<PAGE>
As filed with the Securities and Exchange Commission on June 14, 2000
Registration No.: 333-35100
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
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>
<CAPTION>
<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 Proposed
Maximum Maximum
Title of Each Class of Aggregate Aggregate
Securities to be Amount to be Offering Price Offering Amount of
Registered Registered(1) Per Unit(2) Price(2) Registration Fee(3)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GlobalCenter group
stock, $.01 par val- 66,125,000
ue................... shares $18.00 $1,190,250,000 $314,226
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 8,625,000 shares of GlobalCenter group stock issuable pursuant to
a 30-day option granted to the underwriters solely to cover-allotments.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(3) A filing fee of $26,400 was previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<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 June 14, 2000
57,500,000 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 services business. This is Global Crossing
Ltd.'s first 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 $16 and $18 per share.
-----------
We have applied for quotation of GlobalCenter group stock on the Nasdaq
National Market under the symbol "GCTR."
-----------
Investing in the GlobalCenter group stock of Global Crossing Ltd. involves
risks. See "Risk Factors" beginning on page 16.
-----------
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 8,625,000 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.
-----------
Joint Book-Running Managers
MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON
Joint Lead Manager
BEAR, STEARNS & CO. INC. CHASE H&Q
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
GERARD KLAUER MATTISON
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 16
Cautionary Language Concerning Forward-Looking Statements................ 34
Use of Proceeds.......................................................... 35
Dividend Policy.......................................................... 35
Capitalization........................................................... 36
Selected Historical Combined Financial Data of the GlobalCenter Group ... 37
Management's Discussion and Analysis of Financial Condition and Results
of Operations of the GlobalCenter Group................................. 39
Business of the GlobalCenter Group....................................... 49
Certain Significant Employees and Directors of GlobalCenter Inc. ........ 61
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Selected Historical Financial Data of Global Crossing Ltd. .............. 68
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Global Crossing Ltd.................................... 73
Relationship Between the GlobalCenter Group and the Global Crossing
Group................................................................... 86
Description of Capital Stock............................................. 92
United States Federal Income Tax and Bermuda Tax Consequences............ 112
Underwriters............................................................. 118
Legal Matters............................................................ 121
Experts.................................................................. 121
Where You Can Find More Information...................................... 122
Incorporation by Reference............................................... 122
Index to Financial Statements............................................ F-1
</TABLE>
----------------
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.
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 this offering of GlobalCenter group stock, you should read the entire
prospectus.
Global Crossing Ltd.
Global Crossing Ltd. is a provider of global Internet Protocol, or "IP", and
data services for both wholesale and retail customers. It is building a state-
of-the-art fiber optic network of global scope and scale to serve as the
backbone for its services. Global Crossing Ltd. provides services in three
principal segments. Its telecommunications services segment offers a variety of
integrated telecommunications products and services through its global fiber
optic network, including domestic and international voice services, data
products, structured bandwidth services, Web hosting and related Internet
infrastructure services and other communications products. Its installation and
maintenance services segment installs and maintains undersea fiber optic cable
systems for carrier customers worldwide. Its incumbent local exchange carrier
services segment provides local communications services through local exchange
services providers in 13 states, serving over one million access lines. On May
1, 2000, Global Crossing Ltd. announced that it was examining its strategic
options concerning this incumbent local exchange carrier segment.
For the purposes of establishing a tracking stock, Global Crossing Ltd. has
separated its Web hosting and related Internet infrastructure services
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. 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. If
you invest in the GlobalCenter group stock, you will be a shareholder of Global
Crossing Ltd.
GlobalCenter and Global Crossing
The GlobalCenter group is not an independent company and Global Crossing
Ltd. indirectly owns all of the assets and liabilities included in the
GlobalCenter group. The GlobalCenter group includes all assets and liabilities
owned by GlobalCenter Inc. and goodwill and other intangible assets owned by
GlobalCenter Inc.'s direct parent GlobalCenter Holding Co. GlobalCenter Inc.
and GlobalCenter Holding Co. are both indirect wholly owned subsidiaries of
Global Crossing Ltd. In this prospectus, however, the terms "GlobalCenter" or
"GlobalCenter group," and similar terms, refer to those businesses, assets and
liabilities included in the GlobalCenter group and not GlobalCenter Inc. or any
other separately incorporated entity. The business of the GlobalCenter group
has been operated as a separate group since Global Crossing Ltd. acquired
GlobalCenter Inc. as part of its merger with Frontier Corporation in September
1999.
As used in this prospectus, when we use the terms "Global Crossing" and
"Global Crossing group," we mean:
. all Global Crossing Ltd. businesses, assets and liabilities included in
Global Crossing Ltd.'s telecommunications service segment, other than Web
hosting and related Internet infrastructure services; in its installation
and maintenance services segment; and in its incumbent local exchange
carrier services segment; and
. an interest in the earnings and losses of the GlobalCenter group, which
is currently 100%, referred to as an "inter-group interest." This inter-
group interest will decline to reflect this offering as well as any
future issuances of GlobalCenter group stock.
3
<PAGE>
Business of the GlobalCenter Group
GlobalCenter is a leading provider of Internet infrastructure services
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.
The GlobalCenter group delivers its services primarily to customers seeking
rapid, cost-effective solutions for their mission-critical Internet-related
operations. As of March 31, 2000, the GlobalCenter group provided services to
over 500 customers, including large, well-established enterprises and newer
Internet companies including NBCi, Viacom, Yahoo! and ZDNet. Due largely to
rapid growth in both the size of its customer base and demand for outsourced
Internet infrastructure services, the GlobalCenter group's annual revenues have
grown from $7.7 million in 1997 to $70.9 million in 1999. The GlobalCenter
group's net losses were $2.8 million for 1997, $16.8 million for the nine
months ended September 30, 1999 and $42.7 million for the three months ended
December 31, 1999.
The GlobalCenter group currently operates 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, the GlobalCenter group is
currently developing 10 data centers in the United States, Europe and the Asia-
Pacific region, nine of which it plans to open by the end of this year,
bringing the total gross square footage of its data centers to over one
million. The GlobalCenter group's 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 the GlobalCenter data centers to provide its customers with
installation, support and professional services.
Each of the GlobalCenter group's data centers other than its Melbourne data
center is located directly on the Global Crossing IP-based fiber optic network.
This network is expected to span 101,000 route miles and connect five
continents and more than 200 cities in 27 countries by the middle of 2001.
GlobalCenter believes its special access to this network will enable it to
enjoy significant connectivity advantages over other providers of Internet
infrastructure services, including higher availability of network capacity 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
service providers, or ISPs, enable the Global Crossing group to avoid many of
the congested Internet public exchange points and deliver IP traffic directly
to its destination network or the intended IP address. A peering relationship
is an interconnection between two IP networks that allows either network and
its customers to deliver IP traffic to the other's network and its customers
without fees if traffic levels are comparable. A transit relationship is a
similar relationship that involves the transport of IP traffic to third party
networks for a fee. Each of the GlobalCenter data centers also has access to
the communications networks of other major carriers.
4
<PAGE>
The GlobalCenter group's objective is to become the leading global total
services provider for its customers' mission-critical Internet infrastructure
requirements. To achieve this objective, the GlobalCenter group is implementing
a business strategy focused on the following key elements:
. enhance and expand its portfolio of value-added applications and
professional services;
. expand its global footprint by opening new data centers;
. develop and market services tailored to the needs of selected
information-intensive industries, including media and entertainment,
financial services, retail and business-to-business exchanges;
. continue to take advantage of its unique relationship with Global
Crossing, including Global Crossing's extensive customer base and
partnering relationships;
. expand its direct sales force and develop new channels of distribution;
. develop and strengthen relationships with industry leading technology
vendors; and
. through GlobalCenter Inc., enter into strategic partnerships or make
targeted acquisitions to complement its internal development efforts.
The GlobalCenter group's management team is led by Leo J. Hindery, Jr.,
Chairman and Chief Executive Officer of GlobalCenter Inc., Chief Executive
Officer of Global Crossing Ltd. and the former President and CEO 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, including himself. Under this
arrangement, Kurt Baumann, Chase Carey, Frank M. Drendel, Mr. Hindery and Marc
B. Nathanson serve as directors of GlobalCenter Inc. The GlobalCenter Inc.
board of directors is expected to have significant influence over the business
of the GlobalCenter group. The GlobalCenter group believes that this board of
directors will enhance GlobalCenter's ability to grow and expand its business
and develop and benefit from strategic relationships.
Other Information
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. Global Crossing Ltd.'s
Web address is http://www.globalcrossing.com. GlobalCenter's Web address is
http://www.globalcenter.net. The information on Global Crossing Ltd.'s Web site
and GlobalCenter's Web site is not part of this prospectus.
GlobalCenter and the GlobalCenter logo are GlobalCenter Inc.'s service marks
or registered service marks. All other trademarks, service marks or tradenames
referred to in this prospectus are the property of their respective owners.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Issuer: Global Crossing Ltd.
GlobalCenter group stock offered: 57,500,000 shares
Shares of GlobalCenter group stock effectively
owned by the Global Crossing group through its
inter-group interest upon the closing of this
offering: 233,500,000 shares
Total shares of GlobalCenter group stock to be
outstanding upon the closing of this offering: 291,000,000
Over-allotment option: Up to an additional
8,625,000 shares of
GlobalCenter group stock
Use of proceeds: The net proceeds from
this offering will be
approximately $925
million, assuming a
public offering price of
$17.00 per share and
after deducting
underwriting discounts
and commissions and
estimated offering
expenses. Global
Crossing Ltd. will
receive the net proceeds
and allocate all of them
to the GlobalCenter
group. The GlobalCenter
group plans to use
approximately $725
million of the net
proceeds to finance the
anticipated expansion of
its domestic and
international data
center facilities over
the next 12 to 18 months
and the remainder for
general corporate
purposes and working
capital. The
GlobalCenter group may
also use a portion of
the net proceeds to make
strategic investments or
acquisitions. Pending
the GlobalCenter group's
use of the net proceeds,
Global Crossing Ltd. may
invest the net proceeds
in short-term securities
or allocate a portion of
the net proceeds to the
Global Crossing group as
a loan on an interest-
bearing basis. The
allocation is subject to
the discretion of the
board of directors of
Global Crossing Ltd.
</TABLE>
Unless we specifically state otherwise, information in this prospectus about
the number of shares of GlobalCenter group stock to be outstanding upon the
closing of this offering:
. does not include 26,234,412 options to be outstanding as of the closing
of the offering at a weighted average exercise price of $7.28 per share;
. does not include 14,971,471 shares reserved for issuance under our stock
option plans; and
. assumes no exercise of the underwriters' over-allotment option.
6
<PAGE>
GLOBALCENTER GROUP STOCK
General
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 purposes of establishing the tracking stock, 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.
The Interest of the Global Crossing Group in the GlobalCenter Group and the
Expected Disposition
Inter-group interest
Before this offering is completed, the Global Crossing group will hold a
100% interest in the earnings and losses 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 the Global
Crossing group's entire inter-group interest in the GlobalCenter group prior to
the completion of this offering equals 233,500,000, which we refer to 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 an 80% inter-group interest in the GlobalCenter
group. If the over-allotment option is exercised in full, the Global Crossing
group will hold a 78% 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.
For additional information regarding the Global Crossing group's inter-group
interest in the GlobalCenter group, see "Description of Capital Stock--
GlobalCenter group stock--Inter-group interest."
Disposition
Global Crossing Ltd. currently intends to dispose of Global Crossing group's
remaining inter-group interest in the GlobalCenter group following this
offering in the form of additional GlobalCenter group stocks. 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. Although Global Crossing Ltd. intends to dispose of all of
its inter-group interest at some time after this offering and the expiration of
the underwriters' lock up period, it has not yet determined the exact method
and timing of this disposition. There is no guarantee, however, that any
disposition will follow this offering.
Global Crossing Ltd. will 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
7
<PAGE>
disposition may occur in several stages, following which we expect that all of
the Global Crossing group's current inter-group interest in the GlobalCenter
group would be represented by newly issued shares of GlobalCenter group stock.
Even after this distribution, however,
. all of the assets of the GlobalCenter group will still remain part of,
and under control of, Global Crossing Ltd., and
. in the event of a liquidation of Global Crossing Ltd., holders of
GlobalCenter group stock will not have an exclusive claim on the assets
of the GlobalCenter group but rather a claim on the assets of Global
Crossing Ltd. as a whole.
Terms of the GlobalCenter Group Stock
Dividends
Global Crossing Ltd. does not expect to pay dividends on GlobalCenter group
stock for the foreseeable future. For additional information regarding Global
Crossing Ltd.'s dividend policy, see "Dividend Policy" and "Description of
Capital Stock--GlobalCenter group stock--Dividends."
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, which limit the voting power of any shareholder to a maximum of
9.5% of the aggregate voting power of all Global Crossing Ltd. common shares.
For additional information regarding these voting restrictions and the voting
rights of holders of GlobalCenter group 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 at any time and without shareholder
approval 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.
8
<PAGE>
The premiums described above are intended for the protection of holders of
GlobalCenter group stock since a decision by Global Crossing Ltd.'s board of
directors to convert that class of stock may be made without shareholder
approval. The decrease in the premium from 20% to 10% over the first two years
the GlobalCenter group stock is outstanding is intended to allow greater
flexibility to Global Crossing Ltd. in using these provisions over time.
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.
For additional information regarding Global Crossing Ltd.'s right to convert
shares of GlobalCenter group stock into shares of Global Crossing group stock,
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 and without shareholder
approval 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. For additional information
regarding Global Crossing Ltd.'s right to repurchase shares of GlobalCenter
group stock for shares of its subsidiaries, see "Description of Capital Stock--
GlobalCenter group stock--Conversion and repurchase--Repurchase for stock of
subsidiary."
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 a limited number of exceptions and
without shareholder approval:
. distribute to the holders of GlobalCenter group stock by special dividend
or repurchase 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, based on the average market values of the
two classes of common stock during a specified period after the
disposition at some premium. The premium will be 20% during the first
year after the completion of this offering, 15% during the second year
and 10% thereafter.
Global Crossing Ltd. may elect to pay the special dividend or repurchase
price either in the same form in which 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 determines in good faith will have an
aggregate market value of not less than the fair value of the net proceeds of
the disposition. Global Crossing Ltd.'s board of directors will not be required
to obtain a third party fairness opinion in connection with this determination.
9
<PAGE>
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 repurchase, 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.
A spin-off to shareholders of one or more of Global Crossing Ltd.'s
subsidiaries holding all of the assets and liabilities of the GlobalCenter
group would result in a repurchase of shares of GlobalCenter group stock for
shares of common stock of those subsidiaries and would not be considered a
disposition of all or substantially all of the assets of the GlobalCenter group
for purposes of the provisions discussed above.
For more information regarding rights of holders of GlobalCenter group stock
in the event of a disposition of all or substantially all of the assets of the
GlobalCenter group, 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. Holders of
GlobalCenter group stock will not have an exclusive claim on the assets of the
GlobalCenter group but rather a claim on the assets of Global Crossing Ltd. as
a whole.
Each share of GlobalCenter group stock will have a number of liquidation
units based upon the relative market values of GlobalCenter group stock and
Global Crossing group stock over the 20-trading day period ending on the 40th
trading day after the initial issuance of the GlobalCenter group stock in this
offering. Each share of Global Crossing group stock will have one liquidation
unit. For more information regarding the calculation of liquidation units for
shares of GlobalCenter group stock, see "Description of Capital Stock--
GlobalCenter group stock--Liquidation rights."
Policy Statement
In connection with the issuance of GlobalCenter group stock, Global Crossing
Ltd.'s board of directors intends to adopt a policy statement, which 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 amend, modify or rescind the policies set forth in the 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 and without shareholder
approval. Global Crossing Ltd.'s board of directors has a fiduciary duty to
consider whether any proposed action is in the best interests of Global
Crossing Ltd. and all of its shareholders and will not owe a separate fiduciary
duty to holders of GlobalCenter group stock.
Capital Stock Committee
The policy statement of Global Crossing Ltd. provides that a capital stock
committee, comprised of three Global Crossing Ltd. independent directors, will
exercise some delegated powers with respect to the
10
<PAGE>
GlobalCenter group and the Global Crossing group. These powers initially
include the power to interpret, make determinations under, and oversee the
implementation of the policy statement and adopt additional general policies
governing the relationship between the GlobalCenter group and the Global
Crossing group. As with Global Crossing Ltd.'s board of directors, the capital
stock committee will have a fiduciary duty to consider whether a proposed
action is in the best interests of Global Crossing Ltd. and all of its
shareholders and will have no separate fiduciary duty solely to holders of
GlobalCenter group stock. For more information regarding the capital stock
committee and its powers, see "Relationship between the GlobalCenter group and
the Global Crossing group--Role of Capital Stock Committee."
GlobalCenter Inc. Board Of Directors
Because GlobalCenter Inc. constitutes all of the operating assets and
business of the GlobalCenter group, the board of directors of GlobalCenter Inc.
will have significant influence on the operations and performance of the
GlobalCenter group, subject to the discretion of the board of directors of
Global Crossing Ltd. 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 not have any
separate fiduciary duties to the holders of GlobalCenter group stock. The board
of directors of GlobalCenter Inc. will, subject to some limitations, have the
authority to:
. appoint officers of GlobalCenter Inc. who will manage the GlobalCenter
group;
. 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.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED
FINANCIAL DATA OF THE GLOBALCENTER GROUP
(AN INTEGRATED BUSINESS OF GLOBAL CROSSING LTD.)
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, (2) an unaudited pro forma financial presentation for the GlobalCenter
group for the year ending December 31, 1999 and (3) unaudited financial data of
Old GlobalCenter and New GlobalCenter for the three months ended March 31, 1999
and 2000, respectively. The GlobalCenter group has prepared this information
using the historical combined financial data from the GlobalCenter group's
combined financial statements at and for the three-month periods ended March
31, 1999 and 2000, 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 and included elsewhere in this prospectus. The
financial data as of March 31, 2000 and for the three months ended March 31,
1999 and 2000 are derived from the GlobalCenter group's unaudited combined
financial statements. The GlobalCenter group has made adjustments, consisting
of normal recurring adjustments necessary to present its financial position as
of March 31, 2000 and the results of operations for the three months ended
March 31, 1999 and 2000, which in the opinion of its management are necessary
for a fair presentation. Results of operations for the three months ended March
31, 1999 and 2000 are not necessarily indicative of the results that may be
expected for the full year or for any future period. 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, for the nine-month period ended September 30,
1999 and for the three-month period ended March 31, 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 periods 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 includes pro forma adjustments for depreciation of property and
equipment and amortization of goodwill and intangibles for the nine months
ended September 30, 1999 resulting 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 New
Old GlobalCenter GlobalCenter Group GlobalCenter GlobalCenter
----------------- ------------------ ------------ ------------
Year Ended Unaudited Three Months
December 31, Unaudited Ended March 31,
----------------- Year Ended -------------------------
1997 1998 December 31, 1999 1999 2000
------- -------- ------------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 7,739 $ 23,240 $ 70,903 $10,947 $ 38,309
Costs and expenses:
Cost of revenues....... 6,252 18,012 74,717 13,420 34,531
Sales and marketing.... 1,966 8,948 15,619 2,110 6,455
General and
administrative........ 2,044 4,694 9,964 1,216 5,835
Depreciation and
amortization.......... 912 4,023 6,428 1,103 3,155
Goodwill and
intangibles
amortization.......... 325 1,294 148,540 324 37,135
Merger costs........... -- 2,060 -- -- --
------- -------- --------- ------- --------
Total costs and
expenses............... 11,499 39,031 255,268 18,173 87,111
------- -------- --------- ------- --------
Loss from operations.... (3,760) (15,791) (184,365) (7,226) (48,802)
------- -------- --------- ------- --------
Other income (expenses),
net.................... 45 55 70 (18) (211)
------- -------- --------- ------- --------
Loss before income
taxes.................. (3,715) (15,736) (184,295) (7,244) (49,013)
Income tax benefit...... 941 4,911 14,075 2,660 7,933
------- -------- --------- ------- --------
Net loss................ $(2,774) $(10,825) $(170,220) $(4,584) $(41,080)
======= ======== ========= ======= ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------- ---------------------
As of December 31,
--------------------------- March 31,
1998 1999 2000
---------------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Balance Sheet and Other Data:
Goodwill and intangibles, net........... $ 7,470 $1,448,265 $1,411,130
Total assets............................ 48,021 1,596,083 1,628,628
Total liabilities....................... 12,084 65,938 87,070
Group net worth......................... 35,937 1,530,145 1,541,558
Total liabilities and group net worth... $48,021 $1,596,083 $1,628,628
Number of data centers.................. 6 8 10
Data center gross square footage........ 72,000 238,000 314,000
</TABLE>
13
<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.
You should read this financial data in conjunction with the audited
consolidated financial statements and unaudited pro forma financial information
of Global Crossing Ltd. and notes which appear elsewhere or are incorporated by
reference in this prospectus. The financial data as of March 31, 2000 and for
the three months ended March 31, 1999 and 2000 are derived from Global Crossing
Ltd.'s unaudited consolidated financial statements, which apear elsewhere in
this prospectus. Global Crossing Ltd. has made adjustments, consisting of
normal recurring adjustments necessary to present the financial position as of
March 31, 2000 and the results of operations for the three months ended March
31, 1999 and 2000, which in the opinion of its management are necessary for a
fair presentation. Results of operations for the three months ended March 31,
1999 and 2000 are not necessarily indicative of the results that may be
expected for the full year or for any future period.
