<PAGE>
As filed with the Securities and Exchange Commission on April 19, 2000
Registration No.: 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Global Crossing Ltd.
(Exact name of registrant as specified in its charter)
---------------
<TABLE>
<CAPTION>
Bermuda 4813 98-0189783
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
Wessex House CT Corporation
45 Reid Street 1633 Broadway
Hamilton HM12, Bermuda New York, New York 10019
Telephone: (441) 296-8600 Telephone: (212) 479-8200
(Address including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of
agent
principal executive office) for service)
</TABLE>
---------------
Copies to:
<TABLE>
<S> <C> <C>
TODD H. BAKER, ESQ. ANDREW R. KELLER, ESQ. WILLIAM H. HINMAN, ESQ.
Gibson, Dunn & Crutcher LLP Simpson Thacher & Bartlett Shearman & Sterling
One Montgomery Street, 26th Floor 425 Lexington Avenue 555 California Street
San Francisco, CA 94104 New York, New York 10017 San Francisco, CA 94104
Telephone: (415) 393-8200 Telephone: (212) 455-2000 Telephone: (415) 616-1221
Facsimile: (415) 986-5309 Facsimile: (212) 455-2502 Facsimile: (415) 616-1199
</TABLE>
---------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
---------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Aggregate
Title of Each Class of Securities to be Offering Amount of
Registered Price(1) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
GlobalCenter group stock, $.01 par val-
ue(1)..................................... $100,000,000 $26,400
- ------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 2000
Shares
[Logo Global Crossing]
GlobalCenter Group Stock
-----------
Global Crossing Ltd. is offering shares of a new class of its common stock
intended to reflect the separate performance of GlobalCenter, its Web hosting
and related Internet infrastructure solutions business. This is the initial
public offering of GlobalCenter group stock, and no public market currently
exists for these shares. We anticipate that the initial public offering price
will be between $ and $ per share.
-----------
We have applied for quotation of GlobalCenter group stock on the Nasdaq
National Market under the symbol "GCTR."
-----------
Investing in GlobalCenter group stock involves risks. See "Risk Factors"
beginning on page 14.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions GlobalCenter
-------- ---------------------- --------------
<S> <C> <C> <C>
Per Share................. $ $ $
Total..................... $ $ $
</TABLE>
Global Crossing Ltd. has granted the underwriters the right to purchase up to
an additional shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined whether this prospectus
is complete or truthful. Any representation to the contrary is a criminal
offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON CHASE H&Q
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 14
Cautionary Language Concerning Forward-Looking Statements................ 31
Use of Proceeds.......................................................... 32
Dividend Policy.......................................................... 32
Capitalization........................................................... 33
Selected Historical Combined Financial Data of the GlobalCenter Group ... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations of the GlobalCenter Group................................. 36
Business of the GlobalCenter Group....................................... 42
Management of GlobalCenter Inc. ......................................... 53
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Selected Historical Financial Data of Global Crossing Ltd. .............. 61
Relationship Between the GlobalCenter Group and the Global Crossing
Group................................................................... 66
Description of Capital Stock............................................. 72
Certain United States Federal Income Tax and Bermuda Tax Consequences.... 92
Underwriters............................................................. 98
Legal Matters............................................................ 100
Experts.................................................................. 100
Where You Can Find More Information...................................... 101
Incorporation by Reference............................................... 101
GlobalCenter Group Index to Combined Financial Statements................ F-1
</TABLE>
----------------
Global Crossing Ltd. is a Bermuda corporation. Its principal executive
offices are located at 360 N. Crescent Drive, Beverly Hills, California and
its telephone number at that address is (310) 385-5200. GlobalCenter's
principal executive offices are located at 141 Caspian Court, Sunnyvale,
California and its telephone number at that address is (408) 543-4700.
GlobalCenter's Web address is http://www.globalcenter.net. Global Crossing
Ltd.'s Web address is http://www.globalcrossing.com. The information on
GlobalCenter's Web site and Global Crossing Ltd.'s Web site is not part of
this prospectus.
You should rely only on the information contained in this prospectus.
Global Crossing Ltd. has not authorized anyone to provide you with information
different from that which is contained in this prospectus. Global Crossing
Ltd. is offering to sell shares of GlobalCenter group stock and is seeking
offers to buy shares of GlobalCenter group stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the GlobalCenter group stock.
GlobalCenter and the GlobalCenter logo are our registered service marks.
All other trademarks, service marks or tradenames referred to in this
prospectus are the property of their respective owners.
Prior to the offering, the consent of the Bermuda Monetary Authority to the
issue and the transfer of the securities that Global Crossing Ltd. may issue
under this prospectus will be required and a copy of this document must be
filed with the Registrar of Companies in Bermuda. Approvals or permissions
received from the Registrar of Companies or the Bermuda Monetary Authority do
not constitute a guaranty by the Registrar of Companies or the Bermuda
Monetary Authority as to Global Crossing Ltd.'s performance or its credit
worthiness. Accordingly, in giving those approvals or permissions, the Bermuda
Monetary Authority will not be liable for Global Crossing Ltd.'s performance
or default or for the correctness of any opinions or statements expressed in
this document.
The Bermuda Monetary Authority has classified Global Crossing Ltd. as non-
resident in Bermuda for exchange control purposes. Accordingly, Global
Crossing Ltd. may convert currency, other than Bermuda currency, held for its
account to any other currency without restriction. Persons, firms or companies
regarded as residents of Bermuda for exchange control purposes require
specific consent under the Exchange Control Act, 1972 of Bermuda, and
regulations promulgated under the Act, to purchase any shares in our capital
stock or any other securities that Global Crossing Ltd. may issue. Under the
terms of the consent to be given to Global Crossing Ltd. by the Bermuda
Monetary Authority, the issuance of the securities that it may issue and the
transfer of such securities between persons, firms or companies regarded as
non-resident in Bermuda for exchange control purposes may be effected without
further permission from the Bermuda Monetary Authority.
<PAGE>
SUMMARY
This summary highlights key aspects of the offering of GlobalCenter group
stock. This summary is not a substitute for the more detailed information
contained in the rest of this prospectus. For a more comprehensive description
of the offering of GlobalCenter group stock, you should read the entire
prospectus.
Global Crossing and GlobalCenter
From a financial reporting standpoint, Global Crossing Ltd. has separated
its Web hosting and related Internet infrastructure solutions business--which
we call GlobalCenter--from the rest of its businesses--which we call Global
Crossing. Global Crossing Ltd. intends its GlobalCenter group stock to track
the performance of the GlobalCenter group, and intends its Global Crossing
group stock to track the performance of the Global Crossing group. Global
Crossing Ltd. is offering you shares of GlobalCenter group stock, but is not
offering you any shares of Global Crossing group stock.
GlobalCenter Inc. is an indirect wholly owned subsidiary of Global Crossing
Ltd. and owns most of the operating assets included in the GlobalCenter group.
In this prospectus, however, when we use the terms "GlobalCenter,"
"GlobalCenter group," "we," "our," "us" and similar terms, we mean those
businesses, assets and liabilities included in the GlobalCenter group and not
GlobalCenter Inc. or any other separately incorporated entity. When we refer to
Global Crossing Ltd. in this prospectus, we are referring to Global Crossing
Ltd. and its consolidated subsidiaries which include the assets and liabilities
of both the GlobalCenter group and the Global Crossing group.
Business of the GlobalCenter Group
GlobalCenter is a leading provider of Internet infrastructure solutions
incorporating:
. complex Web hosting;
. Internet Protocol, or "IP," network services, using primarily the Global
Crossing network;
. hardware and software procurement and installation;
. content distribution, integration and management services;
. systems applications; and
. professional services.
We deliver our services primarily to customers seeking rapid, cost-effective
solutions for their mission-critical Internet-related operations. As of March
31, 2000, we 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 our customer base and demand for outsourced Internet infrastructure
solutions, our annual revenues have grown from $7.7 million in 1997 to $70.9
million in 1999, a compound annual growth rate of 203%.
We currently operate 10 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, we are currently developing 10 data centers
in the United States, Europe and the Asia-Pacific region, nine of which we plan
to open by the end of this year, bringing the total gross square footage of our
data centers to over 1.3 million. Our data centers incorporate many advanced
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 our data centers to provide our customers with installation,
support and professional services.
3
<PAGE>
Each of our data centers other than our 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. We believe our unique access
to this network will enable us 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 IP network and Global Crossing's numerous peering and
transit relationships with other major Internet backbone providers enable us to
avoid many of the congested Internet public exchange points and deliver IP
traffic directly to its destination network or the intended IP address. Each of
our data centers also has access to the communications networks of other major
carriers.
Our objective is to become the leading global provider of total solutions
for our customers' mission-critical Internet infrastructure requirements. To
achieve this objective, we are implementing a business strategy focused on the
following key elements:
. enhance and expand our portfolio of value-added applications and
professional services;
. expand our 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 our unique relationship with Global
Crossing, including its extensive customer base and partnering
relationships;
. expand our 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 our internal development efforts.
Our 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 of AT&T Broadband & Internet
Services. As part of Mr. Hindery's employment agreement, Mr. Hindery has the
right to nominate five 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 serve as directors of GlobalCenter Inc. We
believe that this board of directors will enhance GlobalCenter's ability to
grow and expand its business and develop and benefit from strategic
relationships.
Business of the Global Crossing Group
As used in this prospectus, when we use the terms "Global Crossing" and
"Global Crossing group" we mean:
. all Global Crossing Ltd. businesses other than those businesses that are
included in GlobalCenter; and
. a retained interest in the GlobalCenter group which is currently 100%.
This retained interest will decline to reflect this offering as well as
any future issuances of GlobalCenter group stock.
The principal activities of the Global Crossing group include offering a
variety of integrated telecommunications products and services to customers
through the Global Crossing 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.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Issuer: Global Crossing Ltd.
GlobalCenter group stock offered: shares
Shares of GlobalCenter group stock effectively
owned by the Global Crossing group through its
inter-group interest after this offering: shares
Over-allotment option: Up to an additional shares
of GlobalCenter group stock
Use of proceeds: The net proceeds from this
offering will be approximately
$ million. Global Crossing
Ltd. will receive the net
proceeds and allocate all of
them to the GlobalCenter
group. GlobalCenter plans to
use the net proceeds to
finance its planned domestic
and international expansion
and for general corporate
purposes and working capital.
GlobalCenter may also use a
portion of the net proceeds to
make strategic investments or
acquisitions. Pending its use
of the net proceeds,
GlobalCenter may invest the
net proceeds in short-term
securities or lend a portion
of the net proceeds to the
Global Crossing group on an
interest-bearing basis.
Proposed Nasdaq National Market symbol: GCTR
</TABLE>
Except as otherwise indicated, the information in this prospectus assumes
that the underwriters' option to purchase additional shares of GlobalCenter
group stock is not exercised.
The shares of GlobalCenter group stock outstanding exclude shares of
GlobalCenter group stock that have been reserved for issuance under
GlobalCenter's stock option plans. As of , options to purchase
shares of GlobalCenter group stock have been issued.
5
<PAGE>
GLOBALCENTER GROUP STOCK
GlobalCenter group stock is what is sometimes referred to as "tracking
stock." Tracking stock is a type of common stock that is intended to reflect or
"track" the separate performance of a particular business or group of
businesses and does not reflect direct ownership of the tracked assets.
GlobalCenter group stock is intended to track the separate performance of
Global Crossing Ltd.'s GlobalCenter business.
For financial reporting purposes, Global Crossing Ltd. has allocated all of
its consolidated assets, liabilities, shareholders' equity, revenues, expenses
and cash flows between the GlobalCenter group and the Global Crossing group.
Although we intend GlobalCenter group stock to reflect the separate performance
of Global Crossing Ltd.'s GlobalCenter business, the holders of GlobalCenter
group stock will be shareholders of Global Crossing Ltd. For this reason, the
holders of GlobalCenter group stock will be subject to benefits and risks
associated with an investment in Global Crossing Ltd. and its businesses,
assets and liabilities.
Inter-group interest
Before this offering is completed, the Global Crossing group will hold 100%
of the equity value of the GlobalCenter group and, therefore, a 100% inter-
group interest in the GlobalCenter group. The number of shares of GlobalCenter
group stock that, if issued, would represent 100% of the equity value of the
GlobalCenter group prior to the completion of this offering equals . We refer
to the equity value of the GlobalCenter group held by the Global Crossing group
as "shares issuable with respect to the Global Crossing group's inter-group
interest in the GlobalCenter group." Immediately after this offering, the
Global Crossing group will hold a % inter-group interest in the GlobalCenter
group. If the over-allotment option is exercised in full, the Global Crossing
group will hold a % inter-group interest in the GlobalCenter group.
At the time of any additional issuance of GlobalCenter group stock, the
board of directors of Global Crossing Ltd. will:
. identify the number of shares issuable with respect to the Global
Crossing group's inter-group interest in the GlobalCenter group to be
issued, reduce accordingly the number of shares issuable with respect to
that inter-group interest and allocate the net proceeds of these shares
to the Global Crossing group; or
. identify the number of new shares to be issued and allocate the net
proceeds of these shares to the GlobalCenter group.
See "Description of Capital Stock--GlobalCenter group stock--Inter-group
interest."
Disposition
Global Crossing Ltd. currently intends to dispose of the Global Crossing
group's inter-group interest in the GlobalCenter group following this offering
in the form of additional GlobalCenter group stock. This disposition is
expected 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
also include an exchange offer, a further sale of GlobalCenter group stock or a
combination thereof. Global Crossing Ltd. currently intends to dispose of the
inter-group interest at some time after this offering, but has not yet
determined the exact method and timing of this disposition. Global Crossing
Ltd. expects to base its decision with regard to the method and timing of the
disposition on market conditions and the target of maximizing value for all
Global Crossing Ltd. stockholder groups. 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.
Dividends
Global Crossing Ltd. does not expect to pay dividends on GlobalCenter group
stock for the foreseeable future. See "Dividend Policy" and "Description of
Capital Stock--GlobalCenter group stock--Dividends."
6
<PAGE>
Your voting rights
The holders of GlobalCenter group stock will vote together with the holders
of Global Crossing group stock as a single voting group on each matter on which
holders of common stock are generally entitled to vote, except in the limited
circumstances provided under Bermuda law, Nasdaq listing rules or stock
exchange rules, by the provisions of Global Crossing Ltd.'s bye-laws or as
determined by the board of directors of Global Crossing Ltd.
On all matters as to which all classes of common stock will vote together as
a single voting class, as described below:
. each share of GlobalCenter group stock will have a number of votes equal
to the quotient of the average market value of a share of GlobalCenter
group stock during a specified period prior to each record date, divided
by the average market value of a 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 Global Crossing Ltd. 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
Global Crossing Ltd. common stock; and
. each share of Global Crossing group stock will have one vote.
Holders of shares of GlobalCenter group stock are also subject to the voting
restrictions currently imposed on holders of existing Global Crossing Ltd.
common stock. See "Description of Capital Stock--GlobalCenter group stock--
Voting rights."
Global Crossing Ltd. can convert shares of GlobalCenter group stock into shares
of Global Crossing group stock
Global Crossing Ltd. will have the right to convert all outstanding shares
of GlobalCenter group stock into shares of Global Crossing group stock, based
on the average market values of the two classes of common stock during a
specified period before the conversion, at some premium, except as set forth
below. The premium will be 20% during the first year after the completion of
this offering, 15% during the second year and 10% thereafter.
If Global Crossing Ltd. chooses to exercise its conversion right as a result
of a "tax event," as that term is defined under "Description of Capital Stock--
GlobalCenter group stock--Conversion and repurchase--Conversion of common stock
at option of Global Crossing Ltd. at any time," it will convert your shares
without any premium.
In addition, if Global Crossing Ltd.'s 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 Global Crossing Ltd.'s board of
directors at the time of issuance.
If Global Crossing Ltd. creates additional classes of common stock, it can
also convert GlobalCenter group stock into one of those classes. The premium
provisions set forth above would apply.
See "Description of Capital Stock--GlobalCenter group stock--Conversion and
repurchase--Conversion of common stock at option of Global Crossing Ltd. at any
time."
Global Crossing Ltd. can repurchase shares of GlobalCenter group stock for
shares of common stock of Global Crossing Ltd.'s subsidiaries
Global Crossing Ltd. will have the right at any time to repurchase
GlobalCenter group stock for the common stock of one or more of Global Crossing
Ltd.'s wholly-owned subsidiaries that holds all of the assets and liabilities
of the GlobalCenter group. See "Description of Capital Stock--GlobalCenter
group stock--Conversion and repurchase--Repurchase for stock of subsidiary."
7
<PAGE>
Your rights if Global Crossing Ltd. disposes of all or substantially all of the
assets of the GlobalCenter group
If Global Crossing Ltd. disposes of all or substantially all--that is, at
least 80%--of the properties or assets attributed to the GlobalCenter group,
Global Crossing Ltd. will, subject to certain exceptions:
. distribute to the holders of GlobalCenter group stock by special dividend
or redemption an amount equal to the net proceeds of the disposition; or
. convert the outstanding shares of GlobalCenter group stock into shares of
Global Crossing group stock, equal to the applicable percentage,
described above under "Global Crossing Ltd. can convert shares of
GlobalCenter group stock into shares of Global Crossing group stock," of
the ratio of the average market values of the two classes of common stock
during a specified period after the disposition.
If Global Crossing Ltd. disposes of substantially all--but not all--of the
assets attributed to the GlobalCenter group and distributes the net proceeds by
special dividend or partial redemption, then at any time within two years after
completing the distribution Global Crossing Ltd. will have the right to convert
the remaining outstanding shares of GlobalCenter group stock into shares of
Global Crossing group stock at a 10% premium. To determine the conversion rate,
Global Crossing Ltd. will value GlobalCenter group stock and Global Crossing
group stock based on their average market values during a specified period
before the conversion.
See "Description of Capital Stock--GlobalCenter group stock--Conversion and
repurchase--Mandatory dividend, repurchase or conversion of stock if
disposition of group assets occurs."
Your share upon a dissolution of Global Crossing Ltd.
If a dissolution of Global Crossing Ltd. occurs, after payment of the debts
and other liabilities of Global Crossing Ltd. and the full preferential amounts
to which holders of any preferred stock are entitled, the holders of
GlobalCenter group stock and the holders of Global Crossing group stock will be
entitled to receive the assets of Global Crossing Ltd. remaining for
distribution to holders of each class of common stock on a per share basis in
proportion to the liquidation units per share of that class.
Each share of GlobalCenter group stock will have liquidation units.
Each share of Global Crossing group stock will have one liquidation unit. See
"Description of Capital Stock--GlobalCenter group stock--Liquidation rights."
Capital Stock Committee
The board policy statement of Global Crossing Ltd. provides that a capital
stock committee, comprised of three independent directors, will exercise
certain delegated powers with respect to the GlobalCenter group and the Global
Crossing group. These powers initially include the power to interpret, make
determinations under, and oversee the implementation of the board policy
statement and adopt additional general policies governing the relationship
between the GlobalCenter group and the Global Crossing group. See "Relationship
between the GlobalCenter group and the Global Crossing group--Role of Capital
Stock Committee."
8
<PAGE>
GlobalCenter Inc. Board Of Directors
The board policy statement of Global Crossing Ltd. provides that the board
of directors of GlobalCenter Inc. will at all times be composed of six
directors appointed by the board of directors of Global Crossing Ltd. and five
directors appointed by the board of directors of Global Crossing Ltd. upon the
nomination 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 budgets 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.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED
FINANCIAL DATA OF THE GLOBALCENTER GROUP
The table below presents (1) summary historical combined financial data of
Old GlobalCenter, as defined below, for the years ending December 31, 1997 and
1998, and (2) an unaudited pro forma financial presentation for the
GlobalCenter group for the year ending December 31, 1999. We prepared this
information using the historical combined financial data from the GlobalCenter
group's combined financial statements at and for the three-month period ended
December 31, 1999, the nine-month period ended September 30, 1999, and each of
the years in the two-year period ending December 31, 1998 included elsewhere in
this prospectus. GlobalCenter Inc. was acquired by Frontier Corporation in
February 1998 in a pooling-of-interests transaction. Global Crossing Ltd. was a
party to a merger with Frontier Corporation effective September 28, 1999, that
was accounted for as a purchase. The results of operations subsequent to that
merger are not comparable to the results prior to that merger due to certain
purchase accounting adjustments.
