxy statement/prospectus included in this Registration
Statement)
99.2 Voting Agreement, dated as of March 16, 1999, among certain
shareholders of Global Crossing Ltd. named therein, Frontier
Corporation and, as to Section 2 thereof only, Global Crossing Ltd.
(included as Annex C to the joint proxy statement/prospectus included
in this Registration Statement)
99.3 Tender Offer and Purchase Agreement, dated as of May 16, 1999, between
Global Crossing Ltd. and U S WEST, Inc. (incorporated by reference to
Exhibit (c) (2) to U S WEST's Schedule 14D-1 filed with the Securities
and Exchange Commission on May 21, 1999 (File No. 005-55643))
99.4 Voting Agreement, dated as of May 16, 1999, between Global Crossing
Ltd. and U S WEST, Inc. (incorporated by reference to Exhibit (c) (3)
to U S WEST's Schedule 14D-1 filed with the Securities and Exchange
Commission on May 21, 1999 (File No. 005-55643))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
99.5 Standstill Agreement, dated as of May 16, 1999, between Global
Crossing Ltd. and U S WEST, Inc. (incorporated by reference to Exhibit
(c) (4) to U S WEST's Schedule 14D-1 filed with the Securities and
Exchange Commission on May 21, 1999 (File No. 005-55643))
99.6 Tender and Voting Agreement, dated as of May 16, 1999, between U S
WEST, Inc. and each of the parties listed on the signature page
thereto (incorporated by reference to Exhibit (c) (5) to U S WEST's
Schedule 14D-1 filed with the Securities and Exchange Commission on
May 21, 1999 (File No. 005-55643))
99.7 Agreement, dated as of May 16, 1999, between U S WEST, Inc., Global
Crossing Ltd. and each person whose name appears on the signature page
thereto (incorporated by reference to Exhibit (c) (6) to U S WEST's
Schedule 14D-1 filed with the Securities and Exchange Commission on
May 21, 1999 (File No. 005-55643))
99.8 Letter Agreement, dated as of May 16, 1999, between U S WEST, Inc. and
Global Crossing Ltd. (incorporated by reference to Exhibit (c) (7) to
U S WEST's Schedule 14D-1 filed with the Securities and Exchange
Commission on May 21, 1999 (File No. 005-55643))
99.9 Form of Proxy for Annual General Meeting of Shareholders of Global
Crossing Ltd.
99.10 Form of Proxy for Special Meeting of Shareholders of Frontier
Corporation
99.11* Consent of [ ] as nominee director
99.12* Consent of [ ] as nominee director
99.13* Consent of [ ] as nominee director
99.14* Consent of [ ] as nominee director
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 4.4
SUPPLEMENTAL INDENTURE
Supplemental Indenture, dated as of June 25, 1999 (the "Supplemental
Indenture"), to the Indenture, dated as of May 18, 1998 (the "Indenture"), among
Global Crossing Holdings Ltd., as Issuer, the Guarantors named therein and
United States Trust Company of New York, as Trustee.
WHEREAS, the Issuer desires to make certain amendments to the Indenture as
hereinafter provided; and
WHEREAS, the Holders of at least a majority in principal amount of the then
outstanding Notes voting as a single class (as defined below) have consented
thereto.
NOW, THEREFORE, for good and valuable consideration and intending to be
legally bound, the parties to the Indenture agree as follows:
1. Capitalized terms used but not otherwise defined herein shall have their
respective meanings set forth in the Indenture.
2. Sections 1, 4 and 6 of the Indenture are hereby amended by adding each of
the following provisions in place of the current provisions corresponding
thereto:
Section 1.01. Definitions
"Consolidated Capital Ratio" means, with respect to the Company or any
of its Restricted Subsidiaries, as of the date of any incurrence of
Indebtedness or issuance of Disqualified Stock, the ratio of (i) the
aggregate consolidated principal amount of Indebtedness outstanding and the
liquidation preference of Disqualified Stock as of the most recent
quarterly or annual balance sheet date, after giving pro forma effect to
the incurrence of such Indebtedness or the issuance of such Disqualified
Stock and any other Indebtedness incurred and Disqualified Stock issued
since such balance sheet date, and the receipt and application of the
proceeds therefrom to (ii) Consolidated Net Worth as of such balance sheet
date after giving pro forma effect to the issuance of Equity Interests
(other than Disqualified Stock) issued since the balance sheet date and the
receipt and application of the proceeds therefrom.