<TABLE>
<CAPTION>
Period from
March 19, 1997 Three Months Ended
(Date of Inception) to Year Ended Year Ended March 31,
December 31, December 31, December 31, --------------------
1997 1998 1999 1999 2000
---------------------- ------------ ------------ -------- ----------
(in thousands, except share and per share information)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ -- $ 419,866 $1,664,824 $176,319 $1,119,516
Expenses:
Cost of sales.......... -- 178,492 850,483 69,387 579,907
Operations,
administration and
maintenance........... -- 18,140 134,266 12, 026 144,578
Sales and marketing.... 1,366 31,748 152,115 10,437 104,318
Network development.... 78 14,204 33,304 7,376 19,209
General and
administrative........ 1,618 56,797 250,202 35,815 166,751
Depreciation and
amortization.......... 39 541 124,294 211 140,943
Goodwill and
intangibles
amortization.......... -- -- 127,621 -- 131,634
Termination of advisory
services agreement.... -- 139,669 -- -- --
-------- --------- ---------- -------- ----------
3,101 439,591 1,672,285 135,252 1,287,340
-------- --------- ---------- -------- ----------
Operating (loss)
income................. (3,101) (19,725) (7,461) 41,067 (167,824)
Equity in income (loss)
of affiliates.......... -- (2,508) 15,708 (2,736) (5,140)
Minority interest....... -- -- (1,338) -- (15,731)
Other income (expense):
Interest income........ 2,941 29,986 67,407 14,392 22,798
Interest expense....... -- (42,880) (139,077) (23,779) (85,676)
Other expense, net..... -- -- 180,765 -- (5,628)
Provision for income
taxes.................. -- (33,067) (126,539) (16,142) (5,000)
-------- --------- ---------- -------- ----------
(Loss) income before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (160) (68,194) (10,535) 12,802 (262,201)
Extraordinary loss on
retirement of debt..... -- (19,709) (45,681) -- --
-------- --------- ---------- -------- ----------
(Loss) income before
cumulative effect of
change in accounting
principle.............. (160) (87,903) (56,216) 12,802 (262,201)
Cumulative effect of
change in accounting
principle, net of
income tax benefit of
$1,400................. -- -- (14,710) (14,710) --
-------- --------- ---------- -------- ----------
Net loss................ (160) (87,903) (70,926) (1,908) (262,201)
Preferred stock
dividends.............. (12,690) (12,681) (66,642) (13,044) (45,258)
Repurchase of preferred
stock.................. -- (34,140) -- -- --
-------- --------- ---------- -------- ----------
Net loss applicable to
common shareholders.... $(12,850) $(134,724) $ (137,568) $(14,952) $ (307,459)
======== ========= ========== ======== ==========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Period from Three Months Ended
March 19, 1997 March 31,
(Date of Inception) to Year Ended Year Ended ------------------------
December 31, 1997 December 31, 1998 December 31, 1999 1999 2000
---------------------- ----------------- ----------------- ----------- -----------
(Unaudited)
<S> <C> <C> <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) $ (0.00) $ (0.39)
=========== =========== =========== =========== ===========
Extraordinary item
Basic and diluted...... $ -- $ (0.06) $ (0.09) $ -- $ --
=========== =========== =========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and diluted...... $ -- $ -- $ (0.03) $ (0.04) $ --
=========== =========== =========== =========== ===========
Net loss applicable to
common shareholders
Basic and diluted...... $ (0.04) $ (0.38) $ (0.27) $ (0.04) $ (0.39)
=========== =========== =========== =========== ===========
Shares used in computing
basic and diluted loss
per share.............. 325,773,934 358,735,340 502,400,851 410,797,073 778,780,323
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------- March 31,
1997 1998 1999 2000
-------- ---------- ----------- -----------
(in thousands) (Unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Total assets....................... $572,197 $2,639,177 $19,705,580 $21,489,970
Long term debt..................... 312,325 1,066,093 5,018,544 6,031,662
Total liabilities.................. 406,151 1,381,857 8,051,030 9,573,631
Total shareholders' equity......... 74,121 774,320 9,218,515 8,953,042
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Total liabilities and
shareholders' equity............. $572,197 $2,639,177 $19,705,580 $21,489,970
</TABLE>
<TABLE>
<CAPTION>
Period from Three Months Ended
March 19, 1997 March 31,
(Date of Inception) to Year Ended Year Ended --------------------
December 31, 1997 December 31, 1998 December 31, 1999 1999 2000
---------------------- ----------------- ----------------- -------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Data:
Cash from operating
activities............. $ 5,121 $ 208,727 $ 506,084 $(19,441) $ 240,158
Cash from investing
activities............. (428,743) (430,697) (4,009,977) (158,008) (1,030,576)
Cash from financing
activities............. 425,075 1,027,110 4,330,799 (64,796) 407,872
Adjusted EBITDA(1)...... $ 2,263 $ 364,948 $ 708,181 $128,208 $ 388,591
Calculation of Adjusted
EBITDA:
Operating income
(loss)................. $ (3,101) $ (19,725) $ (7,461) $ 41,067 $ (167,824)
Goodwill amortization... -- -- 127,621 -- 131,634
Depreciation and
amortization........... 39 541 124,294 211 140,943
Stock related expense... -- 39,374 51,308 16,716 18,850
Non-cash cost of
capacity sold.......... -- 140,892 291,764 53,514 99,056
Incremental cash
deferred revenue....... 5,325 64,197 120,657 16,700 165,932
Termination of Advisory
Services Agreement..... -- 139,669 -- -- --
-------- --------- ---------- -------- ----------
Adjusted EBITDA......... $ 2,263 $ 364,948 $ 708,181 $128,208 $ 388,591
======== ========= ========== ======== ==========
</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. Global Crossing Ltd. presents
Adjusted EBITDA because it is a financial indicator used by investors and
analysts to analyze and compare companies on the basis of operating
performance and because it believes that Adjusted EBITDA is an additional,
meaningful measure of performance and liquidity. Global Crossing Ltd.'s
management uses Adjusted EBITDA to monitor its compliance with its
financial covenants and to understand the financial indicators investors
and analysts are using to measure its performance. 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.
15
<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. Because GlobalCenter
group stock is intended to track the performance of the GlobalCenter group,
the risks described under "--Risks Related to the Business of the GlobalCenter
Group" could affect the trading price of the GlobalCenter group stock.
However, because the GlobalCenter group stock is a class of common stock of
Global Crossing Ltd. and not of a separate company, you should also consider
the risk factors relating to a capital structure with two or more classes of
common stock below and to the business of Global Crossing Ltd. For a
discussion of these risks, see "--Risks Relating to a Capital Structure with
Two or More Separate Classes of Common Stock" below and "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
The GlobalCenter group has a limited operating history and its business model
is still evolving, which makes it more difficult for you to evaluate the group
and its prospects.
The GlobalCenter group's limited operating history makes evaluating its
business operations and its prospects difficult. The GlobalCenter group's
range of service offerings has changed since its inception and its business
model is still new and developing. The GlobalCenter group recently began
offering a wider range of applications and professional services with the aim
of becoming a total Internet services provider to differentiate itself from
other Web hosting companies. Because many of these services are new, it cannot
be sure that businesses will buy them. As a result, the revenue and income
potential of the GlobalCenter group's business is unproven. In addition, its
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in the new, rapidly evolving and highly-competitive
market for Internet infrastructure services, including complex Web hosting
services. To address these risks, among other things, the GlobalCenter group
must:
. provide reliable, technologically current and cost-effective services;
. continue to upgrade and expand its global infrastructure;
. market its brand name and services effectively;
. develop new and extend its current business partnerships; and
. attract and retain qualified personnel.
The GlobalCenter group's ability to achieve its goals depends significantly
on its ability to partner with leading vendors of hardware, software and
Internet infrastructure applications, as well as professional service
providers, to develop and offer services that the market will want. This
entails risks, such as the risk that the GlobalCenter group will not be able
to partner, or, even if it does, that its selected partners will not provide
it with the necessary resources to remain a leader in its industry.
The GlobalCenter group has a history of significant losses and expects these
losses to continue in the foreseeable future.
The GlobalCenter group has experienced operating losses and negative cash
flows from operations in the past. The GlobalCenter group's net losses for the
three months ended March 31, 2000, the three months ended December 31, 1999,
the nine months ended September 30, 1999 and each of the years ended December
31, 1998 and 1997 were $41.1 million, $42.7 million, $16.8 million, $10.8
million and $2.8 million, respectively. While the GlobalCenter group's
revenues have grown in recent periods, this growth may not continue. In
connection with the GlobalCenter group's expansion plans, it anticipates
making significant investments in its data center infrastructure, as well as
in sales, marketing, technical and customer support personnel. As a result of
its expansion plans, we expect the GlobalCenter group's net losses and
negative cash flows from operations to continue for the foreseeable future. We
cannot assure you that the GlobalCenter group will ever become or remain
profitable or that it will generate positive cash flows from operations.
16
<PAGE>
The GlobalCenter group may be unable to secure additional financing when it
needs it.
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 the
GlobalCenter group's current business plan, it expects that the proceeds from
this offering will provide it sufficient capital to sustain current operations
and capital expenditure plans for the next 12 to 18 months. However, the
GlobalCenter group's business is rapidly growing and capital intensive. Any
material changes to its funding requirements could require it to secure
additional funding. The sources from which the GlobalCenter group may satisfy
its future financing requirements may include funding from third parties, the
proceeds from the issuance of additional GlobalCenter group stock or
additional funding from Global Crossing Ltd. We cannot assure you that the
GlobalCenter group will be able to secure additional financing on an
acceptable basis, if at all.
The rapid expansion of the GlobalCenter group's data centers produces a
significant strain on its business and requires it to expend substantial
resources. Any delay in its expansion plans or failure to attract customers
could have a material adverse effect on the business of the GlobalCenter
group.
The expansion of the GlobalCenter group's business through the opening of
additional data centers in geographically diverse locations is one of its key
strategies. The GlobalCenter group currently has 10 data centers located in
metropolitan areas in northern and southern California; northern Virginia; New
York City; London; and Melbourne. The GlobalCenter group is currently
developing 10 additional data centers, nine of which it plans to open in 2000.
To expand successfully, the GlobalCenter group must be able to assess markets,
locate and secure new data center sites, install data center facilities and
establish interconnections with the Global Crossing network or the networks of
other providers. To manage this expansion effectively, the GlobalCenter group
must continue to improve its operational and financial systems and expand,
train and manage its employee base. The GlobalCenter group's inability to
establish additional data centers or effectively manage its expansion would
limit its revenue growth, which would have a material adverse effect upon its
business.
The GlobalCenter group expects to expend substantial resources for leases
and/or the purchase of real estate, significant improvements of facilities,
purchase of complementary businesses, assets and equipment, implementation of
multiple telecommunications connections and hiring of network, administrative,
customer support and sales and marketing personnel with the establishment of
each new data center. Moreover, the GlobalCenter group expects to make
significant investments in sales and marketing and the development of new
services as part of its expansion strategy. If the net proceeds of this
offering are not sufficient to fund its growth, and if the GlobalCenter group
fails to generate sufficient cash flows or raise sufficient funds in the
future, it may be required to delay or abandon some or all of its development
and expansion plans or otherwise forego market opportunities, making it
difficult for it to generate additional revenue and to respond to competitive
pressures. Any delay in the completion of its new facilities may make the
GlobalCenter group less attractive to customers, which would adversely affect
its business.
In general, it takes the GlobalCenter group at least six months after a
data center site is leased to construct the necessary facilities, install
equipment and telecommunications infrastructure and hire operations and sales
personnel. Expenditures commence well before the data center opens, and it
takes an extended period of time for the GlobalCenter group to approach break-
even capacity utilization. As a result, the GlobalCenter group expects that
individual data centers will experience losses for one year or longer from the
time they are opened. The GlobalCenter group incurs further expenses to test
market its services in markets where there is no data center. Growth in the
number of its data centers is likely to increase the amount and duration of
losses. In addition, if the GlobalCenter group does not attract customers to
new data centers in a timely manner, or at all, those data centers would
continue to experience losses, which could materially adversely affect the
GlobalCenter Group's business.
17
<PAGE>
The GlobalCenter group's strategy is based on the belief that the Web hosting
business will continue to grow and that businesses will outsource an
increasing portion of their more sophisticated Internet-related functions. If
this belief is incorrect, the GlobalCenter group is unlikely to become or
remain profitable.
The GlobalCenter group's future growth, if any, will depend on the
continued trend of businesses to outsource an increasing portion of their
Internet-related operations, including their Web hosting needs and management
systems, and its ability to provide and market dependable services
effectively. In addition, the GlobalCenter group's strategy is based on its
belief that businesses will outsource an increasing portion of their more
sophisticated Internet-related functions, and the GlobalCenter group is
therefore planning to invest a significant amount in developing products and
services to meet this expected demand. We cannot be sure, however, that the
market for the GlobalCenter group's services will develop, that its services
will be adopted, or that businesses will use Internet-based services in the
degree or manner that the GlobalCenter group expects. It is possible that, at
some point, businesses may find it cheaper, more secure or otherwise
preferable to host their Web sites internally and decide not to outsource the
management of their Web sites. If the GlobalCenter group is unable to react
quickly to changes in the market, if the market fails to develop or develops
more slowly than expected, or if its services do not achieve market
acceptance, then the GlobalCenter group is unlikely to become or remain
profitable.
The market for Web hosting and for other Internet infrastructure services is
highly competitive and there are few substantial barriers to entry. The
GlobalCenter group may be unable to compete effectively and achieve its
operating and financial objectives due to this significant competition.
The market for Web hosting and for other Internet infrastructure services
is highly competitive and there are few substantial barriers to entry. The
GlobalCenter group's current and potential competitors in the market include
Web hosting service providers, Internet service providers, commonly known as
ISPs, telecommunications companies and large information technology
outsourcing firms. The GlobalCenter group's 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, Genuity, IBM, Intel, KPNQwest,
Level 3 Communications, MCI WorldCom, PSINet, NaviSite, Qwest Communications
International and USinternetworking.
Many of the GlobalCenter group's 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 the GlobalCenter group provides. As
the GlobalCenter group moves toward its goal of becoming a total Internet
infrastructure services provider, the nature of its competition may change in
ways it will not anticipate. The GlobalCenter group also believes 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 it to compete. For further discussion of the GlobalCenter
group's competitive position, see "Business of the GlobalCenter Group--
Competition."
The GlobalCenter group's business depends largely on network services it
receives from the Global Crossing group. Any disruption of these services or
the Global Crossing group's inability to maintain its peering and transit
relationships could be costly and could prevent the GlobalCenter group from
adequately serving its customers.
The GlobalCenter group relies primarily on the Global Crossing group for
its network capacity. The Global Crossing group operates its own global IP
network, which qualifies it as a tier-one service provider of Internet
connectivity services. A "tier-one service provider" is a company with an
international IP network which provides a presence in major cities in the
United States and Europe, geographically diverse peering connections,
18
<PAGE>
specified transport speeds and round-the-clock network support services. If
the Global Crossing network experiences disruption, the GlobalCenter group's
services may be disrupted as well, which would be detrimental to the
GlobalCenter group's customers. Frequent or sustained disruptions in the
Global Crossing network could harm the GlobalCenter group's business. If the
Global Crossing group were unable to provide the GlobalCenter group sufficient
network capacity, it would need to rapidly secure an alternative provider of
these services. As a result, the GlobalCenter group could incur transition
costs and its monthly costs of operations could increase. In addition, such a
transition could have a detrimental effect on the service it provides its
customers.
The Internet is composed of many ISPs that operate their own networks and
interconnect with other ISPs at various peering points. Peering and transit
relationships are a competitive factor that allow some Web hosting companies
to provide faster data transmission than others. If the Global Crossing group
fails to adapt its network infrastructure to meet industry requirements for
peering or loses its peering or transit relationships for any other reason,
then the GlobalCenter group's transmission rates could be reduced, resulting
in a decrease in the quality of service it provides to its customers.
The GlobalCenter group would not be able to provide adequate service to its
customers if it were unable to secure sufficient network capacity to meet its
future needs on reasonable terms or at all.
The GlobalCenter group must continue to expand and adapt its network
arrangements to accommodate an increasing amount of data traffic and changing
customer requirements. If the GlobalCenter group's future network capacity
requirements exceed the capacity the Global Crossing group is able to provide
to the GlobalCenter group, it may have to pay higher prices for such
additional network capacity from others or such capacity might not be
available at all. The GlobalCenter group's failure to achieve or maintain high
capacity data transmission could negatively affect its level of service to its
existing customers and limit its ability to attract new customers, which would
harm its business.
The GlobalCenter group's quarterly and annual results may fluctuate. If the
GlobalCenter group's results of operations fall below analysts' expectations,
the market price of GlobalCenter group stock and the value of your investment
could be reduced.
The GlobalCenter group's results of operations fluctuate on a quarterly and
annual basis. It expects to continue experiencing significant fluctuations in
its future quarterly and annual results of operations due to a variety of
factors, including the factors discussed in this section, many of which are
outside of the GlobalCenter group's control.
Due to these factors, revenues and operating results are difficult to
forecast. The GlobalCenter group believes that period to period comparisons of
its operating results will not necessarily be meaningful and you should not
rely on them as indications of its future performance. However, the market
price of GlobalCenter group stock may reflect the expectations of securities
analysts or investors relating to the GlobalCenter group's results of
operations. If, in some future periods, the GlobalCenter group's results of
operations fall below these expectations, it could negatively affect the
market price of GlobalCenter group stock and the value of your investment.
The GlobalCenter group's data centers and the networks it relies on are
sensitive to harm from human actions and natural disasters. Any resulting
disruption could significantly damage its business.
The GlobalCenter group's ability to provide reliable service largely
depends on the performance and security of its data centers and equipment, and
of the network infrastructure of its connectivity providers, particularly the
Global Crossing IP network infrastructure. The GlobalCenter group's customers
often maintain confidential information on servers located in its data
centers, such as credit card and bank account numbers. The GlobalCenter
group's data centers and equipment, the networks it uses, and its customers'
information, are subject to damage and unauthorized access from human error
and tampering, breaches of security, natural
19
<PAGE>
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 customers. The GlobalCenter
group's data centers have experienced and may in the future experience delays
or interruptions in service as a result of accidental or intentional actions
of Internet users or others. For example, in February 2000, hackers flooded
one of the GlobalCenter group's customer's Web sites with an enormous number
of requests, which disrupted its services. Despite precautions the
GlobalCenter group has taken and plans to take, the occurrence of a security
breach, natural disaster, interruption in service or other unanticipated
problems could seriously damage its business and cause it to lose customers.
Additionally, the time and expense required to alleviate security problems
could be significant and could impair its operating results.
By providing services to customers with mission-critical Internet operations,
GlobalCenter could potentially expose itself to lawsuits for customers' lost
profits or other damages.
Because the GlobalCenter group's services are critical to many of its
customers' businesses, any significant interruption in its services could
result in lost profits or other indirect or consequential damages to its
customers. The GlobalCenter group's customers are required to sign service
agreements which incorporate GlobalCenter's standard terms and conditions.
Although these terms disclaim its liability for any such damages, a customer
could still bring a lawsuit against the GlobalCenter group claiming lost
profits or other consequential damages as the result of a service interruption
or other Web site problems that the customer may attribute to the GlobalCenter
group. The GlobalCenter group cannot be sure a court would enforce any
limitations on its liability, and the outcome of any lawsuit may depend on the
specific facts of the case and the legal and policy considerations involved.
While the GlobalCenter group believes it would have meritorious defenses to
any such claims, it cannot be sure it would prevail. In such cases, the
GlobalCenter group could be liable for substantial damage awards. Such damage
awards might exceed its liability insurance by unknown but significant
amounts, which would seriously harm the GlobalCenter group's profitability or
increase its losses.
The GlobalCenter group provides service level commitments to its customers, so
any significant degradation in service could force it to reduce its fees
enough to harm its business.
The GlobalCenter group's customer contracts provide service level
agreements related to the continuous availability of its data center and
network services. The GlobalCenter group's commitment is generally limited to
a credit consisting of reduction in monthly fees for disruptions in Internet
transmission services. If the GlobalCenter group incurs significant service
degradation in connection with system downtime, it will be forced to reduce
its fees and its business would be harmed. As customers outsource more
mission-critical operations to the GlobalCenter group, it risks increased
liability claims and customer dissatisfaction if its systems fail to meet its
customers' expectations.
If the GlobalCenter group does not respond effectively and on a timely basis
to rapid technological change and evolving industry standards, its services
could become obsolete or no longer competitive.
Internet and networking technology is changing rapidly. The GlobalCenter
group's future success will depend largely on its ability to:
. offer services that incorporate leading technologies;
. address the increasingly sophisticated and varied needs of its current
and prospective customers;
. respond to technological advances and emerging industry standards on a
timely and cost-effective basis; and
. continue offering services that are compatible with products and services
of other vendors.
Although the GlobalCenter group often works with various vendors in testing
newly developed products, we cannot be sure these products will be compatible
with its infrastructure or that these products will adequately address
changing customer needs. Although the GlobalCenter group currently intends to
support emerging standards, we cannot be sure that industry standards will be
established or, if they become established, that
20
<PAGE>
GlobalCenter will be able to conform to these new standards in a timely or
cost-effective fashion and maintain a competitive position in the market.
Keeping pace with technological advances may require substantial expenditures
and lead time. The GlobalCenter group's failure to conform to the prevailing
standards, or the failure of common standards to emerge, could harm its
business. In addition, products, services or technologies developed by others
may render its services obsolete or no longer competitive.
The GlobalCenter group's business will not continue to grow unless Internet
usage continues to grow and Internet performance remains adequate.
The increased use of the Internet for retrieving, sharing and transferring
information among businesses and consumers has only recently begun to develop
on a mass scale. The GlobalCenter group's success will depend on the continued
growth in Internet usage, in particular on the growth of 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 growth in consumer and business use of new interactive
technologies, the development of technologies that facilitate interactive
communications, security concerns and increases in data transport capacity. If
the Internet as a commercial medium fails to grow or develops more slowly than
expected, then the GlobalCenter group's business is unlikely to grow as
expected.
The recent growth in the use of the Internet in general has caused frequent
periods of performance degradation, requiring the upgrade of routers and
switches, telecommunications links and other components forming the
infrastructure of the Internet by ISPs and other organizations with links to
the Internet. Any perceived degradation in the performance of the Internet as
a whole could undermine the demand for the GlobalCenter group's services. The
performance of the GlobalCenter group's Web hosting services is ultimately
limited by and relies on the speed and reliability of the networks operated by
Global Crossing and third parties. Consequently, the growth of the market for
the GlobalCenter group's services depends on improvements being made to these
networks.
The GlobalCenter group's business could be harmed if its management team,
which has worked together at GlobalCenter for only a brief time, is unable to
work effectively, or if it is unable to retain and attract key personnel.
GlobalCenter has hired most of its senior management within the last six
months. As a result, its management team has worked for GlobalCenter for only
a brief time. The GlobalCenter group's success will depend, in significant
part, on the continued services of its senior management personnel and of its
key technical and sales personnel. If other companies offer GlobalCenter's key
employees substantial compensation or option packages, they may choose to
accept other employment. Global Crossing Ltd. and its subsidiaries do not have
employment agreements for any GlobalCenter employees other than Mr. Hindery,
or key man insurance for any GlobalCenter employees.
The GlobalCenter group's success will also depend largely on its ability to
attract and retain highly skilled technical, managerial, sales and marketing
personnel, particularly additional management in the areas of application
integration and technical support. Competition for such personnel is intense.
GlobalCenter may not be able to hire or retain the necessary personnel to
implement its business strategy, or it may need to pay higher compensation for
employees than it currently expects. If the GlobalCenter group's is unable to
attract and retain such personnel, its growth would be limited and its
business would be harmed.
The GlobalCenter group may be unable to achieve its operating and financial
objectives if it cannot manage its anticipated growth effectively.
The GlobalCenter group is experiencing, and expects to continue
experiencing, rapid growth with respect to the building of its domestic and
international data centers, expansion of its service offerings, expansion of
its customer base and increases in the number of employees. This growth has
placed, and the GlobalCenter group expects it to continue to place, a
significant strain on its financial, management, operational and other
resources, including its ability to ensure customer satisfaction. This
expansion also requires significant time commitments
21
<PAGE>
from its senior management and places a significant strain on their ability to
manage the existing business. In addition, the GlobalCenter group is required
to manage multiple relationships with a growing number of third parties as it
seeks to complement its service offerings.
In order to manage this growth, the GlobalCenter group will need to:
. expand and enhance its operating and financial procedures and controls;
. replace or upgrade its operational and financial management information
systems; and
. attract, train, manage and retain key employees.
In early 2000, the GlobalCenter group began to implement and upgrade its
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 the
GlobalCenter group's business.
The GlobalCenter group may experience difficulty in integrating future
acquisitions or joint ventures which could harm its operating results.
GlobalCenter Inc. may acquire businesses with complementary products,
services and technologies that will be allocated to the GlobalCenter group.
After purchasing a company, GlobalCenter 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 GlobalCenter.
These difficulties could disrupt the GlobalCenter group's ongoing business,
distract its management and employees and increase its expenses. In addition,
future acquisitions by GlobalCenter Inc. may require it to incur additional
debt, result in large one-time write-offs or create goodwill or other
intangible assets that could result in amortization expenses.
As part of the GlobalCenter group's expansion, GlobalCenter Inc. may also
pursue relationships and joint ventures with companies located in or with
relationships in the markets it wishes to enter, or who have specific
technologies, products or services it needs to serve its customers.
GlobalCenter Inc. 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 GlobalCenter may be required to fulfill those
obligations. In addition, if GlobalCenter Inc. does not have a majority
interest in a joint venture, it may not have control of the operation or
assets of that joint venture.
