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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GLOBAL CROSSING LTD.
----------------------------------------------------------
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: ____
(2) Aggregate number of securities to which transaction applies: _______
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): _____
(4) Proposed maximum aggregate value of transaction: ___________________
(5) Total fee paid: ____________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid: $ __________________________________________
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(4) Date Filed: ________________________________________________________
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[LOGO OF GLOBAL CROSSING LTD.]
, 2000
Dear Shareholder,
The board of directors cordially invites you to attend a special meeting of
Global Crossing shareholders, which we will hold at , local time, on ,
2000, at .
As part of our strategic plan to facilitate growth of GlobalCenter, our
complex Web hosting and related Internet infrastructure solutions business, and
increase value for shareholders of Global Crossing, our board of directors
requests your approval to create a tracking stock that is intended to reflect
the separate economic performance of our existing GlobalCenter business, which
we will designate as GlobalCenter group stock.
We currently plan to offer shares of GlobalCenter group stock that represent
a portion of the equity value of the GlobalCenter group in an initial public
offering. Upon the completion of the offering, each outstanding share of our
existing Global Crossing common stock will be designated as Global Crossing
group stock. Global Crossing group stock is intended to reflect the separate
performance of our Global Crossing group, consisting of all of our other
businesses and the Global Crossing group's ownership of the unsold portion of
the GlobalCenter group.
We intend to dispose of the shares representing the Global Crossing group's
ownership of the GlobalCenter group following the initial public offering. This
disposition is expected to include a distribution in the form of a dividend to
the holders of Global Crossing group stock. The decision to make such a
disposition and the precise method and timing will depend on market conditions
and other factors. After this intended disposition of the GlobalCenter group
stock, your ownership in Global Crossing will then be represented by two
stocks: GlobalCenter group stock--which will reflect the performance of our
GlobalCenter business--and Global Crossing group stock--which will reflect the
performance of all of our non-GlobalCenter businesses.
Before we can proceed with the creation and issuance of GlobalCenter group
stock, the majority of all votes cast by the holders of Global Crossing common
stock must vote in favor of the proposed resolutions to increase our authorized
share capital, to allow our board of directors to designate our authorized
share capital into two or more separate classes of common stock, to approve the
terms of the Global Crossing group stock and GlobalCenter group stock and to
redesignate our outstanding common stock as Global Crossing group stock. The
special meeting of shareholders has been called specifically for this purpose.
We describe the terms of the Global Crossing group stock and GlobalCenter group
stock in detail in this proxy statement.
At the special meeting, we will also ask you to consider and approve
companion proposals to approve the adoption of two GlobalCenter stock incentive
plans.
The board of directors of Global Crossing unanimously recommends that you
vote FOR the tracking stock proposal and the proposals to adopt the
GlobalCenter stock incentive plans.
This proxy statement provides you with detailed information about the two
proposals. We encourage you to read this entire document carefully.
Thank you for your continued support.
GARY WINNICK
Chairman of the Board
See "Risk Factors" beginning on page 21 for some of the matters you should
consider.
This document is dated , 2000 and is being mailed to shareholders on or
about , 2000.
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[LOGO OF GLOBAL CROSSING LTD.]
----------------
Notice of Special Meeting of Shareholders
----------------
We will hold a Special General Meeting of Shareholders (the "special
meeting") of Global Crossing Ltd. at , on , 2000 at , local time,
for the following purposes:
To vote on the following:
1. To consider and act upon proposed resolutions to increase our
authorized share capital to 4,500,000,000 shares of common stock, to
allow our board of directors to designate our authorized share capital
into two or more classes of common stock, to approve the terms of the
Global Crossing group stock and the GlobalCenter group stock and to
redesignate our outstanding common stock as Global Crossing group
stock;
2. To consider and act upon a proposal to approve the adoption of the
GlobalCenter Management Stock Plan; and
3. To consider and act upon a proposal to approve the adoption of the
GlobalCenter 2000 Stock Plan.
Only shareholders of record at the close of business on , 2000, which has
been fixed as the record date for notice of the meeting, are entitled to 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,
MITCHELL C. SUSSIS
Secretary
, 2000
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.
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TABLE OF CONTENTS
<TABLE>
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Questions & Answers About the Proposals................................... 1
Summary................................................................... 4
Risk Factors.............................................................. 21
Cautionary Statement Concerning Forward-Looking Statements................ 39
The Special Meeting....................................................... 40
General................................................................. 40
Date, time and place.................................................... 40
Proposals to be considered at the special meeting....................... 40
Record date; votes per share............................................ 40
Quorum.................................................................. 41
Votes required.......................................................... 41
How shares will be voted at the special meeting......................... 42
How to revoke a proxy................................................... 42
Solicitation of proxies................................................. 42
The Tracking Stock Proposal............................................... 43
General................................................................. 43
Authorized and outstanding shares....................................... 43
The proposed initial public offering.................................... 44
The intended disposition................................................ 44
Reasons for the tracking stock proposal................................. 45
Recommendation of our board of directors................................ 47
Dividend policy......................................................... 47
Description of Global Crossing group stock and GlobalCenter group
stock.................................................................. 48
Additional classes of common stock...................................... 64
Certain anti-takeover provisions of Bermuda law and our bye-laws........ 64
Certain United States federal income tax consequences................... 66
Stock exchange listings................................................. 67
Stock transfer agent and registrar...................................... 67
Effect on existing awards and convertible preferred stock............... 67
No dissenters' rights................................................... 68
Business of the GlobalCenter Group........................................ 69
Selected Financial and Operating Data of the GlobalCenter Group........... 81
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the GlobalCenter Group..................................... 83
Relationship Between the Global Crossing Group and the GlobalCenter
Group.................................................................... 90
General policy.......................................................... 90
Role of capital stock committee......................................... 90
Corporate opportunities................................................. 90
Relationships between groups............................................ 90
Dividend policy......................................................... 93
Financial reporting; allocation matters................................. 93
</TABLE>
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<TABLE>
<S> <C>
GlobalCenter Inc. board of directors..................................... 93
Amendment of modification policy......................................... 94
Tax sharing agreement.................................................... 94
The GlobalCenter Stock Incentive Plan Proposals............................ 96
GlobalCenter management stock plan....................................... 96
GlobalCenter 2000 stock plan............................................. 97
Global Crossing Executive Compensation..................................... 98
Compensation committee report............................................ 98
Summary compensation table............................................... 101
Certain compensation arrangements........................................ 101
Compensation of outside directors........................................ 104
Option grants in last fiscal year........................................ 104
Aggregated option exercises in last fiscal year and fiscal year-end
option values........................................................... 105
Compensation committee interlocks and insider participation.............. 105
Comparison of cumulative total returns................................... 106
Stock Ownership of Management, Directors and 5% Shareholders of Global
Crossing.................................................................. 107
Information About Shareholder Proposals.................................... 109
Independent Accountants.................................................... 109
Where You Can Find More Information........................................ 109
Information Incorporated by Reference...................................... 109
Index to Financial Statements.............................................. F-1
The GlobalCenter Group--Report of Independent Accountants and Combined
Financial Statements.................................................... F-2
The Global Crossing Group--Unaudited Pro Forma Condensed Combined
Financial Statements.................................................... F-3
</TABLE>
<TABLE>
<C> <S>
Resolutions of Global Crossing's Board of Directors in Connection
Annex I with the Special Meeting
Certificate of Designations of Global Crossing Group Stock and
Annex II GlobalCenter Group Stock
Policy Statement Regarding Global Crossing Group Stock and
Annex III GlobalCenter Group Stock Matters
Annex IV GlobalCenter Management Stock Plan
Annex V GlobalCenter 2000 Stock Plan
</TABLE>
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QUESTIONS & ANSWERS ABOUT THE PROPOSALS
At the special meeting, we will ask you to consider and vote upon the
proposed resolutions to increase our authorized share capital, to allow us to
issue two or more separate classes of common stock, to approve the terms of the
Global Crossing group stock and GlobalCenter group stock and to redesignate our
outstanding common stock as Global Crossing group stock. Here are some
questions and answers relating to the tracking stock proposal and the companion
proposals for the approval of the adoption of the GlobalCenter stock incentive
plans.
Q: What am I being asked to vote on?
A: We are asking you to approve the tracking stock proposal and companion
proposals approving the adoption of two GlobalCenter stock incentive plans.
Q: Please briefly describe the tracking stock proposal.
A: The tracking stock proposal contains proposed resolutions to increase our
authorized share capital, to designate our authorized share capital into
two or more separate classes of common stock, to approve the terms of the
Global Crossing group stock and GlobalCenter group stock and to redesignate
our outstanding common stock as Global Crossing group stock. If the
proposed initial public offering of GlobalCenter group stock is completed,
our board of directors will designate 3,000,000,000 of our authorized
shares of common stock as Global Crossing group stock and 1,000,000,000 of
our authorized shares of common stock as GlobalCenter group stock, and
designate our outstanding shares of common stock as Global Crossing group
stock.
Q: What is a tracking stock and how does it work?
A: A tracking stock is a separate class of a company's common stock that is
designed to reflect the separate performance of a group of assets or
specific business units, divisions, subsidiaries or equity investments of
the company. The holders of Global Crossing group stock and the holders of
GlobalCenter group stock will be shareholders of Global Crossing and will
not be shareholders of their respective groups.
Q: What will happen to my shares of Global Crossing common stock?
A: Following the initial public offering of GlobalCenter group stock, all of
your shares of Global Crossing common stock will be redesignated as Global
Crossing group stock, which will reflect the interest in all of the assets
and businesses of Global Crossing, including its inter-group interest in
the GlobalCenter group. Following the proposed distribution of the Global
Crossing group's inter-group interest in the portion of the GlobalCenter
group not sold in this offering, your shares of Global Crossing group stock
will reflect the interest in all of the assets and businesses of Global
Crossing, other than the GlobalCenter business.
Q: Why are we proposing to create two classes of common stock?
A: We believe that the creation of GlobalCenter group stock will assist the
GlobalCenter group in meeting its capital requirements by creating an
additional publicly traded equity security that it can use to raise capital
and issue for acquisitions and investments. We further believe that
separating the performance of the Global Crossing group and the
GlobalCenter group and reflecting separately the operating results and
growth prospects of each group will permit greater market recognition and
more efficient valuation of the Global Crossing group and the GlobalCenter
group. At the same time, we believe that the tracking stock proposal allows
us to continue to benefit from synergies between the Global Crossing group
and the GlobalCenter group and other advantages of doing business under
common ownership. We describe these and other reasons for the tracking
stock proposal starting on page 43.
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Q: How will my economic interest in Global Crossing be affected if the
tracking stock proposal is approved?
A: Your economic interest in Global Crossing will not be changed if the
tracking stock proposal is approved. Global Crossing group stock is
intended to reflect the separate performance of the Global Crossing group,
which includes the Global Crossing group's ownership of any remaining
interest in the GlobalCenter group. In addition, we intend to distribute
all of the shares representing the Global Crossing group's equity interest
in the GlobalCenter group to the holders of Global Crossing group stock.
If we do so, you will own your economic interest in our GlobalCenter
business through your ownership of GlobalCenter group stock. If we do not
complete the proposed distribution, you will continue to own the same
economic interest in our GlobalCenter business through your ownership of
Global Crossing group stock.
Q: Does the tracking stock proposal involve a spin-off?
A: No. The tracking stock proposal does not contemplate a distribution or
spin-off of any assets or liabilities of Global Crossing or its
subsidiaries. The holders of Global Crossing group stock and the holders
of GlobalCenter group stock will continue to be shareholders of Global
Crossing and, as such, will be subject to the benefits and risks
associated with an investment in Global Crossing and all of our
businesses, assets and liabilities.
Q: Why are you issuing a tracking stock instead of spinning off the
GlobalCenter group?
A: Issuing a tracking stock will retain for us the advantages of doing
business as a single company and allow each group to capitalize on
relationships with the other group, such as the ability of the
GlobalCenter group to take maximum advantage of the Global Crossing
group's high capacity fiber optic network. Issuing a tracking stock will
also allow both groups to continue to benefit from common ownership by
saving costs in corporate overhead expenses and sharing synergies relating
to strategy.
Q: How will the tracking stock proposal affect future financial statement
presentation of Global Crossing?
A: We include in this proxy statement the combined financial statements of
the GlobalCenter group and the pro forma combined financial statements of
the Global Crossing group. The consolidated financial statements of Global
Crossing and historical financial statements of companies we have recently
acquired are incorporated by reference in this proxy statement. Following
the issuance of GlobalCenter group stock, we will issue periodically
combined financial statements for the GlobalCenter group, combined
financial statements for the Global Crossing group and consolidated
financial statements for Global Crossing. Presentation of the separate
group financial statements of the GlobalCenter group and the Global
Crossing group will provide current and potential investors in each group
with financial information regarding the underlying businesses of the
GlobalCenter group and the Global Crossing group.
Q: Why is the number of authorized shares of common stock being increased?
A: We need to increase the number of authorized shares of common stock for
the proposed initial public offering of GlobalCenter group stock and the
proposed distribution, to grant awards of GlobalCenter group stock under
its stock incentive plans and to issue in transactions consistent with our
business strategy GlobalCenter group stock, Global Crossing group stock or
any additional class of group stock.
Q: Why are we adopting the GlobalCenter stock incentive plans?
A: We are adopting the GlobalCenter stock incentive plans to allow us to
grant awards based on shares of GlobalCenter group stock.
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Q: Should I vote "FOR" both proposals?
A: Yes. Our directors unanimously recommend that you vote "FOR" both
proposals. We are soliciting your vote "FOR" both proposals with this proxy
statement.
Q: What do I need to do now?
A: 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 special meeting. You may also vote by attending the meeting in
person, which will be held at on , 2000.
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 Global Crossing's Secretary before the special
meeting or by attending the special meeting in person and voting.
Q: Should I send in my stock certificates?
A: No. If the tracking stock proposal is adopted, each of your shares of
existing common stock will be automatically redesignated as one share of
Global Crossing group stock when we complete the proposed initial public
offering of GlobalCenter group stock. The stock certificate representing
your shares of existing common stock will represent ownership of the same
number of shares of Global Crossing group stock.
Q: Who should I call with questions?
A: If you have any questions about the tracking stock proposal, please call
our Investor Relations department at (310) 385-5200.
If you would like copies of any of the documents we refer to or that we
incorporate by reference in this proxy statement, you should call us at
(310) 385-5200.
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Summary
This summary, together with the "Questions and Answers About the Proposals"
on the preceding pages, highlights important selected information from this
proxy statement. To understand the proposals fully and for a more complete
description of the legal terms of the proposals, you should read carefully this
entire document and the documents we have referred you to.
In this proxy statement, "we," "us," "our," "ours" and "Global Crossing"
refers to Global Crossing Ltd. and its subsidiaries.
Global Crossing Ltd.
Our businesses are the Global Crossing group and the GlobalCenter group. Our
principal executive offices are located at 360 North Crescent Drive, Beverly
Hills, California 90210 and our telephone number is (310) 385-5200.
The GlobalCenter Group
The GlobalCenter group is a leading provider of Internet infrastructure
solutions incorporating:
. complex Web hosting;
. Internet Protocol, or "IP", network service, primarily using the Global
Crossing network;
. hardware and software procurement and installation;
. content distribution, integration and management services;
. systems applications; and
. professional services.
The GlobalCenter group delivers its services primarily to customers seeking
rapid, cost-effective solutions for their mission-critical Internet-related
operations. As of March 31, 2000, it provided solutions to over 500 customers,
including large, well-established enterprises and newer Internet companies,
including NBCi, Viacom, The Washington Post, Yahoo! and ZDNet. Due largely to
rapid growth in both the size of its customer base and demand for outsourced
Internet infrastructure solutions, its annual revenues have grown from $7.7
million in 1997 to $70.9 million in 1999, a compound annual growth rate of
203%.
The GlobalCenter group currently operates ten data centers strategically
located near major business centers in northern and southern California; New
York City; northern Virginia; London; and Melbourne. Six of these data centers
have been commercially operational for more than 12 months and are currently
operating at or near full capacity. In addition, it currently has in
development 10 data centers in the United States, Europe and the Asia-Pacific
region, nine of which it plans to open by the end of this year, bringing the
total gross square footage of our data centers to over 1.3 million. Its data
centers incorporate many advanced design features including multi-layer
physical security, redundant environmental control and power systems and
24x7x365 monitoring, maintenance and support systems. Highly trained technical
support and network operating staff are located on-site at these data centers
to provide customers with installation, support and professional services.
Each of the GlobalCenter group's data centers other than its Melbourne data
center is located directly on the Global Crossing IP-based, fiber optic
network. This network is expected to span 101,000 route miles and connect five
continents and more than 200 cities in 27 countries by the middle of 2001. The
GlobalCenter group believes that its unique access to this network will enable
it to enjoy significant connectivity advantages over other providers of
Internet infrastructure solutions, including higher availability and
scalability of bandwidth and enhanced, integrated network monitoring and
problem resolution. In addition, the extensive geographic reach of the Global
Crossing group's IP network and the Global Crossing group's numerous peering
and transit relationships with other major Internet backbone providers enable
the GlobalCenter group to avoid many of the congested Internet public exchange
points and deliver IP traffic directly to its destination network or intended
IP address. Each of the GlobalCenter group's data centers also has access to
the communications networks of other major carriers.
The GlobalCenter group's objective is to become the leading global provider
of total solutions for its
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customers' mission-critical Internet infrastructure requirements. To achieve
this objective, the GlobalCenter group is implementing a business strategy
focused on the following key elements:
. enhance and expand its portfolio of value-added applications and
professional services;
. expand its global footprint by opening new data centers;
. develop and market services tailored to the needs of selected
information-intensive industries, including media and entertainment,
financial services, retail and business-to-business exchanges;
. continue to take advantage of its unique relationship with the Global
Crossing group, including the Global Crossing group's extensive customer
base and partnering relationships;
. expand its direct sales force and develop new channels of distribution;
. develop and strengthen relationships with industry leading technology
vendors; and
. enter into strategic partnerships or make targeted acquisitions to
complement its internal development efforts.
The GlobalCenter group's management team is led by Leo J. Hindery, Jr.,
Chairman and Chief Executive Officer of GlobalCenter Inc., Chief Executive
Officer of Global Crossing Ltd. and the former President and CEO at AT&T
Broadband & Internet Services. As part of Mr. Hindery's employment agreement,
Mr. Hindery has the right to nominate 5 of the 11 directors of the GlobalCenter
Inc. board of directors. Under this arrangement, Kurt Baumann, Chase Carey,
Frank M. Drendel, Mr. Hindery and Marc B. Nathanson have been appointed as
directors of GlobalCenter Inc. We believe that this board of directors will
enhance the GlobalCenter group's ability to grow and expand its business and
develop and benefit from strategic relationships.
The Global Crossing Group
The principal activities of the Global Crossing group include offering a
variety of integrated telecommunications products and services to customers
through its IP-based fiber optic network, including domestic and international
voice services, data products, structured bandwidth services and other
communications products. In addition, through its installation and maintenance
services business conducted through its Global Marine Systems subsidiary, the
Global Crossing group installs and maintains undersea fiber optic cable systems
for carrier customers worldwide. Finally, the Global Crossing group's incumbent
local exchange carrier services segment provides local communications services
through local exchange service providers in 13 states, serving over one million
access lines.
The Global Crossing group will also have an inter-group interest in the
GlobalCenter group, representing that portion of the equity value of the
GlobalCenter group that is not sold to the public in the proposed offering.
Following the proposed initial public offering of GlobalCenter group stock,
we intend to dispose of the Global Crossing group's inter-group interest in the
GlobalCenter group in the form of additional GlobalCenter group stock. This
disposition is intended to include a distribution in the form of a dividend to
holders of Global Crossing group stock for at least a portion of such interest,
but may include an exchange offer, a further sale of GlobalCenter group stock,
or a combination thereof.
The Special Meeting
Proposals to be Considered at the Meeting
The tracking stock proposal
At the Global Crossing special meeting, you will be asked to consider and
vote to approve proposed resolutions to:
. increase our authorized share capital to $45,200,000 by the creation of
an additional 1,500,000,000 shares of common stock;
. allow our board of directors to redesignate our authorized share capital
into two or more separate classes of common stock;
. approve the terms of the Global Crossing group stock and GlobalCenter
group stock; and
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. redesignate our outstanding common stock as Global Crossing group stock.
If the proposed initial public offering of GlobalCenter group stock is
completed, our board of directors will designate 3,000,000,000 of our
authorized shares as Global Crossing group stock and 1,000,000,000 of our
authorized shares as GlobalCenter group stock.
The GlobalCenter stock incentive plan proposals
In addition, at the Global Crossing special meeting, you will be asked to
consider and vote to approve the adoption of two GlobalCenter stock incentive
plans: the GlobalCenter Management Stock Plan and the GlobalCenter 2000 Stock
Plan.
If the tracking stock proposal is approved, we intend to implement it whether
or not the GlobalCenter stock incentive plan proposals are approved. If the
tracking stock proposal is not approved, we will not implement the GlobalCenter
stock incentive plan proposals.
Votes Required to Approve the Proposals
The favorable vote of a majority of all votes cast by the holders of Global
Crossing common stock is required for approval of each proposal.
Our directors and executive officers beneficially owned approximately 21.63%
of the outstanding shares of our existing common stock as of April 14, 2000.
The Proposed Initial Public Offering
If you approve the tracking stock proposal, we expect to issue in an initial
public offering shares of GlobalCenter group stock that will represent a
portion of the equity value of the GlobalCenter group. We will determine the
amount to be issued based on the capital requirements of the GlobalCenter
group, market conditions at the time of the initial public offering and other
factors. The proceeds of the initial public offering will be allocated to the
GlobalCenter group.
Timing of the Proposed Initial Public Offering
We currently expect to complete the proposed initial public offering shortly
following shareholder approval of the tracking stock proposal.
If subsequent considerations arise, our board of directors can decide not to
create Global Crossing group stock and GlobalCenter group stock and abandon
plans for the proposed initial public offering, even if our shareholders have
approved the tracking stock proposal.
Inter-Group Interest and the Intended Disposition
Prior to the completion of the proposed initial public offering of
GlobalCenter group stock, the Global Crossing group will hold 100% of the
equity value of the GlobalCenter group. Prior to the completion of the proposed
offering, our board of directors will determine the number of shares of
GlobalCenter group stock that, if issued, would represent 100% of the equity
value of the GlobalCenter group.
Immediately following the planned initial public offering, the equity value
of the GlobalCenter group not represented by GlobalCenter group stock sold in
the offering will continue to be held by the Global Crossing group and will be
reflected in the combined financial statements of the Global Crossing group as
an "inter-group interest" in the GlobalCenter group. The inter-group interest
will have no voting rights.
We intend to dispose of the Global Crossing group's inter-group interest in
the GlobalCenter group following the proposed offering in the form of
additional GlobalCenter group stock. This disposition is intended to include a
distribution in the form of a dividend to holders of Global Crossing group
stock for at least a portion of such interest, but may include an exchange
offer, a further sale of GlobalCenter group stock, or a combination thereof. We
currently intend to dispose of the inter-group interest at some time after this
offering; however, we have not yet determined the exact method and timing of
this disposition. We expect to base our decision with regard to the method and
timing of the disposition on market conditions and the target of maximizing
value for all of Global Crossing's shareholders. The disposition may occur in
several stages, following which we expect that the outstanding shares of
GlobalCenter group stock will reflect 100% of the economic performance of the
GlobalCenter group. There is no guarantee, however, that any disposition will
follow this offering.
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Reasons for the Tracking Stock Proposal
We expect the tracking stock proposal to:
. assist the GlobalCenter group in meeting its capital needs by creating
an additional publicly traded equity security that it can use to raise
capital and can issue for acquisitions and investments;
. maintain the benefits of doing business under common ownership;
. increase market awareness of the performance and value of our
GlobalCenter business. We expect this will provide greater market
recognition and realization of the value, individually and collectively,
of Global Crossing and its distinct lines of business represented by
each of the GlobalCenter group and the Global Crossing group; and
. permit the creation of more effective management incentive and retention
programs, with the ability to direct business-specific options and
securities to employees of each group.
For additional reasons for the tracking stock proposal, see "The Tracking Stock
Proposal--Reasons for the tracking stock proposal."
Comparison of Existing Common Stock with Global Crossing Group Stock and
GlobalCenter Group Stock
We have compared below our existing common stock with the proposed Global
Crossing group stock and GlobalCenter group stock. You should keep in mind that
holders of Global Crossing group stock and GlobalCenter group stock will remain
shareholders of a single company. The Global Crossing group and the
GlobalCenter group will not be separate legal entities. As a result, you will
continue to be subject to benefits and risks associated with an investment in
Global Crossing and its businesses, assets and liabilities. Financial effects
from one group that affect our consolidated results of operations or financial
condition could, if significant, affect the results of operations or financial
condition of the other group.
Dividends
Existing common stock. Historically, we have not paid dividends on our
existing common stock. Dividends are declared at the discretion of our board of
directors.
Tracking stocks. We presently do not anticipate paying dividends on either
tracking stock. Dividends, if any, will be declared at the discretion of our
board of directors.
Voting rights
Existing common stock. Holders of existing common stock have one vote per
share, subject to certain restrictions described on page 55.
Tracking stocks. Holders of Global Crossing group stock will have one vote
per share. Holders of GlobalCenter group stock will have more than, less than
or exactly one vote per share depending on the relative average market values
of the two classes of stock over a specified period prior to the record date
for the vote, subject to a limitation on the voting power of holders of
GlobalCenter group stock to 25% of the total voting power of all outstanding
shares of Global Crossing common stock and to certain other restrictions
described on page 55.
The holders of the two classes of stock will vote together as a single class
on each matter on which holders of common stock are generally entitled to vote,
except in the case of any proposal to increase or decrease the authorized
shares of the relevant class or amend the terms of that class, and except for
the limited single class voting rights provided under Bermuda law, Nasdaq
listing rules or stock exchange rules or as otherwise determined by our board
of directors.
Conversion at option of Global Crossing
Existing common stock. We do not have the option of converting shares of our
existing common stock into any other security of Global Crossing.
Tracking stocks. We may convert either tracking stock into the other tracking
stock at our option:
. at a 20% premium during the first year following the completion of the
proposed initial public offering of GlobalCenter group stock;
7
<PAGE>
. at a 15% premium during the second year following the implementation of
the tracking stock proposal; and
. at a 10% premium thereafter.
Any optional conversion as described above can only be effected if, as of
close of business on the last day of the 20-trading day period, the market
capitalization of the class of common stock being issued in the conversion
exceeds the market capitalization of the class of common stock being converted.
If we exercise our conversion right as a result of a "tax event," as that
term is defined under "The Tracking Stock Proposal--Description of Global
Crossing group stock and GlobalCenter group stock--Conversion and repurchase--
Conversion of common stock at option of Global Crossing at any time," we will
convert your shares without any premium.
In addition, if our board of directors determines to issue one or more
classes of additional common stock, shares of that class or those classes could
be converted into Global Crossing group stock or GlobalCenter group stock on
terms determined by our board of directors at the time of issuance.
Repurchase for stock of subsidiary
Existing common stock. We do not have the option of requiring the repurchase
of shares of our existing common stock.
Tracking stocks. We will have the right at any time to require the repurchase
of shares of Global Crossing group stock for stock of one or more of our
subsidiaries that holds all of the assets and liabilities of Global Crossing
group. Similarly, we will have the right at any time to require the repurchase
of GlobalCenter group stock for stock of one or more of our subsidiaries that
holds all of the assets and liabilities of the GlobalCenter group.
Rights on sale of all or substantially all assets of a group
Existing common stock. Holders of existing common stock have no special
rights triggered by a sale of all or substantially all of the assets of a
group.
Tracking stocks. If we sell all or substantially all--that is, at least 80%--
of the assets attributed to either group, subject to some exceptions, we must
either:
. distribute an amount equal to the net proceeds of the sale through a
special dividend or repurchase, or
. convert each share of that group's tracking stock into a number of
shares of the other group's tracking stock at the premiums discussed
above under "Conversion at option of Global Crossing".
If we sell substantially all--but not all--of the assets attributed to a
group and we distribute the net proceeds by special dividend or partial
repurchase, then at any time within two years after completing the distribution
we will have the right to convert the remaining outstanding shares of that
group's stock into shares of the other group's stock at a premium of 10%.
We will not be required to effect a distribution or conversion if we receive
in the sale primarily equity securities of the acquiror or its parent, and the
acquiror or its parent is or will be primarily engaged in one or more
businesses similar or complementary to the group whose assets are sold.
If we create additional classes of common stock, we can convert the class of
stock of the group whose assets are disposed of into one of those classes. Any
conversion of Global Crossing group stock or GlobalCenter group stock into an
additional class of common stock would be subject to the same premium
provisions that would apply to a conversion of Global Crossing group stock into
GlobalCenter group stock or GlobalCenter group stock into Global Crossing group
stock.
Winding up
Existing common stock. If Global Crossing is wound up, holders of existing
common stock would share assets remaining for distribution to holders of common
stock in equal amounts per share of existing common stock.
Tracking stocks. Holders of Global Crossing group stock and GlobalCenter
group stock would
8
<PAGE>
share assets remaining for distribution to holders of common stock on a per
share basis in proportion to the liquidation units per share. Each share of
Global Crossing group stock will have one liquidation unit. Each share of
GlobalCenter group stock will have . liquidation units. If we create one or
more classes of additional common stock, each share of such class will have
such number of liquidation units as our board of directors will determine.
Except for anti-dilution adjustments, we will not change the number of
liquidation units per share of GlobalCenter group stock or any additional class
of common stock without the approval of the holders of each class of stock
voting separately.
Policy Statement of Global Crossing's Board of Directors
Our policy statement provides that we will resolve all material matters as to
which the holders of Global Crossing group stock and the holders of
GlobalCenter group stock may have potentially divergent interests in a manner
that our board of directors or the Capital Stock Committee of our board of
directors determines to be in the best interests of Global Crossing.
Our policy statement also provides that Global Crossing will seek to manage
the Global Crossing group and the GlobalCenter group in a manner designed to
maximize the operations, unique assets and value of both groups, and with
complementary deployments of personnel, capital and facilities, with the
continuing goal of positioning Global Crossing as a premier provider of global
IP and data services for both wholesale and retail customers.
Our policy statement establishes guidelines to help us allocate debt,
corporate overhead, interest and taxes on an objective basis. Our policy
statement also provides for:
. favorable access by the GlobalCenter group to the Global Crossing
group's IP-based high capacity fiber optic network;
. the centralized management of most financial activities;
. the transfer of assets resulting from commercial transactions in the
ordinary course of the business between the groups on arm's-length
terms;
. the transfer of assets between groups at fair value;
. the allocation of corporate opportunities in the best interests of
Global Crossing; and
. access by the groups to Global Crossing's intellectual property.
Our board of directors may amend, modify or rescind our policy statement, or
may adopt additional or other policies or may make exceptions with respect to
the application of these policies, in its sole discretion and without
shareholder approval. However, our board of directors has no present intention
to do so.
See "Relationship Between the Global Crossing Group and the GlobalCenter
Group."
Risk Factors
When evaluating the tracking stock proposal, you should be aware of the risk
factors we describe under "Risk Factors" starting on page 21.
Federal Income Tax Considerations
We have been advised by our counsel that the receipt of Global Crossing group
stock will not be taxable to you. However, the United States Internal Revenue
Service could disagree. There are no court decisions or other authorities
bearing directly on the effect of the features of Global Crossing group stock
and GlobalCenter group stock. The Internal Revenue Service has also announced
that it will not issue rulings on the characterization of stock with
characteristics similar to Global Crossing group stock and GlobalCenter group
stock. Therefore, the tax treatment of the tracking stock proposal is subject
to some uncertainty.
In addition, the Clinton Administration proposed legislation in February 2000
that, if enacted, would impose a tax on shareholders that receive stock similar
to Global Crossing group stock or GlobalCenter group stock in exchange for
other stock in the company or in a distribution by the company. If this
proposal is enacted, you could be subject to tax on your receipt of Global
Crossing group stock or GlobalCenter group stock. If our shareholders approve
the tracking stock proposal, our board of directors
9
<PAGE>
will evaluate legislative developments relating to this tax proposal prior to
creating any class of tracking stock. See "The Tracking Stock Proposal--Certain
United States federal income tax consequences."
Listing
We expect to list Global Crossing group stock under the trading symbol "GBLX"
and GlobalCenter group stock under the trading symbol "GCTR" on the Nasdaq
National Stock Market and the Bermuda Stock Exchange.
The GlobalCenter Stock Incentive Plan Proposals
We are also asking you to vote on related proposals to approve the adoption
of two GlobalCenter stock incentive plans: the GlobalCenter Management Stock
Plan and the GlobalCenter 2000 Stock Plan. These plans would, among other
things, reflect the tracking stock proposal by authorizing us to grant to our
employees, officers and directors awards based on shares of GlobalCenter group
stock. We intend to grant awards to employees based primarily on the group for
which our employees work.
Recommendation of the Board of Directors
Our board of directors has carefully considered each of these proposals and
believes that the approval of these proposals by the shareholders is advisable
and in the best interests of our company and our shareholders. Our board of
directors unanimously recommends that you vote "FOR" each of these proposals.
10
<PAGE>
Selected Historical Financial Data of Global Crossing
This data is only a summary and you should read it together with the
financial information we include elsewhere in this proxy statement or that we
incorporate by reference in this proxy statement. For copies of the financial
information we incorporate by reference, see "Where You Can Find More
Information" on page 109.
Recent Financial Accounting Developments
During the third and fourth quarters of 1999, changes in Global Crossing's
business activities, together with a newly effective accounting standard,
caused Global Crossing to modify some of its practices regarding recognition of
revenue and costs related to sales of capacity. None of the accounting
practices described below affect its cash flows.
As a result of Financial Accounting Standards Board (FASB) Interpretation No.
43, "Real Estate Sales, an interpretation of FASB Statement No. 66" (FIN 43),
which became effective July 1, 1999, Global Crossing has accounted for revenue
from terrestrial circuits sold after that date as operating leases and has
amortized that revenue over the terms of the related contracts. Previously, it
had recognized these sales as current revenue upon activation of the circuits.
This deferral in revenue recognition has no impact on cash flow.
With the consummation of the Frontier acquisition on September 28, 1999,
service offerings became a significant source of Global Crossing's revenue.
Consequently, Global Crossing initiated service contract accounting for its
subsea systems during the fourth quarter, because it, since that date, no
longer holds subsea capacity exclusively for sale. As a result, since the
beginning of the fourth quarter, Global Crossing has depreciated investments in
both subsea and terrestrial systems over their remaining economic lives and has
recognized revenue related to service contracts over the terms of the
contracts. Global Crossing has recognized revenue and costs related to the sale
of subsea circuits upon activation, if the criteria of sales-type lease
accounting have been satisfied with respect to those circuits.
During the fourth quarter of 1999, Global Crossing's global network service
capabilities were significantly expanded by the activation of several
previously announced systems and by the integration of other networks obtained
through acquisition and joint venture agreements. With this network expansion,
Global Crossing began offering its customers flexible bandwidth products to
multiple destinations, which makes the historical practice of fixed, point-to-
point routing of traffic and restoration capacity both impractical and
inefficient. To ensure the required network flexibility, Global Crossing will
modify its future capacity purchase agreements and its network management in a
manner that precludes the use of sales-type lease accounting.
Because of these contract changes and the network management required to meet
customer demands for flexible bandwidth, multiple destinations and system
performance, Global Crossing anticipates that most of the contracts for subsea
circuits entered into after January 1, 2000 will be part of a service offering
and, therefore, will not meet the criteria of sales-type lease accounting and
will be accounted for as operating leases. Consequently, Global Crossing will
defer revenue related to those circuits and amortize it over the appropriate
term of the contract. In certain circumstances, if a contract meets all of the
requirements of sales-type lease accounting, Global Crossing will recognize
revenue without deferral upon payment and activation.
Global Crossing notes that accounting practice and authoritative guidance
regarding the applicability of sales-type lease accounting to the sale of
capacity is still evolving. Based on the accounting practices described above,
Global Crossing believes that additional changes, if any, in accounting
practice or authoritative guidance affecting sales of capacity would have
little or no impact on its results of operations.
11
<PAGE>
Selected historical financial data
The table below shows selected historical financial data for Global Crossing.
This data has been prepared using the consolidated financial statements of
Global Crossing as of the dates indicated and for each of the years ended
December 31, 1999 and 1998 and for the period from March 19, 1997 (Date of
Inception) to December 31, 1997.
In reading the following selected historical financial data, please note the
following:
. The statement of operations data for the year ended December 31, 1999
includes the results of Global Marine Systems for the period from July
2, 1999, date of acquisition, through December 31, 1999; the results of
Frontier Corporation for the period from September 30, 1999, date of
acquisition, through December 31,1999; and the results of Racal Telecom
for the period from November 24, 1999, date of acquisition, through
December 31, 1999. The Consolidated Balance Sheet as of December 31,
1999 includes amounts related to Global Marine Systems, Frontier and
Racal Telecom. This data should be read in conjunction with the pro
forma financial information of Global Crossing and notes incorporated by
reference into this proxy statement.
. During the year ended December 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 years ended December 31, 1999 and 1998, Global Crossing
recognized $51 million and $39 million, respectively, 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.
See the "Stock-related expense" item in the Statement of Operations
Data.
. On December 15, 1999, Global Crossing issued 2,600,000 shares of 7%
cumulative convertible preferred stock at a liquidation preference of
$250.00 for net proceeds of $630 million. Each share of preferred stock
is convertible into 4.6948 shares of common stock (or, if the tracking
stock proposal is approved and the proposed offering of GlobalCenter
group stock is completed, 4.6948 shares of Global Crossing group stock)
based on a conversion price of $53.25. Dividends on the preferred stock
are cumulative from the date of issue and will be payable on February 1,
May 1, August 1 and November 1 of each year, beginning on February 1,
2000, at the annual rate of 7%.
. On November 24, 1999, we completed our acquisition of Racal Telecom, a
group of wholly owned subsidiaries of Racal Electronics plc, for
approximately $1.6 billion in cash. Racal Telecom owns one of the most
extensive fiber telecommunications networks in the United Kingdom,
consisting of approximately 4,650 route miles of fiber and reaching more
than 2,000 cities and towns.
. On November 12, 1999, Global Crossing Holdings Ltd. ("GCH"), a wholly-
owned subsidiary of Global Crossing, issued two series of senior
unsecured notes ("New Senior Notes"). The 9 1/8% senior notes are due
November 15, 2006 with a face value of $900 million and the 9 1/2%
senior notes are due November 15, 2009 with a face value of $1,100
million. The New Senior Notes are guaranteed by Global Crossing.
Interest will be paid on the notes on May 15 and November 15 of each
year, beginning on May 15, 2000.
. On November 5, 1999, Global Crossing issued 10,000,000 shares of 6 3/8%
cumulative convertible preferred stock at a liquidation preference of
$100.00 for net proceeds of approximately $969 million. Each share of
preferred stock is convertible into 2.2222 shares of common stock (or,
if the tracking stock proposal is approved and the proposed offering of
GlobalCenter group stock is completed, 2.2222 shares of Global Crossing
group stock), based on a conversion price of $45.00. Dividends on the
preferred stock are cumulative from the date of issue and will be
payable on February 1, May 1, August 1 and November 1 of each year,
beginning on February 1, 2000, at the annual rate of 6 3/8%.
12
<PAGE>
. On September 28, 1999, we completed the acquisition of Frontier
Corporation in a merger transaction valued at over $10 billion, with
Frontier shareholders receiving 2.05 shares of our common stock for each
share of Frontier common stock held. Frontier is one of the largest long
distance telecommunications companies in the United States and one of
the leading providers of facilities-based integrated communications and
Internet services.
. On July 2, 1999, we completed our acquisition of the Global Marine
Systems division of Cable & Wireless Plc for approximately $908 million
in cash and assumed liabilities. Global Marine Systems owns the largest
fleet of cable laying and maintenance vessels in the world and currently
services more than a third of the world's undersea cable miles.
. On May 16, 1999, Global Crossing entered into a definitive agreement to
merge with U S WEST, Inc. On July 18, 1999, Global Crossing and U S WEST
agreed to terminate their merger agreement, and U S WEST agreed to merge
with Qwest Communications International Inc. As a result, U S WEST paid
Global Crossing a termination fee of $140 million in cash and returned
2,231,076 shares of Global Crossing common stock purchased in a related
tender offer, and Qwest committed to purchase capacity on the Global
Crossing network at established market unit prices for delivery over the
next four years and committed to make purchase price payments to Global
Crossing for this capacity of $140 million over the next two years.
During the year ended December 31, 1999, Global Crossing recognized $210
million, net of merger related expenses, of other income in connection
with the termination of the U S WEST merger agreement.
. The "Termination of advisory services agreement" item in the Statements
of Operations Data includes a charge for the termination of the advisory
services agreement as of June 30, 1998. Global Crossing acquired the
rights from those entitled to fees payable under the advisory services
agreement in consideration of the issuance of Global Crossing 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.
. 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 originally allocated to
"Construction in progress" in the amount of $112 million and as
"Investment in and advances to/from affiliates" in the amount of $163
million. See the "Property and equipment" item in the Balance Sheet
Data. The "Investment in and advance to/from affiliates" item in the
Balance Sheet Data includes $163 million as of December 31, 1999 and
1998, respectively, representing the value of the warrants described in
the bullet point immediately above applicable to the Pacific Crossing
system.
. Adjusted EBITDA is defined as operating income (loss), plus goodwill
amortization, depreciation and amortization, non-cash cost of capacity
sold, stock related expenses, incremental cash deferred revenue and
amounts relating to the termination of the advisory services agreement.
This definition is consistent with financial covenants contained in
Global Crossing's major financial agreements. This information should
not be considered as an alternative to any measure of performance as
promulgated under GAAP. Global Crossing's calculation of adjusted EBITDA
may be different from the calculation used by other companies and,
therefore, comparability may be limited.
13
<PAGE>
The selected consolidated financial data as of December 31, 1997, 1998 and
1999, for the period from March 19, 1997 (Date of Inception) to December 31,
1997, and for the years ended December 31, 1998 and 1999, respectively, are
derived from our audited consolidated financial statements and should be read
in conjunction with the audited consolidated financial statements and notes
incorporated by reference into this proxy statement.
<TABLE>
<CAPTION>
Period from
March 19, 1997
(Date of Inception) Year Ended Year Ended
to December 31, 1997 December 31, 1998 December 31, 1999
-------------------- ----------------- -----------------
(in thousands, except share and per share information)
<S> <C> <C> <C>
Statement of Operations
Data:
Revenues................ -- $ 419,866 $ 1,664,824
----------- ----------- -----------
Expenses:
Cost of sales.......... -- 178,492 850,483
Operations,
administration and
maintenance........... -- 18,056 133,202
Sales and marketing.... 1,366 26,194 149,119
Network development.... 78 10,962 26,153
General and
administrative........ 1,618 26,303 210,107
Stock related expense.. -- 39,374 51,306
Depreciation and
amortization.......... 39 541 124,294
Goodwill and
intangibles
amortization.......... -- -- 127,621
Termination of advisory
services agreement.... -- 139,669 --
----------- ----------- -----------
3,101 439,591 1,672,285
----------- ----------- -----------
Operating loss.......... (3,101) (19,725) (7,461)
Equity in income (loss)
of affiliates.......... -- (2,508) 15,708
Minority interest....... -- -- (1,338)
Other income (expense):
Interest income........ 2,941 29,986 67,407
Interest expense....... -- (42,880) (139,077)
Other expense, net..... -- -- 180,765
Provision for income
taxes.................. -- (33,067) (126,539)
----------- ----------- -----------
Loss before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (160) (68,194) (10,535)
Extraordinary loss on
retirement of debt..... -- (19,709) (45,681)
----------- ----------- -----------
Loss before cumulative
effect of change in
accounting principle... (160) (87,903) (56,216)
Cumulative effect of
change in accounting
principle, net of
income tax benefit of
$1,400................. -- -- (14,710)
----------- ----------- -----------
Net loss................ (160) (87,903) (70,926)
Preferred stock
dividends.............. (12,690) (12,681) (66,642)
Repurchase of preferred
stock.................. -- (34,140) --
----------- ----------- -----------
Net loss applicable to
common shareholders.... $ (12,850) $ (134,724) $ (137,568)
=========== =========== ===========
Net Loss per Common
Share:
Loss applicable to
common shareholders
before extraordinary
item and cumulative
effect of change in
accounting principle
Basic and diluted...... $ (0.04) $ (0.32) $ (0.15)
=========== =========== ===========
Extraordinary item
Basic and diluted...... $ -- $ (0.06) $ (0.09)
=========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and diluted...... $ -- $ -- $ (0.03)
=========== =========== ===========
Net loss applicable to
common shareholders
Basic and diluted...... $ (0.04) $ (0.38) $ (0.27)
=========== =========== ===========
Shares used in computing
basic and diluted loss
per share.............. 325,773,934 358,735,340 502,400,851
=========== =========== ===========
Operating Data:
Cash from operating
activities............. $ 5,121 $ 208,727 $ 506,084
Cash used for investing
activities............. (428,743) (430,697) (4,009,977)
Cash used for financing
activities............. 425,075 1,027,110 4,330,799
Adjusted EBITDA......... $ 343,233 $ 364,948 $ 708,181
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1998 1999
-------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Current assets including cash and cash
equivalents and restricted cash and cash
equivalents................................ $ 27,744 $ 976,615 $ 2,946,533
Long term restricted cash and cash
equivalents................................ -- 367,600 138,118
Long term accounts receivable............... -- 43,315 52,052
Capacity available for sale................. -- 574,849 --
Property and equipment, net................. 518,519 433,707 6,026,053
Other assets................................ 25,934 65,757 661,442
Investments in and advances to/from
affiliates, net............................ -- 177,334 323,960
Goodwill and intangibles, net............... -- -- 9,557,422
-------- ---------- -----------
Total assets............................... $572,197 $2,639,177 $19,705,580
======== ========== ===========
Current liabilities......................... $ 90,817 $ 256,265 $ 1,852,593
Long term debt.............................. 312,325 1,066,093 5,018,544
Deferred revenue............................ -- 25,325 383,287
Deferred credits and other.................. 3,009 34,174 796,606
-------- ---------- -----------
Total liabilities........................... 406,151 1,381,857 8,051,030
Minority interest........................... -- -- 351,338
Mandatorily repurchaseable and cumulative
convertible preferred stock................ 91,925 483,000 2,084,697
Shareholders' equity:
Common stock............................... 3,258 4,328 7,992
Treasury stock............................. -- (209,415) (209,415)
Other shareholders' equity................. 71,023 1,067,470 9,578,927
Accumulated deficit........................ (160) (88,063) (158,989)
-------- ---------- -----------
Total shareholders' equity.................. 74,121 774,320 9,218,515
-------- ---------- -----------
Total liabilities and shareholders' equity.. $572,197 $2,639,177 $19,705,580
======== ========== ===========
</TABLE>
15
<PAGE>
Selected Historical and Pro Forma Combined
Financial Data of the GlobalCenter Group
The table below provides selected historical combined financial data of the
GlobalCenter group. We prepared this information using the historical combined
financial data from the GlobalCenter group's combined financial statements at
and for the nine-month period ended September 30, 1999, the three-month period
ended December 31, 1999 and each of the years in the two-year period ending
December 31, 1998 included elsewhere in this proxy statement. The balance sheet
data as of December 31, 1997 is derived from the audited combined financial
statements not included in this proxy statement. We derived the combined
statement of operations and the assets and liabilities data below from combined
financial statements audited by Arthur Andersen, independent public
accountants.
GlobalCenter Inc. was acquired by Frontier Corporation in February 1998 in a
pooling-of-interests transaction. On September 28, 1999, Global Crossing Ltd.
acquired Frontier Corporation in a merger transaction. A subsidiary of Frontier
Corporation was the owner of substantially all of the assets of the
GlobalCenter group. For financial reporting purposes, the merger of Global
Crossing Ltd. and Frontier Corporation was deemed to have occurred on September
30, 1999. In connection with the merger, the assets and liabilities of the
GlobalCenter group were adjusted to their respective fair values under the
purchase method of accounting. We have included the assets and liabilities of
the GlobalCenter group and the related consolidated results of operations for
periods prior to October 1, 1999 under the heading "Old GlobalCenter," and for
periods subsequent to September 30, 1999 under the heading "New GlobalCenter."
The fair value adjustments to the GlobalCenter group's assets and liabilities
from the merger, including goodwill and other intangibles and the associated
amortization, are shown in the New GlobalCenter Statement of Operations Data
and Balance Sheet and Other Data.
The presentation in the "Pro Forma GlobalCenter Group" column provides you
with a basis for comparing the year ended December 31, 1999 to the year ended
December 31, 1998, in the table we have also combined the operating results of
Old GlobalCenter for the nine months ended September 30, 1999 with the
operating results of New GlobalCenter for the three months ended December 31,
1999. This combination excludes any pro forma amortization of goodwill and
intangibles for the nine months ended September 30, 1999. A presentation which
combines predecessor and successor accounting periods does not conform to
generally accepted accounting principles. Depreciation, amortization and
certain other line items included in the operating results, and property,
equipment and goodwill balances included in the balance sheet of the
GlobalCenter group are not directly comparable between periods because the
three-month New GlobalCenter period ended December 31, 1999 includes the
effects of purchase accounting adjustments related to the merger of Global
Crossing Ltd. and Frontier Corporation, while prior periods do not. For this
and other reasons, the selected combined historical financial data provided
below should be read in conjunction with the Combined Financial Statements of
the GlobalCenter group and related notes which appear elsewhere in this proxy
statement and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the GlobalCenter Group" which appears elsewhere in
this proxy statement.
16
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
New GlobalCenter
Old GlobalCenter GlobalCenter Group
-------------------------------- ------------ ------------
Year Ended Nine Months Three Months Unaudited
December 31, Ended Ended Year Ended
----------------- September 30, December 31, December 31,
1997 1998 1999 1999 1999
------- -------- ------------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Service revenues...... $ 6,511 $ 19,600 $ 29,951 $ 17,753 $ 47,704
Equipment revenues.... 1,228 3,640 17,228 5,971 23,199
------- -------- -------- -------- --------
Total revenues...... 7,739 23,240 47,179 23,724 70,903
Costs and expenses:
Cost of service
revenues............. 5,257 14,804 36,451 17,328 53,779
Cost of equipment
revenues............. 995 3,208 15,573 5,365 20,938
Sales and marketing... 1,966 8,948 9,531 6,088 15,619
General and
administrative....... 2,044 4,694 6,897 3,067 9,964
Depreciation and
amortization......... 912 4,023 4,242 1,913 6,155
Goodwill and
intangibles
amortization......... 325 1,294 974 37,135 38,109
Merger costs.......... -- 2,060 -- -- --
------- -------- -------- -------- --------
11,499 39,031 73,668 70,896 144,564
------- -------- -------- -------- --------
Loss from operations.... (3,760) (15,791) (26,489) (47,172) (73,661)
Other income (expense),
net.................... 45 55 (44) 114 70
------- -------- -------- -------- --------
Loss before income
taxes.................. (3,715) (15,736) (26,533) (47,058) (73,591)
Income tax benefit...... 941 4,911 9,742 4,333 14,075
------- -------- -------- -------- --------
Net loss................ $(2,774) $(10,825) $(16,791) $(42,725) $(59,516)
======= ======== ======== ======== ========
Operating Data:
Cash used in operating
activities............. $ 3,147 $ 5,752 $ 10,057 $ 2,545 $ 12,602
Cash used in investing
activities............. 1,285 28,978 20,871 68,397 89,268
Cash from financing
activities............. $ 1,847 $ 34,238 $ 30,928 $ 70,942 $101,870
</TABLE>
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
----------------- ----------------
As of December 31,
----------------------------------
1997 1998 1999
-------- -------- ----------------
(dollars in thousands)
<S> <C> <C> <C>
Balance Sheet and Other Data:
Goodwill and intangibles, net................ $ 8,764 $ 7,470 $1,488,265
Total assets................................. 18,172 48,021 1,596,083
Total liabilities............................ 8,221 12,084 65,938
Group equity................................. 9,951 35,937 1,530,145
Total liabilities and group equity........... $ 18,172 $ 48,021 $1,596,083
Number of data centers....................... 2 6 8
Data center gross square footage............. 23,000 72,000 235,000
</TABLE>
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<PAGE>
Selected Pro Forma Financial and Operating Data of the Global Crossing Group
The following unaudited pro forma condensed combined financial information of
the Global Crossing group has been prepared to demonstrate how this group might
have looked if (1) the Global Marine Systems acquisition and related financing,
(2) the Frontier acquisition, (3) the Racal Telecom acquisition and related
financing, (4) the Hutchison Global Crossing joint venture, including the
related issuance of the 6 3/8% cumulative convertible preferred stock, series
B, of Global Crossing, (5) the offering of our 6 3/8% cumulative convertible
preferred stock completed on November 5, 1999, (6) the offering of the 9 1/8%
senior notes due 2006 and 9 1/2% senior notes due 2009 of Global Crossing
Holdings completed on November 19, 1999, (7) the offering of our 7% cumulative
convertible preferred stock completed on December 15, 1999 and (8) the tracking
stock proposal had been completed as of the date or at the beginning of the
period presented. This pro forma information does not give effect to (a) the
$350 million cash received in connection with the formation of the Asia Global
Crossing joint venture, (b) the IPC and IXnet mergers or (c) the sale of 4
million shares of our 6 3/4% cumulative convertible preferred stock and
21,673,706 shares of our common stock completed on April 14, 2000.
The pro forma information, while helpful in illustrating the financial
characteristics of the Global Crossing group, does not attempt to predict or
suggest future results. The pro forma information also does not attempt to show
how the Global Crossing group would actually have performed had the
GlobalCenter group been in existence throughout these periods. If the
GlobalCenter group had actually been in existence in prior periods, the Global
Crossing group 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 these transactions had taken place earlier or the future
results that the Global Crossing group will experience after completion of
these transactions.
You should read these unaudited pro forma condensed combined financial
statements in conjunction with the historical financial statements of Global
Crossing, Global Marine Systems, Frontier, Racal Telecom and HCL Holdings, and
related Global Crossing Pro Forma Information, each of which are incorporated
by reference in this proxy statement.
18
<PAGE>
Pro Forma Global Crossing Group
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Global
Crossing
Group
Pro Forma
-----------
<S> <C>
ASSETS
Current Assets:
Cash, restricted cash and
investments.............. $ 1,676,793
Accounts receivable,
net...................... 948,162
Other assets and prepaid
costs.................... 239,073
-----------
Total Current Assets.... 2,864,028
Restricted cash and cash
equivalents............... 138,118
Accounts receivable........ 52,052
Property and equipment,
net....................... 5,826,940
Goodwill and other
intangibles, net.......... 8,109,157
Investment in and advances
to/from affiliates, net... 862,760
Other assets, net.......... 661,442
-----------
Total Assets............ $18,514,497
===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued construction
costs.................... $ 275,361
Accounts payable and
accrued liabilities...... 921,734
Accrued interest and
preferred dividends...... 66,745
Deferred revenue.......... 127,367
Income taxes payable...... 140,034
Current portion of long
term debt................ 5,496
Other current
liabilities.............. 283,922
-----------
Total Current
Liabilities............ 1,820,659
Long term debt............ 5,018,350
Deferred revenue.......... 383,287
Deferred credits and
other.................... 767,796
-----------
Total Liabilities....... 7,990,092
-----------
MINORITY INTEREST.......... 351,338
-----------
MANDATORILY REDEEMABLE AND
CUMULATIVE CONVERTIBLE
PREFERRED STOCK:
10 1/2% Mandatorily
Redeemable Preferred
Stock.................... 485,947
-----------
6 3/8% Cumulative
Convertible Preferred
Stock.................... 1,369,000
-----------
7% Cumulative Convertible
Preferred Stock.......... 629,750
-----------
SHAREHOLDERS' EQUITY:
Common stock.............. 7,992
Treasury stock............ (209,415)
Other shareholders'
equity................... 8,048,782
Accumulated deficit....... (158,989)
-----------
7,688,370
-----------
Total Liabilities and
Shareholders' Equity... $18,514,497
===========
</TABLE>
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<PAGE>
Pro Forma Global Crossing Group
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Year Ended December 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Global Crossing Group
Pro Forma
---------------------
<S> <C>
Operating Revenues....................................... $ 4,068,994
-----------
Operating Expenses:
Operating, selling, general and administrative......... 3,233,605
Stock-related expense.................................. 51,306
Merger Expenses........................................ 99,119
Depreciation and amortization.......................... 357,272
Goodwill and intangibles amortization.................. 358,388
-----------
4,099,690
-----------
Operating income (loss).................................. (30,696)
Equity in income (loss) of affiliates.................... (143)
Minority interest........................................ (1,338)
Other income (expense):
Interest expense....................................... (495,695)
Interest income........................................ 76,528
Other income (expenses)................................ 178,861
-----------
Income (loss) before provision for income taxes,
extraordinary item and cumulative effect of change in
accounting principle.................................... (272,483)
(Provision) benefit for income taxes................... (176,449)
-----------
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle................ (448,932)
Preferred stock dividends............................... (201,107)
-----------
Income (loss) applicable to common shareholders before
extraordinary item and cumulative effect of change in
accounting principle.................................... (650,039)
Diluted earnings adjustment............................. --
-----------
Income (loss) applicable to common shareholders before
extrarodinary item and cumulative effect of change in
accounting principle (Diluted).......................... $ (650,039)
===========
Income (loss) per common share:
Income (loss) applicable to common shareholders before
extraordinary item and cumulative effect of change in
accounting principle
Basic and diluted..................................... $ (0.85)
===========
Shares used in computing information applicable to
common shareholders
Basic and diluted..................................... 767,355,151
===========
</TABLE>
20
<PAGE>
RISK FACTORS
You should carefully consider the following risks and other information
contained in this proxy statement before deciding to vote in favor of the
proposals.