"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 (without duplication) 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, plus (iv) depreciation, amortization (including amortization
of goodwill and other intangibles and the amount of capacity available for
sale 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), plus (vi)
any change in Deferred Revenue, 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
<PAGE>
2
(excluding agreements evidencing Indebtedness incurred in accordance with
clause (k) of Section 4.09 hereof, 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 Interest Expense" for any Person means for any period
the consolidated interest expense included in a consolidated income
statement (without deduction of interest income) of such Person and its
Consolidated Subsidiaries for such period, including without limitation or
duplication (or, to the extent not so included, with the addition of), (i)
amortization of debt issuance costs and original issue discount, (ii) non-
cash interest payments, (iii) the interest component of any deferred
payment obligations, (iv) the interest component of all payments associated
with Capital Lease Obligations, (v) commissions, discounts and other fees
and charges incurred in respect of Letter of Credit or bankers' acceptance
financings and (vi) net payments (if any) pursuant to Hedging Obligations.
"Consolidated Leverage Ratio" means, with respect to the Company or
any of its Restricted Subsidiaries, as of the date of any incurrence of
Indebtedness or issuance of Disqualified Stock, the ratio of (i) the
aggregate consolidated principal amount of Indebtedness outstanding and the
liquidation preference of Disqualified Stock as of the most recent
quarterly or annual balance sheet date, after giving pro forma effect to
the incurrence of such Indebtedness or the issuance of such Disqualified
Stock and any other Indebtedness incurred and Disqualified Stock issued
since such balance sheet date, and the receipt and application of the
proceeds therefrom to (ii) Consolidated Cash Flow for the four full fiscal
quarters ending on or prior to the date of incurrence of such Indebtedness
or issuance of such Disqualified Stock for which consolidated financial
statements are available.
"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, plus, to the extent that any of the following items
were deducted in computing such Consolidated Net Income, (a) non-recurring,
non-cash charges (other than charges arising from write-downs of assets)
and (b) non-cash compensation charges arising from stock options or other
similar employee benefit or compensation plans; 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 (or loss) of any Person that is not a Restricted
Subsidiary shall be included only to the extent of the amount of dividends
or other distributions actually paid to the Company or a Restricted
Subsidiary by such Person during such period, (iii) for purposes of clause
(c) of Section 4.07 hereof, the net income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that
net income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
(excluding any such restrictions relating to AC-1 to which this clause
(iii) 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, (iv) 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, (v) 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 (vi) the cumulative effect of a change in accounting principles shall
be excluded.
<PAGE>
3
"Consolidated Net Worth" means, with respect to the Company as of any
date, the sum of (i) the consolidated equity of the common shareholders of
the Company and its consolidated Restricted Subsidiaries as of such date
plus (ii) the respective amounts reported on the Company's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by the Company upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting
from foreign currency translations and write-ups of tangible assets of a
going concern business made within 12 months after the acquisition of such
business and other than write-ups attributable to the warrants issued
pursuant to the Warrant Agreement, dated as of January 21, 1998, as
amended) subsequent to the date of the Indenture in the book value of any
asset owned by the Company or a consolidated Restricted Subsidiary of the
Company, (y) all investments as of such date in unconsolidated Restricted
Subsidiaries and in Persons that are not Restricted Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Debt Securities" means any bonds, notes, debentures or other similar
instruments (excluding, in any event, (i) any Capital Lease Obligations and
(ii) any notes, bankers' acceptances or other instruments evidencing
commercial loans or equipment financing made by, and bills of exchange
drawn on, banks, other financial lending institutions or equipment vendors)
issued by the Company or by any Restricted Subsidiary (including by means
of any Guarantee of the Company or of any Restricted Subsidiary of
securities of another Person), whether in a public offering or private
placement; provided, however, that in no event shall "Debt Securities" mean
Indebtedness in the form of a bank credit facility.
"Deferred Revenue" means amounts appearing as a liability on the
financial statements of the Company as prepared according to GAAP
classified as deferred revenue to the extent of cash received in connection
therewith.
"Disqualified Stock" means any Capital Stock (other than the Company's
10 1/2% Senior Exchangeable Preferred Stock due 2008) 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 which would not constitute Disqualified
Stock but for provisions thereof giving holders thereof the right to
require the Company to repurchase or redeem such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale occurring prior to the
final Stated Maturity of the Notes shall not constitute Disqualified Stock
if the change of control and asset sale provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions applicable to the Notes contained in Sections 4.15 and
4.10 hereof, respectively, and such Capital Stock specifically provides
that the Company will not repurchase or redeem any such stock pursuant to
such provisions prior to the Company's repurchase of such Notes as are
required to be repurchased pursuant to Sections 4.15 and 4.10 hereof,
respectively.