Because the GlobalCenter group is planning significant international expansion
in the next year, difficulties presented by international economic, political,
legal, accounting and business factors could harm its business.
One component of the GlobalCenter group's strategy is to expand into
international markets. It currently has two data centers outside of the United
States, one in London, England and one in Melbourne, Australia. The
GlobalCenter group has also announced plans to open new data centers later
this year in Europe and Australia. In addition, GlobalCenter Inc. has entered
into a joint venture agreement with Asia Global Crossing, an affiliated
company, pursuant to which this joint venture will open data centers in Asia.
In order to further expand the GlobalCenter group's international operations,
GlobalCenter Inc. 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
GlobalCenter is unable to do any of these things in a timely and cost-
effective manner, it could be precluded from successfully developing its
international operations. In addition, the GlobalCenter group may depend on
third parties to be successful in its international operations, but we cannot
assure you that the GlobalCenter group will be successful in securing such
third party relationships.
22
<PAGE>
In addition, the rate of development and adoption of the Internet has been
slower outside of the United States, and the cost of bandwidth has been
higher, which may adversely affect the GlobalCenter group's ability to expand
operations and may result in higher relative costs for its international
operations. The risks inherent in conducting business internationally include:
. unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers;
. challenges in staffing and managing foreign operations;
. differences in technology standards;
. employment laws and practices in foreign countries;
. longer payment cycles and problems in collecting accounts receivable;
. political instability;
. fluctuations in currency exchange rates and imposition of currency
exchange controls; and
. potentially adverse tax consequences.
Laws in the United States and elsewhere regarding the Internet are largely
unsettled, but are becoming an increasing focus for lawmakers. Changes in
these laws could require the GlobalCenter group to expend significant
resources to comply or could limit its business.
The GlobalCenter group provides services over the Internet in the United
States and in many foreign countries, and it facilitates the activities of its
customers in these jurisdictions. As a result, GlobalCenter Inc. may be
required to qualify to do business, or be subject to taxation, or be subject
to other laws and regulations, in jurisdictions even if it does not have a
physical presence or employees or property in these jurisdictions. The
application of these multiple sets of laws and regulations is uncertain.
GlobalCenter could be subject to regulation, taxation, enforcement or other
liability in unexpected ways, which could make it more expensive to conduct
its business or limit its ability to conduct its business. Regulation of the
Internet may also harm GlobalCenter's customers' businesses, which could lead
to reduced demand for its services.
The law in the United States relating to the liability of online and
Internet service providers for information disseminated through their systems
remains largely unsettled. It may take years to determine whether and how
existing laws, such as those governing intellectual property, privacy,
consumer protection, libel and taxation, apply to the Internet. The growth and
development of the market for online commerce may also prompt calls for more
stringent consumer protection laws that may impose additional burdens on
companies conducting business online.
The United States Congress has recently considered enacting Internet laws
regarding privacy, copyrights, taxation and the transmission of sexually
explicit materials. The Federal Trade Commission has recently commenced
investigations of the practices of certain Internet companies relating to
privacy and consumer protection laws. The European Union recently enacted its
own privacy regulations. The application of existing laws or promulgation of
new laws could require the GlobalCenter group to expend substantial resources
to comply with such laws or discontinue some service offerings. Increased
attention to liability issues could also divert management attention, result
in unanticipated expenses and harm its business.
The GlobalCenter group's business is not currently subject to direct
regulation by the Federal Communications Commission, or the "FCC," or any
other government agency, other than as to regulations applicable to business
in general. However, in the future it may be subject to regulation by the FCC
or other federal or state agencies, which could increase its costs and harm
its business. For further discussion of the regulations to which the
GlobalCenter group may be subject, see "Business of the GlobalCenter Group--
Government Regulation."
23
<PAGE>
Global Crossing Ltd. is subject to United States and international
regulation relating to its existing network and its future expansion of its
network. If Global Crossing's network or expansion plans were limited by
governmental regulation, it could have a material adverse effect on the
GlobalCenter group's business. For a discussion of risks relating to the
business of 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 by reference in this
prospectus.
As the host of information carried on the Internet, the GlobalCenter group
could be held liable for the information disseminated through its network.
If the GlobalCenter group and other Web hosting and network providers
become liable for information carried on or disseminated through their
systems, GlobalCenter group could be required to implement measures to reduce
exposure to legal liability. This may require the expenditure of substantial
funds, or discontinuance of various service or product offerings. The costs of
defending against any claims and potential adverse outcomes of these claims
could adversely affect the GlobalCenter group's profitability or increase its
losses. While the GlobalCenter group carries professional liability insurance,
it may not be adequate to compensate GlobalCenter or may not cover it in the
event it becomes liable for information carried on or disseminated through its
network. The law relating to the liability of online services companies,
private network operators and ISPs for information carried on or disseminated
through their networks is currently unsettled. The Child Online Protection Act
of 1998 imposes criminal penalties and civil liability on anyone engaged in
the business of selling or transferring material that is harmful to minors, by
means of the Web, without restricting access to this type of material by
underage persons. Numerous states have adopted or are currently considering
similar types of legislation.
In addition, some ISPs and other online services companies could deny
network access to the GlobalCenter group and its customers if it allows
undesired content to be transmitted through its network. Although the
GlobalCenter group prohibits customers by contract from distributing illegal
material or engaging in practices such as sending unsolicited commercial e-
mail advertisements, we cannot be sure that the GlobalCenter group's customers
will not violate these prohibitions, which could cause the GlobalCenter group
to face significant liability.
The GlobalCenter group may be unable to protect its intellectual property
rights or to license the intellectual property that it expects to need in the
future from others.
The GlobalCenter group relies on a combination of copyright, trademark,
service mark and trade secret laws and contractual restrictions to establish
and protect certain of its proprietary rights. It has no patented technology
that would bar competitors from its market. Despite its efforts to protect its
proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use its data or technology. In addition, the laws of various
foreign countries may not protect its products, services or intellectual
property rights to the same extent as do the laws of the United States.
The GlobalCenter group does not currently rely in a material way on
technologies licensed from third parties, but it expects that, as it continues
to offer new services through partnerships with third parties, its reliance on
licensed technology will grow. The GlobalCenter group cannot be sure these
licenses will be available to it on commercially reasonable terms or at all.
The inability to use such technology could require it to obtain substitute
technology of lower quality or performance standards or at greater cost, which
could harm its business.
Other parties may claim that the GlobalCenter group has infringed their
proprietary rights. Such claims, whether or not meritorious, may require it to
expend significant financial and managerial resources, result in injunctions
against it, or impose damages it must pay. The GlobalCenter group may need to
obtain licenses from third parties who allege that it has infringed their
rights, but such licenses may not be available on terms acceptable to it or at
all.
24
<PAGE>
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, Global Crossing Ltd. 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 market value of GlobalCenter
group stock may not reflect the performance of the GlobalCenter group as
intended. 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, even if those liabilities arise
from lawsuits, contracts or indebtedness that are attributed to the other
group. 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. For example, pursuant to a tax sharing agreement,
GlobalCenter Inc. and its subsidiaries could be liable for federal income tax
liability incurred by subsidiaries that are part of the Global Crossing 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 Global Crossing Ltd.'s ability to incur debt on
behalf of the GlobalCenter group or increase its costs of borrowing. 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 provided for the
GlobalCenter group.
We cannot assure you that the market price of GlobalCenter group stock will
reflect the performance of the GlobalCenter group as we intend.
Tracking stocks, like GlobalCenter group stock, are more complex than
traditional common stocks and are not directly comparable to common stock of
companies that have been spun off by their parent companies. For the following
reasons and the other risks and uncertainties relating to this capital
structure, we cannot assure you that the market price of GlobalCenter group
stock will reflect the performance of the GlobalCenter group as we intend.
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
25
<PAGE>
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.
The complex nature of the terms of GlobalCenter group stock may
adversely affect its market price
The complex nature of the terms of GlobalCenter group stock and the
potential difficulties investors may have in understanding these terms may
adversely affect its market price. Examples include:
. the rights of the Global Crossing Ltd. board of directors to convert
GlobalCenter group stock into Global Crossing group stock or vice versa;
and
. the discretion of the Global Crossing Ltd. board of directors to make
determinations relating to a variety of matters affecting the rights of
the holders of GlobalCenter group stock, such as dividends and cash
management and allocation matters.
In addition, investors may discount the value of GlobalCenter group stock
because the GlobalCenter group is part of a common enterprise with the rest of
the operations of Global Crossing Ltd. rather than a stand-alone entity.
The terms of the GlobalCenter group stock as a whole may not
effectively link the market value of GlobalCenter group stock with the
separate performance of the GlobalCenter group
Some of the terms of the GlobalCenter group stock are not intended to link
its market value with the separate performance of the GlobalCenter group. For
example, the liquidation rights of the GlobalCenter group stock are fixed soon
after the time of issuance and may not bear any relationship to its market
value at the time of any liquidation of Global Crossing Ltd. The absence of
other terms, such as the lack of a formula requiring the payment of dividends
based on performance, could make it less likely that GlobalCenter group stock
will have a market value effectively linked to the separate performance of the
GlobalCenter group.
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 elect the board of directors of Global Crossing Ltd. and 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 as a separate voting group (1) to increase or decrease
the authorized shares of GlobalCenter group stock, other than to
effectuate a permitted conversion or distribution, (2) to amend the terms
of GlobalCenter group stock and (3) as otherwise required under Bermuda
law, Nasdaq listing rules or stock exchange rules.
You will not have a board of directors with a separate fiduciary duty to you.
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
board of directors of Global Crossing Ltd. owes a fiduciary duty to Global
Crossing Ltd. and its shareholders as a whole. Consequently, there will be no
board of directors that will owe any separate duties to the holders of
GlobalCenter group stock.
26
<PAGE>
The voting power of GlobalCenter group stock will 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 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 Ltd. as a whole,
Global Crossing Ltd.'s board of directors could, in its sole discretion and
27
<PAGE>
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. Furthermore, upon a sale or disposition of less than substantially all
of the assets of GlobalCenter group, Global Crossing Ltd.'s board of directors
is under no obligation to make any distribution to holders of GlobalCenter
group stock of the proceeds of the sale or disposition.
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 holders of
GlobalCenter group stock.
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.
Operational and financial decisions could favor the Global Crossing
group over the GlobalCenter group, adversely affecting the market value
of the GlobalCenter group stock
From time to time, Global Crossing Ltd.'s board of directors could, in its
sole discretion and without shareholder approval, 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 limitations imposed by Global Crossing Ltd.'s
contractual obligations, including limitations on its ability to secure any of
its assets.
The policy statement to be adopted by Global Crossing Ltd's board of
directors to govern the relationship between the GlobalCenter group and the
Global Crossing group is intended to address many of the operational and
financial conflicts that may arise between the groups. Global Crossing Ltd.'s
board of directors may modify or rescind the policies set forth in the policy
statement, however, in its sole discretion without shareholder approval,
consistent with its fiduciary duties to Global Crossing Ltd. and all of its
shareholders.
Proceeds of future issuances of GlobalCenter group stock could be
allocated to the Global Crossing group, which could favor the Global
Crossing group and harm 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
28
<PAGE>
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 in
a manner that favors the Global Crossing group, adversely affecting the
market value of the GlobalCenter group stock
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 and without shareholder
approval, declare and pay dividends exclusively on Global Crossing group
stock, or on both Global Crossing group stock and GlobalCenter group stock, 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."
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
a conversion of Global Crossing group stock into GlobalCenter group stock
would be at a premium, it may be disadvantageous to the holders of
GlobalCenter group stock because it would dilute the interests in Global
Crossing Ltd. of the holders of GlobalCenter group stock. In addition, any
conversion of either group stock could occur at a time when GlobalCenter group
stock may be considered to be under-valued. In addition, such a conversion
would preclude the holders of GlobalCenter group stock from retaining their
investment in a security that is intended to reflect separately the
performance of the GlobalCenter group. In addition, any conversion of
GlobalCenter group stock into Global Crossing group stock, although at a
premium to holders of GlobalCenter group stock, might be at 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 the GlobalCenter group.
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 without approval by holders of GlobalCenter group stock.
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 at any time and without
shareholder approval 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
29
<PAGE>
. a loan, or repayment of a loan, from one group to the other group,
subject to the terms of Global Crossing Ltd.'s 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. The board of directors of Global Crossing Ltd. will determine
the fair value of the assets or liabilities transferred in its sole discretion
except in the event of a transfer of cash or, in most cases, publicly traded
securities.
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 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 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 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 shareholders.
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.
Greater stock ownership held in the form of Global Crossing group stock could
cause directors and officers to favor the Global Crossing group over the
GlobalCenter group.
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 the
Global Crossing group over the GlobalCenter group due to their stock and other
benefits. However, while our directors and officers may be inclined to favor
one group over another, they have a fiduciary duty to all shareholders of
Global Crossing Ltd.
Decisions by Global Crossing Ltd. directors and officers that affect the
market value of GlobalCenter group stock could adversely affect voting and
conversion rights of holders of GlobalCenter group stock.
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 GlobalCenter
group stock could be adversely affected by market reaction to decisions by
Global Crossing Ltd.'s board of directors or Global Crossing Ltd.'s
management. These
30
<PAGE>
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.
The board of directors of Global Crossing Ltd. may, without shareholder
approval, 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.
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 limited 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 this 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, reducing the potential for a takeover
premium and adversely impacting the market value of GlobalCenter group stock.
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, reducing
the potential for a takeover premium and adversely impacting the market value
of GlobalCenter group stock.
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
31
<PAGE>
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.
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. Specifically, if the
proposal is enacted, holders of GlobalCenter group stock could be taxed on the
receipt of GlobalCenter group stock or Global Crossing group stock distributed
as a dividend or Global Crossing group stock distributed in exchange for your
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. For additional information regarding the ability of Global
Crossing Ltd. to convert shares under these circumstances and tax consequences
of owning shares of GlobalCenter group stock, see Description of Capital
Stock--Conversion and repurchase--Conversion of common stock at option of
Global Crossing Ltd. at any time" and "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 that could result in increased tax
liability to holders of GlobalCenter group stock.
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
32
<PAGE>
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 to holders of
GlobalCenter group stock.
Global Crossing Ltd.'s bye-laws contain provisions that, among other
things,
. 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
. 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 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 to
acquire control of Global Crossing Ltd. without approval of Global Crossing
Ltd.'s board of directors, and therefore makes it less likely that the holders
of GlobalCenter group stock would receive payment of a takeover premium that
is typically paid to shareholders in such an acquisition.
33
<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 the GlobalCenter group's 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 the GlobalCenter
group's services and products; and
. statements regarding the future course of the GlobalCenter group's
relationship with the Global Crossing group and Global Crossing Ltd.
We wish to caution you that all the forward-looking statements contained in
this prospectus are only estimates and predictions. 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. These risks, uncertainties and assumptions
include, but are not limited to, those discussed in this prospectus.
34
<PAGE>
USE OF PROCEEDS
Global Crossing Ltd. expects to receive net proceeds from this offering of
approximately $925 million, assuming a public offering price of $17.00 per
share and after deducting underwriting discounts and commissions and estimated
expenses. Global Crossing Ltd. will allocate all of the net proceeds to the
GlobalCenter group. This allocation is subject to the discretion of the board
of directors of Global Crossing Ltd.
GlobalCenter plans to use approximately $725 million of the net proceeds to
finance the anticipated expansion of its domestic and international data
center facilities over the next 12 to 18 months. The remainder will be used
for general corporate purposes and working capital. GlobalCenter may also use
a portion of the net proceeds to make strategic investments or acquisitions.
Pursuant to the policy statement, the board of directors and the senior
management of GlobalCenter Inc. have the authority to determine the uses of
the net proceeds allocated to the GlobalCenter group. The policy statement is
subject to change at the discretion of the board of directors of Global
Crossing Ltd.
Pending their use by GlobalCenter, the net proceeds may be invested in
short-term securities or allocated to the Global Crossing group as an
interest-bearing loan. The Global Crossing group 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 Global Crossing Ltd. expects the GlobalCenter group and the Global
Crossing group to require significant capital commitments to finance
operations and fund 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 the GlobalCenter group.
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. For more information on
these restrictions, see "Description of Capital Stock--GlobalCenter group
stock--Dividends."
35
<PAGE>
CAPITALIZATION
The following table presents, as of March 31, 2000:
.the actual capitalization of Global Crossing Ltd.;
. its capitalization as adjusted to give effect to the issuance of
21,673,706 shares of common stock and 4,600,000 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 March 31, 2000; and
. its capitalization as adjusted to give further effect to (1) this
offering at an assumed public offering price of $17.00 per share, after
deducting estimated expenses and underwriting discounts and commissions,
and the allocation of the net proceeds of this offering to the
GlobalCenter group; and (2) the reclassification of the existing common
stock of Global Crossing Ltd. into Global Crossing group stock.
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------------
Pro forma
Actual Pro forma As adjusted
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt......................... $ 6,031,662 $ 6,031,662 $ 6,031,662
Mandatorily Redeemable and Cumulative
Convertible Preferred Stock
10 1/2% Mandatorily redeemable
preferred stock..................... 486,517 486,517 486,517
6 3/8% Cumulative convertible
preferred stock..................... 1,369,000 1,369,000 1,369,000
6 3/4% Cumulative convertible
preferred stock..................... -- 1,113,000 1,113,000
7% Cumulative convertible preferred
stock............................... 629,750 629,750 629,750
----------- ----------- -----------
8,516,929 9,629,929 9,629,929
Shareholders' equity
Global Crossing Ltd. common stock.... 8,030 8,907 --
Global Crossing group stock.......... -- -- 8,907
GlobalCenter group stock............. -- -- 575
Treasury stock....................... (209,415) (209,415) (209,415)
Other shareholders' equity........... 9,575,617 13,466,887 14,391,312
Accumulated deficit.................. (421,190) (421,190) (421,190)
----------- ----------- -----------
Total shareholders' equity......... 8,953,042 12,845,189 13,770,189
----------- ----------- -----------
Total capitalization............. $17,469,971 $22,475,118 $23,400,118
=========== =========== ===========
</TABLE>
36
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA
OF THE GLOBALCENTER GROUP
The table below provides selected historical combined financial data of the
GlobalCenter group, an integrated business of Global Crossing Ltd. We prepared
this information using the historical combined financial data from the
GlobalCenter group's combined financial statements at and for the three-month
periods ended March 31, 1999 and 2000, 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. The statement of operations data for the year ended December
31, 1997 and balance sheet data as of December 31, 1997 are 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 for the three-month period ended December 31, 1999, the nine month
period ended September 30, 1999 and the year ended December 31, 1998 from
combined financial statements audited by Arthur Andersen LLP, independent
public accountants. The financial data as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 are derived from the GlobalCenter group's
unaudited combined financial statements. The GlobalCenter group has made
adjustments, consisting of normal recurring adjustments necessary to present
its financial position as of March 31, 2000 and the results of operations for
the three months ended March 31, 1999 and 2000, which in the opinion of the
GlobalCenter group's management are necessary for a fair presentation. Results
of operations for the three months ended March 31, 1999 and 2000 are not
necessarily indicative of the results that may be expected for the full year
or for any future period.
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
includes adjustments for depreciation of property and equipment and pro forma
amortization of goodwill and intangibles for the nine months ended September
30, 1999 resulting from the merger of Frontier Corporation with Global
Crossing Ltd. 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.
37
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
New GlobalCenter Old New
Old GlobalCenter GlobalCenter Group GlobalCenter GlobalCenter
-------------------------------- ------------ ------------ ------------ ------------
Unaudited
Year Ended Nine Months Three Months Unaudited Three Months Ended
December 31, Ended Ended Year Ended March 31,
----------------- September 30, December 31, December 31, -------------------------
1997 1998 1999 1999 1999 1999 2000
------- -------- ------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Service revenues...... $ 6,511 $ 19,600 $ 29,951 $ 17,753 $ 47,704 $ 6,451 $ 24,562
Equipment revenues.... 1,228 3,640 17,228 5,971 23,199 4,496 13,747
------- -------- -------- -------- --------- ------- --------
Total revenues...... 7,739 23,240 47,179 23,724 70,903 10,947 38,309
Costs and expenses:
Cost of service
revenues............. 5,257 14,804 36,451 17,328 53,779 9,363 21,442
Cost of equipment
revenues............. 995 3,208 15,573 5,365 20,938 4,057 13,089
Sales and marketing... 1,966 8,948 9,531 6,088 15,619 2,110 6,455
General and
administrative....... 2,044 4,694 6,897 3,067 9,964 1,216 5,835
Depreciation and
amortization......... 912 4,023 4,242 1,913 6,428 1,103 3,155
Goodwill and
intangibles
amortization......... 325 1,294 974 37,135 148,540 324 37,135
Merger costs.......... -- 2,060 -- -- -- -- --
------- -------- -------- -------- --------- ------- --------
Total costs and
expenses........... 11,499 39,031 73,668 70,896 255,268 18,173 87,111
------- -------- -------- -------- --------- ------- --------
Loss from operations.... (3,760) (15,791) (26,489) (47,172) (184,365) (7,226) (48,802)
Other income (expense),
net.................... 45 55 (44) 114 70 (18) (211)
------- -------- -------- -------- --------- ------- --------
Loss before income
taxes.................. (3,715) (15,736) (26,533) (47,058) (184,295) (7,244) (49,013)
Income tax benefit...... 941 4,911 9,742 4,333 14,075 2,660 7,933
------- -------- -------- -------- --------- ------- --------
Net loss................ $(2,774) $(10,825) $(16,791) $(42,725) $(170,220) $(4,584) (41,080)
======= ======== ======== ======== ========= ======= ========
Operating Data:
Cash (used in) provided
by operating
activities............. $(3,147) $ (5,752) $(10,057) $ (1,543) $ (11,600) $(4,020) $ 6,594
Cash used in investing
activities............. 1,285 28,978 20,871 69,399 90,270 4,891 59,084
Cash from financing
activities............. $ 1,847 $ 34,238 $ 30,928 $ 70,942 $ 101,870 $ 8,911 $ 52,490
</TABLE>
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
----------------- ---------------------
As of December 31, Unaudited
---------------------------- March 31,
1997 1998 1999 2000
-------- -------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance Sheet and Other Data:
Goodwill and intangibles, net.......... $ 8,764 $ 7,470 $1,488,265 $1,411,130
Total assets........................... 18,172 48,021 1,596,083 1,628,628
Total liabilities...................... 8,221 12,084 65,938 87,070
Group equity........................... 9,951 35,937 1,530,145 1,541,558
Total liabilities and group equity..... $ 18,172 $ 48,021 $1,596,083 $1,628,628
Number of data centers................. 2 6 8 10
Data center gross square footage....... 23,000 72,000 238,000 314,000
</TABLE>
38
<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." Although management of Global Crossing Ltd. is under no legal
obligation to continue to provide combined financial statements for the
GlobalCenter group in conformity with accounting principles generally accepted
in the United States, it intends to do so for so long as shares of
GlobalCenter group stock remain outstanding.
Overview
GlobalCenter Inc. was acquired by Frontier Corporation in February 1998 in
a pooling-of-interests transaction. In September 1999, Global Crossing Ltd.
acquired Frontier Corporation using the purchase method of accounting. As a
result of this acquisition, the fair value of goodwill and other intangibles
directly related to the GlobalCenter group was determined to be approximately
$1.5 billion. The goodwill and other intangible assets are being amortized on
a straight-line basis over 10 years. The GlobalCenter group expects annual
amortization of the existing goodwill and other intangibles to be
approximately $148.5 million in the future. GlobalCenter Inc. is an indirect
wholly owned subsidiary of Global Crossing and owns all of the operating
assets and liabilities of the GlobalCenter group. The goodwill and other
intangible assets of the GlobalCenter group are owned by GlobalCenter Holding
Co., an indirect wholly owned subsidiary of Global Crossing. This is a
discussion of the operations, assets and liabilities of the GlobalCenter group
and not any separately incorporated entity.