Risks Relating to a Capital Structure with Two or More Separate Classes of
Common Stock
You will remain shareholders of one company and, therefore, financial effects
from one group could adversely affect the other.
The holders of Global Crossing group stock and the holders of GlobalCenter
group stock will be shareholders of a single company. The Global Crossing group
and the GlobalCenter group will not be separate legal entities. As a result,
shareholders will be subject to all of the risks of an investment in Global
Crossing and all of our businesses, assets and liabilities. The issuance of
Global Crossing group stock and GlobalCenter group stock and the allocation of
assets and liabilities and shareholders' equity between the Global Crossing
group and the GlobalCenter group will not result in a distribution or spin-off
to shareholders of any of our assets or liabilities and will not affect
ownership of our assets or responsibility for our liabilities or those of our
subsidiaries. The assets we attribute to one group could be subject to the
liabilities of the other group, even if those liabilities arise from lawsuits,
contracts or indebtedness that we attribute to the other group. If we are
unable to satisfy one group's liabilities out of the assets we attribute to it,
we may be required to satisfy those liabilities with assets we have attributed
to the other group.
Financial effects arising from one group that affect Global Crossing's
consolidated results of operations or financial condition could, if
significant, affect the results of operations or financial condition of the
other group or the market price of the stock relating to the other group. In
addition, if Global Crossing or any of its subsidiaries were to incur
significant indebtedness on behalf of one group, including indebtedness
incurred or assumed in connection with an acquisition or investment, it could
affect the credit rating of Global Crossing and its subsidiaries. This, in
turn, could increase the borrowing costs of the other group and Global Crossing
as a whole. Net losses of either the Global Crossing group or the GlobalCenter
group and dividends and distributions on shares of Global Crossing group stock
or GlobalCenter group stock will reduce the funds available to pay dividends or
other distributions on each class of stock under Bermuda law. For these
reasons, you should read our consolidated financial information incorporated by
reference in this proxy statement with the combined financial information we
provide for each group included in this proxy statement.
Holders of Global Crossing group stock and GlobalCenter group stock will have
shareholder rights specific to their group only in limited circumstances.
The holders of Global Crossing group stock and the holders of GlobalCenter
group stock generally will not have shareholder rights specific to their
corresponding groups. Instead, holders will have customary shareholder rights
relating to Global Crossing as a whole. For example, the holders of Global
Crossing group stock and the holders GlobalCenter group stock will vote
together as a single class to approve a sale of all or substantially all of the
assets of Global Crossing. The holders of Global Crossing group stock and the
holders of GlobalCenter group stock will only have the following rights with
respect to their particular group:
. a right to a dividend, repurchase or conversion if the sale of all or
substantially all of the assets of their group occurs; and
. a right to vote on matters as a separate class in the circumstances
described under "The Tracking Stock Proposal--Description of Global
Crossing group stock and GlobalCenter group stock--Voting rights."
In addition, the holders of GlobalCenter group stock will not have any voting
rights with respect to the election of the board of directors of GlobalCenter
Inc.
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<PAGE>
Limits exist on the voting power of Global Crossing group stock and
GlobalCenter group stock.
. In circumstances where the two classes of stock vote together as a
single voting group, holders of GlobalCenter group stock will not be
able to control the outcome of shareholder voting.
The holders of Global Crossing group stock, to the extent they vote in a
similar manner, could control the outcome of a vote--even if the matter
involves a divergence or conflict of the interests of the holders of Global
Crossing group stock and the holders of GlobalCenter group stock. These matters
may include mergers and other extraordinary transactions. This control results
because the multiple classes of stock will generally vote as a single class,
except in limited circumstances requiring a vote of the holders of a single
class of common stock voting as a separate class.
We expect that Global Crossing group stock will have a substantial majority
of the combined voting power of Global Crossing group stock and GlobalCenter
group stock because:
--the relative voting power per share of Global Crossing group stock and
GlobalCenter group stock is based on the relative market values per share
of the two classes of stock and we expect that initially Global Crossing
group stock will have a substantially larger market value than
GlobalCenter group stock, in part because of its continuing inter-group
interest in the GlobalCenter group; and
--the aggregate voting power of all outstanding shares of GlobalCenter
group stock is limited to 25% of the total voting power of all
outstanding shares of Global Crossing common stock, regardless of the
market value of GlobalCenter group stock.
As a result, the shareholders that own only GlobalCenter group stock cannot
ensure that their voting power will be sufficient to protect their interests.
. In circumstances where holders of GlobalCenter group stock would hold
more than 25% of the total voting power of all outstanding shares of
common stock of Global Crossing, the voting power of each share of
GlobalCenter group stock will be reduced.
The total voting power of the holders of GlobalCenter group stock could
increase as a result of:
--the issuance of shares of GlobalCenter group stock;
--an increase in average market value of outstanding GlobalCenter group
stock relative to Global Crossing group stock;
--the repurchase of shares of Global Crossing group stock; or
--a decrease in average market value of outstanding Global Crossing group
stock relative to GlobalCenter group stock.
However, in circumstances where holders of GlobalCenter group stock would
otherwise hold more than 25% of the total voting power of all outstanding
shares of common stock of Global Crossing, the voting power of each share of
GlobalCenter group stock will be reduced so that all outstanding shares of
GlobalCenter group stock represent only 25% of the total voting power of all
outstanding shares of Global Crossing common stock.
Our intended disposition of the Global Crossing group's inter-group interest
in the GlobalCenter group and any issuance of additional shares of GlobalCenter
group stock for strategic investments, in acquisitions and other transactions
could cause reductions in the voting power of each share of GlobalCenter group
stock. As a result of any reduction, the holders of Global Crossing group stock
and the holders of GlobalCenter group stock would hold voting power in Global
Crossing that is not consistent with their relative economic interests in
Global Crossing.
. In circumstances where a separate class vote is required, the
GlobalCenter group stock can block action.
22
<PAGE>
If Bermuda law, Nasdaq listing rules or our board of directors requires a
separate vote on a matter by the holders of GlobalCenter group stock, or in the
case of any proposal to increase or decrease the authorized shares of
GlobalCenter group stock or to amend the terms of that class where a separate
vote of holders of that class is required, those holders could prevent approval
of the matter--even if the holders of a majority of the total number of votes
cast or entitled to be cast, voting together as one class, were to vote in
favor of it.
. Holders of one group's stock will not be entitled to vote on a sale of
the assets attributed to that group, except in limited circumstances.
Assuming the assets attributed to either group represent less than
substantially all of the assets of Global Crossing as a whole, our board of
directors could, in its sole discretion and without shareholder approval,
approve sales and other dispositions of any amount, including all or
substantially all of the properties and assets attributed to that group,
because Bermuda law requires shareholder approval only for a sale or other
disposition of all or substantially all of the assets of the entire company. In
exercising its discretion, our board of directors is not required to select the
option that would result in the distribution with the highest value to the
holders of stock of the group whose assets are being sold or with the smallest
effect on the stock of the other group.
In addition, under Bermuda law, our board of directors could decline to sell
the assets of a group, despite the request of a majority of the holders of the
stock of that group.
Potential conflicts of interest exist between Global Crossing group stock and
GlobalCenter group stock that may be difficult to resolve by our board of
directors or that may be resolved adversely to one of the classes.
The existence of separate classes of our common stock could give rise to
occasions when the interests of the holders of Global Crossing group stock and
the holders of GlobalCenter group stock diverge, conflict or appear to diverge
or conflict.
. Operational and financial decisions could favor one group over the
other.
Our board of directors could in its sole discretion, from time to time, make
operational and financial decisions or implement policies that affect
disproportionately the businesses of a group. These decisions could include:
--allocation of financing opportunities in the public markets;
--allocation of business opportunities, resources and personnel, and
whether and to what extent the groups compete with each other; and
--transfers of funds or assets between groups and other inter-group
transactions.
In each case, the opportunities or resources allocated, or services, funds or
assets transferred, to one group may be equally suitable for the other group.
Furthermore, any such decision may benefit one group more than the other. For
example, the decision to obtain funds for one group may adversely affect the
ability of the other group to obtain funds sufficient to implement its growth
strategy or may increase the cost of those funds.
. Proceeds of the issuance of GlobalCenter group stock could be allocated
either to the Global Crossing group, to the extent the Global Crossing
group holds an inter-group interest in the GlobalCenter group, or the
GlobalCenter group.
To the extent the Global Crossing group holds an inter-group interest in the
GlobalCenter group, our board of directors could choose to sell shares of
GlobalCenter group stock issuable with respect to the Global Crossing group's
inter-group interest in the GlobalCenter group. In that event, our board of
directors would allocate the proceeds of the offering of those shares of
GlobalCenter group stock to the Global Crossing group. Any such decision to
sell shares issuable with respect to the Global Crossing group's inter-group
interest could
23
<PAGE>
disadvantage the GlobalCenter group because it could adversely affect its
ability to obtain funds to finance its growth strategies. Conversely, our board
of directors could choose to sell shares of GlobalCenter group stock not
issuable with respect to the Global Crossing group's inter-group interest in
the GlobalCenter group. In that event, our board of directors would allocate
the proceeds of the offering of those shares of GlobalCenter group stock to the
GlobalCenter group. Any such decision to sell shares not issuable with respect
to the Global Crossing group's inter-group interest could disadvantage the
Global Crossing group because it could adversely affect its ability to
implement its key business strategies.
. Consideration received in mergers or consolidations may be allocated
unfavorably.
Because our bye-laws do not specify how consideration to be received in a
merger or consolidation involving Global Crossing will be allocated between the
holders of Global Crossing group stock and the holders of GlobalCenter group
stock, our board of directors will make that determination. That determination
could favor the holders of one group's stock at the expense of the holders of
other group's stock.
. Our board of directors may pay more or less dividends on one group's
stock than if that group were a separate company.
Subject to the limitations referred to below, our board of directors has the
authority to declare and pay dividends on Global Crossing group stock and
GlobalCenter group stock in any legal amount. Our board of directors could, in
its sole discretion, declare and pay dividends exclusively on Global Crossing
group stock, exclusively on GlobalCenter group stock, or on both, in equal or
unequal amounts. While we historically have not paid dividends on our common
stock, our board of directors could pay more dividends on one group's stock
than would be financially prudent if that group were a stand-alone corporation.
Our board of directors is not required to consider the relative available
distribution amount for each class, the amount of dividends previously declared
on each class or the respective voting or liquidation rights of each class. In
addition, Bermuda law and our bye-laws impose limitations on the amount of
dividends which may be paid on each class of stock. For additional information
on these limitations, see "The Tracking Stock Proposal--Description of Global
Crossing group stock and GlobalCenter group stock--Dividends."
. Holders of either class of stock may be adversely affected by an
optional conversion of one group's stock into the other group's stock.
Our board of directors could, in its sole discretion and without shareholder
approval, determine to convert shares of Global Crossing group stock into
shares of GlobalCenter group stock, or vice versa, so long as the market
capitalization of the class of common stock being issued in the conversion
exceeds the market capitalization of the class of common stock being converted.
Because certain conversions would be at a premium when either or both classes
of stock may be considered to be under- or over-valued, any conversion may be
disadvantageous to the holders of one class of stock. It could dilute the
interests in Global Crossing of the holders of the class of stock being issued
in the conversion. It also would preclude the holders of the class of stock
being converted from retaining their investment in a security that is intended
to reflect separately the performance of the assets held by that group. It also
might give the holders of the class of stock being converted a lesser premium
than any premium that might be paid by a third-party buyer of all or
substantially all of the assets of that group. For additional information on
the terms and conditions of a conversion of one stock into the other, see "The
Tracking Stock Proposal--Description of Global Crossing group stock and
GlobalCenter group stock--Conversion and repurchase--Conversion of common stock
at option of Global Crossing at any time."
Our board of directors will have the ability to control transfers of funds or
other assets between the Global Crossing group and the GlobalCenter group.
Our board of directors may decide to transfer cash or other assets between
groups, which may result in:
. a corresponding change in the Global Crossing group's inter-group
interest in the GlobalCenter group; or
24
<PAGE>
. a loan, or repayment of a loan, from one group to the other group,
subject to the terms of our tracking stock policy statement.
Any increase in the inter-group interest resulting from an equity
contribution by the Global Crossing group to the GlobalCenter group, or any
decrease in the inter-group interest resulting from a transfer of funds from
the GlobalCenter group to the Global Crossing group, would be determined by
reference to the then-current market value of GlobalCenter group stock. Such an
increase or decrease, however, could occur at a time when such shares are
considered under- or over-valued. After the Global Crossing group's inter-group
interest in the GlobalCenter group has been eliminated, the GlobalCenter group
could acquire an inter-group interest in the Global Crossing group. In that
case, similar considerations would apply to transfers made between the groups.
Under our tracking stock policy statement, either the Global Crossing group
or the GlobalCenter group may make loans to the other group at the weighted
average interest rate of the consolidated indebtedness of Global Crossing Ltd.
and on such other terms and conditions as the board of directors of Global
Crossing or its Capital Stock Committee determines to be in the best interests
of Global Crossing. Our tracking stock policy statement contemplates that loans
from one group to the other group will be made on this basis regardless of the
interest rates, terms and conditions on which those funds may have been
acquired.
Holders of Global Crossing group stock and GlobalCenter group stock may not
have any remedies if any action by directors and officers has a disadvantageous
effect on the stock of their group.
Shareholders may not have any remedies if any action or decision of our
directors or officers has a disadvantageous effect on the holders of one class
of stock compared to the holders other class of stock. Although we are not
aware of any Bermuda court adjudicating such an action in the context of our
anticipated capital structure, recent cases in Delaware involving tracking
stocks have indicated that decisions by directors or officers involving
treatment of tracking stock shareholders should be judged under the business
judgment rule unless self-interest is shown. The business judgment rule
provides that a director or officer will be deemed to have satisfied his or her
fiduciary duties to Global Crossing if that person acts in a manner he or she
believes in good faith to be in the best interests of Global Crossing.
Nevertheless, a Bermuda court hearing a case involving such a challenge may
decide to apply principles of Bermuda law different from the principles of
Delaware law discussed above, or may develop new principles of law, in order to
decide such a case.
Stock ownership could cause directors and officers to favor one group over the
other.
Because the actual value of the ownership interests of Global Crossing's
directors and officers' interests in the Global Crossing group stock and the
GlobalCenter group stock is anticipated to vary significantly, it is possible
that they could favor one group over the other due to their stock and other
benefits.
Our Chairman and Chief Executive Officer, Leo Hindery, is also Chief
Executive Officer of GlobalCenter Inc. Mr. Hindery may make operational
decisions that affect disproportionately the business of a group. Mr. Hindery
owns options to purchase 2,500,000 shares of Global Crossing group stock and
shares of GlobalCenter group stock.
Our board of directors may change or make exceptions to our board policy
statement without shareholder approval to the detriment of one group.
Our board of directors intends to adopt the board policy statement that we
describe in this proxy statement under "Relationship Between the Global
Crossing Group and the GlobalCenter Group" to govern the relationship between
the Global Crossing group and the GlobalCenter group. Our board of directors
may modify or rescind the policies set forth in the board policy statement with
respect to the allocation of corporate opportunities, financing arrangements,
corporate overhead, taxes, debt, interest and other matters, or may adopt
additional policies, in its sole discretion without shareholder approval. It
could also make exceptions with respect to their application depending on
particular facts and circumstances. It is likely that our board of
25
<PAGE>
directors would amend these policies or adopt new policies if it decides to
issue additional classes of common stock. A decision to modify or rescind these
policies, or adopt additional policies, could have different effects on the
holders of Global Crossing group stock and the holders of GlobalCenter group
stock or could adversely affect the holders of one class of stock relative to
the holders of the other classes of stock.
Decisions by directors and officers that affect market values could adversely
affect voting and conversion rights.
The number of shares of one class of stock issuable upon the conversion of
the other class of stock and the relative voting power per share of each class
of stock will vary depending upon the relative market values of Global Crossing
group stock and GlobalCenter group stock, subject to the 25% voting power limit
on GlobalCenter group stock. The market value of either or both classes of
stock could be adversely affected by market reaction to decisions by our board
of directors or our management that investors perceive to affect differently
one class of stock compared to the other class of stock. These decisions could
involve changes to our board policy statement, transfers of assets between
groups, allocations of corporate opportunities between groups or changes in
dividend policies.
Global Crossing may cause a mandatory spin-off of one group
Global Crossing may declare that all outstanding shares of either class of
stock will be exchanged for shares of one or more qualifying subsidiaries of
Global Crossing. Such an exchange would result in the qualifying subsidiary or
subsidiaries becoming independent of Global Crossing and the holders of the
class of stock exchanged owning shares directly in that subsidiary or those
subsidiaries. If Global Crossing chooses to exchange one class of stock, the
market value of the common stock received in that exchange could be or become
less than the market value of the class of stock exchanged.
Holders of one class of stock may receive less consideration upon a sale of all
or substantially all of the assets attributed to their group than if their
group were a separate company.
The proposed Certificate of Designations provides that if we sell all or
substantially all of the assets of either group, we must, subject to certain
exceptions:
. distribute to the holders of that group's stock by special dividend or
repurchase an amount equal to the net proceeds of the sale; or
. convert the outstanding shares of that group's stock into shares of the
other group's stock based on the average market values of the two
classes of stock at a 20% premium for the first year following the
completion of the proposed offering of GlobalCenter group stock, at a
15% premium during the second year and at a 10% premium thereafter.
If the group whose assets are sold were a separate, independent company and
its shares were acquired by another person, certain costs of that sale,
including corporate level taxes, might not be payable in connection with that
acquisition. As a result, shareholders of the separate, independent company
might receive a greater amount than the net proceeds that would be received by
the holders of the group's stock. In addition, we cannot assure you that the
net proceeds per share of that group's stock will be equal to or more than the
market value per share of that class of stock prior to or after announcement of
a sale. For additional information on the terms and conditions of the mandatory
dividend, repurchase or conversion upon a sale of the assets of a group, see
"The Tracking Stock Proposal--Description of Global Crossing group stock and
GlobalCenter group stock--Conversion and repurchase--Mandatory dividend,
repurchase or conversion of stock if disposition of group assets occurs."
It will not be possible for a third party to acquire the GlobalCenter group
without Global Crossing's consent.
If the GlobalCenter group were a stand-alone entity, any person interested in
acquiring it without negotiation with our management could seek control of the
outstanding stock of that entity by means of a
26
<PAGE>
tender offer or proxy contest. However, because the GlobalCenter group is part
of Global Crossing, a person interested in acquiring only the GlobalCenter
group without negotiation with our management would be required to seek control
of the voting power represented by all of the outstanding capital stock of
Global Crossing entitled to vote on that acquisition, including the Global
Crossing group stock. This may discourage potential interested bidders from
seeking to acquire either group.
In the future, we may issue additional classes of common stock, without
shareholder approval, including by reallocating assets and liabilities from an
existing group to a new group.
The tracking stock proposal will permit our board of directors to authorize
the issuance of shares of one or more classes of common stock in addition to
Global Crossing group stock and GlobalCenter group stock. If approved, our
board of directors will have the authority to do so in its sole discretion and
without further shareholder approval, except as may be provided by Bermuda law,
Nasdaq listing rules or the rules of any stock exchange on which any class of
outstanding common stock may then be listed or by the provisions of our bye-
laws as determined by our board of directors.
If we issue additional classes of common stock, we may establish a new group
to which such class of common stock relates by allocating to it newly acquired
assets or by reallocating to it the assets and liabilities from either or both
of the Global Crossing group and the GlobalCenter group. In the latter case,
the group or groups to which those assets and liabilities were previously
attributed would hold an inter-group interest in the new group.
The issuance of additional classes of common stock will make our capital
structure and decisions relating to inter-group transactions and related
matters more complicated. In addition, our board of directors would likely
amend our tracking stock policy statement at that time to provide for the new
group and transactions between it and both the Global Crossing group and the
GlobalCenter group. The new class of stock could be convertible into either
Global Crossing group stock or GlobalCenter group stock, or vice versa, at
premiums determined by our board of directors.
The United States Internal Revenue Service could assert that the receipt of
tracking stock is taxable
While we believe the redesignation of our existing common stock into Global
Crossing group stock will not be taxable to you, there are no court decisions
or other authorities bearing directly on the effect of the features of Global
Crossing group stock and GlobalCenter group stock. In addition, the Internal
Revenue Service has announced that it will not issue rulings on the
characterization of stock with characteristics similar to Global Crossing group
stock and GlobalCenter group stock. It is possible, therefore, that the
Internal Revenue Service could successfully assert that the redesignation of
our existing common stock into Global Crossing group stock as well as the
subsequent conversion of one class of stock into the other could be taxable to
you and to us.
A Clinton Administration proposal could have adverse tax consequences for us or
for holders of Global Crossing group stock or GlobalCenter group stock
The Clinton Administration proposed legislation in February 2000 dealing with
tracking stock such as Global Crossing group stock and GlobalCenter group
stock. This proposal would, among other things, treat the receipt of stock
similar to Global Crossing group stock and GlobalCenter group stock for other
stock in the issuing corporation or in a distribution by the issuing
corporation as taxable to the shareholders. If this proposal is enacted, you
could be subject to tax on your receipt of Global Crossing group stock or, if
we make the proposed distribution, on your receipt of GlobalCenter group stock.
A similar proposal was made in 1999. Congress did not act on the 1999 proposal,
and we cannot predict whether Congress will act upon this proposal or any other
proposal relating to tracking stock.
We may convert shares of Global Crossing group stock or GlobalCenter group
stock into shares of the other class without any premium if there is more than
an insubstantial risk of adverse United States federal income tax law
developments. The proposal of the Clinton Administration would be such an
adverse
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development if it is implemented or results in certain legislative action. See
"The Tracking Stock Proposal--Description of Global Crossing group stock and
GlobalCenter group stock--Conversion and repurchase--Conversion of common stock
at option of Global Crossing at any time" and "--Certain United States federal
income tax consequences."
Provisions governing our common stock could discourage a change of control of
Global Crossing and the payment of a premium for your shares.
Our bye-laws contain provisions that, among other things, (i) limit the total
voting power of any shareholder that beneficially owns more than 9.5% of the
voting power of common stock to 9.5% of the aggregate voting power of all
Global Crossing common stock and (ii) prohibits any transfer of shares of
common stock or any interest in those shares that results in a shareholder
(other than certain existing shareholders) beneficially owning more than 9.5%
of the outstanding shares of common stock, without the approval of a majority
of the members of our board of directors and of a majority of votes cast by
shareholders at a meeting called to approve the transfer. In addition, our bye-
laws provide for a "staggered" board of directors consisting of three classes,
with each class serving for a term of three years. Each of these provisions
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
without approval of our board of directors.
We cannot assure you that the market price of Global Crossing group stock will
equal or exceed the market price of Global Crossing's existing common stock
We cannot assure you that investors will value Global Crossing group stock
and GlobalCenter group stock based on the reported financial results and
prospects of their respective groups or the dividend policies established by
our board of directors with respect to each group.
Further, we cannot assure you that:
. the market value of Global Crossing group stock following the planned
initial public offering of GlobalCenter group stock, but before the
proposed distribution to the holders of Global Crossing group stock of
all of the shares representing the Global Crossing group's ownership of
GlobalCenter group; or
. the combined market value of Global Crossing group stock and
GlobalCenter group stock after the proposed distribution
will equal or exceed the market value of our existing common stock. In
addition, during the period following the planned initial public offering and
before any distribution of GlobalCenter group stock to the holders of Global
Crossing group stock, the market value of GlobalCenter group stock could be
adversely affected by the anticipated distribution. This, in turn, may
adversely impact the market value of Global Crossing group stock. Until an
orderly market develops for GlobalCenter group stock, trading prices of Global
Crossing group stock and GlobalCenter group stock may fluctuate significantly.
In addition, investors may discount the value of Global Crossing group stock
and GlobalCenter group stock because they are part of a common enterprise
rather than stand-alone entities.
Future sales, dispositions and/or issuances of GlobalCenter group stock could
adversely affect its market price and the GlobalCenter group's access to
capital in the future
The market price of GlobalCenter group stock could be materially adversely
affected by any sales, dispositions and/or issuances of substantial amounts of
GlobalCenter group stock in the public market, whether as a result of:
. the planned initial public offering of GlobalCenter group stock;
. the intended disposition of all or part of the shares representing the
Global Crossing group's ownership of the GlobalCenter group; or
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. any issuances of GlobalCenter group stock in acquisitions, for strategic
investments and other transactions;
or the perception that these sales, disposition and/or issuances might occur.
If the market price of GlobalCenter group stock is depressed as a result of
these factors, it could hurt the GlobalCenter group's access to capital in the
future.
The stock price of GlobalCenter group stock may be volatile after the initial
public offering because shares of GlobalCenter group stock have not been
publicly traded.
We cannot assure you that an active market will develop or be sustained
after the proposed initial public offering of GlobalCenter group stock. The
market price after the initial public offering may vary significantly from the
initial offering price in response to any of the following factors, some of
which are beyond the control of the GlobalCenter group:
. variations in the GlobalCenter group's quarterly operating results;
. changes in financial estimates or investment recommendations by
securities analysts relating to GlobalCenter group stock;
. announcements by the GlobalCenter group or its competitors of significant
contracts, acquisitions, strategic partnerships, joint ventures or
capital commitments;
. additions or departures of key personnel;
. the potential for future sales or distributions of GlobalCenter group
stock;
. investors' perceptions of investments relating to the GlobalCenter group;
. investors' perceptions of investments relating to Global Crossing;
. the impact of the intended disposition of the Global Crossing group's
inter-group interest in the GlobalCenter group;
. investors' perceptions about tracking stock generally; and
. fluctuations in the stock market price and volume of traded shares
generally.
We cannot assure you that we will complete any or all of the tracking stock
transactions
This proxy statement describes our current plan for the issuance of
GlobalCenter group stock and the adoption of the GlobalCenter stock incentive
plans. These transactions, including the proposed initial public offering of
GlobalCenter group stock and the proposed distribution to holders of
GlobalCenter group stock to the holders of Global Crossing group stock, are
subject to various conditions and uncertainties. Further, our board of
directors reserves the right not to adopt the tracking stock capital
structure, even if shareholders approve the tracking stock proposal. We cannot
assure you that we will complete all or any of the transactions we describe,
or that we will complete them on the terms or in the time frame we describe in
this proxy statement.
Risks Relating to the Business of the GlobalCenter Group
The GlobalCenter group has a limited operating history and its business model
is still evolving, which makes it more difficult for you to evaluate the
GlobalCenter group and its prospects.
The limited operating history of the GlobalCenter group makes evaluating its
business operations and its prospects difficult. The GlobalCenter group's
range of service offerings has changed since its inception and its business
model is still new and developing. The GlobalCenter group recently began
offering a wider range of
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applications and professional services with the aim of becoming a total
Internet solutions provider to differentiate itself from other Web hosting
companies. Because many of these services are new, we cannot be sure that
businesses will buy them. As a result, the revenue and income potential of the
GlobalCenter business is unproven. In addition, its prospects must be
considered in light of the risks, expenses and difficulties encountered by
companies in the new, rapidly evolving and highly-competitive market for
Internet infrastructure solutions, including complex Web hosting services. To
address these risks, among other things, the GlobalCenter group must:
. provide reliable, technologically current and cost-effective services;
. continue to upgrade and expand its global infrastructure;
. market its brand name and services effectively;
. develop new and extend its current business partnerships; and
. attract and retain qualified personnel.
The GlobalCenter group's ability to achieve its goals depends significantly
on its ability to partner with leading vendors of hardware, software and
Internet infrastructure applications, as well as professional service
providers, to develop and offer services that the market will want. This
entails risks, such as the risk that the GlobalCenter group will not be able to
partner, or, even if it does, that its selected partners will not provide the
GlobalCenter group with the necessary resources to remain a leader in its
industry.
The GlobalCenter group has a history of significant losses and expects these
losses to continue in the foreseeable future. The GlobalCenter group may be
unable to secure additional financing when it needs it.
The GlobalCenter group has experienced operating losses and negative cash
flows from operations in the past. The GlobalCenter group's net losses for the
three months ended December 31, 1999, nine months ended September 30, 1999 and
each of the years ended December 31, 1998 and 1997 were $42.7 million, $16.8
million and $10.8 million and $2.8 million respectively. While its revenues
have grown in recent periods, we cannot assure you that this growth will
continue. In connection with its expansion plans, the GlobalCenter group
anticipates making significant investments in its data center infrastructure,
as well as in sales, marketing, technical and customer support personnel. As a
result of its expansion plans, we expect the GlobalCenter group's net losses
and negative cash flows from operations to continue for the foreseeable future.
We cannot assure you that the GlobalCenter group will ever become or remain
profitable or that the GlobalCenter group will generate positive cash flows
from operations.
Historically, the GlobalCenter group has relied on Global Crossing or
Frontier Corporation to satisfy its capital requirements. Global Crossing is
not obligated, however, to serve as a source of funding. According to its
current business plan, the GlobalCenter group expects that the proceeds from
this offering will provide it sufficient capital to sustain current operations
and capital expenditure plans for the next 12 to 18 months. However, the
GlobalCenter group's business is rapidly growing and capital intensive. Any
material changes to its funding requirements could require the GlobalCenter
group to secure additional funding. The sources from which the GlobalCenter
group may satisfy its future financing requirements may include funding from
third parties, the proceeds from the issuance of additional GlobalCenter group
stock or additional funding from Global Crossing. We cannot assure you that the
GlobalCenter group will be able to secure additional financing. on an
acceptable basis, if at all.
The rapid expansion of the GlobalCenter group's data centers produces a
significant strain on its business and requires it to expend substantial
resources.
The expansion of the GlobalCenter group's business through the opening of
additional data centers in geographically diverse locations is one of its key
strategies. The GlobalCenter group currently has ten data centers located in
metropolitan areas in northern and southern California; northern Virginia; New
York City;
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London; and Melbourne. It is currently developing 10 data centers, nine of
which it plans to open in 2000. To expand successfully, the GlobalCenter group
must be able to assess markets, locate and secure new data center sites,
install data center facilities and establish interconnections with the Global
Crossing network or the networks of other providers. To manage this expansion
effectively, the GlobalCenter group must continue to improve its operational
and financial systems and expand, train and manage its employee base. The
GlobalCenter group's inability to establish additional data centers or
effectively manage its expansion would have a material adverse effect upon its
business.
The GlobalCenter group expects to expend substantial resources for leases
and/or the purchase of real estate, significant improvements of facilities,
purchase of complementary businesses, assets and equipment, implementation of
multiple telecommunications connections and hiring of network, administrative,
customer support and sales and marketing personnel with the establishment of
each new data center. Moreover, the GlobalCenter group expects to make
significant investments in sales and marketing and the development of new
services as part of its expansion strategy. If the net proceeds of the proposed
offering are not sufficient to fund the GlobalCenter group's growth and if it
fails to generate sufficient cash flows or raise sufficient funds in the
future, it may be required to delay or abandon some or all of its development
and expansion plans or otherwise forego market opportunities, making it
difficult for the GlobalCenter group to generate additional revenue and to
respond to competitive pressures. Any delay in the completion of its new
facilities may make the GlobalCenter group less attractive to customers, which
would adversely affect its business.
In general, it takes the GlobalCenter group at least six months after a data
center site is leased to construct the necessary facilities, install equipment
and telecommunications infrastructure and hire operations and sales personnel.
Expenditures commence well before the data center opens, and it takes an
extended period of time for the GlobalCenter group to approach break-even
capacity utilization. As a result, the GlobalCenter group expects that
individual data centers will experience losses for one year or longer from the
time they are opened. The GlobalCenter group incurs further expenses to test
market its services in markets where there is no data center. Growth in the
number of its data centers is likely to increase the amount and duration of
losses. In addition, if the GlobalCenter group does not attract customers to
new data centers in a timely manner, or at all, its business would be
materially adversely affected.
The Web hosting market is relatively new and rapidly evolving and may not
continue to grow.
The market for Web hosting has only recently begun to develop and is evolving
rapidly.
Although some industry analysts project significant growth for this market,
their projections may not be realized. The GlobalCenter group's future growth,
if any, will depend on the continued trend of businesses to outsource an
increasing portion of their Internet-related operations, including their Web
hosting needs and management systems, and its ability to provide and market
dependable services effectively. In addition, the GlobalCenter group's strategy
is based on its belief that businesses will outsource an increasing portion of
their more sophisticated Internet-related functions, and it is therefore
planning to invest a significant amount in developing products and services to
meet this expected demand. We cannot be sure, however, that the market for the
GlobalCenter group's services will develop, that its services will be adopted,
or that businesses will use Internet-based services in the degree or manner
that the GlobalCenter group expects. It is possible that, at some point,
businesses may find it cheaper, more secure or otherwise preferable to host
their Web sites internally and decide not to outsource the management of their
Web sites. If the GlobalCenter group is unable to react quickly to changes in
the market, if the market fails to develop or develops more slowly than
expected, or if the GlobalCenter group's services do not achieve market
acceptance, then the GlobalCenter group is unlikely to become or remain
profitable.
The GlobalCenter group may be unable to achieve its operating and financial
objectives due to significant competition in the Web hosting industry.
The market for Web hosting and for other Internet infrastructure services is
highly competitive and there are few substantial barriers to entry. The
GlobalCenter group's current and potential competitors in the market include
Web hosting service providers, Internet service providers, commonly known as
ISPs,
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telecommunications companies and large information technology outsourcing
firms. Its competitors may operate in one or more of these areas, and they
include companies such as AboveNet Communications, AT&T, British Telecom, Cable
& Wireless, Digex, Digital Island, EDS, Exodus Communications, Globix, GTE,
IBM, Intel, KPNQwest, Level 3 Communications, ACI WorldCom, PSINet, Navisite,
Qwest Communications International and USinternetworking.
Many of the GlobalCenter group's competitors have substantially greater
resources, more customers, greater name recognition in more established
relationships in the industry. As a result, these competitors may be able to
develop and expand their applications and service offerings more quickly,
devote greater resources to the marketing and sale of their products and adopt
more aggressive pricing policies. In addition, these competitors have entered
and will likely continue to enter into business relationships to provide
additional services competitive with those the GlobalCenter group provides. As
the GlobalCenter group moves toward its goal of becoming a total Internet
infrastructure solutions provider, the nature of its competition may change in
ways the it will not anticipate. We also believe the Web hosting market is
likely to experience consolidation in the near future, which could result in
increased price and other competition that would make it more difficult for the
GlobalCenter group to compete. See "Business of the GlobalCenter Group--
Competition."
The GlobalCenter group's business depends largely on network services it
receives from the Global Crossing group. Any disruption of these services or
the Global Crossing's group inability to maintain its peering and transit
relationships could be costly and harmful to the GlobalCenter group's business.
The GlobalCenter group relies primarily on the Global Crossing group for its
network capacity. The Global Crossing group operates its own global IP network,
which qualifies it as a tier-one service provider of Internet connectivity
services. If the Global Crossing network experiences disruption, the
GlobalCenter group's services may be disrupted as well, which would be
detrimental to the GlobalCenter group's customers. Frequent or sustained
disruptions in the Global Crossing network could harm the GlobalCenter group's
business. If the Global Crossing group were unable to provide the GlobalCenter
group sufficient network capacity, the GlobalCenter group would need to rapidly
secure an alternative provider of these services. As a result, the GlobalCenter
group could incur transition costs and its monthly costs of operations could
increase. In addition, such a transition could have a detrimental effect on the
service the GlobalCenter group provides its customers.
The Internet is composed of many ISPs that operate their own networks and
interconnect with other ISPs at various peering points. Peering relationships
are arrangements that permit ISPs to exchange traffic with one another without
having to pay for the cost of transit services. Transit relationships are
similar arrangements in which fees are paid for transit services. Peering and
transit relationships are a competitive factor that allow some Web hosting
companies to provide faster data transmission than others. If the Global
Crossing group fails to adapt its network infrastructure to meet industry
requirements for peering or loses its peering or transit relationships for any
other reason, then the GlobalCenter group's transmission rates could be
reduced, resulting in a decrease in the service the GlobalCenter group provides
to its customers.
The GlobalCenter group would not be able to provide adequate service to its
customers if it were unable to secure sufficient network capacity to meet its
future needs on reasonable terms or at all.
The GlobalCenter group must continue to expand and adapt its network
arrangements to accommodate an increasing amount of data traffic and changing
customer requirements. We believe the GlobalCenter group's arrangement with the
Global Crossing group will provide the GlobalCenter group with sufficient
network capacity to meet its customers' capacity requirements. However, if the
GlobalCenter group's future network capacity requirements exceed the capacity
the Global Crossing group is able to provide it, the GlobalCenter group may
have to pay higher prices for such additional network capacity from others or
such capacity might not be available at all. The GlobalCenter group's failure
to achieve or maintain high capacity data transmission could negatively affect
its level of service to its existing customers and limit its ability to attract
new customers, which would harm its business.
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The GlobalCenter group's quarterly and annual results may fluctuate, resulting
in fluctuations in the price of GlobalCenter group stock.
The GlobalCenter group's results of operations fluctuate on a quarterly and
annual basis. The GlobalCenter group expects to continue experiencing
significant fluctuations in its future quarterly and annual results of
operations due to a variety of factors, many of which are outside of its
control, and may include:
. demand for and market acceptance of its services;
. reliable continuity of service and network availability;
. capacity utilization of its data centers;
. changes in its pricing policies and those of its competitors;
. the introduction by third parties of new Internet and networking
technologies;
. the ability to increase bandwidth as necessary, both on the Global
Crossing network and on other networks with whom the GlobalCenter group
interconnects;
. timing of customer installations and the amount and timing of sales of
equipment to new and existing customers;
. its retention of key personnel;
. its ability to leverage third party service offerings;
. introductions of new services by the GlobalCenter group and its
competitors;
. the mix of services the GlobalCenter group sells;
. customer retention and satisfaction;
. the timing, magnitude and integration of its capital expenditures,
including construction costs related to the expansion of its data
centers; and
. other general economic factors.
Due to these factors, revenues and operating results are difficult to
forecast. We believe that period to period comparisons of the GlobalCenter
group's operating results will not necessarily be meaningful and you should not
rely on them as indications of its future performance. For these and other
reasons, in some future periods, the GlobalCenter group's results of operations
may fall below the expectations of securities analysts or investors, which
could negatively affect the market price of GlobalCenter group stock.
The GlobalCenter group's data centers and the networks they rely on are
sensitive to harm from human actions and natural disasters. Any resulting
disruption could significantly damage the GlobalCenter business.
The GlobalCenter group's ability to provide reliable service largely depends
on the performance and security of its data centers and equipment, and of the
network infrastructure of its connectivity providers, particularly the Global
Crossing IP network infrastructure. The GlobalCenter group's customers often
maintain confidential information on servers located in its data centers. The
GlobalCenter group's data centers and equipment, the networks it uses, and its
customers' information are subject to damage and unauthorized access from human
error and tampering, breaches of security, natural disasters, power loss,
capacity limitations,
software defects, telecommunications failures, intentional acts of vandalism,
including computer viruses, and other factors that have caused, and will
continue to cause, interruptions in service or reduced capacity for the
GlobalCenter group's customers. Any such event could jeopardize the security of
its customers' confidential information such as credit card and bank account
numbers. The GlobalCenter group's data centers have experienced and may in the
future experience delays or interruptions in service as a result of accidental
or intentional actions of Internet users or others. For example, in February
2000, hackers flooded one customer's Web site with an enormous number of
requests, which disrupted its services. Despite precautions the
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GlobalCenter group has taken and plans to take, the occurrence of a security
breach, natural disaster, interruption in service or other unanticipated
problems could seriously damage its business and cause the GlobalCenter group
to lose customers. Additionally, the time and expense required to alleviate
security problems could be significant and could impair the GlobalCenter
group's operating results.
Providing services to customers with mission-critical Internet operations could
potentially expose the GlobalCenter group to lawsuits for its customers' lost
profits or other damages.
Because the GlobalCenter group's services are critical to many of its
customers' businesses, any significant interruption in the GlobalCenter group's
services could result in lost profits or other indirect or consequential
damages to its customers. Customers are required to sign service agreements
which incorporate the GlobalCenter group's standard terms and conditions.
Although these terms disclaim the GlobalCenter group's liability for any such
damages, a customer could still bring a lawsuit against the GlobalCenter group
claiming lost profits or other consequential damages as the result of a service
interruption or other Web site problems that the customer may attribute to the
GlobalCenter group. We cannot be sure a court would enforce any limitations on
the GlobalCenter group's liability, and the outcome of any lawsuit may depend
on the specific facts of the case and the legal and policy considerations
involved. While we believe the GlobalCenter group would have meritorious
defenses to any such claims, we cannot be sure the GlobalCenter group would
prevail. In such cases, the GlobalCenter group could be liable for substantial
damage awards. Such damage awards might exceed its liability insurance by
unknown but significant amounts, which would seriously harm its business.
Customer satisfaction with the GlobalCenter group's services is critical to its
success and any degradation in service could harm its business.
The GlobalCenter group's customers demand a very high level of service. Its
customer contracts provide service level agreements related to the continuous
availability of its data center and network services. The GlobalCenter group's
commitment is generally limited to a credit consisting of reduction in monthly
fees for disruptions in Internet transmission services. If the GlobalCenter
group incurs significant service degradation in connection with system
downtime, its business would be harmed. As customers outsource more mission-
critical operations to it, the GlobalCenter group risks increased liability
claims and customer dissatisfaction if its systems fail to meet its customers'
expectations.
If the GlobalCenter group does not respond effectively and on a timely basis to
rapid technological change and evolving industry standards, its business could
suffer.
Internet and networking technology is changing rapidly. The GlobalCenter
group's future success will depend largely on its ability to:
. offer services that incorporate leading technologies;
. address the increasingly sophisticated and varied needs of its current
and prospective customers;
. respond to technological advances and emerging industry standards on a
timely and cost-effective basis; and
. continue offering services that are compatible with products and
services of other vendors.
Although the GlobalCenter group often works with various vendors in testing
newly developed products, it cannot be sure these products will be compatible
with its infrastructure or that such products will adequately address changing
customer needs. Although the GlobalCenter group currently intends to support
emerging standards, it cannot be sure that industry standards will be
established or, if they become established, that it will be able to conform to
these new standards in a timely or cost-effective fashion and maintain a
competitive position in the market. Keeping pace with technological advances
may require substantial expenditures and lead time. The GlobalCenter group's
failure to conform to the prevailing standards, or the failure of common
standards to emerge, could harm its business. In addition, products, services
or technologies developed by others may render its services obsolete or no
longer competitive.
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The GlobalCenter business will not continue to grow unless Internet usage
continues to grow and Internet performance remains adequate.
The increased use of the Internet for retrieving, sharing and transferring
information among businesses and consumers has only recently begun to develop
on a mass scale. The GlobalCenter group's success will depend on the continued
growth in Internet usage, in particular on the growth of Internet usage as a
commercial and entertainment distribution tool. The growth of the Internet is
subject to a high level of uncertainty and depends on a number of factors,
including the growth in consumer and business use of new interactive
technologies, the development of technologies that facilitate interactive
communications, security concerns and increases in data transport capacity. If
the Internet as a commercial medium fails to grow or develops more slowly than
expected, then the GlobalCenter business is unlikely to grow, as expected.
The recent growth in the use of the Internet in general has caused frequent
periods of performance degradation, requiring the upgrade of routers and
switches, telecommunications links and other components forming the
infrastructure of the Internet by ISPs and other organizations with links to
the Internet. Any perceived degradation in the performance of the Internet as a
whole could undermine the demand for the GlobalCenter group's services. The
performance of the GlobalCenter group's Web hosting services is ultimately
limited by and relies on the speed and reliability of the networks operated by
Global Crossing and third parties. Consequently, the growth of the market for
the GlobalCenter group's services depends on improvements being made to these
networks.
The GlobalCenter group's business could be harmed if its management team, which
has worked together at the GlobalCenter group for only a brief time, is unable
to work effectively, or if it is unable to retain and attract key personnel.
The GlobalCenter group has hired most of its senior management within the
last five months. As a result, its management team has worked for the
GlobalCenter group for only a brief time. The GlobalCenter group's success will
depend, in significant part, on the continued services of its senior management
personnel and of its key technical and sales personnel.
The GlobalCenter group's success will also depend largely on its ability to
attract and retain highly skilled technical, managerial, sales and marketing
personnel, particularly additional management,,in the areas of application
integration and technical support. Competition for such personnel is intense.
The GlobalCenter group may not be able to hire or retain the necessary
personnel to implement its business strategy, or the GlobalCenter group may
need to pay higher compensation for employees than the GlobalCenter group
currently expect. The GlobalCenter group's inability to attract and retain such
personnel would limit its growth and harm its business.
The GlobalCenter group may be unable to achieve its operating and financial
objectives if it cannot manage its anticipated growth effectively.
The GlobalCenter group is experiencing, and expects to continue experiencing,
rapid growth with respect to the building of its domestic and international
data centers, expansion of its service offerings, expansion of its customer
base and increases in the number of employees. This growth has placed, and the
GlobalCenter group
expects it to continue to place, a significant strain on its financial,
management, operational and other resources, including its ability to ensure
customer satisfaction. This expansion also requires significant time commitment
from its senior management and places a significant strain on their ability to
manage the existing business. In addition, the GlobalCenter group is required
to manage multiple relationships with a growing number of third parties as it
seeks to complement its service offerings.
For the GlobalCenter group to manage this growth, it will need to:
. expand and enhance its operating and financial procedures and controls;
. replace or upgrade its operational and financial management information
systems; and
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. attract, train, manage and retain key employees.
In early 2000, the GlobalCenter group began to implement and update its
operational ind financial systems, procedures and controls, including
evaluating the implementation of a new billing system and IT system.
Implementation of those systems and improvements could be disruptive to its
business.
The GlobalCenter group may experience difficulty in integrating its future
acquisitions or joint ventures which could harm its operating results.
The GlobalCenter group may acquire businesses with complementary products,
services and technologies. After purchasing a company, the GlobalCenter group
could have difficulty in assimilating that company's technology, personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for the GlobalCenter group. These difficulties could disrupt the
GlobalCenter group's ongoing business, distract its management and employees
and increase its expenses. In addition, future acquisitions by the GlobalCenter
group may require it to incur additional debt, result in large one-time write-
offs or create goodwill or other intangible assets that could result in
amortization expenses.
As part of its expansion, the GlobalCenter group may also pursue
relationships and joint ventures with companies located in or with
relationships in the markets the GlobalCenter group wishes to enter, or who
have specific technologies, products or services the GlobalCenter group needs
to serve its customers. The GlobalCenter group may not have a majority interest
in or control of the governing body of any such joint venture. There is a risk
that the other joint venture partner may at any time have economic, business or
legal interests or goals that are inconsistent with those of the joint venture
or of the GlobalCenter group. A joint venture partner may be unable to meet its
economic or other obligations and the GlobalCenter group may be required to
fulfill those obligations. In addition, if the GlobalCenter group does not have
a majority interest in a joint venture, it may not have control of the
operation or assets of that joint venture.
The GlobalCenter group depends on third-party vendors of hardware, software and
Internet infrastructure applications, as well as professional services
providers.
The GlobalCenter group depends on vendors to supply key components of its
data centers and telecommunications infrastructure and many of the applications
and services it provides to its customers. The GlobalCenter group obtains many
of the applications and services that it offers, including performance
monitoring, content delivery and data storage services, from third parties. It
does not have long-term agreements with any of these third parties. If these
providers were to stop offering these applications or services, or were to stop
offering them on a cost-effective basis, the GlobalCenter group would have to
seek other sources for these offerings. We cannot be sure that the GlobalCenter
group would be able to find acceptable replacements for these applications and
services on a cost-effective basis or at all. Some of the telecommunications
services and networking equipment the GlobalCenter group uses is available only
from sole or limited sources. The GlobalCenter group typically purchases or
leases all of its components under purchase orders placed from time to time. It
does not carry significant inventories of components and has no guaranteed
supply arrangements with vendors. If the GlobalCenter group is unable to obtain
required products or services on a timely basis or at an acceptable cost, its
business would be harmed. In addition, if its sole or limited source suppliers
do not provide products or components that comply with evolving Internet and
telecommunications standards or that interoperate with other products or
components the GlobalCenter group uses, the GlobalCenter group's business would
be harmed. For example, the GlobalCenter group has experienced performance
problems with routers and switches that have caused temporary disruptions in
and impairment of network performance.
Difficulties presented by international economic, political, legal, accounting
and business factors could harm the GlobalCenter group's business.
One component of the GlobalCenter group's strategy is to expand into
international markets. The GlobalCenter group currently has two data centers
outside of the United States, one in London, England and
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one in Melbourne, Australia. It has also announced plans to open new data
centers later this year in Europe and Australia. In addition, its is currently
exploring the possibility of opening data centers in Asia through a joint
venture with Asia Global Crossing, an affiliated company. In order to expand
its international operations, the GlobalCenter group may enter into additional
joint ventures or outsourcing agreements with third parties, acquire
complementary businesses or operations, or establish and maintain new
operations outside of the United States. If the GlobalCenter group is unable to
do any of these things in a timely and cost-effective manner, it could be
precluded from successfully developing its international operations. In
addition, the GlobalCenter group may depend on third parties to be successful
in its international operations, but we cannot assure you that it will be
successful in securing such third party relationships.
In addition, the rate of development and adoption of the Internet has been
slower outside of the United States, and the cost of bandwidth has been higher,
which may adversely affect the GlobalCenter group's ability to expand
operations and may result in higher relative costs for its international
operations. The risks inherent in conducting business internationally include:
. unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers;
. challenges in staffing and managing foreign operations;
. differences in technology standards;
. employment laws and practices in foreign countries;
. longer payment cycles and problems in collecting accounts receivable;
. political instability;
. fluctuations in currency exchange rates and imposition of currency
exchange controls; and
. potentially adverse tax consequences.
Regulatory and legal uncertainties could have significant costs or otherwise
harm the GlobalCenter group's business.
The law in the United States relating to the liability of online and Internet
service providers for information disseminated through their systems remains
largely unsettled. It may take years to determine whether and how existing
laws, such as those governing intellectual property, privacy, consumer
protection, libel and taxation, apply to the Internet. The growth and
development of the market for online commerce may also prompt calls for more
stringent consumer protection laws that may impose additional burdens on
companies conducting business online.
The United States Congress has recently considered enacting Internet laws
regarding privacy, copyrights, taxation and the transmission of sexually
explicit materials. The Federal Trade Commission has recently commenced
investigations of the practices of certain Internet companies relating to
privacy and consumer protection laws. The European Union recently enacted its
own privacy regulations. The application of existing laws or promulgation of
new laws could require the GlobalCenter group to expend substantial resources
to comply with such laws or discontinue certain service offerings. Increased
attention to liability issues could also divert management attention, result in
unanticipated expenses and harm the GlobalCenter group's business.
The GlobalCenter group provides services over the Internet in the United
States and in many foreign countries, and it facilitates the activities of its
customers in these jurisdictions. As a result, the GlobalCenter group may be
required to qualify to do business, or be subject to taxation, or be subject to
other laws and regulations, in jurisdictions even if it does not have a
physical presence or employees or property in these jurisdictions. The
application of these multiple sets of laws and regulations is uncertain, but
the GlobalCenter group could find that it is subject to regulation, taxation,
enforcement or other liability in unexpected ways, which could materially
adversely affect its business. Regulation of the Internet may also harm its
customers' businesses, which could lead to reduced demand for the GlobalCenter
group's services.
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The GlobalCenter group's business is not currently subject to direct
regulation by the Federal Communications Commission, or the "FCC," or any other
government agency, other than as to regulations applicable to business in
general. However, in the future the GlobalCenter group may be subject to
regulation by the FCC or other federal or state agencies, which could increase
its costs and harm its business. See "Business of the GlobalCenter Group--
Government regulation."
Global Crossing is subject to United States and international regulation
relating to its existing network and its future expansion of its network. If
Global Crossing's network or expansion plans were limited by governmental
regulation, it could have a material adverse effect on the GlobalCenter group's
business.
The GlobalCenter group could be held liable for the information disseminated
through its network.
The law relating to the liability of online services companies, private
network operators and ISPs for information carried on or disseminated through
their networks is currently unsettled. The Child Online Protection Act of 1998
imposes criminal penalties and civil liability on anyone engaged in the
business of selling or transferring material that is harmful to minors, by
means of the Web, without restricting access to this type material by underage
persons. Numerous states have adopted or are currently considering similar
types of legislation. The imposition upon the GlobalCenter group and other
Internet network providers of potential liability for information carried on or
disseminated through systems could require the GlobalCenter group to implement
measures to reduce exposure liability, which may require the expenditure of
substantial resources, or to discontinue various service or product offerings.
Further, the costs of defending against any claims and potential adverse
outcomes of these claims could have a material adverse effect on the
GlobalCenter group's business. While the GlobalCenter group carries
professional liability insurance, it may not be adequate to compensate the
GlobalCenter group or may not cover it in the event the GlobalCenter group
becomes liable for information carried on or disseminated through its networks.
In addition, some ISPs and other online services companies could deny network
access to the GlobalCenter group if it allows undesired content to be
transmitted through its networks. Although the GlobalCenter group prohibits
customers by contract from distributing illegal material or engaging in
practices such as sending unsolicited commercial e-mail advertisements, it
cannot be sure that customers will not violate these prohibitions, which could
have a material adverse effect on its business.
The GlobalCenter group way be unable to protect its intellectual property
rights or to continue using intellectual property that it licenses from others.
The GlobalCenter group relies on a combination of copyright, trademark,
service mark and trade secret laws and contractual restrictions to establish
and protect certain of its proprietary rights. It has no patented technology
that would bar competitors from its market. Despite the GlobalCenter group's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use its data or technology. In addition, the laws
of various foreign countries may not protect its products, services or
intellectual property rights to the same extent as do the laws of the United
States.
The GlobalCenter group does not currently rely in a material way on
technologies licensed from third parties, but it expects that as it continues
to offer new services through partnerships with third parties, its reliance on
licensed technologies will grow. We cannot be sure these licenses will be
available to the GlobalCenter group on commercially reasonable terms or at all.
The loss of such technology could require the GlobalCenter group to obtain
substitute technology of lower quality or performance standards or at greater
cost, which could harm its business.
Other parties may claim that the GlobalCenter group has infringed their
proprietary rights. Such claims, whether or not meritorious, may require the
GlobalCenter group to expend significant financial and managerial resources,
result in injunctions against it, or impose damages it must pay. The
GlobalCenter group may need to obtain a license from third parties who allege
that it has infringed their rights, but such license may not be available on
terms acceptable to the GlobalCenter group or at all.