In this prospectus we include the assets and liabilities of the GlobalCenter
group and the related combined results of operations for the years ended
December 31, 1997 and 1998 and for the nine-month period ended September 30,
1999 under the heading "Old GlobalCenter." In addition, in this prospectus we
include the assets and liabilities of the GlobalCenter group and the related
combined results of operations for the three-month period ended December 31,
1999 under the heading "New GlobalCenter." The presentation in the "Pro Forma
GlobalCenter Group" column provides prospective purchasers of GlobalCenter
group stock with a basis for comparing the year ended December 31, 1999 to the
year ended December 31, 1998, by combining 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
pro forma presentation, which combines predecessor and successor accounting
periods, does not conform to generally accepted accounting principles. This
combination excludes any pro forma adjustments for depreciation of property and
equipment or amortization of goodwill and intangibles for the nine months ended
September 30, 1999, from the merger with Global Crossing. You should read the
summary combined historical financial data provided below in conjunction with
the "Selected Historical Combined Financial Data of the GlobalCenter Group,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the GlobalCenter Group," and the combined financial statements of
the GlobalCenter group and related notes which appear elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Pro Forma
Old GlobalCenter GlobalCenter Group
----------------- ------------------
Year Ended
December 31, Unaudited
----------------- Year Ended
1997 1998 December 31, 1999
------- -------- ------------------
(in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.................................. $ 7,739 $ 23,240 $ 70,903
Costs and expenses:
Cost of revenues........................ 6,252 18,012 74,717
Sales and marketing..................... 1,966 8,948 15,619
General and administrative.............. 2,044 4,694 9,964
Depreciation and amortization........... 912 4,023 6,155
Goodwill and intangibles amortization... 325 1,294 38,109
Merger costs............................ -- 2,060 --
------- -------- --------
Total costs and expenses.............. 11,499 39,031 144,564
------- -------- --------
Loss from operations...................... (3,760) (15,791) (73,661)
Other income, net......................... 45 55 70
------- -------- --------
Loss before income taxes.................. (3,715) (15,736) (73,591)
Income tax benefit........................ 941 4,911 14,075
------- -------- --------
Net loss.................................. $(2,774) $(10,825) $(59,516)
======= ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------- ----------------
As of December 31,
---------------------------------
1998 1999
---------------- ----------------
(dollars in thousands)
<S> <C> <C>
Balance Sheet and Other Data:
Goodwill and intangibles, net................. $ 7,470 $1,448,265
Total assets.................................. 48,021 1,596,083
Total liabilities............................. 12,084 65,938
Group equity.................................. 35,937 1,530,145
Total liabilities and group equity............ $48,021 $1,596,083
Number of data centers........................ 6 8
Data center gross square footage.............. 72,000 238,000
</TABLE>
11
<PAGE>
GLOBAL CROSSING LTD. SUMMARY CONSOLIDATED FINANCIAL DATA
The summary 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 Global Crossing Ltd.'s audited consolidated financial statements
and should be read in conjunction with the audited consolidated financial
statements and unaudited pro forma financial information of Global Crossing
Ltd. and notes incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
Period from
March 19, 1997
(Date of Inception) to Year Ended Year Ended
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)
======== ========= ==========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Period from
March 19, 1997
(Date of Inception) to Year Ended Year Ended
December 31, 1997 December 31, 1998 December 31, 1999
---------------------- ----------------- -----------------
<S> <C> <C> <C>
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(1)...... $ 343,233 $ 364,948 $ 708,181
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------
1997 1998 1999
-------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Total assets................................... $572,197 $2,639,177 $19,705,580
Long term debt................................. 312,325 1,066,093 5,018,544
Total liabilities.............................. 406,151 1,381,857 8,051,030
Total shareholders' equity..................... 74,121 774,320 9,218,515
-------- ---------- -----------
Total liabilities and shareholders' equity..... $572,197 $2,639,177 $19,705,580
======== ========== ===========
</TABLE>
- --------
(1) 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 an advisory services agreement.
This definition is consistent with financial covenants contained in Global
Crossing Ltd.'s major financial agreements. This information should not be
considered as an alternative to any measure of performance as promulgated
under GAAP. Global Crossing Ltd.'s calculation of adjusted EBITDA may be
different from the calculation used by other companies and, therefore,
comparability may be limited.
13
<PAGE>
RISK FACTORS
Investing in GlobalCenter group stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below before
you purchase any shares of GlobalCenter group stock. These risks and
uncertainties are not the only ones we face. Unknown additional risks and
uncertainties, or ones that we currently consider immaterial, may also impair
our business operations. If any one of these risks or uncertainties occurs,
our business, financial condition or results of operations could be materially
adversely affected. In this event, the trading price of GlobalCenter group
stock could decline, and you could lose part or all of your investment. You
should also consider the risk factors relating to Global Crossing Ltd. See
"Business--Forward Looking Statements and Risk Factors" in Global Crossing
Ltd.'s Annual Report on Form 10-K for the year ended December 31, 1999, which
is incorporated in this prospectus by reference.
Risks Relating to the Business of the GlobalCenter Group
We have a limited operating history and our business model is still evolving,
which makes it more difficult for you to evaluate our company and its
prospects.
Our limited operating history makes evaluating our business operations and
our prospects difficult. Our range of service offerings has changed since our
inception and our business model is still new and developing. We recently
began offering a wider range of applications and professional services with
the aim of becoming a total Internet solutions provider to differentiate
ourselves 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 our business is unproven. In addition, our 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, we must:
. provide reliable, technologically current and cost-effective services;
. continue to upgrade and expand our global infrastructure;
. market our brand name and services effectively;
. develop new and extend our current business partnerships; and
. attract and retain qualified personnel.
Our ability to achieve our goals depends significantly on our 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
we will not be able to partner, or, even if we do, that our selected partners
will not provide us with the necessary resources to remain a leader in our
industry.
We have a history of significant losses and expect these losses to continue in
the foreseeable future. We may be unable to secure additional financing when
we need it.
We have 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, $10.8 million and $2.8 million, respectively. While our revenues have
grown in recent periods, we cannot assure you that this growth will continue.
In connection with our expansion plans, we anticipate making significant
investments in our data center infrastructure, as well as in sales, marketing,
technical and customer support personnel. As a result of our expansion plans,
we expect our net losses and negative cash flows from operations to continue
for the foreseeable future. We cannot assure you that we will ever become or
remain profitable or that we will generate positive cash flows from
operations.
Historically, GlobalCenter has relied on Global Crossing Ltd. or Frontier
Corporation to satisfy its capital requirements. Global Crossing Ltd. is not
obligated, however, to serve as a source of funding. According to our current
business plan, we expect that the proceeds from this offering will provide us
sufficient capital to sustain
14
<PAGE>
current operations and capital expenditure plans for the next 12 to 18 months.
However, our business is rapidly growing and capital intensive. Any material
changes to our funding requirements could require us to secure additional
funding. The sources from which we may satisfy our 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 Ltd. We cannot assure you that we will be able to secure
additional financing on an acceptable basis, if at all.
The rapid expansion of our data centers produces a significant strain on our
business and requires us to expend substantial resources.
The expansion of our business through the opening of additional data
centers in geographically diverse locations is one of our key strategies. We
currently have 10 data centers located in metropolitan areas in northern and
southern California; northern Virginia; New York City; London; and Melbourne.
We are currently developing 10 data centers, nine of which we plan to open in
2000. To expand successfully, we 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, we must continue to improve
our operational and financial systems and expand, train and manage our
employee base. Our inability to establish additional data centers or
effectively manage our expansion would have a material adverse effect upon our
business.
We expect 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, we expect to make significant investments in sales and
marketing and the development of new services as part of our expansion
strategy. If the net proceeds of this offering are not sufficient to fund our
growth, and if we fail to generate sufficient cash flows or raise sufficient
funds in the future, we may be required to delay or abandon some or all of our
development and expansion plans or otherwise forego market opportunities,
making it difficult for us to generate additional revenue and to respond to
competitive pressures. Any delay in the completion of our new facilities may
make us less attractive to customers, which would adversely affect our
business.
In general, it takes us 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 us to approach break-even capacity utilization. As
a result, we expect that individual data centers will experience losses for
one year or longer from the time they are opened. We incur further expenses to
test market our services in markets where there is no data center. Growth in
the number of our data centers is likely to increase the amount and duration
of losses. In addition, if we do not attract customers to new data centers in
a timely manner, or at all, our 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. Our 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 our ability to provide and market
dependable services effectively. In addition, our strategy is based on our
belief that businesses will outsource an increasing portion of their more
sophisticated Internet-related functions, and we are 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 our services
will develop, that our services will be adopted, or that businesses will use
Internet-based services in the degree or manner that we expect. 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 we are unable to react quickly to changes in
the market, if the market fails to develop or develops more slowly than
expected, or if our services do not achieve market acceptance, then we are
unlikely to become or remain profitable.
15
<PAGE>
We may be unable to achieve our 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. Our
current and potential competitors in the market include Web hosting service
providers, Internet service providers, commonly known as ISPs,
telecommunications companies and large information technology outsourcing
firms. Our 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, MCI WorldCom, PSINet,
Navisite, Qwest Communications International and USinternetworking.
Many of our competitors have substantially greater resources, more
customers, greater name recognition and 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 we provide. As we move toward our
goal of becoming a total Internet infrastructure solutions provider, the
nature of our competition may change in ways we 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 us to compete. See "Business of the
GlobalCenter Group--Competition."
Our business depends largely on network services we receive from the Global
Crossing group. Any disruption of these services or the Global Crossing
group's inability to maintain its peering and transit relationships could be
costly and harmful to our business.
We rely primarily on the Global Crossing group for our 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, our services may be disrupted
as well, which would be detrimental to our customers. Frequent or sustained
disruptions in the Global Crossing network could harm our business. If the
Global Crossing group were unable to provide us sufficient network capacity,
we would need to rapidly secure an alternative provider of these services. As
a result, we could incur transition costs and our monthly costs of operations
could increase. In addition, such a transition could have a detrimental effect
on the service we provide our 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 our transmission rates could be reduced, resulting in a
decrease in the service we provide to our customers.
We would not be able to provide adequate service to our customers if we were
unable to secure sufficient network capacity to meet our future needs on
reasonable terms or at all.
We must continue to expand and adapt our network arrangements to
accommodate an increasing amount of data traffic and changing customer
requirements. We believe our arrangement with the Global Crossing group will
provide us with sufficient network capacity to meet our customers' capacity
requirements. However, if our future network capacity requirements exceed the
capacity the Global Crossing group is able to provide us, we may have to pay
higher prices for such additional network capacity from others or such
capacity might not be available at all. Our failure to achieve or maintain
high capacity data transmission could negatively affect our level of service
to our existing customers and limit our ability to attract new customers,
which would harm our business.
16
<PAGE>
Our quarterly and annual results may fluctuate, resulting in fluctuations in
the price of GlobalCenter group stock.
Our results of operations fluctuate on a quarterly and annual basis. We
expect to continue experiencing significant fluctuations in our future
quarterly and annual results of operations due to a variety of factors, many
of which are outside of our control, and may include:
. demand for and market acceptance of our services;
. reliable continuity of service and network availability;
. capacity utilization of our data centers;
. changes in our pricing policies and those of our 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 we interconnect;
. timing of customer installations and the amount and timing of sales of
equipment to new and existing customers;
. our retention of key personnel;
. our ability to leverage third party service offerings;
. introductions of new services by us and our competitors;
. the mix of services we sell;
. customer retention and satisfaction;
. the timing, magnitude and integration of our capital expenditures,
including construction costs related to the expansion of our 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 our operating
results will not necessarily be meaningful and you should not rely on them as
indications of our future performance. For these and other reasons, in some
future periods, our results of operations may fall below the expectations of
securities analysts or investors, which could negatively affect the market
price of GlobalCenter group stock.
Our data centers and the networks we rely on are sensitive to harm from human
actions and natural disasters. Any resulting disruption could significantly
damage our business.
Our ability to provide reliable service largely depends on the performance
and security of our data centers and equipment, and of the network
infrastructure of our connectivity providers, particularly the Global Crossing
IP network infrastructure. Our customers often maintain confidential
information on servers located in our data centers. Our data centers and
equipment, the networks we use, and our 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 our customers. Any
such event could jeopardize the security of our customers' confidential
information such as credit card and bank account numbers. Our 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 of our customer's
Web sites with an enormous number of requests, which disrupted its services.
Despite precautions we have taken and plan to take, the occurrence of a
security breach, natural disaster, interruption in service or other
unanticipated problems could
17
<PAGE>
seriously damage our business and cause us to lose customers. Additionally,
the time and expense required to alleviate security problems could be
significant and could impair our operating results.
Providing services to customers with mission-critical Internet operations
could potentially expose us to lawsuits for customers' lost profits or other
damages.
Because our services are critical to many of our customers' businesses, any
significant interruption in our services could result in lost profits or other
indirect or consequential damages to our customers. Our customers are required
to sign service agreements which incorporate our standard terms and
conditions. Although these terms disclaim our liability for any such damages,
a customer could still bring a lawsuit against us 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 us. We cannot be sure a
court would enforce any limitations on our 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 we would have meritorious defenses
to any such claims, we cannot be sure we would prevail. In such cases, we
could be liable for substantial damage awards. Such damage awards might exceed
our liability insurance by unknown but significant amounts, which would
seriously harm our business.
Customer satisfaction with our services is critical to our success and any
degradation in service could harm our business.
Our customers demand a very high level of service. Our customer contracts
provide service level agreements related to the continuous availability of our
data center and network services. Our commitment is generally limited to a
credit consisting of reduction in monthly fees for disruptions in Internet
transmission services. If we incur significant service degradation in
connection with system downtime, our business would be harmed. As customers
outsource more mission-critical operations to us, we risk increased liability
claims and customer dissatisfaction if our systems fail to meet our customers'
expectations.
If we do not respond effectively and on a timely basis to rapid technological
change and evolving industry standards, our business could suffer.
Internet and networking technology is changing rapidly. Our future success
will depend largely on our ability to:
. offer services that incorporate leading technologies;
. address the increasingly sophisticated and varied needs of our 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 we often work with various vendors in testing newly developed
products, we cannot be sure these products will be compatible with our
infrastructure or that such products will adequately address changing customer
needs. Although we currently intend to support emerging standards, we cannot
be sure that industry standards will be established or, if they become
established, that we 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. Our failure to conform to the prevailing
standards, or the failure of common standards to emerge, could harm our
business. In addition, products, services or technologies developed by others
may render our services obsolete or no longer competitive.
Our 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. Our success will depend on the continued growth in Internet
usage, in particular on the growth of its use 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
18
<PAGE>
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
our 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 our services. The performance of our
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 our services depends on
improvements being made to these networks.
Our business could be harmed if our management team, which has worked together
at GlobalCenter for only a brief time, is unable to work effectively, or if we
are unable to retain and attract key personnel.
We have hired most of our senior management within the last five months. As
a result, our management team has worked for us for only a brief time. Our
success will depend, in significant part, on the continued services of our
senior management personnel and of our key technical and sales personnel.
Our success will also depend largely on our 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. We may not be
able to hire or retain the necessary personnel to implement our business
strategy, or we may need to pay higher compensation for employees than we
currently expect. Our inability to attract and retain such personnel would
limit our growth and harm our business.
We may be unable to achieve our operating and financial objectives if we
cannot manage our anticipated growth effectively.
We are experiencing, and expect to continue experiencing, rapid growth with
respect to the building of our domestic and international data centers,
expansion of our service offerings, expansion of our customer base and
increases in the number of employees. This growth has placed, and we expect it
to continue to place, a significant strain on our financial, management,
operational and other resources, including our ability to ensure customer
satisfaction. This expansion also requires significant time commitment from
our senior management and places a significant strain on their ability to
manage the existing business. In addition, we are required to manage multiple
relationships with a growing number of third parties as we seek to complement
our service offerings.
For us to manage this growth, we will need to:
. expand and enhance our operating and financial procedures and controls;
. replace or upgrade our operational and financial management information
systems; and
. attract, train, manage and retain key employees.
In early 2000, we began to implement and upgrade our operational and
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 our business.
19
<PAGE>
We may experience difficulty in integrating our future acquisitions or joint
ventures which could harm our operating results.
We may acquire businesses with complementary products, services and
technologies. After purchasing a company, we 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 us. These
difficulties could disrupt our ongoing business, distract our management and
employees and increase our expenses. In addition, future acquisitions by us
may require us 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 our expansion, we may also pursue relationships and joint
ventures with companies located in or with relationships in the markets we
wish to enter, or who have specific technologies, products or services we need
to serve our customers. We 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
GlobalCenter. A joint venture partner may be unable to meet its economic or
other obligations and we may be required to fulfill those obligations. In
addition, if we do not have a majority interest in a joint venture, we may not
have control of the operation or assets of that joint venture.
We depend on third-party vendors of hardware, software and Internet
infrastructure applications, as well as professional services providers.
We depend on vendors to supply key components of our data centers and
telecommunications infrastructure and many of the applications and services we
provide to our customers. We obtain many of the applications and services that
we offer, including performance monitoring, content delivery and data storage
services from third parties. We do 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 to us on a cost-
effective basis, we would have to seek other sources for these offerings. We
cannot be sure that we 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 we use is available only
from sole or limited sources. We typically purchase or lease all of our
components under purchase orders placed from time to time. We do not carry
significant inventories of components and have no guaranteed supply
arrangements with vendors. If we are unable to obtain required products or
services on a timely basis or at an acceptable cost, our business would be
harmed. In addition, if our 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 we use, our business would be harmed. For example, we have
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 our business.
One component of our strategy is to expand into international markets. We
currently have two data centers outside of the United States, one in London,
England and one in Melbourne, Australia. We have also announced plans to open
new data centers later this year in Europe and Australia. In addition, we are
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 our international operations, we 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 we are unable to do any of these things in a timely and
cost-effective manner, we could be precluded from successfully developing our
international operations. In addition, we may depend on third parties to be
successful in our international operations, but we cannot assure you that we
will be successful in securing such third party relationships.
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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 our ability to expand operations and may
result in higher relative costs for our 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 our 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 us 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 our business.
We provide services over the Internet in the United States and in many
foreign countries, and we facilitate the activities of our customers in these
jurisdictions. As a result, we 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 we do 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 we could find that GlobalCenter is
subject to regulation, taxation, enforcement or other liability in unexpected
ways, which could materially adversely affect our business. Regulation of the
Internet may also harm our customers' businesses, which could lead to reduced
demand for our services.
Our 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 we may be subject to regulation by the FCC or other federal or state
agencies, which could increase our costs and harm our 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 our business. See
"Business--Forward Looking Statements and Risk Factors" in Global Crossing
Ltd.'s Annual Report on Form 10-K for the year ended December 31, 1999, which
is incorporated by reference in this prospectus.
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We could be held liable for the information disseminated through our 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 of material by
underage persons. Numerous states have adopted or are currently considering
similar types of legislation. The imposition upon us and other Internet
network providers of potential liability for information carried on or
disseminated through systems could require us to implement measures to reduce
exposure to 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 our business. While we
carry professional liability insurance, it may not be adequate to compensate
us or may not cover us in the event we become liable for information carried
on or disseminated through our networks.
In addition, some ISPs and other online services companies could deny
network access to us if we allow undesired content to be transmitted through
our networks. Although we prohibit customers by contract from distributing
illegal material or engaging in practices such as sending unsolicited
commercial e-mail advertisements, we cannot be sure that customers will not
violate these prohibitions, which could have a material adverse effect on our
business.
We may be unable to protect our intellectual property rights or to continue
using intellectual property that we license from others.
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect certain of
our proprietary rights. We have no patented technology that would bar
competitors from our market. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use
our data or technology. In addition, the laws of various foreign countries may
not protect our products, services or intellectual property rights to the same
extent as do the laws of the United States.
We do not currently rely in a material way on technologies licensed from
third parties, but we expect that, as we continue to offer new services
through partnerships with third parties, our reliance on licensed technology
will grow. We cannot be sure these licenses will be available to us on
commercially reasonable terms or at all. The loss of such technology could
require us to obtain substitute technology of lower quality or performance
standards or at greater cost, which could harm our business.
Other parties may claim that we have infringed their proprietary rights.
Such claims, whether or not meritorious, may require us to expend significant
financial and managerial resources, result in injunctions against us, or
impose damages we must pay. We may need to obtain a license from third parties
who allege that we have infringed their rights, but such license may not be
available on terms acceptable to us or at all.
Risk relating to a capital structure with two or more separate classes of
common stock
You and the holders of Global Crossing group stock 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.
Accordingly, as a holder of GlobalCenter group stock, you will be subject to
all of the risks of an investment in Global Crossing Ltd. and all of its
businesses, assets and liabilities. The issuance of 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 Global Crossing Ltd.'s
assets or liabilities and will not affect ownership of its assets or
responsibility for its liabilities or those of its subsidiaries. The assets
attributed to one group could be subject to the liabilities of the other
group,
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even if those liabilities arise from lawsuits, contracts or indebtedness that
are attributed to the other group. For example, if the Global Crossing group
is unable to satisfy its liabilities out of the assets attributed to it,
Global Crossing Ltd. may be required to satisfy those liabilities with assets
which have been attributed to the GlobalCenter group.
Financial effects arising from the Global Crossing group that affect Global
Crossing Ltd.'s consolidated results of operations or financial condition
could, if significant, affect the results of operations or financial condition
of the GlobalCenter group or the market price of GlobalCenter group stock. In
addition, if Global Crossing Ltd. or any of its subsidiaries were to incur
significant indebtedness on behalf of the Global Crossing group, including
indebtedness incurred or assumed in connection with an acquisition or
investment, it could affect the credit rating of the GlobalCenter group. This,
in turn, could increase the borrowing costs of the GlobalCenter group and
Global Crossing Ltd. 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 GlobalCenter group stock
under Bermuda law. For all these reasons, you should read Global Crossing
Ltd.'s consolidated financial information in addition to the financial
information we provide for the GlobalCenter group. We cannot assure you that
the market value of GlobalCenter group stock will reflect the performance of
GlobalCenter as we intend.
You will have only limited rights specific to the GlobalCenter group.
The holders of GlobalCenter group stock generally will not have shareholder
rights specific to the GlobalCenter group or GlobalCenter Inc. Instead,
holders will have customary shareholder rights relating to Global Crossing
Ltd. as a whole. For example, the holders of Global Crossing group stock and
the holders of GlobalCenter group stock will vote together as a single class
to approve any sale of all or substantially all of the assets of Global
Crossing Ltd. The holders of GlobalCenter group stock will only have the
following rights with respect to the GlobalCenter group:
. a right to a dividend, repurchase or conversion if the sale of all or
substantially all of the assets of the GlobalCenter group occurs; and
. a right to vote on matters as a separate voting group in the
circumstances described under "Description of Capital Stock--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.
The voting power of GlobalCenter group stock may be limited.
In circumstances where the two classes of stock vote together as a
single class, holders of GlobalCenter group stock will not be able to
control the outcome of shareholder voting
Global Crossing group stock will retain a substantial majority of the
combined voting power of GlobalCenter group stock and Global Crossing group
stock because:
. the relative voting power per share of GlobalCenter group stock and
Global Crossing group stock is based on the relative average market
values per share of outstanding GlobalCenter group stock and outstanding
Global Crossing group 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 the 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 Ltd. common stock, regardless of
the market value of GlobalCenter group stock.
The holders of Global Crossing group stock, to the extent they vote the
same way, could control the outcome of a vote--even if the matter involves a
divergence or conflict of the interests of the holders of Global
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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.
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 Ltd., 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 additional 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 Ltd., 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 Ltd. common stock.