Prior to the completion of this offering, the GlobalCenter group obtained
the majority of its network access from third party telecommunications
providers based on agreements with market-based pricing terms. Some of those
third party agreements required price escalation or contract renegotiation in
the event of unequal traffic flows. The GlobalCenter group also obtained some
of its network access from Frontier Corporation prior to October 1999. After
the acquisition of Frontier Corporation on September 30, 1999, the
GlobalCenter group has obtained substantially all of its network access from
the Global Crossing group. Following the completion of this offering, its IP
transit capacity will be provided by the Global Crossing group based on
preferred market-based pricing, taking into account volume, term and the
exclusive nature of the arrangement and any guarantee of service levels
provided by the Global Crossing group. The GlobalCenter group will pay for
access based on this preferred market-based pricing and its actual usage. The
GlobalCenter group expects that the price it pays for access will be lower in
the future than in previous periods.
Since October 1, 1999, the GlobalCenter group has received administrative
services from the Global Crossing group that include information systems
support, tax services, payroll and benefit administration and certain other
accounting and administrative services. From March 1, 1998 through September
30, 1999, Frontier Corporation provided these services to the GlobalCenter
group. Its costs for these services were based on total actual costs allocated
to the GlobalCenter group 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 the GlobalCenter
group at least six months after a data center site is leased to construct the
data center facility, install equipment and telecommunications infrastructure
and to hire operations and sales personnel. As a result, the GlobalCenter
group makes a large capital investment and incurs significant start-up costs
before generating customer revenues at any new data center. Start-up costs are
expensed as incurred. The GlobalCenter group expects a new data center to
incur losses for a year or longer until reaching break-even utilization.
Largely as a result of these costs, the GlobalCenter group has experienced
operating losses and negative cash flows from operations in each annual
period. The GlobalCenter group's net losses for the three
39
<PAGE>
months ended March 31, 2000 and December 31, 1999, the nine months ended
September 30, 1999 and each of the years ended December 31, 1998 and 1997 were
$41.1 million, $42.7 million, $16.8 million, $10.8 million and $2.8 million,
respectively.
As of March 31, 2000, stock options to purchase approximately 9.6% of
GlobalCenter Inc. common stock or GlobalCenter group stock, subject to
election by the employee, had been approved for grant under the Management
Stock Plan. The aggregate exercise price of such options is approximately $191
million. Upon approval of the Management Stock Plan by the shareholders, the
GlobalCenter group will record deferred stock compensation equal to the
difference between the exercise price and the fair value of shares at the date
of approval. The resulting deferred stock compensation will be amortized in
accordance with the terms of vesting of such options and consistent with the
accounting policy adopted by Global Crossing Ltd.
The board of directors of Global Crossing Ltd. will have the ability to
control transfers of funds or other assets and allocate revenues and expenses
between the Global Crossing group and the GlobalCenter group, consistent with
its fidiciary duty to Global Crossing Ltd. and its shareholders as a whole.
The board of directors can make operational and financial decisions that could
favor the Global Crossing group over the GlobalCenter group, determine the
allocation of proceeds from future issuances of GlobalCenter group stock,
determine the allocation of any consideration received in a merger or
consolidation transaction and change the amounts or methodologies for
allocations of corporate expenses between the GlobalCenter group and Global
Crossing group.
Results of Operations
Three Months Ended March 31, 2000 compared with the Three Months Ended March
31, 1999
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, the owner of substantially all the assets
of the GlobalCenter Group, in a merger transaction. 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. GlobalCenter
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." Depreciation, amortization and
certain other line items included in the operating results of New GlobalCenter
are not directly comparable to Old GlobalCenter because the three-month period
ended March 31, 2000 includes the effects of purchase accounting adjustments
related to the merger of Global Crossing Ltd. and Frontier Corporation, while
prior periods do not.
Revenues. The GlobalCenter group's service revenues consist of fees from
customers for Web hosting, IP network services, content distribution, systems
applications and professional services. The GlobalCenter group typically
provides its services under one-to-three year contracts with minimum customer
commitments for connectivity and services. Service revenues are recognized as
the services are provided. Service revenues also include fees for equipment
installation. Revenues for equipment installation are recognized when
installation of the equipment is complete. The Global Center group's equipment
revenues consist of revenue derived from the resale to its customers of
computers, computer peripherals and networking equipment which the Global
Center group buys from third parties upon receipt of a customer order. The
GlobalCenter group assists its customer with equipment selection, procurement
and installation to facilitate and accelerate the customer's entry into the
data center. Equipment revenues are recognized when equipment installation in
a data center is complete. Equipment that has been purchased on behalf of
customers but not yet transferred to the customer or installed is recorded as
equipment held for resale.
The GlobalCenter group's total revenues increased 250% to $38.3 million for
the quarter ended March 31, 2000 from $10.9 million for the quarter ended
March 31, 1999, as a result of increase in service revenues and equipment
revenues. Service revenues increased 281% to $24.6 million for the quarter
ended March 31, 2000
40
<PAGE>
from $6.5 million for the quarter ended March 31, 1999. The GlobalCenter
group's equipment revenues increased 206% to $13.7 million for the quarter
ended March 31, 2000 from $4.5 million for the quarter ended March 31, 1999.
The growth in the GlobalCenter group's service revenue was primarily the
result of opening new data centers, adding new customers and services, and
increasing revenues from existing customers. During the first quarter of 2000,
the GlobalCenter group opened two new data centers. Data center square footage
increased by 176% at March 31, 2000 compared to March 31, 1999. The
GlobalCenter group's largest data center opened at the end of 1999 with sales
in this data center commencing in January 2000.
The GlobalCenter group's equipment revenues increased primarily because
more customers in its new data centers chose to purchase their equipment from
the GlobalCenter group rather than directly from a third party vendor.
Equipment sales as a percentage of total revenue and in absolute dollars can
and will fluctuate from period to period depending on the timing and number of
new data centers the GlobalCenter group opens, the mix of new and existing
customers and the requirements of those customers of new and replacement
equipment. The GlobalCenter group expects that, as a general matter, equipment
sales will constitute a smaller portion of its total revenues in the future.
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 the GlobalCenter group's customers.
Cost of service revenues increased 129% to $21.4 million for the quarter
ended March 31, 2000 from $9.4 million for the comparable period in 1999. This
increase was primarily due to increased network usage by GlobalCenter group's
customers, and rent and facilities costs for the addition and expansion of its
data centers. GlobalCenter group expects increases to continue with the
addition of new customers and addition and expansion of its data centers. Cost
of service revenues decreased as a percentage of service revenue from 145% in
the quarter ended March 31, 1999 to 87% in the quarter ended March 31, 2000
primarily due to better utilization of network capacity. In the future,
network cost of service will be based on preferred market-based pricing and
actual usage under GlobalCenter group's arrangement with the Global Crossing
group.
Cost of equipment revenues increased 223% to $13.1 million for the quarter
ended March 31, 2000 from $4.1 million for the quarter ended March 31, 1999,
due to increased equipment sales. The cost of equipment, as a percentage of
equipment revenues, increased to 95% during the quarter ended March 31, 2000
from 90% during the quarter ended March 31, 1999, as a result of competitive
price pressure in the market.
Sales and Marketing. The GlobalCenter group's sales and marketing expenses
consist of salaries, commissions, benefits and other expenses for direct
sales, sales support, product marketing, and public relations personnel, as
well as costs associated with marketing programs, collateral material, and
corporate marketing activities, including public relations.
Sales and marketing expenses increased 206% to $6.5 million for the quarter
ended March 31, 2000 from $2.1 million for the comparable period in 1999. 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. The GlobalCenter group
expects its sales and marketing expenses to continue to increase with the
addition of new data centers in the future. As a percent of total revenue,
sales and marketing expenses decreased from 19% in the quarter ended March 31,
1999 to 17% in the quarter ended March 31, 2000 primarily due to the increase
in revenues.
General and Administrative. The GlobalCenter group's general and
administrative expenses consist of payroll and benefit administration,
information systems services, accounting and back office support,
41
<PAGE>
headquarters facility costs, executive salaries and other general and
administrative costs, including the GlobalCenter group's allocation of
corporate administrative services from the Global Crossing group. Since
October 1, 1999, the Global Crossing group has provided the services, payroll
and benefits administration, purchasing and certain other accounting and
corporate administrative services. The GlobalCenter group pays the Global
Crossing group a monthly fee for these support services. Expenses for the
three months ended March 31, 2000 include $1.0 million for these services.
From March 1, 1998 through September 30, 1999, Frontier Corporation provided
these services and corporate administration to the GlobalCenter group.
Expenses for the three months ended March 31, 1999, included $0.6 million for
these services.
The GlobalCenter group's total general and administrative expenses
increased 380% to $5.8 million for the quarter ended March 31, 2000 from $1.2
million for the same period in 1999, primarily because it hired additional
management and administrative personnel to support expanding operations. The
GlobalCenter group expects its general and administrative expenses to continue
to increase with the addition of new data centers in the future. General and
administrative expenses as a percent of total revenue increased from 11% in
the first quarter of 1999 to 15% in the first quarter of 2000 primarily due to
the increase in personnel and related costs to support its growth 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 186% to $3.2 million for the
quarter ended March 31, 2000 from $1.1 million for the same period of 1999,
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 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.
The GlobalCenter group recognized amortization expense of $37.1 million in the
quarter ended March 31, 2000 related to this goodwill and intangible assets.
The GlobalCenter group also recorded goodwill totaling approximately $9.1
million in connection with an acquisition completed in November 1997. The
goodwill from this transaction was amortized over a seven-year period using
the straight-line method until the acquisition of Frontier Corporation by
Global Crossing Ltd. in September 1999. The GlobalCenter group recognized
amortization expense of $0.3 million in the quarter ended March 31, 1999
related to this goodwill.
Income Tax Benefit. Income taxes have been calculated on a pro-rata basis.
The GlobalCenter group's benefit for income taxes is based on the increase or
decrease in tax liability of the Global Crossing North America (formerly
Frontier Corporation) consolidated tax group resulting from the inclusion of
items in the Global Crossing North America consolidated tax return which are
attributable to the GlobalCenter group. The GlobalCenter group's benefit in
the quarter ended March 31, 2000 and the quarter ended March 31, 1999 reflects
the use of the GlobalCenter group tax losses in the Global Crossing North
America consolidated tax return.
Net Loss. The GlobalCenter group's net loss was $41.1 million for the three
months ended March 31, 2000 compared to $4.6 million for the three months
ended March 31, 1999. The increase in net loss was primarily due to the
difference in goodwill and intangibles amortization that resulted from the
acquisition of GlobalCenter Inc. by Global Crossing Ltd. in September 1999 as
part of the Frontier Corporation merger, increased depreciation and
amortization from additions to property and equipment over the course of the
year and operating expenses that are in excess of revenues. The GlobalCenter
group is currently in an expansion phase, adding additional data centers and
related personnel. The GlobalCenter group expects a new data center to incur
losses for a year or longer before reaching break-even utilization.
42
<PAGE>
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 below and 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
pro forma presentation for the year ended December 31, 1999 includes
adjustments for depreciation of property and equipment and amortization of
goodwill and intangibles for the nine months ended September 30, 1999,
resulting from the merger of Frontier Corporation with Global Crossing Ltd. as
follows:
<TABLE>
<CAPTION>
Old New
GlobalCenter GlobalCenter Pro Forma
Nine Months Three Months Twelve
Ended Ended Months Ended
September 30, Pro Forma December 31, December 31,
1999 (1) Adjustments 1999 (4) 1999
------------- ----------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Service revenues...... $ 29,951 $ -- $ 17,753 $ 47,704
Equipment revenues.... 17,228 -- 5,971 23,199
-------- --------- -------- ---------
Total revenues...... 47,179 -- 23,724 70,903
-------- --------- -------- ---------
Costs and expenses:
Cost of service
revenue.............. 36,451 -- 17,328 53,779
Cost of equipment
revenue.............. 15,573 -- 5,365 20,938
Sales and marketing... 9,531 -- 6,088 15,619
General and
administrative....... 6,897 -- 3,067 9,964
Depreciation and
amortization......... 4,242 273 (2) 1,913 6,428
Goodwill and
intangibles
amortization......... 974 (974) 37,135 148,540
111,405 (3)
-------- --------- -------- ---------
Total costs and
expenses........... 73,668 110,704 70,896 255,268
-------- --------- -------- ---------
Loss from operations.... (26,489) (110,704) (47,172) $(184,365)
Other income (expense),
net.................... (44) -- 114 70
-------- --------- -------- ---------
Loss before income
taxes.................. (26,533) (110,704) (47,058) (184,295)
Income tax benefit...... 9,742 -- 4,333 14,075
-------- --------- -------- ---------
Net loss................ $(16,791) $(110,704) $(42,725) $(170,220)
======== ========= ======== =========
</TABLE>
--------
(1) This column represents the results of operations of the GlobalCenter group
for the nine months ended September 30, 1999 prior to the acquisition of
Frontier Corporation by Global Crossing Ltd.
(2) This adjustment reflects the depreciation and amortization of the
approximately $1.7 million increase in the fair value assigned to the
assets acquired over the related book value for the nine months ended
September 30, 1999. The GlobalCenter group is amortizing this adjustment
using the straight-line method over the average useful life of the
underlying assets. The initial purchase price allocation is based on
current estimates. The GlobalCenter group will make the final purchase
price allocation based upon final values for certain assets and
liabilities. As a result, the final purchase price allocation may differ
from the presented estimate.
(3) This adjustment reflects the amortization expense of the excess
consideration over the net assets acquired (goodwill) of approximately
$1.48 billion for the nine months ended September 30, 1999. The
GlobalCenter group is amortizing goodwill and other intangible assets on
the straight-line method over 10 years. The initial purchase price
allocation is based on current estimates. The GlobalCenter group will make
the final purchase price allocation based upon final values for certain
assets and liabilities. As a result, the final purchase price allocation
may differ from the presented estimate.
(4) This column represents the historical results of operations of the
GlobalCenter group for the three months ended December 31, 1999. On
September 28, 1999, Global Crossing Ltd. acquired Frontier Corporation.
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 pursuant to the
purchase method of accounting.
43
<PAGE>
Revenues. The GlobalCenter group's total revenues increased 205% to $70.9
million for the year ended December 31, 1999 from $23.2 million for the year
ended December 31, 1998, as a result of an increase in service revenues and
equipment revenues. Service revenues increased 143% to $47.7 million for the
year ended December 31, 1999 from $19.6 million for the year ended December
31, 1998. The GlobalCenter group's equipment revenues increased 537% to $23.2
million for the year ended December 31, 1999 from $3.6 million for the year
ended December 31, 1998.
The growth in the GlobalCenter group's service revenue was primarily the
result of opening new and expanding existing data centers, adding new
customers and services, and increasing revenues from existing customers.
During 1999, the GlobalCenter group opened two new data centers, and expanded
a third. Data center square footage increased by 230% at December 31, 1999
compared to December 31, 1998. The largest data center addition in 1999 opened
at the end of the fourth quarter with sales in this data center commencing in
January 2000.
The GlobalCenter group's equipment revenues increased primarily because
more customers in its new data centers chose to purchase their equipment from
the GlobalCenter group rather than directly from a third party vendor.
Cost of Revenues. 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
the GlobalCenter group's customers, and rent and facilities costs for the
addition and expansion of its 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.
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. Sales and marketing expenses increased 75% to $15.6
million for the year ended December 31, 1999 from $8.9 million for the
comparable period in 1998. The increase is primarily a result of having
additional direct sales and marketing personnel and other sales and marketing
expenses in connection with new data centers and the GlobalCenter group's
expanding operations and services. 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. Since October 1, 1999, the Global Crossing
group has 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 pays the Global Crossing
group a monthly fee for these support services. Expenses for the three months
ended December 31, 1999 include $0.9 million for these services. From March 1,
1998 through September 30, 1999, Frontier Corporation provided these services
to the GlobalCenter group. Expenses for the nine months ended September 30,
1999 include $1.7 million for these services.
The GlobalCenter group's total general and administrative expenses
increased 112% to $10.0 million for the year ended December 31, 1999 from $4.7
million for the same period in 1998, primarily because it hired additional
management and administrative personnel to support expanding operations.
General and administrative expenses as a percentage of revenue decreased from
20% to 14% for the same period primarily due to the significant increase in
revenue between comparison periods.
44
<PAGE>
Depreciation and Amortization. Pro forma depreciation and amortization
expense increased 60% to $6.4 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 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.
Pro forma amortization for the year ended December 31, 1999, was $148.5
million.
The GlobalCenter group also recorded goodwill totaling approximately $9.1
million in connection with an acquisition completed in November 1997. The
goodwill from this transaction was amortized over a seven-year period using
the straight-line method until the acquisition of Frontier Corporation by
Global Crossing Ltd. in September 1999.
Net Loss. The GlobalCenter group's pro forma net loss was $170.2 million
for the year ended December 31, 1999 compared to $10.8 million for the year
ended December 31, 1998. The increase in net loss was primarily due to the
difference in goodwill and intangibles amortization that resulted from the
acquisition of GlobalCenter Inc. by Global Crossing Ltd. as part of the
Frontier Corporation merger, increased depreciation and amortization from
additions to property and equipment over the course of the year and operating
expenses that are in excess of revenues.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Revenues. Total revenues increased 200% to $23.2 million for the year ended
December 31, 1998 from $7.7 million for the year ended December 31, 1997.
Service revenues increased 201% to $19.6 million for the year ended December
31, 1998 from $6.5 million for the year ended December 31, 1997. The
GlobalCenter group's equipment revenues increased from $1.2 million for the
year ended 1997 to $3.6 million for the year ended December 31, 1998, an
increase of 196%.
The overall increase in the GlobalCenter group's revenues was primarily the
result of opening new data center locations, the addition of new customers,
equipment sales to new customers and increased sales to existing customers.
During 1998, the GlobalCenter group opened four additional data centers,
tripling its available square footage. The largest of the new data centers
became operational during the fourth quarter of 1998.
Cost of Revenues. Cost of service revenues increased 182% to $14.8 million
for the year ended December 31, 1998 from $5.3 million for the year ended
December 31, 1997. This increase was due primarily to higher
telecommunications expenses associated with increased volume of usage by
customers, the expansion of the GlobalCenter group's network and the addition
of new data centers, as well as an increase in the number of network
administration and customer support personnel. Cost of service revenues
decreased as a percentage of service revenues from 81% in 1997 to 76% in 1998
due to the fixed nature of data center lease and maintenance costs and the
increasing revenue for the periods.
Cost of equipment revenues increased 222% to $3.2 million for the year
ended December 31, 1998 from $1.0 million for the year ended December 31,
1997. This increase resulted from more customers in the GlobalCenter group's
new data centers choosing to purchase their equipment from the GlobalCenter
group rather than direct from a third party vendor.
Sales and Marketing. The GlobalCenter group's sales and marketing expenses
increased 355% to $8.9 million for the year ended December 31, 1998 from $2.0
million for the year ended December 31, 1997. As a percent of total sales,
sales and marketing expense increased from 25% in 1997 to 39% in 1998. The
increase in sales and marketing expenses is related to the increase in the
number of data centers. As the GlobalCenter group adds data centers, it
increases the sales and marketing personnel and related costs to obtain new
customers and to sell and market new products.
45
<PAGE>
General and Administrative. The GlobalCenter group's general and
administrative expenses increased 130% to $4.7 million for the year ended
December 31, 1998 from $2.0 million for the year ended December 31, 1997. The
increase was a result of increased personnel costs associated with increasing
the GlobalCenter group's management, administrative and accounting personnel
and processes and related costs to support the growth in its overall customer
base. General and administrative expense decreased as a percentage of total
revenue to 20% for the year ended December 31, 1998 from 26% for the year
ended December 31, 1997 as a result of the increase in revenues.
Depreciation and Amortization. Depreciation and amortization expense
increased 341% to $4.0 million for the year ended December 31, 1998 from $0.9
million for the year ended December 31, 1997, primarily due to increased
investment in network and increased data center capacity.
Goodwill and Intangibles Amortization. The GlobalCenter group recorded
goodwill totaling $9.1 million in connection with an acquisition completed in
November 1997. The goodwill from this transaction was amortized over a seven-
year period using the straight-line method.
Merger Costs. In connection with the GlobalCenter Inc. merger with Frontier
Corporation that was accounted for as a pooling, approximately $2.1 million of
merger costs have been reflected in the accompanying statement of operations.
Net Loss. The GlobalCenter group's net loss was $10.8 million for the year
ended December 31, 1998 compared to $2.8 million for the year ended December
31, 1998. The increase in the level of net loss was primarily due to operating
expenses that were in excess of revenues and costs related to Frontier
Corporation's acquisition of GlobalCenter Inc. in February 1998. Operating
expenses increased as a result of new data centers opened.
Liquidity and Capital Resources
The board of directors of Global Crossing Ltd. and its capital stock
committee each has a wide degree of discretion over the cash management
policies of both the GlobalCenter group and the Global Crossing group,
consistent with their respective fiduciary duties to the company as a whole.
Pursuant to this discretion, these entities may freely transfer cash generated
by the GlobalCenter group to the Global Crossing group and vice versa, as well
as determine the allocation of proceeds from future issuances of GlobalCenter
group stock. In addition, the timing and decision to finance capital
expenditures of the GlobalCenter group remains at the discretion of the board
of directors of Global Crossing Ltd. Pursuant to the policy statement, the
board of directors and senior management of Global Crossing Inc. have the
authority to determine the uses of the net proceeds allocated to the Global
Center group. This policy statement is subject to change at the discretion of
the board of directors of Global Crossing Ltd.
The construction and expansion of the GlobalCenter group's data centers and
the marketing and distribution of its service offerings will continue to
require substantial capital investment. To date, the GlobalCenter group has
funded its operations through internally generated funds and permanent capital
contributions from the Global Crossing group and, prior to September 30, 1999,
from Frontier Corporation. Based on its current business plan, the
GlobalCenter group expects the proceeds from this offering to provide
sufficient capital to sustain current operations and capital expenditure plans
for the next 12 to 18 months. We have no current plans to issue additional
GlobalCenter group stock in the next 12 to 18 months; however, competitive or
other factors beyond our control may cause us to change our business plan and
increase our future financing requirements. 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. We would
choose the source of our financing based on the relative costs of capital that
existed among such sources at the time.
Net cash used in operating activities in 1997, 1998, and 1999 was $3.1
million, $5.8 million, and $11.6 million, respectively. Net cash used in
operating activities in each of these periods was primarily the result
46
<PAGE>
of operating losses and changes in working capital. Net cash provided by
operations for the three months ended March 31, 2000 of $6.6 million was
primarily the result of an increase in accounts payable and accrued
liabilities.
Net cash used in investing activities in 1997, 1998, 1999 and for the three
months ended March 31, 2000 was $1.3 million, $29.0 million, $90.3 million and
$59.1 million, respectively. Net cash used in 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 the GlobalCenter group's financial
activities on a centralized basis. Allocations that are treated as 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.
The GlobalCenter group also expects to require funds to make product
development investments. For example, it engaged Tanning Technology
Corporation to provide consulting and project services to help it expand its
service and product solutions and to provide an infrastructure to scale
Internet businesses. GlobalCenter Inc. has a commitment with Tanning
Technology to purchase services aggregating $10 million over the 12-month term
of the agreement beginning in February 2000. GlobalCenter Inc. also purchased
$10 million of Tanning Technology common stock in February 2000.