"Pari Passu Debt Securities" means any Debt Securities of the Company
or of any Guarantor which ranks pari passu in right of payment with the
Notes and any Subsidiary Guarantees, as applicable.
"Permitted Investments" means (a) any Investment in the Company or in
Restricted Subsidiaries of the Company that are 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 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
Restricted Subsidiary of the
<PAGE>
4
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 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
$25.0 million; (g) any Investment made in a Receivables Entity in a
Qualified Receivables Transaction; and (h) any investment by the Company or
a Restricted Subsidiary in any Person engaged in a Permitted Business with
the Company or such Restricted Subsidiary, provided that such investment is
necessary or integral to the Company's or such Restricted Subsidiary's
Permitted Business and provided, further that any such investment is the
minimum amount reasonably necessary for such Permitted Business and to
comply with local law.
"Permitted Liens" means (i) Liens to secure Indebtedness (other than
Pari Passu Debt Securities or Subordinated Indebtedness) permitted to be
incurred under this Indenture; (ii) Liens in favor of the Company or any
Restricted Subsidiary; (iii) Liens on property of a Person existing at the
time such Person is merged with or into or consolidated with the Company or
any of its Restricted Subsidiaries; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company or such Restricted Subsidiary; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
of its Restricted Subsidiaries, provided that such Liens were in existence
prior to the contemplation of such acquisition; (v) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course
of business; (vi) Liens existing on the date of this Indenture; (vii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor; (viii) Liens incurred in the
ordinary course of business of the Company or any of its Restricted
Subsidiaries with respect to obligations that do not exceed $5.0 million at
any one time outstanding and that (a) are not incurred in connection with
the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the
aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (ix) Liens with respect to assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or a
Restricted Subsidiary to secure Indebtedness owing to the Company or such
Restricted Subsidiary; (x) Liens, pledges and deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of statutory obligations; (xi) Liens, pledges or
deposits made to secure the performance of tenders, bids, leases, public or
statutory obligations, sureties, stays appeals, indemnities, performance or
other similar bonds and other obligations of like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (xii) zoning restrictions, servitudes, easements, rights-
of-way, restrictions and other similar charges or encumbrances incurred in
the ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or materially
interfere with the ordinary conduct of the business of the Company or its
Restricted Subsidiaries; (xiii) Liens arising out of judgments or awards
against or other court proceedings concerning the Company or any Restricted
Subsidiary with respect to which the Company or such Restricted Subsidiary
is prosecuting an appeal or proceeding for review and the Company or such
Restricted Subsidiary is maintaining adequate reserves in accordance with
generally accepted accounting principles; and (xiv) any interest or title
of a lessor in the property subject to any lease other than a capital
lease.
"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, financing, installation, acquisition, lease,
development, design, engineering, financing, testing, start-up, upgrade,
completion or improvement of any assets used or useful
<PAGE>
5
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.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary and, with respect to
Pacific Crossing Ltd. and all of its direct and indirect Subsidiaries (the
"PC-1 Companies"), upon designation thereof by the Board of Directors as
"Restricted Subsidiaries," whether or not the PC-1 Companies meet the 50%
test specified in the definition of "Subsidiary"; provided, however, that
the Company at its election may also designate New GCL or any Subsidiary of
New GCL as a Restricted Subsidiary hereunder.