Any issuance of additional shares of GlobalCenter group stock for strategic
investments, in acquisitions and other transactions and Global Crossing Ltd.'s
intended disposition of the Global Crossing group's inter-group interest in
GlobalCenter group stock could cause reductions in the voting power of each
share of GlobalCenter group stock. As a result of any reduction, the holders
of GlobalCenter group stock and the holders of Global Crossing group stock
would hold voting power in Global Crossing Ltd. that is not consistent with
their relative economic interests in Global Crossing Ltd.
You will not be entitled to vote on a sale of the assets attributed to
the GlobalCenter group, except in limited circumstances
Assuming the assets attributed to the GlobalCenter group represent less
than substantially all of the assets of Global Crossing as a whole, Global
Crossing Ltd.'s 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 the GlobalCenter 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, Global Crossing Ltd.'s
board of directors is not required to select the option that would result in
the distribution with the highest value to the holders of GlobalCenter group
stock or with the smallest effect on GlobalCenter group stock.
In addition, under Bermuda law, Global Crossing Ltd.'s board of directors
could decline to sell the assets of the GlobalCenter group, despite the
request of a majority of the holders of GlobalCenter group stock.
Potential conflicts of interest exist between Global Crossing group stock and
GlobalCenter group stock that may be difficult to resolve by Global Crossing
Ltd.'s board of directors or that may be resolved adversely to one of the
classes.
The existence of separate classes of Global Crossing Ltd. 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.
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Operational and financial decisions could favor Global Crossing group
over the GlobalCenter group
From time to time, Global Crossing Ltd.'s board of directors could, in its
sole discretion, make operational and financial decisions or implement
policies that affect disproportionately the businesses of the GlobalCenter
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 the Global Crossing group may be equally suitable
for the GlobalCenter group. Furthermore, any such decision may benefit the
Global Crossing group more than the GlobalCenter group. For example, the
decision to obtain funds for the Global Crossing group may adversely affect
the ability of the GlobalCenter group to obtain funds sufficient to implement
its growth strategy or may increase the cost of those funds. In addition, even
in situations when GlobalCenter is able to service its own debt financing, it
will be partly restricted due to certain limitations imposed by Global
Crossing Ltd.'s contractual obligations, including limitations on its ability
to secure any of its assets.
Proceeds of future issuances of GlobalCenter group stock could be
allocated either to the Global Crossing group, to the extent the Global
Crossing group continues to hold an inter-group interest in the
GlobalCenter group, or the GlobalCenter group
To the extent the Global Crossing group continues to hold an inter-group
interest in the GlobalCenter group at the time of any future sale of
GlobalCenter group stock, Global Crossing Ltd.'s board of directors could
allocate the proceeds of the offering of those shares of GlobalCenter group
stock to the Global Crossing group. Any such decision could favor the Global
Crossing group over the GlobalCenter group. For example, the decision to
allocate the proceeds to the Global Crossing group may adversely affect the
GlobalCenter group's ability to obtain funds to finance its growth strategies.
Consideration received in mergers or consolidations may be allocated
unfavorably
Because Global Crossing Ltd.'s bye-laws do not specify how consideration to
be received in a merger or consolidation involving Global Crossing Ltd. will
be allocated between the holders of Global Crossing group stock and the
holders of GlobalCenter group stock, Global Crossing Ltd.'s board of directors
will make that determination. That determination could favor the holders of
Global Crossing group stock at the expense of the holders of GlobalCenter
group stock.
Global Crossing Ltd.'s board of directors may pay more dividends on
Global Crossing group stock than if that group were a separate company
Subject to the limitations referred to below, Global Crossing Ltd.'s board
of directors has the authority to declare and pay dividends on Global Crossing
group stock and GlobalCenter group stock in any legal amount. While Global
Crossing Ltd. historically has not paid dividends on its common stock, its
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. Global Crossing Ltd.'s board
of directors could pay more dividends on Global Crossing group stock than
would be financially prudent if that group were a stand-alone corporation.
Global Crossing Ltd.'s 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, except that Bermuda law and Global Crossing Ltd.'s 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
"Description of Capital Stock--GlobalCenter group stock--Dividends."
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Holders of GlobalCenter group stock may be adversely affected by an
optional conversion of one group's stock into the other group's stock
Global Crossing Ltd.'s board of directors could, in its sole discretion and
without shareholder approval, determine to convert shares of GlobalCenter
group stock into shares of Global Crossing group stock, or vice versa. 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 Ltd. 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,
if converted, a lesser premium than any premium that might be paid by a third-
party buyer of all or substantially all of the assets held by that group. For
additional information on the terms and conditions of a conversion of one
stock into the other, see "Description of Capital Stock--Conversion and
repurchase--Conversion of common stock at option of Global Crossing Ltd. at
any time."
Global Crossing Ltd.'s board of directors will have the ability to control
transfers of funds or other assets between the Global Crossing group and the
GlobalCenter group.
Global Crossing Ltd.'s board of directors will have the ability to control
transfers of funds and other assets or liabilities between the Global Crossing
group and the GlobalCenter group.
Global Crossing Ltd.'s board of directors may decide to transfer assets,
including cash, and liabilities between groups, which may result in:
. a corresponding change in the Global Crossing group's inter-group
interest in the GlobalCenter group; and/or
. a loan, or repayment of a loan, from one group to the other group,
subject to the terms of Global Crossing Ltd.'s board policy statement.
The board of directors of Global Crossing Ltd. will effect the transfers
described above, in each case, in an amount having a fair value equivalent to
the fair value of the assets or liabilities transferred 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 Global Crossing
Ltd.'s bye-laws.
If 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 Global Crossing Ltd.'s board policy statement, the Global Crossing
group may make loans to the GlobalCenter group, and vice versa, at the
weighted average interest rate of the consolidated indebtedness of Global
Crossing Ltd. and on such other terms and conditions as Global Crossing Ltd.'s
board of directors determines to be in the best interests of Global Crossing
Ltd. The Global Crossing Ltd.'s board policy statement further provides that
any fees incurred in connection with debt incurred for a particular group will
be allocated to the borrowing group.
Holders of GlobalCenter group stock may not have any remedies for breach of
fiduciary duties if any action by directors and officers has a disadvantageous
effect on GlobalCenter group stock.
You may not have any remedies if any act or decision of Global Crossing
Ltd.'s directors or officers has a disadvantageous effect on the holders of
GlobalCenter group stock compared to the holders of Global Crossing group
stock. Although we are not aware of any Bermuda court adjudicating such a
legal claim in the context of Global Crossing Ltd.'s 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
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a director or officer will be deemed to have satisfied his or her fiduciary
duties to Global Crossing Ltd. if that person acts in a manner he or she
believes in good faith to be in the best interests of Global Crossing Ltd. and
its stockholders. 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 Global Crossing Ltd.'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.
Global Crossing Ltd.'s board of directors may change or make exceptions to
Global Crossing Ltd.'s board policy statement without shareholder approval to
the detriment of the GlobalCenter group.
In connection with the issuance of GlobalCenter group stock, Global
Crossing Ltd.'s board of directors intends to adopt the board policy statement
that we describe in this prospectus under "Relationship Between the
GlobalCenter Group and the Global Crossing Group" to govern the relationship
between the Global Crossing group and the GlobalCenter group. Global Crossing
Ltd.'s 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 Global Crossing Ltd.'s board of 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 and could
adversely affect the holders of GlobalCenter group stock relative to the
holders of Global Crossing group 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 Global Crossing Ltd.'s board of directors or Global Crossing Ltd.'s
management that investors perceive to affect differently one class of stock
compared to the other class of stock. These decisions could involve changes to
Global Crossing Ltd.'s board policy statement, transfers of assets between
groups, allocations of corporate opportunities between groups or changes in
dividend policies.
You may be adversely affected by a mandatory exchange of GlobalCenter group
stock for the stock of one or more Global Crossing Ltd. subsidiaries.
Global Crossing Ltd. may declare that all outstanding shares of
GlobalCenter group stock will be exchanged for shares of one or more
qualifying subsidiaries of Global Crossing Ltd. Such an exchange would result
in the qualifying subsidiary or subsidiaries becoming independent of Global
Crossing Ltd. and the holders of GlobalCenter group stock owning shares
directly in that subsidiary or those subsidiaries. If Global Crossing Ltd.
chooses to exchange GlobalCenter group stock, the market value of the common
stock received in that exchange could be or become less than the market value
of GlobalCenter group stock.
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You may receive less consideration upon a sale of all or substantially all of
the assets of the GlobalCenter group than if the GlobalCenter group were a
separate company.
The Certificate of Designations relating to GlobalCenter group stock
provides that if we sell all or substantially all of the assets of the
GlobalCenter group, we must, subject to certain exceptions:
. distribute to the holders of GlobalCenter group stock by special dividend
or repurchase an amount equal to the net proceeds of the sale; or
. convert the outstanding shares of GlobalCenter group stock into shares of
another class of Global Crossing Ltd.'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 GlobalCenter group 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 GlobalCenter group stock. In addition, we cannot assure you
that the net proceeds per share of GlobalCenter group stock will be equal to
or more than the market value per share 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 the
GlobalCenter group, see "Description of Capital 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 Ltd.'s consent.
If the GlobalCenter group were a stand-alone entity, any person interested
in acquiring it without negotiation with Global Crossing Ltd.'s management
could seek control of the outstanding stock of that entity by means of a
tender offer or proxy contest. However, because the GlobalCenter group is part
of Global Crossing Ltd., a person interested in acquiring only the
GlobalCenter group without negotiation with Global Crossing Ltd.'s management
would be required to seek control of the voting power represented by all of
the outstanding capital stock of Global Crossing Ltd. 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, Global Crossing Ltd. may issue additional classes of common
stock, without shareholder approval, including by reallocating assets and
liabilities from the GlobalCenter group to a new group.
Global Crossing Ltd. may, in the future, decide to issue shares of one or
more classes of common stock in addition to Global Crossing group stock and
GlobalCenter group stock. Global Crossing Ltd. has the authority to do so in
its sole discretion and without further shareholder approval, except as may be
provided by Bermuda law or the rules of any stock exchange on which any class
of outstanding common stock may then be listed.
If Global Crossing Ltd. issues additional classes of common stock, it may
establish a new group to which such class of common stock relates by
reallocating to such group the assets and liabilities from the GlobalCenter
group. In that case, the GlobalCenter group would hold an inter-group interest
in the new group.
The issuance of additional classes of common stock would make Global
Crossing Ltd.'s capital structure and decisions relating to inter-group
transactions and related matters more complicated. In addition, Global
Crossing Ltd.'s board of directors would likely amend Global Crossing Ltd.'s
board policy statement at that time to provide for the new group and
transactions between it and the Global Crossing group and the GlobalCenter
group. The new class of stock could be convertible into GlobalCenter group
stock at premiums determined by Global Crossing Ltd.
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A Clinton Administration proposal could have adverse tax consequences for
Global Crossing Ltd. or for holders of GlobalCenter group stock
The Clinton Administration proposed legislation in February 2000 dealing
with tracking stock such as GlobalCenter group stock. This proposal would,
among other things, grant authority to the Secretary of the Treasury to treat
tracking stock as something other than stock or as stock of another entity.
The proposal also would treat the receipt of stock similar to GlobalCenter
group stock in exchange 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, it could have adverse tax consequences for Global
Crossing Ltd. or for holders of GlobalCenter group stock. A similar proposal
was made in 1999. Congress did not act on the 1999 proposal, and Global
Crossing Ltd. cannot predict whether Congress will act upon this proposal or
any other proposal relating to tracking stock.
Global Crossing Ltd. 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 development if it is implemented or results in certain
legislative action. See Description of Capital Stock--Conversion and
repurchase--Conversion of common stock at option of Global Crossing Ltd. at
any time" and "Certain United States Federal Income Tax and Bermuda Tax
Consequences."
Holders of GlobalCenter group stock may be subject to foreign personal holding
company, passive foreign investment company, controlled foreign corporation
and personal holding company rules.
We believe that neither Global Crossing Ltd. nor any of its non-United
States subsidiaries is a foreign personal holding company and do not expect
that either Global Crossing Ltd. or any of its affiliates will become a
foreign personal holding company. However, we cannot assure you in this
regard. If a holder of GlobalCenter group stock is a United States person and
Global Crossing Ltd. or one of its non-United States subsidiaries is
classified as a foreign personal holding company, then that shareholder would
be required to pay tax on its pro rata share of Global Crossing Ltd.'s or its
relevant non-United States subsidiary's undistributed foreign personal holding
company income. Global Crossing Ltd. intends to manage its affairs so as to
attempt to avoid or minimize having income imputed to United States persons
under these rules, to the extent this management of its affairs would be
consistent with its business goals, although we cannot assure you in this
regard.
We believe that Global Crossing Ltd. is not a passive foreign investment
company and do not expect it to become a passive foreign investment company in
the future. However, we cannot assure you in this regard. In addition, our
expectations are based, in part, on interpretations of existing law that we
believe are reasonable, but which have not been approved by any taxing
authority. If Global Crossing Ltd. were a passive foreign investment company,
then any holder of GlobalCenter group stock that is a United States person
could be liable to pay tax at the then prevailing rates on ordinary income
plus an interest charge upon some distributions by Global Crossing Ltd. or
when that shareholder sold GlobalCenter group stock at a gain.
Furthermore, additional tax considerations would apply if Global Crossing
Ltd. or any of its affiliates were a controlled foreign corporation or a
personal holding company.
Provisions governing Global Crossing common stock could discourage a change of
control of Global Crossing and the payment of a premium for stockholders'
shares.
Global Crossing Ltd.'s 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 Global Crossing Ltd.'s
board of directors and of a majority of votes cast by shareholders at a
meeting called to approve the transfer. In addition, Global Crossing Ltd.'s
bye-laws provide for
29
<PAGE>
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 Ltd. without
approval of Global Crossing Ltd.'s board of directors.
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 GlobalCenter 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 GlobalCenter;
. investors' perceptions of investments relating to Global Crossing Ltd.;
. 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.
30
<PAGE>
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus that are not historical facts are
"forward-looking statements." Forward-looking statements can be identified by
the use of words such as "estimates," "plans," "anticipates," "expects,"
"intends," "believes" or the negative thereof or other variations thereon or
by discussions of strategy that involve risks and uncertainties. Examples of
forward-looking statements include discussions relating to:
. plans to expand our existing complex Web hosting services, applications
and professional services for enterprises doing business on the Internet;
. introductions of new products and services;
. proposals to build new data centers in various geographic areas;
. estimates of market sizes and addressable markets for our services and
products; and
. statements regarding the future course of our relationship with Global
Crossing.
We wish to caution you that all the forward-looking statements contained in
this prospectus are only estimates and predictions. Our actual results could
differ materially from those anticipated in the forward-looking statements due
to risks, uncertainties or actual events differing from the assumptions
underlying these statements. Such risks, uncertainties and assumptions
include, but are not limited to, those discussed in this prospectus.
31
<PAGE>
USE OF PROCEEDS
After deducting estimated expenses and underwriting discounts and
commissions, Global Crossing Ltd. will receive net proceeds from this offering
of approximately $ million (approximately $ million if the underwriters'
over allotment option is exercised in full) all of which it will allocate to
the GlobalCenter group.
GlobalCenter plans to use the net proceeds to finance its domestic and
international expansion and for general corporate purposes and working
capital. GlobalCenter may also use a portion of the net proceeds to make
strategic investments or acquisitions.
Pending their use by GlobalCenter, the net proceeds may be invested in
short-term securities or used to make interest-bearing loans to the Global
Crossing group. Global Crossing would use any such borrowings for general
corporate purposes.
Global Crossing Ltd. has decided to undertake this offering of the
GlobalCenter group stock at this time to raise additional capital for the
ongoing growth of the GlobalCenter group.
DIVIDEND POLICY
Because we expect to require significant capital commitments to finance our
operations and fund our future growth, Global Crossing Ltd. does not expect to
pay any dividends on shares of GlobalCenter group stock or Global Crossing
group stock for the foreseeable future. If and when the Global Crossing Ltd.
board of directors does determine to pay any dividends on shares of
GlobalCenter group stock, this determination will be based primarily on the
results of operations, financial conditions and capital requirements of
GlobalCenter and of Global Crossing Ltd. as a whole, and such other factors as
the Global Crossing Ltd. board of directors considers relevant.
In making its dividend decisions regarding GlobalCenter group stock, the
Global Crossing Ltd. board of directors will rely on the consolidated
financial statements of Global Crossing Ltd. and the combined financial
statements of GlobalCenter.
Bermuda law, the bye-laws of Global Crossing Ltd. and the terms of some of
Global Crossing Ltd.'s indebtedness limit the amount of dividends that Global
Crossing Ltd. can pay on GlobalCenter group stock. See "Description of Capital
Stock--GlobalCenter group stock--Dividends."
32
<PAGE>
CAPITALIZATION
The GlobalCenter Group
The following table sets forth the total capitalization of the GlobalCenter
group at December 31, 1999 and as adjusted to give effect to this offering of
shares of GlobalCenter group stock.
<TABLE>
<CAPTION>
As of
December 31, 1999
--------------------
As
Actual adjusted
---------- --------
(in thousands)
<S> <C> <C>
Equity:
Contributed capital...................................... $1,572,870
Accumulated deficit...................................... (42,725)
---------- -----
Total group equity..................................... 1,530,145
---------- -----
Total capitalization................................. $1,530,145 $
========== =====
</TABLE>
Global Crossing Ltd.
The following table presents as of December 31, 1999 (1) the actual
capitalization of Global Crossing Ltd., (2) its capitalization as adjusted to
give effect to its issuance of 21,673,706 shares of common stock and 4,000,000
shares of 6 3/4% cumulative convertible preferred stock of Global Crossing
Ltd. issued in April 2000 as if such issuance had occurred as of December 31,
1999 and (3) its capitalization as adjusted to give effect to those issuances
of common stock and cumulative convertible preferred stock and to this
offering of GlobalCenter group stock and the reclassification of the existing
common stock of Global Crossing Ltd. into Global Crossing group stock.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------
Pro forma
Actual Pro forma As adjusted
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt.......................... $5,018, 544 $ 5,018,544 $5,018,544
Mandatorily Redeemable and Cumulative
Convertible Preferred Stock
10 1/2% Mandatorily redeemable
preferred stock...................... 485,947 485,947 485,947
6 3/8% Cumulative convertible
preferred stock...................... 969,000 964,000 969,000
6 3/4% Cumulative convertible
preferred stock...................... -- 967,500 967,500
7% Cumulative convertible preferred
stock................................ 629,750 629,750 620,750
----------- ----------- ----------
7,103,241 8,070,741 8,070,741
Shareholders' equity
Global Crossing common stock.......... 7,992 8,209 --
Global Crossing group stock........... -- -- 8,209
GlobalCenter group stock.............. -- --
Treasury stock........................ (209,415) (209,415) (209,415)
Other shareholders' equity............ 9,578,927 10,267,485
Accumulated deficit................... (158,989) (158,989) (158,989)
----------- ----------- ----------
Total shareholders' equity.......... 9,218,515 9,907,290
----------- ----------- ----------
Total capitalization.............. $16,321,756 $17,978,031
=========== =========== ==========
</TABLE>
33
<PAGE>
SELECTED HISTORICAL 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 prospectus. The balance sheet
data as of December 31, 1997 is derived from the audited combined financial
statements not included in this prospectus. 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 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
prospective purchasers of GlobalCenter group stock 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 the 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 prospectus and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the GlobalCenter Group" which appears following this table.
34
<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 -- -- --
------- -------- -------- -------- --------
Total costs and
expenses........... 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 72,000 238,000
</TABLE>
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE GLOBALCENTER GROUP
The following discussion of our financial condition and results of
operations should be read in conjunction with the selected combined historical
financial data and combined financial statements and the related notes
included elsewhere in this prospectus. 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; content distribution, integration and
management services; systems applications; and professional services. We
deliver our services primarily to large, well-established enterprises and
newer Internet companies seeking rapid, cost-effective solutions for their
mission-critical Internet-related operations. Our 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. We expect annual amortization of the
existing goodwill and other intangibles to be approximately $148.5 million in
the future.
Prior to the completion of this offering, we obtained the majority of our
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. We also obtained some of our network access from
Frontier Corporation prior to October 1999. After the acquisition of Frontier
Corporation on September 30, 1999, the GlobalCenter group has obtained
substantially all of its network access from the Global Crossing group.
Following the completion of this offering, our 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. We
will pay for access based on this preferred market-based pricing and our
actual usage. We expect that the price we pay 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
us. Our costs for these services were based on total actual costs allocated to
us 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 10 data centers and plans to open
nine additional data centers during 2000. It typically takes us 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, we make a large capital
investment and incur significant start-up costs before generating customer
revenues at any new data center. Start-up costs are expensed as incurred. We
expect 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.
36
<PAGE>
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, we have 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 the prospectus.
Revenues. Our service revenues consist of fees from customers for Web
hosting, IP network services, content distribution, systems applications and
professional services. We typically provide our services under one-to-three
year contracts with minimum customer commitments for connectivity and
services. Service revenues are recognized as the services are provided.
Service revenues also include fees for equipment installation. Revenues for
equipment installation are recognized when installation of the equipment is
complete. Our equipment revenues consist of revenue derived from the resale to
our customers of computers, computer peripherals and networking equipment
which we buy from third parties upon receipt of a customer order. We assist
our 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 our 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.
Our 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. Our 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 our 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, we 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.
Our equipment revenues increased primarily because more customers in our
new data centers chose to purchase their equipment from us rather than
directly from a third party vendor. Equipment sales as a percentage of our
total revenue and in absolute dollars can and will fluctuate from period to
period depending on the timing and number of new data centers we open, the mix
of new and existing customers and the requirements of those customers for new
and replacement equipment. We expect that, as a general matter, equipment
sales will constitute a smaller portion of our total revenues in the future.
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 our 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 our customers, and
rent and facilities costs for the addition and expansion of our data centers.