Recent Accounting Pronouncement
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," which is required to be adopted
by Global Crossing Ltd. in the quarter ending June 30, 2000. SAB 101 provides
additional guidance on revenue recognition as well as criteria for when
revenue is generally realized and earned. GlobalCenter management is currently
assessing the impact of SAB 101 on the results of operations and financial
position of the GlobalCenter group. GlobalCenter management does not expect
the effects of SAB 101 to have a material effect on the accompanying financial
statements of the GlobalCenter group.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities, which is effective for all
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. Because the GlobalCenter group does not currently hold any
derivative instruments and does not engage in hedging activities, management
expects that the adoption of SFAS No. 133 will not have a material impact on
the GlobalCenter group's financial position, results of operations or cash
flows. It will be required to implement SFAS No. 133 for the year ending
December 31, 2001.
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 its operations since January 1, 2000, the GlobalCenter group
does not expect any significant impact to ongoing business as a result of the
Year 2000 issue. In addition, it is not aware of any significant Year 2000
issues or problems that may have arisen for its significant customers and
suppliers.
47
<PAGE>
Euro Conversion
On January 1, 1999 a single currency called the Euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union agreed to
adopt the Euro as their common legal currency on that date. Fixed conversion
rates between these countries' existing currencies (legacy currencies) and the
Euro were established as of that date. The legacy currencies are scheduled to
remain legal tender in these participating countries between January 1, 1999
and January 1, 2002 (not later than July 1, 2002). During this transition
period, parties may settle transactions using either the Euro or a
participating country's legacy currency.
Transition to the Euro will create a number of issues for the GlobalCenter
group. Business issues that must be addressed include product pricing policies
and ensuring the continuity of business and financial contracts. Finance and
accounting issues will include the conversion of bank accounts and other
treasury and cash management activities.
The GlobalCenter group continues to address these transition issues and
does not expect the transition to the Euro to have a material effect on its
results of operations or financial condition. The GlobalCenter group does not
expect the cost of system modifications to be material and it will continue to
evaluate the impact of the Euro conversion.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The GlobalCenter group's major market risk exposure is changing interest
rates. Global Crossing Ltd. will manage most of its financial activities
including investing surplus funds, the issuance and repayment of debt and
managing its 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. The GlobalCenter group's foreign currency transactions
are recorded based on exchange rates at the time such transactions arise. Its
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 the GlobalCenter
group's financing activities, uses foreign currency forward transactions to
hedge exposure to foreign currency exchange rate fluctuations.
48
<PAGE>
BUSINESS OF THE GLOBALCENTER GROUP
Overview
GlobalCenter is a leading provider of Internet infrastructure services
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.
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 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
49
<PAGE>
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
The GlobalCenter group's objective is to become the leading total services
provider for its customers' mission-critical Internet infrastructure
requirements. To achieve this objective, the GlobalCenter group is
implementing a business strategy focused on the following key elements:
Enhance and expand portfolio of value-added applications and professional
services. The GlobalCenter group currently provides a broad range of Internet
infrastructure services that allow its customers to effectively outsource the
management and operation of their Web sites to it. The GlobalCenter group
intends to continue to develop and market new services to position itself as a
total services provider for businesses' Internet infrastructure needs. The
GlobalCenter group believes this will enable it to build stronger customer
relationships, maximize its revenue per customer and grow its business. By the
end of 2000, the GlobalCenter group plans to introduce a number of additional
services including: content distribution services for a variety of media,
e-commerce applications to provide back-end infrastructure for e-commerce
sites, database-on-demand to provide the infrastructure components that enable
database functionality, virtual private network services to provide a highly
secure method of transmitting data, and end-user monitoring services to allow
customers to monitor the usage of their web sites.
Expand global footprint by opening new data centers. The GlobalCenter
group currently operates 10 data centers located in strategic markets in the
United States, Europe and Australia. The GlobalCenter group is currently
developing new data centers to meet the growing international demand for
outsourced Web hosting services and the increasingly global e-business and
information technology needs of its customer base. The GlobalCenter group is
therefore planning to open an additional nine data centers in the United
States, Europe and Australia in 2000. Through a joint venture with Asia Global
Crossing, GlobalCenter is also planning to open data centers in Asia. The
GlobalCenter group will continue to identify new geographic markets into which
it will expand to meet the growing needs of businesses with mission-critical
Internet operations.
Develop and market services tailored to the needs of selected information-
intensive industries. The GlobalCenter group's product development and
marketing strategy is to target industries it believes will have a significant
demand for Internet infrastructure applications and services, such as media
and entertainment, financial services, retail and business-to-business
exchanges. The GlobalCenter group believes that by targeting these industries
and developing tailored service offerings for their use, it can accelerate its
growth by attracting more customers and generating higher revenue per
customer, increase its gross margins, and realize operating efficiencies.
Continue to take advantage of the GlobalCenter group's unique relationship
with the Global Crossing group. As part of its Web hosting services, the
GlobalCenter group provides businesses with high performance Internet
connectivity through Global Crossing's IP-based fiber-optic network. The
GlobalCenter group will continue to locate its data centers to take maximum
advantage of the Global Crossing network. The GlobalCenter group believes its
unique relationship with Global Crossing provides numerous competitive
advantages, including higher availability and scalability of network capacity
and enhanced, integrated network monitoring
50
<PAGE>
and problem resolution, which improve its ability to offer its customers
service level agreements. Scalability refers to the immediate capacity of a
network to meet the demands in growth, without sacrifice in quality or
performance, the GlobalCenter group participates in the Network and Services
Management Committee for the Global Crossing network, allowing it to help
determine the strategic and technological direction of the network in a way
that will secure capacity and high quality service for its customers. The IP
network services the GlobalCenter group purchases from the Global Crossing
group are available to it 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, the
GlobalCenter group plans to integrate its service offerings with those offered
by Global Crossing in order to market the combined company as a total
telecommunications and Internet infrastructure services provider to customers
in Global Crossing's targeted markets, such as large multinational
corporations. The GlobalCenter group believes the fact that its group stock is
being offered to the public in the form of a tracking stock rather than as a
separate company helps it to preserve and enhance its close ties and unique
relationship with the Global Crossing group and its access to the Global
Crossing network.
Expand direct sales force and develop new channels of distribution. To
date, the GlobalCenter group has established its rapid growth and market
position solely through its direct sales efforts. In 2000, the GlobalCenter
group plans to significantly expand its direct sales force, invest in training
and development and enhance sales incentives in order to focus its sales
efforts on increasing sales of value-added applications and professional
service offerings. To complement its direct sales efforts, the GlobalCenter
group intends to develop new channels of distribution. In addition to its
sales and marketing arrangements with Global Crossing, with which it intends
to exchange sales referrals and offer bundled products and services,
GlobalCenter expects to build co-marketing arrangements with consulting firms,
content developers, Internet service providers, systems developers and
technology partners.
Develop and strengthen relationships with industry leading technology
vendors. The GlobalCenter group has developed strong relationships with
technology vendors such as Akamai, Oracle, StorageNetworks, StorageTek and
Tanning Technology to offer enhanced caching, database, storage, backup
services and e-commerce services to its customers. The GlobalCenter group
plans to continue to develop relationships with selected technology vendors to
help its customers identify the best technology services for their
requirements and to rapidly and effectively design and deploy these
technologies. The GlobalCenter group believes its relationships with these
vendors will enhance its ability to support its customers' needs. For example,
its relationship with Oracle will broaden its service offerings to include
database services, its relationship with Tanning Technology will allow it to
offer electronic commerce services and its relationship with Storage Networks
will enable it to provide highly scaleable and reliable storage services, all
of which better enable the GlobalCenter group to become a total services
provider for its customers' Internet infrastructure requirements.
Enter into strategic partnerships and make targeted acquisitions to
complement internal development efforts. As the GlobalCenter group develops
new applications and services, it plans to complement its internal development
through strategic relationships and acquisitions. GlobalCenter Inc. will enter
into these strategic relationships and acquisitions, and they will be
allocated to the GlobalCenter group. The GlobalCenter group will seek
strategic relationships that will enable it to gain quicker access to
innovative technologies, assist it with the development of new applications
and service offerings, provide it with new distribution channels and advance
its entry into new geographic markets. In addition, the GlobalCenter group may
seek to acquire companies which it believes will enable it to cost-effectively
augment its existing products, services, technology, infrastructure, skill
sets, geographic presence or customer base.
The GlobalCenter Group's Services
The GlobalCenter group currently provides a broad range of Internet
infrastructure services that allow its customers to effectively outsource the
management and operation of their Internet operations to GlobalCenter. the
GlobalCenter group creates tailored services for its customers based on their
unique business and technical requirements, and modify the services as the
customers' needs evolve.
51
<PAGE>
Complex Web Hosting Services
The GlobalCenter group offers complex Web hosting services designed to
enable businesses to outsource operation of mission-critical Web sites, based
on industry-leading technologies and offering high service level guarantees.
The GlobalCenter group supports all leading Internet hardware and software
systems. This flexibility enables its customers to retain control over their
technical solution and to integrate GlobalCenter's services with their
existing IT architectures. The GlobalCenter group offers a number of services
to dedicated Web site management customers to ensure ease of implementation,
security, performance and scalability. Specifically, it provides:
. configuration, installation and support of operating systems, including
Unix, Windows NT, Solaris and Linux; hardware platforms, including those
offered by Sun Microsystems, Dell, Cisco, IBM, VA Linux and Compaq;
. installation and maintenance of Web sites on server hardware;
. help desk support 24-hours a day, seven days a week, with access to
certified technical professionals;
. industry and vendor security alerts and maintenance;
. load balancing and geographical distribution of network traffic among
multiple servers and multiple data centers; and
. 24-hours a day, seven days a week, physical and remote access to
equipment.
Hardware and Software Procurement Services
The GlobalCenter group has experienced equipment services professionals
available to help make its customers' equipment purchases simple and
economical. The GlobalCenter group selects and purchases equipment from
various manufacturers based on customer orders and resells the equipment to
its customers. The GlobalCenter group also arranges for equipment to be
shipped directly to a customer's location in GlobalCenter's data centers and
installed in the appropriate location. The GlobalCenter group equipment
services allow it to move new customers into its data centers more quickly and
efficiently.
IP Network Services
The GlobalCenter group directly connects its data centers, other than
Melbourne, to Global Crossing's high performance, IP-based fiber-optic
backbone network with redundant high speed lines, which also gives it access
to Global Crossing's extensive peering and transit relationships with other
major Internet backbone providers. The GlobalCenter group's connectivity
arrangements are designed to deliver the scalability, high availability and
performance required for high-volume bandwidth and application-intensive
Internet operations. Since its customers' Internet operations often experience
traffic spikes due to promotions or events, the GlobalCenter group typically
maintains sufficient excess network capacity to handle its customers peak
traffic needs. Each of its data centers is also connected to the
communications networks of other major carriers. The Global Crossing network
does not reach Australia, so the GlobalCenter group's Melbourne data center is
connected to the Global Crossing network through the communications networks
of other major carriers.
Through its unique relationship with the Global Crossing group, the
GlobalCenter group has special access to the Global Crossing global network
and extensive peering and transit arrangements. The GlobalCenter group
believes its access to the Global Crossing network provides it with the
following benefits:
. Network Performance. When fully deployed, the Global Crossing network
will provide service to all of the world's major business centers. The
extensive geographic reach of the Global Crossing network and Global
Crossing's extensive peering and transit relationships with other major
Internet service providers will enable GlobalCenter to avoid many of the
congested Internet public exchange points and deliver IP traffic directly
to its destination network or the intended IP address. By avoiding the
need to route traffic across multiple networks or public interconnection
points, the performance of its customers' Internet applications will be
substantially increased. Pursuant to Global Crossing Ltd.'s policy
statement, the
52
<PAGE>
Global Crossing group has agreed to provide the GlobalCenter group with
service level commitments for near 100% network availability for traffic
on the Global Crossing network, which will enable the GlobalCenter group
to offer similar service levels to its customers. This policy may be
changed at the discretion of the board of directors of Global Crossing
Ltd. and without shareholder approval.
. Scaling and Availability. The GlobalCenter group will have constant
access to the Global Crossing network and an ability to scale its use of
the Global Crossing network according to its needs and the needs of its
customers.
. Management Committee. The GlobalCenter group participates in the Network
and Services Management Committee for the Global Crossing IP network,
allowing it to help determine the strategic and technological direction
of the network in a way that will secure capacity and high quality
service for its customers. The committee will consist of three senior
executives from each group and 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.
. Monitoring Capability. The GlobalCenter group has the ability to monitor
the entire Global Crossing network from its network control centers or
the Global Crossing network operations centers, which allows it to
locate, respond to and resolve problems quickly.
. Cost Advantage. The GlobalCenter group's special access to Global
Crossing's network frees it from the costs associated with independently
building and maintaining an IP network, such as an extensive set of
routers and switches, and from the costs associated with peering
relationships when traffic flows becomes unequal. The price the
GlobalCenter group pays for its access to the network will be preferred
market-based pricing, taking into account volume, term, and the exclusive
nature of the arrangement and any guarantee of service levels provided by
the Global Crossing group.
Value-Added Applications and Services
The GlobalCenter group's value-added applications and services enable its
customers to improve the performance, reliability and storage and backup
capability of their Internet operations. We believe these services will become
increasingly important to the GlobalCenter group's customers. A key component
of GlobalCenter's strategy is to continue to grow its value-added service
offerings to distinguish itself in the marketplace. The GlobalCenter group's
current services include the following:
Performance Monitoring Services. The GlobalCenter group works with Keynote,
a provider of Internet performance measurement, diagnostic and consulting
services, 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. The GlobalCenter group's network control centers and its
customers' Web managers receive daily reports and threshold based alarms.
Content Delivery Services. The GlobalCenter group works with Akamai to offer
FreeFlow SM, a caching service that moves content closer to end users and
intelligently routes requests to multiple servers. As a result, 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 Storage Services. The GlobalCenter group works with StorageNetworks, a
storage services provider, to provide Disk-On-DemandSM, highly scaleable and
reliable on-demand disk storage services that the GlobalCenter group offers on
a usage basis. Disk-On-Demand gives GlobalCenter's customers access to
technologically advanced storage, normally available only to large enterprises,
on a cost effective basis.
Tape Storage Services. The GlobalCenter group works with StorageTek and
ManagedStorage International, network storage services providers, to provide
Tape-On-DemandSM, backup and disaster recovery
53
<PAGE>
services that the GlobalCenter group offers on a usage basis. Tape-On-Demand
reduces GlobalCenter's customers' need to invest in and manage expensive
disaster recovery systems.
Security Services. The GlobalCenter group's security services are designed
to ensure the security of GlobalCenter's customer's Web operations by applying
industry leading security diagnostic tools. Security engineers are located at
its data centers to deliver security solutions including firewalls, encryption
and authentication.
Testing Services. The GlobalCenter group's testing services aim to identify
problems that could degrade the expected performance and availability of a
customer's Web operations. For example, GlobalCenter's stress testing services
simulate users accessing a Web site to provide information for isolating
problems, optimizing performance and accelerating the deployment of Web sites.
Professional Services
The GlobalCenter group's professional services teams consult with customers
on a wide range of issues including Web applications development, Internet
connectivity, server maintenance, performance and site scaling. The
GlobalCenter group believes its professional services will play an
increasingly important role in supporting the implementation and maintenance
of Internet based mission-critical operations as customers continue to rapidly
adopt emerging technologies. The GlobalCenter group's professional services
currently include system architecture and design; disaster recovery, migration
and capacity planning; database optimization; and performance tuning.
GlobalCenter's sales engineers offer several services to GlobalCenter
customers, including configuring systems and specifying hardware and software
for implementations or upgrades. The GlobalCenter group assigns technical
account teams, consisting of three to five personnel, to act as its customers'
on-site network and information technology staff. Through its relationship
with Tanning Technology, the GlobalCenter group also has access to Tanning
Technology's information technology services, which include electronic
commerce solutions, enterprise customer relationship management solutions and
core operations solutions.
Strategic Relationships
The GlobalCenter group believes that strategic technology and marketing
relationships enhance its ability to better serve existing customers as well
as reach new customers. Its strategic relationships enable it to gain quicker
access to innovative technologies, assist it with the development of new
applications and service offerings and provide it with powerful additional
sales channels. As opportunities arise, the GlobalCenter group will continue
to establish new relationships with hardware and software vendors and
application service providers. An example of the GlobalCenter group's
strategic relationship strategy is its relationship with Tanning Technology,
which enables the GlobalCenter group to provide its customers with preferred
access to Tanning Technology's pool of over 350 technical and sales
professionals. The combination of Tanning Technology's expertise in systems
integration services involving high volume transactional businesses and the
GlobalCenter group's Internet infrastructure services business will enable the
GlobalCenter group to provide a bundled service offering that will include
infrastructure hardware and software, operational systems and services,
integration services and e-business services. The GlobalCenter group has also
established a preferred marketing arrangement with Tanning Technology designed
to cross-promote and sell each other's products and services. In February
2000, GlobalCenter Inc. also invested $10 million in Tanning Technology's
common stock. A second example of the GlobalCenter group's strategic
relationship strategy is its relationship with Oracle. The Oracle relationship
has several key components. As a member of Oracle's Business-on-Line program,
GlobalCenter is a preferred hosting partner of Oracle and Oracle will jointly
market its products and services with GlobalCenter. GlobalCenter is also an
Oracle authorized reseller and has access to consulting services to support
Oracle's database and other products in GlobalCenter's data centers. Together,
the Oracle Business-on-Line, authorized reseller and consulting arrangements
provide GlobalCenter with the ability to offer customers a bundled package of
database infrastructure services. Finally, GlobalCenter and Oracle's Internet
Platform Alliance Division are working together to jointly provide products
and services for customers in GlobalCenter's targeted industries.
54
<PAGE>
Customers
The GlobalCenter group has a large and diverse customer base ranging from
large enterprises to Web-Centric companies. As of March 31, 2000, the
GlobalCenter group was serving over 500 customers, none of which accounted for
10% or more of its revenues. The following is a representative list of its
customers as of March 2000:
24/7 Media marchFIRST Talk City
About.com Toys R Us
Akamai Match Logic
Viacom
Ask Jeeves Microsoft bCentral
NBCi The Washington Post
eGroups Network Solutions Webshot
Encyclopedia Britannica Novell Wineshopper.com
eToys Playboy Enterprises Xdrive
Goto.com QUOTE.COM Yahoo!
Red Hat ZDNet
LookSmart
The GlobalCenter group's contracts with customers generally cover its
provision of services for a one to three-year period and may contain, among
other things, various service level agreements. The GlobalCenter group
generally provides customers with a 99.5% network connectivity uptime
guarantee and a 99.9999% 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 that affects the
customer.
Sales, Communications and Marketing and Customer Service
The GlobalCenter group's sales objective is to focus on larger customers to
whom it believes it can sell multiple basic and value-added services to
maximize its sales force productivity and revenue per data center. The
GlobalCenter group sells its services directly through a highly-skilled
professional sales force and receives referrals through a network of business
partners.
Sales
The GlobalCenter group uses a team approach in selling to prospective
customers. Customer account teams are organized into three units, consisting
of account executives, sales engineers and client services representatives.
Account executives are the team leaders and are primarily responsible for new
account acquisitions and maintenance of the strategic relationships 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, GlobalCenter had 84 employees engaged in sales and sales support. The
GlobalCenter group will actively seek to increase its sales capabilities and
coverage in the United States and to expand internationally as additional data
centers are constructed. In 2000, the GlobalCenter group plans to
significantly expand its direct sales force, invest in training and
development and enhance sales incentives in order to focus sales efforts on
increasing its sales of value-added service offerings. We estimate that the
costs for expanding GlobalCenter's sales force will be approximately $12
million over the next 12 months. To complement its direct sales efforts, the
GlobalCenter group intends to develop new channels of distribution. In
addition to its co-marketing arrangement with the Global Crossing group, with
which the GlobalCenter group intends to exchange sales referrals and offer
bundled products and services, the GlobalCenter group expects to build co-
marketing arrangements with consulting firms, content developers, Internet
service providers, systems developers and other technology partners.
55
<PAGE>
The GlobalCenter group also intends to make its 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 the
GlobalCenter group will be able to expand its customer base to include the
Global Crossing group's targeted markets, such as large multinational
corporations.
Communications and Marketing
The GlobalCenter group's communications and marketing organization is
responsible for product and partner marketing management, marketing
communications and corporate communications. Product and partner marketing
management includes bringing to market the portfolio of services and programs
that will address customer needs. These activities include product strategy,
pricing, competitive analysis, product launches and partner program
management. The GlobalCenter group's marketing communications unit stimulates
service demand and brand awareness for GlobalCenter through a broad range of
marketing communications, advertising, seminars, open houses, tradeshows, as
well as through its Web site. Corporate communications focuses on cultivating
industry analyst and media relationships with the goal of securing broad media
coverage and public recognition of GlobalCenter's leadership position in its
market.
Customer Service
The GlobalCenter group is committed to providing superior customer service
by understanding the business objectives and technical requirements of its
customers and by fulfilling their needs on an individual basis. Working
closely with its customers, the GlobalCenter group seeks to optimize the
performance of their Internet operations, minimize downtime, resolve problems
that may arise, and make appropriate adjustments in services as customer needs
change over time. In order to enhance its customer service delivery and
increase operating efficiencies, the GlobalCenter group operates a centralized
response center which handles inbound calls, monitoring, and problem
resolution for its data centers in the United States. The GlobalCenter group
also solicits feedback to ensure that it continues to offer the highest
quality of service. It uses advanced software tools to aid in customer
monitoring and service efforts. Many of its customer service personnel have
been specifically trained and certified by the vendors of its software tools,
including Sun Microsystems, Microsoft, Oracle and Computer Associates.
The GlobalCenter group also provides customer service and technical support
during the installation phase, including a transition team and project
management support. In addition, it provides system integration services
between the customer's Internet site and legacy systems. After installation,
primary customer support is coordinated through the GlobalCenter group's
network control centers. These centers are operated 24 hours a day, seven days
a week by engineers who monitor site and network operations, and coordinate
teams to solve problems that arise. The GlobalCenter group's customer service
personnel are also available to assist customers whose operations require
specialized procedures.
The GlobalCenter group employs network engineers and systems administrators
who work with customers to design and maintain their Internet operations. The
GlobalCenter group's network engineers and system administrators are trained
specialists who support Windows NT, Linux, Solaris and other UNIX platforms.
They are also trained to support routers and switches of most major equipment
manufacturers. They also serve as the second level of support for customer
issues that cannot be resolved by the GlobalCenter group's network control
centers.
Product Management and Development
The GlobalCenter group's product management and development groups are
responsible for evaluating and developing new product ideas and strategies,
including potential partnerships related to these products. These groups work
to combine the GlobalCenter group's own technology with partner expertise to
offer a robust and scalable service and product offering to its customers. The
GlobalCenter group plans to complement its internal product development
through strategic relationships and acquisitions. By partnering with the
technology leaders
56
<PAGE>
in different service and product categories, the GlobalCenter group is able to
move its offerings to market quickly, with an ability to support and manage
them at the highest level. The GlobalCenter group's product management group
is responsible for assessing the business case and ancillary needs for each
product as well as managing the product's lifecycle. The GlobalCenter group's
product development group is responsible for research and development efforts
aimed at exploring and identifying new technologies that complement its
business strategy. The GlobalCenter group currently has 16 employees dedicated
to product management and development and expects to expand the size of these
groups by the end of 2000.
Data Center Infrastructure
The GlobalCenter group's data centers are designed to deliver high
availability and performance for customers. Its data centers are physically
located in major metropolitan business centers and all but one are located
directly on the Global Crossing IP network. The GlobalCenter group's data
centers are built to specifications that deliver high standards in security,
reliability and redundancy.