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 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) in the case of clauses (i), (ii) and (iii) above, and, in the
case of any Restricted Investment that is not an Investment in a
Permitted Business, 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 and any Permitted Investments made pursuant to
clause (h) of the definition of Permitted Investments after the date
of this Indenture (excluding Restricted Payments permitted by clauses
(ii), (iii), (iv), (vi), (vii), (viii) and (ix) (but, in the case of
clause (ix), only to the extent that such Restricted Payments are
reflected as an expense on the income statements of GCL or New GCL, as
applicable) of the next succeeding paragraph), is less than the sum,
without duplication, of (i) the remainder of (x) 100% of the
cumulative Consolidated Cash Flow (or, in the case Consolidated Cash
Flow shall be negative, less 100% of such deficit) for the period
(taken as one accounting period) beginning on the last day of the
fiscal quarter immediately preceding the date of this Indenture and
ending on the last day of the last full fiscal quarter immediately
preceding the date of such Restricted Payment minus (y) the product of
1.5 times the cumulative Consolidated Interest Expense from the Issue
Date through the last day of the last full fiscal quarter immediately
preceding the date of such Restricted Payment, plus (ii) 100% of the
aggregate net cash proceeds and the fair market
<PAGE>
6
value (as determined in good faith by the Board of Directors) of
property or assets received by the Company since the date of this
Indenture as a contribution to its common equity capital or from the
issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock
or convertible debt securities) sold to a Subsidiary of the Company),
plus the amount of cash or the fair market value (as determined above)
of property or assets received by the Company or any Restricted
Subsidiary upon such conversion or exchange, plus (iii) the aggregate
amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from (x) dividends, distributions, interest
payments, return of capital, repayments of Investments or other
transfers of assets to the Company or any Restricted Subsidiary from
any Unrestricted Subsidiary, (y) proceeds realized by the Company or
any Restricted Subsidiary upon the sale of such Investment to a Person
other than GCL or New GCL, the Company or any Subsidiary of the
Company, or (z) the redesignation of any Unrestricted Subsidiary as a
Restricted Subsidiary, not to exceed in the case of any of the
immediately preceding clauses (x), (y) or (z) the aggregate amount of
Restricted Investments made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary after the date of this
Indenture, plus (iv) to the extent that any Restricted Investment that
was made after the date of this Indenture is sold for cash or
otherwise liquidated or repaid for cash, the amount of proceeds (net
of any cost of disposition) equal to the initial amount of such
Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the foregoing
provisions; (ii) the redemption, repurchase, retirement, defeasance or
other acquisition of any subordinated Indebtedness or Equity Interests of
the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
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 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 $10.0 million in any twelve-month
period (with unused amounts being carried over to succeeding twelve-month
periods, subject to a maximum of $15.0 million in any twelve-month period);
(vi) Investments in Project Subsidiaries made with a portion of the net
proceeds of the Offering in an aggregate amount not to exceed $315 million
made within one year of the date of this Indenture, or a reallocation of
any such Investments to the extent of any reduction of such Investment
during such one-year period resulting from an investment by any third party
(including, without limitation, pursuant to a Joint Venture) in the
formation of such Project Subsidiary, provided that such reallocation is
made within one year from the date of such third party Investment; (vii)
Investments 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) plus 50% of the net gain
realized and not otherwise included in Consolidated Cash Flow from the sale
of Restricted Investments; (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; and (x) other Restricted Payments in an
aggregate amount not to exceed $25.0 million.
<PAGE>
7
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; 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 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.
In the event of any such Designation, all outstanding Investments
owned by the Company and its Restricted Subsidiaries in the Subsidiary so
designated will be deemed to be an Investment made as of the time of such
Designation and will reduce the amount available for Restricted Payments
under the first paragraph of this Section 4.07 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 the 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 will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries
(1) on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans
or advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not
apply to encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of this Indenture, (b)
agreements as in effect as of the date of this Indenture, (c) Indebtedness
incurred in accordance with clause (g), (h), (i), (k) 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) and
provided further that the provisions of such Indebtedness do not prohibit
payments by the Company of principal, premium, interest and Additional
Amounts pursuant to the terms of the Notes and this Indenture, (e) this
Indenture, the Notes and the Exchange Notes, (f) applicable law, (g) any
instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time
of such acquisition (except to the extent such
<PAGE>
8
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 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 will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt) and the Company will not issue any Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock and its Restricted Subsidiaries may incur Indebtedness or issue
Disqualified Stock or preferred stock if either:
(i) the Consolidated Leverage Ratio is less than 5.5 to 1.0
(prior to May 15, 2001) or 5.0 to 1.0 (subsequent to May 15, 2001); or
(ii) the Consolidated Capital Ratio is less than 2.5 to 1.0.