We expect increases
37
<PAGE>
to continue with the addition of new customers and addition and expansion of
our 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 our 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. Our 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 our expanding operations and services. We expect our
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. Our 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.
Our 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 we hired additional management and
administrative personnel to support expanding operations. We expect our
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.
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 Ltd. and Frontier Corporation in September of 1999, Global
Crossing Ltd. 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 we
recognized amortization expense of $37.1 million in that quarter.
38
<PAGE>
We 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 Ltd.
in September of 1999.
Income Tax Benefit. Income taxes have been calculated on a pro-rata return
basis. Our 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. Our benefit in 1999 and 1998 reflects
the use of the GlobalCenter group 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. Our 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 our 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, we
opened four additional data centers, tripling our 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 our 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 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 our new data centers
choosing to purchase their equipment from the GlobalCenter group rather than
direct from a third party vendor.
Sales and Marketing. Our 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 we add data centers, we increase the sales and marketing personnel and
related costs to obtain new customers and to sell and market new products.
General and Administrative. Our 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 our management,
administrative and accounting personnel and processes and related costs to
support the growth in our 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.
39
<PAGE>
Goodwill and Intangibles Amortization. We 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 our data centers and the marketing and
distribution of our service offerings will continue to require substantial
capital investment. To date, we have funded our 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
our current business plan, we expect 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 we may
satisfy our 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.
Global Crossing Ltd. will manage some of our 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 Ltd. and on such other terms and conditions as the board of
directors or its capital stock committee determines to be in the best interest
of Global Crossing Ltd. Any fees incurred in connection with debt incurred
will be allocated to the borrowing group.
We also expect to require funds to make product development investments.
For example, we engaged Tanning Technology Corporation to provide consulting
and project services to help us expand our service and product solutions and
to provide an infrastructure to scale Internet businesses. We have 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 we do not currently hold any derivative instruments and do
not engage in hedging activities, management expects that the adoption of SFAS
No. 133 will not have a material impact on our financial position, results of
operations or cash flows. We will be required to implement SFAS No. 133 for
the year ending December 31, 2001.
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Year 2000
Prior to December 31, 1999, Global Crossing Ltd. took all actions necessary
to insure that its business operations would be Year 2000 compliant. In
particular, Global Crossing Ltd. 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 our operations since January 1, 2000, we do not expect any
significant impact to ongoing business as a result of the Year 2000 issue. In
addition, we are not aware of any significant Year 2000 issues or problems
that may have arisen for our 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 us. 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.
We continue to address these transition issues and do not expect the
transition to the Euro to have a material effect on our results of operations
or financial condition. We do not expect the cost of system modifications to
be material and we will continue to evaluate the impact of the Euro
conversion.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our major market risk exposure is changing interest rates. Global Crossing
Ltd. will manage most of our financial activities including investing surplus
funds, the issuance and repayment of debt and managing our interest rate risk.
Global Crossing Ltd.'s policy is to manage interest rates through the use of a
combination of fixed and floating rate debt. Global Crossing Ltd. 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's
group's current foreign operations located in Australia and England is the
United States dollar. Our foreign currency transactions are recorded based on
exchange rates at the time such transactions arise. Our existing operations,
assets and liabilities as of December 31, 1999 that are denominated in
currencies other than the United States dollar are not material. Global
Crossing Ltd., the manager for most of our financing activities, uses foreign
currency forward transactions to hedge exposure to foreign currency exchange
rate fluctuations.
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BUSINESS OF THE GLOBALCENTER GROUP
Overview
GlobalCenter is a leading provider of Internet infrastructure solutions
incorporating:
.complex Web hosting;
.IP network services, using primarily the Global Crossing network;
.hardware and software procurement and installation;
.content distribution, integration and management services;
.systems applications; and
.professional services.
We deliver our services primarily to customers seeking rapid, cost-
effective solutions for their mission-critical Internet-related operations. As
of March 31, 2000, we 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 our customer base and demand for outsourced
Internet infrastructure solutions, our annual revenues have grown from $7.7
million in 1997 to $70.9 million in 1999, a compound annual growth rate of
203%.
We currently operate 10 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, we are currently developing 10 data
centers in the United States, Europe and the Asia-Pacific region, nine of
which we plan to open by the end of this year bringing the total gross square
footage of our data centers to over 1.3 million.
Each of our 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 connectivity. Ensuring the quality,
reliability, and availability of these Internet operations typically requires
substantial
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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 IDC, the U.S. market for Web
hosting services (which does not include internet access services) 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 Strategy
Our objective is to become the leading global provider of total solutions
for our customers' mission-critical Internet infrastructure requirements. To
achieve this objective, we are implementing a business strategy focused on the
following key elements:
Enhance and expand our portfolio of value-added applications and
professional services. We currently provide a broad range of Internet
infrastructure services that allow our customers to effectively outsource the
management and operation of their Web sites to us. We intend to continue to
develop and market new services to position ourselves as a total solutions
provider for businesses' Internet infrastructure needs. We believe this will
enable us to build stronger customer relationships, maximize our revenue per
customer and grow our business. By the end of 2000, we plan 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 our global footprint by opening new data centers. We currently
operate 10 data centers located in strategic markets in the United States,
Europe and Australia. We are 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 our
customer base. We are therefore planning to open an additional nine data
centers in the United States, Europe and Australia in 2000. We are also
exploring the possibility of opening data centers in Asia in conjunction with
Asia Global Crossing, an affiliated company. We
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will continue to identify new geographic markets into which we 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. Our product development and marketing strategy is to
target industries we believe 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, we can accelerate our growth by attracting more customers and
generating higher revenue per customer, increase our gross margins, and
realize operating efficiencies.
Continue to take advantage of our unique relationship with Global
Crossing. As part of our Web hosting services, we provide businesses with high
performance Internet connectivity through Global Crossing's IP-based fiber-
optic network. We will continue to locate our data centers to take maximum
advantage of the Global Crossing network. We believe our unique relationship
with Global Crossing provides numerous competitive advantages, including
higher availability and scalability and enhanced, integrated network
monitoring and problem resolution, which improve our ability to offer our
customers service level agreements. We participate in the Network and Services
Management Committee for the Global Crossing network, allowing us to help
determine the strategic and technological direction of the network in a way
that will secure capacity and high quality service for our customers. The IP
network services we purchase from Global Crossing are available to us 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 Global Crossing. In addition, we plan to integrate our service
offerings with those offered by Global Crossing 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 our group stock is being
offered to the public in the form of a tracking stock rather than as a
separate company helps us to preserve and enhance our close ties and unique
relationship with Global Crossing and our access to the Global Crossing
network.
Expand our direct sales force and develop new channels of distribution. To
date, we have established our rapid growth and market position solely through
our direct sales efforts. In 2000, we plan to significantly expand our direct
sales force, invest in training and development and enhance sales incentives
in order to focus our sales efforts on increasing our sales of value-added
applications and professional service offerings. To complement our direct
sales efforts, we intend to develop new channels of distribution. In addition
to our sales and marketing arrangements with Global Crossing, with which we
intend to exchange sales referrals and offer bundled products and services, we
expect 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. We have 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 our
customers. We plan to continue to develop relationships with selected
technology vendors to help our customers identify the best technology
solutions for their requirements and to rapidly and effectively design and
deploy these technologies. We believe our relationship with these vendors will
enhance our ability to support our customers' needs. For example, our
relationship with Tanning Technology will broaden our service offering to
include electronic commerce solutions, better enabling us to become a total
solutions provider for our customers.
Enter into strategic partnerships and make targeted acquisitions to
complement our internal development efforts. As we develop new applications
and services, we plan to complement our internal development through strategic
relationships and acquisitions. We will seek strategic relationships that will
enable us to gain quicker access to innovative technologies, assist us with
the development of new applications and service offerings, provide us with new
distribution channels and advance our entry into new geographic markets. In
addition, we may seek to acquire companies which we believe will enable us to
cost-effectively augment our existing products and services, technology,
infrastructure, skill sets, geographic presence or customer base.
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The GlobalCenter Group's Services
We currently provide a broad range of Internet infrastructure services that
allow our customers to effectively outsource the management and operation of
their Internet operations to us. We create tailored solutions for our
customers based on their unique business and technical requirements, and
modify the services as the customers' needs evolve.
Complex Web Hosting Services
We offer complex Web hosting services designed to outsource operation of
mission-critical Web sites, based on industry-leading technologies and
offering high service level guarantees. We support all leading Internet
hardware and software systems. This flexibility enables our customers to
retain control over their technical solution and to integrate our solutions
with their existing IT technical architecture. We offer a number of services
to dedicated Web site management customers to ensure ease of implementation,
security, performance and scalability. Specifically, we provide:
. 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
We have experienced equipment services professionals available to help make
our customers' equipment purchases simple and economical. We select and
purchase equipment from various manufacturers based on customer orders and
resell it to our customers. We also arrange for equipment to be shipped
directly to a customer's location in our data centers and installed in the
appropriate location. Our equipment services allow us to move new customers
into our data centers more quickly and efficiently.
IP Network Services
We directly connect our 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 us access to Global Crossing's
extensive peering and transit relationships with other major Internet backbone
providers. Our connectivity arrangements are designed to deliver the
scalability, high availability and performance required for high-volume
bandwidth and application-intensive Internet operations. Since our customers'
Internet operations often experience traffic spikes due to promotions or
events, we typically maintain sufficient excess network capacity to handle our
customers peak traffic needs. Each of our 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 our relationship with Global Crossing, we have unique access to the
Global Crossing global network and extensive peering and transit arrangements.
We believe our connection to the Global Crossing network provides us 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
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providers will enable us 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 our
customers' Internet applications will be substantially increased. Global
Crossing has agreed to provide us with service level commitments for near
100% network availability for traffic on the Global Crossing network,
which will enable us to offer similar service levels to our customers.
. Scaling and Availability. We will have constant access to the Global
Crossing network and an ability to scale our use of the Global Crossing
network according to our needs and the needs of our customers.
. Management Committee. We participate in the Network and Service
Management Committee for the Global Crossing IP network, allowing us to
help determine the strategic and technological direction of the network
in a way that will secure capacity and high quality service for our
customers.
. Monitoring Capability. We have the ability to monitor the entire Global
Crossing network from our network control centers or the Global Crossing
network operations center, which allows us to locate, respond to and
resolve problems quickly.
. Cost Advantage. Our unique access to Global Crossing's network frees us
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 we pay for our 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
Our value-added applications and services enable our customers to improve
the performance, reliability and storage and backup capability of their
Internet operations. We believe these services will become increasingly
important to our customers. A key component of our strategy is to continue to
grow our value-added service offerings to distinguish ourselves in the
marketplace. Our current services include the following:
Performance Monitoring Services. We work 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 networks of a variety of major
service providers. The agents measure access and download times at pre-set
intervals. Our network control centers and our customers' Web managers receive
daily reports and threshold based alarms.
Content Delivery Services. We work 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. We work with StorageNetworks, a leading
storage services provider, to provide Disk-On-Demand, a highly scaleable and
reliable on-demand disk storage service we offer on a usage basis. Disk-On-
Demand gives our customers access to technologically advanced storage,
normally available only to large enterprises, on a cost effective basis.
Tape-On-Demand Storage Solution. We work with StorageTek, a leading network
storage services provider, to provide Tape-On-Demand, a backup and disaster
recovery service we offer on a usage basis. Tape-On-Demand reduces our
customers' need to invest in and manage expensive disaster recovery systems.
Security Services. Our 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 our data centers to
deliver security solutions including firewalls, encryption and authentication.
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Testing Services. Our testing services aim to identify problems that could
degrade the expected performance and availability of a customer's Web
operations. For example, our 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
Our professional services teams consult with customers on a wide range of
issues including Web applications development, Internet connectivity, server
maintenance, performance and site scaling. We believe our 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. Our professional
services currently include system architecture and design; disaster recovery,
migration and capacity planning; database optimization; and performance
tuning. Our sales engineers develop complete solutions for GlobalCenter
customers, including configuring systems and specifying hardware and software
for implementations or upgrades. We assign technical account teams, consisting
of three to five personnel, to act as our customers' on-site network and
information technology staff. Through our relationship with Tanning
Technology, we have access to Tanning Technology's information technology
services, which include electronic commerce solutions, enterprise customer
relationship management solutions and core operations solutions.
Strategic Relationships
We believe that strategic technology and marketing relationships enhance
our ability to better serve existing customers as well as reach new customers.
Our strategic relationships enable us to gain quicker access to innovative
technologies, assist us with the development of new applications and service
offerings and provide us with powerful additional sales channels. As
opportunities arise, we will continue to establish new relationships with
hardware and software vendors and application service providers. An example of
our strategic relationship strategy is our relationship with Tanning
Technology, which enables us to provide our 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 our Internet infrastructure
solutions business will enable us to provide a bundled service offering that
will include infrastructure hardware and software, operational systems and
services, integration services and e-business solutions. We have also
established a preferred marketing arrangement with Tanning Technology designed
to cross-promote and sell each other's products and services. In February 2000
we invested $10 million in Tanning Technology's common stock.
Customers
We have a large and diverse customer base ranging from large enterprises to
Web-Centric companies. As of March 31, 2000, we were serving over 500
customers, none of which accounted for 10% or more of our revenues. The
following is a representative list of our 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
Our contracts with customers generally cover the provision of services by
us for a one to three-year period and may contain, among other things, various
service level agreements. We generally provide customers with a
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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 we experience.
Sales, Marketing and Customer Service
Our sales objective is to focus on larger customers to whom we believe we
can sell multiple basic and value-added services to maximize our sales force
productivity and revenue per data center. We sell our services directly
through a highly-skilled professional sales force and receive referrals
through a network of business partners.
Sales
We use 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 our 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, we had 84 employees engaged in sales and sales support. We will actively
seek to increase our sales capabilities and coverage in the United States and
to expand internationally as additional data centers are constructed. In 2000,
we plan to significantly expand our direct sales force, invest in training and
development and enhance sales incentives in order to focus our sales efforts
on increasing our sales of value-added service offerings. To complement our
direct sales efforts, we intend to develop new channels of distribution. In
addition to our co-marketing arrangement with Global Crossing, with which we
intend to exchange sales referrals and offer bundled products and services, we
expect to build co-marketing arrangements with consulting firms, content
developers, Internet service providers, systems developers and technology
partners.
We also intend to make our service offerings available to Global Crossing's
sales force in order to market the combined company as a total
telecommunications and Internet provider. By doing so, we believe we will be
able to expand our customer base to include Global Crossing's targeted
markets, such as large multinational corporations.
Marketing
Our 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. Our marketing communications unit stimulates
service demand and brand awareness for GlobalCenter through a broad range of
marketing communications, advertising, seminars, open houses, tradeshows, as
well as through our Web site. Corporate communications focuses on cultivating
industry analyst and media relationships with the goal of securing broad media
coverage and public recognition of our leadership position in our market.
Customer Service
We are committed to providing superior customer service by understanding
the business objectives and technical requirements of our customers and by
fulfilling their needs on an individual basis. Working closely with our
customers, we seek 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 our customer service delivery and increase operating efficiencies, we
operate a centralized response center which handles inbound calls, monitoring,
and problem resolution for our data centers in the United States. We also
solicit feedback to ensure that we continue to offer the highest quality of
service. We use advanced software tools to aid in customer monitoring and
service efforts. Many of our customer service personnel have been specifically
trained and certified by the vendors of our software tools, including Sun
Microsystems, Microsoft, Oracle and Computer Associates.
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We also provide customer service and technical support during the
installation phase, including a transition team and project management
support. In addition, we provide system integration services between the
customer's Internet site and legacy systems. After installation, primary
customer support is coordinated through our 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. Our customer service personnel are also available to assist
customers whose operations require specialized procedures.
We employ network engineers and systems administrators who work with
customers to design and maintain their Internet operations. Our 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 switches of most major equipment manufacturers. They also
serve as the second level of support for customer issues that cannot be
resolved by our network control centers.
Product Management and Development
Our product management and development groups are responsible for
evaluating and developing new product ideas and strategies, including
potential partnerships related to these products. These groups work to combine
our own technology with partner expertise to offer a robust and scalable
service and product offering to our customers. We plan to complement our
internal product development through strategic relationships and acquisitions.
By partnering with the technology leaders in different service and product
categories, we are able to move our offerings to market quickly, with an
ability to support and manage them at the highest level. Our product
management group is responsible for assessing the business case and ancillary
needs for each product as well as managing the product's lifecycle. Our
product development group is responsible for research and development efforts
exploring and identifying new technologies that complement our business
strategy. We currently have 16 employees dedicated to product management and
development and expect to expand the size of these groups by the end of 2000.
Data Center Infrastructure
Our data centers are designed to deliver high availability and performance
for customers. Our data centers are physically located in major metropolitan
business centers and all but one are located directly on the Global Crossing
IP network. Our data centers are built to specifications that deliver high
standards in security, reliability and redundancy.
The physical infrastructure and security controls of our data centers have
been designed to support rigorous requirements for complex Web hosting.
Specifically, our data centers offer the following major physical benefits to
our 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. We have 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. Our 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. Our data centers are
also constructed with raised floors and seismically braced racks.
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<PAGE>
Network Connectivity. Our 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 our 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 our data centers are located directly on Global Crossing's
international IP-based fiber optic network for high bandwidth worldwide
connectivity and scale. Each of our data centers has access to the
communications networks of other major carriers.
Competition
The market served by GlobalCenter is highly competitive. There are few
substantial barriers to entry, and we expect 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;
. 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.
Our current and potential competitors in the market include Web hosting
service providers, ISPs, telecommunications companies and large information
technology outsourcing firms. Our 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 we expand our range of applications and service
offerings, we expect that the nature of our competitors will change.
Intellectual Property Rights
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in our data, applications and services. We currently have
no patents and do not rely materially on technologies we license from third
parties. As we continue to offer new services through partnerships with third
parties, we expect our reliance on licensed technology to grow. However, other
than our trademarks and service marks, we do not believe that the loss of any
particular one of our intellectual property rights would harm our business.
Government Regulation
We are 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
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<PAGE>
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 we 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. We have not yet implemented such procedures nor
evaluated the cost of complying with them. However, our 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 our 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 our
systems and network, there is no assurance that our policy will accomplish
this goal or shield us from liability under the Digital Millennium Copyright
Act.
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 us and/or our customers to potential liability,
which in turn could harm our 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 our services, increase our cost of doing
business or in some other manner harm our 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 our services or increase the cost of doing business or
in some other manner harm our 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.
Global Crossing's network and its expansion plans are subject to regulation
in the United States and internationally. See Global Crossing's Annual Report
on Form 10-K for the year ended December 31, 1999 which is incorporated in
this prospectus by reference.
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<PAGE>
Employees
As of April 7, 2000, we employed approximately 580 full-time employees.
None of our employees is covered by a collective bargaining agreement. We
believe that our employee relations are good.
Properties
Our 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. Our currently existing data centers cover an aggregate of
approximately 300,000 gross square feet. We lease 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>
- --------
*Our data centers in these locations are under development and are not yet
operational.
Legal Proceedings
We do not believe that there are any pending or threatened legal
proceedings that, if adversely determined, would have a material adverse
effect on us.
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<PAGE>
MANAGEMENT OF GLOBALCENTER INC.
The following table sets forth information regarding the management of
GlobalCenter Inc.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Leo J. Hindery, Jr...... 52 Chairman of the Board and Chief Executive Officer*
Derek Chang............. 32 Chief Financial Officer and Co-Chief Operating Officer
Laurie Priddy........... 37 Co-Chief Operating Officer
Mark J. Coleman......... 41 Executive Vice President and General Counsel
Barbara Wood............ 49 Executive Vice President, Chief Administrative Officer and Controller
Grace de Latour......... 51 Executive Vice President, Human Resources
Bruce J. Stewart........ 35 Executive Vice President, International and Corporate Development
David Krone............. 33 Executive Vice President, Communications and Marketing
David Klott............. 58 Executive Vice President and Secretary
Gary Winnick............ 52 Director*
Lodwrick M. Cook........ 71 Director*
Thomas J. Casey......... 48 Director*
Joseph P. Clayton....... 50 Director
William E. Conway, Jr... 50 Director
Eric Hippeau............ 48 Director
Kurt Baumann............ 40 Director
Chase Carey............. 46 Director
Frank M. Drendel........ 55 Director
Marc B. Nathanson....... 54 Director
</TABLE>
- --------
*Member of the Office of the Chairman of GlobalCenter Inc.
Leo J. Hindery, Jr. has served as Chief Executive Officer and as a director
of Global Crossing Ltd. since February 2000 and as Chairman and Chief
Executive Officer of GlobalCenter Inc. since December 1999. From March 1999
through November 1999, Mr. Hindery was President and Chief Executive Officer
of AT&T Broadband & Internet Services. From March 1997 until March 1999, Mr.
Hindery served as President of Tele-Communications, Inc., or "TCI," which was
the predecessor company to AT&T Broadband & Internet Services. Prior to
joining TCI, Mr. Hindery was Managing General Partner of InterMedia Partners,
a cable television system operator that he founded in 1988. Mr. Hindery is a
director of GT Group Telecom Inc., Tanning Technology Corp., TD Waterhouse
Group, Inc. and VerticalNet, Inc. He is also Vice Chairman of the Museum of
Radio and Television and a director of C-SPAN. Mr. Hindery is a member of the
Stanford Business School Advisory Council and of the Board of Trustees of
Hampton University, and a director of the Daniels Fund.
Derek Chang has served as Chief Financial Officer and Co-Chief Operating
Officer of GlobalCenter Inc. since April 2000. From March 1999 to March 2000
he was the Executive Vice President of Corporate Development for AT&T
Broadband & Internet Services. From April 1997 to March 1999 he worked for TCI
as Executive Vice President of Corporate Development and was the Assistant to
the President of TCI from April 1997 to October 1998. From July 1994 to March
1997, he was with InterMedia Partners in a variety of capacities, the most
recent of which was Treasurer.