The physical infrastructure and security controls of the GlobalCenter
group's data centers have been designed to support rigorous requirements for
complex Web hosting. Specifically, its data centers offer the following major
physical benefits to its customers:
. multi-level physical security;
. multi-redundant utilities and environmental controls; and
. network connectivity.
Multi-level physical security. Based upon their technical and security
requirements, customers can select from racks in common areas, highly secure
cabinets, enclosed cage facilities or private vaults. The GlobalCenter group
has implemented robust security systems, which include biometric hand
scanners, security verification, guards, cameras, bullet proof glass, round-
the-clock monitoring and mantrap areas.
Multi-redundant utilities and environmental controls. GlobalCenter data
centers have 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 GlobalCenter's 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. The
GlobalCenter group's data centers are also constructed with raised floors and
seismically braced racks.
Network Connectivity. GlobalCenter data centers are connected to the
Internet through network points of presence within the centers. These points
of presence provide high-performance, reliable networking connectivity to the
Internet for its 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
GlobalCenter's data centers are located directly on Global Crossing's
international IP-based fiber optic network for high bandwidth worldwide
connectivity and scale. Each of its 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 GlobalCenter 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;
57
<PAGE>
. network capacity, reliability and security;
. Internet system engineering expertise;
. relationships with partners and vendors;
. brand name;
. price;
. product innovation; and
. financial resources.
We believe that GlobalCenter competes favorably overall in its industry
based on these factors. However, many of the GlobalCenter group's competitors
have substantially greater resources, more customers, greater name recognition
and more established relationships in the industry.
The GlobalCenter group's current and potential competitors in the market
include Web hosting service providers, ISPs, telecommunications companies and
large information technology outsourcing firms. Its competitors may operate in
one or more of these areas and include companies such as AboveNet
Communications, AT&T, British Telecom, Cable & Wireless, Digex, Digital
Island, EDS, Exodus Communications, Globix, Genuity, Intel, IBM, KPNQwest,
Level 3 Communications, MCI WorldCom, PSINet, NaviSite, Qwest Communications
International, and USinternetworking. As the GlobalCenter group expands its
range of applications and service offerings, it expects that the nature of its
competitors will change.
Intellectual Property Rights
The GlobalCenter group relies on a combination of copyright, trademark,
service mark and trade secret laws and contractual restrictions to establish
and protect certain proprietary rights in its data, applications and services.
The GlobalCenter group currently has no patents and does not rely materially
on technologies it licenses from third parties. As it continues to offer new
services through partnerships with third parties, the GlobalCenter group
expects its reliance on licensed technology to grow. However, other than its
trademarks and service marks, the GlobalCenter group does not believe that the
loss of any particular one of its intellectual property rights would harm its
business.
Government Regulation
The GlobalCenter group is not currently subject to direct United States
federal, state or local or international government regulation, other than
regulations applicable to businesses generally. There is currently only a
small body of laws and regulations directly applicable to access to or
commerce on the Internet.
The Digital Millennium Copyright Act, which became effective in October
1998, includes a limitation on liability of on-line service providers for
copyright infringement for transmitting, routing, or providing connections,
transient storage or caching at the direction of a user. This limitation on
liability applies if the service provider had no actual knowledge or awareness
that the transmitted or stored material was infringing and if other conditions
are met.
Since this law is relatively new, the GlobalCenter group is unsure of how
it will be applied to limit any liability it may face in the future for any
possible copyright infringement or copyright-related issues. This law also
requires ISPs to follow "notice and take-down" procedures in order to be able
to take advantage of the limitation on liability. The GlobalCenter group has
implemented these procedures. The GlobalCenter group's customers are subject
to an acceptable use policy which prohibits them from posting, transmitting or
storing material on or through any of its services which, in the GlobalCenter
group's 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 GlobalCenter's systems and network, there is no assurance that
its policy will accomplish this goal or shield the GlobalCenter group from
liability under the Digital Millennium Copyright Act.
58
<PAGE>
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. For example, 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 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 or the Child Online Protection Act could subject
GlobalCenter and/or its customers to potential liability, which in turn could
harm its business. The adoption of any of these types of laws or regulations
might decrease the growth of the Internet, which in turn could decrease the
demand for GlobalCenter's services, increase the GlobalCenter group's cost of
doing business or in some other manner harm its business.
Due to the increasing popularity and use of the Internet, it is likely a
number of additional laws and regulations may be adopted at the federal, state
and local levels in the United States and internationally with respect to the
Internet, covering issues such as user privacy, freedom of expression,
pricing, characteristics and quality of products and services, taxation,
advertising, intellectual property rights, information security and the
convergence of traditional telecommunications services with Internet
communications. For example, the European Union recently enacted privacy
regulations. 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 adoption of any such
laws or regulations might decrease the growth of the Internet, which in turn
could decrease the demand for GlobalCenter's services or increase the cost of
doing business or in some other manner harm its business. In addition,
applicability to the Internet of existing laws governing areas such as
property ownership, copyrights and other intellectual property issues,
taxation, libel, on-line contract enforcement, obscenity and personal privacy
is uncertain. The vast majority of such laws were adopted prior to the advent
of the Internet and related technologies and, as a result, do not contemplate
or address the unique issues of the Internet and related technologies.
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.
Employees
As of April 7, 2000, the GlobalCenter group employed approximately 580
full-time employees. None of its employees is covered by a collective
bargaining agreement. The GlobalCenter group believes that its employee
relations are good.
59
<PAGE>
Properties
The GlobalCenter group's executive offices are located in Sunnyvale,
California and consist of approximately 54,000 square feet that are leased
pursuant to an agreement that expires in July 2005. Space leased for data
centers covers an aggregate of more than 1,400,000 gross square feet. The
GlobalCenter group's currently operational data centers cover an aggregate of
approximately 300,000 gross square feet. The GlobalCenter group leases
facilities in the following cities:
<TABLE>
<CAPTION>
City and State Lease Expiration
-------------- ----------------
<S> <C>
Anaheim, California............................ April 2009
Chicago, Illinois*............................. November 2009
Frankfurt, Germany*............................ October 2020
Herndon, Virginia, Sales Office................ June 2006
Herndon, Virginia*............................. January 2015
Herndon, Virginia.............................. March 2009
Irvine, California, Sales Office............... May 2003
London, England*............................... October 2014
London, England ............................... October 2014
London, England, Sales Office.................. December 2009
Melbourne, Australia........................... October 2001
Mountain View, California...................... October 2002
Munich, Germany*............................... July 2019
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>
--------
* GlobalCenter's data centers in these locations are under development and are
not yet operational.
60
<PAGE>
CERTAIN SIGNIFICANT EMPLOYEES AND DIRECTORS OF GLOBALCENTER INC.
The following table sets forth information regarding the management of
GlobalCenter Inc. Because GlobalCenter Inc. constitutes all of the operating
assets and business of the GlobalCenter group, the GlobalCenter Inc.
management and board of directors has significant influence over the
operations of the GlobalCenter group. This influence is subject to the
discretion of the board of directors of Global Crossing Ltd.
<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 October 1998 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 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.
61
<PAGE>
Mark J. Coleman has served as Executive Vice President and General Counsel
of GlobalCenter Inc. since January 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 2000. From April 1997
to March 1999, Ms. Wood was the Executive Vice President of Financial
Operations for TCI. From March 1999 to March 2000, Ms. Wood was the Executive
Vice President of Financial Operations for AT&T Broadband & Internet Services.
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 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 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 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
2000. Mr. Winnick is the founder of Global Crossing Ltd. and serves as
Chairman of its board of directors. Mr. Winnick has served as Chairman or Co-
Chairman of the Global Crossing Ltd. board of directors since its inception in
March 1997. Mr. Winnick is also the founder and has been the Chairman and
Chief Executive Officer of Pacific Capital Group, Inc., an affiliate of Global
Crossing Ltd., since its inception. Mr. Winnick received a bachelor's degree
from C.W. Post College and has been in the principal equity investment and
merchant banking business since 1985.
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. Prior to joining Global Crossing Ltd., Mr.
Casey was co-head of Merrill Lynch & Co.'s Global Communications Investment
Banking Group for
62
<PAGE>
three years. From 1990 to 1995, Mr. Casey was a partner and co-head of the
telecommunications and media group of the law firm of Skadden, Arps, Slate,
Meagher and Flom. 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 27, 1998. Mr. Clayton is also a director of Global Crossing Ltd. He
has also served as President, Global Crossing North America since September
1999. Mr. Clayton was also Vice Chairman of Global Crossing Ltd. from
September 1999 to March 2000. Prior to the merger with Global Crossing Ltd.,
Mr. Clayton was Chief Executive Officer of Frontier Corporation 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
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
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
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 1988, 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 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 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.
63
<PAGE>
Election of Directors
Pursuant to his employment agreement, Mr. Hindery has, including 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
GlobalCenter Inc. paid for the year ended December 31, 1999 to its 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) --
15,108,824(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.
Chairman and Chief
Executive Officer..... 500,000(1) 1.37%(1) $45.00(1) 12/5/09(1) $ 14,150,129 $35,859,205
15,108,824(2) 100%(2) $ 7.28(2) 12/5/09(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.
64
<PAGE>
Leo J. Hindery, Jr. Employment Agreement
In December 1999, GlobalCenter Inc. 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 Inc. 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.
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 shareholders 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 27,470,588, subject to adjustment, as described below.
65
<PAGE>
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.
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 the closing of this offering nonstatutory stock
options to purchase 26,234,412 shares of GlobalCenter group stock will 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 shareholders 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 13,735,294 shares of
GlobalCenter group stock, subject to adjustment, as described below.
66
<PAGE>
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 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 Inc. and Tanning Technology are
parties to a preferred marketing arrangement and a services agreement.
Pursuant to the services agreement GlobalCenter Inc. agreed to purchase $10
million of Tanning Technology's services over a 12-month period, beginning
February 2000. In addition, GlobalCenter Inc. purchased $10 million of Tanning
Technology common stock in February 2000. We believe the terms of these
agreements are on terms as fair to the GlobalCenter group as those that could
have been obtained from arms-length negotiations with third parties.
67
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF GLOBAL CROSSING LTD.
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, for the period from March 19, 1997
(Date of Inception) to December 31, 1997 and for the three months ended March
31, 1999 and 2000.
In reading the following selected historical financial data, please note
the following:
. The financial data as of March 31, 2000 and for the three months ended
March 31, 1999 and 2000 are derived from Global Crossing Ltd.'s unaudited
consolidated financial statements included elsewhere in this prospectus.
We have made adjustments, consisting of normal recurring adjustments
necessary to present the financial position as of March 31, 2000 and the
results of operations for the three months ended March 31, 1999 and 2000,
which in the opinion of Global Crossing Ltd.'s management are necessary
for a fair presentation. Results of operations for the three months ended
March 31, 1999 and 2000 are not necessarily indicative of the results
that may be expected for the full year or for any future period.
. The statement of operations data for the year ended December 31, 1999
includes the results of Global Marine Systems for the period from July 2,
1999, date of acquisition, through December 31, 1999; the results of
Frontier Corporation for the period from September 30, 1999, date of
acquisition, through December 31,1999; and the results of Racal Telecom
for the period from November 24, 1999, date of acquisition, through
December 31, 1999. The Consolidated Balance Sheet as of December 31, 1999
includes amounts related to Global Marine Systems, Frontier Corporation
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.
. On March 24, 2000, Global Crossing Ltd. increased its interest in the PC-
1 cable system from 57.75% to 64.5% for approximately $21 million by
acquiring the remaining ownership of another partner in PC-1 and the PC-1
shareholder agreement was amended, which enabled Global Crossing Ltd. to
exercise effective control over PC-1. As a result of these changes,
Global Crossing Ltd. has, effective January 1, 2000, consolidated PC-1's
operating results.
. On January 12, 2000, Global Crossing Ltd. established a joint venture,
called Hutchison Global Crossing, with Hutchison Whampoa Limited, to
pursue fixed-line telecommunications and Internet opportunities in Hong
Kong. For its 50% share, Hutchison Whampoa Limited contributed to the
joint venture its building-to-building fixed-line telecommunications
network in Hong Kong and a number of Internet-related assets. In
addition, Hutchison Whampoa Limited has agreed that any fixed-line
telecommunications activities it pursues in China will be carried out by
the joint venture. For its 50% share, Global Crossing Ltd. provided to
Hutchison Whampoa Limited $400 million in Global Crossing Ltd.
convertible preferred stock, convertible into shares of Global Crossing
group stock at a rate of $45 per share, and committed to contribute to
the joint venture international telecommunications capacity rights on
Global Crossing's network and global media distribution center
capabilities which together are valued at $350 million, as well as $50
million in cash. Global Crossing Ltd. intends to integrate its interest
in Hutchison Global Crossing into its Asia Global Crossing joint venture.
. 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%.
68
<PAGE>
. 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., a wholly-owned
subsidiary of Global Crossing Ltd., issued two series of senior unsecured
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. These 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 Corporation shareholders receiving 2.05 shares of Global
Crossing Ltd. common stock for each share of Frontier Corporation common
stock held. Frontier Corporation 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
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 an advisory services agreement.
This definition is consistent with financial covenants contained in
Global Crossing Ltd.'s major financial agreements. Global Crossing Ltd.
69
<PAGE>
presents Adjusted EBITDA because it is a financial indicator used by
investors and analysts to analyze and compare companies on the basis of
operating performance and because it believes that Adjusted EBITDA is an
additional, meaningful measure of performance and liquidity. Global
Crossing Ltd.'s management uses Adjusted EBITDA to monitor its compliance
with its financial covenants and to understand the financial indicators
investors and analysts are using to measure its performance. 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.
70
<PAGE>
The selected consolidated financial data as of December 31, 1997, 1998 and
1999, for the period from March 19, 1997 (Date of Inception) to December 31,
1997, and for the years ended December 31, 1998 and 1999, respectively, are
derived from 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 Three Months Ended
(Date of Inception) to Year Ended Year Ended March 31,
December 31, December 31, December 31, ------------------------
1997 1998 1999 1999 2000
---------------------- ------------ ------------ ----------- -----------
(in thousands, except share and per share information)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ -- $ 419,866 $ 1,664,824 $ 176,319 $ 1,119,516
----------- ----------- ----------- ----------- -----------
Expenses:
Cost of sales........... -- 178,492 850,483 69,387 579,907
Operations,
administration and
maintenance............ -- 18,140 134,266 12,026 144,578
Sales and marketing..... 1,366 31,748 152,115 10,437 104,318
Network development..... 78 14,204 33,304 7,376 19,209
General and
administrative......... 1,618 56,797 250,202 35,815 166,751
Depreciation and
amortization........... 39 541 124,294 211 140,943
Goodwill and intangibles
amortization........... -- -- 127,621 -- 131,634
Termination of advisory
services agreement..... -- 139,669 -- -- --
----------- ----------- ----------- ----------- -----------
3,101 439,591 1,672,285 135,252 1,287,340
----------- ----------- ----------- ----------- -----------
Operating (loss)
income................. (3,101) (19,725) (7,461) 41,067 (167,824)
Equity in income (loss)
of affiliates.......... -- (2,508) 15,708 (2,736) (5,140)
Minority interest....... -- -- (1,338) -- (15,731)
Other income (expense):
Interest income........ 2,941 29,986 67,407 14,392 22,798
Interest expense....... -- (42,880) (139,077) (23,779) (85,676)
Other expense, net..... -- -- 180,765 -- (5,628)
Provision for income
taxes.................. -- (33,067) (126,539) (16,142) (5,000)
----------- ----------- ----------- ----------- -----------
(Loss) income before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (160) (68,194) (10,535) 12,802 (262,201)
Extraordinary loss on
retirement of debt..... -- (19,709) (45,681) -- --
----------- ----------- ----------- ----------- -----------
(Loss) income before
cumulative effect of
change in accounting
principle.............. (160) (87,903) (56,216) 12,802 (262,201)
Cumulative effect of
change in accounting
principle, net of
income tax benefit of
$1,400................. -- -- (14,710) (14,710) --
----------- ----------- ----------- ----------- -----------
Net loss................ (160) (87,903) (70,926) (1,908) (262,201)
Preferred stock
dividends.............. (12,690) (12,681) (66,642) (13,044) (45,258)
Repurchase of preferred
stock.................. -- (34,140) -- -- --
----------- ----------- ----------- ----------- -----------
Net loss applicable to
common shareholders.... $ (12,850) $ (134,724) $ (137,568) $ (14,952) $ (307,459)
=========== =========== =========== =========== ===========
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) $ (0.00) $ (0.39)
=========== =========== =========== =========== ===========
Extraordinary item
Basic and diluted...... $ -- $ (0.06) $ (0.09) $ -- $ --
=========== =========== =========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and diluted...... $ -- $ -- $ (0.03) $ (0.04) $ --
=========== =========== =========== =========== ===========
Net loss applicable to
common shareholders
Basic and diluted...... $ (0.04) $ (0.38) $ (0.27) $ (0.04) $ (0.39)
=========== =========== =========== =========== ===========
Shares used in computing
basic and diluted loss
per share.............. 325,773,934 358,735,340 502,400,851 410,797,073 778,780,323
=========== =========== =========== =========== ===========
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------- March 31,
1997 1998 1999 2000
-------- ---------- ----------- -----------
(in thousands) (Unaudited)
<S> <C> <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 $ 2,615,603
Long term restricted cash and cash equivalents....... -- 367,600 138,118 69,545
Long term accounts receivable........................ -- 43,315 52,052 42,419
Capacity available for sale.......................... -- 574,849 -- --
Property and equipment, net.......................... 518,519 433,707 6,026,053 7,985,651
Other assets......................................... 25,934 65,757 661,442 735,746
Investments in and advances to/from affiliates, net.. -- 177,334 323,960 604,291
Goodwill and intangibles, net........................ -- -- 9,557,422 9,436,715
-------- ---------- ----------- -----------
Total assets........................................ $572,197 $2,639,177 $19,705,580 $21,489,970
======== ========== =========== ===========
Current liabilities.................................. $ 90,817 $ 256,265 $ 1,852,593 $ 2,233,153
Long term debt....................................... 312,325 1,066,093 5,018,544 6,031,662
Deferred revenue..................................... -- 25,325 383,287 489,331
Deferred credits and other........................... 3,009 34,174 796,606 819,485
-------- ---------- ----------- -----------
Total liabilities.................................... 406,151 1,381,857 8,051,030 9,573,631
Minority interest.................................... -- -- 351,338 478,030
Mandatorily redeemable and cumulative convertible
preferred stock..................................... 91,925 483,000 2,084,697 2,485,267
Shareholders' equity:
Common stock........................................ 3,258 4,328 7,992 8,030
Treasury stock...................................... -- (209,415) (209,415) (209,415)
Other shareholders' equity.......................... 71,023 1,067,470 9,578,927 9,575,617
Accumulated deficit................................. (160) (88,063) (158,989) (421,190)
-------- ---------- ----------- -----------
Total shareholders' equity........................... 74,121 774,320 9,218,515 8,953,042
-------- ---------- ----------- -----------
Total liabilities and shareholders' equity........... $572,197 $2,639,177 $19,705,580 $21,489,970
======== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Period from Three Months Ended
March 19, 1997 March 31,
(Date of Inception) to Year Ended Year Ended --------------------
December 31, 1997 December 31, 1998 December 31, 1999 1999 2000
---------------------- ----------------- ----------------- -------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Data:
Cash from operating
activities............. $ 5,121 $ 208,727 $ 506,084 $(19,441) $ 240,158
Cash from investing
activities............. (428,743) (430,697) (4,009,977) (158,008) (1,030,576)
Cash from financing
activities............. 425,075 1,027,110 4,330,799 (64,796) 407,872
Adjusted EBITDA......... $ 2,263 $ 364,948 $ 708,181 $128,208 $ 388,591
Calculation of Adjusted
EBITDA:
Operating income
(loss)................. $ (3,101) $ (19,725) $ (7,461) $ 41,067 $ (167,824)
Goodwill amortization... -- -- 127,621 -- 131,634
Depreciation and
amortization........... 39 541 124,294 211 140,943
Stock related expense... -- 39,374 51,308 16,716 18,850
Non-cash cost of
capacity sold.......... -- 140,892 291,764 53,514 99,056
Incremental cash
deferred revenue....... 5,325 64,197 120,657 16,700 165,932
Termination of Advisory
Services Agreement..... -- 139,669 -- -- --
-------- --------- ---------- -------- ----------
Adjusted EBITDA......... $ 2,263 $ 364,948 $ 708,181 $128,208 $ 388,591
======== ========= ========== ======== ==========
</TABLE>
72
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 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
for revenue from terrestrial circuits sold after that date as operating leases
and has amortized that revenue over the terms of the related contracts.
Previously, it had recognized these sales as current revenue upon activation
of the circuits. This deferral in revenue recognition has no impact on cash
flow.
With the consummation of the Frontier Corporation 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 of 1999, 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 financial position, results of
operations, cash flows and the financial statements taken as a whole.
Results of Operations for the Three Months Ended March 31, 2000 and March 31,
1999
During the second half of 1999, Global Crossing Ltd. completed its merger
with Frontier Corporation and its acquisitions of Global Marine Systems and
Racal Telecom. We refer to these acquisitions together as the "Acquisitions."
The increase in revenue and expenses for the three months ended March 31, 2000
compared to the three months ended March 31, 1999 is primarily due to these
transactions. As the Acquisitions occurred subsequent to March 31, 1999, the
comparability of the results of operations for the three months ended
March 31, 2000 and 1999 is limited.
73
<PAGE>
Revenue. Revenue for the three months ended March 31, 2000 increased 535%
to $1,120 million as compared to $176 million for the three months ended March
31, 1999. Cash revenue (revenue plus the cash portion of the change in
deferred revenue) for the three months ended March 31, 2000 increased 511% to
$1,285 million compared to $200 million for the three months ended March 31,
1999. The increase is due to the Acquisitions, which are included in the
results of the first quarter of 2000, partially off-set by Global Crossing
Ltd.'s business practice of selling capacity under terms that require
amortization of revenue over the contract life rather than terms that qualify
for immediate revenue recognition.
On a pro forma basis, giving effect to the Acquisitions as of December 31,
1998, revenues for the three months ended March 31, 2000 increased 9% to
$1,120 as compared to $1,031 million for the three months ended March 31,
1999. The increase in pro forma revenue is primarily due to an increase in
revenue from data products.
Cost of sales. Cost of sales for the three months ended March 31, 2000 was
$580 million, or 52% of revenue, compared to $69 million, or 39% of revenue,
for the three months ended March 31, 1999. The increase is primarily
attributable to the increase in revenue. Reduced margins for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999 were
due to lower margins in the businesses acquired and lower prices of subsea
capacity sold to customers.
Non-cash cost of undersea capacity sold was $99 million and $54 million
during the three months ended March 31, 2000 and 1999, respectively.
Operations, administration and maintenance. Operations, administration and
maintenance costs for the three months ended March 31, 2000 were $145 million,
or 13% of revenue, compared to $12 million, or 7% of revenue, for the three
months ended March 31, 1999. The increase is primarily a result of the costs
incurred in connection with the development of the Global Crossings network
operations center, the expansion of its network and the expenses of the 1999
acquired companies.
Sales and marketing. Sales and marketing expenses for the three months
ended March 31, 2000 were $104 million, or 9% of revenue, compared to $10
million, or 6% of revenue, for the three months ended March 31, 1999. The
increase was due to the additional expenses attributable to the 1999 acquired
companies, expenses related to additions in headcount, plus occupancy costs,
marketing costs and other promotional expenses.