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This proxy statement and the information incorporated by reference in this
proxy statement include forward-looking statements. Forward-looking statements
do not relate strictly to historical or current facts. Forward-looking
statements may be identified by the use of forward-looking words or phrases
such as "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe" and other words and terms of similar meaning. Forward-looking
statements are based on our current expectations and are subject to risks and
uncertainties. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for such forward-looking statements.
A number of important factors, including those risks and uncertainties
described as "Risk Factors" both in this proxy statement and in our Annual
Report on Form 10-K, could affect future operating results and financial
position and cause actual results to differ materially from those expressed in
the forward-looking statements. These risks and uncertainties are not
exhaustive. These and other developments could cause our actual results to
differ materially from those forecast or implied in the forward-looking
statements. You are cautioned not to place undue reliance on these forward-
looking statements. We have no obligation, and we do not intend, to publicly
release the results of any revisions to these forward-looking statements to
reflect subsequent events or circumstances.
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THE SPECIAL MEETING
General
We are furnishing this document to you in connection with the solicitation of
proxies by the Global Crossing board of directors for use at the special
meeting of Global Crossing shareholders and any adjournment or postponement of
the meeting.
Date, time and place
We will hold the Global Crossing special meeting at on , 2000 at
, local time, subject to any adjournments or postponements.
Proposals to be considered at the special meeting
For more information regarding the proposals described below, see "The
Tracking Stock Proposal" beginning on page 43 and "The GlobalCenter Stock
Incentive Plan Proposals" beginning on page 96.
The tracking stock proposal
At the Global Crossing special meeting, you will be asked to consider and
vote to approve proposed resolutions to:
. increase our authorized share capital to $45,200,000 by the creation of
an additional 1,500,000,000 shares of common stock,
. allow our board of directors to designate our authorized share capital
into two or more separate classes of common stock,
. approve the terms of the Global Crossing group stock and GlobalCenter
group stock, and
. redesignate our outstanding common stock as Global Crossing group stock.
The GlobalCenter stock incentive plan proposals
In addition, at the Global Crossing special meeting, you will be asked to
consider and vote to approve the adoption of the GlobalCenter Management Stock
Plan and the GlobalCenter 2000 Stock Plan.
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. In addition, we are submitting
each of the GlobalCenter stock incentive plan proposals for the approval of
shareholders of Global Crossing in order for those plans to satisfy the
requirements of Section 162(m) of the Internal Revenue Code of 1986.
Record date; votes per share
The Global Crossing board of directors has fixed the close of business on
, 2000 as the record date for the determination of Global Crossing
shareholders entitled to vote at the special meeting. On that date, the
outstanding voting shares of capital stock of Global Crossing consisted of
shares of common stock. You will be entitled to attend and vote at the meeting
only if you were a shareholder of record of Global Crossing common stock as of
the close of business on , 2000.
On a poll, each share entitled to vote at the meeting, other than shares held
by holders of greater than 9.5% of the total votes cast in connection with any
shareholder action 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.
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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 U.S. 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 our 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 total votes cast in connection with any
shareholder action or (2) Canadian Imperial Bank of Commerce and its affiliates
constitute more than 20% of the voting power of the total votes cast in
connection with any shareholder action, 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% of the total votes cast or, in the case of Canadian
Imperial Bank of Commerce and its affiliates, collectively, to 20% of the total
votes cast 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 restrictions."
On the record date for determination of the holders entitled to vote at the
special 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 special meeting.
Abstentions and shares held by brokers that are represented at the special
meeting without specific instructions by shareholders on how to vote those
shares, which we refer to as "broker non-votes," will be counted as present for
purposes of determining whether there is a quorum at the special meeting.
Approval of the GlobalCenter stock incentive plan proposals additionally
requires that holders of a majority of all outstanding shares actually cast
votes on each of the proposals. For these proposals, therefore, abstentions and
broker non-votes will have the practical effect of reducing the likelihood that
this requirement will be satisfied.
Votes required
The following shareholder votes are required for approval of the proposals:
The tracking stock proposal
The favorable vote of a majority of all votes cast by the holders of Global
Crossing common stock is required to approve the tracking stock proposal. Some
of the proposed resolutions contained in the tracking stock proposal, if
approved, will become effective only if and when the proposed initial public
offering of GlobalCenter group stock is completed.
The GlobalCenter stock incentive plan proposals
The favorable vote of a majority of all votes cast by the holders of Global
Crossing common stock is required to adopt each of the GlobalCenter stock
incentive plan proposals.
If the tracking stock proposal is approved, we intend to implement it whether
or not the GlobalCenter stock incentive plan proposals are approved. If the
tracking stock proposal is not approved, we will not implement the GlobalCenter
stock incentive plan proposals.
As of April 14, 2000, directors and executive officers of Global Crossing
were entitled to vote approximately 21.63% of the outstanding votes entitled to
be cast by Global Crossing shareholders at the special meeting after giving
effect to the voting limitations of large shareholders. Each director,
executive officer and
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5% shareholder of Global Crossing has indicated that he or she intends to vote
his or her shares of common stock to approve each of the proposals.
How shares will be voted at the special meeting
Shares of Global Crossing common stock represented by a proxy properly
executed and received before the vote at the Global Crossing special 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 , 2000 special 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 special meeting
or any adjournment or postponement of the meeting.
Abstentions and shares held by brokers and represented at the special meeting
without specific instructions by shareholders on how to vote those shares will
not be voted and will not be counted either as a vote for or against the
proposals to be voted on at the special meeting.
To be valid, proxy cards must be received at the offices of Global Crossing's
transfer agent, EquiServe, by , 2000. 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.
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 special meeting.
The Global Crossing board of directors is not currently aware of any business
that will be brought before the special meeting other than the proposals
described in the notice of the , 2000 special meeting to Global Crossing
shareholders. If, however, other matters are properly brought before the Global
Crossing special 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,
facsimile 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, EquiServe, has agreed to assist Global Crossing in
connection with the tabulation of proxies.
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THE TRACKING STOCK PROPOSAL
General
At the special meeting, we will ask you to consider and approve proposed
resolutions which provide for the creation of the Global Crossing group stock
and the GlobalCenter group stock. These proposed resolutions are to:
. increase our authorized share capital to $45,200,000 by the creation of
an additional 1,500,000,000 shares of common stock,
. allow our board of directors to designate our authorized share capital
into two or more separate classes of common stock, with 3,000,000,000
shares authorized to be issued as Global Crossing group stock and
1,000,000,000 shares as GlobalCenter group stock,
. approve the terms of the Global Crossing group stock and GlobalCenter
group stock, which terms will be attached as a schedule to our bye-laws
in a Certificate of Designations relating to these classes of common
stock, and
. redesignate our outstanding common stock as Global Crossing group stock.
If the tracking stock proposal is implemented, your rights as shareholders
will continue to be governed by Bermuda law and the Global Crossing bye-laws
and schedules attached thereto, which have been filed with the SEC. The
Certificate of Designations for the Global Crossing group stock and the
GlobalCenter group stock, which will be attached as a schedule to the bye-laws,
will contain the terms of Global Crossing group stock and GlobalCenter group
stock. Accordingly, you should read carefully the proposed Certificate of
Designations attached to this proxy statement as Annex II.
If the proposed tracking stock resolutions are approved and we complete our
proposed initial public offering of GlobalCenter group stock, we will file a
Memorandum of Increase in Share Capital with the Registrar of Companies of
Bermuda reflecting the increase in our authorized share capital. No regulatory
approvals are required for the consummation of the tracking stock proposal.
Authorized and outstanding shares
Current capital structure
We are currently authorized to issue 3,000,000,000 shares of common stock,
consisting of 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. As of
March 3, 2000, (1) 779,714,470 shares of common stock, (2) 10,000,000 shares of
6 3/4% cumulative convertible preferred stock and (4) 400,000 shares of 6 3/8%
cumulative convertible preferred stock, series B, were issued and outstanding.
Proposed capital structure
The tracking stock proposal will authorize us to issue up to 4,500,000,000
shares of common stock, of which 3,000,000,000 shares will be designated Global
Crossing group stock and 1,000,000,000 shares will be designated GlobalCenter
group stock. If approved by our shareholders, the tracking stock proposal will
redesignate each outstanding share of our existing common stock into one share
of Global Crossing group stock effective upon the creation of Global Crossing
group stock at the time of the completion of the proposed initial public
offering of GlobalCenter group stock.
Issuances of common stock without shareholder approval
After the completion of the proposed initial public offering of GlobalCenter
group stock, our board of directors may issue the authorized but unissued
shares of Global Crossing group stock and GlobalCenter group stock from time to
time for any proper corporate purposes. Our board of directors also may decide
to authorize the issuance of shares of one or more classes of common stock
relating to an additional business group as
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described below, in addition to Global Crossing group stock and GlobalCenter
group stock. Our board of directors will have the authority to issue additional
shares of GlobalCenter group stock or Global Crossing group stock or shares of
additional classes of common stock in its sole discretion and without further
shareholder approval, except as may be provided by Bermuda law or the rules of
the Nasdaq National Market or any stock exchange on which any class of
outstanding common stock may then be listed.
If our board of directors decides to issue additional classes of common
stock, Global Crossing may establish a new group to which such new class of
common stock relates either by allocating to it newly acquired assets or by
reallocating to it assets and liabilities from any one or more of the Global
Crossing group, the GlobalCenter group and any previously created additional
group. If our board of directors decides to reallocate assets and liabilities,
the group or groups to which those assets and liabilities were previously
attributed would hold an inter-group interest in the new group. Our board of
directors does not currently have any plan to issue any additional class of
common stock.
Our board of directors may at any time and without shareholder approval
increase the number of shares allocated to Global Crossing group stock or any
additional class of common stock (but not GlobalCenter group stock) so long as
the number of shares in all classes of common stock immediately after the
increase does not exceed the total number of shares of the authorized common
stock of Global Crossing. Approval of the holders of GlobalCenter group stock
in most cases would be required to increase the number of authorized shares
allocated to GlobalCenter group stock. In addition, shareholder approval would
be required to effect any decrease in the number of shares previously allocated
to any class of common stock.
The proposed initial public offering
We currently plan to offer in an initial public offering shares of
GlobalCenter group stock that will represent a portion of the equity value of
the GlobalCenter group. We will determine the amount to be issued based on
capital requirements of the GlobalCenter group, market conditions at the time
of the initial public offering and other factors. We will allocate all of the
net proceeds of the proposed initial public offering to the GlobalCenter group.
We currently expect to complete the proposed initial public offering shortly
following shareholder approval of the tracking stock proposal.
If subsequent considerations arise, our board of directors can decide not to
create Global Crossing group stock and GlobalCenter group stock and abandon
plans for the proposed initial public offering, even if our shareholders have
approved the tracking stock proposal.
Prior to the completion of the proposed initial public offering of
GlobalCenter group stock, our board of directors will designate the initial
number of shares of GlobalCenter group stock that may be issued in respect of
the Global Crossing group's inter-group interest in the GlobalCenter group. See
"Description of Global Crossing group stock and GlobalCenter group stock inter-
group interest" below.
The intended disposition
We intend to dispose of the Global Crossing group's inter-group interest in
the GlobalCenter group following the proposed offering in the form of
additional GlobalCenter group stock. This disposition is intended to include a
distribution in the form of a dividend to holders of Global Crossing group
stock for at least a portion of such interest, but may include an exchange
offer, a further sale of GlobalCenter group stock, or a combination thereof. We
currently intend to dispose of the inter-group interest at some time after this
offering; however, we have not yet determined the exact method and timing of
this disposition. We expect to base our decision with regard to the method and
timing of the disposition on market conditions and the target of maximizing
value for all of Global Crossing's shareholders. The disposition may occur in
several stages, following which we expect that the outstanding shares of
GlobalCenter group stock will reflect 100% of the economic performance of the
GlobalCenter group. There is no guarantee, however, that any disposition will
follow this offering.
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Reasons for the tracking stock proposal
Our board of directors recommended the tracking stock proposal following its
review of various alternatives to provide a mechanism to increase market
awareness of the performance and value of our GlobalCenter business. Our board
of directors considered the following factors in approving, and recommending
that shareholders approve, the tracking stock proposal.
In making its determination, our directors determined that implementation of
the tracking stock proposal would have the following advantages:
. Greater market recognition and more efficient valuation. Separating the
performance of the Global Crossing group and the GlobalCenter group and
reflecting separately the operating results and growth prospects of each
group will permit greater market recognition and more efficient
valuation of the Global Crossing group and the GlobalCenter group.
Separate public information about the GlobalCenter group should result
in broader and more focused coverage by research analysts. As a result,
investors should better understand the GlobalCenter group and Global
Crossing as a whole. Having two publicly traded equity securities will
allow equity investors to apply different and more specific criteria in
valuing the Global Crossing group and the GlobalCenter group.
. Greater financial flexibility. Global Crossing believes that the
creation of GlobalCenter group stock will provide Global Crossing with
greater financial flexibility. Global Crossing expects that GlobalCenter
group stock will assist the GlobalCenter group in meeting its capital
needs by creating an additional publicly traded equity security that it
can use to raise capital for the group. Global Crossing also believes
that it could issue GlobalCenter group stock in potential acquisitions
and investments. This would allow shareholders of an entity that the
GlobalCenter group acquires the opportunity to participate more directly
in the success of the business in which that entity engages rather than
participating in the much larger and more diversified Global Crossing
enterprise.
. More effective management incentives. GlobalCenter group stock will
permit us to structure distinctive and more effective incentive and
retention programs for our management and employees. Stock options and
other incentive awards to management and employees of the GlobalCenter
group will be tied more directly to the performance of the group in
which they work.
. Advantages of doing business under common ownership. In contrast to a
spin-off, the tracking stock proposal will retain for us the advantages
of doing business as a single company and allow each group to capitalize
on relationships with the other group. As part of a single organization,
we expect to continue to take advantage of the strategic and operational
benefits of synergies relating to technology and network sharing and
cost savings in corporate overhead expenses.
. Preserves capital structure flexibility. The tracking stock proposal
retains future restructuring flexibility by preserving our ability to
undertake future asset segmentation and capital restructurings, such as
spin-offs and split-offs, and the creation and issuance of other
tracking stocks reflecting other unique business groups. The proposal
also preserves our flexibility to unwind the tracking stock structure.
Our board of directors also considered that the implementation of the
tracking stock proposal is not expected to be taxable for U.S. federal income
tax purposes to Global Crossing or to you. In addition, our board of directors
considered the performance of similar equity securities issued by other
telecommunications companies, such as US WEST, Inc., Sprint Corporation and
AT&T.
Our board of directors also considered the following potential negative
consequences of the tracking stock proposal:
. Uncertainty of market valuation. Global Crossing cannot predict exactly:
--the degree to which the market price of Global Crossing group stock
and GlobalCenter group stock will reflect the separate performances of
the Global Crossing group and the GlobalCenter group;
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--the impact of the tracking stock proposal on the market price of our
existing common stock prior to the adoption of the proposal;
--the impact of the issuance of GlobalCenter group stock on the market
price of Global Crossing group stock upon the completion of the
proposed initial public offering of GlobalCenter group stock; or
--whether the issuance of Global Crossing group stock and GlobalCenter
group stock will increase the total market capitalization of Global
Crossing.
. More complex corporate governance. The tracking stock proposal
introduces additional corporate governance issues, such as the fiduciary
obligation of our board of directors to holders of different classes of
common stock representing different lines of business. Interests of the
two groups could diverge or conflict, or appear to diverge or conflict,
and issues could arise in resolving conflicts with the result that our
board of directors may benefit one group more than the other group with
respect to any particular issue.
. Complex capital structure. The tracking stock proposal will make the
capital structure of Global Crossing more complex and could confuse
investors, thereby adversely affecting their valuation of our
businesses.
. Uncertainty of market reaction to tracking stock decisions. The market
values of Global Crossing group stock and GlobalCenter group stock could
be affected by the market reaction to decisions by our board of
directors and management that investors perceive as affecting
differently one class of common stock compared to the other. These
decisions could include decisions regarding business transactions
between the groups and the allocation of assets, expenses, liabilities
and corporate opportunities and financing resources between them.
. Limiting unsolicited acquisition offers. The existence of tracking
stock, as opposed to a stand-alone entity, may limit potential
unsolicited acquisitions since a person interested in acquiring only one
group without negotiation with our management would still be required to
seek control of the voting power represented by all of the outstanding
capital stock of Global Crossing entitled to vote on that acquisition,
including the classes of common shares related to the other groups.
. Potential adverse effects in connection with acquisitions. The use of a
tracking stock in connection with future acquisitions by the Global
Crossing group or the GlobalCenter group could have various adverse
effects, such as the possible inability or increased difficulty of
obtaining a ruling from the U.S. Internal Revenue Service for an
acquisition designed to be tax-free.
. Potential risks associated with investment in a single
corporation. Holders of Global Crossing group stock and GlobalCenter
group stock will continue to bear the risks associated with an
investment in a single corporation and all of Global Crossing's
businesses, assets and liabilities.
. Potential adverse tax consequences. The Internal Revenue Service could
successfully assert that the redesignation of our existing common stock
into Global Crossing group stock could be taxable to you and/or us. In
addition, the Clinton Administration's Fiscal Year 2001 Budget Proposal
included a provision that would treat the receipt of stock similar to
Global Crossing group stock and GlobalCenter group stock for other stock
in the corporation or in a distribution by the issuing corporation as
taxable to the shareholders. If this provision is enacted following
creation of our tracking stock, Global Crossing might be required to
change its plan to issue GlobalCenter group stock or change its capital
structure by unwinding the tracking stock to avoid adverse tax
consequences.
Our board of directors determined that, on balance, the potential advantages
of the tracking stock proposal outweigh any potentially negative consequences
and unanimously recommends approval of the tracking stock proposal.
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Our board of directors believes that an increase our authorized shares of
common stock at this time is in the best interests of Global Crossing so that
we can implement the tracking stock proposal and have available the number of
shares needed for possible acquisitions, capital raising, future conversion,
dividends and current and proposed stock incentive plans.
As described under "--Conversion and repurchase," our board of directors has
the right to convert Global Crossing group stock into another class of our
stock at specified premiums payable in shares of that group's stock. Similarly,
our board of directors has the right to convert GlobalCenter group stock into
another class of our stock at specified premiums payable in shares of that
group's stock. The number of shares issuable in a conversion will vary based on
the relative market values of the outstanding classes of stock and the number
of outstanding shares of stock being converted. Our board of directors also may
pay a dividend in shares of a class of stock. If our board of directors
determines that a conversion or a share dividend is in the best interests of
Global Crossing, but at that time sufficient authorized shares of stock are not
available, our shareholders would be required to approve an increase to our
authorized share capital.
We will also reserve shares of GlobalCenter group stock for issuance
under the GlobalCenter stock incentive plans to be effective, subject to your
approval, upon the completion of the proposed initial public offering of
GlobalCenter group stock. For information on the effect of the tracking stock
proposal on outstanding awards under the 1998 Global Crossing Stock Incentive
Plan, see "Effect on existing awards and convertible preferred stock" on page
67.
Other than the issuance of shares of GlobalCenter group stock in the proposed
initial public offering, the expected disposition of the Global Crossing
group's inter-group interest in the GlobalCenter group following the proposed
initial public offering in the form of additional GlobalCenter group stock and
the issuance of shares of GlobalCenter group stock under the GlobalCenter stock
incentive plans to be effective upon the completion of the proposed initial
public offering of GlobalCenter group stock, we have no present understanding
or agreement for the issuance of any additional shares of Global Crossing group
stock or GlobalCenter group stock or for the issuance of any class of
additional common stock. Although our board of directors has no present
intention of doing so, the additional shares or additional classes of stock
that would be authorized for issuance if the tracking stock proposal is
implemented could be issued in one or more transactions that would make a
takeover of Global Crossing more difficult and, therefore, less likely, even
though a takeover might be financially beneficial to Global Crossing and our
shareholders. For additional information on provisions of Bermuda law and our
bye-laws that might deter a takeover, see "--Certain anti-takeover provisions
of Bermuda law and our bye-laws." We have no knowledge of any person or entity
that intends to seek a controlling interest in Global Crossing or to make a
takeover proposal.
Recommendation of our board of directors
Our board of directors has carefully considered the tracking stock proposal
and believes that the approval of this proposal by the shareholders is
advisable and in the best interests of our company and our shareholders. Our
board of directors unanimously recommends that you approve this proposal.
Dividend policy
Historically, we have not paid dividends on our existing common stock.
Dividends, if any, are declared at the discretion of our board of directors. We
presently do not anticipate paying dividends on either tracking stock.
Dividends on the Global Crossing group stock and the GlobalCenter group stock,
if any, will be declared at the discretion of our board of directors.
Because each of the Global Crossing group and the GlobalCenter group is
expected to require significant capital commitments to finance its operations
and fund its future growth, Global Crossing does not expect to pay any
dividends on shares of either Global Crossing group stock or GlobalCenter group
stock for the
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foreseeable future. If and when our board of directors does determine to pay
any dividends on shares of Global Crossing group stock or GlobalCenter group
stock, this determination will be based primarily on the results of operations,
financial condition and capital requirements of the relevant group and of
Global Crossing as a whole and such other factors as our board of directors
considers relevant. Payment of dividends on Global Crossing group stock and
GlobalCenter group stock also may be restricted by the terms of some of the
loan agreements, indentures and other transactions entered into by Global
Crossing from time to time.
In making its dividend decisions regarding Global Crossing group stock and
GlobalCenter group stock, our board of directors will rely on the respective
combined financial statements of the Global Crossing group and the GlobalCenter
group. See the combined financial statements of the GlobalCenter group and the
pro forma combined financial statements of the Global Crossing group included
in this proxy statement.
Bermuda law limits the amount of dividends we can pay on either group's
stock. See "--Description of Global Crossing group stock and GlobalCenter group
stock--Dividends."
Description of Global Crossing group stock and GlobalCenter group stock
We have summarized below the material terms of Global Crossing group stock
and GlobalCenter group stock. The summary is not complete. We encourage you to
read the proposed Certificate of Designations which is attached to this proxy
statement as Annex II.
The Global Crossing group and the Global Center group
We designed GlobalCenter group tracking stock to track the economic
performance of the GlobalCenter group. The Certificate of Designations defines
the "Global Crossing Group" generally as the interest of the Global Crossing
group or any of its affiliates in all of the businesses in which Global
Crossing or any of its affiliates (or any of their predecessors or successors)
is or has been engaged, directly or indirectly, and the respective assets and
liabilities of Global Crossing or any of its affiliates, other than that
portion of the GlobalCenter group represented by the outstanding shares of
GlobalCenter group stock. The Certificate of Designations defines the
"GlobalCenter Group" generally as all of the businesses, assets, properties and
liabilities of GlobalCenter Inc. and its subsidiaries. The Certificate of
Designations contains adjustments to the definition of the GlobalCenter group
to reflect, among other things, related assets and liabilities (including
contingent liabilities), net income and net losses arising after the date of
such financial statements, contributions and allocations of assets, liabilities
and businesses between the groups and acquisitions and dispositions.
Inter-group interest
Prior to the completion of the proposed initial public offering of
GlobalCenter group stock, the Global Crossing group will hold 100% of the
equity value of the GlobalCenter group. Prior to the completion of the proposed
initial public offering, our board of directors will determine the number of
shares of GlobalCenter group stock that, if issued, would represent 100% of the
equity value of the GlobalCenter group. That number will be determined based
on:
. the future prospects of the GlobalCenter group and Global Crossing;
. sales, earnings and certain other financial and operating information of
Global Crossing in recent periods;
. the price-earnings or price-sales ratios, the market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of the GlobalCenter group;
. prevailing equity market conditions; and
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. the desired range of the initial offering price of GlobalCenter group
stock.
These considerations are similar to those that will be considered in
determining the initial public offering price of GlobalCenter group stock in
the proposed initial public offering.
The Global Crossing group's inter-group interest in the GlobalCenter group
represents the ownership of the Global Crossing group in the portion of the
GlobalCenter group that is not represented by shares of GlobalCenter group
stock issued to the public.
The outstanding interest fraction represents the ownership of the
GlobalCenter group that is represented by shares of GlobalCenter group stock
issued to the public compared to 100% of the equity value of the GlobalCenter
group. The outstanding interest fraction equals the number of shares of
GlobalCenter group stock outstanding divided by the sum of the number of shares
of GlobalCenter group stock outstanding and the number of shares issuable with
respect to the Global Crossing group's inter-group interest in the GlobalCenter
group. The outstanding interest fraction will equal one, and the inter-group
interest will equal zero, at any time that all of the ownership of the
GlobalCenter group is represented by the outstanding GlobalCenter group stock.
The following illustration demonstrates the calculation of the outstanding
interest fraction. If:
. 10 million shares of GlobalCenter group stock were outstanding as a
result of the initial public offering;
. 90 million shares of GlobalCenter group stock were issuable with respect
to the Global Crossing group's inter-group interest in the GlobalCenter
group (that is, the Global Crossing group held a 90% inter-group
interest in the GlobalCenter group),
then the outstanding interest fraction with respect to the GlobalCenter group
would equal 10% based on the following calculation:
number of shares of GlobalCenter group stock = outstanding interest
outstanding fraction
- --------------------------------------------------
number of shares of GlobalCenter group stock
outstanding +
number of shares issuable with respect to the
Global Crossing
group's inter-group interest in the GlobalCenter
group
10 million shares = 10%
---------------------------------
10 million shares + 90
million shares
The number of shares of GlobalCenter group stock issuable with respect to the
Global Crossing group's inter-group interest in the GlobalCenter group shall
be:
. adjusted to reflect equitably any subdivision, by stock split or
otherwise, or combination, by reverse stock split or otherwise, of
GlobalCenter group stock or any distribution of shares of GlobalCenter
group stock to holders of GlobalCenter group stock or any
reclassification of GlobalCenter group stock;
. decreased by:
. the number of shares of GlobalCenter group stock issued or sold by
us that, immediately prior to that issuance or sale, were included
in the number of shares issuable with respect to the Global Crossing
group's inter-group interest;
. the number of shares of GlobalCenter group stock issued upon
conversion, exchange or exercise of convertible securities that,
immediately prior to the issuance or sale of these convertible
securities, were included in the number of shares issuable with
respect to the Global Crossing group's inter-group interest;
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. the number of shares of GlobalCenter group stock issued by us as a
share dividend or in connection with any reclassification or
exchange of shares, including any exchange offer, to holders of
Global Crossing group stock;
. the number of shares of GlobalCenter group stock issued upon the
conversion, exchange or exercise of any convertible securities
issued by us as a share dividend or in connection with any
reclassification or exchange of shares, including any exchange
offer, to holders of Global Crossing group stock;
. the number equal to the percentage of the outstanding shares
repurchased after a disposition of substantially all, but not all,
of the assets attributed to the GlobalCenter group times the number
of shares of GlobalCenter group stock issuable with respect to the
Global Crossing group's inter-group interest;
. the number equal to the quotient of (x) the aggregate fair value as
of the date of contribution of assets transferred from the
GlobalCenter group to the Global Crossing group in consideration of
a reduction in the number of shares issuable with respect to the
Global Crossing group's inter-group interest in the GlobalCenter
group divided by (y) the average market value of one share of
GlobalCenter group stock over the 20-trading day period ending on
the date of such contribution;
. increased by:
. the number of outstanding shares of GlobalCenter group stock
repurchased by us for consideration that is attributed to the Global
Crossing group;
. the number equal to the quotient of (x) the fair value of assets
attributed to the Global Crossing group that are contributed to the
GlobalCenter group in consideration of an increase in the number of
shares issuable with respect to the Global Crossing group's inter-
group interest, divided by (y) the average market value of one share
of GlobalCenter group stock over the 20-trading day period ending on
the date of such contribution; and
. the number of shares of GlobalCenter group stock into or for which
convertible securities deemed held by the Global Crossing group are
deemed converted, exchanged or exercised;
. increased or decreased under those other circumstances as our board of
directors determines appropriate to reflect the economic substance of
any other event or circumstance.
At any time the Global Crossing group holds an inter-group interest in the
GlobalCenter group, the outstanding interest fraction will be used to allocate
to the Global Crossing group any dividend or repurchase payment made to holders
of GlobalCenter group stock.
Our board of directors also may pay dividends in shares of GlobalCenter group
stock on shares of Global Crossing group stock to the extent the number of
shares issued in connection with the share dividend is less than or equal to
the number of shares issuable with respect to the Global Crossing group's
inter-group interest in the GlobalCenter group. Distributions of assets
attributed to the GlobalCenter group on shares of Global Crossing group stock
are similarly limited.
If the Global Crossing group's inter-group interest in the GlobalCenter group
has been eliminated and the GlobalCenter group has acquired an inter-group
interest in the Global Crossing group, our board of directors may pay dividends
in shares of Global Crossing group stock or distribute assets attributed to the
Global Crossing group on shares of GlobalCenter group stock but only subject to
limitations similar to those described above when the Global Crossing group
holds an inter-group interest in the GlobalCenter group.
Any group may hold an inter-group interest in any other group, unless our
board of directors shall determine otherwise at the time of issuance. However,
no group can hold an inter-group interest in any other
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group if the two groups would then hold an inter-group interest in each other.
Accordingly, the GlobalCenter group may hold an inter-group interest in the
Global Crossing group only if the Global Crossing group's inter-group interest
has been eliminated. Additional groups also may hold an inter-group interest in
the Global Crossing group or the GlobalCenter group. If the GlobalCenter group
acquired an inter-group interest in the Global Crossing group, similar changes
would be made to that inter-group interest if transactions similar to those
described above relating to the Global Crossing group's inter-group interest in
the GlobalCenter group occurred with respect to Global Crossing group stock or
the Global Crossing group. If an additional group acquired an inter-group
interest in the GlobalCenter group or the GlobalCenter group held an inter-
group interest in any additional group, similar provisions would also apply.
Dividends
The Certificate of Designations relating to Global Crossing group stock and
GlobalCenter group stock provides that dividends on Global Crossing group stock
or GlobalCenter group stock will be limited to the lesser of:
. the funds of Global Crossing legally available for distributions under
Bermuda law; and
. the available distribution amount for the Global Crossing group, which
is the same amount that would be legally available for the payment of
dividends on GlobalCenter group's stock if the GlobalCenter group were a
separate company under Bermuda law.
The available distribution amount for a particular group is calculated as
follows:
. the outstanding interest fraction for that group,
multiplied by
. the lesser of:
. any amount in excess of the minimum amount necessary to pay debts
attributed to that group as they become due; and
. the realizable value of the assets attributed to that group less the
sum of the total liabilities attributed to that group together with
the amount of the issued share capital and share premium account
attributable to that group.
Under Bermuda law, the amount of legally available funds of Global Crossing
is determined on the basis of our entire company, and not only the respective
groups. As a result, the amount of our legally available funds will reflect the
amount of:
. any net losses of each group, including any additional groups;
. any distributions made on Global Crossing group stock, GlobalCenter
group stock, any additional class of common stock or any preferred
stock; and
. any repurchases of Global Crossing group stock, GlobalCenter group
stock, any additional class of common stock or any preferred stock.
Dividend payments on Global Crossing group stock or GlobalCenter group stock
could be precluded because legally available funds are not available under
Bermuda law, even though the available distribution amount test for the
particular group was met. We cannot assure you that there will be an available
distribution amount for any group or, if met, that we will have legally
available funds to pay such a dividend.
Subject to the prior payment of dividends on any outstanding shares of
preferred stock and the limitations described above, our board of directors
will be able, in its sole discretion, to declare and pay dividends exclusively
on Global Crossing group stock, exclusively on GlobalCenter group stock,
exclusively on any additional tracking stock or on any combination of class of
stock, in equal or unequal amounts. In making its
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dividend decisions, our board of directors will not be required to consider the
relative available distribution amounts for any group, the amount of dividends
previously declared on any class of stock, the respective voting or liquidation
rights of any class or any other factor.
The terms of some of our debt instruments also place limitations on our
ability to pay dividends.
If the Global Crossing group still holds an inter-group interest in the
GlobalCenter group at the time of any dividend on the outstanding shares of
GlobalCenter group stock, we will credit to the Global Crossing group, and
charge against the GlobalCenter group, a corresponding amount in respect of the
Global Crossing group's inter-group interest in the GlobalCenter group.
Voting rights
The holders of GlobalCenter group stock and the holders of Global Crossing
group stock, as well as the holders of any additional class of common stock
that might subsequently be created and upon which similar voting power is
vested, will be entitled to vote on any matter on which our shareholders are,
by Bermuda law, Nasdaq listing rules or stock exchange rules or by the
provisions of our bye-laws as determined by our board of directors, entitled to
vote, subject to certain restrictions described below.
The holders of GlobalCenter group stock, the holders of Global Crossing group
stock and the holders of any additional class of common stock that might
subsequently be created and upon which similar voting power is vested will vote
together as a single voting group on each matter on which holders of common
stock are generally entitled to vote, except as described below.
On all matters as to which all classes of common stock will vote together as
a single class, subject to certain restrictions described below:
. each share of GlobalCenter group stock will have a number of votes equal
to the quotient of the average market value of one share of GlobalCenter
group stock during the 20-trading day period ending on the tenth trading
day prior to the record date for determining the holders of stock
entitled to vote, divided by the average market value of one share of
Global Crossing group stock during the same period. However, if this
calculation results in the holders of GlobalCenter group stock holding
more than 25% of the total voting power of all outstanding shares of
common stock, the vote of each share of GlobalCenter group stock will be
reduced so that all of the outstanding shares of GlobalCenter group
stock represent 25% of the total voting power of all outstanding shares
of common stock. The 25% limitation on the total voting power of all
outstanding shares of common stock will be eliminated if the outstanding
shares of Global Crossing group stock are converted into shares of the
GlobalCenter group; and
. each share of Global Crossing group stock will have one vote.
If we issue shares of an additional class of common stock, each share of such
additional class of common stock will have a number of votes, including a
fraction of one vote or no vote, as our board of directors determines at the
time of issuance. Shares issuable with respect to a group's inter-group
interest in another group will have no voting rights.
Accordingly, the relative per share voting rights of GlobalCenter group
stock, Global Crossing group stock and any additional class of common stock
that is entitled to a number of votes per share based on market values will
fluctuate depending on changes in the relative market values of shares of the
classes of common stock.
Global Crossing group stock will have and will retain a substantial majority
of the combined voting power of GlobalCenter group stock and Global Crossing
group stock because:
. we expect that initially the aggregate market value of the outstanding
shares of Global Crossing group stock will be substantially greater than
the aggregate market value of the outstanding shares of GlobalCenter
group stock; and
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. the aggregate voting power of all of the outstanding shares of
GlobalCenter group stock is limited to 25% of the total voting power of
all outstanding shares of common stock, regardless of the market value
of the GlobalCenter group stock.
Fluctuations in the relative voting rights of GlobalCenter group stock,
Global Crossing group stock and any additional class of common stock that is
subsequently created and entitled to a number of votes per share based on
market values could influence an investor interested in acquiring and
maintaining a fixed percentage of the voting power of our common stock to
acquire such percentage by acquiring the class of common stock having a greater
number of votes per share.
We will set forth the number of outstanding shares of GlobalCenter group
stock, Global Crossing group stock and any additional class of common stock in
our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q filed
under the Securities Exchange Act of 1934. We will disclose in any proxy
statement for a shareholders' meeting the number of outstanding shares and per
share voting rights of GlobalCenter group stock, Global Crossing group stock
and additional group stock, if any.
If shares of only GlobalCenter group stock are outstanding, each share will
have one vote and, in situations where GlobalCenter group stock is entitled to
vote as a separate voting group with respect to any matter, each share of
GlobalCenter group stock will, for purposes of such vote, also have one vote on
such matter.
The holders of Global Crossing group stock or GlobalCenter group stock will
not have any rights to vote separately as a class on any matter, except in the
case of any required proposal to (1) increase or decrease the authorized shares
of the relevant class, other than an increase in authorized shares required to
effectuate a conversion of one group into the other group or a distribution to
holders of Global Crossing group stock of all or a portion of its inter-group
interest in the GlobalCenter group, or (2) amend the terms of that class, and
except for the limited single class voting rights provided under Bermuda law,
Nasdaq listing rules or stock exchange rules or by the provisions of our bye-
laws as determined by our board of directors. In addition to the approval of
holders of a majority of all shares of stock voting together as a single voting
group present at the meeting, the approval of a majority of the outstanding
shares of GlobalCenter group stock or Global Crossing group stock present at a
meeting, voting as a separate voting group, would be required under Bermuda law
to approve any amendment to our bye-laws or the Certificate of Designations
relating to that class of common stock that would, among other things, change
the designation, rights, preferences or limitations of the shares of that
class.
The following illustration demonstrates the calculation of the number of
votes to which each share of GlobalCenter group stock would be entitled on all
matters on which the holders of GlobalCenter group stock and the holders of
Global Crossing group stock vote as a single voting group, where the average
market values calculation does not result in the holders of GlobalCenter group
stock holding more than 25% of the total voting power of all outstanding shares
of common stock and therefore a reduction in the voting power of each share of
GlobalCenter group stock is not required. If:
. 10 million shares of GlobalCenter group stock and 400 million shares of
Global Crossing group stock were outstanding;
. the average market value for the 20-trading day valuation period was $20
for GlobalCenter group stock; and
. the average market value for the 20-trading day valuation period was $40
for Global Crossing group stock;
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then each share of Global Crossing group stock would have one vote and each
share of GlobalCenter group stock would have 0.5 votes based on the following
calculation:
average market value
of GlobalCenter $20 per share 0.5 votes per
group stock = -------------- = share of
- ---------------------- $40 per share GlobalCenter
average market value group stock
of Global Crossing
group stock
As a result, the shares of GlobalCenter group stock would represent 5
million votes, which equals 1.2% of the total voting power of Global Crossing,
and the shares of Global Crossing group stock would represent 400 million
votes, which equals 98.8% of the total voting power of Global Crossing. These
amounts are calculated as follows:
0.5 votes per share X 10 million outstanding = 5 million votes for
of GlobalCenter shares of GlobalCenter GlobalCenter group
group stock group stock stock
1 vote per share of X 400 million shares of = 400 million votes
Global Crossing Global Crossing group for Global Crossing
group stock stock group stock
5 million votes for GlobalCenter 1.2% of total voting power
group stock = held by GlobalCenter group stock
- -------------------------------------
5 million votes for GlobalCenter
group stock +
400 million votes for Global
Crossing group stock
400 million votes for Global 98.8% of total voting power held
Crossing group stock = by Global Crossing group stock
- -------------------------------------
5 million votes for GlobalCenter
group stock +
400 million votes for Global
Crossing group stock
The following illustration demonstrates the calculation of the number of
votes to which each share of GlobalCenter group stock would be entitled on all
matters on which the holders of Global Crossing group stock and the holders of
GlobalCenter group stock vote as a single voting group, where the average
market values calculation does result in the holders of GlobalCenter group
stock holding more than 25% of the total voting power of all outstanding
shares of common stock and therefore a reduction in the voting power of each
share of GlobalCenter group stock is required. If:
. 200 million shares of GlobalCenter group stock and 400 million shares of
Global Crossing group stock were outstanding;
. the average market value for the 20-trading day valuation period was $50
for GlobalCenter group stock; and
. the average market value for the 20-trading day valuation period was $40
for Global Crossing group stock;
then each share of Global Crossing group stock would have one vote and each
share of GlobalCenter group stock would have 1.25 votes based on the following
calculation:
average market value
of GlobalCenter $50 per = 1.25 votes per
group stock = share share of
- --------------------- ------------ GlobalCenter
average market value $40 per group stock
of Global Crossing share
group stock
1.25 votes per 200 million 38.5% of total
share of outstanding voting power
GlobalCenter X shares of = 250 million = held by
group stock GlobalCenter votes GlobalCenter
group stock group stock
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Because the total voting power of GlobalCenter group stock would exceed the
25% limitation, we would calculate the maximum number of votes to which the
holders of GlobalCenter group stock are entitled in the aggregate by using this
formula:
x 25% of total voting power of common stock
------------ =
x + y
where:
. x = the maximum number of votes to which the holders of outstanding
shares of GlobalCenter group stock are entitled in the aggregate; and
. y = the number of votes to which the holders of the outstanding shares
of Global Crossing group stock are entitled, based on one vote per
share.
Applied to the foregoing facts, this formula results in the following:
x
---------------- = 0.25
x + y
x
---------------- = 0.25
x +
4,000,000,000
x = 0.25 x + 100,000,000
0.75 x = 100,000,000
x = 133,333,333 maximum votes for
holders of GlobalCenter
group stock
Global Crossing will then calculate the maximum number of votes per share of
GlobalCenter group stock as follows:
x 133,333,333 0.667 votes per
- --------------------- = ------------ = share of
the number of shares 200,000,000 GlobalCenter
of GlobalCenter group stock
group stock
outstanding
Voting restrictions
Under our bye-laws, if any shareholder owns, directly, indirectly or
constructively under Section 958 of the U.S. 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 total voting power of Global Crossing common stock, or,
in the case of Canadian Imperial Bank of Commerce and its affiliates,
collectively, more than 20% of the total voting power of Global Crossing common
stock, the number of votes of that shareholder will be limited to 9.5% of the
aggregate voting power of Global Crossing common stock, or, in the case of
Canadian Imperial Bank of Commerce and its affiliates, collectively, to 20% of
the aggregate voting power of Global Crossing common 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.
Holders of shares of Global Crossing group stock and holders of GlobalCenter
group stock are subject to the voting restrictions currently imposed on holders
of our existing Global Crossing common stock.
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Conversion and repurchase
Our current bye-laws do not provide for either mandatory or optional
conversion or repurchase of our existing common stock. The proposed resolution
will permit the conversion or repurchase of Global Crossing group stock and
GlobalCenter group stock as described below.
Conversion of common stock at option of Global Crossing at any time
Except as described below, our board of directors may at any time convert
each share of Global Crossing group stock into a number of shares of
GlobalCenter group stock or another class of our common stock, as determined by
our board of directors at the time of conversion, equal to the applicable
percentage described below of the ratio of the average market value of one
share of Global Crossing group stock to the average market value of one share
of the other class of our common stock during a 20-trading day period.
Similarly, except as described below, our board of directors may at any time
convert each share of GlobalCenter group stock into a number of shares of
Global Crossing group stock or another class of our common stock, as determined
by our board of directors at the time of conversion, equal to a percentage of
the ratio of the average market value of one share of GlobalCenter group stock
to the average market value of one share of the other class of our common stock
during a 20-trading day period. We will calculate the ratio of average market
values as of the fifth trading day prior to the date we mail the conversion
notice to holders. The applicable percentage of the ratio of the average market
values will be 120% during the first year following the completion of the
planned initial public offering of GlobalCenter group stock, 115% during the
second year and 110% thereafter.
Any optional conversion as described above can only be effected if, as of
close of business on the last day of the 20-trading day period, the market
capitalization of the class of common stock being issued in the conversion
exceeds the market capitalization of the class of common stock being converted.
In addition, if our board of directors determines to issue one or more
classes of additional common stock, shares of that class or those classes could
be convertible into Global Crossing group stock or GlobalCenter group stock on
terms determined by our board at the time of issuance.
If a tax event occurs at any time, a factor of 100% rather than the
percentages discussed above will be applied to the ratio of the average market
values. This means that the holders of the class of stock being converted will
not receive any premium in a conversion.
The term "tax event" means the receipt by Global Crossing of an opinion of
tax counsel to the effect that, as a result of (a) any amendment to, official
clarification of, or change or proposed change in, the laws, or interpretation
or application of the laws, of Bermuda or the United States or any political
subdivision or taxing authority thereof or therein, including:
. the enactment of any legislation;
. the publication of any judicial or regulatory decision, determination,
pronouncement; or
. any announced proposed change in law by an applicable legislative
committee or the chair thereof, but not including a legislative proposal
by an administration until acted upon by the applicable legislative
committee or chair thereof,
regardless of whether the amendment, clarification, change or proposed change
is issued to or in connection with a proceeding involving us, the Global
Crossing group or the GlobalCenter group and regardless of whether the
amendment, clarification, change or proposed change is subject to appeal, there
is more than an insubstantial risk that (b):
. any issuance of Global Crossing group stock or GlobalCenter group stock
would be treated for tax purposes as a sale or other taxable disposition
by us or any of our subsidiaries of any of the assets, operations or
relevant subsidiaries to which Global Crossing group stock or
GlobalCenter group stock relates;
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. the issuance or existence of Global Crossing group stock or GlobalCenter
group stock would subject us, our subsidiaries or affiliates, or our or
their successors or shareholders to the imposition of any tax or other
adverse tax consequences that, in the reasonable discretion and good
faith of Global Crossing, are more than de minimis; or
. either Global Crossing group stock or GlobalCenter group stock is not,
or at any time in the future will not be, treated for tax purposes
solely as common stock of Global Crossing.
For purposes of rendering such an opinion, tax counsel will assume that any
such legislative or administrative proposals will be adopted or enacted as
proposed. For the avoidance of doubt, a tax event does not include the
occurrence of any of the events listed in (a) above, if, as a result of a
"grandfathering" provision, such event results in not more than an
insubstantial risk that the issuance or existence of either Global Crossing
group stock or GlobalCenter group stock would result in any of the consequences
described in (b) above.
These provisions allow us the flexibility to recapitalize two classes of our
stock into one class of our stock that would, after the recapitalization,
represent an equity interest in the combined businesses of the Global Crossing
group or the GlobalCenter group, as the case may be, and the group related to
the class of our stock into which Global Crossing group stock or GlobalCenter
group stock, as the case may be, is converted. The optional conversion could be
exercised at any future time if our board of directors determines that, under
particular facts and circumstances then existing, an equity structure
consisting of these two classes of stock was no longer in the best interests of
Global Crossing. A conversion could be exercised, however, at a time that is
disadvantageous to the holders of one class of stock. For additional
information on the risks of a conversion and the limited remedies available to
shareholders, see "Risk Factors--Holders of Global Crossing group stock and
GlobalCenter group stock may not have any remedies if any action by directors
and officers has a disadvantageous effect on the stock of their group" and "--
Potential conflicts of interest exist between Global Crossing group stock and
GlobalCenter group stock that may be difficult to resolve by our board of
directors or that may be resolved adversely to one of the classes."
Conversion would be based upon the relative market values of Global Crossing
group stock or GlobalCenter group stock, as the case may be, and the group
related to the class of our stock into which Global Crossing group stock or
GlobalCenter group stock, as the case may be, is converted. Many factors could
affect the market values of Global Crossing group stock, GlobalCenter group
stock or the other class of stock, including our results of operations and
those of each of the groups, trading volume and general economic and market
conditions. Market values also could be affected by decisions by our board of
directors or our management that investors perceive to affect differently one
class of stock compared to the other. These decisions could include changes to
our tracking stock policies, transfers of assets between groups, allocations of
corporate opportunities and financing resources between the groups and changes
in dividend policies.
The following illustration demonstrates the calculation of the number of
shares issuable upon conversion of one class of common stock into shares of
another class of our common stock at our option at any time after the second
year after the completion of the proposed initial public offering of
GlobalCenter group stock. If:
. a tax event has not occurred;
. 10 million shares of GlobalCenter group stock and 400 million shares of
Global Crossing group stock were outstanding immediately prior to the
conversion;
. the average market value of one share of GlobalCenter group stock over
the 20-trading day valuation period was $20; and
. the average market value of one share of Global Crossing group stock
over the 20-trading day valuation period was $40;
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then each share of GlobalCenter group stock could be converted into 0.55 shares
of Global Crossing group stock based on the following calculation:
average market value of GlobalCenter shares of Global Crossing
110% group stock group stock
X ------------------------ =
average market value of Global
Crossing group stock
$20 per share
1.1 X ------------------------ = 0.55 shares of Global
$40 per share Crossing group stock
Repurchase for stock of subsidiary
Our board of directors may at any time repurchase on a pro rata basis all of
the outstanding shares of Global Crossing group stock or GlobalCenter group
stock for shares of the common stock of one or more of our wholly-owned
subsidiaries that own all of the assets and liabilities attributed to the
relevant group.
If the Global Crossing group still holds an inter-group interest in the
GlobalCenter group at the time of any such repurchase of GlobalCenter group
stock, the number of shares of those subsidiaries that we will exchange for
GlobalCenter group stock in such repurchase will be equal to the product of the
outstanding interest fraction and the number of shares of common stock of each
subsidiary that will be outstanding immediately after the repurchase. We will
retain the balance of the shares of those subsidiaries for the Global Crossing
group or distribute them to the holders of Global Crossing group stock.
If the Global Crossing group still holds an inter-group interest in the
GlobalCenter group at the time of any such repurchase of Global Crossing group
stock, we will exchange, in addition to shares of one of more subsidiaries that
own all of the assets and liabilities attributed to the Global Crossing group,
a number of shares of GlobalCenter group stock equal to the number of shares
issuable with respect to the Global Crossing group's inter-group interest in
the GlobalCenter group to either (1) the holders of Global Crossing group stock
or (2) one or more of those Global Crossing group subsidiaries.
We may repurchase shares of Global Crossing group stock or GlobalCenter group
stock for subsidiary stock only if we have legally available funds under
Bermuda law.
These provisions are intended to give us increased flexibility with respect
to spinning off the assets of one of the groups by transferring the assets of
that group to one or more wholly-owned subsidiaries. As a result of any such
repurchase, the holders of each Global Crossing group stock and the holders of
GlobalCenter group stock would hold securities of separate legal entities
operating in distinct lines of business. We currently do not have any intention
of spinning off the assets of the GlobalCenter group; however, this repurchase
could be authorized by our board of directors at any time in the future if it
determines that, under the facts and circumstances then existing, an equity
structure comprised of Global Crossing group stock and GlobalCenter group stock
is no longer in the best interests of Global Crossing as a whole.
The following illustration demonstrates the provisions with respect to a
repurchase of all of GlobalCenter group stock for shares of the common stock of
one of our wholly-owned subsidiaries that owns all of the assets and
liabilities attributed to the GlobalCenter group. If:
. the Global Crossing group holds an 90% inter-group interest in the
GlobalCenter group, resulting in a 10% outstanding interest fraction;
. 100 million shares of common stock of that GlobalCenter group subsidiary
will be outstanding immediately after the repurchase;
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then we will exchange 10 million shares of common stock of that GlobalCenter
group subsidiary for GlobalCenter group stock based on the following
calculation:
outstanding the number of shares of shares of
interest X common stock of that = GlobalCenter
fraction GlobalCenter group group subsidiary
subsidiary that will be
outstanding immediately
after the repurchase
0.10 X 100 million = 10 million
shares
As a result of the Global Crossing group's 90% inter-group interest, we will
retain the remaining 90 million shares of common stock of that GlobalCenter
group subsidiary for the Global Crossing group.
Mandatory dividend, repurchase or conversion of stock if disposition of
group assets occurs
If we dispose of all or substantially all of the properties and assets
attributed to either the Global Crossing group or the GlobalCenter group in a
transaction or series of related transactions other than those described below
under "--Exceptions to the mandatory dividend, repurchase or conversion
requirement if a disposition occurs," we are required to take action that
returns the value of the net proceeds of those assets to the holders of that
group's stock. That action could take the form of a dividend, a repurchase of
shares or a conversion into another class of our stock.
Accordingly, if we dispose of all or substantially all of the properties and
assets attributed to the Global Crossing group or the GlobalCenter group in a
transaction or series of related transactions other than those described below,
we will:
. pay a dividend to the holders of shares of that group's stock in cash
and/or securities or other property having a fair value equal to the net
proceeds of the disposition; or
. if the disposition involves all of the properties and assets, repurchase
all outstanding shares of that group's stock for cash and/or securities
or other property having a fair value equal to the net proceeds of the
disposition; or
. if the disposition involves substantially all, but not all, of the
properties and assets, repurchase a number of shares of that group's
stock for cash and/or securities or other property having a fair value
equal to the net proceeds of the disposition; the number of shares so
repurchased will have in the aggregate an average market value, during
the 10-day trading period beginning on the 26th trading day following
the disposition date; or
. convert each outstanding share of that group's stock into a number of
shares of another class of our common stock, as determined by our board
of directors at the time of conversion, equal to the applicable
percentage, described above under "Conversion of common stock at option
of Global Crossing at any time," of the ratio of the average market
value of one share of stock of the group whose assets are disposed to
the average market value of one share of the other class of our common
stock during the 10-day trading period beginning on the 26th trading day
following the disposition date.
We may only pay a dividend or repurchase shares of Global Crossing group
stock and GlobalCenter group stock if we have legally available funds under
Bermuda law and the amount to be paid to holders is less than or equal to the
available distribution amount for the group. We will pay the dividend or
complete the repurchase or conversion on or prior to the 95th trading day
following the disposition date.
For purposes of determining whether a disposition has occurred,
"substantially all of the properties and assets" attributed to either group
means a portion of the properties and assets that represents at least 80% of
the then fair value of the properties and assets attributed to that group.
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The "net proceeds" of a disposition means an amount equal to what remains of
the gross proceeds of the disposition after any payment of, or reasonable
provision is made as determined by our board of directors for:
. any taxes we estimate will be payable by us, or which we estimate would
have been payable but for the utilization of tax benefits attributable
to another group, in respect of the disposition or in respect of any
resulting dividend or repurchase;
. any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses;
. any liabilities of or attributed to the group whose assets are disposed,
including, without limitation, any liabilities for deferred taxes, any
indemnity or guarantee obligations incurred in connection with the
disposition or otherwise and any liabilities for future purchase price
adjustments and any preferential amounts; and
. any accumulated and unpaid dividends in respect of any preferred stock
attributed to that group.
We may elect to pay the dividend or repurchase price either in the same form
as the proceeds of the disposition were received or in any other combination of
cash, securities or other property that our board of directors or, in the case
of securities that have not been publicly traded for a period of at least ,
an independent investment banking firm, determines will have an aggregate
market value of not less than the fair value of the net proceeds.
The following illustration demonstrates the provisions requiring a mandatory
dividend, repurchase or conversion if a disposition occurs following the second
year after the consummation of this offering. If:
. 10 million shares of GlobalCenter group stock were outstanding;
. the Global Crossing group holds an 90% inter-group interest in the
GlobalCenter group, resulting in a 10% outstanding interest fraction;
. the net proceeds of the sale of substantially all, but not all, of the
assets of the GlobalCenter group equals $100 million;
. the average market value of GlobalCenter group stock during the 10-
trading day valuation period was $20 per share; and
. the average market value of Global Crossing group stock during the 10-
trading day valuation period was $40 per share;
then we could do any of the following:
(1) pay a dividend to the holders of GlobalCenter group stock equal to:
outstanding X net proceeds = dividend per
interest fraction ------------------------- share
number of outstanding
shares of GlobalCenter
group stock
0.10 X $100 million = $1 per share
-------------------------
10 million shares
As a result of the Global Crossing group's 90% inter-group interest, we will
credit to the Global Crossing group, and charge against the GlobalCenter group,
$90 million.
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(2) repurchase for $20 per share a number of shares of GlobalCenter group
stock equal to:
shares of
outstanding X net proceeds = GlobalCenter
interest fraction ------------------------- group stock
average market value of
GlobalCenter group stock
0.10 X $10 million = 500,000 shares
-------------------------
$20 per share
As a result of the Global Crossing group's 90% inter-group interest, we will
effectively repurchase 4.5 million shares issuable with respect to the Global
Crossing group's inter-group interest in the GlobalCenter group for $20 per
share by crediting to the Global Crossing group, and charging against the
GlobalCenter group, $90 million.
(3) convert each outstanding share of GlobalCenter group stock into a number
of shares of Global Crossing group stock equal to:
average market value of
110% X GlobalCenter group stock = shares of
------------------------- Global Crossing
average market value of group stock
Global Crossing group
stock
1.1 X $20 per share = 0.55 shares of
------------------------- Global Crossing
$40 per share group stock
Our board of directors may, within two years after a dividend or repurchase
following a disposition of substantially all, but not all, of the properties
and assets attributed to the Global Crossing group or the GlobalCenter group,
convert each outstanding share of that group's stock into a number of shares of
another class of our stock, as determined by our board of directors at the time
of conversion, equal to 110% of the ratio of the average market values of one
share of stock of the group whose assets are disposed to one share of the other
class of our stock over a 20-trading day period, unless we would be entitled to
convert without any premium as described under "--conversion of common stock at
our option at any time." In that event, there will be no premium. We will
calculate the ratio of average market values as of the fifth trading day prior
to the date we mail the conversion notice to holders.