Laurie Priddy has served as GlobalCenter Inc.'s Co-Chief Operating Officer
since January 15, 2000. From March 1999 to January 2000, Ms. Priddy served as
President and Chief Executive Officer of the National Digital Television
Center, a subsidiary of AT&T Broadband & Internet Services and President of
the Interactive Offering Group. From May 1997 until March 1999, Ms. Priddy
served as Vice-President, Advanced Platforms and Services for CableLabs. From
January 1985 to March 1999, Ms. Priddy held various management and technical
positions at Bell Atlantic and Pacific Bell.
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<PAGE>
Mark J. Coleman has served as Executive Vice President and General Counsel
of GlobalCenter Inc. since January 1, 2000. Before joining GlobalCenter Inc.,
he was a senior partner in Orrick, Herrington & Sutcliffe LLP's Corporate
Department and a member of the firm's Project Finance Group. Mr. Coleman
joined Orrick, Herrington & Sutcliffe LLP in June 1998. From 1991 to 1998, Mr.
Coleman was a partner at Pillsbury Madison & Sutro LLP.
Barbara Wood has served as Executive Vice President, Chief Administrative
Officer and Controller of GlobalCenter Inc., since April 1, 2000. From April
1997 to March 1999, Ms. Wood was the Executive Vice President of Financial
Operations for AT&T Broadband & Internet Services. From March 1999 to March
2000, Ms. Wood was the Executive Vice President of Financial Operations for
TCI. From September 1992 to March 1997, Ms. Wood was Executive Director of
Budgets and Regulatory Affairs for InterMedia Partners.
Grace de Latour has been the Executive Vice President, Human Resources for
GlobalCenter Inc. since April 1, 2000. From March 1999 through March 2000, Ms.
de Latour was the Executive Vice-President, Employee Relations for AT&T
Broadband & Internet Services. From July 1997 until March 1999, Ms. de Latour
was Executive Vice-President, Employee Relations for TCI. Prior to joining
TCI, from January 1995 until July 1997, Ms. de Latour was Executive Director,
Human Resources at InterMedia Partners. She currently serves on the board of
CTHRA (Cable and Telecommunications Human Resource Associates).
Bruce J. Stewart has served as GlobalCenter Inc.'s Executive Vice President
of International and Corporate Development since January 15, 2000. From
January 1993 to January 2000, Mr. Stewart served as Partner, Vice President &
General Counsel and Executive Director of Communications for InterMedia
Partners. From 1991 to January 1993, Mr. Stewart served as legal counsel for
Scholastic Productions, Inc.
David Krone has served as Executive Vice President, Communications and
Marketing of GlobalCenter Inc. since February 1, 2000. Before joining
GlobalCenter Inc., Mr. Krone served from October 1999 to January 2000 as
Executive Vice President of the National Cable Television Association. From
March 1999 to October 1999, he served as Executive Vice President, Government
Relations of AT&T Broadband & Internet Services. From June 1994 to March 1999,
Mr. Krone served as head of TCI's Washington, DC office, supervising all
Congressional and Federal Communications Commission relations.
David Klott has served as Executive Vice President and Secretary of
GlobalCenter Inc. since February 2000. Before that, Mr. Klott was a senior
partner at the law firm of Pillsbury Madison & Sutro LLP which he joined in
1966.
Gary Winnick has served as a director of GlobalCenter Inc. since February
1, 2000. Mr. Winnick is the founder of Global Crossing Ltd. and serves as
Chairman of the Board of Global Crossing Ltd. Mr. Winnick is the founder and
since 1985 has been the Chairman and Chief Executive Officer of Pacific
Capital Group, Inc., which is a leading merchant bank specializing in
telecommunications, media and technology and which has a substantial equity
investment in Global Crossing Ltd.
Lodwrick M. Cook has served as a director of GlobalCenter Inc. since
February 1, 2000. Mr. Cook is Co-Chairman of the Board of Global Crossing Ltd.
He has served as Vice Chairman and Managing Director of Pacific Capital Group
since 1997. He became Chairman of Global Marine Systems, a wholly-owned
subsidiary of Global Crossing Ltd., in 1999. Prior to joining Pacific Capital
Group, Mr. Cook spent 39 years at Atlantic Richfield Co., last serving as
Chairman of the Board of Directors from 1986 to 1995, when he became Chairman
Emeritus. Mr. Cook is also a member of the Board of Directors of Castle &
Cooke, Inc., Litex, Inc. and 911Notify.com.
Thomas J. Casey has served as a director of GlobalCenter Inc. since
February 1, 2000. Mr. Casey has been Vice Chairman and a director of Global
Crossing Ltd. since December 1998, after having been appointed Managing
Director of Global Crossing Ltd. in September 1998. Prior to joining Global
Crossing Ltd., Mr. Casey was co-head of Merrill Lynch & Co.'s Global
Communications Investment Banking Group for three years. From
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<PAGE>
1990 to 1995, Mr. Casey was a partner and co-head of the telecommunications
and media group of the law firm of Skadden, Arps, Slate, Meagher and Flom. Mr.
Casey also serves as president of Pacific Capital Group. Mr. Casey is also a
member of the board of directors of Value America, Inc. and StorageNetworks,
Inc.
Joseph P. Clayton has served as a director of GlobalCenter Inc. since
February 1, 2000. Mr. Clayton is also a director of Global Crossing Ltd. He
has also served as President, Global Crossing North America since that time.
Mr. Clayton was Vice-Chairman of Global Crossing Ltd. from September 1999 to
March 2000. Prior to the Merger with Global Crossing, Mr. Clayton was Chief
Executive Officer of Frontier since August 1997 having served as Frontier's
President and Chief Operating Officer from June 1997 to August 1997. Prior
thereto, he was Executive Vice President, Marketing and Sales--Americas and
Asia, Thomson Consumer Electronics, a worldwide leader in the consumer
electronics industry.
William E. Conway, Jr. has served as a director of GlobalCenter Inc. since
February 2000. Mr. Conway is also a director of Global Crossing Ltd. He has
been a managing director of The Carlyle Group, a private global investment
firm, since 1987. Prior thereto, Mr. Conway was Senior Vice President and
Chief Financial Officer of MCI Communications Corporation. Mr. Conway also
serves as director of Nextel Communications, Inc.
Eric Hippeau has served as a director of GlobalCenter Inc. since February
1, 2000. Mr. Hippeau is also a director of Global Crossing Ltd. He is Chairman
and Chief Executive Officer of Ziff-Davis Inc., a publicly listed company
whose majority shareholder is Softbank Corp. Ziff-Davis Inc. is a leading
integrated media and marketing company focused on computing and internet-
related technology. Mr. Hippeau has held this position since December 1993,
prior to which he held other senior executive positions within Ziff-Davis. He
is also a director of Ziff-Davis Inc., Yahoo!, Inc., and Starwood Hotels and
Resorts Worldwide, Inc.
Kurt Baumann has served as a director of GlobalCenter Inc. since February
1, 2000. Mr. Baumann is the Chief Executive Officer of Inter.net Ltd., an
international consumer Internet and portal business which was spun-off from
PSINet in April 2000. From 1996 to April 2000, Mr. Baumann has been acting as
an investor, board member and business advisor to various consumer Internet
startups. Mr. Baumann previously founded InterCon Systems Inc., an Internet
connectivity software company.
Chase Carey has served as a director of GlobalCenter Inc. since February 1,
2000. Mr. Carey has served as the Co-Chief Operating Officer of News
Corporation since 1996 and as Chairman and Chief Executive Officer of FOX
Television since 1995. Mr. Carey joined FOX, Inc. as Executive Vice President
in 1998, and served as Chief Executive Officer before being named Chief
Operating Officer of FOX, Inc. in 1992. Mr. Carey is a director of News
Corporation, the Fox Entertainment Group, Gateway, TV Guide, Inc. and Colgate
University.
Frank M. Drendel has served as a director of GlobalCenter Inc. since
February 1, 2000. Mr. Drendel has served as Chairman and Chief Executive
Officer of CommScope, Inc. of North Carolina since its spin-off from General
Instrument Corporation in 1997. Prior to CommScope's spin-off from General
Instrument Corporation, Mr. Drendel served as its President and Chairman from
1986 to 1997. Mr. Drendel is a director of Nextel Communications, Inc., C-SPAN
and the National Cable Television Association.
Marc B. Nathanson has served as a director of GlobalCenter Inc. since
February 1, 2000. Mr. Nathanson has served as Chairman and Chief Executive
Officer of Enstar Communications Corporation since 1998. Mr. Nathanson was
Chairman and Chief Executive Officer of Falcon Holding Group, Inc. and its
predecessors from 1975 to 1999. Prior to 1975, he held executive positions
with Teleprompter Corporation, Warner Cable and Cypress Communications
Corporation. Mr. Nathanson is a director of Charter Communications, Inc.,
Digital Entertainment Network, Inc. and the National Cable Television
Association.
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<PAGE>
Election of Directors
Pursuant to his employment agreement, Mr. Hindery has, in addition to his
own seat on GlobalCenter Inc.'s board of directors, the right to nominate one
less than a majority of the total number of directors of GlobalCenter Inc.'s
board, and the election of such nominees shall not be unreasonably denied.
Under this arrangement, Mr. Baumann, Mr. Carey, Mr. Drendel, Mr. Hindery and
Mr. Nathanson serve as directors of GlobalCenter Inc. Mr. Hindery can
therefore nominate five of the 11 directors of GlobalCenter Inc. Global
Crossing Ltd., as the indirect sole stockholder of GlobalCenter Inc., has the
right to nominate six of the 11 directors of GlobalCenter Inc. and elect all
11 directors, subject to the limitations described above. This right will
continue regardless of the level of the Global Crossing group's inter-group
interest in the GlobalCenter group.
Compensation of Directors
Directors of GlobalCenter Inc. who are not employees of GlobalCenter Inc.
or Global Crossing Ltd. do not receive any compensation other than
reimbursement for their expenses in attending meetings of the board of
directors of GlobalCenter Inc. Non-employee directors are eligible for awards
under the GlobalCenter Management Stock Plan.
Executive Compensation
For compensation information regarding compensation of Global Crossing
Ltd.'s five most highly compensated officers for the year ended December 31,
1999, see Global Crossing Ltd.'s Annual Report on Form 10-K for the year ended
December 31, 1999, which is incorporated in this prospectus by reference.
The following table presents information concerning the compensation we
paid for the year ended December 31, 1999 to our chief executive officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------- -------------------------
Securities
Underlying All Other
Name Year(1) Salary Bonus Options Compensation
- ---- ------- ------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Leo J. Hindery, Jr.
Chairman and Chief Executive
Officer....................... 1999 $41,667 -- 500,000(2) --
(3)
</TABLE>
- --------
(1) Mr. Hindery commenced his employment with GlobalCenter in December 1999.
(2) Represents options to purchase shares of Global Crossing group stock.
(3) Represents options to purchase shares of GlobalCenter group stock.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
% of Total Potential Realizable Value at
Number of Options Per Assorted Annual Rates of
Securities Granted Share Stock Price Appreciation For
Underlying to Employees Exercise Option Term
Options in Fiscal or Base Expiration ------------------------------
Name Granted Year Price Date 5% 10%
- ---- ---------- ------------ -------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leo J. Hindery, Jr. 500,000(1) 1.37%(1) $45.00(1) 12/5/09(1) $ 14,150,129 $35,859,205
Chairman and Chief
Executive Officer..... (2) 100%(2) (2) (2)
</TABLE>
- --------
(1) Relates to options to purchase shares of Global Crossing group stock.
(2) Relates to options to purchase shares of GlobalCenter group stock.
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<PAGE>
Leo J. Hindery, Jr. Employment Agreement
In December 1999, we entered into an employment agreement with Mr. Hindery
providing for Mr. Hindery's employment as Chairman and Chief Executive Officer
of GlobalCenter Inc. The employment agreement provides for an annual base
salary of $500,000 and a guaranteed annual bonus of $500,000, plus certain
perquisites and benefits including medical insurance. The agreement provides
for an initial three-year term with automatic extensions for consecutive one
year terms until either party terminates it upon 30 days written notice before
the applicable anniversary date. Mr. Hindery received stock options to
purchase up to 500,000 shares of Global Crossing group stock at an exercise
price of $45 per share. Mr. Hindery also is entitled to receive an option to
purchase an amount of GlobalCenter group stock equal to 5.5% of the
GlobalCenter group stock for an aggregate strike price of $110 million. Both
sets of options vest as follows: 34% vested on December 5, 1999 and an
additional 22% will vest on each of the first three anniversary dates
thereafter. 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 options to
purchase Global Crossing group stock at an exercise price of $54.375 per
share. These options vest ratably over three years.
If Mr. Hindery is terminated by GlobalCenter for any reason other than for
"cause," as defined in Mr. Hindery's employment agreement, or death or
disability, his options will become immediately vested and GlobalCenter will
pay his base salary and any guaranteed bonuses remaining to be paid through
the end of his then current term of employment. The agreement also allows Mr.
Hindery to resign in the event of a "cause event" as defined in Mr. Hindery's
employment agreement, and thereby his options will become immediately vested
and GlobalCenter will pay the remainder of his base salary and guaranteed
bonuses. If Mr. Hindery is terminated due to his death or disability, his
options will become immediately vested.
In the event that any payments received by Mr. Hindery are subject to
excise tax under Section 4999 of the Internal Revenue Code, Mr. Hindery will
be entitled to an additional payment to protect him from paying the excise
tax.
In January 2000, the board of directors authorized Global Crossing Ltd. to
enter into change in control agreements with Global Crossing Ltd.'s executive
officers and certain other key executives. To date, Mr. Hindery is the only
member of GlobalCenter Inc. management who has entered into is a change of
control agreement. 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 Mr. Hindery, if, within 24 months
of the month in which a Change in Control occurs, his employment is terminated
by Global Crossing Ltd. (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 Mr. Hindery's agreement 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 Ltd. representing 20% or more of the
combined voting power of its 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 Ltd. is merged or consolidated
with any other company, other than a merger or consolidation which would
result in its shareholders immediately
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<PAGE>
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 Ltd. is completely liquidated or it sells
or disposes of all or substantially all of its assets, other than the
liquidation of Global Crossing Ltd. into a wholly owned subsidiary.
Management Stock Plan
The GlobalCenter Management Stock Plan, which we refer to as 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
on April 12, 2000. It will be submitted to the stockholders of Global Crossing
Ltd. for approval at the special meeting of Global Crossing Ltd. shareholders
called to authorize the creation of GlobalCenter group stock. The board of
directors adopted the Management Stock Plan to enable GlobalCenter 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 filed as an exhibit to the registration statement of
which this prospectus is a part.
Awards. The terms of the Management Stock Plan provide 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" 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 Ltd. 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 Ltd. 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 Ltd. adopted the GlobalCenter
2000 Stock Plan, which we refer to as the "2000 Stock Plan," on April 12,
2000. The 2000 Stock Plan will be submitted to the stockholders of Global
Crossing Ltd. for approval at the special meeting of Global Crossing Ltd.
shareholders called to authorize the creation of GlobalCenter group stock. The
board of directors adopted the 2000 Stock Plan to enable GlobalCenter 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 this
offering.
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 filed as an exhibit to the registration statement of which this
prospectus is a part.
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 Ltd. 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 Global Crossing Ltd. board of
directors are eligible to be granted awards under the 2000 Stock Plan.
Administration. The 2000 Stock Plan is administered by the Global Crossing
Ltd. 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 board of directors of Global Crossing Ltd. All terms
regarding each option are fixed by the Global Crossing Ltd. board of directors
in an award agreement, except that no option may have a term exceeding ten
years. Options may be
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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.
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.
Certain Relationships
Mr. Hindery, Chairman and Chief Executive Officer of GlobalCenter Inc., is
a director of Tanning Technology. GlobalCenter and Tanning Technology are
parties to a preferred marketing arrangement and a services agreement.
Pursuant to the services agreement GlobalCenter agreed to purchase $10 million
of Tanning Technology's services over a 12-month period, beginning February
2000. In addition, GlobalCenter purchased $10 million of Tanning Technology
common stock in February 2000.
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SELECTED HISTORICAL FINANCIAL DATA OF GLOBAL CROSSING LTD.
Recent Financial Accounting Developments
During the third and fourth quarters of 1999, changes in Global Crossing
Ltd.'s business activities, together with a newly effective accounting
standard, caused Global Crossing Ltd. 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 Ltd. has accounted
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 Ltd.'s
revenue. Consequently, Global Crossing Ltd. 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 Ltd. 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 Ltd. 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, Global Crossing Ltd.'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 Ltd. 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 Ltd.
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 Ltd. 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 Ltd. 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 Ltd. will recognize revenue without deferral upon payment and
activation.
Global Crossing Ltd. 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 Ltd. 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.
Selected Historical Financial Data
The table below shows selected historical financial data for Global
Crossing Ltd. This data has been prepared using the consolidated financial
statements of Global Crossing Ltd. 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
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results of Frontier 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 information should be read in conjunction with pro forma
financial information of Global Crossing Ltd. and notes incorporated by
reference into this prospectus.
. During the year ended December 31, 1999, Global Crossing Ltd. 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 Ltd.
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 Ltd. 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 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, Global Crossing Ltd. completed its 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 Ltd., 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 Ltd. 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 Ltd. 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 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%.
. On September 28, 1999, Global Crossing Ltd. completed the acquisition of
Frontier Corporation in a merger transaction valued at over $10 billion,
with Frontier shareholders receiving 2.05 shares of Global Crossing Ltd.
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, Global Crossing Ltd. 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 Ltd. entered into a definitive agreement
to merge with U S WEST, Inc. On July 18, 1999, Global Crossing Ltd. 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
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paid Global Crossing Ltd. a termination fee of $140 million in cash and
returned 2,231,076 shares of Global Crossing Ltd. common stock purchased
in a related tender offer, and Qwest committed to purchase capacity on the
Global Crossing Ltd. network at established market unit prices for
delivery over the next four years and committed to make purchase price
payments to Global Crossing Ltd. for this capacity of $140 million over
the next two years. During the year ended December 31, 1999, Global
Crossing Ltd. 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 Ltd. acquired the
rights from those entitled to fees payable under the advisory services
agreement in consideration from the issuance of common stock having an
aggregate value of $135 million and the cancellation of approximately $3
million owed to Global Crossing Ltd. under a related advance agreement.
As a result of this transaction, Global Crossing Ltd. recorded a non-
recurring charge in the approximate amount of $138 million during the
year ended December 31, 1998. In addition, Global Crossing Ltd.
recognized as an expense approximately $2 million of advisory fees
incurred prior to termination of the contract.
. Global Crossing Ltd. 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 Ltd.'s major financial agreements. This information
should not be considered as an alternative to any measure of performance
as promulgated under GAAP. Global Crossing Ltd.'s calculation of adjusted
EBITDA may be different from the calculation used by other companies and,
therefore, comparability may be limited.
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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 Global Crossing Ltd.'s audited consolidated financial statements
and should be read in conjunction with the audited consolidated financial
statements and notes incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
Period from
March 19, 1997
(Date of Inception) to Year Ended Year Ended
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>
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<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>
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RELATIONSHIP BETWEEN THE GLOBALCENTER GROUP
AND THE GLOBAL CROSSING GROUP
The board of directors of Global Crossing Ltd. 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
we have filed as an exhibit to the registration statement of which this
prospectus is a part.
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 the board of directors of Global Crossing Ltd. or
its capital stock committee determines to be in the best interests of Global
Crossing Ltd., 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 Ltd. Under the policy statement of
Global Crossing Ltd., 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
The policy statement of Global Crossing Ltd. provides that a capital stock
committee comprised of three independent directors will exercise the powers,
authority and responsibilities that the board of directors of Global Crossing
Ltd. delegates to it with respect to the GlobalCenter group stock and Global
Crossing group stock. The board of directors of Global Crossing Ltd. will
initially authorize the capital stock committee to interpret, make
determinations under, and oversee the implementation of these policies, adopt
additional general policies governing the relationship between the Global
Crossing group and the GlobalCenter group, and 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 Global Crossing Ltd.'s
board of directors and the capital stock committee will act in a fiduciary
capacity and pursuant to legal guidance concerning their respective
obligations under applicable law.
Corporate Opportunities
The policy statement of Global Crossing Ltd. provides that its 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 Ltd. 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 Global Crossing Ltd.'s 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 Ltd. 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.
Relationships Between Groups
The policy statement provides that Global Crossing Ltd. 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.
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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.
Under the policy statement of Global Crossing Ltd., "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 of Global Crossing Ltd., "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 Services 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 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
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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.
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
Global Crossing Ltd. 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. Global
Crossing Ltd.'s 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 the consolidated
indebtedness of Global Crossing Ltd. and on such other terms and conditions as
the board of directors of Global Crossing Ltd. or its capital stock committee
determines to be in the best interests of Global Crossing Ltd. Any fees
incurred in connection with debt incurred for a particular group will be
allocated to the borrowing group.
Intellectual Property
Global Crossing Ltd. will manage on a centralized basis the intellectual
property of Global Crossing Ltd. 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.
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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."
Dividend Policy
The policy statement of Global Crossing Ltd. 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 Global
Crossing Ltd.'s board of directors.
The payment of dividends on either class of common stock will be a business
decision to be made by Global Crossing Ltd.'s 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
Ltd. 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 Ltd. does not expect to pay any dividends
on either class of common stock for the foreseeable future.
Financial Reporting; Allocation Matters
Financial Reporting
The policy statement of Global Crossing Ltd. provides that it 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 Global Crossing Ltd.'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 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
The policy statement of Global Crossing Ltd. provides that the board of
directors of GlobalCenter Inc. will at all times be composed of six directors
appointed by the board of directors of Global Crossing Ltd. and five directors
appointed by the board of directors of Global Crossing Ltd. upon the
nomination of 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;
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. 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.
Amendment and Modification of Policy
The board of directors of Global Crossing Ltd. may, without the approval of
Global Crossing Ltd.'s shareholders, at any time and from time to time, amend,
modify or rescind the policies set forth in the policy statement of Global
Crossing Ltd., including any resolution implementing the provisions of the
policy statement of Global Crossing Ltd. The board of directors of Global
Crossing Ltd. also may, without the approval of Global Crossing Ltd.'s
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 the 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.