Network development. Network development costs for the three months ended
March 31, 2000 were $19 million, or 2% of revenue, compared to $7 million, or
4% of revenue, for the three months ended March 31, 1999. The increase is due
to the additional expenses attributable to the 1999 acquired companies,
additional salaries, employee benefits, including stock compensation and
professional fees associated with the expansion of the Global Crossing
network.
General and administrative. General and administrative expenses for the
three months ended March 31, 2000 were $167 million, or 15% of revenue,
compared to $36 million, or 20% of revenue, for the three months ended March
31, 1999. The increase was comprised principally of salaries, employee
benefits, including stock compensation and recruiting for Global Crossing
Ltd.'s need for increased staffing for multiple fiber optic systems, travel,
professional fees, insurance costs and occupancy costs. The increase in
general and administrative expenses is primarily attributable to the
additional expenses of the 1999 acquired companies.
Depreciation and amortization. Depreciation and amortization for the three
months ended March 31, 2000 was $141 million, or 13% of revenue, compared to
$0.2 million for the three months ended March 31, 1999. The increase is due to
the Acquisitions and depreciation of subsea systems placed in service.
Goodwill and intangibles amortization. Goodwill and intangibles
amortization for the three months ended March 31, 2000 was $132 million
resulting from the Acquisitions, which occurred after March 31, 1999.
Minority interest. Minority interest for the three months ended March 31,
2000 was $16 million and relates to minority interest in net income of Pacific
Crossing Ltd. and Asia Global Crossing.
74
<PAGE>
Interest income and interest expense. Interest income for the three months
ended March 31, 2000 was $23 million, compared to $14 million for the three
months ended March 31, 1999. The increase is due to interest earned on cash
raised from financings and on capacity purchase agreement deposits. Interest
expense for the three months ended March 31, 2000 was $86 million, compared to
$24 million for the three months ended March 31, 1999. The increase is due to
higher levels of debt outstanding resulting from the Acquisitions and capital
spending on the expansion of the Global Crossing network.
Provision for income taxes. Provision for income taxes of $5 million and
$16 million for the three months ended March 31, 2000 and 1999, respectively,
provide for taxes on profits earned from telecommunications services,
installation and maintenance and other income where subsidiaries of Global
Crossing Ltd. have a presence in taxable jurisdictions.
Cumulative effect of change in accounting principle. Global Crossing Ltd.
adopted Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of
Start-Up Activities," issued by the American Institute of Certified Public
Accountants, on January 1, 1999. SOP 98-5 requires that certain start-up
expenditures previously capitalized during system development must now be
expensed. Global Crossing Ltd. incurred a one-time charge during the three
months ended March 31, 1999 of $15 million (net of tax benefit of $1,400) that
represents start-up costs incurred and capitalized during previous periods.
Net loss. Net loss for the three months ended March 31, 2000 was $262
million compared to $2 million for the three months ended March 31, 1999.
Preferred stock dividends. Preferred stock dividends for the three months
ended March 31, 2000 were $45 million compared to $13 million for the three
months ended March 31, 1999. The increase is due to the additional issuances
of preferred stock, the proceeds of which are used to fund acquisitions and
capital spending.
Net loss applicable to common shareholders. During the three months ended
March 31, 2000, Global Crossing Ltd. reported net loss applicable to common
shareholders of $307 million compared to $15 million for the three months
ended March 31, 1999.
Adjusted EBITDA. Adjusted EBITDA was $389 million for the three months
ended March 31, 2000 compared to $128 million for the three months ended March
31, 1999. The increase in Adjusted EBITDA is due to the Acquisitions and the
increase in the cash portion of the change in deferred revenue for the three
months ended March 31, 2000 compared to the three months ended March 31, 1999.
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. Global Crossing Ltd. presents Adjusted EBITDA because it
is a financial indicator used by investors and analysts to analyze and compare
companies on the basis of operating performance and because it believes that
Adjusted EBITDA is an additional, meaningful measure of performance and
liquidity. Global Crossing Ltd.'s management uses Adjusted EBITDA to monitor
its compliance with its financial covenants and to understand the financial
indicators investors and analysts are using to measure its performance. 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.
Results of Operations for the Years Ended December 31, 1999 and December 31,
1998
HISTORICAL
In 1999, Global Crossing Ltd. completed its merger with Frontier
Corporation and its acquisitions of Global Marine Systems and Racal Telecom.
Results for 1999 include operations of Global Marine Systems from July 2,
1999, Frontier Corporation from October 1, 1999 and Racal Telecom from
November 24, 1999. Due to these transactions, the comparability of Global
Crossing Ltd.'s results of operations for the years ended December 31, 1999
and 1998 is limited.
75
<PAGE>
Revenue. Revenue for 1999 increased 296% to $1,665 million as compared to
$420 million for 1998. The increase in revenue is attributable to the Frontier
Corporation merger and the acquisitions of Global Marine Systems and Racal
Telecom, as well as growth from Global Crossing Ltd.'s existing business.
Cost of sales. Cost of sales during 1999 was $850 million (51% of revenue)
compared to $178 million (43% of revenue) in 1998. This increase is primarily
attributable to the Frontier Corporation merger and the Global Marine Systems
and Racal Telecom acquisitions. Lower margins are partially due to lower
prices of capacity sold to customers and wholesale cost of capacity purchased
from unconsolidated joint ventures (Global Access Limited and Pacific Crossing
Ltd.), Global Crossing Ltd.'s profit on which is included in equity in income
of affiliates.
Non-cash cost of undersea capacity sold was $292 million and $141 million
during the years ended December 31, 1999 and 1998, respectively. For 1998 and
the first nine months of the year ended December 31, 1999, Global Crossing
Ltd. calculated costs of undersea capacity sold for the Atlantic Crossing
cable system based on the ratio of the period's actual revenue to total
expected future revenues given a minimum projected sales capacity of 1024
circuits (512 circuits in 1998) times the construction cost of the system.
Beginning in the fourth quarter of 1999, Global Crossing Ltd. began to
depreciate its undersea capacity and calculate cost of sales based on the
estimated net book value of the circuit at the time of sale.
Operations, administration and maintenance. Operations, administration and
maintenance for the year ended December 31, 1999 was $134 million (8% of
revenue), compared to $18 million (4% of revenue) for the year ended December
31, 1998. The increase is primarily the result of costs incurred in connection
with the development of the Global Crossing Ltd.'s network operations center,
expansion of the Global Crossing network and the expenses of acquired
companies.
Sales and marketing. Sales and marketing costs for the year ended December
31, 1999 were $152 million (9% of revenue), compared to $32 million (8% of
revenue) for the year ended December 31, 1998. The increase is primarily
attributable to additions in headcount, occupancy costs, plus marketing costs,
commissions paid and other promotional expenses to support Global Crossing
Ltd.'s rapid growth and the expenses of acquired companies.
Network development. Network development costs for the year ended December
31, 1999 were $33 million (2% of revenue), compared to $14 million (3% of
revenue) for the year ended December 31, 1998. The increase is primarily
attributable to the additional salaries, employee benefits, including stock
compensation, travel and professional fees associated with the construction of
the Global Crossing network.
General and administrative. General and administrative expenses for the
year ended December 31, 1999 were $250 million (14% of revenue), compared to
$57 million (14% of revenue) for the year ended December 31, 1998. Such
charges are comprised principally of salaries, employee benefits, including
stock compensation and recruiting fees reflecting Global Crossing Ltd.'s
staffing for multiple systems, travel, professional fees, insurance costs and
occupancy costs. The increase in general and administrative expenses is
primarily attributable to the Frontier Corporation merger and the acquisitions
of Global Marine Systems and Racal Telecom.
Depreciation and amortization. Depreciation and amortization for the year
ended December 31, 1999 was $124 million (8% as a percentage of revenue),
compared to $.54 million for the year ended December 31, 1998. This increase
was driven by charges from the newly acquired companies and depreciation of
subsea systems as of October 1, 1999.
Goodwill amortization. Goodwill amortization for the year ended December
31, 1999 of $128 million (8% of revenue) resulted from Global Crossing Ltd.'s
merger with Frontier Corporation and acquisitions of Global Marine Systems and
Racal Telecom during the year ended December 31, 1999. There was no goodwill
amortization for the year ended December 31, 1998.
76
<PAGE>
Operating loss. Global Crossing Ltd. incurred an operating loss for the
year ended December 31, 1999 of $7 million, compared to a loss of $20 million
(5% of revenue) for the year ended December 31, 1998.
Interest income and Interest expense. Interest income for the year ended
December 31, 1999 was $67 million, compared to $30 million for the year ended
December 31, 1998. The increase is due to earnings on investments of funds
from financings and operations for the year ended December 31 1999. Interest
expense for the year ended December 31, 1999 was $139 million, compared to $43
million for the year ended December 31, 1998, due to the merger with Frontier
Corporation and the acquisitions of Global Marine Systems and Racal Telecom
and increases in debt outstanding to support capital spending.
Other income, net. Other income, net for the year ended December 31, 1999
resulted primarily from a $210 million payment by US West, Inc. in connection
with the termination of its merger agreement with Global Crossing Ltd., less
related expenses.
Provision for income taxes. The income tax provision of $127 million and
$33 million for the years ended December 31, 1999 and 1998, respectively,
provide for taxes on profits earned from telecommunications services,
installation and maintenance services, ILEC services and other income where
subsidiaries of Global Crossing Ltd. have a presence in taxable jurisdictions.
Extraordinary loss from retirement of debt. Extraordinary loss from
retirement of debt of $46 million for the year ended December 31, 1999
compared to $20 million for the year ended December 31, 1998. During 1999,
Global Crossing Ltd. recognized an extraordinary loss of $15 million in
connection with the prepayment of existing debt in connection with the
issuance of its $3 billion Senior Secured Credit Facility and an additional
$31 million for the early extinguishment of $2 billion, in principal value,
under the Senior Secured Credit Facility. During 1998, Global Crossing Ltd.
recognized an extraordinary loss of $20 million in connection with the
repurchase of Global Telesystems Holdings' outstanding senior notes,
comprising a premium of $10 million and a write-off of $10 million of
unamortized deferred financing costs.
Cumulative effect of change in accounting principle. Global Crossing Ltd.
adopted Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of
Start-Up Activities," issued by the American Institute of Certified Public
Accountants, during the year ended December 31, 1999. SOP 98-5 requires that
certain start-up expenditures previously capitalized during system development
must now be expensed. Global Crossing Ltd. incurred a one-time charge during
the first quarter of $15 million, net of tax benefit, that represents start-up
costs incurred and capitalized during previous periods.
Net loss. During the year ended December 31, 1999, Global Crossing Ltd.
reported a net loss of $71 million compared to a net loss of $88 million for
the prior year.
Net loss applicable to common shareholders. During the years ended December
31, 1999 and 1998, Global Crossing Ltd. reported a net loss applicable to
common shareholders of $138 million and $135 million, respectively.
Adjusted EBITDA. Adjusted EBITDA of $708 million in 1999 increased 94% from
$365 million for the year ended December 31, 1998. The increase is primarily
due to the inclusion of Frontier Corporation, Global Marine Systems and Racal
as well as growth from our existing businesses for the year ended December 31,
1999. 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. Global Crossing Ltd. presents Adjusted EBITDA because it
is a financial indicator used by investors and analysts to analyze and compare
companies on the basis of operating performance and because it believes that
Adjusted EBITDA is an additional, meaningful measure of performance and
liquidity. Global Crossing Ltd.'s management uses Adjusted EBITDA to monitor
its compliance with its financial covenants and to understand the financial
indicators investors and analysts are using to measure its performance. 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.
77
<PAGE>
PRO FORMA
This section of Management's Discussion and Analysis of Financial Condition
and Results of Operations focuses on pro forma information for the periods
covered giving effect to the acquisitions from the beginning of each period.
Global Crossing Ltd.'s management believes that the pro forma results provide
the most meaningful comparability among periods presented, since historical
results reflect full-company operations only after the close of the Frontier
Corporation merger and the acquisitions of Racal Telecom and Global Marine
Systems. However, the pro forma data are not necessarily indicative of the
results that would have been achieved had such transactions actually occurred
at the beginning of each period, nor are they necessarily indicative of Global
Crossing Ltd.'s future results.
The following reflects the pro forma results of operations for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
For the year ended
December 31,
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Revenue:
Telecommunications services ......................... $3,071,553 $2,591,066
Installation and maintenance services................ 334,153 322,017
Incumbent local exchange carrier services............ 729,231 701,935
Corporate and other.................................. 4,960 28,503
---------- ----------
4,139,897 3,643,521
---------- ----------
Expenses:
Operating, selling, general and administrative....... 3,484,330 2,847,045
Depreciation and amortization........................ 363,427 262,847
Goodwill amortization................................ 506,928 506,928
Termination of Advisory Services Agreement........... -- 139,669
---------- ----------
4,354,685 3,756,489
---------- ----------
Operating loss......................................... (214,788) (112,968)
Equity in loss of affiliates........................... (747) (21,180)
Minority interest...................................... (1,338) --
Other income (expense):
Interest income...................................... 76,528 42,877
Interest expense..................................... (345,956) (283,984)
Other income, net.................................... 178,931 23,641
---------- ----------
Loss before provision for income taxes, extraordinary
item and cumulative effect of change in accounting
principle............................................. (307,370) (351,614)
Provision for income taxes........................... (155,174) (123,268)
---------- ----------
Loss before extraordinary item and cumulative effect of
change in accounting principle........................ (462,544) (474,882)
Preferred stock dividends ........................... (92,171) (38,181)
---------- ----------
Loss applicable to common shareholders before
extraordinary item and cumulative effect of change in
accounting principle.................................. $ (554,715) $ (513,063)
========== ==========
Adjusted EBITDA........................................ $1,150,644 $1,071,969
========== ==========
</TABLE>
78
<PAGE>
Pro forma revenue--Telecommunications services. Pro forma revenue for the
telecommunications services segment for the years ended December 31, 1999 and
1998 resulted from sales of the following products:
<TABLE>
<CAPTION>
For the year ended
December 31,
-----------------------
1999 1998
----------- -----------
(In thousands, except
minutes)
<S> <C> <C>
Product revenue:
Switched Voice....................................... $ 1,386,124 $ 1,416,088
CLEC (local and long distance)....................... 223,021 153,109
----------- -----------
Total Business Voice Products...................... 1,609,145 1,569,197
Data................................................. 1,274,689 782,087
Consumer long distance............................... 187,719 239,782
----------- -----------
Total product revenue.................................. $ 3,071,553 $ 2,591,066
=========== ===========
Minutes................................................ 20,472,178 14,481,697
=========== ===========
</TABLE>
In North America, data products continued to grow at triple digit rates--
data product revenue (primarily private line) from telecommunication carrier
customers grew 588% for the full year. Frame relay revenue, sales from
dedicated internet and web hosting revenue increased 304%, 159% and 187%,
respectively, over the prior year. Competitive Local Exchange Carrier (CLEC)
revenue increased 46% year-on-year.
Revenue from telecommunication commercial customers increased to $1.27
billion for the year ended December 31, 1999 from $1.26 billion for the year
ended December 31, 1998. Revenue from telecommunication consumer customers
fell to $188 million for the year ended December 31, 1999 from $240 million
for the year ended December 31, 1998. Revenue from telecommunication carrier
customers experienced a 48% increase in revenue year-on-year, from $1.09
billion to $1.61 billion, driven by strong growth in international city to
city circuit activations and an 87% increase in wholesale minutes sold on a
year-on-year basis.
Pro forma revenue--Installation and maintenance services. Pro forma revenue
increased by 4% year-on-year, despite delays in the installation of TAT-14 and
U.S.-Japan cables, which had been scheduled for installation during the fourth
quarter of 1999. Global Marine Systems added three ships to their fleet during
the year to service Global Crossing Ltd.'s growth in subsea cable
installations. Revenue from maintenance increased from $117 million to $139
million, while revenue from installation decreased from $205 million to $195
million.
Pro forma revenue--ILEC services. The following table provides supplemental
pro forma detail for the ILEC segment:
<TABLE>
<CAPTION>
December
31,
-----------
1999 1998
----- -----
(In
thousands)
<S> <C> <C>
Access lines:
Commercial........................................................ 335 327
Consumer.......................................................... 737 718
----- -----
Total access lines.................................................. 1,072 1,045
===== =====
</TABLE>
The ILEC segment continued to exceed service metrics required by the New
York State Public Service Commission. Revenue increased by 4% year-on-year.
Market deployment of the consumer ADSL product, Lightning Link, was initiated
in selected markets in the fourth quarter.
Operating, selling, general and administrative. Operating, selling, general
and administrative expenses of $3,433 million for the year ended December 31,
1999 increased by 22% from $2,808 million for the year ended
79
<PAGE>
December 31, 1998. This change resulted from costs of new systems being
activated, cost of sales relating to increased revenues, occupancy costs,
marketing costs, commissions paid and overall Global Crossing Ltd. growth and
staffing for multiple systems.
Non-cash cost of undersea capacity sold, included in operating, selling,
general and administrative expenses, was $292 million and $141 million during
the years ended December 31, 1999 and 1998, respectively. For 1998 and the
first nine months of 1999, Global Crossing Ltd. calculated costs of undersea
capacity sold based on the ratio of the period's actual revenue to total
expected future revenues given a minimum projected sales capacity multiplied
by the construction cost of the system. Beginning in the fourth quarter of
1999, Global Crossing Ltd. began to depreciate the undersea capacity and
calculate cost of sales based on the estimated net book value of the circuit
at the time of sale.
Stock related expense. Stock related expense of $51 million for the year
ended December 31, 1999, increased 30% from $39 million for the year ended
December 31, 1998 as a result of additional stock options issued below fair
market value.
Depreciation and amortization. Depreciation and amortization of $363
million for the year ended December 31, 1999 increased 38% from $263 million
for the year ended December 31, 1998. This increase was primarily due to the
depreciation of subsea and terrestrial systems during 1999.
Operating loss. Global Crossing Ltd. incurred an operating loss for the
year ended December 31, 1999 of $215 million compared to a loss of $113
million for the year ended December 31, 1998.
Equity in loss of affiliates. Equity in loss of affiliates of $0.7 million
for the year ended December 31, 1999 compared to a loss of $21 million for the
year ended December 31, 1998. The decrease in the net loss is primarily due to
sales of capacity on certain segments of Pacific Crossing which became
available for sale in 1999.
Interest income and Interest expense. Interest income of $77 million for
the year ended December 31, 1999 compared to $43 million for the year ended
December 31, 1998, due to earnings on investments of additional funds from
financings and operations during the year ended December 31, 1999. Interest
expense of $346 million for the year ended December 31, 1999 compared to
interest expense of $284 million for the year ended December 31, 1998, due to
the merger with Frontier Corporation and the acquisition of Global Marine
Systems and Racal Telecom and increases in debt outstanding to support capital
spending.
Other income, net. Other income of $179 million for the year ended December
31, 1999 compared to $24 million for the year ended December 31, 1998. The
increase is primarily a result of the receipt of a $210 million payment by US
West, Inc. in connection with the termination of its merger agreement with
Global Crossing Ltd., less related expenses.
Provision for income taxes. The income tax provision of $155 million and
$123 million for the years ended December 31, 1999 and 1998, respectively,
provides for taxes on profits earned from telecommunications services,
installation and maintenance, incumbent local exchange services and other
income where subsidiaries of Global Crossing Ltd. have a presence in taxable
jurisdictions.
Preferred stock dividends. Preferred stock dividends were $92 million for
the year ended December 31, 1999 compared to $38 million in 1998. The increase
was attributable to payment of dividends on $1.5 billion of preferred shares
issued during the year ended December 31, 1999.
Adjusted EBITDA. Adjusted EBITDA of $1,151 million for the years ended
December 31, 1999 increased 7% from $1,072 in 1998. The increase was primarily
due to increased capacity sales and other data products, partially off-set by
Global Crossing Ltd.'s increased spending to augment its sales force, add
network and web hosting capacity, add to its fleet of installation and
maintenance vessels, activate new fiber optic systems, and
80
<PAGE>
consummate and integrate its acquisitions. 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.
Global Crossing Ltd. presents Adjusted EBITDA because it is a financial
indicator used by investors and analysts to analyze and compare companies on
the basis of operating performance and because it believes that Adjusted
EBITDA is an additional, meaningful measure of performance and liquidity.
Global Crossing Ltd.'s management uses Adjusted EBITDA to monitor its
compliance with its financial covenants and to understand the financial
indicators investors and analysts are using to measure its performance. 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.
Historical Results of Operations for the Year Ended December 31, 1998 and the
Period from March 19, 1997 (Date of Inception) to December 31, 1997
Revenue. During the year ended December 31, 1998, Global Crossing Ltd.
executed firm commitments to sell capacity on its systems plus the sale of
dark fiber on its Pan European Crossing System totaling $911 million. Of this
amount, Global Crossing Ltd. recognized revenue of $418 million on sales of
capacity relating to Atlantic Crossing for the year ended December 31, 1998,
in addition to revenue from operations and maintenance services of $6 million.
Cost of sales. For the year ended December 31, 1998, Global Crossing Ltd.
recognized $178 million in cost of capacity sold, resulting in a gross margin
on capacity sales of 57%. Cost of capacity sold for the year ended December
31, 1998 also includes $38 million relating to terrestrial capacity sold which
Global Crossing Ltd. had purchased from third parties. Global Crossing Ltd.
calculated undersea cost of capacity sold for Atlantic Crossing based on the
ratio of the period's actual revenue to total expected revenue, assuming
minimum projected sales capacity of 512 circuits, multiplied by the
construction cost of the system. This calculation of cost of sales matches
costs with the relative value of each sale. There were no sales or related
costs recognized during the period from March 19, 1997 (Date of Inception) to
December 31, 1997, as Global Crossing Ltd. was in its development stage.
Operations, administration and maintenance. Global Crossing Ltd. incurred
operations, administration and maintenance costs of $18 million during the
year ended December 31, 1998. Global Crossing Ltd. entered into an agreement
with Tyco Submarine Systems relating to operations, administration and
maintenance of Atlantic Crossing, which limits our total operations,
administration and maintenance expense for the system. Global Crossing Ltd.
anticipates that our operations, administration and maintenance costs will be
largely recovered through charges to our customers under the terms of CPAs.
There were no operations, administration and maintenance costs during the
period from March 19, 1997 (Date of Inception) to December 31, 1997, as Global
Crossing Ltd. was in its development stage.
Sales and marketing. During the year ended December 31, 1998, Global
Crossing Ltd. incurred sales and marketing expenses of $32 million, including
selling commissions of $20 million incurred on capacity sales recognized
during this period. During the period from March 19, 1997 (Date of Inception)
to December 31, 1997, Global Crossing Ltd. incurred sales and marketing costs
of approximately $1 million. The increase from 1997 was due to additions in
personnel and occupancy costs, plus marketing, commissions paid and other
promotional expenses to support its rapid growth.
Network development. Global Crossing Ltd. incurred network development
costs during the year ended December 31, 1998 of $14 million relating to the
development of systems. During the period from March 19, 1997 (Date of
Inception) to December 31, 1997, these costs were $0.1 million. The increase
from 1997 was due to additional personnel, and costs to explore new projects.
81
<PAGE>
General and administrative. General and administrative expenses totaled $57
million during the year ended December 31, 1998 and were comprised principally
of salaries, employee benefits, including stock compensation and recruiting
fees for staffing of multiple systems, travel, insurance costs and rent
expenses. During the period from March 19, 1997 (Date of Inception) to
December 31, 1997, Global Crossing Ltd. incurred general and administrative
costs of $2 million.