The following illustration demonstrates the calculation of the number of
shares issuable upon conversion of one class of stock into shares of another
class of our stock within two years after a dividend following a disposition of
substantially all of the group's assets. If:
. the Global Crossing group holds an 90% inter-group interest in the
GlobalCenter group, resulting in a 10% outstanding interest fraction;
. the average market value of GlobalCenter group stock during the 20-
trading day valuation period was $20 per share; and
. the average market value of Global Crossing group stock during the 20-
trading day valuation period was $80 per share;
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then each share of GlobalCenter group stock could be converted into 0.275
shares of Global Crossing group stock based on the following calculation:
average market value of
110% X GlobalCenter group stock = shares of
------------------------- Global
average market value of Crossing group
Global Crossing group stock
stock
$20 per share 0.275 shares
1.1 X ------------------------- =
$80 per share
Exceptions to the mandatory dividend, repurchase or conversion requirement if
a disposition occurs. We are not required to take any of the above actions for
any disposition of all or substantially all of the properties and assets
attributed to either group in a transaction or class of related transactions
that results in our receiving for those properties and assets primarily equity
securities of any entity which:
. acquires those properties or assets or succeeds to the business
conducted with those properties or assets or controls such acquiror or
successor; and
. is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by that
group prior to the disposition, as determined by our board of directors.
The purpose of this exception is to enable us technically to "dispose" of
properties or assets of a group to other entities, including joint ventures,
engaged or proposing to engage in businesses similar or complementary to those
of that group without requiring a dividend on, or a repurchase or conversion
of, the class of stock of that group, so long as we receive an equity interest
in that entity. We are not required to control that entity, whether by
ownership or contract provisions.
We also are not required to effect a dividend, repurchase or conversion if
the disposition is:
. of all or substantially all of our properties and assets in one
transaction or a series of related transactions in connection with our
dissolution and the distribution of our assets to shareholders;
. on a pro rata basis, such as in a spin-off, to the holders of all
outstanding shares of the stock of the group whose assets are disposed
and, to the extent that any group not subject to the disposition holds
an inter-group interest in the group whose assets are being disposed,
the group not subject to the disposition;
. made to any person or entity controlled by us, as determined by our
board of directors; or
. a disposition conditioned upon the affirmative vote of a majority of all
votes cast by the holders of that group's stock, voting as a separate
class.
Notices if disposition of group assets occurs. Not later than the 20th
trading day after the consummation of a disposition, we will announce publicly
by press release:
. the net proceeds of the disposition;
. the number of shares outstanding of the stock of the group whose assets
are disposed;
. the number of shares of that group's stock into or for which convertible
securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price of those convertible securities;
and
. if applicable, the outstanding interest fraction on the date of the
notice.
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Not earlier than the 36th trading day and not later than the 40th trading day
after the consummation of the disposition, we will announce publicly by press
release whether we will pay a dividend or repurchase shares of stock with the
net proceeds of the disposition or convert the shares of stock of the group
whose assets are disposed into another class of our stock.
We will mail to each holder of shares of the group whose assets are disposed
the additional notices and other information required by our bye-laws.
Selection of shares for repurchase. If fewer than all of the outstanding
shares of a class of stock are to be repurchased, we will repurchase those
shares proportionately from among the holders of outstanding shares of that
class of stock or by such method as may be determined by our board of directors
to be equitable.
Fractional interests; transfer taxes. We will not be required to issue
fractional shares of any capital stock or any fractional securities to any
holder of either class of stock upon any conversion, repurchase, dividend or
other distribution described above. If a fraction is not issued to a holder, we
will pay cash instead of that fraction.
We will pay all documentary, stamp or similar issue or transfer taxes that
may be payable in respect of the issue or delivery of any shares of capital
stock and/or other securities on repurchase or conversion of shares.
Liquidation rights
Currently, in the event of our dissolution after payment or provision for
payment of our debts and other liabilities and the payment of full preferential
amounts to which the holders of any preferred stock are entitled, the holders
of existing common stock are entitled to share equally in our remaining net
assets.
Under the Certificate of Designations, in the event of our dissolution, after
payment or provision for payment of the debts and other liabilities and full
preferential amounts to which holders of any preferred stock are entitled, the
holders of Global Crossing group stock, the holders of GlobalCenter group stock
and the holders of any additional tracking stock will be entitled to receive
our assets remaining, if any, for distribution to holders of common stock on a
per share basis in proportion to the liquidation units per share of such class.
The liquidation rights of the class will be as follows:
. each share of Global Crossing group stock will have one liquidation
unit; and
. each share of GlobalCenter group stock will have liquidation units;
and
. if we issue an additional class or classes of common stock, each share
of an additional class of common stock will have a number of liquidation
units, including a fraction of one liquidation unit, as our board of
directors shall determine at the time of issuance.
The number of liquidation units to which each share of Global Crossing group
stock or GlobalCenter group stock is entitled will not be changed without the
approval of the holders of each class of stock voting as a separate class,
except in the limited circumstances described below. As a result, after the
date of the calculation of the number of liquidation units to which
GlobalCenter group stock is entitled, the liquidation rights of the holders of
the respective class of stock may not bear any relationship to the relative
market values or the relative voting rights of the two classes.
No holder of Global Crossing group stock will have any special right to
receive specific assets of the Global Crossing group and no holder of
GlobalCenter group stock will have any special right to receive specific assets
of the GlobalCenter group in the case of our dissolution.
If we subdivide or combine the outstanding shares of a class of stock or
declare a dividend or other distribution of shares of a class of stock to
holders of that class of stock, the number of liquidation units of the
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other class of stock will be appropriately adjusted. This adjustment will be
made by our board of directors, to avoid any dilution in the aggregate,
relative liquidation rights of any class of stock.
Neither a consolidation, merger or share exchange of Global Crossing into or
with any other corporation, nor any sale, conveyance, lease, exchange or
transfer of all or substantially all of our assets, will, alone, cause the
dissolution of Global Crossing, for purposes of these liquidation provisions.
Determinations by the board of directors
Any determinations made in good faith by our board of directors with respect
to a class of common stock will be final and binding on all of our
shareholders.
Preemptive rights
The holders of any class of stock will not have any preemptive rights.
Additional classes of common stock
If the tracking stock proposal is approved, our board of directors may decide
to authorize the issuance of shares of one or more classes of common stock in
addition to Global Crossing group stock and GlobalCenter group stock, although
we do not have any current plan to do so . Our board of directors will have the
authority to do so in its sole discretion and without further shareholder
approval, except as may be provided by Bermuda law or Nasdaq National Market
rules or the rules of any stock exchange on which any class of outstanding
common stock may then be listed.
If our board of directors decides to issue additional classes of common
stock, Global Crossing may establish a new group to which such new class of
common stock relates either by allocating to it newly acquired assets or by
reallocating to it assets and liabilities from any one or more of the Global
Crossing group, the GlobalCenter group or any previously created additional
group. In the latter case, the group or groups to which those assets and
liabilities were previously attributed would hold an inter-group interest in
the new group.
At the time of issuance of any class of additional common stock, our board of
directors will determine the dividend, voting and liquidation rights and
conversion, repurchase and other provisions applicable to that additional
common stock. Any additional common stock issued may be convertible into either
Global Crossing group stock or GlobalCenter group stock on such terms as may be
determined by our board of directors.
Our board of directors also may determine at the time of issuance of any
additional common stock that the additional group may acquire an inter-group
interest in either the Global Crossing group or the GlobalCenter group, or
both. Alternatively, our board of directors may permit the Global Crossing
group or the GlobalCenter group, or both, to acquire an inter-group interest in
the additional group.
Certain anti-takeover provisions of Bermuda law and our bye-laws
The following discussion concerns certain provisions of Bermuda law and our
bye-laws that could be viewed as having the effect of discouraging an attempt
to obtain control of Global Crossing.
Authorized but unissued shares of common stock
If the tracking stock proposal is approved, we may from time to time issue up
to 4,500,000,000 shares of common stock in two or more classes, as determined
by our board of directors. We will not solicit approval of our shareholders for
the issuance of authorized but unissued shares of common stock unless our board
of directors believes that approval is advisable or is required by Bermuda law,
Nasdaq listing rules or stock exchange rules.
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The existence of authorized, unissued and unreserved common stock could
enable our board of directors to issue shares to persons friendly to current
management, which could render more difficult, or discourage, an attempt to
obtain control of Global Crossing by means of a merger, tender offer, proxy
contest or otherwise, and protect the continuity of our management. These
additional shares also could be used to dilute the share ownership of persons
seeking to obtain control of Global Crossing.
The existence of tracking stock, as opposed to a stand-alone entity, may
limit potential unsolicited acquisitions since a person interested in acquiring
only one group without negotiation with our management would still be required
to seek control of the voting power represented by all of the outstanding
common stock of Global Crossing entitled to vote on that acquisition, including
the classes of common shares related to the other groups.
Shareholder nominations and proposals
Our bye-laws provide that any shareholder may present a nomination for a
directorship or a proposal at an annual meeting of shareholders only if the
nominee for director has been approved by the board of directors or advance
notice of a nomination or proposal has been delivered to Global Crossing not
less than 120 days or more than 150 days prior to date which is 12 months after
the anniversary of the release of the proxy statement to shareholders for the
annual meeting held in the prior year.
The foregoing notice must describe, among other things, all information
relating to each nominee for director that is required to be disclosed in
solicitations of proxies for election of directors and the number of shares
owned by such person.
These procedural requirements could have the effect of delaying or preventing
the submission of matters proposed by any shareholder to a vote of the
shareholders.
Voting and transfer restrictions
Voting restriction. Pursuant to our bye-laws, 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
20% 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 20% 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 a majority of
votes cast by shareholders at a meeting called to approve the transfer 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
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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 without approval of our
board of directors.
Staggered board
Our board of directors is divided into three classes of directors serving
staggered three-year terms. Each class consists of, as nearly as possible, one-
third of the total number of directors.
The classification of directors makes it more difficult for shareholders to
change the composition of our board of directors. At least two annual meetings
of shareholders, instead of one, generally will be required to change the
majority of our board of directors. The classification provisions of our bye-
laws could discourage a third party from initiating a proxy contest, making a
tender offer or otherwise attempting to obtain control of Global Crossing.
Certain United States federal income tax consequences
General
The following discussion is a summary of certain material United States
federal income tax consequences of the implementation of the tracking stock
proposal. The discussion is based on the Internal Revenue Code of 1986, as
amended, Treasury regulations, published positions of the Internal Revenue
Service, which we refer to as the "IRS," and court decisions now in effect, all
of which are subject to change. In particular, Congress could enact legislation
affecting the treatment of stock with characteristics similar to Global
Crossing group stock or GlobalCenter group stock, or the Treasury could issue
regulations that change current law. Any future legislation or regulations
could apply retroactively to the implementation of the tracking stock proposal.
This discussion addresses only those of you who hold your existing common
stock and would hold your Global Crossing group stock as a capital asset. This
discussion does not discuss all aspects of United States federal income
taxation that may be relevant to you in light of your particular tax
circumstances. This discussion does not apply to you if you are a foreign
person, a dealer in securities or currencies, a trader in securities that has
elected the mark-to-market method of accounting for your securities, a tax-
exempt organization, an S corporation or other pass-through entity, a mutual
fund, a small business investment company, a regulated investment company, an
insurance company or other financial institution, a broker-dealer, a United
States person whose "functional currency" is not the U.S. dollar, or are
otherwise subject to special treatment under the federal income tax laws. This
discussion also does not apply to those of you who hold your existing common
stock as part of a hedging, integrated or conversion transaction, constructive
sale or straddle. You should consult your own tax advisor with regard to the
application of the federal income tax laws, as well as to the applicability and
effect of any state, local or foreign tax laws to which you may be subject.
Tax implications to you of the implementation of the tracking stock proposal
In the opinion of Simpson Thacher & Bartlett, Global Crossing's counsel, for
federal income tax purposes GlobalCenter group stock will be considered common
stock of Global Crossing Ltd. This means that:
. you will not recognize any income, gain or loss on the reclassification
of your existing common stock for shares of Global Crossing group stock;
. your basis in Global Crossing group stock received will equal your basis
in our existing common stock exchanged therefor;
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. your holding period of Global Crossing group stock will include the
holding period of the existing common stock; and
. any gain or loss recognized upon a subsequent sale or exchange of Global
Crossing group stock will be capital gain or loss.
Tax implications to you of a conversion of Global Crossing group stock or
GlobalCenter group stock
Generally, you will not recognize any income, gain or loss if we exercise any
of our options to convert one class of common stock into the other class of
common stock, and you will have a carryover adjusted tax basis in the shares of
common stock that you receive and generally a holding period that includes the
holding period of the common stock you surrendered in the conversion.
No IRS ruling
No ruling has been sought from the IRS. The IRS has announced that it will
not issue any advance rulings on the classification of an instrument whose
dividend rights are determined by reference to the earnings of a segregated
portion of the issuing corporation's assets, including assets held by a
subsidiary. Simpson Thacher & Bartlett's opinion is not binding on the IRS. In
addition, there are no court decisions or other authorities bearing directly on
the classification of instruments with characteristics similar to those of
Global Crossing group stock and GlobalCenter group stock. It is possible,
therefore, that the IRS could assert that the receipt of Global Crossing group
stock as well as any subsequent conversion of one class of common stock into
the other class of common stock could be taxable to you and to us.
Clinton Administration proposal
The Clinton Administration recently proposed legislation dealing with
tracking stock such as Global Crossing group stock and GlobalCenter group
stock. This proposal would, among other things, treat the receipt of stock
similar to Global Crossing group stock and GlobalCenter group stock for other
stock in the corporation or in a distribution by the issuing corporation as
taxable to the shareholders. If this proposal is enacted, you could be subject
to tax on your receipt of Global Crossing group stock after the date of
enactment. A similar proposal was made in 1999. Congress did not act on the
1999 proposal, and it is impossible to predict whether Congress will act upon
this proposal or any other proposal relating to tracking stock. We may convert
Global Crossing group stock or GlobalCenter group stock into shares of the
other class without any premium on such conversion if there is more than an
insubstantial risk of adverse United States federal income tax developments.
See "--Conversion and repurchase--Conversion of common stock at option of
Global Crossing at any time." The proposal of the Clinton Administration would
be such an adverse development if it is implemented or receives certain
legislative action.
Stock exchange listings
We expect Global Crossing group stock and GlobalCenter group stock to be
listed on the Nasdaq National Market and the Bermuda Stock Exchange. Global
Crossing group stock will be listed under the symbol GBLX. GlobalCenter group
stock will be listed under the symbol GCTR.
Stock transfer agent and registrar
Our existing stock transfer agent and registrar, EquiServe, will act as the
stock transfer agent and registrar for both Global Crossing group stock and
GlobalCenter group stock.
Effect on existing awards and convertible preferred stock
If the proposed offering of GlobalCenter group stock is completed, each
outstanding award for our existing common stock under our 1998 Global Crossing
Ltd. Stock Incentive Plan will be redesignated into an award for .
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Similarly, following the completion of the proposed offering of GlobalCenter
group stock, holders of our outstanding shares of convertible preferred stock
will be entitled to convert each share of Global Crossing convertible preferred
stock into one share of Global Crossing group stock at the current conversion
price. In addition, if we effect the proposed distribution of GlobalCenter
group stock to the holders of Global Crossing group stock, subsequent to such
distribution holders of our outstanding shares of convertible preferred stock
will be entitled to convert each share of Global Crossing convertible preferred
stock into one share of Global Crossing group stock at a conversion price
reduced to reflect the fair market value of the GlobalCenter group stock that
was distributed.
No dissenters' rights
Under Bermuda law, shareholders who dissent from the tracking stock proposal
will not have appraisal rights.
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BUSINESS OF THE GLOBALCENTER GROUP
Overview
The GlobalCenter group is a leading provider of Internet infrastructure
solutions incorporating:
.complex Web hosting;
.IP network services primarily using the Global Crossing network;
.hardware and software procurement and installation;
.content distribution, integration and management services;
.systems applications; and
.professional services.
The GlobalCenter group delivers its services primarily to customers seeking
rapid, cost-effective solutions for their mission-critical Internet-related
operations. As of March 31, 2000, the GlobalCenter group provided solutions to
over 500 customers including large, well-established enterprises and newer
Internet companies including NBCi, Viacom, The Washington Post, Yahoo! and
ZDNet. Due largely to rapid growth in both the size of its customer base and
demand for outsourced Internet infrastructure solutions, the GlobalCenter
group's annual revenues have grown from $7.7 million in 1997 to $70.9 million
in 1999, a compound annual growth rate of 203%.
The GlobalCenter group currently operates ten data centers strategically
located near major business centers in northern and southern California; New
York City; northern Virginia; London; and Melbourne. Six of these data centers
have been commercially operational for more than 12 months and are currently
operating at or near full capacity. In addition, the GlobalCenter group is
currently developing 10 data centers in the United States, Europe and the Asia-
Pacific region, nine of which it plans to open by the end of this year,
bringing the total gross square footage of its data centers to over 1.3
million.
Each of the GlobalCenter group's data centers other than the Melbourne data
center is located directly on the Global Crossing IP-based fiber optic network.
This network is expected to span 101,000 route miles and connect five
continents and more than 200 cities in 27 countries by the middle of 2001.
Industry Background
As a result of its rapid growth, the Internet has become an important new
global communications and commerce medium. This new medium has given
enterprises an opportunity to interact in new and different ways with their
customers, employees, suppliers and partners. Furthermore, the Internet has
become an additional point of competitive differentiation across a broad
variety of commercial sectors and geographies, and a large number of companies
have now embraced the Internet either proactively or reactively to grow or
defend their market position.
Companies are responding to the opportunities and challenges presented by
Internet technologies by rapidly increasing their investment in Web sites and
Internet-enabled services. Over the last several years, newer Internet
companies that focus solely on distributing products and services over the
Internet have emerged and, more recently, mainstream businesses have begun to
use Web sites to complement traditional business models and distribution
channels.
The rapidly growing number of companies focused on implementing Internet
strategies has created a significant shortage of Internet-focused systems
developers and networking personnel. At the same time, Internet operations are
becoming more complex and challenging for enterprises to operate. For example,
in order to establish a high quality, reliable Web site or to run Web-based
applications on the Internet, businesses must, among other things, procure and
integrate sophisticated hardware and software, develop application-specific
technical skills, and have access to a secure, fault-tolerant physical location
and reliable Internet
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connectivity. Ensuring the quality, reliability, and availability of these
Internet operations typically requires substantial investments in developing
Internet expertise and infrastructures outside their core business functions.
However, such a continuing significant investment of resources is often an
inefficient use of enterprises' management focus and limited resources.
As a result, businesses are increasingly seeking outsourcing arrangements
with service providers that can speed time-to-market; improve performance,
reliability, scalability and security; provide continuous operation and support
of their Internet operations and reduce operating expenses. To address this
need, a variety of providers of Web hosting services have emerged. Web hosting
services range from lower-cost shared hosting, in which multiple smaller
customers share a single server for basic Web sites, to higher-cost complex Web
hosting, in which a larger customer's Web site is hosted on multiple dedicated
servers, which are monitored and communicate amongst one another to balance
traffic loads to minimize data latency and loss, often for customized
applications and systems. Complex Web hosting companies, in general, provide
various infrastructure-related services, including secure, monitored data
centers with high degrees of redundancy and reliability, high-speed IP network
connectivity and various enhanced services. Generally, complex Web hosting
providers also support a range of hardware, operating systems and software.
The market for complex Web hosting and related services is growing rapidly
and continues to evolve as new enabling technologies are developed and new
business practices are implemented. According to International Data
Corporation, or "IDC," the market for Web hosting services (which does not
include Internet access service) is estimated to be $1.7 billion in 1999,
increasing to $17.6 billion in 2003. We also believe that complex Web hosting
companies will be well positioned to take a significant share of the
application service provider, or ASP, market, as companies seek to Web-enable
their traditional business functions and applications such as customer service,
procurement, human resource management and sales force automation. According to
IDC, the ASP market is expected to grow to $7.8 billion in 2004.
While a variety of existing industry participants and emerging service
providers are attempting to target this rapidly growing market, many are niche
service providers and others are often unable to exercise significant control
over the underlying network services upon which the quality of their solutions
depend. We believe that as customers continue to outsource mission-critical
Internet-related services, quality of service and breadth of solutions offered
will be the key factors driving customers' purchasing decisions.
GlobalCenter Group Strategy
The objective of the GlobalCenter group is to become the leading global
provider of total solutions for its customers' mission-critical Internet
infrastructure requirements. To achieve this objective, the GlobalCenter group
is implementing a business strategy focused on the following key elements:
Enhance and expand its portfolio of value-added applications and professional
services. The GlobalCenter group currently provides a broad range of Internet
infrastructure services that allow its customers to effectively outsource the
management and operation of their Web sites to the GlobalCenter group. The
GlobalCenter group intends to continue to develop and market new services to
position itself as a total solutions provider for businesses' Internet
infrastructure needs. The GlobalCenter group believes this will enable it to
build stronger customer relationships, maximize its revenue per customer and
grow its business. By the end of 2000, the GlobalCenter group plans to
introduce a number of additional services including content distribution for
static, dynamic and streaming media, interactive TV, e-commerce applications,
database-on-demand, virtual private network and end-user monitoring.
Expand its global footprint by opening new data centers. The GlobalCenter
group currently operates ten data centers located in strategic markets in the
United States, Europe and Australia. The GlobalCenter group is currently
developing new data centers to meet the growing international demand for
outsourced Web hosting services and the increasingly global e-business and
information technology needs of its customer base. The GlobalCenter group is
therefore planning to open an additional nine data centers in the United
States, Europe
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and Australia in 2000. The GlobalCenter group is also exploring the possibility
of opening data centers in Asia in conjunction with Asia Global Crossing, an
affiliated company. The GlobalCenter group will continue to identify new
geographic markets into which it will expand to meet the growing needs of
businesses with mission-critical Internet operations.
Develop and market services tailored to the needs of selected information-
intensive industries. The GlobalCenter group's product development and
marketing strategy is to target industries it believes will have a significant
demand for Internet infrastructure applications and services, such as media and
entertainment, financial services, retail and business-to-business exchanges.
We believe that by targeting these industries and developing tailored service
offerings for their use, the GlobalCenter group can accelerate its growth by
attracting more customers and generating higher revenue per customer, increase
its gross margins, and realize operating efficiencies.
Continue to take advantage of its unique relationship with the Global
Crossing group. As part of its Web hosting services, the GlobalCenter group
provides businesses with high performance Internet connectivity through Global
Crossing's IP-based fiber-optic network. The GlobalCenter group will continue
to locate its data centers to take maximum advantage of the Global Crossing
network. We believe the GlobalCenter group's unique relationship with the
Global Crossing group provides numerous competitive advantages, including
higher availability and scalability and enhanced, integrated network monitoring
and problem resolution, which improve its ability to offer its customers
service level agreements. The GlobalCenter group participates in the Network
and Services Management Committee for the Global Crossing network, allowing it
to help determine the strategic and technological direction of the network in a
way that will secure capacity and high quality service for its customers. The
IP network services it purchases from the Global Crossing group are available
to the GlobalCenter group with preferred market-based pricing, taking into
account volume, term and the exclusive nature of the arrangement and any
guarantee of service levels provided by the Global Crossing group. In addition,
the GlobalCenter group plans to integrate its service offerings with those
offered by the Global Crossing group in order to market the combined company as
a total telecommunications and Internet solutions provider to customers in
Global Crossing's targeted markets, such as large multinational corporations.
We believe the fact that the GlobalCenter group stock is being offered to the
public in the form of a tracking stock rather than as a separate company helps
the GlobalCenter group to preserve and enhance its close ties and unique
relationship with the Global Crossing group and its access to the Global
Crossing network.
Expand its direct sales force and develop new channels of distribution. To
date, the GlobalCenter group has established its rapid growth and market
position solely through its direct sales efforts. In 2000, the GlobalCenter
group plans to significantly expand its direct sales force, invest in training
and development and enhance sales incentives in order to focus its sales
efforts on increasing its sales of value-added applications and professional
service offerings. To complement its direct sales efforts, the GlobalCenter
group intends to develop new channels of distribution. In addition to its sales
and marketing arrangements with the Global Crossing group, with which it
intends to exchange sales referrals and offer bundled products and services,
the GlobalCenter group expects to build co-marketing arrangements with
consulting firms, content developers, Internet service providers, systems
developers and technology partners.
Develop and strengthen relationships with industry leading technology
vendors. The GlobalCenter group has developed strong relationships with
technology vendors such as Akamai, StorageNetworks, StorageTek and Tanning
Technology to offer enhanced caching, storage, backup services and e-commerce
services to its customers. The GlobalCenter group plans to continue to develop
relationships with selected technology vendors to help its customers identify
the best technology solutions for their requirements and to rapidly and
effectively design and deploy these technologies. The GlobalCenter group
believes its relationship with these vendors will enhance its ability to
support its customers' needs. For example, its relationship with Tanning
Technology will broaden its service offering to include electronic commerce
solutions, better enabling it to become a total solutions provider for its
customers.
Enter into strategic partnerships and make targeted acquisitions to
complement its internal development efforts. As the GlobalCenter group develops
new applications and services, it plans to complement its internal
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development through strategic relationships and acquisitions. The GlobalCenter
group will seek strategic relationships that will enable it to gain quicker
access to innovative technologies, assist it with the development of new
applications and service offerings, provide it with new distribution channels
and advance its entry into new geographic markets. In addition, the
GlobalCenter group may seek to acquire companies which it believes will enable
it to cost-effectively augment its existing products and services, technology,
infrastructure, skill sets, geographic presence or customer base.
The GlobalCenter Group's Services
The GlobalCenter group currently provides a broad range of Internet
infrastructure services that allows its customers to effectively outsource the
management and operation of their Internet operations to the Global Center
group. The GlobalCenter group creates tailored solutions for its customers
based on their unique business and technical requirements, and modifies the
services as its customers' needs evolve.
Complex Web Hosting Services
The GlobalCenter group offers complex Web hosting services designed to
outsource operation of mission-critical Web sites, based on industry-leading
technologies and offering high service level guarantees. The GlobalCenter group
supports all leading Internet hardware and software systems. This flexibility
enables its customers to retain control over their technical solution and to
integrate the GlobalCenter group's solutions with their existing IT technical
architecture. The GlobalCenter group offers a number of services to dedicated
Web site management customers to ensure ease of implementation, security,
performance and scalability. Specifically, it provides:
. configuration, installation and support of operating systems, including
Unix, Windows NT, Solaris and Linux,
. hardware platforms, including those offered by Sun Microsystems, Dell,
Cisco, IBM, VA Linux and Compaq;
. installation and maintenance of Web sites on server hardware;
. help desk support 24-hours a day, seven days a week, with access to
certified technical professionals;
. industry and vendor security alerts and maintenance;
. load balancing and geographical distribution of network traffic among
multiple servers and multiple data centers; and
. 24-hours a day, seven days a week, physical and remote access to
equipment.
Hardware and Software Procurement Services
The GlobalCenter group has experienced equipment services professionals
available to help make its customers' equipment purchases simple and
economical. The GlobalCenter group selects and purchases equipment from various
manufacturers based on customer orders and resells it to its customers. The
GlobalCenter group also arranges for equipment to be shipped directly to a
customer's location in its data centers and installed in the appropriate
location. Its equipment services allow the GlobalCenter group to move new
customers into its data centers more quickly and efficiently.
IP Network Services
The GlobalCenter group directly connects its data centers, other than
Melbourne, to Global Crossing's high performance, IP-based fiber-optic backbone
network with redundant high speed lines, which also gives it
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access to Global Crossing's extensive peering and transit relationships with
other major Internet backbone providers. The GlobalCenter group's connectivity
arrangements are designed to deliver the scalability, high availability and
performance required for high-volume bandwidth and application-intensive
Internet operations. Since its customers' Internet operations often experience
traffic spikes due to promotions or events, the GlobalCenter group typically
maintains sufficient excess network capacity to handle its customers peak
traffic needs. Each of its data centers is also connected to the
communications networks of other major carriers. The Global Crossing network
does not reach Australia, so our Melbourne data center is connected to the
Global Crossing network through the communications networks of other major
carriers.
Through its relationship with the Global Crossing group, the GlobalCenter
group has unique access to the Global Crossing global network and extensive
peering and transit arrangements. The GlobalCenter group believes its
connection to the Global Crossing network provides it with the following
benefits:
. Network Performance. When fully deployed, the Global Crossing network
will provide service to all of the world's major business centers. The
extensive geographic reach of the Global Crossing network and Global
Crossing's extensive peering and transit relationships with other major
Internet backbone providers will enable the GlobalCenter group to avoid
many of the congested Internet public exchange points and deliver IP
traffic directly to its destination network or the intended IP address.
By avoiding the need to route traffic across multiple networks or public
interconnection points, the performance of its customers' Internet
applications will be substantially increased. The Global Crossing group
has agreed to provide the GlobalCenter group with service level
commitments for near 100% network availability for traffic on the Global
Crossing network, which will enable the GlobalCenter group to offer
similar service levels to its customers.
. Scaling and Availability. The GlobalCenter group will have constant
access to the Global Crossing network and an ability to scale its use of
the Global Crossing network according to its needs and the needs of its
customers.
. Management Committee. The GlobalCenter group participates in the Network
and Service Management Committee for the Global Crossing IP network,
allowing it to help determine the strategic and technological direction
of the network in a way that will secure capacity and high quality
service for its customers.
. Monitoring Capability. The GlobalCenter group has the ability to monitor
the entire Global Crossing network from its network control centers or
the Global Crossing network operations center, which allows the
GlobalCenter group to locate, respond to and resolve problems quickly.
. Cost Advantage. The GlobalCenter group's unique access to Global
Crossing's network frees it from the costs associated with independently
building and maintaining an IP network, such as an extensive set of
routers and switches, and from the costs associated with peering
relationships when traffic flow becomes unequal. The price the
GlobalCenter group pays for its access to the network will be preferred
market based pricing, taking into account volume, term, and the exclusive
nature of the arrangement and any guarantee of service levels provided by
the Global Crossing group.
Value-Added Applications and Services
The GlobalCenter group's value-added applications and services enables its
customers to improve the performance, reliability and storage and backup
capability of their Internet operations. The GlobalCenter group believes these
services will become increasingly important to its customers. A key component
of the GlobalCenter group's strategy is to continue to grow its value-added
service offerings to distinguish itself in the marketplace. The GlobalCenter
group's current services include the following:
Performance Monitoring Services. The GlobalCenter group works with Keynote
to provide and jointly market Perspective(TM), a service that gives companies
real-time statistics about their Web sites' performance from the viewpoint of
users around the world. Perspective employs a network of more than 100 data
collection agents deployed in 30 large metropolitan areas, both in the U.S.
and internationally, connected to the backbone
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networks of a variety of major service providers. The agents measure access and
download times at pre-set intervals. The GlobalCenter group's network control
centers and customers' Web managers receive daily reports and threshold based
alarms.
Content Delivery Services. The GlobalCenter group works with Akamai to offer
FreeFlow SM, a premier caching service. By moving content closer to end users
and intelligently routing requests to multiple servers, FreeFlow reduces
problems caused by server overloads and network bottlenecks. This increases
peak demand capacity for Web sites, speeds user downloads and improves overall
quality.
Disk-On-Demand Storage Solution. The GlobalCenter group works with
StorageNetworks, a leading storage services provider, to provide Disk-On-
Demand, a highly scaleable and reliable on-demand disk storage service the
GlobalCenter group offers on a usage basis. Disk-On-Demand gives customers
access to technologically advanced storage, normally available only to large
enterprises, on a cost effective basis.
Tape-On-Demand Storage Solution. The GlobalCenter group works with
StorageTek, a leading network storage services provider, to provide Tape-On-
Demand, a backup and disaster recovery service the GlobalCenter group offers on
a usage basis. Tape-On-Demand reduces customers' need to invest in and manage
expensive disaster recovery systems.
Security Services. The GlobalCenter group's security services are designed to
ensure the security of a customer's Web operations by applying the leading
security diagnostic tools. Security engineers are located at GlobalCenter data
centers to deliver security solutions including firewalls, encryption and
authentication.
Testing Services. The GlobalCenter group's testing services aim to identify
problems that could degrade the expected performance and availability of a
customer's Web operations. For example, its stress testing services simulate
users accessing a Web site to provide information for isolating problems,
optimizing performance and accelerating the deployment of Web sites.
Professional Services
The GlobalCenter group's professional services teams consult with customers
on a wide range of issues including Web applications development, Internet
connectivity, server maintenance, performance and site scaling. The
GlobalCenter group believes its professional services will play an increasingly
important role in supporting the implementation and maintenance of Internet
based mission-critical operations as customers continue to rapidly adopt
emerging technologies. Its professional services currently include system
architecture and design; disaster recovery, migration and capacity planning;
database optimization; and performance tuning. The GlobalCenter group's sales
engineers develop complete solutions for its customers, including configuring
systems and specifying hardware and software for implementations or upgrades.
The GlobalCenter group assigns technical account teams, consisting of three to
five personnel, to act as its customers' on-site network and information
technology staff. Through its relationship with Tanning Technology, the
GlobalCenter group has access to Tanning Technology's information technology
services, which include electronic commerce solutions, enterprise customer
relationship management solutions and core operations solutions.
Strategic Relationships
The GlobalCenter group believes that strategic technology and marketing
relationships enhance its ability to better serve existing customers as well as
reach new customers. Its strategic relationships enable it to gain quicker
access to innovative technologies, assist with the development of new
applications and service offerings and provide it with powerful additional
sales channels. As opportunities arise, the GlobalCenter group will continue to
establish new relationships with hardware and software vendors and application
service providers. An example of its strategic relationship strategy is its
relationship with Tanning Technology, which enables the GlobalCenter group to
provide its customers with preferred access to Tanning Technology's pool of
over 350 technical and sales professionals. The combination of Tanning
Technology's expertise in systems integration solutions involving high volume
transactional businesses and the GlobalCenter group's Internet infrastructure
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solutions business will enable the GlobalCenter group to provide a bundled
service offering that will include infrastructure hardware and software,
operational systems and services, integration services and e-business
solutions. The GlobalCenter group has also established a preferred marketing
arrangement with Tanning Technology designed to cross-promote and sell each
other's products and services. In February, 2000 the GlobalCenter group
invested $10 million in Tanning Technology's common stock.
Customers
The GlobalCenter group has a large and diverse customer base ranging from
large enterprises to Web-Centric companies. As of March 31, 2000, it was
serving over 500 customers, none of which accounted for 10% or more of its
revenues. The following is a representative list of the GlobalCenter group's
customers as of March 1999.
24/7 Media Link Exchange Talk City
About.com Look Smart Toys R Us
Akamai marchFIRST Viacom
Ask Jeeves NBCi The Washington Post
eGroups Network Solutions Webshot
Encyclopedia Britannica Novell Wineshopper.com
eToys Playboy Enterprises Xdrive
Excite QUOTE.COM Yahoo!
Goto.com Red Hat ZDNet
The GlobalCenter group's contracts with customers generally cover the
provision of services by it for a one to three-year period and may contain,
among other things, various service level agreements. The GlobalCenter group
generally provides customers with a 99% network connectivity uptime guarantee
and a 100% facility uptime guarantee. Pursuant to these service level
warranties, customers' monthly fees are reduced based on the amount of network
connectivity downtime and data center downtime experienced.
Sales, Marketing and Customer Service
The GlobalCenter group's sales objective is to focus on larger customers to
whom it believes it can sell multiple basic and value-added services to
maximize its sales force productivity and revenue per data center. The
GlobalCenter group sells its services directly through a highly-skilled
professional sales force and receives referrals through a network of business
partners.
Sales
The GlobalCenter group uses a team approach in selling to prospective
customers. Customer account teams are organized into three units, consisting of
account executives, sales engineers and client services representatives.
Account executives are the team leaders and are primarily responsible for new
account acquisitions and maintenance of the strategic relationship with
customers. Sales engineers support the account executives by providing pre-
sales technical support, including customer site architecture and design.
Client services representatives are responsible for the day-to-day account
management and for marketing additional services to existing customers.
The domestic sales force is located in six geographic regions of the United
States centered around existing and planned data centers. As of March 31, 2000,
The GlobalCenter group had 84 employees engaged in sales and sales support. It
will actively seek to increase its sales capabilities and coverage in the
United States and to expand internationally as additional data centers are
constructed. In 2000, The GlobalCenter group plans to significantly expand its
direct sales force, invest in training and development and enhance sales
incentives in order to focus its sales efforts on increasing its sales of
value-added service offerings. To complement its direct sales efforts, the
GlobalCenter group intends to develop new channels of distribution. In addition
to its co-marketing arrangement with the Global Crossing group, with which it
intends to exchange sales referrals and
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offer bundled products and services, the GlobalCenter group expects to build
co-marketing arrangements with consulting firms, content developers, Internet
service providers, systems developers and technology partners.
The GlobalCenter group also intends to make its service offerings available
to the Global Crossing group's sales force in order to market the combined
company as a total telecommunications and Internet provider. By doing so, we
believe the GlobalCenter group will be able to expand its customer base to
include the Global Crossing group's targeted markets, such as large
multinational corporations.
Marketing
The GlobalCenter group's marketing organization is responsible for product
and partner marketing management, marketing communications and corporate
communications. Product and partner marketing management includes bringing to
market the portfolio of services and programs that will address customer
needs. These activities include product strategy, pricing, competitive
analysis, product launches and partner program management. The GlobalCenter
group's marketing communications unit stimulates service demand and brand
awareness for the GlobalCenter group through a broad range of marketing
communications, advertising, seminars, open houses, tradeshows, as well as
through the GlobalCenter group's Web site. Corporate communications focuses on
cultivating industry analyst and media relationships with the goal of securing
broad media coverage and public recognition of the GlobalCenter group's
leadership position in its market.
Customer Service
The GlobalCenter group is committed to providing superior customer service
by understanding the business objectives and technical requirements of its
customers and by fulfilling their needs on an individual basis.
Working closely with customers, the GlobalCenter group seeks to optimize the
performance of their Internet operations, minimize downtime, resolve problems
that may arise, and make appropriate adjustments in services as customer needs
change over time. In order to enhance customer service delivery and increase
operating efficiencies, it operates a centralized response center which
handles inbound calls, monitoring, and problem resolution for data centers in
the United States. The GlobalCenter group also solicits feedback to ensure
that it continues to offer the highest quality of service. It uses advanced
software tools to aid in customer monitoring and service efforts. Many of the
GlobalCenter group's customer service personnel have been specifically trained
and certified by the vendors of its software tools, including Sun
Microsystems, Microsoft, Oracle and Computer Associates.
The GlobalCenter group also provides customer service and technical support
during the installation phase, including a transition team and project
management support. In addition, it provides system integration services
between the customer's Internet site and legacy systems. After installation,
primary customer support is coordinated through the GlobalCenter group's
network control centers. These centers are operated 24 hours a day, seven days
a week by engineers who monitor site and network operations, and coordinate
teams to solve problems that arise. Customer service personnel are also
available to assist customers whose operations require specialized procedures.
The GlobalCenter group employs network engineers and systems administrators
who work with customers to design and maintain their Internet operations. The
GlobalCenter group's network engineers and system administrators are trained
specialists who support Windows NT, Linux, Solaris and other UNIX platforms.
They are also trained to support routers and switchers of most major equipment
manufacturers. They also serve as the second level of support for customer
issues that cannot be resolved by the GlobalCenter group's network control
centers.
Product Management and Development
The GlobalCenter group's product management and development groups are
responsible for evaluating and developing new product ideas and strategies,
including potential partnerships related to these products. These
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groups work to combine the GlobalCenter group's own technology with partner
expertise to offer a robust and scalable service and product offering to its
customers. The GlobalCenter group plans to complement its internal product
development through strategic relationships and acquisitions. By partnering
with the technology leaders in different service and product categories, the
GlobalCenter group is able to move its offerings to market quickly, with an
ability to support and manage them at the highest level. Its product management
group is responsible for assessing the business case and ancillary needs for
each product as well as managing the product's lifecycle. The GlobalCenter
group's product development group is responsible for research and development
efforts exploring and identifying new technologies that complement the
GlobalCenter group's business strategy. The GlobalCenter group currently has 16
employees dedicated to product management and development and expects to expand
the size of these groups by the end of 2000.
Data Center Infrastructure
The GlobalCenter group's data centers are designed to deliver high
availability and performance for customers. Data centers are physically located
in major metropolitan business centers and all but one are located directly on
the Global Crossing IP network. Data centers are built to specifications that
deliver high standards in security, reliability and redundancy.
The physical infrastructure and security controls of these data centers have
been designed to support rigorous requirements for complex Web hosting.
Specifically, the GlobalCenter group's data centers offer the following major
physical benefits to its customers:
. multi-level physical security;
. multi-redundant utilities and environmental controls; and
. network connectivity.
Multi-level physical security. Based upon their technical and security
requirements, customers can select from racks in common areas, highly secure
cabinets, enclosed cage facilities or private vaults. The GlobalCenter group
has implemented robust security systems, which include biometric hand scanners,
security verification, guards, cameras, bullet proof glass, round-the-clock
monitoring and mantrap areas.
Multi-redundant utilities and environmental controls. The GlobalCenter
group's data centers have redundant power systems that include redundant
connections to the power utilities, back up power supplies and diesel
generators that can run for days without refueling if needed. Laser detection,
inert gas and dry pipe sprinkler systems protect our customers' equipment from
fire and inadvertent water damage. Cooling and environmental controls for each
data center are designed to monitor and ensure proper temperature and humidity.
Data centers are also constructed with raised floors and seismically braced
racks.
Network Connectivity. The GlobalCenter group's data centers are connected to
the Internet backbone through network points of presence within the centers.
These points of presence provide high-performance, reliable networking
connectivity to the Internet backbone for customers. Telecommunications
circuits enter the data centers through multiple points from diverse service
providers. Multiple points of presence ensure continued operation of service
without degradation in the unlikely event of a cable cut or local carrier
network outage. All but one of the GlobalCenter group's data centers are
located directly on Global Crossing's global IP-based fiber optic network for
high bandwidth worldwide connectivity and scale. Each data center has access to
the communications networks of other major carriers.
Competition
The market served by the GlobalCenter group is highly competitive. There are
few substantial barriers to entry, and the GlobalCenter group expects to face
additional competition from existing competitors and new market entrants in the
future. The principal competitive factors in this market include:
. quality of services and scalability of infrastructure;
. quality of customer service and support;
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. value-added applications and services offered;
. network capacity, reliability and security;
. Internet system engineering expertise;
. relationships with partners and vendors;
. brand names;
. price;
. product innovation; and
. financial resources.
The GlobalCenter group's current and potential competitors in the market
include Web hosting service providers, ISPs, telecommunications companies and
large information technology outsourcing firms. Its competitors may operate in
one or more of these areas and include companies such as AboveNet
Communications, AT&T, British Telecom, Cable & Wireless, Digex, Digital Island,
EDS, Exodus Communications, Globix, GTE, Intel, IBM, KPNQwest, Level 3
Communications, MCI WorldCom, PSINet, Navisite, Qwest Communications
International, and USinternetworking. As the GlobalCenter group expands its
range of applications and service offerings, we expect that the nature of its
competitors will change.
Intellectual Property Rights
The GlobalCenter group relies on a combination of copyright, trademark,
service mark and trade secret laws and contractual restrictions to establish
and protect certain proprietary rights in its data, applications and services.
The GlobalCenter group currently has no patents and does not rely materially on
technologies it licenses from third parties. As the GlobalCenter group
continues to offer new services through partnerships with third parties, we
expect its reliance on licensed technology to grow. However, other than its
trademarks and service marks, we do not believe that the loss of any particular
one of the GlobalCenter group's intellectual property rights would harm its
business.
Government Regulation
The GlobalCenter group is not currently subject to direct United States
federal, state or local or international government regulation, other than
regulations applicable to businesses generally. There is currently only a small
body of laws and regulations directly applicable to access to or commerce on
the Internet.
The Digital Millennium Copyright Act, which became effective in October 1998,
includes a limitation on liability of on-line service providers for copyright
infringement for transmitting, routing, or providing connections, transient
storage or caching at the direction of a user. This limitation on liability
applies if the service provider had no actual knowledge or awareness that the
transmitted or stored material was infringing and if certain other conditions
are met.
Since this law is new, we are unsure of how it will be applied to limit any
liability the GlobalCenter group may face in the future for any possible
copyright infringement or copyright-related issues. This new law also requires
ISPs to follow certain "notice and take-down" procedures in order to be able to
take advantage of the limitation on liability. The GlobalCenter group has not
yet implemented such procedures nor evaluated the cost of complying with them.
However, its customers are subject to an acceptable use policy which prohibits
them from posting, transmitting or storing material on or through any of our
services which, in its sole judgment is (1) in violation of any local, state,
federal or foreign law or regulation, (2) threatening, obscene, indecent or
defamatory or that otherwise could adversely affect any individual, group or
entity or (3) in violation of the intellectual property rights or other rights
of any person. Although this policy is designed to promote the security,
reliability and privacy of its systems and network, there is no assurance that
the GlobalCenter group's policy will accomplish this goal or shield it from
liability under the Digital Millennium Copyright Act.
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Despite enactment of the Digital Millennium Copyright Act, the law relating
to the liability of on-line services companies and Internet access providers
for information carried on or disseminated through their networks remains
largely unsettled. It is possible claims could be made against on-line services
companies and Internet access providers under both United States and foreign
law for defamation, obscenity, negligence, copyright or trademark infringement,
violations of privacy and consumer protection laws or other theories based on
the nature and content of the materials disseminated through their networks.
Several private lawsuits seeking to impose such liability upon on-line services
companies and Internet access providers are currently pending.
Although sections of the Communications Decency Act of 1996 that proposed to
impose criminal penalties on anyone distributing indecent material to minors
over the Internet were held to be unconstitutional by the U.S. Supreme Court,
similar laws may be proposed, adopted and upheld. The nature of future
legislation and the manner in which it may be interpreted and enforced cannot
be fully determined and, therefore, legislation similar to the Communications
Decency Act could subject the GlobalCenter group and/or its customers to
potential liability, which in turn could harm its business. The adoption of any
of these types of laws or regulations might decrease the growth of the
Internet, which in turn could decrease the demand for the GlobalCenter group's
services, increase its cost of doing business or in some other manner harm its
business.
Due to the increasing popularity and use of the Internet, it is likely a
number of additional laws and regulations may be adopted at the federal, state
and local levels in the United States and internationally with respect to the
Internet, covering issues such as user privacy, freedom of expression, pricing,
characteristics and quality of products and services, taxation, advertising,
intellectual property rights, information security and the convergence of
traditional telecommunications services with Internet communications. For
example, the European Union recently enacted privacy regulations. In the U.S.,
the Federal Trade Commission has recently commenced investigations of the
practices of certain Internet companies relating to privacy and consumer
protection laws. The adoption of any such laws or regulations might decrease
the growth of the Internet, which in turn could decrease the demand for the
GlobalCenter group's services or increase the cost of doing business or in some
other manner harm its business. In addition, applicability to the Internet of
existing laws governing areas such as property ownership, copyrights and other
intellectual property issues, taxation, libel, on-line contract enforcement,
obscenity and personal privacy is uncertain. The vast majority of such laws
were adopted prior to the advent of the Internet and related technologies and,
as a result, do not contemplate or address the unique issues of the Internet
and related technologies.
Employees
As of April 7, 2000, the GlobalCenter group employed approximately 580 full-
time employees. None of its employees is covered by a collective bargaining
agreement. The GlobalCenter group believes that its employee relations are
good.
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Properties
The GlobalCenter group's executive offices are located in Sunnyvale,
California and consist of approximately 54,000 square feet that are leased
pursuant to an agreement that expires in July 2005. The leases expire in the
years indicated below. Space leased for our data centers covers an aggregate of
more than 1,400,000 gross square feet. The GlobalCenter group's currently
existing data centers cover an aggregate of approximately 300,000 square feet.
The GlobalCenter group leases facilities in the following cities:
<TABLE>
<CAPTION>
City and State Lease Expiration
-------------- ----------------
<S> <C>
Anaheim, California........................................ April 2009
Chicago, Illinois*......................................... November 2009
Frankfurt, Germany*........................................ October 2020
Herndon, Virginia, Sales Office............................ March 2006
Herndon, Virginia*......................................... May 2016
Herndon, Virginia.......................................... June 2009
Irvine, California, Sales Office........................... August 2002
London, England*........................................... October 2014
London, England ........................................... April 2015
London, England, Sales Office.............................. December 2016
Melbourne, Australia....................................... October 2001
Mountain View, California.................................. October 2002
Munich, Germany*........................................... July 2020
New York, New York......................................... August 2008
New York, New York......................................... August 2014
New York, New York, Sales Office........................... December 2009
New York, New York*........................................ April 2016
Paris, France, Sales Office................................ July 2009
Paris, France*............................................. September 2012
Sunnyvale, California...................................... November 2001
Sunnyvale, California...................................... November 2011
Sunnyvale, California...................................... August 2008
Sunnyvale, California*..................................... March 2015
Sydney, Australia*......................................... November 2009
Waltham, Massachusetts*.................................... March 2018
</TABLE>
- --------
*The GlobalCenter group's data centers in these locations are under development
and are not yet operational.
Legal Proceedings
The GlobalCenter group does not believe that there are any pending or
threatened legal proceedings that, if adversely determined, would have a
material adverse effect on it.
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Selected Historical Combined Financial Data of GlobalCenter
The table below provides selected historical combined financial data of the
GlobalCenter group. We prepared this information using the historical combined
financial data from GlobalCenter group's combined financial statements at and
for the nine-month period ended September 30, 1999, the three-month period
ended December 31, 1999 and each of the years in the two-year period ending
December 31, 1998 included elsewhere in this proxy statement. We derived the
combined statement of operations and the assets and liabilities data below from
combined financial statements audited by Arthur Andersen LLP, independent
public accountants.
GlobalCenter Inc. was acquired by Frontier Corporation in February 1998 in a
pooling-of-interests transaction. On September 28, 1999, Global Crossing Ltd.
acquired Frontier Corporation in a merger transaction. A subsidiary of Frontier
Corporation was the owner of substantially all of the assets of the
GlobalCenter group. For financial reporting purposes, the merger of Global
Crossing Ltd. and Frontier Corporation was deemed to have occurred on September
28, 1999. In connection with the merger, the assets and liabilities of the
GlobalCenter group were adjusted to their respective fair values under the
purchase method of accounting. We have included the assets and liabilities of
the GlobalCenter group and the related consolidated results of operations for
periods prior to October 1, 1999 under the heading "Old GlobalCenter," and for
periods subsequent to September 30, 1999 under the heading "New GlobalCenter."
The fair value adjustments to the GlobalCenter group's assets and liabilities
from the merger, including goodwill and other intangibles and the associated
amortization, are shown in the "GlobalCenter Group" Statement of Operations
Data and Balance Sheet and Other Data.
To provide you with a basis for comparing the year ended December 31, 1999 to
the year ended December 31, 1998, in the table we have also combined the
operating results of Old GlobalCenter for the nine months ended September 30,
1999 with the operating results of New GlobalCenter for the three months ended
December 31, 1999. A presentation which combines predecessor and successor
accounting periods does not conform to generally accepted accounting
principles. Depreciation, amortization and certain other line items included in
the operating results, and property, equipment and goodwill balances included
in the balance sheet of the GlobalCenter group are not directly comparable
between periods because the three month New GlobalCenter period ended December
31, 1999 includes the effects of purchase accounting adjustments related to the
merger of Global Crossing Ltd. and Frontier Corporation, while prior periods do
not. For this and other reasons, the selected combined historical financial
data provided below should be read in conjunction with the Combined Financial
Statements of the GlobalCenter group and related notes which appear elsewhere
in this proxy statement and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the GlobalCenter group" which
appears following this table.
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<TABLE>
<CAPTION>
Predecessor GlobalCenter
-------------------------------- -------------------------
Pro Forma
Year Ended Nine Months Three Months Unaudited
December 31, Ended Ended Year Ended
----------------- September 30, December 31, December 31,
1997 1998 1999 1999 1999
------- -------- ------------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Service revenues...... $ 6,511 $ 19,600 $ 29,951 $ 17,753 $ 47,704
Equipment revenues.... 1,228 3,640 17,228 5,971 23,199
------- -------- -------- -------- --------
Total revenues...... 7,739 23,240 47,179 23,724 70,903
Costs and expenses:
Cost of service
revenues............. 5,947 14,804 36,451 17,328 53,779
Cost of equipment
revenues............. 995 3,208 15,573 5,365 20,938
Sales and marketing... 1,966 8,948 9,531 6,088 15,619
General and
administrative....... 2,044 4,694 6,897 3,067 9,964
Depreciation and
amortization......... 912 4,023 4,242 1,913 6,155
Goodwill and
intangibles
amortization......... 325 1,294 974 36,300 37,282
Merger costs.......... -- 2,060 -- -- --
------- -------- -------- -------- --------
11,499 39,031 73,668 70,069 143,737
------- -------- -------- -------- --------
Loss from operations.... (3,760) (15,791) (26,489) (46,345) (72,834)
------- -------- -------- -------- --------
Other income (expense),
net.................... 45 55 (44) 114 70
------- -------- -------- -------- --------
Loss before income
taxes.................. (3,715) (15,736) (26,537) (46,231) (72,764)
Income tax benefit...... 941 4,911 9,742 4,333 14,075
------- -------- -------- -------- --------
Net loss................ $(2,774) $(10,825) $(16,791) $(41,898) $(58,689)
======= ======== ======== ======== ========
Operating Data:
Cash (used in) from
operating activities... $(3,147) $ (5,752) $(10,055) $ 26,753 $ 16,698
Cash used in investing
activities............. (2,316) (26,466) (20,871) (70,224) (91,095)
Cash from financing
activities............. $ 2,818 $ 33,726 $ 30,926 $ 43,471 $ 74,397
</TABLE>
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------- ------------
As of December 31,
------------------------
1998 1999
----------- ------------
All amounts in 000's
<S> <C> <C>
Balance Sheet and Other Data:
Goodwill and intangibles, net.......................... 7,470 1,415,993
Total assets........................................... 48,021 1,563,811
Total liabilities...................................... 12,084 65,939
Group equity........................................... 35,937 1,497,872
Total liabilities and group equity..................... 48,021 1,563,811
Number of data centers................................. 5 8
Data center square footage............................. 69,000 235,000
</TABLE>
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Management's Discussion and Analysis of Financial Condition
and Results of Operations of the GlobalCenter Group
The following discussion of the financial condition and results of operations
of the GlobalCenter group should be read in conjunction with the selected
combined historical financial data and combined financial statements and the
related notes included elsewhere in this proxy statement. This discussion
contains forward-looking statements that involve risks and uncertainties.
Actual results may differ materially from those anticipated in these forward-
looking statements. Factors that may cause such a difference include those set
forth under "Risk Factors."
Overview
The GlobalCenter group is a leading provider of Internet infrastructure
solutions incorporating complex Web hosting; IP network services; hardware and
software procurement and installation; systems applications; content
distribution; systems applications; and professional services. The GlobalCenter
group delivers its services primarily to large, well-established enterprises
and newer Internet companies seeking rapid, cost-effective solutions for their
mission-critical Internet-related operations. Its revenues generated from
services have grown at a compounded annual growth rate of 170% over the past
two years from $6.5 million in 1997 to $47.7 million in 1999.
GlobalCenter Inc. was acquired by Frontier Corporation in February 1998 in a
pooling-of-interests transaction. In September 1999, Global Crossing Ltd.
acquired Frontier Corporation using the purchase method of accounting. As a
result of this acquisition, the fair value of goodwill and other intangibles
directly related to the GlobalCenter group was determined to be approximately
$1.5 billion. The goodwill and other intangible assets are being amortized on a
straight-line basis over 10 years. The GlobalCenter group expects annual
amortization of the existing goodwill and other tangibles to be approximately
$148.5 million in the future.