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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.
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 Ltd., in which case this assumption will not be true if the
GlobalCenter group stock that is held by persons other than Global Crossing
Ltd. 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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DESCRIPTION OF CAPITAL STOCK
The following is a description of the material terms of capital stock of
Global Crossing Ltd., does not purport to be complete and is subject in all
respects to the applicable provisions of Bermuda law and of the constituent
documents of Global Crossing Ltd. We encourage you to read Global Crossing
Ltd.'s memorandum of association, bye-laws and the Certificate of
Designations, all of which we have filed or incorporated by reference as
exhibits to the registration statement of which this prospectus is a part.
Authorized and outstanding shares of Global Crossing Ltd. common stock
Current capital structure
Global Crossing Ltd. is currently authorized to issue 3,020,000,000 shares
of 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 3/8% cumulative convertible preferred stock, (3)
2,600,000 shares of 7% 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
Global Crossing Ltd. intends to hold a special meeting of shareholders at
which resolutions will be adopted to permit it to increase its authorized
share capital to 4,500,000,000 common shares and redesignate Global Crossing
Ltd.'s common shares into two or more classes of common stock, as well as to
approve the terms of the Global Crossing group stock and GlobalCenter group
stock. Effective upon the creation of GlobalCenter group stock at the time of
the completion of this offering, Global Crossing Ltd. will file a memorandum
of increase in share capital reflecting this increase, with 3,000,000,000 of
the authorized shares designated as Global Crossing group stock and
1,000,000,000 of the authorized shares designated as GlobalCenter group stock.
In addition, at the time of the completion of this offering, Global Crossing
Ltd.'s outstanding common shares will be designated as Global Crossing group
stock.
Issuances of common stock without shareholder approval
After the completion of this offering, Global Crossing Ltd.'s board of
directors may issue the remaining authorized but unissued shares of
GlobalCenter group stock (subject to approval by the board of directors of
GlobalCenter Inc.) and Global Crossing group stock from time to time for any
proper corporate purposes. Global Crossing Ltd.'s board of directors also may
decide to authorize the issuance of shares of additional classes of common
stock relating to additional business groups as described below, in addition
to GlobalCenter group stock and Global Crossing group stock. Global Crossing
Ltd.'s board of directors has the authority to issue additional authorized but
unissued shares of GlobalCenter group stock (subject to approval by the board
of directors of GlobalCenter Inc.) or Global Crossing group stock or shares of
additional classes of common stock in its sole discretion and without
shareholder approval, except as may be required by Bermuda law, the Nasdaq
National Stock Market or the rules of any stock exchange on which any class of
outstanding common stock may then be listed.
If Global Crossing Ltd.'s board of directors decides to issue additional
classes of common stock, it may establish a new group to which such new class
or classes of common stock relates either by allocating to it newly acquired
assets or by reallocating to it some of the assets and liabilities from one or
more of the GlobalCenter group, the Global Crossing group and any previously
created additional group. If Global Crossing Ltd.'s board of directors decides
to reallocate assets and liabilities, the group or groups to which those
assets and liabilities were previously attributed would initially hold an
inter-group interest in the new group. Global Crossing Ltd.'s board of
directors does not currently have any plan to issue any additional class of
common stock.
Global Crossing Ltd.'s board of directors may at any time and without
shareholder approval increase the number of authorized shares allocated to
Global Crossing group stock or any additional class of common stock
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(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 authorized common stock of Global Crossing Ltd.
Approval of the holders of GlobalCenter group stock 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.
GlobalCenter group stock
Inter-group interest
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. Prior to the completion of this offering, the
Global Crossing group holds 100% of the equity value of the GlobalCenter
group. Global Crossing Ltd.'s board of directors has determined that the
number of shares of GlobalCenter group stock that, if issued, would initially
represent 100% inter-group interest of the GlobalCenter group equals .
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 this 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 = outstanding
interest 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 Global Crossing Ltd. 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
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convertible securities, 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 by
Global Crossing Ltd. 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 Global Crossing Ltd. 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 Global Crossing Ltd. 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 Global Crossing
Ltd.'s 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.
Global Crossing Ltd.'s 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, Global Crossing Ltd.'s 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.
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Any group may hold an inter-group interest in any other group, unless
Global Crossing Ltd.'s board of directors determines otherwise at the time of
initial issuance of common stock relating to that group. However, no group can
hold an inter-group interest in any other 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 acquire an inter-group interest in the GlobalCenter
group. If the GlobalCenter group held 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 GlobalCenter group stock
will be limited to the lesser of:
. the funds of Global Crossing Ltd. legally available for distributions
under Bermuda law; and
. the available distribution amount for the GlobalCenter 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 the GlobalCenter group is calculated
as follows:
. the outstanding interest fraction for the GlobalCenter group,
multiplied by
the lesser of:
. any amount in excess of the minimum amount necessary to pay debts
attributed to the GlobalCenter group as they become due; and
. the realizable 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.
Under Bermuda law, the amount of legally available funds of Global Crossing
Ltd. is determined on the basis of the entire company, and not only the
respective groups. As a result, the amount of Global Crossing Ltd.'s 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 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 GlobalCenter group was met. We
cannot assure you that there will be an available distribution amount for the
GlobalCenter group or, if met, that Global Crossing Ltd. 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, Global Crossing Ltd.'s
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
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its dividend decisions, Global Crossing Ltd.'s 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 Global Crossing Ltd.'s debt instruments also place
limitations on its 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, Global Crossing Ltd. 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 Global Crossing Ltd.'s
shareholders are, by Bermuda law, Nasdaq listing rules or stock exchange rules
or by the provisions of Global Crossing Ltd.'s bye-laws as determined by
Global Crossing Ltd.'s 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 Global Crossing Ltd. issues 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 Global Crossing
Ltd.'s 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.
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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
. 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 Global Crossing Ltd.'s
common stock to acquire such percentage by acquiring the class of common stock
having a greater number of votes per share.
Global Crossing Ltd. will set forth the number of outstanding shares of
GlobalCenter group stock, Global Crossing group stock and any additional class
of common stock in the Global Crossing Ltd. Annual Report on Form 10-K and its
Quarterly Reports on Form 10-Q filed under the Securities Exchange Act of
1934. Global Crossing Ltd. 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 Global Crossing Ltd.'s bye-laws as determined by the board of
directors of Global Crossing Ltd. 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 Global Crossing Ltd.'s 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
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. 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 0.5 votes based on the following
calculation:
average market value of =$20 per share =0.5 votes per share of
GlobalCenter group stock $40 per share GlobalCenter group
average market value of stock
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
Ltd. 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 Ltd.
These amounts are calculated as follows:
0.5 votes per share of x10 million outstanding shares =5 million votes
GlobalCenter group stock of GlobalCenter group stock for
1 vote per share x400 million shares of GlobalCenter group stock
=400 million
of Global Crossing group Global Crossing group stock votes for
stock
5 million votes for GlobalCenter group Global Crossing
stock group stock
= 1.2% of total voting
power held by GlobalCenter
5 million votes for GlobalCenter group group stock
stock +
400 million votes for Global Crossing
group stock
400 million votes for Global Crossing = 98.8% of total voting
group stock power held by Global
5 million votes for GlobalCenter group Crossing group stock
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;
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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 1.25 votes based on the following
calculation:
average market value of =$50 per share =1.25 votes per share of
GlobalCenter group $40 per share GlobalCenter group
stock stock
average market value of
Global Crossing group
stock
x 200 million =
outstanding 250 million votes
1.25 votes per = 38.5% of total
share of voting
power held by
shares of GlobalCenter
GlobalCenter group GlobalCenter group group stock
stock stock
Because the total voting power of GlobalCenter group stock would exceed the
25% limitation, Global Crossing Ltd. 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
x + y of common stock
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 + 400,000,000
x = 0.25x + 100,000,000
0.75x = 100,000,000
x = 133,333,333 maximumvotes for
holders ofGlobalCenter group
stock
Global Crossing Ltd. will then calculate the maximum number of votes per
share of GlobalCenter group stock as follows:
x
the number of shares of GlobalCenter 133,333,333 0.667 votes per share
= =
group stock outstanding 200,000,000 of GlobalCenter group
stock
Voting restrictions
Under Global Crossing Ltd.'s 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
Ltd. common shares, 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 Ltd. common shares, the number of
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votes of that shareholder will be limited to 9.5% of the aggregate voting
power of the Global Crossing Ltd. common shares, 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 Ltd. common shares, 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 existing Global Crossing Ltd. common stock.
Conversion and repurchase
Conversion of common stock at option of Global Crossing Ltd. at any time
Except as described below, Global Crossing Ltd.'s 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 Global Crossing Ltd.
common stock, as determined by Global Crossing Ltd.'s 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 GlobalCenter group stock
to the average market value of one share of the other class of Global Crossing
Ltd. common stock during a 20-trading day period. Similarly, except as
described below, Global Crossing Ltd.'s 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 Global Crossing Ltd. common
stock, as determined by Global Crossing Ltd.'s board of directors at the time
of conversion, equal to a percentage 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 Global Crossing Ltd. common stock during a 20-
trading day period. Global Crossing Ltd. will calculate the ratio of average
market values as of the fifth trading day prior to the date it mails 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
implementation of the tracking stock proposal, 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 Global Crossing Ltd.'s 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 Global Crossing Ltd.'s board
of directors 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 Ltd. 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 the chair thereof.
regardless of whether the amendment, clarification, change or proposed change
is issued to or in connection with a proceeding involving Global Crossing Ltd.
as a whole, the Global Crossing group or the GlobalCenter group
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and regardless of whether the amendment, clarification, change or proposed
change is issued to or in connection with a proceeding involving Global
Crossing Ltd., 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 Global Crossing Ltd. or any of its subsidiaries of any
of the assets, operations or relevant subsidiaries to which Global
Crossing group stock or GlobalCenter group stock relates;
. the issuance or existence of Global Crossing group stock or
GlobalCenter group stock would subject Global Crossing Ltd., its
subsidiaries, affiliates, 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 Ltd. 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 Ltd.
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 Global Center group stock would result in any of the
consequences described in (b) above.
These provisions allow Global Crossing Ltd. the flexibility to recapitalize
two classes of common stock into one class of common 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 common 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 Global Crossing
Ltd.'s 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 all of Global Crossing
Ltd.'s shareholders. 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 GlobalCenter group stock may not
have any remedies for breach of fiduciary duties if any action by directors
and officers has a disadvantageous effect on GlobalCenter group stock" and "--
Potential conflicts of interest exist between Global Crossing group stock and
GlobalCenter group stock that may be difficult to resolve by Global Crossing
Ltd.'s 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 common 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 Global
Crossing Ltd.'s 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 Global Crossing Ltd.'s board of directors or its
management that investors perceive to affect differently one class of stock
compared to the other. These decisions could include changes to Global
Crossing Ltd.'s 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 Global Crossing Ltd. common stock at Global Crossing Ltd.'s
option at any time after the second year after the completion of this
offering. 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;
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<PAGE>
. 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;
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
110% x GlobalCenter group stock = shares of Global Crossing group stock
average market value of
Global Crossing group stock
1.1 x $20 per share = 0.55 shares of Global Crossing group stock
$40 per share
Repurchase for stock of subsidiary
Global Crossing Ltd.'s board of directors may at any time repurchase on a
pro rata basis all of the outstanding shares of GlobalCenter group stock for
shares of the common stock of one or more of Global Crossing Ltd.'s 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 Global Crossing Ltd.
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. Global Crossing Ltd. 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, Global Crossing Ltd. 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.
Global Crossing Ltd. may repurchase shares of GlobalCenter group stock for
subsidiary stock only if it has legally available funds under Bermuda law.
These provisions are intended to give Global Crossing Ltd. increased
flexibility with respect to spinning off the assets of the GlobalCenter group
by transferring the assets of the GlobalCenter group to one or more wholly-
owned subsidiaries. As a result of any such repurchase, each of the holders of
Global Crossing group stock and the holders of GlobalCenter group stock would
hold securities of separate legal entities operating in distinct lines of
business. Global Crossing Ltd. currently does not have any intention of
spinning off the assets of the GlobalCenter group; however, this repurchase
could be authorized by Global Crossing Ltd.'s 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 all of Global
Crossing Ltd.'s shareholders as a whole.
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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 Global Crossing Ltd.'s 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;
then Global Crossing Ltd. will exchange 10 million shares of common stock of
that GlobalCenter group subsidiary for GlobalCenter group stock based on the
following calculation:
<TABLE>
<S> <C> <C>
outstanding x the number of shares of common stock of that = shares of
interest fraction GlobalCenter group subsidiary that will be GlobalCenter
outstanding immediately after the repurchase group
subsidiary
0.10 x 100 million = 10 million shares
</TABLE>
As a result of the Global Crossing group's 90% inter-group interest, Global
Crossing Ltd. 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 Global Crossing Ltd. disposes of all or substantially all of the
properties and assets attributed to 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," it is required to take action that returns the value of
the net proceeds of those assets to the holders of the GlobalCenter group's
stock. That action could take the form of a dividend, a repurchase of shares
or a conversion into another class of Global Crossing Ltd.'s common stock.
Accordingly, if Global Crossing Ltd. disposes of all or substantially all
of the properties and assets attributed to the GlobalCenter group in a
transaction or series of related transactions other than those described
below, it will:
. pay a dividend to the holders of shares of the GlobalCenter 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 the GlobalCenter 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 the GlobalCenter
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-trading day period beginning on the 26th trading day following the
disposition date; or
. convert each outstanding share of the GlobalCenter group's stock into a
number of shares of another class of Global Crossing Ltd. common stock,
as determined by Global Crossing Ltd.'s 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 Ltd. at any
time," of the ratio of the average market value of one
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share of stock of the group whose assets are disposed to the average
market value of one share of the other class of Global Crossing Ltd.
common stock during the 10-trading day period beginning on the 26th
trading day following the disposition date.
Global Crossing Ltd. may only pay a dividend or repurchase shares of
GlobalCenter group stock if it has 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 GlobalCenter group. Global Crossing Ltd. 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 the
GlobalCenter 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 the GlobalCenter group.
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 Global Crossing Ltd.'s board of directors
for:
. any taxes Global Crossing Ltd. estimates will be payable by it, or which
it estimates 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 GlobalCenter group, 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 the GlobalCenter group.
Global Crossing Ltd. 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 Global
Crossing Ltd.'s 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 Global Crossing Ltd. 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 share
interest number of outstanding
fraction shares of
GlobalCenter group
stock
0.10 x $100 million = $1 per share
10 million shares
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As a result of the Global Crossing group's 90% inter-group interest, Global
Crossing Ltd. will credit to the Global Crossing group, and charge against the
GlobalCenter group, $90 million.
(2) repurchase for $20 per share a number of shares of GlobalCenter
group stock equal to:
outstanding x net proceeds = shares of
average market value GlobalCenter group
interest of stock
fraction GlobalCenter group
stock
0.10 x $100 million = 500,000 shares
$20 per share
As a result of the Global Crossing group's 90% inter-group interest, Global
Crossing Ltd. 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:
110% x average market value of = shares of Global Crossing
Global Center group stock group stock
-------------------------------
average market value of
Global Crossing group stock
1.1 x $20 per share = 0.55 shares of Global
------------------------------- Crossing group stock
$40 per share
Global Crossing Ltd.'s 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 GlobalCenter group,
convert each outstanding share of the GlobalCenter group's stock into a number
of shares of another class of Global Crossing Ltd. common stock, as determined
by Global Crossing Ltd.'s 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
GlobalCenter group to one share of the other class of Global Crossing Ltd.'s
common stock over a 20-trading day period, unless Global Crossing Ltd. would
be entitled to convert without any premium as described under "--Conversion of
common stock at option of Global Crossing Ltd. at any time." In that event,
there will be no premium. Global Crossing Ltd. will calculate the ratio of
average market values as of the fifth trading day prior to the date it mails
the conversion notice to holders.
The following illustration demonstrates the calculation of the number of
shares issuable upon conversion of GlobalCenter group stock into shares of
another class of Global Crossing Ltd. common stock within two years after a
dividend following a disposition of substantially all of the GlobalCenter
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 Crossing group
stock
average market value
of
Global Crossing
group stock
1.1 x $20 per share = 0.275 shares of Global Crossing
$80 per share group stock
Exceptions to the mandatory dividend, repurchase or conversion requirement
if a disposition occurs. Global Crossing Ltd. is not required to take any of
the above actions for any disposition of all or substantially all of the
properties and assets attributed to the GlobalCenter group in a transaction or
class of related transactions that results in Global Crossing Ltd. 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 business conducted by the
GlobalCenter group prior to the disposition, as determined by Global
Crossing Ltd.'s board of directors.
The purpose of this exception is to enable Global Crossing Ltd. 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 the GlobalCenter group without requiring a dividend
on, or a repurchase or conversion of, the class of stock of the GlobalCenter
group, so long as Global Crossing Ltd. receives an equity interest in that
entity. Global Crossing Ltd. is not required to control that entity, whether
by ownership or contract provisions.
Global Crossing Ltd. is also not required to effect a dividend, repurchase
or conversion if the disposition is:
. of all or substantially all of Global Crossing Ltd.'s properties and
assets in one transaction or a series of related transactions in
connection with its dissolution and the distribution of its assets to
shareholders;
. on a pro rata basis, such as in a spin-off, to the holders of all
outstanding shares of GlobalCenter group stock and, to the extent that
the GlobalCenter group 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 Global Crossing Ltd., as
determined by Global Crossing Ltd.'s board of directors; or
. a disposition conditioned upon the affirmative vote of a majority of all
votes cast by the holders of the GlobalCenter 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, Global Crossing Ltd. will
announce publicly by press release:
. the net proceeds of the disposition;
. the number of shares outstanding of GlobalCenter group stock;
. the number of shares of the GlobalCenter 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, Global Crossing Ltd. will
announce publicly by press release whether it will pay a dividend or
repurchase shares of stock with the net proceeds of the disposition or convert
the shares of GlobalCenter group stock into another class of Global Crossing
Ltd. common stock.
Global Crossing Ltd. will mail to each holder of shares of the GlobalCenter
group the additional notices and other information required by Global Crossing
Ltd.'s bye-laws.
Selection of shares for repurchase. If fewer than all of the outstanding
shares of GlobalCenter stock are to be repurchased, Global Crossing Ltd. will
repurchase those shares proportionately from among the holders of outstanding
shares of GlobalCenter group stock or by such method as may be determined by
Global Crossing Ltd.'s board of directors to be equitable.
Fractional interests; transfer taxes. Global Crossing Ltd. will not be
required to issue fractional shares of any capital stock or any fractional
securities to any holder of GlobalCenter group stock upon any conversion,
repurchase, dividend or other distribution described above. If a fraction is
not issued to a holder, Global Crossing Ltd. will pay cash instead of that
fraction.
Global Crossing Ltd. 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 dissolution of Global Crossing Ltd. after
payment or provision for payment of its 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 Global Crossing Ltd.'s remaining net assets.
In the event of Global Crossing Ltd.'s 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 that is subsequently created will be
entitled to receive Global Crossing Ltd.'s 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 Global Crossing
Ltd.'s board of directors shall determine at the time of issuance.
The number of liquidation units to which each share of GlobalCenter group
stock is entitled will not be changed without the approval of the holders of
GlobalCenter group stock voting as a separate voting group, 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 GlobalCenter group
stock may not bear any relationship to the relative market values or the
relative voting rights of the two classes and any additional class of tracking
stock.
No holder of GlobalCenter group stock will have any special right to
receive specific assets of the GlobalCenter group in the case of Global
Crossing Ltd.'s dissolution.
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If Global Crossing Ltd. subdivides or combines the outstanding shares of
GlobalCenter group stock or declares a dividend or other distribution of
shares of GlobalCenter group stock to holders of GlobalCenter group stock, the
number of liquidation units of the other class or classes of stock will be
appropriately adjusted. This adjustment will be made by Global Crossing Ltd.'s
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 Ltd.
into or with any other corporation, nor any sale, conveyance, lease, exchange
or transfer of all or substantially all of its assets, will, alone, be deemed
to cause the dissolution of Global Crossing Ltd., for purposes of these
liquidation provisions.
Determinations by the board of directors
Any determinations made in good faith by Global Crossing Ltd.'s board of
directors with respect to GlobalCenter group stock and Global Crossing group
stock will be final and binding on all of Global Crossing Ltd.'s shareholders.
Preemptive rights
The holders of GlobalCenter group stock will not have any preemptive
rights.
Global Crossing group stock
Inter-group interest
The Global Crossing group's inter-group interest in the GlobalCenter group,
and the limitations on the GlobalCenter group's ability to acquire an inter-
group interest in the Global Crossing group, are described under "--
GlobalCenter group stock--Inter-group interest."
Dividends
Dividends on Global Crossing group stock will be limited to the lesser of:
. the funds of Global Crossing Ltd. legally available for distributions
under Bermuda law; and
. the Global Crossing group available distribution amount.
The Global Crossing group available distribution amount will be calculated
in a manner similar to the manner in which the GlobalCenter group available
distribution amount is calculated. See "--GlobalCenter group stock--
Dividends."
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, at the time of any dividend on
the outstanding shares of Global Crossing group stock, Global Crossing Ltd.
will credit to the combined financial statements of the GlobalCenter group,
and charge against the combined financial statements of the Global Crossing
group, a corresponding amount in respect of the GlobalCenter group's inter-
group interest in the Global Crossing group.
Conversion and Repurchase
Global Crossing group stock is subject to the conversion and repurchase
provisions described under "--GlobalCenter group stock--Conversion and
repurchase."
Voting rights
The holders of Global Crossing group stock have the voting rights described
under "--GlobalCenter group stock--Voting rights."
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Liquidation rights
In the event of the dissolution of Global Crossing Ltd., the holders of
Global Crossing group stock are entitled to receive funds as described under
"--GlobalCenter group stock--Liquidation rights."