Notwithstanding the foregoing, the provisions of the paragraph set
forth above will not apply to the incurrence of any of the following items
of Indebtedness (collectively, "Permitted Indebtedness"):
(a) The incurrence by the Company of Indebtedness represented by
the Notes and the Exchange Notes;
(b) The incurrence by the Company or any of its Restricted
Subsidiaries of Existing Indebtedness;
(c) The incurrence of Indebtedness by the Company to any
Restricted Subsidiary or Indebtedness of any Restricted Subsidiary to
the Company or any other Restricted Subsidiary (but only for so long
as such Indebtedness is held by the Company or such Restricted
Subsidiary);
(d) 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;
<PAGE>
9
(e) The incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness pursuant to acquisitions of capacity made
in the ordinary course of business;
(f) 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;
(g) 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;
(h) 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 Indenture to be incurred pursuant to the immediately preceding
paragraph hereof or clauses (a), (b), (d), (e), (g), (h), (i), (j),
(k), (n) or (o) of this paragraph;
(i) 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 (i), not
to exceed $50.0 million;
(j) The incurrence of Indebtedness by a Receivables Entity in a
Qualified Receivables Transaction, provided that the proceeds thereof
are applied in accordance with Section 4.10 hereof;
(k) The incurrence by the Company or any Restricted Subsidiary of
Purchase Money Indebtedness, provided that the amount of such Purchase
Money Indebtedness does not exceed 100% of the cost of construction,
installation, acquisition, lease, development, design, engineering,
financing, testing, start-up, upgrade, completion or improvement of
assets (together with related costs and expenses) used in the business
of the Company or such Restricted Subsidiary;
(l) Letters of Credit that are cash collateralized;
(m) Letters of Credit in an aggregate principal amount equal to
$200.0 million less the amount of outstanding Indebtedness under
clause (n) of this paragraph;
(n) The incurrence by the Company or any of its Restricted
Subsidiaries of revolving credit Indebtedness in an aggregate amount
not to exceed $200.0 million at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (n); and
(o) The guarantee by the Company or any Restricted Subsidiary 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.
<PAGE>
10
The Company will not, and will not permit any of its Restricted
Subsidiaries to, incur any Indebtedness (including Permitted Indebtedness)
that is contractually subordinated in right of payment to any other
Indebtedness of the Company or such Restricted Subsidiary unless such
Indebtedness is also contractually subordinated in right of payment to the
Notes on substantially identical terms; provided, however, that no
Indebtedness of the Company shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company
solely by virtue of being unsecured.
<PAGE>
11
Section 4.11. Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are
not materially less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person and (ii) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess
of $25.0 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 $250,000 in any one case, or (d) Management Advances and payments in
respect thereof, (ii) transactions between or among the Company and/or its
Restricted Subsidiaries or any Receivables Entity, (iii) payment of
reasonable directors fees, (iv) any sale or other issuance of Equity
Interests (other than Disqualified Stock) of the Company, (v) Affiliate
Transactions in effect or approved by the Board of Directors on the date of
this Indenture, including any amendments thereto (provided that the terms
of such amendments are not materially less favorable to the Company or the
relevant Restricted Subsidiary than the terms of such agreement prior to
such amendment), (vi) transactions with respect to capacity or dark fiber
between the Company or any Restricted Subsidiary and any Unrestricted
Subsidiary or other Affiliate and joint sales and marketing pursuant to an
agreement or agreements between the Company or any Restricted Subsidiary
and any Unrestricted Subsidiary or other Affiliate (provided that in the
case of this clause (vi), such agreements are on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those
that could have been obtained at the time of such transaction in an arm's-
length transaction with an unrelated third party or, in the case of a
transaction with an Unrestricted Subsidiary, are either (x) entered into in
connection with a transaction involving the selection by a customer of
cable system capacity entered into in the ordinary course of business or
(y) involve the provision by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary of sales and marketing services, operations,
administration and maintenance services or development services for which
the Company or such Restricted Subsidiary receives a fair rate of return
(as determined by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) above its expenses of providing such
services; (vii) any transaction entered into in the ordinary course of
business between the Company or any Restricted Subsidiary and any
Unrestricted Subsidiary or any Affiliate (provided that in the case of this
clause (vii), 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) and (viii) Restricted Payments
that are permitted by Section 4.07 hereof.
<PAGE>
12
Events of Default
Section 6.01 Events of Default
"Events of Default" 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 Issue Date, which default results in the
acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness the maturity of which has
been so accelerated, aggregates $25.0 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 $25.0
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 provided 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 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
(e) generally is not paying its debts as they become due; and
(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
<PAGE>
13
(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.
3. Section 1.01 of the Indenture is hereby amended by deleting the definition
of "Guarantors" in its entirety and substituting in lieu thereof the
following definition:
"Guarantors" means New GCL and each other Person that from time to
time executes a guarantee in accordance with the provisions of the
Indenture.