Prior to the completion of this offering, the GlobalCenter group obtained the
majority of its network access from third party telecommunications providers
based on agreements with market-based pricing terms. Certain of those third
party agreements required price escalation or contract renegotiation in the
event of unequal traffic flows. The GlobalCenter group also obtained some of
its network access from Frontier Corporation prior to October 1999. After the
acquisition of Frontier Corporation on September 28, 1999, the GlobalCenter
group has obtained substantially all of its network access from the Global
Crossing group. Following the completion of this offering, the GlobalCenter
group's IP transit capacity will be provided by the Global Crossing group based
on preferred market-based pricing, taking into account volume, term and the
exclusive nature of the arrangement and any guarantee of service levels
provided by the Global Crossing group. The GlobalCenter group will pay for
access based on this preferred market-based pricing and its actual usage. The
GlobalCenter group expects that the price it pays for access will be lower in
the future than in previous periods.
From October 1, 1999 through December 31, 1999, the GlobalCenter group
received administrative services from the Global Crossing group that included
information systems support, tax services, payroll and benefit administration
and certain other accounting and administrative services. From March 1, 1998
through September 30, 1999, Frontier Corporation provided these services to the
GlobalCenter group. The GlobalCenter group's costs for these services were
based on total actual costs allocated to it using bases that management
considered reasonable given the nature of the costs and the usage by the
GlobalCenter group. The Global Crossing group will continue to provide certain
administrative services on a similar cost allocation basis.
The GlobalCenter group currently operates eight data centers and plans to
open eight additional data centers during 2000. It typically takes the
GlobalCenter group at least six months after a data center site is leased to
construct the data center facility, install equipment and telecommunications
infrastructure and to hire operations and sales personnel. As a result, it
makes a large capital investment and incurs significant start-up
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costs before generating customer revenues at any new data center. Start-up
costs are expensed as incurred. The GlobalCenter group expects a new data
center to incur losses for a year or longer until reaching break-even
utilization. Largely as a result of these costs, the GlobalCenter group has
experienced operating losses and negative cash flows from operations in each
annual period. The GlobalCenter group's net losses for the three months ended
December 31, 1999, nine months ended September 30, 1999 and each of the years
ended December 31, 1998 and 1997 were $42.7 million, $16.8 million, $10.8
million and $2.8 million, respectively.
Results of Operations
Pro Forma Year Ended December 31, 1999 Compared with the Year Ended December
31, 1998
For purposes of the following discussion and to provide a meaningful basis
for comparing the year ended December 31, 1999 to the year ended December 31,
1998, the GlobalCenter group has combined, as shown in the selected historical
financial data of the GlobalCenter group, the operating results of Old
GlobalCenter for the nine months ended September 30, 1999 with the operating
results of New GlobalCenter for the three months ended December 31, 1999. The
combining of predecessor and successor accounting periods does not conform to
generally accepted accounting principles. For this and other reasons, this
discussion should be read in conjunction with the combined financial statements
of the GlobalCenter group and accompanying notes thereto included elsewhere in
this proxy statement.
Revenues. The GlobalCenter group's service revenues consist of fees from
customers for Web hosting IP network services, content distribution, systems
applications and professional services. The GlobalCenter group typically
provides its services under one-to-three year contracts with minimum customer
commitments for connectivity and services. Service revenues are recognized as
the services provided. Service revenues also include fees for equipment
installation. Revenues from equipment installation are recognized when
installation of the equipment is complete. The GlobalCenter group's equipment
revenues consist of revenue derived from the resale to its customers of
computers, computer peripherals and networking equipment which it buys from
third parties upon receipt of a customer order. The GlobalCenter group assists
its customers with equipment selection, procurement and installation to
facilitate and accelerate the customer's entry into the data center. Equipment
revenues are recognized when equipment is delivered to the customer or, if
installation is required, when installation of the equipment in a data center
is complete. Equipment that has been purchased on behalf of customers but not
yet transferred to the customer or installed is recorded as equipment held for
resale.
The GlobalCenter group's total revenues increased 205% to $70.9 million for
the year ended December 31, 1999 from $23.2 million for the year ended December
31, 1998, as a result of an increase in service revenues and equipment
revenues. Service revenues increased 143% to $47.7 million for the year ended
December 31, 1999 from $19.6 million for the year ended December 31, 1998.
Equipment revenues increased 537% to $23.2 million for the year ended December
31, 1999 from $3.6 million for the year ended December 31, 1998.
The growth in the GlobalCenter group's service revenue was primarily the
result of opening new and expanding existing data centers, adding new customers
and services, and increasing revenues from existing customers. During 1999, the
GlobalCenter group opened two new data centers, and expanded a third. Data
center square footage increased by 230% at December 31, 1999 compared to
December 31, 1998. The largest data center addition in 1999 opened at the end
of the fourth quarter with sales in this data center commencing in January
2000.
The GlobalCenter group's equipment revenues increased primarily because more
customers in its new data centers chose to purchase their equipment from the
GlobalCenter group rather than directly from a third party vendor. Equipment
sales as a percentage of the GlobalCenter group's total revenue and in absolute
dollars can and will fluctuate from period to period depending on the timing
and number of new data centers the GlobalCenter group opens, the mix of new and
existing customers and the requirements of those customers for new and
replacement equipment. The GlobalCenter group expects that, as a general
matter, equipment sales will constitute a smaller portion of its total revenues
in the future.
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Cost of Revenues. Cost of service revenues is comprised of telecommunication
costs for the backbone network and costs for connectivity to other networks and
telecommunications providers. Other expenses in cost of service revenues
include salaries, benefits, rent and other expenses for operation of our data
centers, customer service and network engineering personnel. Cost of equipment
revenues is the cost of third-party equipment sold to customers.
Cost of service revenues increased 263% to $53.8 million for the year ended
December 31, 1999 from $14.8 million for the comparable period in 1998. This
increase was primarily due to increased network usage by customers, and rent
and facilities costs for the addition and expansion of data centers. The
GlobalCenter group expects increases to continue with the addition of new
customers and addition and expansion of GlobalCenter data centers. Cost of
service revenues increased as a percentage of service revenue from 76% in 1998
to 113% in 1999 primarily due to the addition of network capacity in advance of
its utilization. In the future, network cost of service will be based on
preferred market-based pricing and actual usage under the GlobalCenter group's
arrangement with the Global Crossing group.
Cost of equipment revenues increased 553% to $20.9 million for the year ended
December 31, 1999 from $3.2 million for the year ended December 31, 1998, due
to increased equipment sales. The cost of equipment remained fairly consistent
as a percentage of equipment revenues, increasing to 90% during 1999 from 88%
during 1998.
Sales and Marketing. The GlobalCenter group's sales and marketing expenses
consist of salaries, commissions, benefits and other expenses for direct sales,
sales support, product marketing, and public relations personnel, as well as
costs associated with marketing programs, collateral material, and corporate
marketing activities, including public relations.
Sales and marketing expenses increased 75% to $15.6 million for the year
ended December 31, 1999 from $8.9 million for the comparable period in 1998.
The increase is primarily a result of having additional direct sales and
marketing personnel and other sales and marketing expenses in connection with
new data centers and the GlobalCenter group's expanding operations and
services. The GlobalCenter group expects its sales and marketing expenses to
continue to increase with the addition of new data centers in the future. As a
percent of total revenue, sales and marketing expenses decreased from 39% in
1998 to 22% in 1999 primarily due to the significant increase in revenue
between comparison periods.
General and Administrative. The GlobalCenter group's general and
administrative expenses consist of payroll and benefit administration,
information systems services, accounting and back office support, headquarters
facility costs, executive salaries and other general and administrative costs,
including administrative services from the Global Crossing group. From October
1, 1999 through December 31, 1999, the Global Crossing group provided to the
GlobalCenter group support services including information systems support, tax
return preparation and advisory services, payroll and benefits administration,
purchasing and certain other accounting and administrative services. The
GlobalCenter group paid the Global Crossing group a monthly fee for these
support services. Expenses for the three months ended December 31, 1999 include
$0.9 million for these services. From March 1, 1998 through September 30, 1999,
Frontier Corporation provided these services to the GlobalCenter group.
Expenses for the nine months ended September 30, 1999 include $1.7 million for
these services.
The GlobalCenter group's total general and administrative expenses increased
112% to $10.0 million for the year ended December 31, 1999 from $4.7 million
for the same period in 1998, primarily because it hired additional management
and administrative personnel to support expanding operations. The GlobalCenter
group expects its general and administrative expenses to continue to increase
with the addition of new data centers in the future. General and administrative
expenses as a percent of revenue decreased from 20% to 14% for the same period
primarily due to the significant increase in revenue between comparison
periods.
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Depreciation and Amortization. Depreciation and amortization expenses consist
of depreciation of leasehold improvements and network infrastructure
improvements, furniture and amortization of capital lease equipment.
Depreciation and amortization expense increased 53% to $6.2 million for the
year ended December 31, 1999 from $4.0 million for the same period of 1998,
primarily as a result of the new data centers and the related leasehold and
network investments.
Goodwill and Intangibles Amortization. In connection with the merger of
Global Crossing and Frontier Corporation in September of 1999, Global Crossing
contributed approximately $1.5 billion of goodwill and intangible assets to the
GlobalCenter group. The goodwill and identified intangibles are being amortized
over 10 years using the straight-line method. Amortization commenced during the
quarter ended December 31, 1999, and the GlobalCenter group recognized
amortization expense of $37.1 million in that quarter.
The GlobalCenter group also recorded goodwill totaling approximately $9.1
million in connection with an acquisition completed in November 1997. The
goodwill from this transaction was amortized over a seven-year period using the
straight-line method until the acquisition of Frontier Corporation by Global
Crossing in September of 1999.
Income Tax Benefit. Income taxes have been calculated on a pro-rata return
basis. The GlobalCenter group's benefit for income taxes is based on the
increase or decrease in tax liability of the Global Crossing North America
(formerly Frontier Corporation) consolidated tax group resulting from the
inclusion of items in the Global Crossing North America consolidated tax return
which are attributable to the GlobalCenter group. The GlobalCenter group's
benefit in 1999 and 1998 reflects the use of the GlobalCenter group's tax
losses in the Global Crossing North America consolidated tax return.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Revenues. Total revenues increased 200% to $23.2 million for the year ended
December 31, 1998 from $7.7 million for the year ended December 31, 1997.
Service revenues increased 201% to $19.6 million for the year ended December
31, 1998 from $6.5 million for the year ended December 31, 1997. The
GlobalCenter group's equipment revenues increased from $1.2 million for the
year ended 1997 to $3.6 million for the year ended December 31, 1998, an
increase of 196%.
The overall increase in the GlobalCenter group's revenues was primarily the
result of opening new data center locations, the addition of new customers,
equipment sales to new customers and increased sales to existing customers.
During 1998, the GlobalCenter group opened four additional data centers,
tripling its available square footage. The largest of the new data centers
became operational during the fourth quarter of 1998.
Cost of Revenues. Cost of service revenues increased 182% to $14.8 million
for the year ended December 31, 1998 from $5.3 million for the year ended
December 31, 1997. This increase was due primarily to higher telecommunications
expenses associated with increased volume of usage by customers, the expansion
of the GlobalCenter group's network and the addition of new data centers, as
well as an increase in the number of network administration and customer
support personnel. Cost of service revenues decreased as a percentage of
service revenues decreased from 81% in 1997 to 76% in 1998 due to the fixed
nature of data center lease and maintenance costs and the increasing revenue
for the periods.
Cost of equipment revenues increased 222% to $3.2 million for the year ended
December 31, 1998 from $1.0 million for the year ended December 31, 1997. This
increase resulted from more customers in the new GlobalCenter data centers
choosing to purchase their equipment from the GlobalCenter group rather than
direct from a third party vendor.
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Sales and Marketing. The GlobalCenter group's sales and marketing expenses
increased 355% to $8.9 million for the year ended December 31, 1998 from $2.0
million for the year ended December 31, 1997. As a percent of total sales,
sales and marketing expense increased from 25% in 1997 to 39% in 1998. The
increase in sales and marketing expenses is related to the increase in the
number of data centers. As the GlobalCenter group adds data centers, it
increases the sales and marketing personnel and related costs to obtain new
customers and to sell and market new products.
General and Administrative. The GlobalCenter group's general and
administrative expenses increased 130% to $4.7 million for the year ended
December 31, 1998 from $2.0 million for the year ended December 31, 1997. The
increase was a result of increased personnel costs associated with increasing
its management, administrative and accounting personnel and processes and
related costs to support the growth in its overall customer base. General and
administrative expense decreased as a percentage of total revenue to 20% for
the year ended December 31, 1998 from 26% for the year ended December 31, 1997
as a result of the increase in revenues.
Depreciation and Amortization. Depreciation and amortization expense
increased 341% to $4.0 million for the year ended December 31, 1998 from $0.9
million for the year ended December 31, 1997, primarily due to increased
investment in network and increased data center capacity.
Goodwill and Intangibles Amortization. The GlobalCenter group recorded
goodwill totaling $9.1 million in connection with an acquisition completed in
November 1997. The goodwill from this transaction was amortized over a seven-
year period using the straight-line method.
Merger Costs. In connection with the GlobalCenter Inc. merger with Frontier
Corporation that was accounted for as a pooling, approximately $2.1 million of
merger costs have been reflected in the accompanying statement of operations.
Liquidity and Capital Resources
The construction and expansion of data centers and the marketing and
distribution of service offerings will continue to require substantial capital
investment. To date, the GlobalCenter group has funded its operations through
internally generated funds and permanent capital contributions from the Global
Crossing group and, prior to September 30, 1999, from Frontier Corporation.
Based on its current business plan, the GlobalCenter group expects the proceeds
from this offering to provide sufficient capital to sustain current operations
and capital expenditure plans for the next 12 to 18 months. The sources from
which the GlobalCenter group may satisfy its future financing requirements may
include funding from third parties, the issuance of additional GlobalCenter
group stock or additional funding from the Global Crossing group, although
there is no obligation on the Global Crossing group's part to provide any
additional funding.
Net cash used in operating activities in 1997, 1998, and 1999 was $3.1
million, $5.8 million, and $12.6 million, respectively. Net cash used for
operating activities in each of these periods was primarily the result of
operating losses and changes in working capital.
Net cash used in investing activities in 1997, 1998, and 1999 was $1.3
million, $29.0 million, and $89.3 million, respectively. Net cash used for
investing activities in each of these periods was primarily the result of
capital expenditures for data centers and their infrastructure, leasehold
improvements, furniture and fixtures, and other equipment.
The Global Crossing group will manage some of the GlobalCenter group's
financial activities on a centralized basis. Loans from the GlobalCenter group
to the Global Crossing group and loans from the Global Crossing group to the
GlobalCenter group will be made at the weighted average interest rate of the
consolidated indebtedness of Global Crossing and on such other terms and
conditions as our board of directors or its capital stock committee determines
to be in the best interest of Global Crossing. Any fees incurred in connection
with debt incurred will be allocated to the borrowing group.
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The GlobalCenter group also expects to require funds to make product
development investments. For example, the GlobalCenter group engaged Tanning
Technology Corporation to provide consulting and project services to help the
GlobalCenter group expand its service and product solutions and to provide an
infrastructure to scale Internet businesses. The GlobalCenter group has a
commitment with Tanning Technology to purchase services aggregating $10.0
million over the 12-month period beginning in February 2000. We also purchased
$10 million of Tanning Technology common stock in February, 2000.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities, which is effective for all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and hedging activities.
Because the GlobalCenter group does not currently hold any derivative
instruments and does not engage in hedging activities, management expects that
the adoption of SFAS No. 133 will not have a material impact on the
GlobalCenter group's financial position, results of operations or cash flows.
The GlobalCenter group will be required to implement SFAS No. 133 for the year
ending December 31, 2001.
Year 2000
Prior to December 31, 1999, Global Crossing took all actions necessary to
insure that its business operations would be Year 2000 compliant. In
particular, Global Crossing established a Year 2000 compliance task force,
reviewed the status of systems, submitted information requests to third party
service providers, received assurances regarding Year 2000 compliance from its
major suppliers and developed contingency plans to address any potential Year
2000 compliance failure. Neither the Global Crossing group nor the GlobalCenter
group experienced any significant malfunctions or errors in their respective
operating or business systems when the date changed from 1999 to 2000. Based on
its operations since January 1, 2000, the GlobalCenter group does not expect
any significant impact to its ongoing business as a result of the Year 2000
issue. In addition, the GlobalCenter group is not aware of any significant Year
2000 issues or problems that may have arisen for its significant customers and
suppliers.
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.
Transition to the Euro will create a number of issues for the GlobalCenter
group. Business issues that must be addressed include product pricing policies
and ensuring the continuity of business and financial contracts. Finance and
accounting issues will include the conversion of bank accounts and other
treasury and cash management activities.
The GlobalCenter group continues to address these transition issues and does
not expect the transition to the Euro to have a material effect on its results
of operations or financial condition. The GlobalCenter group does not expect
the cost of system modifications to be material and will continue to evaluate
the impact of the Euro conversion.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The GlobalCenter group's major market risk exposure is changing interest
rates. The Global Crossing group will manage most of the GlobalCenter group's
financial activities including investing surplus funds, the
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issuance and repayment of debt and managing the GlobalCenter group's interest
rate risk. The Global Crossing group's policy is to manage interest rates
through the use of a combination of fixed and floating rate debt. The Global
Crossing group may use interest rate swaps to manage interest rate exposures
when appropriate, based upon market conditions, and not engage in such
transactions for speculative purposes.
Foreign Currency Risk
As of December 31, 1999 the functional currency of the GlobalCenter group's
current foreign operations located in Australia and England is the United
States dollar. The GlobalCenter group's foreign currency transactions are
recorded based on exchange rates at the time such transactions arise. The
GlobalCenter group's existing operations, assets and liabilities as of December
31, 1999 that are denominated in currencies other than the U.S. dollar are not
material. The Global Crossing group, the manager for most of the GlobalCenter
group's financing activities, uses foreign currency forward transactions to
hedge exposure to foreign currency exchange rate fluctuations.
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RELATIONSHIP BETWEEN THE GLOBAL CROSSING GROUP
AND THE GLOBALCENTER GROUP
Our board of directors has adopted a policy statement regarding GlobalCenter
group and Global Crossing group matters. We have summarized below the material
provisions of the policy statement. The summary is not complete. We encourage
you to read the policy statement which is attached to this proxy statement as
Annex III.
General Policy
The policy statement of Global Crossing Ltd. provides that all material
matters as to which the holders of Global Crossing group stock and GlobalCenter
group stock may have potentially divergent interests will be resolved in a
manner that our board of directors or its capital stock committee determines to
be in the best interests of Global Crossing, after giving fair consideration to
the potentially divergent interests and all other relevant interests of the
holders of the separate classes of common stock of Global Crossing. Under the
policy statement, a process of fair dealing will govern the relationship and
the means by which the terms of any material transaction between the groups
will be determined.
Role of Capital Stock Committee
Our policy statement provides that a capital stock committee comprised of
three independent directors will exercise the powers, authority and
responsibilities that our board of directors delegates to it with respect to
the GlobalCenter group stock and Global Crossing group stock. Our board of
directors will initially authorize the capital stock committee to (1)
interpret, make determinations under, and oversee the implementation of these
policies, (2) adopt additional general policies governing the relationship
between the Global Crossing group and the GlobalCenter group, and (3) engage
the services of accountants, investment bankers, appraisers, attorneys and
other service providers to assist it in discharging its duties. In making
determinations in connection with these policies, the members of our board of
directors and its capital stock committee will act in a fiduciary capacity and
pursuant to legal guidance concerning their respective obligations under
applicable law.
Corporate Opportunities
Our policy statement provides that our board of directors will allocate any
business opportunities and operations, any acquired assets and businesses and
any assumed liabilities between the GlobalCenter group and Global Crossing
group, in whole or in part, in a manner it considers to be in the best
interests of Global Crossing as contemplated by the other provisions of the
policy statement. To the extent that a business opportunity or operation, an
acquired asset or business, or an assumed liability would be suitable to be
undertaken by or allocated to either group, it will be allocated by our board
of directors in its business judgment or in accordance with procedures adopted
by it from time to time to ensure that decisions will be made in the best
interests of Global Crossing. Any such allocation may involve the consideration
of a number of factors that our board of directors determines to be relevant,
including, without limitation, whether the business opportunity or operation,
the acquired asset or business, or the assumed liability is principally within
or related to the existing scope of a group's business and whether a group is
better positioned to undertake or have allocated to it such business
opportunity or operation, acquired assets or business or assumed liability.
Relationships Between Groups
Our policy statement provides that we will seek to manage the GlobalCenter
group and the Global Crossing group in a manner designed to maximize the
operations, unique assets and values of both groups, and with complementary
deployments of personnel, capital and facilities.
Exclusive Provision of Services
The Global Crossing group will be the exclusive provider of GBLX Services to
the GlobalCenter group. As such, the Global Crossing group will have the
exclusive right to provide GBLX Services and related products and services to
the GlobalCenter group.
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Under the policy statement, "GBLX Services" is defined as:
. Internet Protocol transit service,
. dedicated Internet access,
. dial Internet access,
. IP virtual private networks, and
. IP exchange services--conditioned space for Global Crossing customers'
routers for interconnection with Global Crossing and other provider
networks.
The GlobalCenter group will be the exclusive provider of GCTR Services to the
Global Crossing group. As such, the GlobalCenter group will have the exclusive
right to provide GCTR Services and related products and services to the Global
Crossing group.
Under the policy statement, "GCTR Services" is defined as:
. complex web hosting--data centers conditioned space and related
services,
. data center professional services--consulting, engineering, and other
technology support services,
. data center equipment hardware and software sales and support,
. value added services to support hosting and distribution, including but
not limited to storage-on-demand; database; security; consulting
services; disaster recovery; application hosting; monitoring; staging,
sparing and laboratory test services; and managed services.
Network and Service Management
Network and Services Management Committee. A committee of three senior
executives from each group will be formed to provide management and direction
designed to fully implement the policy with respect to the various services to
be provided by one group to the other. In particular, the network and services
management committee will review and agree on data center bandwidth
requirements by location and volume, review and agree on network expansion
plans as required to support the data centers and establish service level
targets for the data center connections and track performance against those
targets.
Service Level Agreement. Each group will guarantee a level of service for the
services it provides to the other group that meets the standards committed to
by the other group to its customers and which have been approved by the network
and services management committee.
Monitoring. The GlobalCenter group will have the right to monitor from its
data centers the related portion of the Global Crossing IP network that the
GlobalCenter group relies upon to provide services to its customers as part of
an integrated service offering. The monitoring rights will give the
GlobalCenter group the capability to view and monitor the end-to-end service in
the same manner that the Global Crossing group views the network. As determined
by the network and services management committee, the GlobalCenter group will
either become one of or have the same monitoring capabilities as one of the
Global Crossing network operations centers.
The Terms of Inter-group Transactions
All material transactions in the ordinary course of business between the
Global Crossing group and the GlobalCenter group, including those described
above in "Preferred Provision of Services," are intended, to the extent
practicable, to be on terms consistent with those that would be applicable to
arm's-length dealings with unrelated third parties, taking into account a
number of factors, including quality, availability, volume and pricing. In
particular, the pricing for the access to its network provided by the Global
Crossing group to the GlobalCenter group will be preferred market-based
pricing, taking into account volume, term, and the exclusive nature of the
arrangement and any guarantee of service levels provided by the Global Crossing
group.
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Marketing of Services
As a general matter, each group will continue to design, develop, deploy,
produce, market, sell and service their own service offerings and choose their
own selected sales channels. In addition, each group will cooperate with the
other in providing the use of their respective sales channels to offer their
respective services. Each group will operate in a manner that takes into
account the other's expansion, acquisition, deployment, marketing and sales
plans, with the goal of minimizing overlaps and conflicts between the two
groups.
Other Transfers of Assets and Liabilities
We may reallocate assets (including cash) and liabilities between the Global
Crossing group and the GlobalCenter group in addition to transfers resulting
from commercial transactions in the ordinary course of business of the groups
described above in "Terms of Inter-group Transactions." Any reallocation of
assets and liabilities between the groups not in the ordinary course of their
respective businesses will be effected by:
. the reallocation by the transferee group to the transferor group of
other assets or consideration or liabilities;
. the creation of inter-group debt owed by the transferee group to the
transferor group;
. the reduction of inter-group debt owed by the transferor group to the
transferee group;
. the creation of, or an increase in, an inter-group interest in the
transferee group held by the transferor group;
. the reduction of an inter-group interest in the transferor group held by
the transferee group; or
. a combination of any of the above factors;
in each case, in an amount having a fair value equivalent to the fair value of
the assets or liabilities reallocated by the transferor group and, in the case
of the creation of or an increase or decrease in an inter-group interest, in
accordance with the provisions of the Certificate of Designations. Our board of
directors will approve any creation of, or increase or decrease in, an inter-
group interest.
Financing Arrangements
Loans from the Global Crossing group or the GlobalCenter group to the other
group will be made at the weighted average interest rate of our consolidated
indebtedness and on such other terms and conditions as our board of directors
or its capital stock committee determines to be in the best interests of Global
Crossing. Any fees incurred in connection with debt incurred for a particular
group will be allocated to the borrowing group.
Intellectual Property
We will manage on a centralized basis our intellectual property attributed to
the groups, except that the GlobalCenter group will manage the intellectual
property attributed to it that is owned by the companies in the GlobalCenter
group.
Each group will have the right to use the intellectual property attributed to
the other group for appropriate business activities on appropriate terms.
Any fees obtained through the sale or licensing of intellectual property will
be principally allocated to the group that paid to develop the intellectual
property sold or licensed. If the intellectual property being sold or licensed
was jointly developed by the groups and the groups agree to allocate fees
obtained in proportion to the development costs incurred by each group, then
any fees obtained through the sale or licensing will be so allocated. If such
intellectual property was not predominantly developed by any one group or was
jointly developed by the groups but the groups do not agree to allocate fees
obtained in proportion to costs incurred, then any fees obtained through such
sale or licensing will be allocated using the same general allocation as
overhead expenses, as described below in "Financial Reporting; Allocation
Matters."
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Dividend Policy
Our policy statement provides that, subject to the limitations set forth in
the Certificate of Designations, any preferential rights of any series of
preferred stock of Global Crossing Ltd., and to the limitations of applicable
law, holders of shares of Global Crossing group stock or GlobalCenter group
stock will be entitled to receive dividends on their respective stock when, as
and if authorized and declared by our board of directors.
The payment of dividends on either class of common stock will be a business
decision to be made by our board of directors from time to time based upon the
results of operations, financial condition and capital requirements of the
relevant group and such other factors as the board of directors considers
relevant. Payment of dividends may be restricted by loan agreements, indentures
and other transactions entered into by us from time to time. Because both
groups are expected to require significant capital commitments to finance their
respective operations and fund future growth, we do not expect to pay any
dividends on either class of common stock for the foreseeable future.
Financial Reporting; Allocation Matters
Financial Reporting
Our policy statement provides that we will prepare and include in its filings
with the Securities and Exchange Commission under the Securities Exchange Act
of 1934, as amended, consolidated financial statements of Global Crossing Ltd.
and combined financial statements of each of the Global Crossing group and the
GlobalCenter group (for so long as the related class of common stock is
outstanding). The combined financial statements of each group will reflect the
combined financial position, results of operations and cash flows of the
businesses attributed thereto and in the case of annual financial statements
shall be audited.
Shared Corporate Services
A portion of our shared corporate services (such as executive management,
human resources, legal, accounting and auditing, tax, treasury, strategic
planning, investor relations and corporate technology) will be allocated to the
Global Crossing group and the GlobalCenter group based upon specific
identification of such services used by that group. Where determinations based
on use alone are impracticable, other methods and criteria will be used that
management believes are fair and provide a reasonable estimate of the cost
attributable to the groups.
GlobalCenter Inc. Board of Directors
Our policy statement provides that the board of directors of GlobalCenter
Inc. will at all times be composed of six directors nominated by the board of
directors of Global Crossing Ltd. and five directors nominated by the Chief
Executive Officer of GlobalCenter Inc. The board of directors of GlobalCenter
Inc. will have the authority to:
. appoint officers of GlobalCenter Inc.;
. approve the budget of the GlobalCenter group;
. approve any acquisitions of businesses that are attributed to the
GlobalCenter group;
. approve the incurrence of indebtedness at GlobalCenter Inc. of up to 25%
of the market capitalization of GlobalCenter group stock; and
. approve the issuance of capital stock of GlobalCenter Inc. or the
issuance of GlobalCenter group stock by Global Crossing Ltd.
With respect to the last three items, the board of directors of GlobalCenter
Inc. will only have such authority to the extent that such actions would not
have any adverse effect on Global Crossing Ltd.
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Amendment and Modification of Policy
Our board of directors may, without the approval of our shareholders, at any
time and from time to time, amend, modify or rescind the policies set forth in
our policy statement, including any resolution implementing the provisions of
the policy statement. Our board of directors also may, without the approval of
our shareholders, adopt additional or other policies or make exceptions with
respect to the application of these policies in connection with particular
facts and circumstances, all as our board of directors may determine,
consistent with its fiduciary duties.
Tax Sharing Agreement
Prior to the issuance of shares of GlobalCenter group stock, the allocation
of tax liabilities between GlobalCenter Inc. and Global Crossing North America
Inc., formerly Frontier Corporation, the Global Crossing Ltd. subsidiary that
files a consolidated tax return in the United States with GlobalCenter Inc.,
will be made in accordance with the intercompany tax policy of Global Crossing
North America. In general, this policy requires that taxes payable by each
company be computed on a pro-rata basis. However, under the policy, tax
benefits derived by the Global Crossing North America consolidated group
arising from the use by the group of a member's tax attributes (such as net
operating losses) are allocated to the member whose attributes generated such
benefits. Thus, for example, if GlobalCenter Inc. were to incur a net operating
loss that reduced the consolidated group's taxable income, GlobalCenter Inc.
would receive the benefit of such reduction.
On the effective date of the offering, Global Crossing North America and
GlobalCenter Inc. will enter into a formal tax sharing agreement that provides
for a pro-rata allocation of tax liabilities among members of the Global
Crossing North America consolidated group. Under the new agreement, for tax
periods during which GlobalCenter Inc. and its subsidiaries are included in any
consolidated federal income tax return or any comparable state, local, and
foreign or franchise income tax return filed by Global Crossing North America
(collectively, the "Consolidated Returns"), the tax sharing agreement will
require GlobalCenter Inc. to pay to Global Crossing North America any taxes
that Global Crossing North America and its subsidiaries (other than
GlobalCenter Inc. and its subsidiaries) were required to pay, and any tax
benefits that they did not receive as a result of GlobalCenter Inc. and its
subsidiaries being included in the Consolidated Returns. The tax sharing
agreement will also require Global Crossing North America to pay to
GlobalCenter Inc. any taxes that Global Crossing North America and its
subsidiaries (other than GlobalCenter Inc. and its subsidiaries) would have
been required to pay, and any tax benefits that they would not have received,
had GlobalCenter Inc. or any of its subsidiaries not been included in the
Consolidated Returns.
Under the tax sharing agreement, Global Crossing North America will have the
sole and exclusive responsibility for (i) preparing all Consolidated Returns;
(ii) representing GlobalCenter Inc. and its subsidiaries in any tax audit or
tax contest relating to the Consolidated Returns; and (iii) engaging outside
tax counsel or other tax advisors in connection with such tax audits or tax
contests. GlobalCenter Inc. will reimburse Global Crossing North America for
its share of reasonable expenses that are incurred by Global Crossing North
America in connection with such tax audits or tax contests.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the tax sharing agreement allocates tax liabilities
between GlobalCenter Inc. and Global Crossing North America, during the period
in which GlobalCenter Inc. and its subsidiaries are included in the federal
income tax consolidated returns filed by Global Crossing North America,
GlobalCenter Inc. could be liable in the event that any federal income tax
liability is incurred, but not discharged, by any other entity included in
those returns. Global Crossing North America is required, under the terms of
the tax sharing agreement, to indemnify GlobalCenter Inc. for any tax liability
of Global Crossing North America or its subsidiaries that GlobalCenter Inc.
must pay to a taxing authority, except to the extent that such tax liability is
attributable to GlobalCenter Inc. and GlobalCenter Inc. has not yet made a
corresponding tax sharing payment to Global Crossing North America.
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The foregoing discussion assumes that GlobalCenter Inc. and its subsidiaries
are members of the same affiliated, consolidated, combined or unitary group as
Global Crossing North America for the relevant federal, state or local income
tax purposes. It is possible, however, that the Internal Revenue Service may
assert that GlobalCenter group stock is not stock of Global Crossing, in which
case this assumption will not be true if the GlobalCenter group stock that is
held by persons other than Global Crossing is deemed to represent more than 20%
of the GlobalCenter group stock. Although we believe that it is unlikely that
the Internal Revenue Service would prevail on that view, no assurance can be
given in that regard.
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THE GLOBALCENTER STOCK INCENTIVE PLAN PROPOSALS
On April 12, 2000, the Global Crossing board of directors unanimously adopted
resolutions to adopt both the GlobalCenter Management Stock Plan and the
GlobalCenter 2000 Stock Plan. The Global Crossing board of directors is asking
shareholders to approve these resolutions, which are included in Annex I to
this proxy statement.
Management stock plan
The GlobalCenter Management Stock Plan, which we refer to as the "Management
Stock Plan," was approved by the Global Crossing Compensation Committee on
March 2, 2000 and by the Global Crossing board of directors on April 12, 2000.
The board of directors adopted the Management Stock Plan to enable the
GlobalCenter group to attract and retain directors, employees and service
providers and enable such persons to align their interests with the interests
of the holders of GlobalCenter group stock.
The following is a brief description of the material features of the
Management Stock Plan. You should read the full text of the Management Stock
Plan, which has been included as Annex IV to this proxy statement.
Awards. The terms of the Management Stock Plan provide for grants of stock
options to purchase shares of GlobalCenter group stock and grants restricted
shares of GlobalCenter group stock. Options granted under the Management Stock
Plan may be "incentive stock options" under the Internal Revenue Code or
nonstatutory stock options.
Shares Subject to the Management Stock Plan and Annual Per-Person Limits.
Under the Management Stock Plan, the total number of shares of GlobalCenter
group stock that may be subject to outstanding options or restricted stock
grants shall not exceed , subject to adjustment, as described below.
In addition, the Management Stock Plan imposes individual limits on the
amount of awards. Under these limits, during any fiscal year the number of
shares of GlobalCenter group stock subject to options and restricted stock
granted to any one participant under the Management Stock Plan shall not exceed
shares, subject to adjustment in certain circumstances, as described
below.
The Global Crossing compensation committee will make appropriate and
equitable adjustments as it deems necessary to the number of shares and type of
securities subject to the aggregate share limitations and annual limitations
under the Management Stock Plan and subject to outstanding awards, including
adjustments to exercise prices and number of shares subject to options, in the
event that a dividend or other distribution, recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination or
share exchange, or other similar corporate transaction or event affects
GlobalCenter group stock.
Eligibility. Key employees and directors of GlobalCenter Inc. and service
providers to GlobalCenter Inc., its parent and affiliates are eligible to be
granted awards under the Management Stock Plan.
Administration. The Management Stock Plan is administered by the Global
Crossing compensation committee. Subject to the terms and conditions of the
Management Stock Plan, the compensation committee is authorized to interpret
the Management Stock Plan, construe terms, adopt rules and regulations and make
all determinations under the Management Stock Plan.
Terms of Stock Options. The exercise price per share subject to an option is
determined by the compensation committee. All terms regarding each option are
fixed by the compensation committee in an award agreement, except that no
option may have a term exceeding ten years. Options may be exercised by payment
of the exercise price in cash or through a "same-day" sale arranged with a
broker.
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Terms of Restricted Stock Awards. The compensation committee generally
determines the terms applicable to each restricted stock award in an award
agreement.
Outstanding Awards. As of , 2000, nonstatutory stock options to purchase
shares of GlobalCenter group stock have been granted. No incentive stock
options or shares of restricted stock have been awarded under the Management
Stock Plan.
2000 Stock Plan
The board of directors of Global Crossing adopted the GlobalCenter 2000 Stock
Plan, which we refer to as the "2000 Stock Plan," on April 12, 2000. The board
of directors adopted the 2000 Stock Plan to enable the GlobalCenter group to
attract and retain employees and service providers and enable such persons to
align their interests with the interests of the holders of GlobalCenter group
stock. The 2000 Stock Plan will become effective upon the consummation of
initial public offering of GlobalCenter group stock.
The following is a brief description of the material features of the 2000
Stock Plan. You should read the full text of the 2000 Stock Plan, which has
been included as Annex V to this proxy statement.
Awards. The terms of the 2000 Stock Plan provide for grants of stock options
to purchase shares of GlobalCenter group stock, stock appreciation rights and
other stock-based awards. Options granted under the 2000 Stock Plan may be
"incentive stock options" under the Internal Revenue Code or nonstatutory stock
options.
Shares Subject to the 2000 Stock Plan and Annual Per-Person Limits
Under the 2000 Stock Plan, the total number of shares of GlobalCenter group
stock that may be subject to awards shall not exceed shares of GlobalCenter
group stock, subject to adjustment, as described below.
In addition, the 2000 Stock Plan imposes individual limits on the amount of
awards. Under these limits, during any calendar year the number of shares of
GlobalCenter group stock subject to awards that may be granted to any one
participant under the 2000 Stock Plan shall not exceed shares of
GlobalCenter group stock, subject to adjustment in certain circumstances, as
described below.
The Global Crossing board of directors will adjust the number of shares and
type of securities subject to the aggregate share limitations and annual
limitations under the 2000 Stock Plan and subject to outstanding awards,
including adjustments to exercise prices and number of shares subject to
options and stock appreciation rights, in the event that a dividend or other
distribution, recapitalization, forward or reverse split, reorganization,
merger, consolidation, spin-off, combination or share exchange, or other
similar corporate transaction or event affects GlobalCenter group stock.
Eligibility. Individuals selected by the board of directors of Global
Crossing are eligible to be granted awards under the 2000 Stock Plan.
Administration. The 2000 Stock Plan is administered by the Global Crossing
board of directors. Subject to the terms and conditions of the 2000 Stock Plan,
the board of directors is authorized to interpret the 2000 Stock Plan, construe
terms, adopt rules and regulations and make all determinations under the 2000
Stock Plan.
Terms of Stock Options. The exercise price per share subject to an option is
determined by the Global Crossing board of directors. All terms regarding each
option are fixed by the Global Crossing board of directors in an award
agreement, except that no option may have a term exceeding ten years. Options
may be exercised by payment of the exercise price in cash, by delivering shares
of previously acquired GlobalCenter group stock or by having such shares
withheld, or, after a "qualified public offering," through a "same-day" sale
arranged with a broker.
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Terms of Other Awards. The board of directors generally determines the terms
applicable to stock appreciation rights, and other stock-based awards in each
award agreement.
Federal Income Tax Implications of the Management Stock Plan and the 2000 Plan
The following is a summary of certain United States federal income tax rules
with respect to the Management Stock Plan and the 2000 Plan and the awards
granted thereunder. This summary is not intended to be a complete description
of all possible tax consequences of the Management Stock Plan and the 2000 Plan
and the awards, and each participant should consult his or her own tax advisor
concerning the federal, state, local and other tax implications of the
Management Stock Plan and the 2000 Plan and of the awards granted thereunder.
Moreover, as the following discussion is limited to United States federal
income tax matters, any such individuals who are subject to taxation by other
jurisdictions, foreign or domestic, should consult their tax advisors with
respect to the applicable tax laws of such other jurisdictions.
Incentive Stock Options ("ISO"s). Under current law, a participant will not
realize taxable income upon either the grant or the exercise of an ISO, and his
or her employer will not receive an income tax deduction at either time. If the
participant does not sell the shares acquired by exercising an ISO within
either
. two years after the date he or she was granted the underlying ISO, or
. one year after the date he or she exercised the underlying ISO,
a subsequent sale will be taxed as long-term capital gain or loss. If, within
either of the above periods, the participant disposes of the shares acquired by
exercising the ISO, the participant generally will realize as ordinary income
an amount equal to the lesser of
. the gain he or she realized on such disposition, or
. the excess of the fair market value of the shares on the date of
exercise over the exercise price.
In such event, the participant's employer generally will be entitled to an
income tax deduction equal to the amount recognized as ordinary income, subject
to compliance with Section 162(m) of the Internal Revenue Code (the "Code").
Any gain in excess of such amount that the participant realizes as ordinary
income will be taxed as a short-term or long-term capital gain (depending on
the holding period).
Nonqualified Stock Options ("NQSO"s). Under current law, a participant will
not realize taxable income upon the grant of a NQSO and the participant's
employer will not receive an income tax deduction at such time. When the
participant exercises a NQSO, he or she will generally realize ordinary income
in an amount equal to the excess of the fair market value of the shares on the
date of exercise over the exercise price. When the participant sells the shares
he or she will recognize short-term or long-term capital gain depending upon
how long the shares were held. The participant's employer generally is allowed
an income tax deduction equal to the amount the participant recognized as
ordinary income, subject, where applicable, to compliance with Section 162(m)
of the Code.
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.
Restricted Stock and Other Stock-Based Awards. Restricted stock and other
stock-based Awards are ordinarily taxed at ordinary rates when received.
However, if the Award is subject to a substantial risk of forfeiture, it
generally will not be taxed until the substantial risk of forfeiture lapses or
until the participant makes an election under Section 83(b) of the Code. The
participant's employer generally is allowed an income tax deduction equal to
the amount recognized as ordinary income.
Global Crossing Executive Compensation
Compensation committee report
Compensation Philosophy
Our 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.
98
<PAGE>
To assure that compensation policies are appropriately aligned with the value
Global Crossing creates for shareholders, our 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 Global Crossing 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 such modifications as it deems
appropriate. However, the board of directors has sole authority to modify the
compensation of the Chairman, the Co-Chairman and the Chief Executive Officer
("CEO"), although the Committee makes recommendations to the board in this
regard.
Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility
of certain annual compensation payments in excess of $1 million to a company's
executive officers. It is the objective of the Committee to administer
compensation plans in compliance with the provisions of Section 162(m) where
feasible and where consistent with our compensation philosophy as stated above.
In that connection, at the 2000 Annual General Meeting of Shareholders, we
intend to recommend the adoption of an annual bonus plan meeting the
requirements of Section 162(m). We already have in place a stock incentive plan
pursuant to which stock-based incentives may be awarded in compliance with
Section 162(m).
Executive Compensation Components
The major components of compensation for executive officers, including 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 our compensation philosophy.
. Base salary. Base salaries for executive officers are initially set upon
hiring by the Committee (or, in the case of the Chairman, the Co-
Chairman and the CEO, by the board of directors upon the Committee's
recommendation) 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 also determined by the
Committee or the board of directors, as applicable. 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 Committee.
. Target annual bonuses. We rely 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. Target annual bonuses
for the Chairman, the Co-Chairman and the CEO are determined by the
board of directors upon recommendation by the Committee. Target annual
bonuses for other executive officers are determined by the Committee.
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<PAGE>
. Stock option grants. The only current long-term incentive opportunity
for executive officers, including the CEO, is the award of stock option
grants under the 1998 Global Crossing Ltd. 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 generally vest over a three-year
period with a maximum term of ten years. Option grants are awarded at
the discretion of the Committee 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 shortand long-term
basis. The Committee may consider such quantitative measures as total
shareholder return, return on shareholder's equity, return on capital employed,
revenue growth, and growth in Adjusted EBITDA and other measures of
profitability. 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 1999, executive officer compensation was targeted at the
75th percentile relative to peer group companies in the telecom industry.
2000 executive compensation review
Based on the factors set forth above, the Committee approved (or, in the case
of the Chairman, Co-Chairman and CEO, recommended that the board of directors
approve) salary increases and 1999 bonus awards for all executive officers. In
addition, the Committee approved approximately 11,000,000 additional stock
option grants to executive officers during 1999.
Robert Annunziata was appointed CEO in February 1999. Jack Scanlon held the
position of CEO from the beginning of 1999 through February 1999. In
determining salary increases and 1999 bonus awards for Messrs. Annunziata and
Scanlon, the Committee reviewed the performance of Global Crossing against its
goals. During 1999, annual revenue increased from $420 million to $1.7 billion
as a result of internal growth and acquisitions completed during the year.
Global Crossing's market capitalization grew from $10 billion to $43 billion or
330%. In addition, Mr. Annunziata was a key member of the team that completed
the successful merger with Frontier Corporation, and the acquisitions of Racal
Telecom and Global Marine Systems.
THE COMPENSATION COMMITTEE
James F. McDonald, Chairman
Geoffrey J.W. Kent
Douglas McCorkindale
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Summary Compensation Table
The table below sets forth information concerning compensation paid to
certain executive officers during the last fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------------- -----------------------------------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Year Salary Bonus(1) Compensation(2) Award(s) Options/SARs Payouts Compensation(3)
---- -------- ----------- --------------- ---------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Winnick............ 1999 $169,615 $ 785,000 $ 94,097 -- -- -- --
Chairman
Robert Annunziata*...... 1999 464,679 11,000,000 -- -- 7,500,000 -- --
Former Chief
Executive Officer
Jack M. Scanlon*........ 1999 622,500 504,000 -- -- -- -- $ 5,000
Vice Chairman, Asia 1998 450,000 480,000 $213,569 -- 3,600,000 -- --
Global Crossing
Thomas J. Casey......... 1999 925,000 625,000 -- -- 1,600,000 -- --
Vice Chairman 1998 266,667 533,333 -- -- 2,000,000 -- --
John A. Scarpati........ 1999 36,217 2,000,000 -- -- 1,000,000 -- 222,222
Chief Administrative
Officer
William B. Carter....... 1999 622,500 395,000 -- -- -- -- 5,000
President, Global 1998 600,000 1,050,000 -- -- 3,000,000 -- $ 5,000
Crossing Development 1997 $200,000 $ 750,000 -- -- -- -- --
Co.; Chief Executive
Officer, Global Marine
Systems
</TABLE>
- --------
* Mr. Annunziata became Chief Executive Officer in February 1999 and Mr.
Scanlon resigned the position in February 1999. Mr. Scanlon is still one of
the four most highly compensated officers of Global Crossing other than the
CEO.
(1) The amounts in this column represent annual bonuses, except that Mr.
Annunziata's amount reflects a $10,000,000 signing bonus and a $1,000,000
annual bonus; and Mr. Scarpati's amount reflects a $2,000,000 signing
bonus.
(2) Mr. Winnick received imputed income for the personal use of corporate
aircraft in 1999.
(3) Messrs. Scanlon and Carter received matching company contributions on their
401(k) plan deferrals. Mr. Scarpati is to receive an $8,000,000 bonus upon
the completion of 3 years of service, of which 1/36th was accrued in 1999.
Certain compensation arrangements
The 1998 Global Crossing Ltd. Stock Incentive Plan (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 the Committee, be deemed to vest immediately. The award
agreements generally provide for accelerated vesting upon a change in control.
"Change in control" is defined under the 1998 Plan in general as the occurrence
of any of the following: (1) any person or entity, other than certain of our
affiliates, becomes the "beneficial owner," as defined under Rule 13d-3
promulgated under the Securities Exchange Act of 1934, of securities of Global
Crossing representing 30% or more of the combined voting power of our 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; (3) our shareholders 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 our
shareholders immediately prior thereto continuing to own more than 65% of the
combined voting power of the voting securities of the surviving entity
outstanding after such transaction; or (4) our shareholders 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 our assets, other
than the liquidation of Global Crossing into a wholly owned subsidiary.
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In January 2000, the board of directors authorized Global Crossing to enter
into change in control agreements with our executive officers and certain of
our other key executives. These agreements provide for certain benefits upon
actual or constructive termination of employment in the event of a "Change in
Control" (as defined below). With respect to any of the executive officers
named in the Summary Compensation Table above, if, within 24 months of the
month in which a Change in Control occurs, his employment is terminated by us
(other than for cause or by reason of death or disability), or he terminates
employment for "good reason" (generally, an unfavorable change in employment
status, compensation or benefits or a required relocation), he shall be
entitled to receive (i) a lump sum payment equal to three times the sum of his
annual base salary plus guideline bonus opportunity (reduced by any cash
severance benefit otherwise paid to the executive under any applicable
severance plan or other severance arrangement), (ii) a prorated annual target
bonus for the year in which the Change in Control occurs, (iii) continuation of
his life and health insurance coverages for three years and (iv) payment of any
excise taxes due in respect of the foregoing benefits and of any other payments
made to the executive as a result of the Change in Control. The term of each of
these agreements will continue through December 31, 2001, after which it will
be automatically extended for additional one-year terms subject to termination
by either party on one year's prior notice. There is an automatic 24-month
extension following any Change in Control. A Change in Control generally is
deemed to occur if: (1) any person or entity, other than certain of our
affiliates, becomes the "beneficial owner" of securities of Global Crossing
representing 20% or more of the combined voting power of our 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
change in control agreement) 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; (3) any transaction is
consummated pursuant to which Global Crossing is merged or consolidated with
any other company, other than a merger or consolidation which would result in
our shareholders immediately prior thereto continuing to own more than 65% of
the combined voting power of the voting securities of the surviving entity
outstanding after such transaction; or (4) Global Crossing is completely
liquidated or we sell or dispose of all or substantially all of our assets,
other than the liquidation of Global Crossing into a wholly owned subsidiary.
In December 1999, we entered into an employment agreement with Leo J.
Hindery, Jr. providing for Mr. Hindery's employment as Chairman and Chief
Executive Officer of our GlobalCenter subsidiary for an initial term of three
years. The employment agreement provided for a base annual salary of not less
than $500,000 and a guaranteed bonus of not less than $500,000. Mr. Hindery
also received stock options to purchase 500,000 shares of Global Crossing
common stock at an exercise price of $45 per share. These stock options vest
34% on Mr. Hindery's first date of employment and the balance in 22% increments
on each of the first, second and third anniversaries of such date. Pursuant to
the employment agreement, Mr. Hindery is also entitled to receive stock options
covering 5.5% of the common stock of our GlobalCenter subsidiary or of a
tracking stock designed to reflect the performance of the GlobalCenter
business. Such GlobalCenter stock options will have an aggregate exercise price
of $110 million and will vest 34% immediately and the balance in 22% increments
on each of the first, second and third anniversaries of Mr. Hindery's
employment start date. In March 2000, Mr. Hindery's compensation arrangements
were changed to reflect his new responsibilities as Chief Executive Officer of
Global Crossing Ltd. At that time, Mr. Hindery's annual base salary was
increased to $995,000 and he received an additional 2,000,000 Global Crossing
Ltd. stock options at an exercise price of $54.375 per share, such options to
vest ratably over three years. Upon a "change in control" or upon the actual or
constructive discharge of Mr. Hindery without "cause" (as defined in Mr.
Hindery's agreement), all of his options will immediately vest in full, and Mr.
Hindery will be entitled to receive a lump sum payment equal to the sum of his
annual base salary and bonus through the end of the term of the agreement.
In February 1999, we entered into an employment agreement with Robert
Annunziata providing for Mr. Annunziata's employment as Chief Executive Officer
of Global Crossing for an initial term of three years. The employment agreement
provided for a base annual salary of not less than $500,000 and a target annual
bonus of not less than $500,000. In addition, Mr. Annunziata was provided a $10
million signing bonus, subject to partial repayment in certain circumstances,
as well as a $5 million fully recourse loan facility to be used to purchase
shares of Global Crossing common stock to the extent Mr. Annunziata used a like
amount of his own
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funds for such purpose. Mr. Annunziata did not elect to make use of this loan
facility. Mr. Annunziata also received stock options to purchase 4,000,000
(after giving effect to the March 9, 1999 stock split) shares of Global
Crossing common stock at a split-adjusted exercise price of $19.81 per share.
These stock options were to 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. Under the employment agreement, Mr. Annunziata was given the right,
for a period of six months following the initial term of the agreement, to
require Global Crossing to purchase from him any shares of Global Crossing
common stock held by him as a result of the exercise of the 4,000,000 stock
options at a purchase price equal to $49.625 per share. Pursuant to the
employment agreement, Mr. Annunziata also received stock options to purchase an
aggregate of 500,000 (post-split) shares of Global Crossing common stock, at a
split-adjusted exercise price of $24.81 per share, all of which became vested
on Mr. Annunziata's first day of employment. Upon Mr. Annunziata's resignation
as CEO on March 2, 2000, all of Mr. Annunziata's then unvested stock options
granted under the agreement became immediately vested and Mr. Annunziata became
entitled to receive a lump sum payment equal to two times his then annual base
salary and bonus.
Global Crossing entered into an employment agreement, dated as of April 1,
1998, with Jack Scanlon, providing for Mr. Scanlon's employment as Global
Crossing's Chief Executive Officer for an initial term of two years. The
employment agreement provided for a base annual salary of not less than
$600,000 and a guaranteed bonus of not less than $400,000. In addition, Mr.
Scanlon was issued options to purchase a total of 3,600,000 (after adjusting
for subsequent stock splits) shares of Global Crossing common stock at a split-
adjusted exercise price of $0.835 per share. These options vest in 25%
increments on Mr. Scanlon's first day of employment and on each of the first
three anniversaries of that date. Upon a "change in control" of Global
Crossing, as defined in the 1998 Plan, all of these options will immediately
vest, and Mr. Scanlon will be entitled to terminate the agreement and receive a
lump sum payment equal to two times his then annual base salary and bonus. Mr.
Scanlon will also be entitled to such lump sum payment if he is actually or
constructively discharged without "cause" (as defined in the agreement). Mr.
Scanlon voluntarily resigned as Chief Executive Officer of Global Crossing in
February 1999 to become Vice Chairman of Global Crossing. His employment
agreement was extended for one additional year at that time but otherwise was
left substantially unchanged.
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 Mr.
Casey's employment agreement, including 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.
In December 1999, Global Crossing entered into an employment agreement with
John A. Scarpati providing for Mr. Scarpati's employment as Chief
Administrative Officer of Global Crossing for an initial term of three years.
The employment agreement provides for a base salary of not less than $500,000
and a target annual bonus of 100% of his base annual salary. In addition, Mr.
Scarpati was provided a $2 million signing bonus, subject to partial repayment
in certain circumstances, as well as the right to an $8 million payment in the
event he remains employed by Global Crossing for three years or is actually or
constructively discharged without "cause" (as defined in the agreement). In
connection with his employment, Mr. Scarpati received stock
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options to purchase 1,000,000 shares of Global Crossing common stock at an
exercise price of $53 per share. These stock options vest in 25% increments on
the date Mr. Scarpati commenced employment with Global Crossing and on each of
the first three anniversaries thereof. Upon a "change in control" (as defined
in the 1998 Plan) or upon the actual or constructive discharge of Mr. Scarpati
without "cause" (as defined in the agreement), these options will immediately
vest in full, and Mr. Scarpati will be entitled to terminate the agreement and
receive a lump sum payment equal to the sum of his then annual base salary and
bonus.
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 attended and
$1,500 for each attended meeting of a committee of the board of which he or she
is a member. In addition, each non-employee chairman of a board committee also
receives an annual retainer of $5,000. During 1999, each non-employee director
commencing service on the board received options to purchase 120,000 shares of
Global Crossing common stock at an exercise price equal to the fair market
value of Global Crossing common stock on the date of grant. Each such option
has a term of 10 years, became exercisable immediately with respect to the
first 30,000 shares, and will become exercisable with respect to the remaining
90,000 shares in two equal installments on each of the first and second
anniversaries of the date of grant, in each case so long as such director
continues to be a director of Global Crossing on such date. Commencing in 2000,
the board of directors adjusted the level of initial stock option grants such
that new non-employee directors now receive 40,000 option shares (subject to
adjustment in the event of a stock split) on the date on which they commence
board service.
Option Grants in Last Fiscal Year
The table below sets forth information concerning options granted to certain
executive officers during the last fiscal year.