Preemptive rights
The holders of Global Crossing group stock will not have any preemptive
rights.
Additional classes of common stock
Although Global Crossing Ltd. does not have any current plan to issue any
additional classes of common stock, Global Crossing Ltd.'s 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. Global Crossing Ltd.'s 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.
If Global Crossing Ltd.'s board of directors decides to issue additional
classes of common stock, Global Crossing Ltd. 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, Global
Crossing Ltd.'s 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 Global Crossing Ltd.'s board of
directors.
Global Crossing Ltd.'s 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, Global Crossing Ltd.'s 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.
Share dividends in Global Crossing group stock or GlobalCenter group stock
and distributions of assets attributed to the Global Crossing group or the
GlobalCenter group to the holders of additional tracking stock may be made
only with respect to that additional group's inter-group interest, if any, in
the particular group.
Certain anti-takeover provisions of Bermuda law and Global Crossing Ltd.'s
bye-laws
The following discussion concerns certain provisions of Bermuda law and
Global Crossing Ltd.'s bye-laws that could be viewed as having the effect of
discouraging an attempt to obtain control of Global Crossing Ltd.
Authorized but unissued shares of common stock
Global Crossing Ltd. may from time to time issue up to 4,500,000,000 shares
of common stock in two or more classes, as determined by its board of
directors. Global Crossing Ltd. will not solicit approval of its shareholders
for the issuance of authorized but unissued shares of common stock unless
Global Crossing Ltd.'s 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 Global Crossing Ltd.'s 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 Ltd. by means of a
merger, tender offer, proxy contest or otherwise, and protect the continuity
of Global Crossing Ltd.'s management. These additional shares also could be
used to dilute the share ownership of persons seeking to obtain control of
Global Crossing Ltd.
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 Global Crossing Ltd.'s
management would still be required to seek control of the voting power
represented by all of the outstanding common stock of Global Crossing Ltd.
entitled to vote on that acquisition, including the classes of common shares
related to the other groups.
Shareholder nominations and proposals
Global Crossing Ltd.'s 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 Ltd. 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 Global Crossing Ltd.'s bye-laws, each share
of Global Crossing Ltd. 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 Ltd. capital stock, the number of votes of that shareholder
will be limited to 9.5% of the aggregate voting power of the Global Crossing
Ltd. 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 Ltd. 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 Global Crossing Ltd.'s
board of directors and shareholders holding at least 75% of the votes of all
outstanding shares of common stock. In the event of
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any amendment to these bye-laws, under certain circumstances, Global Crossing
Ltd. 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 Ltd. without approval
of Global Crossing Ltd.'s board of directors.
Staggered board
Global Crossing Ltd.'s 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 Global Crossing Ltd.'s board of directors. At least
two annual meetings of shareholders, instead of one, generally will be
required to change the majority of Global Crossing Ltd.'s board of directors.
The classification provisions of Global Crossing Ltd.'s 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 Ltd.
Stock transfer agent and registrar
Global Crossing Ltd.'s 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.
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CERTAIN UNITED STATES FEDERAL INCOME TAX AND BERMUDA TAX CONSEQUENCES
United States federal income tax consequences
The following discussion is a summary of the material United States federal
income tax consequences to United States persons of the ownership of
GlobalCenter group stock. This discussion is based on the Internal Revenue
Code, applicable Treasury regulations, administrative rulings and
pronouncements and judicial decisions as of the date of this document, all of
which could change. Any change, which may be retroactive, could alter the tax
consequences we discuss in this document. In particular, Congress could enact
legislation affecting the treatment of stock with characteristics similar to
GlobalCenter group stock, or the Treasury could issue regulations that change
current law. Any future legislation or regulations could apply retroactively
to the offering of GlobalCenter group stock. Unless otherwise specified, when
we use the term "Global Crossing Ltd." in this discussion, we are referring to
Global Crossing Ltd. without any of its subsidiaries. You are a United States
person if you are
. a citizen or resident of the United States;
. a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
. an estate, the income of which is subject to United States federal income
taxation regardless of its source;
. a trust that (1) is subject to the supervision of a court within the
United States and the control of one or more United States persons or (2)
has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
The discussion below, except where specifically noted, does not address the
effects of any state, local or non-United States tax laws. In addition, the
discussion below assumes that you hold your GlobalCenter group stock and will
hold your GlobalCenter group stock as a capital asset, and does not address
the tax consequences that may be relevant to you in light of your particular
circumstances. Moreover, it does not present a description of the United
States federal income tax consequences applicable to you if you are subject to
special treatment under the United States federal income tax laws, including
if you are:
. a dealer in securities or currencies;
. a trader in securities if you elect to use a mark-to-market method of
accounting for your securities holdings;
. a financial institution;
. an insurance company;
. a tax-exempt organization;
. a person liable for alternative minimum tax;
. a person holding stock as part of a hedging, integrated or conversion
transaction, constructive sale or straddle;
. a person owning 10% or more of the voting stock of Global Crossing Ltd.
or any of its non-United States corporate subsidiaries;
. a United States person whose "functional currency" is not the United
States dollar; or
. not a United States person.
Tax matters are very complicated, and the tax consequences to you of the
purchase, ownership or disposition of GlobalCenter group stock will depend
upon the facts of your particular situation. We encourage you to consult your
own tax advisors 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.
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In the opinion of Simpson Thacher & Bartlett, our counsel, for federal
income tax purposes, GlobalCenter group stock will be considered common stock
of Global Crossing Ltd. Accordingly, for federal income tax purposes, we
believe neither you nor Global Crossing Ltd. or any of its subsidiaries will
recognize any income, gain or loss as a result of the issuance of GlobalCenter
group stock.
No ruling has been sought from the Internal Revenue Service, which we refer
to as the "IRS." The IRS has announced that it will not issue 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 GlobalCenter group stock. It is
possible, therefore, that the IRS could assert that the issuance of
GlobalCenter group stock could result in taxation to Global Crossing Ltd. or
its subsidiaries.
The Clinton Administration proposed legislation in February 2000 dealing
with tracking stock such as GlobalCenter group stock. Such proposal would,
among other things, grant authority to the Secretary of the Treasury to treat
tracking stock as something other than stock or as stock of another entity.
The proposal also would treat the receipt of stock similar to GlobalCenter
group stock in exchange for other stock in the corporation or in a
distribution by the issuing corporation as taxable to the shareholders. If
this proposal is enacted, it could have adverse tax consequences for you or
Global Crossing Ltd. or any of its subsidiaries. A similar proposal was made
in 1999. Congress did not act on the 1999 proposal, and Global Crossing Ltd.
cannot predict whether Congress will act upon this proposal or any other
proposal relating to tracking stock. Global Crossing Ltd. may convert
GlobalCenter group stock or Global Crossing group stock into shares of the
other series without any premium if there is more than an insubstantial risk
of adverse United States federal income tax developments. The proposal of the
Clinton Administration would be such an adverse development if it is
implemented or results in certain legislative action.
Distributions
Distributions made to you on or with respect to GlobalCenter group stock
will be treated as dividends and will be taxable as ordinary income to the
extent that those distributions are made out of Global Crossing Ltd.'s current
or accumulated earnings and profits as determined for United States federal
income tax purposes. Subject to the passive foreign investment company rules
discussed below, to the extent that the amount of any distribution exceeds
Global Crossing Ltd.'s current or accumulated earnings and profits for a
taxable year, the excess will be treated as a tax-free return of capital which
reduces your tax basis in the GlobalCenter group stock to the extent of the
tax basis, and any remaining amount will be treated as capital gain from the
sale or exchange of property. If you are a corporation you generally will not
be entitled to claim a dividends received deduction with respect to
distributions made on or with respect to your GlobalCenter group stock because
Global Crossing Ltd. is a foreign corporation. Global Crossing Ltd. does not
currently pay dividends on its common stock and does not anticipate paying
dividends on GlobalCenter group stock in the foreseeable future.
For so long as Global Crossing Ltd. is a "United States-owned foreign
corporation", distributions with respect to the GlobalCenter group stock that
are taxable as dividends generally will be treated for United States foreign
tax credit purposes as either (1) foreign source "passive income" or, in the
case of some holders of GlobalCenter group stock, foreign source "financial
services income" or (2) United States source income, in proportion to the
earnings and profits of Global Crossing Ltd. in the year of the distribution
allocable to foreign and United States sources, respectively. For this
purpose, Global Crossing Ltd. will be treated as a United States-owned foreign
corporation so long as stock representing 50% or more of the voting power or
value of Global Crossing Ltd. is owned, directly or indirectly, by United
States persons.
Disposition
Subject to the passive foreign investment company and controlled foreign
corporations rules discussed below, gain or loss you realize on the sale,
exchange or other taxable disposition of GlobalCenter group stock
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will be subject to United States federal income taxation as capital gain or
loss in an amount equal to the difference between the amount realized on that
sale, exchange or other disposition and your adjusted tax basis in the
GlobalCenter group stock surrendered. The gain or loss will be long term
capital gain or loss if your holding period for the GlobalCenter group stock
is more than one year. Any gain or loss so realized will generally be United
States source. Your ability to deduct capital losses is subject to
limitations.
Passive Foreign Investment Company
In general, Global Crossing Ltd. will be classified as a "passive foreign
investment company" for any taxable year if either (1) at least 75% of Global
Crossing Ltd.'s gross income is passive income or (2) at least 50% of the
value, determined on the basis of a quarterly average, of Global Crossing
Ltd.'s assets produce or are held for the production of passive income. If
Global Crossing Ltd. owns at least 25%, by value, of another company's stock,
Global Crossing Ltd. will be treated, for purposes of the passive foreign
investment company rules, as owning its proportionate share of the assets and
receiving its proportionate share of the income of that company. We believe
that Global Crossing Ltd. is not a passive foreign investment company and we
do not expect it to become a passive foreign investment company in the future
for United States federal income tax purposes, although we cannot assure you
in this regard. See "Risk Factors--Holders of GlobalCenter group stock may be
subject to Foreign Personal Holding Company, Passive Foreign Investment
Company, Controlled Foreign Corporation and Personal Holding Company rules".
This conclusion is a factual determination made annually and is subject to
change. In addition, it is based, in part, on interpretations of existing law
that we believe are reasonable, but which have not been approved by any taxing
authority.
If Global Crossing Ltd. is classified as a passive foreign investment
company in any year with respect to which a United States person is a
shareholder, Global Crossing Ltd. generally will continue to be treated as a
passive foreign investment company with respect to that shareholder in all
succeeding years, regardless of whether it continues to meet the income or
asset test described above, subject to certain possible shareholder elections
that may apply in some circumstances.
If Global Crossing Ltd. is treated as a passive foreign investment company
. Distributions made by Global Crossing Ltd., including distributions made
on or with respect to GlobalCenter group stock, during a taxable year to
a shareholder with respect to its stock that are "excess distributions",
which are generally defined as the excess of the amount received with
respect to that stock in any taxable year over 125% of the average
received in the shorter of either the three previous years or the
shareholder's holding period before the taxable year, must be allocated
ratably to each day of the shareholder's holding period. The amounts
allocated to the current taxable year and to taxable years before the
first year in which Global Crossing Ltd. was classified as a passive
foreign investment company are included as ordinary income in the
shareholder's gross income for that current year. The amount allocated to
each other prior passive foreign investment company taxable year is
subject to tax at the highest rate in effect for that taxable year and
the tax is subject to an interest charge at the rate applicable to
deficiencies in income taxes.
. The entire amount of any gain realized upon the sale or other disposition
including for these purposes, a pledge of GlobalCenter group stock, will
be treated as an excess distribution made in the year of sale or other
disposition. As a result, that gain will be treated as ordinary income
and, to the extent allocated to PFIC years before the year of sale or
disposition, will be subject to the interest charge described above. In
addition, shareholders who acquire their GlobalCenter group stock from
decedents generally will not receive a "stepped up" basis in the stock.
Instead, these shareholders will have a tax basis equal to the lower of
the fair market value of the stock or the decedent's basis.
The special passive foreign investment company tax rules described above
will not apply to a holder of GlobalCenter group stock if the shareholder (1)
elects to have Global Crossing Ltd. treated as a "qualified electing fund" or
(2) makes a mark to market election.
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. Qualified electing fund election. If Global Crossing Ltd. is treated as a
passive foreign investment company, it intends to notify its shareholders
and to provide to its shareholders all information that may be required
to make the qualified electing fund election effective. A shareholder
that makes a qualified electing fund election will be taxable currently
on its pro rata share of Global Crossing Ltd.'s ordinary earnings and net
capital gain, at ordinary income and capital gain rates, respectively,
for each taxable year of Global Crossing Ltd. during which it is treated
as a passive foreign investment company, regardless of whether or not
distributions were received. The shareholder's basis in the GlobalCenter
group stock will be increased to reflect taxed but undistributed income.
Distributions of income that had previously been taxed will result in a
corresponding reduction of basis in the GlobalCenter group stock and will
not be taxed again as a distribution to the shareholder.
. Mark to market election. The mark to market election is only available
with respect to stock that is regularly traded on a qualified exchange,
including specified United States exchanges and other exchanges
designated by the United States Treasury. We have applied to list the
GlobalCenter group stock on the Nasdaq National Market which is a
qualified exchange for purposes of the mark to market election, although
no assurance can be given that the GlobalCenter group stock will be
regularly traded for these purposes. In general, an electing shareholder
will include in each year as ordinary income the excess, if any, of the
fair market value of that stock at the end of the taxable year over its
adjusted basis and will be permitted an ordinary loss in respect of the
excess, if any, of the adjusted basis of that stock over its fair market
value at the end of the taxable year, but only to the extent of the net
amount previously included in income as a result of the mark to market
election. The electing shareholder's basis in the stock will be adjusted
to reflect any of these income or loss amounts. Any gain or loss on the
sale of the GlobalCenter group stock will be ordinary income or loss,
except that a loss will be ordinary loss only to the extent of the
previously included net mark to market gain.
A shareholder who owns GlobalCenter group stock during any year that Global
Crossing Ltd. is a passive foreign investment company must file IRS Form 8621.
Shareholders are urged to consult their tax advisors concerning the United
States federal income tax consequences of holding GlobalCenter group stock if
Global Crossing Ltd. is a passive foreign investment company, including the
advisability and availability of making any of the elections described above.
Foreign Personal Holding Company
A foreign corporation will be classified as a foreign personal holding
company if:
. at any time during the corporation's taxable year, five or fewer
individuals, who are United States citizens or residents, directly or
indirectly own more than 50% of the corporation's stock by either voting
power or value; we refer to this as the "shareholder test"; and
. the corporation receives at least 60% of its gross income (50% after the
initial year of qualification), as adjusted, for the taxable year from
certain passive sources; we refer to this as the "income test."
It is possible that Global Crossing Ltd. or one of its non-United States
subsidiaries will meet the income test in a given year. However, we do not
expect that the shareholder test will be met. Accordingly, it is not expected
that Global Crossing Ltd. or any of its non-United States subsidiaries will be
treated as a foreign personal holding company, although we cannot assure you
in this regard. Global Crossing Ltd. intends to manage its affairs so as to
attempt to avoid or minimize having income imputed to its shareholders under
these rules, to the extent this management of its affairs is consistent with
its business goals.
If Global Crossing Ltd. or one of its non-United States subsidiaries were
classified as a foreign personal holding company, all shareholders, including
certain indirect holders, regardless of their percentage ownership, would be
required to include in income, as a dividend, their pro rata share of Global
Crossing Ltd.'s or its relevant non-United States subsidiary's undistributed
foreign personal holding company income if they were holders on the last day
of Global Crossing Ltd.'s taxable year or, if earlier, the last day on which
Global Crossing Ltd. satisfied the shareholder test. Foreign personal holding
company income is generally equal to taxable income
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with certain adjustments. In addition, if Global Crossing Ltd. were classified
as a foreign personal holding company, shareholders who acquire their
GlobalCenter group stock from decedents would not receive a "stepped-up" basis
in that stock. Instead, these shareholders would have a tax basis equal to the
lower of the fair market value of the stock or the decedent's basis.
Personal Holding Company
A corporation classified as a personal holding company is subject to a
39.6% tax on its undistributed personal holding company income. Foreign
corporations like Global Crossing Ltd. determine their liability for personal
holding company tax by considering only (1) gross income derived from United
States sources and (2) gross income that is effectively connected with a
United States trade or business. A corporation will be classified as a
personal holding company if:
. at any time during the last half of the corporation's taxable year, five
or fewer individuals own more than 50% of the corporation's stock
measured by value, directly or indirectly; and
. the corporation receives at least 60% of its adjusted gross income from
certain passive sources.
However, if a corporation is a foreign personal holding company or a
passive foreign investment company, it cannot be a personal holding company.
It is possible that Global Crossing Ltd. or one of its subsidiaries will meet
the income test in a given year. However, it is not expected that the
shareholder test will be met. Accordingly, it is not expected that Global
Crossing Ltd. or any of its subsidiaries will be treated as a personal holding
company, although we cannot assure you in this regard. Global Crossing Ltd.
intends to manage its affairs so as to attempt to avoid or minimize the
imposition of the personal holding company tax, to the extent this management
of its affairs is consistent with its business goals.
Controlled Foreign Corporations
For purposes of this discussion, when we use the term "10% United States
shareholders", we mean United States persons who individually own, or are
deemed for United States federal income tax purposes to own, under complex
attribution and constructive ownership rules, 10% or more of the voting stock
of Global Crossing Ltd. or any of its non-United States subsidiaries.
If 10% United States shareholders own, in the aggregate, more than 50%,
measured by voting power or value, of the shares of Global Crossing Ltd. or
any of its non-United States corporate subsidiaries, directly, indirectly, or
by attribution, Global Crossing Ltd. or any of its non-United States
subsidiaries would be a controlled foreign corporation. If characterized as
controlled foreign corporations, then a portion of the undistributed income of
Global Crossing Ltd. and its non-United States subsidiaries may be includible
in the taxable income of 10% United States shareholders of those entities, and
a portion of the gain recognized by 10% United States shareholders on the
disposition of their shares in Global Crossing Ltd., including shares of
GlobalCenter group stock, which could otherwise qualify for capital gains
treatment, may be converted into ordinary dividend income. It is possible that
Global Crossing Ltd. and its non-United States subsidiaries may be controlled
foreign corporations or may become controlled foreign corporations in the
future. However, as discussed above, controlled foreign corporation status
generally only has potentially adverse consequences to 10% United States
shareholders.
In order to attempt to prevent any United States person from being a 10%
United States shareholder of Global Crossing Ltd., the bye-laws of Global
Crossing Ltd. generally provide, among other things, that no holder of common
stock in Global Crossing Ltd. or any group of holders through whom ownership
may be attributed to another holder by the constructive ownership or
attribution rules of Section 958 of the Internal Revenue Code will be allowed
to cast votes with respect to more than 9.5% of the common stock, and some
restrictions have been placed on the transferability of shares. See
"Description of Capital Stock--Certain anti-takeover provisions of Bermuda law
and Global Crossing Ltd.'s bye-laws--Voting and transfer restrictions." We
cannot assure you that these limitations will prevent the characterization of
Global Crossing Ltd. or any of its non-United States
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subsidiaries as a controlled foreign corporation or of any shareholder as a
10% United States shareholder. However, a shareholder that owns directly less
than 10% of the common stock generally will not be treated as a 10% United
States shareholder unless it is attributed common stock owned by other
shareholders.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to dividends in
respect of the GlobalCenter group stock or the proceeds received on the sale,
exchange, or redemption of the GlobalCenter group stock paid within the United
States and, in some cases, outside of the United States, to shareholders other
than certain exempt recipients, such as corporations, and a 31% backup
withholding may apply to the amounts if the shareholder fails to provide an
accurate taxpayer identification number or to report dividends required to be
shown on its United States federal income tax returns. The amount of any
backup withholding from a payment to a shareholder will be allowable as a
refund or credit against the shareholder's United States federal income tax
liability, provided that the required information or appropriate claim for
refund is furnished to the Internal Revenue Service.
Bermuda tax consequences
As of the date of this document, there is no Bermuda income, corporation or
profits tax, withholding tax, capital gains tax, capital transfer tax, estate
duty or inheritance tax payable in respect of capital gains realized on a
disposition of GlobalCenter group stock or in respect of distributions made on
or with respect to GlobalCenter group stock. Under current Bermuda law,
neither Global Crossing Ltd. nor GlobalCenter is subject to tax on income or
capital gains. Furthermore, Global Crossing Ltd. has obtained from the
Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection
Act 1966 an undertaking that, in the event that Bermuda enacts any legislation
imposing tax computed on profits, income, any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance tax, then
the imposition of that tax will not be applicable to Global Crossing Ltd. or
to any of its operations or the shares, debentures or other obligations of
Global Crossing Ltd., until March 28, 2016. This undertaking does not,
however, prevent the application of any tax or duty to persons ordinarily
resident in Bermuda or of any tax payable pursuant to The Land Tax Act 1967 of
Bermuda or otherwise payable in relation to land leased to Global Crossing
Ltd.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, the underwriters named below have severally agreed
to purchase, and we have agreed to sell to them, severally, the number of
shares of GlobalCenter group stock set forth opposite the names of the
underwriters below:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated..............................
Credit Suisse First Boston Corporation.........................
Chase Securities Inc...........................................
Bear, Stearns & Co. Inc........................................
Donaldson, Lufkin & Jenrette Securities Corporation............
Goldman, Sachs & Co............................................
Salomon Smith Barney Inc.......................................
----
Total........................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of shares of GlobalCenter group
stock are subject to the approval of certain legal matters by their counsel
and to certain other conditions. The underwriters are obligated to take and
pay for all of the shares of GlobalCenter group stock offered hereby if any
are taken. However, the underwriters are not required to take or pay for the
shares covered by the underwriters' over-allotment option described below.
The underwriters initially propose to offer part of the shares of
GlobalCenter group stock directly to the public at the public offering price
set forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public offering
price. Any underwriter may allow, and such dealers may reallow, a concession
not in excess of $ a share to other underwriters or to certain dealers.