4. Sections 4.17 and 4.18 of the Indenture are hereby amended by deleting such
sections in their entirety and substituting in lieu thereof the following
Sections 4.17 and 4.18:
"Section 4.17
[Reserved]"
"Section 4.18
[Reserved]"
5. Sections 4 of the Indenture is hereby amended by adding the following new
section 4.22:
"Section 4.22 Future Guarantees.
If any Restricted Subsidiary guarantees any Debt Securities issued by
the Company, then (i) the Company shall promptly notify the Trustee of such
guarantee, (ii) the Trustee shall, in turn, notify each Holder and (iii)
the Company shall cause this Indenture to be amended to make such
Restricted Subsidiary a Guarantor hereunder. Prior to the execution of
such amendment, each such Restricted Subsidiary required to become a
Guarantor pursuant to the provisions of this Section 4.22 shall be deemed a
Guarantor hereunder for purposes of determining the rights and obligations
hereunder."
6. This Supplemental Indenture and the rights and obligations of the parties
hereunder are governed by, and construed and interpreted in accordance
with, the laws of the State of New York.
7. The Indenture, together with this Supplemental Indenture, constitutes the
entire agreement of the parties. All terms and conditions of the Indenture
not expressly amended or modified herein are hereby ratified and confirmed.
8. The Trustee shall not be responsible in any manner whatsoever for the
validity or sufficiency of this Supplemental Indenture or the due execution
hereof by Global Crossing Ltd. and the Issuer or for or in respect of the
recitals or statements contained herein, all of which recitals and
statements are made solely by Global Crossing Ltd. and the Issuer.
IN WITNESS WHEREOF, this Supplemental Indenture has been executed and
delivered as of the date and year above written.
<PAGE>
14
GLOBAL CROSSING HOLDINGS LTD.
By:/s/ Ian McLean
------------------------------
Name:
Title: Director
GLOBAL CROSSING LTD.
By: James C. Gorton
------------------------------
Name:
Title: General Counsel
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:/s/ James F. Logan
------------------------------
Name:
Title: Vice President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC 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 on Form S-4, File No. .
/s/ Arthur Andersen & Co.
July 9, 1999
Hamilton, Bermuda
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Global Crossing Ltd. of our report dated January 25,
1999 relating to the financial statements, which appears in Frontier
Corporation's 1998 Annual Report to Shareholders, which is incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
1998 and the Form 8-K dated January 26, 1999. We also consent to the
incorporation by reference of our report dated January 25, 1999 relating to
the financial statement schedules, which appears in such Annual Report on Form
10-K. We also consent to the reference to us under the headings "Experts" and
"Selected Historical Financial Information" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
-------------------------------------
Rochester, New York
July 9, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated 26 May 1999 with respect to
the balance sheets of Cable & Wireless Global Marine as of 31 March 1999 and
1998 and the results of their operations and cashflows for each of the three-
year period ended 31 March 1999, in the Registration Statement on Form S-4 of
Global Crossing Ltd. and to the references to our firm under the headings
"Experts" and "Global Marine selected historical financial information" in the
Registration Statement.
Yours faithfully
/s/ KPMG Audit Plc
-------------------------------------
Ipswich, England
July 8, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC 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.
/s/ Arthur Andersen LLP
Denver, Colorado
July 9, 1999
<PAGE>
EXHIBIT 23.5
[Salomon Smith Barney Letterhead]
CONSENT OF SALOMON SMITH BARNEY INC.
We hereby consent to the use of our name in, to the description of our
opinion letters under the caption "Opinion of Global Crossing's Financial
Advisors" in, and to the inclusion of our opinion letters as Annexes D-1 and
D-2 to, the Proxy Statement-Prospectus that is made a part of the Registration
Statement on Form S-4 (File Number 33- ) of Global Crossing Ltd. By giving
such consent we do not thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "expert" as
used in, or that we come within the category of persons whose consent is
required under, the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Salomon Smith Barney Inc.
/s/ John F. Otto, Jr.