<TABLE>
<CAPTION>
Potential Realizable Value At
Assorted Annual Rates of Stock Price
Individual Grants Appreciation for Option Term
----------------------------------------------------------- -------------------------------------
Number of % of Total
Securities Options Market Price
Underlying Granted to of Common
Options Employees in Exercise or Stock on Expiration
Name Granted Fiscal Year Base Price Grant Date Date 0% 5% 10%
- ---- ---------- ------------ ----------- ------------ ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Winnick........... -- -- -- -- -- -- -- --
Chairman
Robert Annunziata...... 4,000,000 11.16% $19.813 $24.812 2/22/09 $19,996,000 $82,412,534 $178,171,752
Former Chief Executive 500,000 1.40% 24.812 24.812 2/22/09 -- 7,802,067 19,771,969
Officer 3,000,000 8.37% 45.000 45.000 12/3/09 -- 84,900,775 215,155,232
Jack M. Scanlon........ -- -- -- -- -- -- -- --
Vice Chairman, Asia
Global Crossing
Thomas J. Casey........ 300,000 0.84% 61.375 61.375 5/16/09 -- 11,579,522 29,344,783
Vice Chairman 300,000 0.84% 25.000 25.000 9/24/09 -- 4,716,710 11,953,068
1,000,000 2.79% 45.000 45.000 12/3/09 -- 28,300,258 71,718,411
John A. Scarpati....... 1,000,000 2.79% $53.000 $45.000 12/3/09 $(8,000,000) $20,300,258 $ 63,718,411
Chief Administrative
Officer
William B. Carter...... -- -- -- -- -- -- -- --
President, Global
Crossing Development
Co.; Chief Executive
Officer, Global
Marine Systems
</TABLE>
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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 certain executive officers during the last fiscal year and the fiscal year-
end value of such executive officers' unexercised options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-The-Money Options(2)
------------------------- -------------------------
Shares Acquired Value
Name On Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary Winnick............ -- -- 1,200,000 600,000 $58,998,000 $ 29,499,000
Chairman
Robert Annunziata....... 81,576 $ 2,243,340 1,500,000 6,000,000 42,781,000 105,561,000
Former Chief Executive
Officer
Jack M. Scanlon......... 345,680 12,525,410 1,334,560 1,800,000 65,613,642 88,497,000
Vice Chairman, Asia
Global Crossing
Thomas J. Casey......... -- -- 1,006,666 1,926,666 33,699,968 42,799,968
Vice Chairman
John A. Scarpati........ -- -- 333,334 666,666 -- --
Chief Administrative
Officer
William B. Carter....... 174,144 4,860,345 1,706,096 1,000,000 83,880,210 49,165,000
President, Global
Crossing Development
Co., Chief Executive
Office Global Marine
</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 the common stock of $50.00 on
December 31, 1999.
Compensation committee interlocks and insider participation
The Compensation Committee of the Global Crossing board of directors consists
of Messrs. McDonald, Kent and McCorkindale, none of whom had any relationships
with Global Crossing requiring disclosure under Securities and Exchange
Commission rules. However, prior to November 4, 1999, the Compensation
Committee consisted of Lodwrick M. Cook, Michael R. Steed and Jay R. Levine (an
employee of an affiliate of Canadian Imperial Bank of Commerce), who were
involved in certain transactions described in Note 18 to our consolidated
financial statements incorporated by reference into this proxy statement.
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<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, 1999 with the
cumulative total return of the Standard & Poor's 500 Stock Index and the NASDAQ
Telecom Index over the same period. The graph assumes $100 invested on August
14, 1998 in Global Crossing common stock and $100 invested on such date in each
of the Standard & Poor's 500 Stock Index and the NASDAQ Telecom Index, with
dividends reinvested. In the proxy statement provided to shareholders in
connection with our 1999 Annual General Meeting of Shareholders, we used a peer
group of fiber optic cable providers comprised of Qwest, Level 3
Communications, Inc., Metromedia Fiber Network, Inc., IXC Communications, Inc.
and Equant NV (the "Old Peer Group"). We have decided to replace the Old Peer
Group index with the NASDAQ Telecom Index because we believe the latter index
to be readily accessible to our shareholders and more representative of the
industries in which we now compete. In accordance with SEC rules, the graph
below also illustrates the cumulative total shareholder return of the Old Peer
Group over the relevant period.
Stock Performance
[LINE GRAPH]
S&P 500 NASDAQ
GBLX Stock Index Telecom Index Old Peer Group
------ ----------- ------------- --------------
08/14/1998 100 100 100 100
09/30/1998 81.86 95.7 91.16 83.51
12/31/1998 176.96 115.67 125.6 124.49
03/31/1999 362.75 121.04 155.04 178.48
06/30/1999 334.31 129.17 164.27 175.77
09/30/1999 207.84 120.7 156.67 151.07
12/31/1999 392.16 138.25 254.61 230.11
At 12/31/99, a $100 initial investment is worth:
GBLX $392.16
S&P 500 Stock Index $138.25
NASDAQ Telecom Index $254.61
Old Peer Group $230.11
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<PAGE>
STOCK OWNERSHIP OF MANAGEMENT, DIRECTORS
AND 5% SHAREHOLDERS OF GLOBAL CROSSING
The following table sets forth, as of April 14, 2000, certain information
regarding the beneficial ownership of our common stock by (i) each person or
entity who is known by us to own beneficially 5% or more of our voting common
stock, (ii) each of our directors and executive officers and (iii) all of our
directors and executive officers as a group. To our knowledge, each such
shareholder has sole voting and investment power with respect to the shares
shown, unless otherwise noted. For purposes of this table, an individual is
deemed to have sole beneficial ownership of securities owned jointly with such
individual's spouse. Amounts appearing in the table below include (i) all
shares of common stock outstanding as of April 14, 2000, (ii) all shares of
common stock issuable upon the exercise of options within 60 days of April 14,
2000 and (iii) all shares of common stock issuable upon the exercise of
warrants within 60 days of April 14, 2000. The warrants designated below as
"New PCG Warrants" and "GCL 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
Subject to Subject Shares
Number of New PCG to GCL Subject to Percentage
Shares(1) Warrants Warrants Options(2) of Class
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Pacific Capital Group,
Inc.(3)................ 79,136,648 6,050,004 2,515,788 0 10.92%
360 North Crescent
Drive
Beverly Hills,
California 90210
Canadian Imperial Bank
of Commerce(4)......... 68,529,669 0 0 240,000 8.65%
161 Bay Street, 8th
Floor--BCE Place
P.P. Box 500
M5J258, Toronto, Canada
Gary Winnick(5)......... 79,136,648 6,050,004 2,515,788 1,800,000 11.12%
Lodwrick M. Cook........ 3,143,929 950,002 0 362,240 *
Leo J. Hindery, Jr...... 0 0 0 170,000 *
Thomas J. Casey(6)...... 422,749 0 0 1,106,666 *
Joseph Clayton.......... 542,396 0 0 1,440,000 *
Dan J. Cohrs............ 0 0 0 927,505 *
John Comparin........... 5,000 0 0 0 *
James C. Gorton......... 15,000 0 0 617,690 *
David L. Lee(7)......... 17,350,014 1,825,002 663,456 900,000 2.60%
Barry Porter............ 15,814,795 1,825,002 610,266 900,000 2.40%
John M. Scanlon......... 363,748 0 0 1,904,965 *
John A. Scarpati........ 900 0 0 333,334 *
Robert Sheh............. 0 0 0 583,685 *
William B. Carter....... 239,520 0 0 1,556,096 *
Wallace S. Dawson....... 68,958 0 0 530,400 *
Edward Mulligan......... 6,012 0 0 50,000 *
Robert Annunziata....... 0 0 0 5,438,424 *
Jay R. Bloom(8)......... 13,993,966 0 0 128,533 1.78%
William E. Conway,
Jr.(9)................. 2,247,640 0 0 75,000 *
Canning Fok Kin-ning.... 0 0 0 8,898,889 1.11%
Eric Hippeau............ 35,895 0 0 42,300 *
Dean C. Kehler(8)....... 14,805,827 0 0 128,533 1.88%
Geoffrey J.W. Kent...... 0 0 0 75,000 *
Douglas McCorkindale.... 38,855 0 0 87,400 *
James McDonald.......... 5,351 0 0 40,932 *
Bruce Raben............. 0 0 0 120,000 *
Michael R. Steed........ 0 0 0 120,000 *
All Directors and
Executive Officers as a
Group.................. 187,967,080 10,650,010 3,789,510 28,577,592 21.63%
</TABLE>
- --------
* Percentage of shares beneficially owned does not exceed one percent.
(1) As of April 14, 2000, 794,467,855 shares of common stock were issued and
outstanding.
(2) Represents stock options issued under stock option plans of Global
Crossing, except that Mr. Fok's amount includes 8,888,889 shares of
common stock issuable upon conversion of the 400,000 shares of
convertible preferred stock issued to Hutchison Whampoa in connection
with the formation of the
107
<PAGE>
Hutchison Global Crossing joint venture. As Managing Director of Hutchison
Whampoa, Mr. Fok may be deemed to share investment and voting control over
these shares.
(3) Includes 40,349,650 shares of common stock and common stock warrants
owned or managed by GKW Unified Holdings, a company formed for the
benefit of Gary Winnick and members of his family and managed by Pacific
Capital Group, which thereby shares investment and voting power over
such shares.
(4) These share amounts, which are effective as of April 14, 2000, include
11,453,529 shares held by certain affiliates of Canadian Imperial Bank
of Commerce in such a manner that CIBC shares investment power over such
shares. The indicated options have been assigned to CIBC by CIBC
employees who previously served on the GCL board of directors.
(5) Includes all shares of common stock beneficially owned by Pacific
Capital Group, a company controlled by Mr. Winnick.
(6) Includes 422,749 shares of common stock owned by Casey Global Holdings
LLC, which is managed by GCL in such a manner that Mr. Casey shares
investment and voting power over such shares.
(7) Includes (a) all 9,900,822 shares of common stock and 513,156 shares of
common stock issuable upon the exercise of warrants owned by San Pasqual
Corp., a corporation of which Mr. Lee and his family are the sole
shareholders and over whose portfolio securities Mr. Lee shares
investment and voting power and (b) all 3,988,242 shares of common stock
and 150,300 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 and in such capacity shares investment and voting power
over such shares.
(8) Includes (a) 11,453,529 shares held by certain affiliates of Canadian
Imperial Bank of Commerce in such a manner that Messrs. Bloom and Kehler
have shared investment and voting power over such shares and (b) 218,434
shares held by Caravelle Investment Fund, LLC, for whose investment
advisor Messrs. Bloom and Kehler serve as managing directors.
(9) Includes 2,239,640 shares of common stock beneficially owned by the
Carlyle Group, of which Mr. Conway is managing director and in such
capacity shares voting and investment control over such shares.
108
<PAGE>
INFORMATION ABOUT SHAREHOLDER PROPOSALS
All proposals of shareholders who wish to bring business before Global
Crossing's 2001 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 , 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. Any such proposal must also comply with the other
provisions contained in Global Crossing's bye-laws relating to shareholder
proposals.
INDEPENDENT ACCOUNTANTS
Representatives of Arthur Andersen will attend the special meeting and will
have an opportunity to make a statement and to respond to appropriate questions
that you pose.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. You may
read and copy these reports, proxy statements and other information at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. You may also obtain copies
of those materials at prescribed rates from the public reference section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies
from the please reference room by calling the SEC at (800) 732-0330. In
addition, we are required to file electronic versions of those materials with
the SEC through the SEC's EDGAR system. The SEC maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
You may also review reports and other information concerning us at the offices
of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20001-1500.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to provide information about our business and other
important information to you by "incorporating by reference" the information we
file with the SEC. This means that we can disclose the information to you by
referring in this proxy statement to the documents we file with the SEC. Under
the SEC's regulations, any statement contained in the information incorporated
by reference in this proxy statement is automatically updated and superseded by
any information contained in this proxy statement, or in any information
contained in any subsequently filed amendments to our Annual Report on Form 10-
K for the year ended December 31, 1999.
We incorporate into this proxy statement by reference:
. our "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements set
forth in our Annual Report on Form 10-K for the year ended December 31,
1999 filed by us with the SEC on March 16, 2000,
109
<PAGE>
. the financial statements of Frontier Corporation and the Global Marine
Systems business of Cable & Wireless Plc incorporated by reference or
included in our Registration Statement on Form S-4 filed on September 8,
1999 (File No. 333-86693),
. the financial statements of Racal Telecom and HCL Holdings Limited
included in our Current Report on Form 8-K filed on January 11, 2000, as
amended by our Current Report on Form 8-K/A filed on January 19, 2000,
and
. the pro forma financial information for Global Crossing Ltd. included in
our Registration Statement of Form S-3 filed on March 20, 2000 (File No.
333-32810).
Each of these items are an important part of this proxy statement.
Any person, including any beneficial owner, to whom this proxy statement is
delivered may obtain the information incorporated by reference in, but not
delivered with, this proxy statement by requesting it at no cost, by writing or
telephoning us at the following address or telephone number:
Global Crossing Ltd.
360 N. Crescent Drive
Beverly Hills, CA 90210
Attention: Investor Relations
Phone: (310) 385-5200
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
GlobalCenter Group
Report of Independent Public Accountants................................. F-2
Combined Balance Sheets.................................................. F-3
Combined Statements of Operations........................................ F-4
Combined Statements of Group Equity...................................... F-5
Combined Statements of Cash Flows........................................ F-6
Notes to Combined Financial Statements................................... F-7
PRO FORMA FINANCIAL STATEMENTS
Global Crossing Group
Unaudited Pro Forma Condensed Combined Financial Information............. F-19
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31,
1999.................................................................... F-20
Unaudited Pro Forma Condensed Combined Statements of Operations.......... F-21
Notes to Unaudited Pro Forma Condensed Combined Financial Statements..... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Crossing Ltd:
We have audited the accompanying combined balance sheet of New GlobalCenter
("New GlobalCenter") as of December 31, 1999 and of Old GlobalCenter ("Old
GlobalCenter") as of December 31, 1998, and the related combined statements of
operations, group equity and cash flows for the periods from October 1, 1999 to
December 31, 1999 ("New GlobalCenter period") and from January 1, 1999 to
September 30, 1999 and for each of the two years in the period ended December
31, 1998 ("Old GlobalCenter periods"). These financial statements are the
responsibility of management of New GlobalCenter and Old GlobalCenter. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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 New GlobalCenter combined financial statements referred to
above present fairly, in all material respects, the financial position of New
GlobalCenter as of December 31, 1999 and the results of its operations and its
cash flows for the New GlobalCenter period in conformity with accounting
principles generally accepted in the United States. Further, in our opinion,
the combined financial statements of Old GlobalCenter referred to above present
fairly, in all material respects, the financial position of Old GlobalCenter as
of December 31, 1998, and the results of its operations and its cash flows for
the Old GlobalCenter periods in conformity with accounting principles generally
accepted in the United States.
New GlobalCenter is a fully integrated business of Global Crossing Ltd. Old
GlobalCenter was a fully integrated business of Frontier Corporation.
Accordingly, as described in Note 1, New GlobalCenter and Old GlobalCenter
combined financial statements have been derived from the consolidated financial
statements and accounting records of Global Crossing Ltd. and Frontier
Corporation, respectively, and, therefore, reflect certain assumptions and
allocations. In addition, New GlobalCenter relies on Global Crossing Ltd. and
Old GlobalCenter relied on Frontier Corporation for certain operational,
treasury, management, administrative and other services. The financial
position, results of operations and cash flows of New GlobalCenter and Old
GlobalCenter could differ from those that would have resulted had New
GlobalCenter or Old GlobalCenter operated autonomously as an independent
entity. As more fully discussed in Note 1, the combined financial statements of
New GlobalCenter should be read in conjunction with the audited consolidated
financial statements of Global Crossing Ltd.
Arthur Andersen
San Jose, California
April 14, 2000
F-2
<PAGE>
GLOBALCENTER GROUP
COMBINED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------- ----------------
December 31,
---------------------------------
1998 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for
doubtful accounts of $975 and $1,379,
respectively.............................. $ 6,492 $ 18,811
Equipment held for resale.................. 773 6,941
Prepaid expenses and other current assets.. 300 3,827
Deferred tax asset......................... 2,393 2,926
------- ----------
Total current assets....................... 9,958 32,505
------- ----------
Property and equipment, net.................. 30,372 115,313
Goodwill and intangibles, net................ 7,470 1,448,265
Other assets................................. 221 --
------- ----------
Total assets............................... $48,021 $1,596,083
======= ==========
LIABILITIES AND GROUP EQUITY
Current liabilities:
Capital lease obligations.................. $ 404 $ 374
Accounts payable........................... 5,995 28,046
Other current liabilities.................. 5,099 8,514
------- ----------
Total current liabilities.................. 11,498 36,934
------- ----------
Capital lease obligations, net of current
portion..................................... 586 194
Long-term deferred tax liability............. -- 28,316
Other liabilities............................ -- 494
------- ----------
Total liabilities.......................... 12,084 65,938
------- ----------
Group equity................................. 35,937 1,530,145
------- ----------
Total liabilities and group equity........... $48,021 $1,596,083
======= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
GLOBALCENTER GROUP
COMBINED STATEMENTS OF OPERATIONS
(Amounts in thousands)
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------------------------------- ----------------
Nine Months Three Months
Year Ended December 31, Ended Ended
------------------------- September 30, December 31,
1997 1998 1999 1999
----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Service revenues...... $ 6,511 $ 19,600 $ 29,951 $ 17,753
Equipment revenues.... 1,228 3,640 17,228 5,971
----------- ------------ -------- --------
Total revenues...... 7,739 23,240 47,179 23,724
Costs and expenses:
Cost of service
revenues............. 5,257 14,804 36,451 17,328
Cost of equipment
revenues............. 995 3,208 15,573 5,365
Sales and marketing... 1,966 8,948 9,531 6,088
General and
administrative....... 2,044 4,694 6,897 3,067
Depreciation and
amortization......... 912 4,023 4,242 1,913
Goodwill and
intangibles
amortization......... 325 1,294 974 37,135
Merger costs.......... -- 2,060 -- --
----------- ------------ -------- --------
Total costs and ex-
penses............. 11,499 39,031 73,668 70,896
----------- ------------ -------- --------
Loss from operations.... (3,760) (15,791) (26,489) (47,172)
Other income (expense),
net.................... 45 55 (44) 114
----------- ------------ -------- --------
Loss before income
taxes.................. (3,715) (15,736) (26,533) (47,058)
Income tax benefit...... 941 4,911 9,742 4,333
----------- ------------ -------- --------
Net loss................ $ (2,774) $ (10,825) $(16,791) $(42,725)
=========== ============ ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
GLOBALCENTER GROUP
COMBINED STATEMENTS OF GROUP EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Contributed Accumulated Total
Capital Deficit Group Equity
----------- ----------- ------------
<S> <C> <C> <C>
Old GlobalCenter
Balance at January 1, 1997.............. $ 3,100 $ 97 $ 3,197
Net loss.............................. -- (2,774) (2,774)
Acquisition of Voyager................ 9,528 -- 9,528
---------- -------- ----------
Balance at December 31, 1997............ 12,628 (2,677) 9,951
Net loss.............................. -- (10,825) (10,825)
Transfers from Parent, net............ 36,811 -- 36,811
---------- -------- ----------
Balance at December 31, 1998............ 49,439 (13,502) 35,937
Net loss.............................. -- (16,791) (16,791)
Transfers from Parent, net............ 31,267 -- 31,267
---------- -------- ----------
Balance at September 30, 1999........... $ 80,706 $(30,293) $ 50,413
========== ======== ==========
New GlobalCenter
Net loss.............................. $ -- $(42,725) $ (42,725)
Transfers from Parent, net............ 71,025 -- 71,025
Contribution from Parent.............. 1,501,845 -- 1,501,845
---------- -------- ----------
Balance at December 31, 1999............ $1,572,870 $(42,725) $1,530,145
========== ======== ==========
</TABLE>
The accompanying notes are an integrated part of these combined financial
statements
F-5
<PAGE>
GLOBALCENTER GROUP
COMBINED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
-------------------------------- ----------------
Year Ended Nine Months Three Months
December 31, Ended Ended
----------------- September 30, December 31,
1997 1998 1999 1999
------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss.................... $(2,774) $(10,825) $(16,791) $ (42,725)
Adjustments to reconcile net
loss to net cash used in
operating activities
Depreciation and
amortization.............. 912 4,023 4,242 1,913
Goodwill and intangibles
amortization.............. 325 1,294 974 37,135
Deferred income taxes...... (888) (2,049) 983 (2,279)
Changes in operating assets
and liabilities net of the
effects of acquisitions:
Accounts receivable...... (949) (4,047) (11,346) (973)
Prepaid expenses and
other assets............ (93) 335 (1,602) (1,925)
Equipment held for
resale.................. -- (704) 177 (6,345)
Accounts payable and
accrued liabilities..... 320 6,221 13,306 12,654
------- -------- -------- ----------
Net cash used in operating
activities.................. (3,147) (5,752) (10,057) (2,545)
------- -------- -------- ----------
Investing activities:
Purchases of property and
equipment................. (1,853) (28,978) (20,871) (68,397)
Cash from acquisition...... 568 -- -- --
------- -------- -------- ----------
Net cash used in investing
activities.................. (1,285) (28,978) (20,871) (68,397)
------- -------- -------- ----------
Financing activities:
Payments on capital leases
and debt.................. (90) (2,573) (339) (83)
Proceeds from issuance of
debt...................... 1,937 -- -- --
Transfers from Parent,
net....................... -- 36,811 31,267 71,025
------- -------- -------- ----------
Net cash from financing
activities.................. 1,847 34,238 30,928 70,942
------- -------- -------- ----------
Net increase (decrease) in
cash...................... (2,585) (492) -- --
Cash at beginning of
period.................... 3,077 492 -- --
------- -------- -------- ----------
Cash at end of period...... $ 492 $ -- $ -- $ --
======= ======== ======== ==========
Supplemental schedule of non-
cash activities:
Acquisition of New
GlobalCenter, net......... -- -- -- 1,451,432
Assets acquired under
capital leases............ $ 1,031 $ 215 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) Organization and Operations
The Board of Directors of Global Crossing Ltd. ("Global Crossing") has
approved a proposal that would result in the creation of two classes of common
stock intended to separately reflect the performance of its complex Web
hosting, Internet Protocol network services, content distribution, systems
applications and related professional services businesses, referred to below as
"the GlobalCenter group," and all other businesses of Global Crossing, referred
to below as "the Global Crossing group." The GlobalCenter group is a fully
integrated business of Global Crossing. Global Crossing plans an initial public
offering of shares of the GlobalCenter group stock (the "Offering"), all of the
proceeds of which will be contributed to the GlobalCenter group. Immediately
prior to the completion of that public offering, the Global Crossing group will
hold an inter-group interest in the GlobalCenter group representing 100% of the
equity value of the GlobalCenter group. GlobalCenter Inc. is an indirect wholly
owned subsidiary of Global Crossing and owns most of the assets and liabilities
of the GlobalCenter group. These combined financial statements are based on the
operations, assets and liabilities of the GlobalCenter group and are not
representative of any separately incorporated entity.
GlobalCenter Inc. was acquired by Frontier Corporation ("Frontier") in
February 1998. Frontier accounted for its acquisition of GlobalCenter Inc.
using the pooling-of-interests method. On September 28, 1999, Global Crossing
acquired Frontier. For financial reporting purposes, the merger of Global
Crossing and Frontier was deemed to have occurred on September 30, 1999. Prior
to this merger, the GlobalCenter group was a fully integrated business of
Frontier. For periods prior to October 1, 1999, the assets and liabilities of
the GlobalCenter group and the related combined results of operations and cash
flows are referred to below as "Old GlobalCenter," and for periods subsequent
to September 30, 1999, the assets and liabilities and the related combined
results of operations and cash flows are referred to as "New GlobalCenter." In
connection with Global Crossing's acquisition of Frontier, the assets and
liabilities of New GlobalCenter were adjusted to their respective fair values
pursuant to the purchase method of accounting. Global Crossing and Frontier are
collectively referred to below as "the Parents."
The combined financial statements of the GlobalCenter group reflect the
results of operations, financial position, changes in group equity and cash
flows of the GlobalCenter group as if the GlobalCenter group was a separate
entity for all periods presented. The financial information included herein may
not necessarily reflect the combined results of operations, financial position,
changes in group equity and cash flows of the GlobalCenter group had it been a
separate, stand-alone entity during the periods presented. The combined
financial statements of the GlobalCenter group should be read in conjunction
with the audited consolidated financial statements of Global Crossing.
As a fully integrated business of the Parents, the GlobalCenter group does
not prepare separate financial statements in accordance with generally accepted
accounting principles ("GAAP") in the normal course of operations. However,
these combined financial statements were prepared in accordance with GAAP for
purposes of this filing. The combined financial statements reflect certain
assets, liabilities, revenues and expenses directly attributable to the
GlobalCenter group as well as allocations deemed reasonable by management to
present the financial position, results of operations and cash flows on a
stand-alone basis. The allocation methodologies have been described within the
notes to these combined financial statements. Management considers the
allocation methodologies adopted to be reasonable, however, the costs of these
services charged to the GlobalCenter group are not necessarily indicative of
the costs that would have been incurred if the GlobalCenter group had performed
these functions entirely as a standalone entity. The retained interests of
Frontier and Global Crossing in Old GlobalCenter and New GlobalCenter,
respectively, represents net transfers of funds to or from the GlobalCenter
group and accumulated losses to date.
Allocation and related party transaction policies adopted by Global
Crossing's board of directors can be rescinded or amended at the discretion of
the board of directors, without any prior approval of stockholders,
F-7
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
although no such changes are currently contemplated. In addition, the assets
attributed to the GlobalCenter group could be subject to the liabilities of the
Global Crossing group and vice versa, even if these liabilities arise from
lawsuits, contracts or indebtedness that are attributed to the other party.
The board of directors of Global Crossing approved a proposal that would
result in the creation of two classes of common stock intended to reflect
separately the performance of Global Crossing's complex web hosting business
and all other business of Global Crossing. Global Crossing's complex web
hosting business is referred to as "the GlobalCenter group," and the other
businesses as the "Global Crossing group." Global Crossing plans an initial
public offering of shares of GlobalCenter group stock (the "Offering"), all of
the proceeds of which will be allocated to the GlobalCenter group. Immediately
prior to the completion of that public offering, the Global Crossing group will
hold a group interest in the GlobalCenter group which represents 100% of the
equity value of the GlobalCenter group.
(2) Significant Accounting Policies
Use of Estimates
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 revenue and expenses during the reporting
period. Significant estimates made in preparing the combined financial
statements include depreciation and amortization periods, the allowance for
doubtful accounts and income tax valuation allowances. Actual amounts and
results could differ from those estimates.
The GlobalCenter group's operations and ability to grow may be affected by
numerous factors, including changes in customer requirements, new laws,
technological advances, entry of new competitors and changes in the willingness
of Global Crossing and other potential lenders to finance operations. The
GlobalCenter group cannot predict which, if any, of these or other factors
might have a significant impact on the GlobalCenter group in the future, nor
can it predict what impact, if any, the occurrence of these or other events
might have on the GlobalCenter group's operations.
Property and Equipment, Net
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the property and
equipment, generally two to five years for network and computer equipment, four
years for furniture and fixtures and seven years for leasehold improvements.
Equipment acquired under capital leases is amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Property and equipment under construction is capitalized and
depreciation commences when the asset is placed in service.
Goodwill and Intangibles, Net
Costs in excess of tangible assets acquired and liabilities assumed are
recorded as goodwill and intangibles. Goodwill and intangibles are amortized on
a straight-line basis over seven to ten years.
Impairment of Long-lived Assets
The GlobalCenter group periodically reviews the carrying amounts of property
and equipment, intangible assets and goodwill to determine whether current
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The GlobalCenter group recognizes an impairment in long-lived
assets when the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. If an impairment adjustment is deemed
necessary, such loss is measured by the amount that the carrying value of such
assets exceeds their fair value. Fair value is based on the expected future
discounted cash flows to be generated from the assets. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates.
F-8
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
GlobalCenter group using available market information and valuation
methodologies. Considerable judgment is required in estimating fair values.
Accordingly, the estimates may not be indicative of the amounts the
GlobalCenter group could realize in a current market exchange. The carrying
amounts for accounts receivable, construction in progress, accounts payable,
accrued liabilities and capital leases approximate their fair value.
Comprehensive Loss
There are no differences between the combined net loss and comprehensive loss
for any period presented.
Equipment Held For Resale
The GlobalCenter group obtains computers, computer equipment, peripherals and
networking equipment from third parties and resells the equipment to its
customers. Equipment that has been purchased on behalf of customers but not yet
transferred to customers or installed is recorded at the lower of cost or net
realizable value as equipment held for resale.
Other Current Liabilities
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------- ----------------
December 31,
---------------------------------
1998 1999
---------------- ----------------
(Amounts in thousands)
<S> <C> <C>
Accrued professional fees................ $1,250 $2,000
Accrued benefits, compensation and re-
lated taxes............................. 1,596 3,627
Other.................................... 2,253 2,887
------ ------
Total other current liabilities........ $5,099 $8,514
====== ======
</TABLE>
Income Taxes
Beginning with the acquisition by Frontier Corporation of GlobalCenter Inc.,
GlobalCenter Inc. is included in the consolidated tax return of Global Crossing
North America (formerly Frontier Corporation) for federal and state purposes.
On the effective date of the Offering, Global Crossing North America, Inc. and
GlobalCenter Inc. will enter into a formal tax sharing agreement that provides
for a pro rata allocation of tax liabilities among members of the Global
Crossing North America, Inc. consolidated group. The income tax provision for
the GlobalCenter group has been calculated on a pro rata return basis taking
account of the increase or decrease in the tax liability of the Global Crossing
North America, Inc. consolidated group resulting from the inclusion of
GlobalCenter Inc. in the Global Crossing North America, Inc. consolidated tax
return.
Stock-Based Compensation
Financial Accounting Standard Board SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") permits the use of either a fair value based
method or the method defined in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), to account for
stock-based compensation arrangements. Companies that elect to employ the
valuation method provided in APB No. 25 are required to disclose the pro forma
net income (loss) that wold have resulted from the use of
F-9
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
the fair value based method. New GlobalCenter has elected to continue to
determine the value of stock-based compensation arrangements under the
provisions of APB No. 25.
Segment Reporting
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131") establishes
standards for disclosure about operating segments, products, services,
geographic areas and major customers. When applying the management approach
defined in SFAS No. 131, the GlobalCenter group operates in a single segment,
namely the provision of complex Web hosting, Internet Protocol network services
content distribution, systems applications and professional services.
Concentration of Credit Risk
Financial instruments that potentially subject the GlobalCenter group to
concentrations of credit risk consist primarily of trade receivables. The
concentration of credit risk is limited due to the large number of customers
comprising the GlobalCenter group's customer base.
Revenue Recognition
Service revenues consist of fees from customers for complex Web hosting,
Internet Protocol network services content distribution, systems applications
and professional services. Service revenues are recognized as the service is
provided. Service revenues also include fees for equipment installation.
Revenues from equipment installation are recognized when equipment installation
is complete.
Equipment revenues consist of revenue derived from the resale of computers,
computer peripherals and networking equipment from third parties. Equipment
revenues are recognized when equipment is delivered to the customer or, if
installation is required, when installation of the equipment is complete.
Cost of Service Revenues
Cost of service revenues is comprised of telecommunications costs for the
network provided by the Parents and costs for connecting to other networks and
telecommunications providers. Other expenses in cost of service revenues
include salaries, benefits, rent and other expenses for operation of the data
centers, customer service and network engineering personnel.
Foreign Currency
As of December 31, 1999, the functional currency of the GlobalCenter group's
foreign operations is also the U.S. dollar. Foreign currency transactions are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in the accompanying combined statements of operations as
unrealized (based on the applicable period end exchange rate) or realized upon
settlement of the transactions. Foreign currency gains (losses) from the
GlobalCenter group's existing operations were not material in any period
presented.
Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No.
133", which deferred SFAS No. 133's effective date to fiscal quarters of all
fiscal years beginning after June 15, 2000. This statement standardizes the
accounting for derivatives and hedging activities and requires that all
derivatives be recognized in the statement of financial
F-10
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
position as either assets or liabilities at fair value. Changes in the fair
value of derivatives that do not meet the hedge accounting criteria are to be
reported in earnings. Management expects that the adoption of SFAS No. 133 will
not have a material impact on New GlobalCenter's financial position, results of
operations or cash flows.
Vendor Concentration
New GlobalCenter relies primarily on Global Crossing for network services
pursuant to a network services agreement. Global Crossing operates its own
global network. If the Global Crossing network experiences disruption and or if
our network services agreement with Global Crossing were terminated, New
GlobalCenter's business, operating results and financial condition could be
materially adversely affected.
(3) Related Party Transactions
Corporate Allocations
Prior to the merger with Frontier, Old GlobalCenter maintained its own cash
management function. New GlobalCenter and Old GlobalCenter utilized the central
cash management systems of the Parents. The Parents provided all necessary
funding for operations and capital expenditures. Such funding has been recorded
as contributed capital in the accompanying combined financial statements. In
addition, the Parents charged the GlobalCenter group for direct operating
expenses, such as network costs and an allocated portion of corporate overhead
costs. For the year ended December 31, 1997, Old GlobalCenter operated on a
standalone basis and no parent allocated costs were recorded in the statement
of operations.
The following table summarizes corporate charges and allocations included in
the accompanying combined financial statements.
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
-------------------------- ----------------
Nine months Three months
Year ended ended ended
December 31, September 30, December 31,
1998 1999 1999
------------ ------------- ----------------
(Amounts in thousands)
<S> <C> <C> <C>
Statement of Operations cap-
tion:
Cost of service revenues..... $ -- $4,722 $1,978
General and administrative... 1,284 1,740 867
------ ------ ------
Total corporate charges and
allocations................. $1,284 $6,462 $2,845
====== ====== ======
</TABLE>
Management believes that the allocation methodologies applied are reasonable.
However, it was not practical to determine whether the allocated amounts
represent amounts that would have been incurred on a stand-alone basis.
Explanations of the composition and the method of allocation for the above
captions are described below.
Cost of Service
Allocated costs within this caption include the costs of the
telecommunications network provided by the Parents to the GlobalCenter group.
These costs were allocated to the GlobalCenter group based upon circuit usage,
rate and capacity information.
General and Administrative
Allocated costs within this caption include the costs of information systems
services, tax return preparation and advisory services, payroll and benefits
administration, purchasing and certain other accounting and administrative
services. These costs were allocated based upon various methodologies including
headcount, depending on the type of cost to be allocated.
F-11
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Policy Statement Between the Global Crossing Group and the GlobalCenter Group
The board of directors of Global Crossing has adopted a policy statement
regarding GlobalCenter group and Global Crossing group matters. The material
provisions of the policy statement are as follows:
General Policy
The policy statement provides that all material matters as to which the
holders of Global Crossing group stock and GlobalCenter group stock may have
potentially divergent interests will be resolved in a manner that the board of
directors of Global Crossing or its capital stock committee determines to be in
the best interests of Global Crossing, after giving fair consideration to the
potentially divergent interests and all other relevant interests of the holders
of the separate classes of common stock of Global Crossing. The policy
statement provides that Global Crossing will seek to manage the GlobalCenter
group and the Global Crossing group in a manner designed to maximize the
operations, unique assets and values of both groups, and with complementary
deployments of personnel, capital and facilities.
Exclusive Provision of Services
The Global Crossing group will be the exclusive provider of certain services,
including Internet Protocol transit services and dedicated internet access, to
the GlobalCenter group. As such, the Global Crossing group will have the
exclusive right to provide these services and related products and services to
the GlobalCenter group. New GlobalCenter will be the exclusive provider of
certain services, including complex web hosting, data center professional
services and data center equipment hardware and software sales and support, to
the Global Crossing group. As such, New GlobalCenter will have the exclusive
right to provide these services and related products and services to the Global
Crossing group.
Network and Service Management
A committee of three senior executives from each of the Global Crossing group
and the GlobalCenter group will be formed to provide management and direction
designed to fully implement the policy statement with respect to the various
services to be provided by one group to the other. In particular, the network
and services management committee will review and agree on data center
bandwidth requirements by location and volume, review and agree on network
expansion plans as required to support the data centers and establish service
level targets for the data center connections and track performance against
those targets.
The terms of inter-group transactions
All material transactions in the ordinary course of business between the
Global Crossing group and the GlobalCenter group, including those described
above, are intended to be on terms consistent with those that would be
applicable to arm's-length dealings with unrelated third parties, taking into
account a number of factors, including quality, availability, volume and
pricing. In particular, the pricing for the access to its network provided by
Global Crossing to the GlobalCenter group will be preferred market-based
pricing, taking into account volume, term, and the exclusive nature of the
arrangement and any guarantee of service levels provided by the Global Crossing
group.
Financing Arrangements
Loans from the Global Crossing group or the GlobalCenter group to the other
will be made at the weighted average interest rate of the consolidated
indebtedness of Global Crossing and on such other terms and conditions as the
board of directors of Global Crossing or its capital stock committee determines
to be in the best interests of Global Crossing.
F-12
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Shared Corporate Services
A portion of Global Crossing shared corporate services (such as human
resources, legal, accounting and auditing, tax, treasury, strategic planning,
investor relations and corporate technology) will be allocated to the
GlobalCenter group based upon specific identification of such services used by
the GlobalCenter group. Where determinations based on use alone are
impracticable, other methods and criteria will be used that management believes
are fair and provide a reasonable estimate of the cost attributable to the
GlobalCenter group.
Tax Sharing Agreement
On the effective date of the Offering, Global Crossing North America, Inc.
and GlobalCenter Inc. will enter into a formal tax sharing agreement that
provides for a pro rata allocation of tax liabilities among members of the
Global Crossing North America, Inc. consolidated group.
Tanning Technology Corporation
The Chief Executive Officer of GlobalCenter Inc. and Global Crossing is a
member of the board of directors of Tanning Technology Corporation ("Tanning").
On February 1, 2000, the GlobalCenter group acquired approximately 229,000
shares of Tanning for an aggregate purchase price of $10 million based on the
fair market value of Tanning's stock on that date. In addition, the
GlobalCenter group and Tanning entered into a preferred marketing agreement to
create, market, sell and deliver combined service offerings to customers and
also entered into an additional arrangement where the GlobalCenter group has
agreed to pay $10 million for consulting services to be provided by Tanning
over a twelve-month period commencing in February 2000.
(4) Property and Equipment, Net
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------- ----------------
December 31,
---------------------------------
1998 1999
---------------- ----------------
(Amounts in thousands)
<S> <C> <C>
Network and computer equipment........... $13,410 $ 16,200
Furniture and fixtures................... 307 2,143
Leasehold improvements................... 2,179 19,757
------- --------
15,896 38,100
Accumulated depreciation and amortiza-
tion.................................... (5,096) (1,913)
------- --------
10,800 36,187
Construction in progress................. 19,572 79,126
------- --------
Total property and equipment, net...... $30,372 $115,313
======= ========
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of approximately $1.5 million. Accumulated
amortization on the leased assets was approximately $0.8 million and $1.3
million at December 31, 1998 and 1999, respectively. Interest paid on capital
lease obligations is not material to the combined financial statements for all
periods presented.
(5) Goodwill and Intangibles, Net
In connection with the acquisition of Frontier Corporation by Global Crossing
Ltd. approximately $1.5 billion of the purchase price was determined to be the
fair value of net assets, goodwill and intangibles related
F-13
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
to New GlobalCenter. Approximately $43.9 million was the fair value of the
tangible net assets acquired and liabilities assumed of New GlobalCenter at the
acquisition date. The remaining purchase price was assigned to goodwill and
intangibles and related deferred tax liability. The intangibles relate to the
fair value of New GlobalCenter's customer lists at the date of acquisition. Pro
forma combined statements of operations information for the year ended December
31, 1999 and 1998 is not presented as Global Crossing had no material
operations that would be included within the GlobalCenter Group. The amounts
and estimated lives of the goodwill and intangibles are as follows:
<TABLE>
<CAPTION>
Estimated Life December 31, 1999
-------------- ----------------------
(Amounts in thousands)
<S> <C> <C>
Customer lists......................... 10 years $ 78,000
Goodwill............................... 10 years 1,407,400
----------
1,485,400
Less accumulated amortization.......... (37,135)
----------
Goodwill and intangibles, net.......... $1,448,265
==========
</TABLE>
In October 1997, GlobalCenter Inc. acquired Voyager Networks, Inc.
("Voyager") in a business combination accounted for as a purchase. After
allocating the purchase price to the tangible and specifically identifiable
intangible assets acquired and liabilities assumed, the excess purchase price
of approximately $9.1 million was allocated to goodwill. The Voyager goodwill
was amortized using the straight-line method over seven years until the
acquisition of Frontier by Global Crossing. As of December 31, 1998,
accumulated amortization related to the Voyager goodwill was approximately $1.6
million. Pro forma combined revenues and net loss before benefit for income
taxes for the year ended December 31, 1997, assuming Voyager was acquired on
January 1, 1997, was $10.5 million and $4.2 million, respectively.
(6) Income Taxes
The following table shows the principal reasons for the difference between
the effective income tax rate and the U.S federal statutory income tax rate:
<TABLE>
<CAPTION>
New
Old GlobalCenter GlobalCenter
------------------------------- ------------
Year Ended Nine Months Three Months
December 31, Ended Ended
---------------- September 30, December 31,
1997 1998 1999 1999
------- ------- ------------- ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Federal income tax at statutory
rate (35%)...................... $(1,300) $(5,508) $(9,286) $(16,470)
State and local income taxes, net
of federal effect............... (118) 125 (449) (180)
Amortization of goodwill and in-
tangibles....................... 114 453 341 12,315
Unutilized foreign equity loss-
es.............................. -- 148 65 21
Change in valuation allowance and
other estimates................. 361 -- (361) --
Other differences................ 2 19 13 2
------- ------- ------- --------
Benefit for income taxes......... $ (941) $(4,911) $(9,742) $ (4,333)
======= ======= ======= ========
</TABLE>
F-14
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
----------------------------- ----------------
Year Ended Nine Months Three Months
December 31, Ended Ended
-------------- September 30, December 31,
1997 1998 1999 1999
----- ------- ------------- ----------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Provision for income taxes
Current:
Federal........................ $ -- $(3,307) $(10,126) $(1,979)
State and local................ -- -- (514) (160)
----- ------- -------- -------
Subtotal..................... -- (3,307) (10,640) (2,139)
Deferred:
Federal........................ (760) (1,797) 1,074 (2,077)
State and local................ (181) 193 (176) (117)
----- ------- -------- -------
Subtotal..................... (941) (1,604) 898 (2,194)
----- ------- -------- -------
Benefit for income taxes......... $(941) $(4,911) $ (9,742) $(4,333)
===== ======= ======== =======
</TABLE>
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. The following is a summary
of the significant items giving rise to components of Old GlobalCenter and New
GlobalCenter's deferred tax assets and liabilities.
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------- ----------------
December 31,
---------------------------------
1998 1999
---------------- ----------------
Assets (Liabilities)
---------------------------------
(Amounts in thousands)
<S> <C> <C>
Long-term deferred income tax assets (liabil-
ities)
Intangibles................................ $ -- $(28,530)
Depreciation............................... 221 214
Net operating losses....................... 515 1,412
------ --------
736 (26,904)
Less: Valuation allowance.................. (515) (1,412)
------ --------
Net long-term deferred income tax assets
(liabilities)........................... $ 221 $(28,316)
====== ========
Current deferred income tax assets
Accrued benefits and compensation.......... $ 688 $ 168
Reserves and allowances.................... 1,594 1,681
Other...................................... 111 1,077
------ --------
Total current deferred income tax
assets.................................. $2,393 $ 2,926
====== ========
</TABLE>
New GlobalCenter established a valuation allowance of approximately $1.4
million as of December 31, 1999 against net operating losses. The valuation
allowance relates to the uncertainty of realizing the full benefit of the net
operating loss carryforwards. In evaluating the amount of valuation allowance
needed, the GlobalCenter group considers the prior operating results and future
plans and expectations. The utilization period of the net operating loss
carryforwards and the turnaround period of other temporary differences are also
F-15
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
considered. The GlobalCenter group's net operating losses begin to expire in
2001. The realization of the current net deferred income tax asset is dependent
on the consolidated tax group, of which the GlobalCenter group is a component,
generating taxable income. Although realization is not assured, management
believes it is more likely than not that the deferred income tax asset at
December 31, 1999 will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced if estimates of taxable income
in future years are reduced.
(7) Commitments and Contingencies
Lease Commitments
The GlobalCenter group has entered into various lease agreements for office
space and data center facilities. Rent expense was $2.3 million, $3.7 million,
$1.3 million and $1.0 million for the three months ended December 31, 1999,
nine months ended September 30, 1999 and the years ended December 31, 1998 and
1997, respectively. The GlobalCenter group leases certain equipment under
capital lease arrangements.
A summary of future minimum lease payments under capital and noncancelable
operating lease agreements as of December 31, 1999 are as follows.
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- -------------
(Amounts in thousands)
<S> <C> <C>
Years Ending December 31,
2000........................................... $ 423 $ 12,509
2001........................................... 211 12,133
2002........................................... -- 12,026
2003........................................... -- 12,361
2004........................................... -- 12,843
Thereafter..................................... -- 84,354
--------- -------------
634 $ 146,226
=============
Less amount representing interest................ (66)
---------
Present value of lease payments.................. 568
Current portion of capital leases................ (374)
---------
Noncurrent portion of capital leases............. $ 194
=========
</TABLE>
It is expected that in the normal course of business, leases that expire
generally will be renewed or replaced by leases on other properties; thus, it
is anticipated that future minimum lease commitments will not be less than the
amount shown for 2000.
Other
Management believes that there are no pending or threatened legal proceedings
that, if adversely determined, would have a material adverse effect on the
GlobalCenter group.
F-16
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(8) Stock Option Plans
Management Stock Plan
The board of directors and the stockholders of GlobalCenter Inc. adopted the
GlobalCenter Management Stock Plan ("Management Stock Plan") in January 2000.
The Management Stock Plan was approved by the Global Crossing Ltd. compensation
committee on March 2, 2000 and by the Global Crossing Ltd. Board of Directors,
subject to stockholder approval, on April 12, 2000. The Management Stock Plan
provides for grants of stock options to purchase shares of GlobalCenter Group
stock and grants of restricted shares of GlobalCenter group stock. Options
granted under the Management Stock Plan may be incentive stock options or
nonstatutory stock options.
The total number of shares of GlobalCenter Inc. common stock reserved for
awards shall not exceed 10% of the outstanding common stock of GlobalCenter
Inc. The number of shares of such GlobalCenter group stock available for grant
under the Management Stock Plan will be determined once the number of shares of
the tracking stock has been determined. Also, the outstanding options at the
time of such issuance of the tracking stock shall be exercisable for a
percentage of shares of GlobalCenter group stock equal to the percentage of
outstanding shares of GlobalCenter Inc. common stock at grant, after taking
into account the value of Global Crossing inter-group interests.
The Management Stock Plan imposes individual limits on the amount of awards
that a participant can receive in any fiscal year. The Management Stock Plan is
administered by the Global Crossing Ltd. compensation committee. The exercise
price per share for a Management Stock Plan option will typically be the fair
market value of GlobalCenter group stock on the date of grant. As of December
31, 1999, stock options to purchase 5.5% of GlobalCenter Inc. stock or
GlobalCenter group stock subject to election by the employee, had been approved
for grant under the Management Stock Plan. The weighted average exercise price
of such options to purchase 5.5% of shares is $110 million. As of December 31,
1999, no shares of restricted stock have been awarded under the Management
Stock Plan. The pro forma effect of GlobalCenter group stock options issued on
the accompanying combined financial statements is not material.
2000 Stock Plan
The board of directors of Global Crossing Ltd. approved the GlobalCenter 2000
Stock Plan ("2000 Stock Plan") subject to stockholder approval, on April 12,
2000. The 2000 Stock Plan will become effective upon the consummation of the
Offering. The terms of the 2000 Stock Plan provide for grants of stock options
to purchase shares of GlobalCenter group stock, stock appreciation rights and
other stock-based awards. Options granted under the 2000 Stock Plan may be
incentive stock options or nonstatutory stock options. The total number of
shares of GlobalCenter group stock that are available for grant under the 2000
Stock Plan will be determined once the number of shares of the GlobalCenter
group stock has been determined.
The 2000 Stock Plan imposes individual limits on the amount of awards that a
participant can receive in any calendar year. The 2000 Stock Plan is
administered by the Global Crossing Ltd. board of directors. The exercise price
per share for a 2000 Stock Plan option will typically be the fair market value
of GlobalCenter group stock on the date of grant. All terms regarding each
option are fixed by the board of directors in an award agreement, except that
no option may have a term exceeding ten years.
Global Crossing Ltd. Stock Option Plans
Employees of the GlobalCenter group participate in the stock option plans of
Global Crossing Ltd. Global Crossing Ltd. maintains a stock option plan under
which options to acquire shares may be granted to directors, officers,
employees and consultants. Global Crossing Ltd. accounts for this plan under
APB Opinion No. 25, under which compensation cost is recognized only to the
extent that the market price at the date of grant
F-17
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
exceeds the exercise price. Terms and conditions of Global Crossing Ltd's
options, including exercise price and the period in which options are
exercisable, generally are at the discretion of the compensation committee of
Global Crossing Ltd., however, no options are exercisable more than ten years
after date of grant. Certain employees of the GlobalCenter group own stock
options to acquire Global Crossing Ltd. stock. As the GlobalCenter group was
not part of the capital structure of Global Crossing Ltd. for the periods
presented, the pro forma effect of Global Crossing Ltd. stock options held by
GlobalCenter group employees in the accompanying combined financial statements
is not presented. Upon effectiveness of the Offering, GlobalCenter group
employees will no longer participate in Global Crossing group stock option
plans.
F-18
<PAGE>
GLOBAL CROSSING GROUP UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements of
the Global Crossing group has been prepared to demonstrate how this group might
have looked if (1) the Global Marine Systems acquisition and related financing,
(2) the Frontier acquisition, (3) the Racal Telecom acquisition and related
financing, (4) the Hutchison Global Crossing joint venture, including the
related issuance of the 6 3/8% cumulative convertible preferred stock, series
B, of Global Crossing, (5) the offering of our 6 3/8% cumulative convertible
preferred stock completed on November 5, 1999, (6) the offering of the 9 1/8%
senior notes due 2006 and 9 1/2% senior notes due 2009 of Global Crossing
Holdings completed on November 19, 1999, (7) the offering of our 7% cumulative
convertible preferred stock completed on December 15, 1999 and (8) the tracking
stock proposal had been completed as of the date or at the beginning of the
period presented. These pro forma financial statements do not give effect to
(a) the $350 million cash received in connection with the formation of the Asia
Global Crossing joint venture, (b) the IPC and IXnet mergers or (c) the sale of
4 million shares of our 6 3/4% cumulative convertible preferred stock and
21,673,706 shares of our common stock completed on April 14, 2000.
The pro forma statements, while helpful in illustrating the financial
characteristics of the Global Crossing group, do not attempt to predict or
suggest future results. The pro forma statements also do not attempt to show
how the Global Crossing group would actually have performed had the
GlobalCenter group been in existence throughout these periods. If the
GlobalCenter group had actually been in existence in prior periods, the Global
Crossing group might have performed differently. You should not rely on pro
forma financial statements as an indication of the results that would have been
achieved if these transactions had taken place earlier or the future results
that the Global Crossing group will experience after completion of these
transactions.
You should read these unaudited pro forma condensed combined financial
statements in conjunction with the historical financial statements of Global
Crossing, Global Marine Systems, Frontier, Racal Telecom and HCL Holdings, and
related Global Crossing Pro Forma Information, each of which are incorporated
by reference in this proxy statement.
F-19
<PAGE>
Pro Forma Global Crossing Group
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Global
Global Crossing
Crossing New Global Group Pro
Pro Forma(1) Center(2) Forma
------------ ---------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash, restricted cash and
investments........................... $ 1,676,793 $ -- $ 1,676,793
Accounts receivable, net............... 966,973 18,811 948,162
Other assets and prepaid costs......... 252,767 13,694 239,073
----------- ---------- -----------
Total Current Assets................. 2,896,533 32,505 2,864,028
Restricted cash and cash equivalents.... 138,118 -- 138,118
Accounts receivable..................... 52,052 -- 52,052
Property and equipment, net............. 5,942,253 115,313 5,826,940
Goodwill and other intangibles, net..... 9,557,422 1,448,265 8,109,157
Investment in and advances to/from
affiliates, net........................ 862,760 -- 862,760
Other assets, net....................... 661,442 -- 661,442
----------- ---------- -----------
Total Assets......................... $20,110,580 $1,596,083 $18,514,497
=========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued construction costs............. $ 275,361 $ -- $ 275,361
Accounts payable and accrued
liabilities........................... 949,780 28,046 921,734
Accrued interest and preferred
dividends............................. 66,745 -- 66,745
Deferred revenue....................... 127,367 -- 127,367
Income taxes payable................... 140,034 -- 140,034
Current portion of long term debt...... 5,496 -- 5,496
Other current liabilities.............. 292,810 8,888 283,922
----------- ---------- -----------
Total Current Liabilities............ 1,857,593 36,934 1,820,659
Long term debt......................... 5,018,544 194 5,018,350
Deferred revenue....................... 383,287 -- 383,287
Deferred credits and other............. 796,606 28,810 767,796
----------- ---------- -----------
Total Liabilities.................... 8,056,030 65,938 7,990,092
=========== ========== ===========
MINORITY INTEREST....................... 351,338 -- 351,338
MANDATORILY REDEEMABLE AND CUMULATIVE
CONVERTIBLE PREFERRED STOCK:
10 1/2% Mandatorily Redeemable
Preferred Stock....................... 485,947 -- 485,947
----------- ---------- -----------
6 3/8% Cumulative Convertible
Preferred Stock....................... 1,369,000 -- 1,369,000
----------- ---------- -----------
7% Cumulative Convertible Preferred
Stock................................. 629,750 -- 629,750
----------- ---------- -----------
SHAREHOLDERS' EQUITY:
Common stock........................... 7,992 -- 7,992
Treasury stock......................... (209,415) -- (209,415)
Other shareholders' equity............. 9,578,927 1,530,145 8,048,782
Accumulated deficit.................... (158,989) -- (158,989)
----------- ---------- -----------
9,218,515 1,530,145 7,688,370
----------- ---------- -----------
Total Liabilities and Shareholders'
Equity.............................. $20,110,580 $1,596,083 $18,514,497
=========== ========== ===========
</TABLE>
F-20
<PAGE>
Pro Forma Global Crossing Group
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Year Ended December 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Old GlobalCenter New Global Center
Nine Months Three Months Global
Global Ended Ended Crossing
Crossing September 30, Old GlobalCenter December 31, Group
Pro Forma(1) 1999(3) Adjustments 1999(2) Pro Forma
------------ ---------------- ---------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues...... $ 4,139,897 $ 47,179 $ -- $ 23,724 $ 4,068,994
----------- -------- --------- -------- -----------
Operating Expenses:
Operating, selling,
general and
administrative........ 3,333,905 68,452 -- 31,848 3,233,605
Stock-related
expense............... 51,306 -- -- -- 51,306
Merger Expenses........ 99,119 -- -- -- 99,119
Depreciation and
amortization.......... 363,427 4,242 -- 1,913 357,272
Goodwill and
intangibles
amortization.......... 506,928 974 (974) 37,135 358,388
111,405(4)
----------- -------- --------- -------- -----------
4,354,685 73,668 110,431 70,896 4,099,690
----------- -------- --------- -------- -----------
Operating income
(loss)................. (214,788) (26,489) (110,431) (47,172) (30,696)
Equity in income (loss)
of affiliates.......... (143) -- -- -- (143)
--
Minority interest....... (1,338) -- -- -- (1,338)
Other income (expense):
Interest expense....... (495,695) -- -- -- (495,695)
--
Interest income........ 76,528 -- -- -- 76,528
Other income
(expenses)............ 178,931 (44) -- 114 178,861
----------- -------- --------- -------- -----------
Income (loss) before
provision for income
taxes, extraordinary
item and cumulative
effect of change in
accounting principle... (456,505) (26,533) (110,431) (47,058) (272,483)
(Provision) benefit
for income taxes...... (162,374) 9,742 -- 4,333 (176,449)
----------- -------- --------- -------- -----------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (618,879) (16,791) (110,431) (42,725) (448,932)
Preferred stock
dividends............. (201,107) -- -- (201,107)
----------- -------- --------- -------- -----------
Income (loss) applicable
to common shareholders
before extraordinary
item and cumulative
effect of change in
accounting principle... (819,986) (16,791) (110,431) (42,725) (650,039)
Diluted earnings
adjustment............ -- -- -- --
----------- -------- --------- -------- -----------
Income (loss) applicable
to common shareholders
before extrarordinary
item and cumulative
effect of change in
accounting principle
(Diluted).............. $ (819,986) $(16,791) $(110,431) $(42,725) $ (650,039)
=========== ======== ========= ======== ===========
Income (loss) per common
share:
Income (loss)
applicable to common
shareholders before
extraordinary item
and cumulative effect
of change in
accounting principle
Basic and diluted.... $ (1.07) $ (0.85)
=========== ===========
Shares used in
computing information
applicable to common
shareholders
Basic and diluted.... 767,355,151 767,355,151
=========== ===========
</TABLE>
F-21
<PAGE>
Pro Forma Global Crossing Group
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(1) These columns represent the unaudited pro forma condensed combined
financial information of Global Crossing, Global Marine Systems, Frontier,
Racal Telecom and the Hutchison Global Crossing joint venture, which we
refer to as "Pro Forma Global Crossing Ltd.", which have been prepared to
demonstrate how these companies or businesses might have looked if (1) the
Global Marine Systems acquisition and related financing, (2) the Frontier
acquisition, (3) the Racal Telecom acquisition and related financing, (4)
the Hutchison Global Crossing joint venture, including the related issuance
of the 6 3/8% cumulative convertible preferred stock, series B, of Global
Crossing, (5) the offering of Global Crossing's 6 3/8% cumulative
convertible preferred stock completed on November 5, 1999, (6) the offering
of the 9 1/8% senior notes due 2006 and 9 1/2% senior notes due 2009 of
Global Crossing Holdings completed on November 19, 1999 and (7) the
offering of Global Crossing's 7% cumulative convertible preferred stock
completed on December 15, 1999 had been completed as of the date or at the
beginning of the period presented. This pro forma information does not give
effect to (a) the $350 million in cash received in connection with the
formation of the Asia Global Crossing joint venture, (b) the IPC and IXNet
mergers or (c) the sale of 4 million shares of Global Crossing's 6 3/4%
cumulative convertible preferred stock and 21,673,706 shares of Global
Crossing's common stock completed on April 14, 2000.