After the initial offering of the shares of GlobalCenter group stock, the
offering price and other selling terms may from time to time be varied by the
underwriters.
Global Crossing Ltd. has granted to the underwriters an option, exercisable
within 30 days of the date of the underwriting agreement, to purchase up to an
additional shares of GlobalCenter group stock at the public offering price
listed on the front cover of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with the offering of
the shares of GlobalCenter group stock offered by this prospectus. To the
extent the option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of the additional shares of GlobalCenter group stock as the number listed next
to that underwriter's name in the preceding table bears to the total number of
shares of GlobalCenter group stock listed in the preceding table. If the
underwriters' over-allotment option is exercised in full, the total price to
public would be $ , the total underwriters' discounts and commissions would
be $ and the total proceeds to Global Crossing and GlobalCenter would be
$ .
Global Crossing Ltd. has applied for quotation of the GlobalCenter group
stock on the Nasdaq National Market under the symbol "GCTR."
At the request of Global Crossing Ltd., the underwriters have reserved for
sale, at the initial offering price, up to shares offered in this
prospectus for directors, officers, employees, business associates and related
persons of GlobalCenter. The number of shares of GlobalCenter group stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered in this prospectus.
98
<PAGE>
Each of Global Crossing Ltd. and the directors and executive officers of
GlobalCenter has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, it, he or she will
not, during the period ending 180 days after the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of GlobalCenter group stock or any
securities convertible into or exercisable or exchangeable for
GlobalCenter group stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any
GlobalCenter group stock,
whether any transaction described above is to be settled by delivery of
GlobalCenter group stock or such other securities, or otherwise.
However, Global Crossing Ltd. may:
. grant stock options or stock awards under Global Crossing Ltd.'s existing
benefit or compensation plans, including the Management Stock Plan and
the 2000 Stock Plan,
. issue shares of GlobalCenter group stock upon the exercise of options,
warrants or rights or the conversion of currently outstanding securities,
. issue shares of Global Crossing group stock, and
. issue, offer and sell shares of GlobalCenter group stock or securities
convertible into, or exercisable or exchangeable for, GlobalCenter group
stock in transactions not involving a public offering, or in connection
with future acquisitions, as long as each recipient of the securities
agrees in writing to be bound by the restrictions in this paragraph.
In order to facilitate the offering of the shares of GlobalCenter group
stock, the underwriters may engage in transactions that stabilize, maintain or
otherwise affect the price of the GlobalCenter group stock. Specifically, the
underwriters may over-allot in connection with the offering, creating a short
position in the GlobalCenter group stock for their own account. In addition,
to cover over-allotments or to stabilize the price of the GlobalCenter group
stock, the underwriters may bid for, and purchase, the GlobalCenter group
stock in the open market. Finally, the underwriters may reclaim selling
concessions allowed to a dealer for distributing the GlobalCenter group stock
in the offering, if the underwriters repurchase previously distributed
GlobalCenter group stock in transactions to cover their short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the GlobalCenter group stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
Certain of the underwriters have engaged in transactions with and performed
various investment banking and other services for Global Crossing Ltd. in the
past and may do so from time to time in the future. Citibank, N.A., an
affiliate of Salomon Smith Barney Inc., and the Chase Manhattan Bank, an
affiliate of Chase Securities Inc., are lenders to Global Crossing Ltd. under
its existing credit facility. Salomon Smith Barney Inc., Goldman, Sachs & Co.
and Merrill Lynch, Pierce, Fenner & Smith Incorporated were initial purchasers
of Global Crossing Ltd.'s 6 3/8% cumulative convertible preferred stock and
Salomon Smith Barney Inc., Goldman, Sachs & Co., Chase Securities Inc., Credit
Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities
Corporation and Morgan Stanley & Co. Incorporated were initial purchasers of
Global Crossing Ltd.'s 7% cumulative convertible preferred stock, for which
they received customary fees. Salomon Smith Barney, Inc., Goldman Sachs & Co.,
Bear, Stearns & Co. Inc., Chase Securities Inc., Credit Suisse First Boston
Corporation, Donaldson, Lufkin & Jenrette Securities Corporation and Morgan
Stanley & Co. Incorporated acted as underwriters for Global Crossing Ltd.'s
April 2000 common stock offering, for which they received customary fees.
Goldman Sachs & Co. and Salomon Smith Barney Inc. acted as underwriters for
Global Crossing Ltd.'s April 2000 offering of its 6 3/4% cumulative
convertible preferred stock, for which they received customary fees.
99
<PAGE>
Global Crossing Ltd. and the underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments that the underwriters may be required to
make.
Pricing of the Offering
Prior to the offering, there has been no public market for GlobalCenter
group stock. The initial public offering price of the shares of GlobalCenter
group stock offered in this prospectus will be determined by negotiation among
Global Crossing Ltd. and the representatives of the underwriters. The factors
considered in determining the initial public offering price included the
history of and the prospects for the industry in which GlobalCenter competes,
the past and present operations of GlobalCenter, the historical results of
operations of GlobalCenter, the prospects for future earnings of GlobalCenter,
the recent market prices of securities of generally comparable companies and
the general condition of the securities markets at the time of the offering.
The estimated initial public offering price range set forth on the cover page
of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
Appleby, Spurling & Kempe in Hamilton, Bermuda will pass upon the validity
of the shares of GlobalCenter group stock offered under this prospectus.
Gibson, Dunn & Crutcher LLP, San Francisco, California and Simpson Thacher &
Bartlett, New York, New York will pass upon certain legal matters for Global
Crossing Ltd. and GlobalCenter. Shearman & Sterling, San Francisco, California
will pass upon certain legal matters for the underwriters.
EXPERTS
We have included in this prospectus the combined audited financial
statements of New GlobalCenter ("New GlobalCenter") as of December 31, 1999
and of Old GlobalCenter ("Old GlobalCenter") as of December 31, 1998 and for
New GlobalCenter for the three-month period ended December 31, 1999 and for
Old GlobalCenter for the nine-month period ended September 30, 1999 and each
of the years in the two-year period ended December 31, 1998, along with Arthur
Andersen LLP's audit report on these combined financial statements. Arthur
Andersen LLP issued the report as independent accountants and as experts in
auditing and accounting.
The consolidated financial statements of Global Crossing and its
subsidiaries incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen, independent
public accountants, as indicated in their reports with respect to those
consolidated financial statements, and are incorporated by reference in
reliance upon the authority of said firm as experts in giving said reports.
The consolidated financial statements incorporated by reference in the
registration statement of which this prospectus is a part to the annual report
on Form 10-K of Frontier Corporation for the year ended December 31, 1998 and
audited historical financial statements included on pages 22-42 of Frontier
Corporation's Form 8-K dated January 26, 1999, have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The combined financial statements of Global Marine Systems incorporated by
reference in this prospectus have been incorporated by reference in reliance
upon the report of KPMG Audit Plc, chartered accountants, incorporated by
reference in this prospectus and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Racal Telecom incorporated by reference in the
registration statement of which this prospectus is a part have been audited by
Deloitte & Touche, independent auditors, as stated in their report
incorporated by reference in the registration statement of which this
prospectus is a part.
100
<PAGE>
The consolidated financial statements incorporated by reference in the
registration statement of which this prospectus is a part of HCL Holdings
Limited and subsidiaries have been so incorporated in reliance on the reports
of PricewaterhouseCoopers, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Global Crossing Ltd. files 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 7 World Trade Center, 13th floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also
obtain copies of those materials at prescribed rates from the public reference
section of the SEC at 450 Fifth Street, Washington, D.C. 20549. You may obtain
copies from the public 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 Global Crossing
Ltd. at the offices of the National Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, D.C. 20001-1500.
You may also request a copy of those materials, free of cost, by writing or
telephoning Global Crossing Ltd. at the following address:
Investor Relations
Global Crossing Ltd.
360 N. Crescent Drive
Beverly Hills, CA 90210
310-385-5200
INCORPORATION BY REFERENCE
The SEC allows Global Crossing Ltd. to "incorporate by reference" the
information Global Crossing Ltd. files with the SEC. This permits Global
Crossing Ltd. to disclose important information to you by referring to these
filed documents. Any information referred to in this way is considered part of
this prospectus, and any information filed with the SEC by Global Crossing
Ltd. after the date of this prospectus will automatically be deemed to update
and supersede this information. Global Crossing Ltd. incorporates by reference
the following documents that have been filed with the SEC:
. Global Crossing Ltd.'s Annual Report on Form 10-K for the year ended
December 31, 1999;
. Global Crossing Ltd.'s current reports on Form 8-K filed on January 11,
2000, as amended by Form 8-K/A filed on January 19, 2000; February 18,
2000; March 2, 2000; and March 3, 2000;
. The financial statements of Frontier Corporation and the Global Marine
Systems business of Cable & Wireless Plc incorporated by reference or
included in Global Crossing Ltd.'s Registration Statement on Form S-4
filed on September 8, 1999 (File No. 333-86693); and
. The pro forma financial information for Global Crossing Ltd. included in
Global Crossing Ltd.'s Registration Statement on Form S-3 filed on March
20, 2000 (File No. 333-32810).
Global Crossing Ltd. also incorporates by reference any future filings made
with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act until of the sale of all the securities that are part of this offering.
101
<PAGE>
GLOBALCENTER GROUP
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</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 LLP
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") approved
a proposal that would result in the creation of two series 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 a 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
Global Crossing and vice versa, even if these liabilities arise from lawsuits,
contracts or indebtedness that are attributed to the other party.
(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.
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
F-8
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 Global Center
Inc., GlobalCenter Inc. is included in the consolidated federal income 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 the fair value based
method. New GlobalCenter has elected to determine the value of stock-based
compensation arrangements under the provisions of APB No. 25.
F-9
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 our 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 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.
F-10
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 standalone basis.
Explanations of the composition and the method of allocation for the above
captions are described below.
Cost of Service Revenues
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 the Global Crossing group stock and the 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 consists 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.
F-13
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(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 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, the
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
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 benefit 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>
Benefit 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 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 GlobalCenter group is a
F-15
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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.
(8) Stock Option Plans
Management Stock Plan
The board of directors and the stockholder 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
F-16
<PAGE>
GLOBALCENTER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 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 tracking
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 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 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 GlobalCenter group own stock options to acquire Global Crossing
Ltd. stock. As 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 typically will no
longer participate in Global Crossing group stock option plans.
F-17
<PAGE>
[Logo Global Crossing]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 26,400
Nasdaq National Market listing fee.............................. 1,000
Bermuda Stock Exchange listing fee.............................. *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Blue Sky fees and expenses...................................... *
Transfer agent and registrar fees............................... *
Miscellaneous................................................... *
---------
Total......................................................... $ *
=========
</TABLE>
- --------
*To be completed by amendment
Item 15. Indemnification of Directors and Officers.
The Bye-laws of the Registrant provide for indemnification of the
Registrant's officers and directors against all liabilities, loss, damage or
expense incurred or suffered by such party as an officer or director of the
Registrant; provided that such indemnification shall not extend to any matter
which would render it void pursuant to the Companies Act of 1981 as in effect
from time to time in Bermuda.
The Companies Act provides that a Bermuda company may indemnify its
directors in respect of any loss arising or liability attaching to them as a
result of any negligence, default, breach of duty or breach of trust of which
they may be guilty. However, the Companies Act also provides that any
provision, whether contained in the company's bye-laws or in a contract or
arrangement between the company and the director, indemnifying a director
against any liability which would attach to him in respect of his fraud or
dishonesty will be void.
The directors and officers of the Registrant are covered by directors' and
officers' insurance policies maintained by the Registrant.
Item 16. Exhibits.
The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement (to be filed by amendment).
3.1 Memorandum of Association of the Registrant (incorporated by reference
to Exhibit 3.1 to the Registrant's Registration Statement on Form S1/A
filed on July 2, 1998).
3.2 Certificate of Incorporation of Change of Name of the Registrant dated
April 30, 1998 (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-1/A filed on July 23,
1998 (the "July 23, 1998 S-1/A")).
3.3 Memorandum of Increase of Share Capital of the Registrant dated July
9, 1998 (incorporated by reference to Exhibit 3.4 to the July 23, 1998
S-1/A).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
3.4 Memorandum of Increase of Share Capital of the Registrant dated
September 27, 1999 (incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q filed on November 15, 1999
(the "November 15, 1999 10-Q")).
3.5 Bye-laws of the Registrant as in effect on October 14, 1999
(incorporated by reference to Exhibit 3.2 to the November 15, 1999 10-
Q).
3.6 Form of Certificate of Designations of Global Crossing Group Stock and
GlobalCenter Group Stock.
3.7 Form of Policy Statement Regarding Global Crossing Group and
GlobalCenter Group Matters.
4.1 Form of Global Crossing Group Stock Certificate (to be filed by
amendment).
4.2 Form of GlobalCenter Group Stock Certificate (to be filed by
amendment).
5.1 Opinion of Appleby, Spurling & Kempe (to be filed by amendment).
8.1 Tax opinion of Simpson Thacher & Bartlett (to be filed by amendment).
10.1 GlobalCenter Management Stock Plan (to be filed by amendment).
10.2 GlobalCenter 2000 Stock Incentive Plan (to be filed by amendment).
10.3 Form of Tax Sharing Agreement dated as of , 2000 between the
GlobalCenter Inc. and Global Crossing North America Inc. (to be filed
by amendment).
23.1 Consent of Arthur Andersen LLP re: GlobalCenter (filed herewith).
23.2 Consent of Arthur Andersen re: Global Crossing Ltd. (filed herewith).
23.3 Consent of PricewaterhouseCoopers LLP (filed herewith).
23.4 Consent of KPMG Audit Plc (filed herewith).
23.5 Consent of Deloitte & Touche (filed herewith).
23.6 Consent of PricewaterhouseCoopers (filed herewith).
23.7 Consent of Appleby, Spurling & Kempe (included in Exhibit 5.1).
23.8 Consent of Simpson Thacher & Bartlett (included in Exhibit 8.1).
24.1 Power of Attorney of the Registrant (included on signature page II-4
of this Registration Statement).
</TABLE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions referred to in Item 15 or otherwise
(other than the insurance policies referred to therein), the registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted against the
registrant by such director,
II-2
<PAGE>
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on April 19,
2000.
Global Crossing Ltd.
/s/ Leo J. Hindery, Jr.
By: _________________________________
Name: Leo J. Hindery, Jr.
Title: Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints each of Leo J. Hindery,
Jr. and Dan J. Cohrs, severally, as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and anything appropriate or
necessary to be done, as fully and for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gary Winnick Chairman of the Board and Director April 19, 2000
______________________________________
Gary Winnick
/s/ Lodwrick M. Cook Co-Chairman of the Board and April 19, 2000
______________________________________ Director
Lodwrick M. Cook
/s/ Thomas J. Casey Vice Chairman of the Board and April 19, 2000
______________________________________ Director
Thomas J. Casey
/s/ Jack M. Scanlon Director; Vice Chairman of the April 19, 2000
______________________________________ Board, Asia Global Crossing
Jack M. Scanlon
/s/ Leo J. Hindery, Jr. Chief Executive Officer and April 19, 2000
______________________________________ Director; Chairman and Chief
Leo J. Hindery, Jr. Executive Officer, GlobalCenter,
Inc.
President, Chief Operating Officer
______________________________________ and Director
David L. Lee
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
Director; President,
______________________________________ Global Crossing North
Joseph P. Clayton America
Senior Vice President and
______________________________________ Director
Barry Porter
/s/ Dan J. Cohrs Senior Vice President and April 19, 2000
______________________________________ Chief Financial Officer
Dan J. Cohrs (principal financial
officer and principal
accounting officer)
/s/ Robert Annunziata Director April 19, 2000
______________________________________
Robert Annunziata
Director
______________________________________
Jay R. Bloom
/s/ William E. Conway, Jr. Director April 19, 2000
______________________________________
William E. Conway, Jr.
/s/ Canning Fok Director April 19, 2000
______________________________________
Canning Fok
/s/ Eric Hippeau Director April 19, 2000
______________________________________
Eric Hippeau
Director
______________________________________
Dean C. Kehler
/s/ Geoffrey J.W. Kent Director April 19, 2000
______________________________________
Geoffrey J.W. Kent
/s/ James F. McDonald Director April 19, 2000
______________________________________
James F. McDonald
/s/ Douglas H. McCorkindale Director April 19, 2000
______________________________________
Douglas H. McCorkindale
Director
______________________________________
Bruce Raben
/s/ Michael R. Steed Director April 19, 2000
______________________________________
Michael R. Steed
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement (to be filed by amendment).
3.1 Memorandum of Association of the Registrant (incorporated by reference
to Exhibit 3.1 to the Registrant's Registration Statement on Form S1/A
filed on July 2, 1998 (the "July 2, 1998 S-1/A")).
3.2 Certificate of Incorporation of Change of Name of the Registrant dated
April 30, 1998 (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-1/A filed on July 23,
1998 (the "July 23, 1998 S-1/A")).
3.3 Memorandum of Increase of Share Capital of the Registrant dated July
9, 1998 (incorporated by reference to Exhibit 3.4 to the July 23, 1998
S-1/A).
3.4 Memorandum of Increase of Share Capital of the Registrant dated
September 27, 1999 (incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q filed on November 15, 1999
(the "November 15, 1999 10-Q")).
3.5 Bye-laws of the Registrant as in effect on October 14, 1999
(incorporated by reference to Exhibit 3.2 to the November 15, 1999 10-
Q).
3.6 Form of Certificate of Designations of Global Crossing Group Stock and
GlobalCenter Group Stock.
3.7 Form of Policy Statement Regarding Global Crossing Group and
GlobalCenter Group Matters.
4.1 Form of Global Crossing Group Stock Certificate. (to be filed by
amendment).
4.2 Form of GlobalCenter Group Stock Certificate (to be filed by
amendment).
5.1 Opinion of Appleby, Spurling & Kempe (to be filed by amendment).
8.1 Tax opinion of Simpson Thacher & Bartlett (to be filed by amendment).
10.1 GlobalCenter Management Stock Plan (to be filed by amendment).
10.2 GlobalCenter 2000 Stock Incentive Plan (to be filed by amendment).
10.3 Form of Tax Sharing Agreement dated as of , 2000, between the
GlobalCenter Inc. and Global Crossing North America Inc. (to be filed
by amendment).
23.1 Consent of Arthur Andersen LLP re: GlobalCenter (filed herewith).
23.2 Consent of Arthur Andersen re: Global Crossing Ltd. (filed herewith).
23.3 Consent of PricewaterhouseCoopers LLP (filed herewith).
23.4 Consent of KPMG Audit Plc (filed herewith).
23.5 Consent of Deloitte & Touche (filed herewith).
23.6 Consent of PricewaterhouseCoopers (filed herewith).
23.7 Consent of Appleby, Spurling & Kempe (included in Exhibit 5.1).
23.8 Consent of Simpson Thacher & Bartlett (included in Exhibit 8.1).
24.1 Power of Attorney of the Registrant (included on signature page II-4
of this Registration Statement).
</TABLE>
<PAGE>
EXHIBIT 3.6
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
II-2
<PAGE>
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
(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:
II-3
<PAGE>
(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 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.
II-6
<PAGE>
(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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(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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<PAGE>
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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<PAGE>
(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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(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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(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 Global Center 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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EXHIBIT 3.7
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
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.
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(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,
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.
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<PAGE>
(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 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.
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<PAGE>
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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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants of Old GlobalCenter and New GlobalCenter,
we hereby consent to the use of our report (and to all references to our Firm)
included in or made a part of this registration statement.
Arthur Andersen LLP
San Jose, California
April 14, 2000
1
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or incorporated by
reference in this Registration Statement on Form S-3.
/s/ Arthur Andersen
April 14, 2000
Hamilton, Bermuda
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of Global Crossing Ltd. of our report dated January 25,
1999 relating to the financial statements, which appears in Frontier
Corporation's 1998 Annual Report to Shareholders, which is incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
1998, and which appears on Page 20 of the Frontier Corporation Current Report
on Form 8-K dated January 26, 1999. We also consent to the incorporation by
reference of our report dated January 25, 1999 relating to the financial
statement schedule, which appears on page 30 of such Annual Report on Form 10-
K. We also consent to the reference to us under the heading "Experts" and
"Selected Historical Financial Information" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
- --------------------------
PricewaterhouseCoopers LLP
Rochester, New York
April 14, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated 26 May 1999 with respect to
the balance sheets of Cable & Wireless Global Marine as of 31 March 1999 and
1998 and the results of their operations and cashflows for each of the years
in the three-year period ended 31 March 1999, incorporated by reference into
this Registration Statement on Form S-3, of Global Crossing Ltd. and to the
references to our firm under the headings "Experts" and "Global Marine Systems
selected historical financial information" in this Registration Statement.
Yours faithfully
/s/ KPMG Audit Plc
KPMG Audit Plc
Ipswich, England
April 14, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated 8 October 1999, (2 December 1999 as to note 5
and 17 December 1999 as to notes 29, 30, 31 and 32) on the combined balance
sheets of Racal Telecommunications Limited, Racal Telecommunications Networks
Limited, Racal Internet Services Limited and Racal Telecommunications Inc.
(collectively "Racal Telecom") as of 31 March 1999 and 1998 and the combined
profit and loss accounts and combined cash flow statements for each of the
years in the three year period ended 31 March 1999, appearing in the current
report on Form 8-K and the amended current report on Form 8-K/A of Global
Crossing Ltd. and to the references to our firm under the headings "Experts"
and "Racal Telecom selected historical financial information" in this
Registration Statement.
/s/ Deloitte & Touche
Deloitte & Touche
London, England
April 14, 2000
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of Global Crossing Ltd. of our report dated December 15,
1999 relating to the financial statements of HCL Holdings Limited for each of
the three years ended December 31, 1998. We also consent to the reference to
us under the heading "Experts" in such registration statement.
/s/ PricewaterhouseCoopers
- ------------------------
PricewaterhouseCoopers
Hong Kong
April 14, 2000