By: _________________________________
Managing Director
New York, New York
July 9, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated March 16, 1999 to
the Board of Directors of Global Crossing Ltd. included as Annex E to the
Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of a wholly-owned
subsidiary of Global Crossing Ltd. with and into Frontier Corporation, and to
the references to such opinion in such Joint Proxy Statement/Prospectus under
the captions "SUMMARY" and "THE MERGER--Opinion of Global Crossing's Financial
Advisors." In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, nor do we thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
Merrill Lynch, Pierce, Fenner &
Smith
Incorporated
/s/ James A. Ratigan
By: _________________________________
Name:James A. Ratigan
Title:Vice President
New York, New York
July 9, 1999
<PAGE>
EXHIBIT 23.7
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
[MORGAN STANLEY DEAN WITTER LETTERHEAD]
We hereby consent to the use in the Registration Statement of Global
Crossing Ltd. on Form S-4 and in the Proxy Statement/Prospectus of Global
Crossing Ltd. and Frontier Corporation, which is a part of the Registration
Statement, of our opinion dated May 16, 1999 appearing as Annex F to such
Proxy Statement/Prospectus, to the description therein of such opinion and to
the references therein to our name. In giving the foregoing consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended (the "Securities
Act"), or the rules and regulations promulgated thereunder, nor do we admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "experts" as used in the Securities Act or the
rules and regulations promulgated thereunder.
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Jeffrey N. Hogan
---------------------------------
Jeffrey N. Hogan
Principal
New York, NY
July 9, 1999
<PAGE>
EXHIBIT 99.9
FORM OF PROXY
GLOBAL CROSSING LTD.
Proxy for Annual General Meeting of Shareholders
_______________ ___, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints [Gary Winnick and Lodwrick M.
Cook] and each of them, with power of substitution, as proxies at the annual
meeting of shareholders of GLOBAL CROSSING LTD. to be held on __________ __,
1999, and at any adjournment thereof, and to vote shares of stock of the company
which the undersigned would be entitled to vote if personally present.
This proxy will be voted as directed with respect to the
proposals referred to in Items 1 through 8 on the reverse side, but in the
absence of such direction this proxy will be voted FOR the election of all
nominees for director listed in item 5, and FOR the proposals referred to in
Items 1 through 4 and 6 through 8.
-----------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
-----------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on this proxy card. Joint
owners should each sign personally. When signing as attorney,
executor, administrator, trustee or guardian,
please give your full title.
- -----------------------------------------------------------------------------
<PAGE>
2
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
===========================
GLOBAL CROSSING LTD.
===========================
Mark box at right if an address change or
comment has been noted on the reverse side
of this card. [ ]
Please be sure to sign and date this Proxy.
Date _______________________________
Shareholder sign here ______________
Co-owner sign here _________________
DETACH CARD
1. Proposal to increase the For Against Abstain
authorized share capital [ ] [ ] [ ]
of Global Crossing Ltd.
2. Proposal to issue shares of For Against Abstain
common stock of Global Crossing [ ] [ ] [ ]
Ltd. in the merger with Frontier
Corporation
3. Proposal to amend and restate For Against Abstain
the bye-laws of Global Crossing [ ] [ ] [ ]
Ltd. (other than bye-laws
34(2), 63, 130 and 148)
4. Proposal to amend and restate For Against Abstain
bye-laws 34(2), 63, 130 and [ ] [ ] [ ]
148 of Global Crossing Ltd.
5. Election of Directors For all Withhold For all
Nominee: nominees except
[ ] [ ] [ ]
Robert Annunziata Bruce Raben
Jay R. Bloom Jack M. Scanlon
Abbott L. Brown Michael R. Steed
Thomas J. Casey Hillel Weinberger
William E. Conway Gary Winnick
Lodwrick M. Cook [ ]
Dean C. Kehler [ ]
Geoffrey J. W. Kent [ ]
David L. Lee [ ]
Barry Porter
Instructions: To withhold authority to vote for any nominee, mark the "for all
except" box and strike a line through the name(s) of the nominee(s) in the list
provided above.
6. Proposal to amend the For Against Abstain
1998 Global Crossing Ltd. [ ] [ ] [ ]
Stock Incentive Plan
7. Proposal to ratify the For Against Abstain
compensation of outside [ ] [ ] [ ]
directors of Global
Crossing Ltd.
8. Proposal to ratify Arthur For Against Abstain
Andersen & Co. as [ ] [ ] [ ]
independent auditors of
Global Crossing Ltd. for
1999 and approve the authority
of the board of directors of
Global Crossing Ltd. to
determine their remuneration
<PAGE>
3
HAS YOUR ADDRESS CHANGED:
____________________________
____________________________
____________________________
DO YOU HAVE ANY COMMENTS?