(2) This column represents the historical financial position and historical
results of operations of the GlobalCenter group as of and for the three
months ended December 31, 1999. On September 28, 1999, Global Crossing
acquired Frontier Corporation ("Frontier"). For financial reporting
purposes, the merger of Global Crossing and Frontier was deemed to have
occurred on September 30, 1999. In connection with the merger, the assets
and liabilities of the GlobalCenter group were adjusted to their respective
fair values pursuant to the purchase method of accounting.
(3) This column represents the results of operations of the GlobalCenter group
for the nine months ended September 30, 1999 prior to the acquisition of
Frontier by Global Crossing.
(4) This adjustment reflects the amortization expense of the excess
consideration over the net assets acquired (goodwill) for the nine months
ended September 30, 1999. We have preliminarily estimated the goodwill to
be approximately $1.5 billion. We have tentatively considered the carrying
value of the acquired assets to approximate fair value, with all excess of
those acquisition costs being attributable to goodwill. We are in the
process of fully evaluating the assets acquired and, as a result, the
purchase price allocation among the tangible and intangible assets
acquired, and their related useful lives, may change. We currently
anticipate that goodwill associated with the transaction will be amortized
over a 10-year life.
F-22
<PAGE>
ANNEX I
RESOLUTIONS OF GLOBAL CROSSING'S BOARD OF DIRECTORS
IN CONNECTION WITH THE SPECIAL MEETING
PROPOSAL NO. 1: THE TRACKING STOCK PROPOSAL
Increase Global Crossing's authorized share capital
RESOLVED, that, subject to shareholder approval and with effect at and from
such time as the officers of the Company shall determine, the authorized share
capital of the Company shall be increased from $30,020,000 to $45,200,000 by
the creation of an additional 1,500,000,000 shares of Common Stock, of par
value $0.01 per share;
Establish multiple classes of Global Crossing common stock
RESOLVED, that, subject to shareholder approval and with effect at and from
such time as the officers of the Company shall determine, the authorized shares
of Common Stock of the Company shall be designated into (i) 3,000,000,000
shares of a special class of Common Stock to be called "Global Crossing Group
Stock" and (ii) 1,000,000,000 shares of a special class of Common Stock to be
called "GlobalCenter Group Stock", in each case with the rights set out for
such class of Common Stock in the Certificate of Designations which shall be
attached as a Schedule to the Bye-laws of the Company (but which shall not form
part of those Bye-laws), with the balance of the authorized shares of Common
Stock of the Company available for designation by the Board of Directors as
either Global Crossing Group Stock, GlobalCenter Group Stock or any additional
class of Common Stock of the Company to be established from time to time by
resolution of the Board;
RESOLVED, that, subject to shareholder approval and with effect at and from
such time as the officers of the Company shall determine, the Board be and is
hereby authorized to issue from time to time for any purpose authorized shares
of Common Stock of the Company, including shares of authorized Global Crossing
Group Stock and GlobalCenter Group Stock;
RESOLVED, that, subject to shareholder approval and with effect at and from
such time as the officers of the Company shall determine, the Board be and is
hereby authorized to (i) designate any additional class of Common Stock of the
Company as determined from time to time by resolution of the Board, subject to
the Company's Bye-laws as in effect at such time, and (ii) attach to the Bye-
laws as a Schedule (but which Schedule shall not form part of those Bye-laws)
the Certificate of Designation for any such class, which Schedule shall set out
the rights of the shares of such Class;
Designate outstanding shares of Global Crossing common stock as Global
Crossing Group Stock
RESOLVED, that, subject to shareholder approval and with effect at and from
such time as the officers of the Company shall determine, each share of
outstanding Global Crossing Common Stock shall be designated as a share of
Global Crossing Group Stock;
PROPOSAL NOS. 2 AND 3: THE GLOBALCENTER STOCK INCENTIVE PLAN PROPOSALS
Proposal No. 2: Adopt the GlobalCenter Management Stock Plan
RESOLVED, that, subject to shareholder approval, the terms of the
GlobalCenter Management Stock Plan be and hereby is approved and adopted and,
with effect at and from such time as the officers of the Company shall
determine, shares of GlobalCenter Group Stock be and hereby are reserved for
issuance by the Board in accordance with the terms of such Plan; and
Proposal No. 3: Adopt the GlobalCenter 2000 Stock Plan
RESOLVED, that, subject to shareholder approval, the terms of the
GlobalCenter 2000 Stock Plan be and hereby is approved and adopted and, with
effect at and from such time as the officers of the Company shall determine,
shares of GlobalCenter Group Stock be and hereby are reserved for issuance
by the Board in accordance with the terms of such Plan.
I-1
<PAGE>
ANNEX II
Schedule to the Bye-Laws
of Global Crossing Ltd.
CERTIFICATE OF DESIGNATIONS
OF
GLOBAL CROSSING GROUP STOCK
AND
GLOBALCENTER GROUP STOCK
The terms of the authorized Global Crossing Group Stock and GlobalCenter
Group Stock of Global Crossing Ltd., a company incorporated under the laws of
Bermuda (the "Company"), shall be as set forth below in this Schedule to the
Bye-Laws of the Company (this "Schedule").
The number of authorized shares of Global Crossing Group Stock and of
GlobalCenter Group Stock shall be as specified by the Board of Directors from
time to time, so long as the number of shares in all classes of Common Stock
does not exceed the total number of shares of Common Stock the Company is
authorized to issue. Each share of Global Crossing Group Stock and GlobalCenter
Group Stock will have a par value of $.01 per share. All shares of Global
Crossing Group Stock or GlobalCenter Group Stock repurchased, converted or
otherwise re-acquired by the Company shall be retired and canceled and, upon
the taking of any action required by applicable law, shall be restored to the
status of authorized but unissued shares of Global Crossing Group Stock or
GlobalCenter Group Stock, respectively, and may thereafter be reissued.
All shares of Global Crossing Group Stock and GlobalCenter Group Stock shall
be denominated in United States currency, and all payments and distributions
thereon or with respect thereto shall be made in United States currency. All
references herein to "$" or "dollars" refer to United States currency.
Section 1. Distributions and Share Dividends.
Subject to the prior and superior rights of the holders of any shares of
preferred stock of the Company ranking prior and superior to the shares of
Common Stock, distributions and share dividends may be declared and paid upon
any class of Common Stock, upon the terms with respect to each such class, and
subject to the limitations provided for below, as the Board of Directors may
determine.
(A) Distributions on Global Crossing Group Stock. Distributions on Global
Crossing Group Stock may be declared and paid only out of the lesser of:
(i) the funds legally available for that purpose; and
(ii) the Global Crossing Group Available Distribution Amount.
(B) Distributions on GlobalCenter Group Stock. Distributions on GlobalCenter
Group Stock may be declared and paid only out of the lesser of:
(i) the funds legally available for that purpose; and
(ii) the GlobalCenter Group Available Distribution Amount.
(C) Additional Limitations on Distributions and Share Dividends. In addition
to the transactions contemplated by Section 4, the Board of Directors may only
declare and pay share dividends of shares of Global Crossing Group Stock and
GlobalCenter Group Stock (or distributions of Convertible Securities
II-1
<PAGE>
convertible into or exchangeable or exercisable for shares of Global Crossing
Group Stock or GlobalCenter Group Stock) or distributions of assets (including
securities) attributed to the Global Crossing Group or the GlobalCenter Group
on shares of Common Stock as follows:
(i) on shares of Global Crossing Group Stock, dividends of shares of
Global Crossing Group Stock (or distributions of Convertible Securities
convertible into or exchangeable or exercisable for shares of Global
Crossing Group Stock) or distributions of assets (including securities)
attributed to the Global Crossing Group;
(ii) on shares of GlobalCenter Group Stock, dividends of shares of
GlobalCenter Group Stock (or distributions of Convertible Securities
convertible into or exchangeable or exercisable for shares of GlobalCenter
Group Stock) or distributions of assets (including securities) attributed
to the GlobalCenter Group;
(iii) on shares of any class of Common Stock (other than Global Crossing
Group Stock), dividends of shares of Global Crossing Group Stock (or
distributions of Convertible Securities convertible into or exchangeable or
exercisable for shares of Global Crossing Group Stock), but only if the sum
of:
(1) the number of shares of Global Crossing Group Stock to be so
issued (or the number of such shares which would be issuable upon
repurchase, exchange or exercise of any Convertible Securities to be so
issued); and
(2) the number of shares of Global Crossing Group Stock which are
issuable upon repurchase, exchange or exercise of any Convertible
Securities then outstanding that are attributed to the Group related to
the class of Common Stock on which the dividend or distribution is to
be so paid
is less than or equal to the Number of Shares Issuable with Respect to the
Inter-Group Interest in the Global Crossing Group held by such Group;
(iv) on shares of any class of Common Stock (other than GlobalCenter
Group Stock), dividends of shares of GlobalCenter Group Stock (or
distributions of Convertible Securities convertible into or exchangeable or
exercisable for shares of GlobalCenter Group Stock), but only if the sum
of:
(1) the number of shares of GlobalCenter Group Stock to be so issued
(or the number of such shares which would be issuable upon repurchase,
exchange or exercise of any Convertible Securities to be so issued);
and
(2) the number of shares of GlobalCenter Group Stock which are
issuable upon repurchase, exchange or exercise of any Convertible
Securities then outstanding that are attributed to the Group related to
the class of Common Stock on which the dividend or distribution is to
be so paid
is less than or equal to the Number of Shares Issuable with Respect to the
Inter-Group Interest in the GlobalCenter Group held by such Group;
(v) on shares of any class of Common Stock (other than Global Crossing
Group Stock), distributions of assets (including securities) attributed to
the Global Crossing Group, but only if the sum of:
(1) the number or amount of such assets (including securities) to be
so paid; and
(2) the number or amount of such assets (including securities), if
any, payable upon repurchase, exchange or exercise of any Convertible
Securities then outstanding that are attributed to the Group related to
the class of Common Stock on which the distribution is to be so paid
is equal to the product of:
(x) the number or amount of such assets (including securities) to be
paid concurrently to holders of outstanding Global Crossing Group
Stock; and
II-2
<PAGE>
(y) a fraction, the numerator of which is equal to the Number of
Shares Issuable with Respect to the Inter-Group Interest in the Global
Crossing Group held by such Group and the denominator of which is equal
to the number of outstanding shares of Global Crossing Group Stock; and
(vi) on shares of any class of Common Stock (other than GlobalCenter
Group Stock), distributions of assets (including securities) attributed to
the GlobalCenter Group, but only if the sum of:
(1) the number or amount of such assets (including securities) to be
so paid; and
(2) the number or amount of such assets (including securities), if
any, payable upon repurchase, exchange or exercise of any Convertible
Securities then outstanding that are attributed to the Group related to
the class of Common Stock on which the distribution is to be so paid
is equal to the product of:
(x) the number or amount of such assets (including securities) to be
paid concurrently to holders of outstanding GlobalCenter Group Stock;
and
(y) a fraction, the numerator of which is equal to the Number of
Shares Issuable with Respect to the Inter-Group Interest in the
GlobalCenter Group held by such Group and the denominator of which is
equal to the number of outstanding shares of GlobalCenter Group Stock.
For purposes of this Section 1(C), any outstanding Convertible Securities
that are convertible into or exchangeable or exercisable for any other
Convertible Securities which are themselves convertible into or exchangeable or
exercisable for any class of Common Stock (or other Convertible Securities that
are so convertible, exchangeable or exercisable) shall be deemed to have been
repurchased, exchanged or exercised in full for such Convertible Securities.
(D) Discrimination Between or Among Classes of Common Stock. The Board of
Directors, subject to the provisions of this Section 1, may at any time declare
and pay distributions and share dividends exclusively on Global Crossing Group
Stock, exclusively on GlobalCenter Group Stock, exclusively on Additional Group
Stock or on any combination thereof, in equal or unequal amounts,
notwithstanding the relationship between the Available Distribution Amount with
respect to any particular Group and any other Group, the amount of
distributions and share dividends previously declared or paid on any series,
the respective voting or liquidation rights of any series or any other factor.
Section 2. Voting Rights.
(A) General. Except as otherwise provided by law, by the terms of any
outstanding preferred stock or by any provision of the Company's Bye-laws
(including all schedules thereto) restricting the power to vote on a specified
matter to other shareholders, holders of shares of Common Stock shall
collectively have unlimited voting rights. Such voting rights may be allocated
among one or more classes of Common Stock pursuant to the terms of such classes
as fixed or as determined by the Board of Directors in a manner permitted by
law. All classes of Common Stock shall vote thereon together as a single class,
except as otherwise provided by law, by Section 2(B) or by a Certificate of
Designations creating another class of Common Stock.
(B) Class Votes. The affirmative vote of the majority of votes cast by the
holders of shares of Global Crossing Group Stock or GlobalCenter Group Stock,
as the case may be, voting as a class, in person or by proxy, at a special or
annual meeting called for the purpose, or by written consent in lieu of a
meeting, shall be required to do any of the following:
(i) increase or decrease (but not below the number of shares of such
class of Common Stock then outstanding) the number of authorized shares of
such class of Common Stock, other than an increase in the number of
authorized shares of such class of Common Stock required to effectuate a
conversion of
II-3
<PAGE>
shares of one class of Common Stock into another class of Common Stock
pursuant to Section 4 or a distribution to holders of Global Crossing Group
Stock of all or a portion of its Inter-Group Interest in the GlobalCenter
Group; or
(ii) make any amendment to the terms of such class of Common Stock as set
forth in this Certificate of Designations.
(C) Number of Votes for Each Class of Common Stock. On each matter to be
voted on by the holders of all classes of Common Stock voting together as a
single class, the number of votes per share of each class shall be as follows:
(i) each outstanding share of Global Crossing Group Stock shall have one
vote;
(ii) each outstanding share of GlobalCenter Group Stock shall have a
number of votes equal to the quotient of the average Market Value of one
share of GlobalCenter Group Stock during the 20-trading day period ending
on the tenth trading day prior to the record date for determining the
holders of stock entitled to vote, divided by the average Market Value of
one share of Global Crossing Group Stock during the same period; provided
that if this calculation results in the holders of GlobalCenter Group Stock
holding more than 25% of the total voting power of all outstanding shares
of Common Stock, the vote of each share of GlobalCenter Group Stock shall
be reduced so that all of the outstanding shares of GlobalCenter Group
Stock represent 25% of the total voting power of all outstanding shares of
Common Stock, except where the outstanding shares of Global Crossing Group
Stock have been converted into shares of GlobalCenter Group Stock, in which
case the foregoing limitation on the voting power of holders of
GlobalCenter Group Stock shall not apply;
(iii) each outstanding share of any class of Additional Group Stock shall
have a number of votes (including a fraction of one vote), or be not
entitled to be voted with shares of other classes of Common Stock, as may
be set forth in or determined pursuant to the Certificate of Designations
creating such class of Additional Group Stock;
Notwithstanding the foregoing provisions of this Section 2(C), if shares of
only one class of Common Stock are outstanding on the record date for
determining the holders of Common Stock entitled to vote on any matter, then
each share of that class shall be entitled to one vote and, if any class of
Common Stock is entitled to vote as a separate class with respect to any
matter, each share of that class shall, for purpose of such vote, be entitled
to one vote on such matter.
Section 3. Liquidation Rights.
(A) General. In the event of any voluntary or involuntary dissolution of the
Company, after payment or provision for payment of the debts and other
liabilities of the Company and after making provision for preferred stock prior
and superior to Common Stock as to payments upon dissolution (regardless of the
Group to which such shares of the preferred stock were attributed), the holders
of Global Crossing Group Stock, GlobalCenter Group Stock and each series of
Additional Group Stock then outstanding shall be entitled to receive out of the
net assets, if any, of the Company remaining for distribution to holders of
Common Stock (regardless of the Group to which such assets are then attributed)
an amount on a per share basis in proportion to the respective liquidation
units per share of such series. For purposes of this Section 3, neither the
voluntary sale, lease, exchange or other disposition of all or substantially
all of the property or assets of the Company or a consolidation or merger of
the Company or a share exchange by the Company with one or more other
corporations (whether or not the Company is the corporation surviving such
consolidation or merger) or the acquiring company in such share exchange nor
any transaction or event pursuant to Section 4 or transaction or event
involving any series of Additional Group Stock pursuant to comparable
provisions creating such series of Additional Group Stock shall be deemed a
voluntary or involuntary dissolution of the Company for purposes of this
Section 3.
II-4
<PAGE>
(B) Liquidation Units for Each Class of Common Stock. The liquidation units
for share of each class of Common Stock shall be as follows:
(i) each share of Global Crossing Group Stock shall have one liquidation
unit;
(ii) each share of GlobalCenter Group Stock shall have liquidation
units; and
(iii) each share of any class of Additional Group Stock shall have the
number of liquidation units (including a fraction of one liquidation unit)
as may be set forth in or determined pursuant to the Certificate of
Designations creating such class of Additional Group Stock;
provided that, if the Company shall in any manner subdivide (by stock split,
reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of any class of Common
Stock, or declare and pay a dividend in shares of any class of Common Stock to
holders of such class, the per share liquidation units of the class of Common
Stock, as adjusted from time to time, shall be appropriately adjusted, as
determined by the Board of Directors, so as to avoid any dilution in the
aggregate, relative liquidation rights of the shares of any class of Common
Stock.
Section 4. Conversion or Repurchase of, and Special Distributions on, Global
Crossing Group Stock and GlobalCenter Group Stock.
(A) Conversion of Global Crossing Group Stock at Company's Option at Any Time
or if a Tax Event Occurs. The Board of Directors may at any time declare that
each outstanding share of Global Crossing Group Stock shall be converted, as of
the Conversion Date set forth in a notice delivered in accordance with Section
4(H)(v)(2), into a number of fully paid and nonassessable shares of
GlobalCenter Group Stock or, if so determined by the Board of Directors,
Additional Group Stock equal to the applicable percentage set forth in the
following sentence of the ratio, rounded to the nearest 1/10,000 (.0001), of
the average Market Value of one share of Global Crossing Group Stock over the
period of 20 consecutive Trading Days ending on the fifth Trading Day
immediately preceding the date of the notice of conversion required by Section
4(H)(v) to the average Market Value of one share of GlobalCenter Group Stock or
Additional Group Stock, as applicable, during the same 30-Trading Day period;
provided that the Board of Directors may only declare that the Global Crossing
Group Stock shall be so converted, if, as of the close of business on such
fifth Trading Day, the Market Capitalization of the Global Crossing Group Stock
shall be less than the Market Capitalization of the GlobalCenter Group Stock or
the Additional Group Stock, as applicable. The applicable percentage referred
to in the preceding sentence shall equal:
(1) if a Tax Event has not occurred,
(a) prior to the first anniversary of the Initial Issuance Date,
120%;
(b) beginning on the first anniversary of the Initial Issuance
Date and prior to the second anniversary of the Initial Issuance
Date, 115%; and
(c) beginning on the second anniversary of the Initial Issuance
Date, 110%; or
(2) if a Tax Event has occurred, 100%.
(B) Repurchase of Global Crossing Group Stock for Global Crossing Subsidiary
Stock. At any time at which all of the assets and liabilities attributed to the
Global Crossing Group (and no other businesses, assets, properties or
liabilities of the Company or any subsidiary thereof) are held directly or
indirectly by one or more wholly-owned subsidiaries of the Company (each, a
"Global Crossing Subsidiary"), the Board of Directors may, provided that there
are funds legally available for the purpose:
II-5
<PAGE>
(i) if the Aggregate Number of Shares Issuable with Respect to the Inter-
Group Interest in the Global Crossing Group is zero and the Global Crossing
Group does not hold an Inter-Group Interest in any other Group, repurchase
all of the outstanding shares of Global Crossing Group Stock, on the
Repurchase Date set forth in a notice delivered in accordance with Section
4(H)(vi), for all of the shares of common stock of each Global Crossing
Subsidiary as will be outstanding immediately following such repurchase of
shares;
(ii) if the Aggregate Number of Shares Issuable with Respect to the
Inter-Group Interest in the Global Crossing Group is greater than zero and
the Global Crossing Group does not hold an Inter-Group Interest in any
other Group, repurchase all of the outstanding shares of Global Crossing
Group Stock, on the Repurchase Date set forth in a notice delivered in
accordance with Section 4(H)(vi), for a number of shares of common stock of
each Global Crossing Subsidiary equal to the product of:
(x) the Outstanding Interest Fraction with respect to Global Crossing
Group Stock, and
(y) the number of shares of common stock of each Global Crossing
Subsidiary as will be outstanding immediately following such repurchase
of shares;
(iii) if the Aggregate Number of Shares Issuable with Respect to the
Inter-Group Interest in the Global Crossing Group is zero and the Global
Crossing Group holds an Inter-Group Interest in any other Group, repurchase
all of the outstanding shares of Global Crossing Group Stock, on the
Repurchase Date set forth in a notice delivered in accordance with Section
4(H)(vi), for:
(1) all of the shares of common stock of each Global Crossing
Subsidiary as will be outstanding immediately following such repurchase
of shares; and
(2) for each Group in respect of which the Global Crossing Group
holds an Inter-Group Interest, the related Number of Shares Issuable
with Respect to the Inter-Group Interest in each such Group held by the
Global Crossing Group; or
(iv) if the Aggregate Number of Shares Issuable with Respect to the
Inter-Group Interest for the Global Crossing Group is greater than zero and
the Global Crossing Group holds an Inter-Group Interest in any other Group,
repurchase all of the outstanding shares of Global Crossing Group Stock, on
the Repurchase Date set forth in a notice delivered in accordance with
Section 4(H)(vi), for:
(1) a number of shares of common stock of each Global Crossing
Subsidiary equal to the product of:
(x) the Outstanding Interest Fraction with respect to Global
Crossing Group Stock; and
(y) the number of shares of common stock of each Global Crossing
Subsidiary as will be outstanding immediately following such
repurchase of shares; and
(2) for each Group in respect of which the Global Crossing Group
holds an Inter-Group Interest, the related Number of Shares Issuable
with Respect to the Inter-Group Interest in each such Group held by the
Global Crossing Group.
The shares of common stock of each Global Crossing Subsidiary and the shares of
Common Stock equal to the Number of Shares Issuable with Respect to the Inter-
Group Interest in any Group held by the Global Crossing Group to be delivered
to the holders of shares of Global Crossing Group Stock on any Repurchase Date
may be delivered either directly or indirectly through the delivery of shares
of another Global Crossing Subsidiary that owns directly or indirectly all such
shares, and such shares shall be divided among the holders of Global Crossing
Group Stock pro rata in accordance with the number of shares of Global Crossing
Group Stock held by each such holder on such Repurchase Date. Each share of
common stock of each Global Crossing Subsidiary and share of Common Stock in
respect of such Number of Shares Issuable with Respect to the Inter-Group
Interest shall be, upon such delivery, fully paid and nonassessable.
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(C) Special Distributions on, and Conversion and Repurchase of, Global
Crossing Group Stock if a Disposition of All or Substantially All Assets of the
Global Crossing Group Occurs. (i) In the event of the Disposition, in one
transaction or a series of related transactions (other than in one or a series
of Excluded Transactions), by the Company and/or its subsidiaries of all or
substantially all of the business, properties and assets attributed to the
Global Crossing Group, the Company shall, on or prior to the 95th Trading Day
after the Disposition Date, as the Board of Directors shall have determined in
its sole discretion:
(1) provided that there are funds legally available for the purpose:
(a) subject to compliance with Section 1, pay to the holders of
the shares of Global Crossing Group Stock a distribution pro rata in
accordance with the number of shares of Global Crossing Group Stock
held by each such holder, in cash and/or securities or other
property having a Fair Value as of the Disposition Date in the
aggregate equal to the product of:
(x) the Outstanding Interest Fraction with respect to Global
Crossing Group Stock as of the record date for determining
holders entitled to receive such distribution; and
(y) the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition; or
(b) (I) subject to the last sentence of this Section 4(C)(i), if
such Disposition involves all (not merely substantially all) of the
business, properties and assets attributed to the Global Crossing
Group, repurchase as of the Repurchase Date set forth in a notice
delivered in accordance with Section 4(H)(iii)(2), all outstanding
shares of Global Crossing Group Stock for cash and/or securities
(other than shares of a class of Common Stock of the Company) or
other property having a Fair Value as of the Disposition Date in the
aggregate equal to the product of:
(x) the Outstanding Interest Fraction with respect to Global
Crossing Group Stock as of such Repurchase Date; and
(y) the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition; or
(II) subject to the last sentence of this Section 4(C)(i), if such
Disposition involves substantially all (but not all) of the
business, properties and assets attributed to the Global Crossing
Group, repurchase as of the Repurchase Date set forth in a notice
delivered in accordance with Section 4(H)(iv)(2), the number of
whole shares of Global Crossing Group Stock equal to the lesser of:
(x) the number of shares of Global Crossing Group Stock
outstanding; and
(y) such number of shares of Global Crossing Group Stock as
have in the aggregate an average Market Value during the period
of ten consecutive Trading Days beginning on the 26th Trading
Day immediately succeeding the Disposition Date closest to the
product of:
(xx) the Outstanding Interest Fraction with respect to
Global Crossing Group
Stock as of the record date for determining shares selected
for repurchase; and
(yy) the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition,
for, on a pro rata basis, cash and/or securities (other than shares
of a class of Common Stock) or other property having a Fair Value as
of the Disposition Date in the aggregate equal to such product; or
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(2) declare that each outstanding share of Global Crossing Group
Stock shall be converted as of the Conversion Date set forth in a
notice delivered in accordance with Section 4(H)(v)(2), for a number of
fully paid and nonassessable shares of GlobalCenter Group Stock or, if
so determined by the Board of Directors, Additional Group Stock equal
to the applicable percentage set forth in Section 4(A) of the ratio,
rounded to the nearest 1/10,000 (.0001), of the average Market Value of
one share of Global Crossing Group Stock over the period of ten
consecutive Trading Days beginning on the 26th Trading Day following
the Disposition Date to the average Market Value of one share of
GlobalCenter Group Stock or such Additional Group Stock during the same
ten-Trading Day period.
Notwithstanding the foregoing provisions of this Section 4(C)(i), the Company
shall repurchase shares of Global Crossing Group Stock as provided by Section
4(C)(i)(1)(b)(I) or (II) only if the amount to be paid to repurchase such stock
is less than or equal to the Global Crossing Group Available Distribution
Amount as of the Repurchase Date.
(ii) For purposes of this Section 4(C):
(1) as of any date, "substantially all of the business, properties
and assets" attributed to the Global Crossing Group shall mean a
portion of such business, properties and assets that represents at
least 80% of the Fair Value of the properties and assets attributed to
the Global Crossing Group as of such date;
(2) in the case of a Disposition of the business, properties and
assets attributed to the Global Crossing Group in a series of related
transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions;
and
(3) the Board of Directors may pay any dividend or repurchase price
referred to in Section 4(C)(i) in cash, securities (other than shares
of a class or class of Common Stock of the Company) or other property,
regardless of the form or nature of the proceeds of the Disposition.
(iii) After the payment of any distribution or repurchase price with
respect to the Global Crossing Group Stock as provided for by Section
4(C)(i)(1), the Board of Directors may declare that each share of Global
Crossing Group Stock remaining outstanding shall be converted, but only as
of a Conversion Date set forth in a notice delivered in accordance with
Section 4(H)(v)(2), prior to the second anniversary of the payment of such
distribution or repurchase price, into a number of fully paid and
nonassessable shares of GlobalCenter Group Stock or, if so determined by
the Board of Directors, Additional Group Stock equal to 110% of the ratio,
rounded to the nearest 1/10,000 (.0001), of the average Market Value of one
share of Global Crossing Group Stock during the period of 20 consecutive
Trading Days ending on the fifth Trading Day immediately preceding the date
of the notice of such conversion required by Section 4(H)(v) to the average
Market Value of one share of GlobalCenter Group Stock or such Additional
Group Stock, as applicable, during the same 20-Trading Day period.
(D) Conversion of GlobalCenter Group Stock at Company's Option at Any Time or
if a Tax Event Occurs. The Board of Directors may at any time declare that each
outstanding share of GlobalCenter Group Stock shall be converted, as of the
Conversion Date set forth in a notice delivered in accordance with Section
4(H)(v)(2), into a number of fully paid and nonassessable shares of Global
Crossing Group Stock or, if so determined by the Board of Directors, Additional
Group Stock equal to the applicable percentage set forth in the following
sentence of the ratio, rounded to the nearest 1/10,000 (.0001), of the average
Market Value of one share of GlobalCenter Group Stock over the period of 20
consecutive Trading Days ending on the fifth Trading Day immediately preceding
the date of the notice of conversion required by Section 4(H)(v) to the average
Market Value of one share of Global Crossing Group Stock or Additional Group
Stock, as applicable, during the same 30-Trading Day period; provided that the
Board of Directors may only declare that the GlobalCenter Group Stock shall be
so converted, if, as of the close of business on such fifth Trading Day, the
Market Capitalization of the GlobalCenter Group Stock shall be less than the
Market Capitalization of the Global
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Crossing Group Stock or the Additional Group Stock, as applicable. The
applicable percentage referred to in the preceding sentence shall equal:
(1) if a Tax Event has not occurred,
(a) prior to the first anniversary of the Initial Issuance Date,
120%;
(b) beginning on the first anniversary of the Initial Issuance
Date and prior to the second anniversary of the Initial Issuance
Date, 115%; and
(c) beginning on the second anniversary of the Initial Issuance
Date, 110%; or
(2) if a Tax Event has occurred, 100%.
(E) Repurchase of GlobalCenter Group Stock for GlobalCenter Subsidiary
Stock. At any time at which all of the assets and liabilities attributed to the
GlobalCenter Group (and no other businesses, assets, properties or liabilities
of the Company or any subsidiary thereof) are held directly or indirectly by
one or more wholly-owned subsidiaries of the Company (each, a "GlobalCenter
Subsidiary"), the Board of Directors may, provided that there are funds legally
available for the purpose:
(i) if the Aggregate Number of Shares Issuable with Respect to the Inter-
Group Interest in the GlobalCenter Group is zero and the GlobalCenter Group
does not hold an Inter-Group Interest in any other Group, repurchase all of
the outstanding shares of GlobalCenter Group Stock, on the Repurchase Date
set forth in a notice delivered in accordance with Section 4(H)(vi), for
all of the shares of common stock of each GlobalCenter Subsidiary as will
be outstanding immediately following such repurchase of shares;
(ii) if the Aggregate Number of Shares Issuable with Respect to the
Inter-Group Interest in the GlobalCenter Group is greater than zero and the
GlobalCenter Group does not hold an Inter-Group Interest in any other
Group, repurchase all of the outstanding shares of GlobalCenter Group
Stock, on the Repurchase Date set forth in a notice delivered in accordance
with Section 4(H)(vi), for a number of shares of common stock of each
GlobalCenter Subsidiary equal to the product of:
(x) the Outstanding Interest Fraction with respect to GlobalCenter
Group Stock, and
(y) the number of shares of common stock of each GlobalCenter
Subsidiary as will be outstanding immediately following such repurchase
of shares;
(iii) if the Aggregate Number of Shares Issuable with Respect to the
Inter-Group Interest in the GlobalCenter Group is zero and the GlobalCenter
Group holds an Inter-Group Interest in any other Group, repurchase all of
the outstanding shares of GlobalCenter Group Stock, on the Repurchase Date
set forth in a notice delivered in accordance with Section 4(H)(vi), for:
(1) all of the shares of common stock of each GlobalCenter
Subsidiary as will be outstanding immediately following such
repurchase of shares; and
(2) for each Group in respect of which the GlobalCenter Group
holds an Inter-Group Interest, the related Number of Shares Issuable
with Respect to the Inter-Group Interest in each such Group held by
the GlobalCenter Group; or
(iv) if the Aggregate Number of Shares Issuable with Respect to the
Inter-Group Interest for the GlobalCenter Group is greater than zero and
the GlobalCenter Group holds an Inter-Group Interest in any other Group,
repurchase all of the outstanding shares of GlobalCenter Group Stock, on
the Repurchase Date set forth in a notice delivered in accordance with
Section 4(H)(vi), for:
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<PAGE>
(1) a number of shares of common stock of each GlobalCenter
Subsidiary equal to the product of:
(x) the Outstanding Interest Fraction with respect to
GlobalCenter Group Stock; and
(y) the number of shares of common stock of each GlobalCenter
Subsidiary as will be outstanding immediately following such
repurchase of shares; and
(2) for each Group in respect of which the GlobalCenter Group
holds an Inter-Group Interest, the related Number of Shares Issuable
with Respect to the Inter-Group Interest in each such Group held by
the GlobalCenter Group.
The shares of common stock of each GlobalCenter Subsidiary and the shares of
Common Stock equal to the Number of Shares Issuable with Respect to the Inter-
Group Interest in any Group held by the GlobalCenter Group to be delivered to
the holders of shares of GlobalCenter Group Stock on any Repurchase Date may be
delivered either directly or indirectly through the delivery of shares of
another GlobalCenter Subsidiary that owns directly or indirectly all such
shares, and such shares shall be divided among the holders of GlobalCenter
Group Stock pro rata in accordance with the number of shares of GlobalCenter
Group Stock held by each such holder on such Repurchase Date. Each share of
common stock of each GlobalCenter Subsidiary and share of Common Stock in
respect of such Number of Shares Issuable with Respect to the Inter-Group
Interest shall be, upon such delivery, fully paid and nonassessable.
(F) Special Distributions on, and Conversion and Repurchase of, GlobalCenter
Group Stock if a Disposition of All or Substantially All Assets of the
GlobalCenter Group Occurs. (i) In the event of the Disposition, in one
transaction or a series of related transactions (other than in one or a series
of Excluded Transactions), by the Company and/or its subsidiaries of all or
substantially all of the business, properties and assets attributed to the
GlobalCenter Group, the Company shall, on or prior to the 95th Trading Day
after the Disposition Date, as the Board of Directors shall have determined in
its sole discretion:
(1) provided that there are funds legally available for the purpose:
(a) subject to compliance with Section 1, pay to the holders of
the shares of GlobalCenter Group Stock a distribution pro rata in
accordance with the number of shares of GlobalCenter Group Stock
held by each such holder, in cash and/or securities or other
property having a Fair Value as of the Disposition Date in the
aggregate equal to the product of:
(x) the Outstanding Interest Fraction with respect to
GlobalCenter Group Stock as of the record date for determining
holders entitled to receive such distribution; and
(y) the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition; or
(b) (I) subject to the last sentence of this Section 4(F)(i), if
such Disposition involves all (not merely substantially all) of the
business, properties and assets attributed to the GlobalCenter
Group, repurchase as of the Repurchase Date set forth in a notice
delivered in accordance with Section 4(H)(iii)(2), all outstanding
shares of GlobalCenter Group Stock in exchange for cash and/or
securities (other than shares of a class or class of Common Stock of
the Company) or other property having a Fair Value as of the
Disposition Date in the aggregate equal to the product of:
(x) the Outstanding Interest Fraction with respect to
GlobalCenter Group Stock as of such Repurchase Date; and
(y) the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition; or
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<PAGE>
(II) subject to the last sentence of this Section 4(F)(i), if such
Disposition involves substantially all (but not all) of the
business, properties and assets attributed to the GlobalCenter
Group, repurchase as of the Repurchase Date set forth in a notice
delivered in accordance with Section 4(H)(iv)(2), the number of
whole shares of GlobalCenter Group Stock equal to the lesser of:
(x) the number of shares of GlobalCenter Group Stock
outstanding; and
(y) such number of shares of GlobalCenter Group Stock as have
in the aggregate an average Market Value during the period of
ten consecutive Trading Days beginning on the 26th Trading Day
immediately succeeding the Disposition Date closest to the
product of:
(xx) the Outstanding Interest Fraction with respect to
GlobalCenter Group Stock as of the record date for
determining shares selected for repurchase; and
(yy) the Fair Value as of the Disposition Date of the Net
Proceeds of such Disposition,
for, on a pro rata basis, cash and/or securities (other than shares of
a class or class of Common Stock) or other property having a Fair Value
as of the Disposition Date in the aggregate equal to such product; or
(2) declare that each outstanding share of GlobalCenter Group Stock
shall be converted as of the Conversion Date set forth in a notice
delivered in accordance with Section 4(H)(v)(2), into a number of fully
paid and nonassessable shares of Global Crossing Group Stock or, if so
determined by the Board of Directors, Additional Group Stock equal to
the applicable percentage set forth in Section 4(D) of the ratio,
rounded to the nearest 1/10,000 (.0001), of the average Market Value of
one share of GlobalCenter Group Stock over the period of ten
consecutive Trading Days beginning on the 26th Trading Day following
the Disposition Date to the average Market Value of one share of Global
Crossing Group Stock or such Additional Group Stock during the same
ten-Trading Day period.
Notwithstanding the foregoing provisions of this Section 4(F)(i), the Company
shall repurchase shares of GlobalCenter Group Stock as provided by Section
4(F)(i)(1)(b)(I) or (II) only if the amount to be paid to repurchase such
stock is less than or equal to the GlobalCenter Group Available Distribution
Amount as of the Repurchase Date.
(ii) For purposes of this Section 4(F):
(1) as of any date, "substantially all of the business, properties
and assets" attributed to the GlobalCenter Group shall mean a portion
of such business, properties and assets that represents at least 80% of
the Fair Value of the properties and assets attributed to the
GlobalCenter Group as of such date;
(2) in the case of a Disposition of the business, properties and
assets attributed to the GlobalCenter Group in a series of related
transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions;
and
(3) the Board of Directors may pay any dividend or repurchase price
referred to in Section 4(F)(i) in cash, securities (other than shares
of a class or class of Common Stock of the Company) or other property,
regardless of the form or nature of the proceeds of the Disposition.
(iii) After the payment of any distribution or repurchase price with
respect to the GlobalCenter Group Stock as provided for by Section
4(F)(i)(1), the Board of Directors may declare that each share of
GlobalCenter Group Stock remaining outstanding shall be converted, but only
as of a Conversion Date set
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<PAGE>
forth in a notice delivered in accordance with Section 4(H)(v)(2), prior to
the second anniversary of the payment of such distribution or repurchase
price, into a number of fully paid and nonassessable shares of Global
Crossing Group Stock or, if so determined by the Board of Directors,
Additional Group Stock equal to 110% of the ratio, rounded to the nearest
1/10,000 (.0001), of the average Market Value of one share of GlobalCenter
Group Stock during the period of 20 consecutive Trading Days ending on the
fifth Trading Day immediately preceding the date of the notice of such
conversion required by Section 4(H)(v) to the average Market Value of one
share of Global Crossing Group Stock or such Additional Group Stock, as
applicable, during the same 20-Trading Day period.
(G) Treatment of Convertible Securities. After any Repurchase Date or
Conversion Date on which all outstanding shares of either Global Crossing Group
Stock or GlobalCenter Group Stock are repurchased or converted, any share of
such class of Common Stock of the Company that is to be issued on conversion,
exchange or exercise of any Convertible Securities shall, immediately upon such
conversion, exchange or exercise and without any notice from or to, or any
other action on the part of, the Company or its Board of Directors or the
holder of such Convertible Security:
(i) in the event the shares of such class of Common Stock outstanding on
such Repurchase Date were repurchased pursuant to Section 4(B), Section
4(C)(i)(1)(b), Section 4(E) or Section 4(F)(i)(1)(b), be repurchased, to
the extent of funds legally available therefor, for $.01 per share in cash
for each share of such class of Common Stock that otherwise would be issued
upon such conversion, exchange or exercise; or
(ii) in the event the shares of such class of Common Stock outstanding on
such Conversion Date were converted into shares of another class of Common
Stock pursuant to Section 4(A), Section 4(C)(i)(2), Section 4(C)(iii),
Section 4(D), Section 4(F)(i)(2) or Section 4(F)(iii), be converted into
the amount of cash and/or the number of shares of the kind of capital stock
and/or other securities or property of the Company that shares of such
class of Common Stock would have received had such shares been converted
and outstanding on such Conversion Date.
The provisions of the immediately preceding sentence of this Section 4(G) shall
not apply to the extent that other adjustments in respect of such conversion,
exchange or repurchase of a class of Common Stock are otherwise made pursuant
to the provisions of such Convertible Securities.
(H) Notice and Other Provisions. (i) Not later than the 20th Trading Day
following the Disposition Date referred to in Section 4(C)(i) or Section
4(F)(i), the Company shall announce publicly by press release:
(1) the Net Proceeds of such Disposition;
(2) the number of shares outstanding of the class of Common Stock
related to the Group subject to such Disposition;
(3) the number of shares of such class of Common Stock into or for
which Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof; and
(4) if applicable for the Group subject to such Disposition, the
Outstanding Interest Fraction for the class of Common Stock relating to
such Group on the date of such notice.
Not earlier than the 36th Trading Day and not later than the 40th Trading Day
following the Disposition Date, the Company shall announce publicly by press
release which of the actions specified in Section 4(C)(i) or Section 4(F)(i),
as the case may be, it has irrevocably determined to take in respect of such
Disposition.
(ii) If the Company determines to pay a dividend pursuant to Section
4(C)(i)(1)(a) or Section 4(F)(i)(1)(a), the Company shall, not later than
the 40th Trading Day following the Disposition Date, cause
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notice to be given to each holder of shares of the class of Common Stock
related to the Group subject to such Disposition and to each holder of
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of such class of Common Stock (unless alternate
provision for such notice to the holders of such Convertible Securities is
made pursuant to the terms of such Convertible Securities), setting forth:
(1) the record date for determining holders entitled to receive such
dividend, which shall be not earlier than the tenth Trading Day and not
later than the 20th Trading Day following the date of such notice;
(2) the anticipated payment date of such dividend (which shall not be
more than 95 Trading Days following the Disposition Date);
(3) the type of property to be paid as such dividend in respect of
the outstanding shares of such class of Common Stock;
(4) the Net Proceeds of such Disposition;
(5) if applicable for the Group subject to such Disposition, the
Outstanding Interest Fraction for the class of Common Stock related to
such Group on the date of such notice;
(6) the number of outstanding shares of such class of Common Stock
and the number of shares of such class of Common Stock into or for
which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise
price thereof; and
(7) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be entitled to receive such dividend if such holder
properly converts, exchanges or exercises such Convertible Securities
on or prior to the record date referred to in clause (1) of this
sentence.
(iii) If the Company determines to undertake a repurchase pursuant to
Section 4(C)(i)(1)(b)(I) or Section 4(F)(i)(1)(b)(I), the Company shall,
not earlier than the 45th Trading Day and not later than the 35th Trading
Day prior to the Repurchase Date, cause notice to be given to each holder
of shares of the class of Common Stock related to the Group subject to such
Disposition and to each holder of Convertible Securities convertible into
or exchangeable or exercisable for shares of such class of Common Stock
(unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such Convertible
Securities), setting forth:
(1) a statement that all outstanding shares of such class of Common
Stock shall be repurchased;
(2) the Repurchase Date (which shall not be more than 95 Trading Days
following the Disposition Date);
(3) the type of property in which the repurchase price for the shares
to be repurchased is to be paid;
(4) the Net Proceeds of such Disposition;
(5) if applicable for the Group subject to such Disposition, the
Outstanding Interest Fraction for the class of Common Stock related to
such Group on the date of such notice;
(6) the place or places where certificates for such shares, properly
endorsed or assigned for transfer (unless the Company waives such
requirement), are to be surrendered for delivery of cash and/or
securities or other property;
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<PAGE>
(7) a statement to the effect that, subject to Section 4(H)(x),
dividends on shares of such class of Common Stock shall cease to be
paid as of such Repurchase Date;
(8) the number of outstanding shares of such class of Common Stock
and the number of shares of such class of Common Stock into or for
which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise
price thereof; and
(9) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be entitled to participate in such repurchase if such
holder properly converts, exchanges or exercises such Convertible
Securities on or prior to the Repurchase Date referred to in clause (2)
of this sentence and a statement as to what, if anything, such holder
will be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, Section 4(G) if such holder thereafter
converts, exchanges or exercises such Convertible Securities.
(iv) If the Company determines to undertake a repurchase pursuant to
Section 4(C)(i)(1)(b)(II) or Section 4(F)(i)(1)(b)(II), the Company shall,
not later than the 40th Trading Day following the Disposition Date referred
to in such Section, cause notice to be given to each holder of shares of
the class of Common Stock related to the Group subject to such Disposition
and to each holder of Convertible Securities that are convertible into or
exchangeable or exercisable for shares of such class of Common Stock
(unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such Convertible
Securities) setting forth:
(1) a date not earlier than the tenth Trading Day and not later than
the 20th Trading Day following the date of such notice on which shares
of such class of Common Stock shall be selected for repurchase;
(2) the anticipated Repurchase Date (which shall not be more than 95
Trading Days following the Disposition Date);
(3) the type of property in which the repurchase price for the shares
to be repurchased is to be paid;
(4) the Net Proceeds of such Disposition;
(5) if applicable for the Group subject to such Disposition, the
Outstanding Interest Fraction for the class of Common Stock related to
such Group on the date of such notice;
(6) a statement that the Company will not be required to register a
transfer of any shares of such class of Common Stock for a period of 15
Trading Days next preceding the date referred to in clause (1) of this
sentence.
(7) the number of shares of such class of Common Stock outstanding
and the number of shares of such class of Common Stock into or for
which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise
price thereof; and
(8) in the case of notice to be given to holders of Convertible
Securities, a statement to the effect that a holder of such Convertible
Securities shall be eligible to participate in such selection for
repurchase only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to the record date
referred to in clause (1) of this sentence, and a statement as to what,
if anything, such holder will be entitled to receive pursuant to the
terms of such Convertible Securities or, if applicable, Section 4(G) if
such holder thereafter converts, exchanges or exercises such
Convertible Securities.
Promptly following the date referred to in clause (1) of the preceding
sentence, the Company shall cause a notice to be given to each holder of shares
of the class of Common Stock to be repurchased setting forth:
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<PAGE>
(1) the number of shares of such class of Common Stock held by such
holder to be repurchased;
(2) a statement that such shares shall be repurchased;
(3) the Repurchase Date (which shall not be more than 95 Trading Days
following the Disposition Date);
(4) the kind and per share amount of cash and/or securities or other
property to be received by such holder with respect to each share to be
repurchased, including details as to the calculation thereof;
(5) the place or places where certificates for such shares, properly
endorsed or assigned for transfer (unless the Company shall waive such
requirement), are to be surrendered for delivery of such cash and/or
securities or other property;
(6) if applicable, a statement to the effect that the shares being
repurchased may no longer be transferred on the transfer books of the
Company after the Repurchase Date; and
(7) a statement to the effect that, subject to Section 4(H)(x),
dividends on such shares shall cease to be paid as of the Repurchase
Date.
(v) If the Company determines to convert Global Crossing Group Stock or
GlobalCenter Group Stock into another class of Common Stock pursuant to
Section 4(A), Section 4(C)(i)(2) or Section 4(C)(iii) (in the case of
Global Crossing Group Stock), or Section 4(D), Section 4(F)(i)(2), Section
4(F)(iii) (in the case of GlobalCenter Group Stock), the Company shall, not
earlier than the 45th Trading Day and not later than the 35th Trading Day
prior to the Conversion Date, cause notice to be given to each holder of
shares of the class of Common Stock to be so converted and to each holder
of Convertible Securities that are convertible into or exchangeable or
exercisable for shares of such class of Common Stock (unless alternate
provision for such notice to the holders of such Convertible Securities is
made pursuant to the terms of such Convertible Securities) setting forth:
(1) a statement that all outstanding shares of such class of Common
Stock shall be converted;
(2) the Conversion Date (which, in the case of a conversion after a
Disposition, shall not be more than 95 Trading Days following the
Disposition Date);
(3) the per share number of shares of the class of Common Stock to be
received with respect to each share of such class of Common Stock,
including details as to the calculation thereof;
(4) the place or places where certificates for such shares, properly
endorsed or assigned for transfer (unless the Company shall waive such
requirement), are to be surrendered for delivery of certificates for
shares of the class of Common Stock into which such shares are to be
converted;
(5) a statement to the effect that, subject to Section 4(H)(x),
dividends on shares of such class of Common Stock shall cease to be
paid as of such Conversion Date;
(6) the number of outstanding shares of such class of Common Stock
and the number of shares of such class of Common Stock into or for
which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise
price thereof; and
(7) in the case of notice to holders of such Convertible Securities,
a statement to the effect that a holder of such Convertible Securities
shall be entitled to receive shares of such class of Common Stock upon
such conversion only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to such Conversion
Date and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, Section 4(G) if such holder thereafter
converts, exchanges or exercises such Convertible Securities.
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(vi) If the Company determines to repurchase shares of Global Crossing
Group Stock pursuant to Section 4(B) or GlobalCenter Group Stock pursuant
to Section 4(E), the Company shall, not earlier than the 45th Trading Day
and not later than the 35th Trading Day prior to the Repurchase Date, cause
notice to be given to each holder of shares of such class of Common Stock
to be repurchased and to each holder of Convertible Securities that are
convertible into or exchangeable or exercisable for shares of such class of
Common Stock (unless alternate provision for such notice to the holders of
such Convertible Securities is made pursuant to the terms of such
Convertible Securities), setting forth:
(1) a statement that all shares of such class of Common Stock
outstanding on the Repurchase Date shall be repurchased for shares of
common stock of each Global Crossing Subsidiary or GlobalCenter
Subsidiary, as applicable (and, if such repurchase is pursuant to
Section 4(B)(iii)(1) or Section 4(B)(iv)(1) (in the case of a
repurchase of Global Crossing Group Stock) or pursuant to Section
4(E)(iii)(1) or Section 4(E)(iv)(1) (in the case of a repurchase of
GlobalCenter Group Stock), shares of the class of Common Stock
specified in such Sections);
(2) the Repurchase Date;
(3) if applicable for the class of Common Stock subject to such
repurchase, the Outstanding Interest Fraction for such class of Common
Stock on the date of such notice;
(4) the place or places where certificates for such shares, properly
endorsed or assigned for transfer (unless the Company shall waive such
requirement), are to be surrendered for delivery of certificates for
the shares of common stock to be issued in exchange therefor;
(5) a statement to the effect that, subject to Section 4(H)(x),
dividends on shares of such class of Common Stock shall cease to be
paid as of such Repurchase Date;
(6) the number of outstanding shares of such class of Common Stock
and the number of shares of such class of Common Stock into or for
which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise
price thereof; and
(7) in the case of notice to holders of Convertible Securities, a
statement to the effect that a holder of Convertible Securities shall
be entitled to participate in such repurchase if such holder properly
converts, exchanges or exercises such Convertible Securities on or
prior to the Repurchase Date and a statement as to what, if anything,
such holder will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, Section 4(G), if such holder
thereafter converts, exchanges or exercises such Convertible
Securities.
(vii) Any notice required to be given each holder of shares of Common
Stock or Convertible Securities pursuant to this Section 4(H) shall be sent
by first-class mail, postage prepaid, to each such holder at such holder's
address as the same appears on the transfer books of the Company or the
Company's transfer agent or registrar on the record date fixed for such
notice. Neither the failure to mail any notice required by this Section
4(H) to any particular holder of Common Stock or of Convertible Securities
nor any defect therein shall affect the sufficiency thereof with respect to
any other holder of outstanding shares of Common Stock or of Convertible
Securities or the validity of any such repurchase or repurchase.
(viii) If less than all of the outstanding shares of any class of Common
Stock are to be repurchased pursuant to Section 4(C)(i)(1)(b)(II) or
Section 4(F)(i)(1)(b)(II), the shares to be repurchased by the Company
shall be selected from among the holders of shares of such class of Common
Stock outstanding at the close of business on the record date for such
repurchase on a pro rata basis among all such holders or by lot or by such
other method as may be determined by the Board of Directors to be
equitable.
(ix) The Company shall not be required to issue or deliver fractional
shares of any capital stock or of any other securities to any holder of
Common Stock upon any dividend or other distribution, repurchase or
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conversion pursuant to this Section 4. If more than one share of a class of
Common Stock shall be held at the same time by the same holder, the Company
may aggregate the number of shares of any capital stock that shall be
issuable or any other securities or property that shall be distributable to
such holder upon any dividend or other distribution, repurchase or
conversion (including any fractional shares). If there are fractional
shares of any capital stock or of any other securities remaining to be
issued or distributed to the holders of any class of Common Stock, the
Company shall, if such fractional shares are not issued or distributed to
the holder, pay cash in respect of such fractional shares in an amount
equal to the Fair Value thereof (without interest).
(x) No adjustments in respect of dividends shall be made upon the
repurchase or conversion of shares of any class of Common Stock; provided,
however, that if the Repurchase Date or Conversion Date, as the case may
be, with respect to shares of any class of Common Stock shall be subsequent
to the record date for the payment of a dividend or other distribution
thereon or with respect thereto, the holders of such class of Common Stock
at the close of business on such record date shall be entitled to receive
the dividend or other distribution payable on or with respect to such
shares on the date set for payment of such dividend or other distribution,
in each case without interest, notwithstanding the subsequent repurchase or
conversion of such shares.
(xi) Before any holder of shares of any class of Common Stock shall be
entitled to receive any cash payment and/or certificates or instruments
representing shares of any capital stock and/or other securities or
property to be distributed to such holder with respect to such class of
Common Stock pursuant to this Section 4, such holder shall surrender (at
such place as the Company shall specify) certificates for shares of such
class of Common Stock, properly endorsed or assigned for transfer (unless
the Company shall waive such requirement). The Company shall as soon as
practicable after receipt of certificates representing such shares of
Common Stock deliver to the person for whose account such shares of Common
Stock were so surrendered, or to such person's nominee or nominees, the
cash and/or the certificates or instruments representing the number of
whole shares of the kind of capital stock and/or other securities or
property to which such person shall be entitled as aforesaid, together with
any payment in respect of fractional shares contemplated by Section
4(H)(ix), in each case without interest. If less than all of the shares of
any class of Common Stock represented by any one certificate are to be
repurchased, the Company shall issue and deliver a new certificate for the
shares of such class of Common Stock not repurchased.