____________________________
____________________________
____________________________
<PAGE>
EXHIBIT 99.10
LOGO
FRONTIER CORPORATION
- ----------------------
To vote by telephone:
- ----------------------
It's fast, convenient, and immediate!
Call toll-free on a touch-tone phone
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps:
1. Read the accompanying joint proxy
statement/prospectus and proxy card
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8683)
3. Enter your 14-digit control number located on your proxy card above your
name
4. Follow the recorded instructions
Your vote is important!
Call 1-877-PRX-VOTE anytime!
- ----------------------
To vote by Internet:
- ----------------------
It's fast, convenient, and your vote is immediately confirmed and posted!
Follow these four easy steps:
1. Read the accompanying joint proxy
statement/prospectus and proxy card
2. Go to the website:
http://www.eproxyvote.com/fro
3. Enter your 14-digit control number located on your proxy card above your
name
4. Follow the instructions provided
Your vote is important!
Go to http://www.eproxyvote.com/fro anytime!
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy card.
Please note all votes cast via the telephone or the Internet must be cast prior
to _______ p.m. EDT, ________, 1999.
You may also cast your vote by indicating your vote on the enclosed proxy
card, signing and dating the proxy card and returning the proxy card promptly in
the envelope provided. Please see the instructions on the proxy card.
If you wish to attend the Special Meeting in person, please mark the box
below and complete the ticket request form provided. You may also call the
shareholder line at 1-800-573-2473 to request an admission ticket. If you wish
to change your address, please mark the box below and note you change of address
at left.
Do not return the enclosed proxy card if you are voting by telephone or
Internet.
THANK YOU FOR VOTING!
<PAGE>
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL.
1. Proposal to adopt the Agreement and Plan of Merger, dated as of March
16, 1999 and as amended as of May 16, 1999, as the same may be amended
from time to time, among Global Crossing Ltd., GCF Acquisition Corp.
and Frontier Corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In accordance with their discretion on any matters which may properly
come before the meeting or which are incident to the conduct of the
meeting.
MARK HERE FOR ADDRESS MARK HERE IF YOU
CHANGE AND NOTE AT LEFT [ ] PLAN TO ATTEND THE MEETING [ ]
---- ----
Signature:________________________ Date:______________
Signature:________________________ Date:_____________
PLEASE SIGN NAME ABOVE EXACTLY AS IT APPEARS ON THIS PROXY, DATE AND
RETURN THE PROXY PROMPTLY IN THE ENVELOPE PROVIDED. When signing as attorney,
executor, trustee or in other representative capacity, state full title. For
stock held in joint tenancy, each joint owner should sign.
<PAGE>
Ticket Request
If you would like to attend the Special Meeting of Shareholders to be
held at ___, ___, at 10:30 a.m., local time, on ____, 1999, you may use this
form to request your admission ticket. Complete the form by typing or printing
your name and address. All admission tickets will be provided at the
registration desk for the meeting beginning at 9:30 a.m. Please note that doors
to the meeting will not be open before 9:30 a.m. The envelope provided for the
return of your proxy card should also be used to return this form.
You may also request an admission ticket by calling the shareholder
line 1-800-573-2473. If you hold your shares through a broker or otherwise are
not a record holder, we may require you to show evidence of your share position
before you will be allowed into the special meeting.
Note: If your shares are not registered in your own name, please advise the
shareholder of record, which may be your bank, broker, trustee, etc., that you
wish to attend the Special Meeting. The registered owner must provide you with
evidence of your stock ownership so that you will be admitted at the meeting.
Name___________________________________________
Street_________________________________________
City___________________________________________
State____________________Zip Code______________
Please print or type the above information.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FRONTIER
CORPORATION.
The undersigned (a) appoints Joseph P. Clayton and Josephine S. Trubek
and each of them, with full power of substitution, his or her proxy to represent
and vote, as designated below, all shares of Frontier Corporation registered in
the name of the undersigned, with the powers the undersigned would possess if
personally present at the Special Meeting of Shareholders to be held at ___,___,
at 10:30 a.m., local time, on ___, 1999, and at any postponement, continuation
or adjournment thereof and (b) revokes all prior proxies.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED HEREIN, OR
IF NO DIRECTION IS GIVEN, WILL BE VOTED "FOR" THE ADOPTION OF THE MERGER
AGREEMENT.
(Continued and TO BE SIGNED AND DATED on reverse side.)