(xii) From and after any applicable Repurchase Date or Conversion Date,
as the case may be, all rights of a holder of shares of any class of Common
Stock that were repurchased or converted shall cease except for the right,
upon surrender of the certificates representing such shares of Common Stock
as required by Section 4(H)(xi), to receive the certificates representing
shares of the kind and amount of capital stock and/or other securities or
property for which such shares were repurchased or converted, together with
any payment in respect of fractional shares contemplated by Section
4(H)(ix) and rights to dividends as provided in Section 4(H)(x), in each
case without interest. No holder of a certificate that immediately prior to
the applicable Repurchase Date or Conversion Date represented shares of any
class of Common Stock shall be entitled to receive any dividend or other
distribution or interest payment with respect to shares of any kind of
capital stock or other security or instrument for which such class of
Common Stock was repurchased or converted until the surrender as required
by this Section 4 of such certificate for a certificate or certificates or
instrument or instruments representing such capital stock or other
security. Upon such surrender, there shall be paid to the holder the amount
of any dividends or other distributions (without interest) which
theretofore became payable on any class or series of capital stock of the
Company as of a record date after the Repurchase Date, but that were not
paid by reason of the foregoing, with respect to the number of whole shares
of the kind of capital stock represented by the certificate or certificates
issued upon such surrender. From and after a Repurchase Date or Conversion
Date, the Company shall, however, be entitled to treat the certificates for
a class of Common Stock that have not yet been surrendered for conversion
as evidencing the ownership of the number of whole shares of the kind or
kinds of capital stock of the Company for which the shares of such class of
Common Stock
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represented by such certificates shall have been converted, notwithstanding
the failure to surrender such certificates.
(xiii) The Company shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issuance or
delivery of any shares of capital stock and/or other securities upon
repurchase or conversion of shares of any class of Common Stock pursuant to
this Section 4. The Company shall not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issuance or
delivery of any shares of capital stock and/or other securities in a name
other than that in which the shares of such class of Common Stock so
repurchased or converted were registered, and no such issuance or delivery
shall be made unless the person requesting such issuance or delivery has
paid to the Company the amount of any such tax or has established to the
satisfaction of the Company that such tax has been paid.
(xiv) The Board of Directors may establish such rules and requirements to
facilitate the effectuation of the transactions contemplated by this
Section 4 as the Board of Directors shall determine to be appropriate.
Section 5. Inter-Group Interest and Related Transfers Between and Among
Groups.
(A) Changes in Inter-Group Interest. The Number of Shares Issuable with
Respect to the Inter-Group Interest in any Group held by any other Group shall
from time to time be:
(i) adjusted, if before such adjustment such number is greater than zero,
as determined by the Board of Directors to be appropriate to reflect
equitably any subdivision (by stock split or otherwise) or combination (by
reverse stock split or otherwise) of the class of Common Stock related to
the Group in which such Inter-Group Interest is held or any share dividend
of shares of such class of Common Stock to holders of shares of such class
of Common Stock or any reclassification of such class of Common Stock;
provided that no such adjustment shall be made to the extent any such share
dividend is paid to the holders of the class of Common Stock related to the
Group holding such Inter-Group Interest as permitted by Section 1(C);
(ii) decreased (but to not less than zero), if before such adjustment
such number is greater than zero, by action of the Board of Directors by:
(1) the number of shares of the class of Common Stock related to the
Group in which such Inter-Group Interest is held issued or sold by the
Company that, immediately prior to such issuance or sale, were included
in the Number of Shares Issuable with Respect to the Inter-Group
Interest in such Group;
(2) the number of shares of such class of Common Stock issued upon
conversion, exchange or exercise of Convertible Securities that,
immediately prior to the issuance or sale of such Convertible
Securities, were included in the Number of Shares Issuable with Respect
to the Inter-Group Interest in such Group;
(3) the number of shares of such class of Common Stock issued by the
Company as a share dividend or in connection with any reclassification
or exchange of shares, including by exchange offer, to holders of the
class of Common Stock related to the Group holding such Inter-Group
Interest;
(4) the number of shares of such class of Common Stock issued upon
the conversion, exchange or exercise of any Convertible Securities
issued by the Company as a share dividend or in connection with any
reclassification or exchange of shares, including by exchange offer, to
holders of the class of Common Stock related to the Group holding such
Inter-Group Interest;
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<PAGE>
(5) the number of shares of such class of Common Stock equal to the
product of (x) a fraction, the numerator of which is the number of
shares of such class of Common Stock repurchased or exchanged pursuant
to Section 4(C)(i)(1)(b)(II) or Section 4(F)(i)(1)(b)(II) (or any
similar provision in the Certificate of Designations creating any class
of Additional Group Stock) and the denominator of which is the number
of shares of such class of Common Stock outstanding and (y) the Number
of Shares Issuable with Respect to the Inter-Group Interest in such
Group, in each case on the record date for determining such shares
selected for such repurchase; and
(6) the number (rounded, if necessary, to the nearest whole number)
equal to the quotient of (x) the aggregate Fair Value as of the date of
(I) contribution of properties or assets (including cash) transferred
from the Group in which such Inter-Group Interest is held to the Group
holding such Inter-Group Interest or (II) transfer of liabilities from
the Group holding such Inter-Group Interest to the Group in which such
Inter-Group Interest is held, in consideration of a reduction in the
Number of Shares Issuable with Respect to the Inter-Group Interest in
the Group in which such Inter-Group Interest is held divided by (y) the
average Market Value of one share of the class of Common Stock related
to the Group in which such Inter-Group Interest is held during the
period of 30 consecutive Trading Days ending on the date of such
contribution or transfer;
(iii) increased by action of the Board of Directors by:
(1) the number of outstanding shares of the class of Common Stock
related to the Group in which such Inter-Group Interest is held
repurchased by the Company for consideration that is attributed as
provided by the definitions of the Global Crossing Group and the
GlobalCenter Group (or any similar provision in the Certificate of
Designations creating any class of Additional Group Stock) to the Group
holding such Inter-Group Interest;
(2) the number (rounded, if necessary, to the nearest whole number)
equal to the quotient of (x) the aggregate Fair Value as of the date of
(I) contribution of properties or assets (including cash) transferred
from the Group holding such Inter-Group Interest to the Group in which
such Inter-Group Interest is held or (II) transfer of liabilities from
the Group in which such Inter-Group Interest is held to the Group
holding such Inter-Group Interest, in consideration of an increase in
the Number of Shares Issuable with Respect to the Inter-Group Interest
in the Group in which such Inter-Group Interest is held, divided by (y)
the average Market Value of one share of the class of Common Stock
related to the Group in which such Inter-Group Interest is held during
the period of 30 consecutive Trading Days ending on the date of such
contribution or transfer; and
(3) the number of shares of such class of Common Stock into or for
which Convertible Securities are deemed converted, exchanged or
exercised pursuant to Section 5(C) (or any such similar provision); and
(iv) increased or decreased under such other circumstances as the Board
of Directors determines appropriate to reflect the economic substance of
any other event or circumstance; provided that, in each case, the
adjustment shall be made in a manner that is fair and equitable to holders
of Common Stock and intended to reflect the relative economic ownership of
one or more Groups in any other Group.
(B) Transfers Upon Certain Distributions. (i) From and after the payment date
of any distribution with respect to shares of any class of Common Stock, each
Group holding an Inter-Group Interest in the Group in respect of which such
class of Common Stock has been issued shall be attributed an amount of assets
or properties, previously attributed to the Group in which such Inter-Group
Interest is held, of the same kind as were paid in such distribution as have a
Fair Value on the record date for such distribution equal to the product of:
(1) the Fair Value on such record date of the aggregate distribution
to holders of shares of such class of Common Stock; and
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<PAGE>
(2) a fraction, the numerator of which is equal to the Number of
Shares Issuable with Respect to the Inter-Group Interest in such Group
held by the Group holding such Inter-Group Interest and the denominator
of which is equal to the number of outstanding shares of the class of
Common Stock related to such Group in which such Inter-Group Interest
is held, in each case, in effect on the record date for such
distribution;
provided that no such attribution shall be made in connection with the
following transactions:
(w) a repurchase pursuant to any provision similar to Section
4(C)(i)(1)(b)(II) or 4(F)(i)(1)(b)(II) (or any similar provision
contained in the Certificate of Designations creating any class of
Additional Group Stock), with respect to each of which an adjustment
shall be made as provided in Section 5(B)(ii)(5);
(x) a repurchase or conversion of such class pursuant to any
provision similar to Section 4(A), Section 4(B), Section
4(C)(i)(1)(b)(I), Section 4(C)(i)(2), Section 4(C)(iii), Section 4(D),
Section 4(E), Section 4(F)(i)(1)(b)(I), Section 4(F)(i)(2) or Section
4(F)(iii) (or any such similar provision contained in the Certificate
of Designations creating any class of Additional Group Stock);
(y) any other distribution payable on shares of such class of Common
Stock to the extent that a distribution permitted by Section 1(C) is
paid on shares of the class of Common Stock related to the Group
holding such Inter-Group Interest; and
(z) a distribution payable in securities of the Company attributed to
any Group in which an Inter-Group Interest is held for which provision
shall be made as provided in Section 5(B)(ii).
(ii) If the Company shall pay a distribution payable in securities of the
Company that are attributed to any Group in which an Inter-Group Interest
is held, each Group holding any such Inter-Group Interest shall be
attributed an interest in the Group in which such Inter-Group Interest is
held equivalent to the number or amount of such securities that is equal to
the product of:
(x) the number or amount of securities so distributed to holders of
shares of the class of Common Stock related to the Group in which such
Inter-Group Interest is held; and
(y) a fraction, the numerator of which is equal to the Number of
Shares Issuable with Respect to the Inter-Group Interest in such Group
held by the Group holding such Inter-Group Interest and the denominator
of which is equal to the number of outstanding shares of the class of
Common Stock related to such Group in which such Inter-Group Interest
is held,
in each case, in effect on the record date for such dividend or other
distribution and, to the extent interest is or dividends are paid on the
securities so distributed, each Group holding any such Inter-Group Interest
shall include a corresponding ratable amount of the kind of assets paid as such
interest or dividends as would have been paid in respect of such securities so
deemed to be held by such Group holding such Inter-Group Interest if such
securities were outstanding; provided that no such attribution shall be made in
connection with the following transactions:
(x) a repurchase pursuant to Section 4(C)(i)(1)(b)(II) or Section
4(F)(i)(1)(b)(II) (or any similar provision contained in the
Certificate of Designations creating any class of Additional Group
Stock), with respect to each of which an adjustment shall be made as
provided in Section 5(B)(ii)(5);
(y) a repurchase or conversion of such class pursuant to any
provision similar to Section 4(A), Section 4(B), Section
4(C)(i)(1)(b)(I), Section 4(C)(i)(2), Section 4(C)(iii), Section 4(D),
Section 4(E), Section 4(F)(i)(1)(b)(I), Section 4(F)(i)(2) or Section
4(F)(iii) (or any such similar provision contained in the Certificate
of Designations creating any class of Additional Group Stock); and
(z) any other distribution payable on shares of such class of Common
Stock to the extent that a distribution permitted by Section 1(C) is
paid on shares of the class of Common Stock related to the Group the
class of Common Stock related to the Group holding such Inter-Group
Interest.
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(C) Deemed Conversion of Certain Convertible Securities. The Company may (in
addition to making an adjustment pursuant to Section 5(B)(ii)), to the extent
Convertible Securities are paid as a dividend or other distribution to the
holders of any class of Common Stock and at the time are convertible into or
exchangeable or exercisable for shares of such class, treat such Convertible
Securities as are so deemed to be held by any Group holding an Inter-Group
Interest in the Group in respect of which such class of Common Stock has been
issued to be deemed to be converted, exchanged or exercised, and shall do so to
the extent such Convertible Securities are mandatorily converted, exchanged or
exercised (and to the extent the terms of such Convertible Securities require
payment of consideration for such conversion, exchange or exercise, each Group
holding such an Inter-Group Interest shall then no longer include an amount of
the kind of properties or assets required to be paid as such consideration for
the amount of Convertible Securities deemed converted, exchanged or exercised
(and such Group in respect of which such class of Common Stock is issued shall
be attributed such properties or assets)), in which case, from and after such
time, the securities into or for which such Convertible Securities so deemed to
be held by each Group holding such an Inter-Group Interest were so considered
converted, exchanged or exercised shall be deemed held by such Group and such
Convertible Securities shall no longer be deemed to be held by such Group
holding such Inter-Group Interest. A statement setting forth the election to
effectuate any such deemed conversion, exchange or exercise of Convertible
Securities so deemed to be held by such Group and the properties or assets, if
any, to be attributed to any other Group in consideration of such conversion,
exchange or exercise, if any, shall be filed in the records of the actions of
the Board of Directors and, upon such filing, such deemed conversion, exchange
or exercise shall be effectuated.
(D) Permitted Inter-Group Interests. Any Group may hold an Inter-Group
Interest in any other Group, unless with respect to any Additional Group the
Certificate of Designations creating the class of Additional Group Stock
related to such Group provides otherwise; provided that no Group may hold a
direct Inter-Group Interest in any other Group if, immediately after the
creation of such Inter-Group Interest, such two Groups would hold Inter-Group
Interests in each other.
Section 6. Application of Common Stock Terms.
(A) Certain Determinations by the Board of Directors. The Board of Directors
shall make such determinations with respect to (a) the businesses, assets,
properties and liabilities to be attributed to the Global Crossing Group and
the GlobalCenter Group and, to the extent applicable, any Additional Group, (b)
the application of the provisions of the Bye-laws of the Company (including all
schedules attached thereto) to transactions to be engaged in by the Company and
(c) the voting powers, preferences, designations, rights, qualifications,
limitations or restrictions rights of the holders of each class of Common
Stock, as may be or become necessary or appropriate to the exercise of such
voting powers, preferences, designations, rights, qualifications, limitations
or restrictions, including, without limiting the foregoing, the determinations
referred to in this Section 6. A record of any such determination shall be
filed with the records of the actions of the Board of Directors.
(i) Upon any acquisition by the Company or its subsidiaries of any
businesses, assets or properties, or any assumption of liabilities, outside
of the ordinary course of business of any Group, the Board of Directors
shall determine whether such assets, business and liabilities (or an
interest therein) shall be for the benefit of the Global Crossing Group,
the GlobalCenter Group or any Additional Group or any combination thereof
and, accordingly, shall be attributed to such Group or Groups, in
accordance with the definitions of the Global Crossing Group and the
GlobalCenter Group in Section 7 (or any other similar provision in the
Certificate of Designations creating any class of Additional Group Stock),
as the case may be.
(ii) Upon any issuance of shares of any class of Common Stock at a time
when the Aggregate Number of Shares Issuable with Respect to the Inter-
Group Interest in the Group related to such series is greater than zero,
the Board of Directors shall determine, based on the use of the proceeds of
such issuance and any other relevant factors, whether all or any part of
the shares of such series so issued shall reduce such Aggregate Number of
Shares Issuable with Respect to the Inter-Group Interest (and, if more
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than one other Group then holds an Inter-Group Interest that comprises such
Aggregate Number of Shares Issuable with Respect to the Inter-Group
Interest in such Group, the allocation of such reduction among such
Groups).
(iii) Upon any issuance by the Company or any subsidiary thereof of any
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of any class of Common Stock, if at the time such
Convertible Securities are issued the Aggregate Number of Shares Issuable
with Respect to the Inter-Group Interest in the Group related to such class
is greater than zero, the Board of Directors shall determine, based on the
use of the proceeds of such issuance and any other relevant factors,
whether, upon conversion, exchange or exercise thereof, the issuance of
shares of such class of Common Stock pursuant thereto shall, in whole or in
part, reduce such Aggregate Number of Shares Issuable with Respect to the
Inter-Group Interest (and, if more than one Group then holds an Inter-Group
Interest that comprises such Aggregate Number of Shares Issuable with
Respect to the Inter-Group Interest in such Group, the allocation of such
reduction among such Groups).
(iv) Upon any issuance of any shares of preferred stock of any series,
the Board of Directors shall attribute, based on the use of proceeds of
such issuance of shares of preferred stock in the business of one or more
Groups and any other relevant factors, the shares so issued entirely to the
Global Crossing Group, entirely to the GlobalCenter Group or entirely to
any Additional Group, or partly to any combination of the Groups, in such
proportion as the Board of Directors shall determine.
(v) Upon any repurchase or repurchase by the Company or any subsidiary
thereof of shares of preferred stock of any class or series or of other
securities or debt obligations of the Company, the Board of Directors shall
determine, based on the property used to repurchase or purchase such
shares, other securities or debt obligations, which, if any, of such
shares, other securities or debt obligations repurchased or repurchased
shall be attributed to the Global Crossing Group, to the GlobalCenter Group
or to any Additional Group, or any combination thereof, and, accordingly,
how many of the shares of such series of the preferred stock or of such
other securities, or how much of such debt obligations, that remain
outstanding, if any, are thereafter attributed to each Group.
(vi) Upon any transfer of assets or liabilities attributed to any Group
to any other Group, the consideration therefor to be attributed to the
transferring Group in exchange therefor, including, without limitation,
cash, securities or other property of such other Group or, if permitted by
Section 5(D), a decrease or an increase in the Number of Shares of Shares
Issuable with Respect to the Inter-Group Interest in such other Group, as
described in Section 5(A)(ii)(6) or Section 5(A)(iii)(2).
(vii) In connection with the creation of any Additional Group and the
issuance of Additional Group Stock in respect thereof, the Board of
Directors shall determine whether any businesses, assets, properties and/or
liabilities that are, prior to the creation of such Additional Group,
attributed to one or more other Groups shall be contributed to such
Additional Group for the attribution of such consideration as the Board of
Directors shall determine, including, without limitation, cash, securities
of such Additional Group or a Number of Shares issuable with Respect to the
Inter-Group Interest in such Additional Group.
(B) Certain Determinations Not Required. Notwithstanding the foregoing
provisions of this Section 6 or any other provision contained in a Certificate
of Designations related to any other class of Common Stock, at any time when
there are not outstanding more than one class of Common Stock (or Convertible
Securities convertible into or exchangeable or exercisable for more than one
class of Common Stock), the Company need not:
(i) attribute any of the businesses, assets, properties or
liabilities of the Company or any of its subsidiaries to the Global
Crossing Group, the GlobalCenter Group or any Additional Group; or
(ii) make any determination required in connection therewith, nor
shall the Board of Directors be required to make any of the
determinations otherwise required by this Certificate of Designations
or
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any other Certificate of Designations related to another class of
Common Stock, and in such circumstances the holders of the shares of
Global Crossing Group Stock, GlobalCenter Group Stock and any
Additional Group Stock outstanding, as the case may be, shall (unless
otherwise specifically provided by this Certificate of Designations or
any other Certificate of Designations related to another class of
Common Stock) be entitled to all the voting powers, preferences,
designations, rights, qualifications, limitations or restrictions of
common stock.
(C) Board Determinations Binding. Any determinations made in good faith by
the Board of Directors of the Company under any provision of this Section 6 or
otherwise in furtherance of the application of these resolutions shall be
final and binding on all shareholders.
Section 7. Certain Definitions and Rules of Interpretation.
As used in this Article, the following terms shall have the following
meanings (with terms defined in the singular having comparable meaning when
used in the plural and vice versa), unless the context otherwise requires. For
purposes of this Certificate of Designations, the Global Crossing Group Stock,
when issued, shall be considered issued in respect of the Global Crossing
Group and the GlobalCenter Group Stock, when issued, shall be considered
issued in respect of the GlobalCenter Group. As used in this Section 7, a
"contribution" or "transfer" of businesses, assets, properties or liabilities
from one Group to another shall refer to the reattribution of such businesses,
assets, properties or liabilities from the contributing or transferring Group
to the other Group and correlative phrases shall have correlative meanings.
"Additional Group" shall mean, as of any date, all businesses, assets,
properties and liabilities of the Company, whether at any time prior thereto
part of one or more other Groups or acquired or assumed by the Company, that
have been designated by the Board of Directors to comprise an additional
business group of the Company in respect of which the Company shall have
created and issued a class of Additional Group Stock pursuant to a Certificate
of Designations adopted by the Board of Directors or by the shareholders of
the Company in accordance with applicable law, and having terms that do not
conflict with any of the voting powers, preferences, designations, rights,
qualifications, limitations or restrictions contained in this Certificate of
Designations. Additional Group Stock may be convertible into any other class
of Common Stock on such terms as shall be determined by the Board of
Directors.
"Additional Group Stock" shall mean one or more additional classes of Common
Stock of the Company issued from time to time in respect of any Additional
Group, as provided in a Certificate of Designations adopted by the Board of
Directors or by the shareholders of the Company in accordance with applicable
law.
"Aggregate Number of Shares Issuable with Respect to the Inter-Group
Interest" shall mean, with respect to any Group at any date, the sum of each
of the Number of Shares Issuable with Respect to the Inter-Group Interest in
such Group held by all other Groups at such date.
"Available Distribution Amount" shall mean, as the context requires, a
reference to the Global Crossing Group Available Distribution Amount,
GlobalCenter Group Available Distribution Amount or, if applicable, the
available distribution amount (or comparable definition) with respect to any
Additional Group Stock.
"Board of Directors" shall mean the board of directors of the Company or a
duly authorized committee thereof.
"Common Stock" shall mean the collective reference to Global Crossing Group
Stock, GlobalCenter Group Stock and, if applicable, any Additional Group
Stock, and any of which may sometimes be called a class of Common Stock.
"Conversion Date" shall mean the date fixed by the Board of Directors as the
effective date for the conversion of shares of Global Crossing Group Stock
into shares of GlobalCenter Group Stock or, if so
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determined by the Board of Directors, Additional Group Stock, as the case may
be, or shares of GlobalCenter Group Stock into shares of Global Crossing Group
Stock or, if so determined by the Board of Directors, Additional Group Stock,
as the case may be, as shall be set forth in the notice to holders of shares
of the class of Common Stock subject to conversion and to holders of any
Convertible Securities that are convertible into or exchangeable or
exercisable for shares of such class of Common Stock required pursuant to
Section 4(H)(v).
"Convertible Securities" shall mean, at any time, any securities of the
Company or of any subsidiary thereof (other than shares of Common Stock),
including warrants and options, outstanding at such time that by their terms
are convertible into or exchangeable or exercisable for or evidence the right
to acquire any shares of any class of Common Stock, whether convertible,
exchangeable or exercisable at such time or a later time or only upon the
occurrence of certain events, but in respect of antidilution provisions of
such securities only upon the effectiveness thereof.
"Disposition" shall mean a sale, transfer, assignment or other disposition
(whether by merger, share exchange, sale or contribution of assets or stock or
otherwise) of businesses, assets, properties or liabilities (including stock,
other securities and goodwill).
"Disposition Date" shall have the meaning specified in Section 4(C)(1) or
Section 4(F)(1), as applicable.
"Excluded Transaction" shall mean, with respect to the Global Crossing Group
or the GlobalCenter Group, as applicable:
(i) the Disposition by the Company of all or substantially all of its
businesses, properties and assets in one transaction or a series of related
transactions in connection with the dissolution of the Company and the
distribution of assets to shareholders as referred to in Section 3;
(ii) the Disposition of the businesses, properties and assets of such
Group as contemplated by Section 4(B) or 4(E) or otherwise to all holders
of shares of the class of Common Stock related to such Group divided among
such holders on a pro rata basis in accordance with the number of shares of
such class of Common Stock outstanding and, to the extent that the
Aggregate Number of Shares Issuable with Respect to the Inter-Group
Interest in such Group is greater than zero, to the Company or subsidiaries
thereof, divided among such holders and the Company or subsidiaries thereof
on a pro rata basis in accordance with the number of shares of such class
of Common Stock outstanding and such Aggregate Number of Shares Issuable
with Respect to the Inter-Group Interest in the related Group;
(iii) to any person or entity controlled (as determined by the Board of
Directors) by the Company;
(iv) in connection with a Related Business Transaction in respect of such
Group; or
(v) a Disposition conditioned upon the affirmative vote of a majority of
the votes cast by the holders of the class of Common Stock related to such
Group, voting as a separate class.
"Fair Value" shall mean:
(i) in the case of equity securities or debt securities of a class or
series that has previously been Publicly Traded for a period of at least
, the Market Value thereof (if such Market Value, as so defined, can be
determined);
(ii) in the case of equity securities or debt securities of a class or
series that has not previously been Publicly Traded for a period of at
least or the Market Value of which cannot be determined, the fair
value per share of stock or per other unit of such security, on a fully
distributed basis, as determined in good faith by the Board of Directors;
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(iii) in the case of cash denominated in U.S. dollars, the face amount
thereof and, in the case of cash denominated in other than U.S. dollars,
the face amount thereof repurchased into U.S. dollars at the rate published
in The Wall Street Journal on the date for the determination of Fair Value
or, if not so published, at such rate as shall be determined in good faith
by the Board of Directors based upon such information as the Board of
Directors shall in good faith determine to be appropriate; and
(iv) in the case of property other than securities or cash, the "Fair
Value" thereof shall be determined in good faith by the Board of Directors,
which determination may be based upon such appraisals or valuation reports
of such independent experts as the Board of Directors shall in good faith
determine to be appropriate.
Any such determination of Fair Value shall be described in a statement filed
with the records of the actions of the Board of Directors.
"Global Crossing Group" shall mean, as of any date:
(i) the interest of the Company or any of its subsidiaries on such date
in all of the businesses, assets, properties and liabilities of the Company
or any of its subsidiaries (and any successor companies), other than any
businesses, assets, properties and liabilities attributed to the
GlobalCenter Group or any other Group in accordance with this Certificate
of Designations or any other Certificate of Designations related to another
class of Common Stock;
(ii) all businesses, assets, properties and liabilities transferred to
the Global Crossing Group from the GlobalCenter Group or any other Group
(other than in a transaction pursuant to clause (iv) below) pursuant to
transactions in the ordinary course of business of the Global Crossing
Group and the GlobalCenter Group or such other Group or otherwise as the
Board of Directors may have directed;
(iii) a proportionate undivided interest in each and every business,
asset, property and liability attributed to the GlobalCenter Group or any
other Group equal to the Inter-Group Interest in the GlobalCenter Group or
such other Group, in each case held by the Global Crossing Group as of such
date;
(iv) all businesses, assets, properties and liabilities transferred to
the Global Crossing Group from the GlobalCenter Group or any other Group in
connection with an increase in the Inter-Group Interest in the Global
Crossing Group held by the GlobalCenter Group or such other Group;
(v) all businesses, assets, properties and liabilities transferred to the
Global Crossing Group from the GlobalCenter Group or any other Group in
connection with a decrease in the Inter-Group Interest in the GlobalCenter
Group or such other Group, in each case held by the Global Crossing Group;
(vi) the interest of the Company or any of its subsidiaries in any
business, asset or property acquired and any liabilities assumed by the
Company or any of its subsidiaries and attributed to the Global Crossing
Group, as determined by the Board of Directors as contemplated by Section
6(A);
(vii) any assets or properties, including securities, attributed to the
Global Crossing Group pursuant to Section 5(B) or Section 5(C); and
(viii) all net income and net losses arising in respect of the foregoing
and proceeds of the Disposition thereof;
provided that from and after any permitted transfer of any businesses, assets,
properties or liabilities from the Global Crossing Group to one or more other
Groups, the Global Crossing Group shall no longer include such businesses,
assets, properties or liabilities so contributed or transferred (other than as
reflected, to the extent applicable, in respect of such a transfer by the
Inter-Group Interest in such other Group or Groups held by the Global Crossing
Group); and provided further that, subject to Section 6(B), in the event that
shares of Global
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Crossing Group Stock are converted into shares of another class of Common Stock
pursuant to Section 4(A), Section 4(B)(i)(2) or Section 4(B)(iii), the
businesses, assets, properties and liabilities attributed to the Global
Crossing Group immediately prior to the Conversion Date shall become
businesses, assets, properties and liabilities attributed to the Group related
to the class of Common Stock into which Global Crossing Group Stock is
converted on the Conversion Date.
"Global Crossing Group Available Distribution Amount" shall mean, on any
date, the product of:
(i) the Outstanding Interest Fraction with respect to Global Crossing
Group Stock; and
(ii) the lesser of:
(x) any amount in excess of the minimum amount necessary to pay debts
attributed to the Global Crossing Group as they become due in the usual
course of business; and
(y) the realisable value of the assets attributed to the Global
Crossing Group less the sum of the total liabilities attributed to the
Global Crossing Group together with the amount of the issued share
capital and share premium account attributable to the Global Crossing
Group.
Notwithstanding the foregoing, and consistent with Section 6(B), at any time
when there are not outstanding both:
(i) one or more shares of Global Crossing Group Stock or Convertible
Securities convertible into or exchangeable or exercisable for Global
Crossing Group Stock; and
(ii) one or more shares of GlobalCenter Group Stock or Additional Group
Stock or Convertible Securities convertible into or exchangeable or
exercisable for GlobalCenter Group Stock or Additional Group Stock,
the "Available Distribution Amount," on any calculation date during such time
period, with respect to the Global Crossing Group Stock, the GlobalCenter Group
Stock or Additional Group Stock, as the case may be (depending on which of such
class of Common Stock or Convertible Securities convertible into or
exchangeable or exercisable for such class of Common Stock is outstanding),
shall mean the amount available for the payment of dividends on such Common
Stock in accordance with law.
"GlobalCenter Group" shall mean, as of any date:
(i) all businesses, assets, properties and liabilities of GlobalCenter
Inc. and its subsidiaries and any assets of the foregoing as of the Initial
Issuance Date (the "GlobalCenter Group Companies");
(ii) all businesses, assets, properties and liabilities of the Company
and its subsidiaries attributed by the Board of Directors to the
GlobalCenter Group, whether or not such businesses, assets, properties or
liabilities are or were also businesses, assets, properties and liabilities
of any of the GlobalCenter Group Companies;
(iii) all businesses, assets, properties and liabilities transferred to
the GlobalCenter Group from the Global Crossing Group or any other Group
(other than in a transaction pursuant to clause (v) below) pursuant to
transactions in the ordinary course of business of the GlobalCenter Group
and the Global Crossing Group or such other Group or otherwise as the Board
of Directors may have directed;
(iv) a proportionate undivided interest in each and every business,
asset, property and liability attributed to the Global Crossing Group or
any other Group equal to the Inter-Group Interest in the Global Crossing
Group or such other Group, in each case held by the GlobalCenter Group as
of such date;
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(v) all businesses, assets, properties and liabilities transferred to the
GlobalCenter Group from the Global Crossing Group or any other Group in
connection with an increase in the Inter-Group Interest in the GlobalCenter
Group held by the Global Crossing Group or such other Group;
(vi) all businesses, assets, properties and liabilities transferred to
the GlobalCenter Group from the Global Crossing Group or any other Group in
connection with a decrease in the Inter-Group Interest in the Global
Crossing Group or such other Group, in each case held by the GlobalCenter
Group;
(vii) the interest of the Company or any of its subsidiaries in any
business, asset or property acquired and any liabilities assumed by the
Company or any of its subsidiaries and attributed to the GlobalCenter
Group, as determined by the Board of Directors as contemplated by Section
6(A);
(viii) any assets, or properties, including securities, attributed to the
GlobalCenter Group pursuant to Section 5(B) or Section 5(C); and
(ix) all net income and net losses arising in respect of the foregoing
and proceeds of the Disposition thereof;
provided that from and after any permitted transfer of any businesses, assets,
properties or liabilities from the GlobalCenter Group to one or more other
Groups, the GlobalCenter Group shall no longer include such businesses, assets,
properties or liabilities so contributed or transferred (other than as
reflected, to the extent applicable, in respect of such a transfer by the
Inter-Group Interest in such other Group or Groups held by the GlobalCenter
Group); and provided further, subject to Section 6(B), that in the event the
shares of GlobalCenter Group Stock are converted into shares of another class
of Common Stock pursuant to Section 4(D), Section 4(E)(i)(2) or Section
4(E)(iii), the businesses, assets, properties and liabilities attributed to the
GlobalCenter Group immediately prior to the Conversion Date shall become
businesses, assets, properties and liabilities attributed to the Group related
to the class of Common Stock into which GlobalCenter Group Stock is converted
on the Conversion Date.
"GlobalCenter Group Available Distribution Amount" shall mean, on any date
the product of:
(i) the Outstanding Interest Fraction with respect to GlobalCenter Group
Stock; and
(ii) the lesser of:
(x) any amount in excess of the minimum amount necessary to pay debts
attributed to the GlobalCenter Group as they become due in the usual
course of business; and
(y) the realisable value of the assets attributed to the GlobalCenter
Group less the sum of the total liabilities attributed to the
GlobalCenter Group together with the amount of the issued share capital
and share premium account attributable to the GlobalCenter Group.
Notwithstanding the foregoing, and consistent with Section 6(B), at any time
when there are not outstanding both:
(i) one or more shares of GlobalCenter Group Stock or Convertible
Securities convertible into or exchangeable or exercisable for GlobalCenter
Group Stock; and
(ii) one or more shares of Global Crossing Group Stock or Additional
Group Stock or Convertible Securities convertible into or exchangeable or
exercisable for Global Crossing Group Stock or Additional Group Stock,
the "Available Distribution Amount," on any calculation date during such time
period, with respect to the GlobalCenter Group Stock, the Global Crossing Group
Stock or Additional Group Stock, as the case may be
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(depending on which of such class of Common Stock or Convertible Securities
convertible into or exchangeable or exercisable for such class of Common Stock
is outstanding), shall mean the amount available for the payment of dividends
on such Common Stock in accordance with law.
"Group" shall mean, as of any date, the Global Crossing Group, the
GlobalCenter Group or, if applicable, any Additional Group, as the case may
be.
"Initial Issuance Date" shall mean the date of first issuance of
GlobalCenter Group Stock.
"Inter-Group Interest" shall mean, as of any date with respect to any Group,
the Number of Shares Issuable with Respect to the Inter-Group Interest in any
other Group that are permitted to be held or held, as applicable, as of such
date by such first Group.
"Market Capitalization" shall mean, with respect to any class or series of
capital stock on any date, the product of:
(i) the Market Value of one share of such class or series of capital
stock on such date; and
(ii) the number of shares of such class or series of capital stock
outstanding on such date.
"Market Value" shall mean, with respect to a share of any class or series of
capital stock of the Company on any day,
(i) the average of the high and low reported sales prices regular way of
a share of such class or series on such Trading Day; or
(ii) in case no such reported sale takes place on such Trading Day, the
average of the reported closing bid and asked prices regular way of a share
of such class or series on such Trading Day, in either case as reported on
the New York Stock Exchange Composite Tape; or
(iii) if the shares of such class or series are not listed or admitted to
trading on such Exchange on such Trading Day, on the principal national
securities exchange in the United States on which the shares of such class
or series are listed or admitted to trading; or
(iv) if not listed or admitted to trading on any national securities
exchange on such Trading Day, on the NASDAQ National Market; or
(v) if the shares of such class or series are not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ National
Market on such Trading Day, the average of the closing bid and asked prices
of a share of such class or series in the over-the-counter market on such
Trading Day, as furnished by any New York Stock Exchange member firm
selected from time to time by the Company; or
(vi) if such closing bid and asked prices are not made available by any
such New York Stock Exchange member firm on such Trading Day, the Fair
Value of a share of such class or series as set forth in clause (ii) of the
definition of Fair Value;
provided that, for purposes of determining the Market Value of a share of any
class or series of capital stock for any period:
(x) the "Market Value" of a share of capital stock on any day prior to
any "ex-dividend" date or any similar date occurring during such period for
any dividend or distribution (other than any dividend or distribution
contemplated by clause (y)(2) of this sentence) paid or to be paid with
respect to such capital stock shall be reduced by the Fair Value of the per
share amount of such dividend or distribution; and
(y) the "Market Value" of any share of capital stock on any day prior to:
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(1) the effective date of any subdivision (by stock split or
otherwise) or combination (by reverse stock split or otherwise) of
outstanding shares of such class or series of capital stock occurring
during such period; or
(2) any "ex-dividend" date or any similar date occurring during such
period for any dividend or distribution with respect to such capital
stock to be made in shares of such class or series of capital stock or
Convertible Securities that are convertible, exchangeable or
exercisable for such class or series of capital stock;
shall be appropriately adjusted, as determined by the Board of Directors,
to reflect such subdivision, combination, dividend or distribution.
"Net Proceeds" shall mean, as of any date with respect to any Disposition of
any of the businesses, assets, properties and liabilities attributed to either
the Global Crossing Group or the GlobalCenter Group, an amount, if any, equal
to what remains of the gross proceeds of such Disposition after payment of, or
reasonable provision is made as determined by the Board of Directors for:
(i) any taxes the Company estimates will be payable by the Company (or
which the Company estimates would have been payable but for the utilization
of tax benefits attributable to any other Group) in respect of such
Disposition or in respect of any resulting dividend or repurchase pursuant
to Section 4(C)(i)(1)(a), 4(C)(i)(1)(b), Section 4(F)(i)(1)(a) or
4(F)(i)(1)(b);
(ii) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses; and
(iii) any liabilities (contingent or otherwise) of or attributed to such
Group, including, without limitation, any liabilities for deferred taxes or
any indemnity or guarantee obligations of the Company incurred in
connection with the Disposition or otherwise, and any liabilities for
future purchase price adjustments and any preferential amounts plus any
accumulated and unpaid dividends in respect of the preferred stock
attributed to such Group.
For purposes of this definition, any businesses, properties and assets
attributed to the Group subject to such Disposition that remain after such
Disposition shall constitute "reasonable provision" for such amount of taxes,
costs and liabilities (contingent or otherwise) as the Board of Directors
determines can be expected to be supported by such businesses, properties and
assets.
"Number of Shares Issuable with Respect to the Inter-Group Interest" in any
Group held by any other Group shall be the number of shares of the class of
Common Stock related to the Group in which the Inter-Group Interest is held
that are deemed to be held from time to time by such other Group. The Number of
Shares Issuable with Respect to the Inter-Group Interest shall initially be:
(i) with respect to the Global Crossing Group Stock, zero;
(ii) with respect to the GlobalCenter Group Stock, , all of which shall
be deemed held by the Global Crossing Group; and
(ii) with respect to any Additional Group Stock, as set forth in or
pursuant to the Certificate of Designations creating such class of
Additional Group Stock,
in each case as adjusted, increased or decreased from time to time pursuant to:
(x) with respect to Global Crossing Group Stock and the GlobalCenter
Group Stock, Section 5; and
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(y) with respect to any Additional Group with respect to the Number
of Shares Issuable with Respect to the Inter-Group Interest in the
Global Crossing Group or the GlobalCenter Group held by such Additional
Group, and the Number of Shares Issuable with Respect to the Inter-
Group Interest in such Additional Group held by the Global Crossing
Group or the GlobalCenter Group, Section 5 and the Certificate of
Designations creating such class of Additional Group Stock.
"Outstanding Interest Fraction" shall mean, as of any date with respect to
Global Crossing Group Stock, GlobalCenter Group Stock or any Additional Group
Stock, as the case may be, the fraction (which may simplify to 1/1), the
numerator of which shall be the number of outstanding shares of such class of
Common Stock on such date and the denominator of which shall be the sum of the
number of outstanding shares of such class of Common Stock on such date and the
Aggregate Number of Shares Issuable with Respect to the Inter-Group Interest in
the Group related to such class of Common Stock on such date. A statement
setting forth the Outstanding Interest Fraction for any class of Common Stock
as of the record date for the payment of any dividend or distribution on any
class of Common Stock and as of the end of each fiscal quarter of the Company
shall be filed by the Secretary of the Company in the records of the actions of
the Board of Directors not later than ten days after such date.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Publicly Traded" shall mean, with respect to any security:
(i) registered under Section 12 of the Securities Exchange Act of 1934,
as amended (or any successor provision of law); and
(ii) listed for trading on the New York Stock Exchange or the America
Stock Exchange (or any national securities exchange registered under
Section 7 of the Securities Exchange Act of 1934, as amended (or any
successor provision of law), that is the successor to either such exchange)
or quoted in the NASDAQ National Market (or any successor market system).
"Related Business Transaction" shall mean any Disposition of all or
substantially all of the businesses, assets, properties and liabilities
attributed to the Global Crossing Group or the GlobalCenter Group, as the case
may be, in a transaction or series of related transactions that result in the
Company, one or more of its Subsidiaries or the holders of Common Stock
receiving in consideration of such businesses, assets, properties and
liabilities primarily equity securities (including, without limitation, capital
stock, debt securities convertible into or exchangeable for equity securities
or interests in a general or limited partnership or limited liability company,
without regard to the voting power or other management or governance rights
associated therewith) of any entity which:
(i) acquires such assets or properties or succeeds (by merger, formation
of a joint venture or otherwise) to the business conducted with such assets
or properties or controls such acquiror or successor; and
(ii) the Board of Directors determines is primarily engaged or proposes
to engage primarily in one or more businesses similar or complementary to
the businesses conducted by such Group prior to such Disposition.
"Repurchase Date" shall mean the date fixed by the Board of Directors as the
effective date for a repurchase of shares of any class of Common Stock, as set
forth in a notice to holders thereof required pursuant to Section 4(H)(iii),
Section 4(H)(iv) or Section 4(H)(vi).
"Subsidiary" shall mean, with respect to any Person, any corporation, limited
liability company or partnership 50% or more of whose outstanding voting
securities or membership or partnership interests, as the case may be, are,
directly or indirectly, owned by such Person.
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"Substantially all of the business, properties and assets" shall have the
meaning specified in Section 4(C)(ii) or Section 4(F)(ii), as applicable.
"Tax Event" shall mean receipt by the Company of an opinion of tax counsel
to the effect that, as a result of (a) any amendment to, clarification of, or
change or proposed change in, the laws, or interpretation or application of
the laws, of Bermuda or the United States or any political subdivision or
taxing authority thereof or therein (including, but not limited to, the
enactment of any legislation, the publication of any judicial or regulatory
decision, determination or pronouncement or any announced proposed change in
law by an applicable legislative committee or the chair thereof (but not
including a legislative proposal by an administration until acted upon by the
applicable legislative committee or chair thereof)), regardless of whether
such amendment, clarification, change or proposed change is issued to or in
connection with a proceeding involving the Company, the Global Crossing Group
or the GlobalCenter Group and whether or not subject to appeal, there is more
than an insubstantial risk that:
(b)(i) any issuance of Global Crossing Group Stock or GlobalCenter Group
Stock would be treated for tax purposes as a sale or other taxable
disposition by the Company or any of its subsidiaries of any of the assets,
operations or relevant subsidiaries to which the Global Crossing Group
Stock or GlobalCenter Group Stock relates;
(ii) the issuance or existence of Global Crossing Group Stock or
GlobalCenter Group Stock would subject the Company, its subsidiaries or
affiliates, or any of their respective successors or shareholders, to the
imposition of tax or to other adverse tax consequences that, in the
reasonable discretion and good faith of the Company, are more than de
minimis; or
(iii) either Global Crossing Group Stock or GlobalCenter Group Stock is
not or, at any time in the future will not be, treated for tax purposes
solely as common stock of the Company.
For purposes of rendering such an opinion, tax counsel will assume that any
such legislative or administrative proposals will be adopted or enacted as
proposed. For the avoidance of doubt, a tax event does not include the
occurrence of any of the events listed in (a) above, if, as a result of a
"grandfathering" provision, such event results in not more than an
insubstantial risk that the issuance or existence of either Global Crossing
group stock or GlobalCenter group stock would result in any of the
consequences described in (b) above.
"Trading Day" shall mean each weekday other than any day on which the
relevant class of Common Stock of the Company is not traded on any national
securities exchange or quoted on the NASDAQ National Market or otherwise in
the over-the-counter market.
Section 8. Headings. The headings of the paragraphs of this Schedule are for
convenience of reference only and shall not define, limit or affect any of the
provisions hereof.
Section 9. Bye-Laws. This Schedule shall be attached to the Bye-Laws of the
Company but shall not form part of such Bye-Laws.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be duly signed on its behalf on this day of , 2000.
GLOBAL CROSSING LTD., a company
incorporated under the laws of
Bermuda
By:
----------------------------------
Name:
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ANNEX III
POLICY STATEMENT REGARDING
GLOBAL CROSSING TRACKING STOCK AND GLOBALCENTER TRACKING STOCK MATTERS
1. General Policy
It is the policy of the Board of Directors of Global Crossing Ltd. ("Global
Crossing") that:
(A) all material matters as to which the holders of Global Crossing Group
Stock and GlobalCenter Group Stock may have potentially divergent interests
shall be resolved in a manner that the Board of Directors or the Capital
Stock Committee of the Board of Directors determines to be in the best
interests of Global Crossing, after giving fair consideration to the
potentially divergent interests and all other relevant interests of the
holders of the separate series of Common Stock of Global Crossing; and
(B) a process of fair dealing will govern the relationship and the means
by which the terms of any material transaction between the Groups will be
determined.
2. Role of Capital Stock Committee
The Capital Stock Committee will have and exercise such powers, authority and
responsibilities as the Board may delegate to such Committee, which will
initially include authority to (a) interpret, make determinations under, and
oversee the implementation of these policies, (b) adopt additional general
policies governing the relationship between the Global Crossing Group and the
GlobalCenter Group, and (c) engage the services of accountants, investment
bankers, appraisers, attorneys and other service providers to assist it in
discharging its duties. In making determinations in connection with these
policies, the members of the Board and the Capital Stock Committee will act in
a fiduciary capacity and pursuant to legal guidance concerning their respective
obligations under applicable law.
3. Corporate Opportunities
The Board of Directors will allocate any business opportunities and
operations, any acquired assets and businesses and any assumed liabilities
between the Global Crossing Group and the GlobalCenter Group, in whole or in
part, in a manner it considers to be in the best interests of Global Crossing
as contemplated by this Policy Statement. To the extent a business opportunity
or operation, an acquired asset or business, or an assumed liability would be
suitable to be undertaken by or allocated to either Group, it will be allocated
by the Board of Directors in its business judgment or in accordance with
procedures adopted by the Board of Directors from time to time to ensure that
decisions will be made in the best interests of Global Crossing. Any such
allocation may involve the consideration of a number of factors that the Board
of Directors determines to be relevant, including, without limitation, whether
the business opportunity or operation, the acquired asset or business, or the
assumed liability is principally within or related to the existing scope of a
Group's business and whether a Group is better positioned to undertake or have
allocated to it such business opportunity or operation, acquired assets or
business or assumed liability.
4. Relationships Between Groups
Global Crossing will seek to manage the Global Crossing Group and the
GlobalCenter Group in a manner designed to maximize the operations, unique
assets and values of both Groups, and with complementary deployments of
personnel, capital and facilities.
(A) Exclusive Provision of Services
(i) The Global Crossing Group will be the exclusive provider of GBLX
Services to the GlobalCenter Group. As such, the Global Crossing Group will
have the exclusive right to provide GBLX Services and related products and
services to the GlobalCenter Group.
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For purposes of the foregoing, "GBLX Services" means:
(a) Internet Protocol transit service.
(b) Dedicated Internet access.
(c) Dial Internet access.
(d) IP virtual private network.
(e) IP exchange services--conditioned space for GBLX customers'
routers for interconnection with GBLX and other provider networks.
(ii) The GlobalCenter Group will be the exclusive provider of GCTR
Services to the Global Crossing Group. As such, the GlobalCenter Group will
have the exclusive right to provide GCTR Services and related products and
services to the Global Crossing Group.
For purposes of the foregoing, "GCTR Services" means:
(a) Complex web hosting--Data Centers conditioned space and related
services.
(b) Data Center professional services--consulting, engineering, and
other technology support services.
(c) Data Center equipment hardware and software sales and support.
(d) Value added services to support hosting and distribution,
including but not limited to:
. Storage-on-demand
. Database
. Security
. Consulting services
. Disaster recovery
. Application hosting
. Monitoring
. Staging, sparing and laboratory test services
. Managed services
(B) Network and Service Management
(i) Network and Services Management Committee.
A committee of three senior executives from each Group will be formed
to provide management and direction designed to fully implement this
Policy with respect to the various services to be provided by one Group
to the other (the "Network and Services Management Committee"). In
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particular, the Network and Services Management Committee will (1)
review and agree on data center bandwidth requirements by location and
volume, (2) review and agree on network expansion plans as required to
support the data centers and (3) establish service level targets for
the data center connections and track performance against those
targets.
(ii) Service Level Agreement.
Each Group will guarantee a level of service for the services it
provides to the other Group that meets the standards committed to by
the other Group to its customers and which have been approved by the
Network and Services Management Committee.
(iii) Monitoring.
The GlobalCenter Group will have the right to monitor from its Data
Center the related portion of the Global Crossing Internet Protocol
network that the GlobalCenter Group relies upon to provide services to
its customers as part of an integrated service offering. The monitoring
rights will give the GlobalCenter Group the capability to view and
monitor the end-to-end service in the same manner that the Global
Crossing Group views the network. As determined by the Network and
Services Management Committee, the GlobalCenter Group will either
become one of or have the same monitoring capabilities as one of the
Global Crossing network operations centers.
(C) Terms of Inter-Group Transactions. All material transactions in the
ordinary course of business between the Global Crossing Group and the
GlobalCenter Group, including those described in Paragraph 4(A), are intended,
to the extent practicable, to be on terms consistent with those that would be
applicable to arm's-length dealings with unrelated third parties, taking into
account a number of factors, including quality, availability, volume and
pricing. In particular, the pricing for the access to its network provided by
the Global Crossing Group to the GlobalCenter Group will be preferred market-
based pricing, taking into account volume, term, the exclusive nature of the
arrangement and any guarantee of service levels provided by the Global Crossing
Group.
(D) Marketing of Services. As a general matter, each Group will continue to
design, develop, deploy, produce, market, sell and service their own service
offerings and choose their own selected sales channels. In addition, each Group
will cooperate with the other in providing the use of their respective sales
channels to offer their respective services. Each Group will operate in a
manner that takes into account the other's expansion, acquisition, deployment,
marketing and sales plans, with the goal of minimizing overlaps and conflicts
between the two Groups.
(E) Other Transfer of Assets and Liabilities. Global Crossing may reallocate
assets (including cash) and liabilities between the Global Crossing Group and
the GlobalCenter Group in addition to transfers resulting from commercial
transactions in the ordinary course of business of the Groups described in
Paragraph 4(C). Any reallocation of assets and liabilities between the Groups
not in the ordinary course of their respective businesses shall be effected by:
(i) the reallocation by the transferee Group to the transferor Group of
other assets or consideration or liabilities;
(ii) the creation of inter-group debt owed by the transferee Group to the
transferor Group;
(iii) the reduction of inter-group debt owed by the transferor Group to
the transferee Group;
(iv) the creation of, or an increase in, an Inter-Group Interest in the
transferee Group held by the transferor Group;
(v) the reduction of an Inter-Group Interest in the transferor Group held
by the transferee Group; or
(vi) a combination of any of the foregoing,
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in each case, in an amount having a fair value equivalent to the fair value of
the assets or liabilities reallocated by the transferor Group and, in the case
of the creation of or an increase or decrease in an Inter-Group Interest, in
accordance with the provisions of the Certificate of Designations. The Board of
Directors will approve any creation of, or increase or decrease in, an Inter-
Group Interest.
(F) Cash Management. Global Crossing will continue to manage most financial
activities on a centralized basis. These activities include the investment of
surplus cash, the issuance and repayment of debt and the issuance and
repurchase of Common Stock and preferred stock for the account of each Group.
(G) Financing Arrangements. Loans from the Global Crossing or the
GlobalCenter Group to the other Group will be made at the weighted average
interest rate of the consolidated indebtedness of Global Crossing Ltd. and on
such other terms and conditions as the Board of Directors or the Capital Stock
Committee of the Board of Directors determines to be in the best interests of
Global Crossing. Any fees incurred in connection with debt incurred for a
particular Group will be allocated to the borrowing Group.
(H) Intellectual Property. Global Crossing will manage on a centralized basis
the intellectual property of Global Crossing attributed to the Groups, except
that the GlobalCenter Group will manage the intellectual property attributed to
it that is owned by the companies in the GlobalCenter Group.
Each Group will have the right to use the intellectual property attributed to
the other Group for appropriate business activities on appropriate terms.
Any fees obtained through the sale or licensing of intellectual property will
be principally allocated to the Group that paid to develop the intellectual
property sold or licensed. If the intellectual property being sold or licensed
was jointly developed by the Groups and the Groups agree to allocate fees
obtained in proportion to the development costs incurred by each Group, then
any fees obtained through the sale or licensing will be so allocated. If such
intellectual property was not predominantly developed by any one Group or was
jointly developed by the Groups but the Groups do not agree to allocate fees
obtained in proportion to costs incurred, then any fees obtained through such
sale or licensing will be allocated using the same general allocation as
overhead expenses.
5. Dividend Policy
Subject to the limitations set forth in the Certificate of Designations, any
preferential rights of any series of preferred stock of Global Crossing, and to
the limitations of applicable law, holders of shares of Global Crossing Stock
or GlobalCenter Stock will be entitled to receive dividends on such stock when,
as and if authorized and declared by the Board of Directors.
The payment of dividends on either class of Common Stock will be a business
decision to be made by the Board of Directors from time to time based upon the
results of operations, financial condition and capital requirements of the
relevant Group and such other factors as the Board of Directors considers
relevant. Payment of dividends may be restricted by loan agreements, indentures
and other transactions entered into by Global Crossing from time to time.
Because both Groups are expected to require significant capital commitments to
finance their respective operations and fund future growth, Global Crossing
does not expect to pay any dividends on either class of Common Stock for the
foreseeable future.
6. Financial Reporting; Allocation Matters
(A) Financial Reporting. Global Crossing will prepare and include in its
filings with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, consolidated financial statements of Global
Crossing and combined financial statements of each of the Global Crossing Group
and the GlobalCenter Group (for so long as the related class of Common Stock is
outstanding). The combined financial
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statements of each Group will reflect the combined financial position, results
of operations and cash flows of the businesses attributed thereto and in the
case of annual financial statements shall be audited.
(B) Shared Corporate Services. A portion of Global Crossing's shared
corporate services (such as executive management, human resources, legal,
accounting and auditing, tax, treasury, strategic planning, investor relations
and corporate technology) will be allocated to the Global Crossing Group and
the GlobalCenter Group based upon specific identification of such services used
by that Group. Where determinations based on use alone are impracticable, other
methods and criteria shall be used that management believes are fair and
provide a reasonable estimate of the cost attributable to the Groups.
7. GlobalCenter Inc. Board of Directors
The board of directors of GlobalCenter Inc. shall at all times be composed of
six directors nominated by the Board of Directors of Global Crossing Ltd. and
five directors nominated by the Chief Executive Officer of GlobalCenter Inc.
The board of directors of GlobalCenter Inc. shall have the authority to:
(i) appoint officers of GlobalCenter Inc.;
(ii) approve the budget of the GlobalCenter Group;
(iii) approve any acquisitions of businesses that are attributed to the
GlobalCenter Group;
(iv) approve the incurrence of indebtedness at GlobalCenter Inc. of up to
25% of the market capitalization of GlobalCenter group stock; and
(v) approve the issuance of capital stock of GlobalCenter Inc. or the
issuance of GlobalCenter group stock by Global Crossing Ltd.
With respect to the last three items, the board of directors of GlobalCenter
Inc. shall only have such authority to the extent that such actions would not
have any adverse effect on Global Crossing Ltd.
8. Amendment and Modification of Policy
This Policy Statement and any resolution implementing the provisions hereof
may at any time and from time to time be amended, modified or rescinded by the
Board of Directors, and the Board of Directors may adopt additional or other
policies or make exceptions with respect to the application of these policies
in connection with particular facts and circumstances, all as the Board of
Directors may determine, consistent with its fiduciary duties to Global
Crossing.
9. Definitions
Capitalized terms not defined in this Policy Statement shall have the
meanings set forth in the Certificate of Designations. "Certificate of
Designations" means the Certificate of Designations of Global Crossing Group
Stock and GlobalCenter Group Stock, as amended from time to time.
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ANNEX IV
GLOBALCENTER INC. MANAGEMENT STOCK PLAN
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ANNEX V
GLOBALCENTER INC. 2000 STOCK PLAN
V-1