Termination of Advisory Services Agreement with PCG Telecom Services
LLC. In connection with the development and construction of Atlantic Crossing,
Global Crossing Ltd. entered into an advisory services agreement with PCG
Telecom Services LLC, an affiliate, providing for the payment by Global
Crossing Ltd. of an advisory fee of 2% of the gross revenue of Atlantic
Crossing over a 25 year term. Global Crossing Ltd.'s Board of Directors also
approved similar advisory fees and authorized it to enter into similar
agreements with respect to other cable systems under development by it. Global
Crossing Ltd. acquired the rights of the persons entitled to the fees payable
under these agreements in consideration for the issuance to such persons of
shares of its common stock, which had at the time of issuance an aggregate
value of $135 million, and the cancellation of approximately $3 million owed
to it under a related advance agreement. In addition, Global Crossing Ltd.
recognized approximately $2 million of advisory fees incurred prior to
termination of the contract.
Equity in loss of affiliates. During 1998, Global Crossing Ltd. entered
into joint venture agreements to construct and operate Pacific Crossing and
Global Access Ltd. Pacific Crossing is owned and operated by Pacific Crossing
Ltd. Global Crossing Ltd. has an economic interest in Pacific Crossing Ltd.
represented by a 50% direct voting interest and, through one of the joint
venture partners, a further 8% economic non-voting interest. Global Crossing
Ltd. has a 49% interest in Global Access Ltd., which operates Global Access
Ltd. Global Crossing Ltd.'s equity in the loss of Pacific Crossing Ltd. for
the year ended December 31, 1998 was $3 million.
Interest income. Global Crossing Ltd. reported interest income of $30
million during the year ended December 31, 1998 and $3 million during the
period from March 19, 1997 (Date of Inception) to December 31, 1997. Such
interest income represents earnings on cash raised from financing, its initial
public offering, the issuance by Global Crossing Holdings of preferred stock,
operations and CPA deposits.
Interest expense. During the year ended December 31, 1998, Global Crossing
Ltd. incurred $93 million in interest costs, including the amortization of
finance costs and debt discount. Of this amount, Global Crossing Ltd.
capitalized to construction in progress interest of $50 million and expensed
$43 million. During the period from March 19, 1997 (Date of Inception) to
December 31, 1997, Global Crossing Ltd. incurred interest expense of $10
million, which was capitalized to construction in progress.
Provision for income taxes. The income tax provision of $33 million for the
year ended December 31, 1998 provides for taxes on profits earned from
capacity sales and operations, administration and maintenance revenue where
Global Crossing Ltd.'s subsidiaries have a presence in taxable jurisdictions.
During the period from March 19, 1997 (Date of Inception) to December 31,
1997, Global Crossing Ltd. incurred operating losses, which relate to non-
taxable jurisdictions and therefore cannot be applied against future taxable
earnings. Accordingly, no tax provision or deferred tax benefit was recorded
as of December 31, 1997.
Extraordinary item. During May 1998, Global Crossing Ltd. recognized an
extraordinary loss of $20 million in connection with the repurchase of Global
Telesystem Holdings' outstanding senior notes, comprising a premium of $10
million and a write-off of $10 million of unamortized deferred financing
costs.
Net loss. Global Crossing Ltd. incurred a net loss of $88 million for the
year ended December 31, 1998, compared to a net loss of $0.2 million in the
period from March 19, 1997 (Date of Inception) to December 31, 1997. The net
loss for the year ended December 31, 1998 reflects an extraordinary loss on
retirement of the Global Telesystems Holdings' senior notes of $20 million and
a non-recurring charge of $140 million relating to the termination of the
advisory services agreement. Global Crossing Ltd.'s net income before these
items was $72 million.
82
<PAGE>
Preferred stock dividends. During the year ended December 31, 1998, Global
Crossing Ltd. recorded preferred stock dividends of approximately $13 million.
Preferred stock dividends for the period from March 19, 1997 (Date of
Inception) to December 31, 1997 were $13 million. Of the $13 million recorded
in 1998, $4 million relates to the Global Crossing Holdings preferred stock
issued during December 1998.
Redemption of preferred stock. The redemption of GTH's outstanding
preferred stock occurred in June 1998 and resulted in a $34 million charge
against equity. This amount was comprised of a $16 million redemption premium
and a write-off of $18 million of unamortized discount and issuance costs. The
redemption premium and write-off of unamortized discount and issuance costs
are treated as a deduction to arrive at net loss applicable to common
shareholders in the consolidated statements of operations.
Net loss applicable to common shareholders. During the year ended December
31, 1998, Global Crossing Ltd. reported a net loss applicable to common
shareholders of $135 million. This loss reflects preferred stock dividends of
$13 million and the redemption cost of Global Telesystems Holdings preferred
stock of $34 million. During the period from March 19, 1997 (Date of
Inception) to December 31, 1997, Global Crossing Ltd. incurred a net loss
applicable to common shareholders of $13 million after Global Telesystems
Holdings preferred stock dividends of $13 million.
Adjusted EBITDA. Adjusted EBITDA was $1,151 million for the twelve months
ended December 31, 1998. The increase in Adjusted EBITDA is due to an increase
in revenues, partially offset by an increase in operating expenses. 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. Global Crossing Ltd. presents Adjusted EBITDA because it is a
financial indicator used by investors and analysts to analyze and compare
companies on the basis of operating performance and because it believes that
Adjusted EBITDA is an additional, meaningful measure of performance and
liquidity. Global Crossing Ltd.'s management uses Adjusted EBITDA to monitor
its compliance with its financial covenants and to understand the financial
indicators investors and analysts are using to measure its performance. 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.
Liquidity and Capital Resources
Global Crossing Ltd. estimates the total remaining cost of developing and
deploying the announced systems on the Global Crossing Network to be
approximately $4 billion, excluding costs of potential future upgrades. The
remaining financing needed to complete the Global Crossing Network and to fund
working capital requirements is expected to be obtained from issuances of
common or preferred stock, bank financing or through other corporate
financing. Some of this financing is expected to be incurred by wholly-owned
subsidiaries or joint venture companies as well as by Global Crossing Ltd.
In April 2000, Global Crossing Ltd. issued 21,673,706 shares of its common
stock for net proceeds of approximately $694 million and 4,000,000 shares of 6
3/4% cumulative convertible preferred stock at a liquidation preference of
$250 for net proceeds of approximately $970 million. In May 2000, pursuant to
an over-allotment option held by the underwriters of the preferred stock,
Global Crossing Ltd. issued an additional 600,000 shares of 6 3/4% cumulative
convertible preferred stock for net proceeds of approximately $146 million.
On December 15, 1999, Global Crossing issued $650 million aggregate
liquidation preference of 7% cumulative convertible preferred stock. The
preferred stock is convertible into common stock of Global Crossing based upon
a conversion price of $53.25 per share.
83
<PAGE>
On November 24, 1999 Global Crossing Ltd. entered into a GBP 675 million
(approximately $1,091 million as of December 31, 1999) credit facility to
finance the acquisition of Racal Telecom. As of December 31, 1999, Global
Crossing Ltd. had an outstanding balance of $646 million under the Racal Term
Loan A.
On November 12, 1999, Global Crossing Holdings Ltd. issued $1.1 billion in
aggregate principal amount of its 9 1/2% Senior Notes Due 2009, and $0.9
billion in aggregate principal amount of its 9 1/8% Senior Notes Due 2006. The
proceeds were partially used to pay down the term loans under Global Crossing
Ltd.'s Corporate Credit Facility.
On November 5, 1999, Global Crossing Ltd. issued $1.0 billion liquidation
preference of 63/8% cumulative convertible preferred stock. The preferred
stock is convertible into common stock of Global Crossing based upon a
conversion price of $45.00 per share.
On July 2, 1999, Global Crossing Ltd. entered into a $3 billion senior
secured corporate credit facility with a group of several lenders and The
Chase Manhattan Bank as administrative agent. The initial proceeds under the
facility were used to refinance outstanding balances under the Atlantic
Crossing and Mid-Atlantic Crossing project finance facilities, to refinance
balances under a vendor financing arrangement with Lucent, to refinance debt
used for the purchase of the Global Marine business from Cable and Wireless
and for general corporate purposes. As of December 31, 1999, Global Crossing
Ltd. had a remaining available balance of $308 million under the senior
secured corporate credit facility. In connection with the issuance of the
Senior Notes Due 2006 and the Senior Notes Due 2009, a portion of the proceeds
were used to pay down the term loans under the Corporate Credit Facility.
Global Crossing Ltd. has extended limited amounts of financing to customers
in connection with certain capacity sales. The financing terms provide for
installment payments of up to four years. Global Crossing Ltd. believes that
its extension of financing to its customers will not have a material effect on
Global Crossing Ltd.'s liquidity.
Cash provided by (used in) operating activities was $240 million and
$(19) million for the three months ended March 31, 2000 and 1999,
respectively. The balances principally represent cash received from capacity
sales and interest income received, less sales and marketing, network
development and general and administrative expenses paid.
Cash used in investing activities was $1,031 million and $158 million for
the three months ended March 31, 2000 and 1999, respectively. The balances
represent cash paid for construction in progress, purchases of property and
equipment and investments in affiliates.
Cash provided by financing activities was $408 million for the three months
ended March 31, 2000 and primarily represents borrowings under the senior
secured corporate facility, proceeds from the issuance of common stock and a
decrease in restricted cash and cash equivalents, partially offset by
repayments of borrowings under long term debt and payment of dividends on
preferred stock. Cash used in financing activities was $65 million for the
three months ended March 31, 1999 and primarily relates to repayments of
borrowings under the Atlantic Crossing credit facility and the increase in
restricted cash and cash equivalents.
Cash provided by operating activities was $506 million and $209 million for
the years ended December 31, 1999 and 1998, respectively. the balances
principally represent cash received from capacity sales, and interest income
received, less sales and marketing, network development, general and
administrative and interest expenses paid.
Cash used in investing activities was $4,010 million and $431 million for
the years ended December 31, 1999 and 1998, respectively, and represents cash
paid for construction in progress, acquisitions (net of cash acquired),
purchases of property, plant and equipment and cash investments in affiliates.
84
<PAGE>
Cash provided by financing activities was $4,331 million for the year ended
December 31, 1999 and primarily represents borrowings under the senior secured
corporate facility, issuance of senior notes and proceeds from the issuance of
preferred stock, partially offset by repayments of borrowings under long term
debt. Cash provided by financing activities was $1,027 million for the year
ended December 31, 1998 and primarily relates to proceeds from borrowings
under the Atlantic Crossing and Mid-Atlantic Crossing credit facilities,
proceeds from the issuance of Global Crossings Holdings senior notes, the
Global Crossing Holdings preferred stock and Global Crossing Ltd.'s initial
public offering of common stock, less amounts paid to finance and organization
costs, the issuance of common preferred stock, the repayment of long term
debt, the redemption of Global Telesystems Holdings' preferred stock, the
retirement of Global Telesystems Holdings' senior notes and the increase in
amounts held in restricted cash and cash equivalents.
Global Crossing Ltd. has a substantial amount of indebtedness. Based upon
the current level of operations, management believes that Global Crossing
Ltd.'s cash flows from operations, together with available borrowings under
its credit facility, and its continued ability to raise capital, will be
adequate to meet Global Crossing Ltd.'s anticipated requirements for working
capital, capital expenditures, acquisitions and other discretionary
investments, interest payments and scheduled principal payments for the
foreseeable future. There can be no assurance, however, that Global Crossing
Ltd.'s business will continue to generate cash flow at or above current levels
or that currently anticipated improvements will be achieved. If Global
Crossing Ltd. is unable to generate sufficient cash flow and raise capital to
service its debt, Global Crossing Ltd. may be required to reduce capital
expenditures, refinance all or a portion of its existing debt or obtain
additional financing.
Subsequent Events
Global Crossing Ltd. and its subsidiary, South American Crossing (Subsea)
Ltd., filed a lawsuit, on May 22, 2000, against Tyco Submarine Systems Ltd.,
in the United States District Court for the Southern District of New York.
Global Crossing's complaint alleges fraud, theft of trade secrets, breach of
contract, and defamation related to Tyco's agreements to install the South
American Crossing fiber-optic cable system. In addition, Global Crossing's
subsidiary, Atlantic Crossing Ltd., together with certain of its affiliates,
filed arbitration claims against Tyco for breaches of its obligations in
connection with various contracts for the development of its Atlantic
Crossing-1 fiber-optic cable system. We do not believe that the commencement
of these actions will have an impact on Global Crossing's network and/or the
timely completion of any of its systems. Global Crossing Ltd. has contracted
with a diverse group of major suppliers for the construction of its announced
systems, including Alcatel, Bestel, Global Marine System, ImpSat, KDD/SCS,
Lucent, Nortel and Tyco. With respect to the announced segments of the Global
Crossing network, Tyco is under contract with Global Crossing for slightly
more than five percent of the remaining work to achieve completion. Tyco is
still completing work under contracts with Global Crossing Ltd. for two of its
cable systems which are scheduled to be completed this year. Tyco has also
contracted with Level3 for Atlantic Crossing-2, a transatlantic cable that
will be 50% owned by Global Crossing. Global Crossing expects Tyco to fulfill
its obligations under those contracts, and will be vigilant about protecting
its interests in these projects.
85
<PAGE>
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
description below is a summary and is qualified in its entirety by reference
to the policy statement. 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, pursuant to which matters will be resolved in an
equitable and impartial manner.
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.
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 Global Crossing Ltd.'s board of
directors and the capital stock committee will act in a manner consistent with
their fiduciary duty to consider whether a proposed action is in the best
interests of Global Crossing Ltd. and all of its shareholders pursuant to
legal guidance concerning these fiduciary 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
86
<PAGE>
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.
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.
87
<PAGE>
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 between the Global Crossing group and the
GlobalCenter group which are determined by Global Crossing Ltd.'s board of
directors to be in the ordinary course of business, including those described
above in "Exclusive Provision of Services," are intended, to the extent
practicable, to be on terms consistent with those that would be applicable to
arm's-length dealings with unrelated third parties, taking into account a
number of factors, including quality, availability, volume and pricing. In
particular, the pricing for the access to its network provided by the Global
Crossing group to the GlobalCenter group will be preferred market-based
pricing, taking into account volume, term, and the exclusive nature of the
arrangement and any guarantee of service levels provided by the Global
Crossing group.
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.
Transfers of Other Assets and Liabilities
The board of directors of Global Crossing Ltd. may, at any time and without
shareholder approval, reallocate assets (including cash) and liabilities
between the Global Crossing group and the GlobalCenter group in addition to
transfers resulting from commercial transactions which Global Crossing Ltd.'s
board of directors determines to be 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. For these
purposes, the fair value of the assets or liabilities transferred will be
determined by the board of directors of Global Crossing Ltd. in its sole
discretion. 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
88
<PAGE>
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. As of March 31,
2000, the weighted average interest rate of the consolidated indebtedness of
Global Crossing Ltd. was approximately 12%.
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.
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
89
<PAGE>
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 members of
GlobalCenter Inc.'s board of directors will have a fiduciary duty to consider
whether a proposed action is in the best interests of Global Crossing Ltd. and
will not have a separate fiduciary duty to holders of GlobalCenter group
stock. The board of directors of GlobalCenter Inc. will have the authority to:
. appoint officers of GlobalCenter Inc.;
. approve the budget of the GlobalCenter group;
. approve any acquisitions of businesses that are attributed to the
GlobalCenter group;
. approve the incurrence of indebtedness at GlobalCenter Inc. of up to 25%
of the market capitalization of GlobalCenter group stock; and
. approve the issuance of capital stock of GlobalCenter Inc. or the
issuance of GlobalCenter group stock by Global Crossing Ltd.
With respect to the last three items, the board of directors of
GlobalCenter Inc. will only have such authority to the extent that such
actions would not have any adverse effect on Global Crossing Ltd.
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.
90
<PAGE>
Under the tax sharing agreement, Global Crossing North America will have
the sole and exclusive responsibility for (1) preparing all Consolidated
Returns; (2) representing GlobalCenter Inc. and its subsidiaries in any tax
audit or tax contest relating to the Consolidated Returns; and (3) engaging
outside tax counsel or other tax advisors in connection with such tax audits
or tax contests. GlobalCenter Inc. will reimburse Global Crossing North
America for its share of reasonable expenses that are incurred by Global
Crossing North America in connection with such tax audits or tax contests.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the tax sharing agreement allocates tax liabilities
between GlobalCenter Inc. and Global Crossing North America, during the period
in which GlobalCenter Inc. and its subsidiaries are included in the federal
income tax consolidated returns filed by Global Crossing North America,
GlobalCenter Inc. could be liable in the event that any federal income tax
liability is incurred, but not discharged, by any other entity included in
those returns. Global Crossing North America is required, under the terms of
the tax sharing agreement, to indemnify GlobalCenter Inc. for any tax
liability of Global Crossing North America or its subsidiaries that
GlobalCenter Inc. must pay to a taxing authority, except to the extent that
such tax liability is attributable to GlobalCenter Inc. and GlobalCenter Inc.
has not yet made a corresponding tax sharing payment to Global Crossing North
America.
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.
91
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a description of the material terms of capital stock of
Global Crossing Ltd. 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 April 24 2000, (1) 817,653,894 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, (4) 400,000
shares of 6 3/8% cumulative convertible preferred stock, series B, and (5)
4,600,000 shares of 6 3/4% cumulative convertible preferred stock 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
shares of common stock and 25,000,000 shares of preferred stock, and
allow its board of directors to designate Global Crossing Ltd.'s existing
common stock into two or more classes of common stock, to approve the
terms of the Global Crossing group stock and GlobalCenter group stock and
redesignate its outstanding common stock as Global Crossing 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
92
<PAGE>
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 (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
233,500,000.
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;
93
<PAGE>
. 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
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.
94
<PAGE>
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.
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.
95
<PAGE>
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 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 then outstanding 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 then outstanding 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.
96
<PAGE>
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
. the average market value for the 20-trading day valuation period was $40
for Global Crossing group stock;
97
<PAGE>
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;
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 stock $40 per share GlobalCenter group
average market value of stock
Global Crossing group
stock
x 200 million =
outstanding 250 million votes
= 38.5% of total
1.25 votes per voting
share of power held by
shares of GlobalCenter
GlobalCenter group group stock
GlobalCenter group stock
stock
98
<PAGE>
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. would then calculate the maximum number of votes per
share of GlobalCenter group stock as follows:
x 133,333,333 0.667 votes per share
the number of shares of GlobalCenter
= 200,000,000 = of GlobalCenter group
group stock outstanding 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 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.
99
<PAGE>
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.
The premiums described above that are provided upon any conversion of
GlobalCenter group stock are intended for the protection of the holders of
that class of stock since a decision by Global Crossing Ltd. to convert that
stock may be made without the consent of the holders of GlobalCenter group
stock. The decrease in the premium from 20% to 10% over the first two years
the GlobalCenter group stock is outstanding is intended to allow greater
flexibility to Global Crossing Ltd. in using these provisions over time.
Provisions similar to these, with comparable declining premiums, are included
in the terms of tracking stocks of other public companies that have issued
tracking stock. Accordingly, we believe these premiums are necessary in order
for us to be able to successfully market the GlobalCenter group stock in the
offering, while balancing the need for Global Crossing Ltd. to maintain
flexibility in its capital structure.
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;
100
<PAGE>
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 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.
101
<PAGE>
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;
. 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
102
<PAGE>
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.
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
would 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:
outstanding x the number of shares of common stock of that
= shares
interest fraction of
GlobalCenter
group
subsidiary
GlobalCenter group subsidiary that will be
outstanding immediately after the repurchase
0.10 x 100 million = 10 million
shares
As a result of the Global Crossing group's 90% inter-group interest, Global
Crossing Ltd. would 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 51st 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
103
<PAGE>
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 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 51st 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 120th
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 determines will have an aggregate value
of not less than the fair value of the net proceeds. For these purposes, (1)
the fair value of securities that have been publicly traded for a period of at
least will equal the market value of the securities, if determinable and
(2) the fair value of securities that have been publicly traded for a period
of less than , securities for which the market value is not determinable
and property other than cash or securities will be determined in good faith by
Global Crossing Ltd.'s board of directors. Global Crossing Ltd.'s board of
directors will not be required to obtain a third party fairness opinion in
connection with this determination.
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
104
<PAGE>
. 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
As a result of the Global Crossing group's 90% inter-group interest, Global
Crossing Ltd. would 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 = shares of Global Crossing group stock
average market value of
Global Center group stock
average market value of
Global Crossing group stock
1.1x$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.
105
<PAGE>
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;
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.
106
<PAGE>
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.
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 a number of liquidation
units equal to the quotient of the average market value of a share of
GlobalCenter group stock over the 20-trading day period ending on the
40th trading day after the initial issuance of the GlobalCenter group
stock, divided by the average market value of a share of Global Crossing
group stock over the same period; and
107
<PAGE>
. 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.
After the number of liquidation units to which each share of GlobalCenter
group stock is entitled has been calculated in accordance with this formula,
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.
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."
108
<PAGE>
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."
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.
109
<PAGE>
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.
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
110
<PAGE>
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 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.
111
<PAGE>
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.
112
<PAGE>
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. Specifically, if the proposal
is enacted, holders of GlobalCenter group stock could be taxed on the receipt
of GlobalCenter group stock or Global Crossing group stock distributed as a
dividend or Global Crossing group stock distributed in exchange for your
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 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.
113
<PAGE>
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 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.
114
<PAGE>
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.
. 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,
115
<PAGE>
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 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
116
<PAGE>
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
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.
117
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, the underwriters named below, for whom 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. and
Gerard Klauer Mattison Co., Inc. are acting as representatives, 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.......................................
Gerard Klauer Mattison & Co., Inc..............................
----------
Total........................................................ 57,500,000
==========
</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 8,625,000 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
118
<PAGE>
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.
A prospectus in electronic format will be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
Morgan Stanley Dean Witter Online, Inc., an affiliate of Morgan Stanley & Co.
Incorporated, will be distributing shares of GlobalCenter group stock over the
Internet to their respective eligible account holders.
Each of Global Crossing Ltd. and the directors and executive officers of
GlobalCenter Inc. 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
119
<PAGE>
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.
Global Crossing Ltd. and the underwriters have agreed to indemnify each
other against 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 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 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
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.
120
<PAGE>
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 Inc. Shearman & Sterling, San Francisco,
California will pass upon certain legal matters for the underwriters.
EXPERTS
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 are included in this prospectus, 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 Ltd. and its
subsidiaries included in this prospectus 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.
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.
121
<PAGE>
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 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 Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000;
. 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; March 3, 2000; and May 10, 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
after the date of this prospectus 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.
122
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOBAL CENTER GROUP (AN INTEGRATED BUSINESS OF GLOBAL CROSSING LTD.)
Report of Independent Public Accountants.................................. F-2
Combined Balance Sheets................................................... F-3
Combined Statements of Operations and Comprehensive Income................ F-4
Combined Statements of Group Net Worth.................................... F-5
Combined Statements of Cash Flows......................................... F-6
Notes to Combined Financial Statements.................................... F-7
GLOBAL CROSSING LTD. AND SUBSIDIARIES
Report of Independent Public Accountants.................................. F-20
Consolidated Balance Sheets as of December 31, 1999 and 1998.............. F-21
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998 and for the period March 19, 1997 (Date of Inception) to
December 31, 1997........................................................ F-22
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999 and 1998 and for the period March 19, 1997 (Date of
Inception) to December 31, 1997.......................................... F-23
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998 and for the period March 19, 1997 (Date of Inception) to
December 31, 1997........................................................ F-24
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999 and 1998 and for the period March 19, 1997 (Date of
Inception) to December 31, 1997.......................................... F-26
Notes to Consolidated Financial Statements................................ F-27
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999.................................................. F-61
Condensed Consolidated Balance Sheets as of March 31, 2000 and December
31, 1999................................................................. F-62
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999.................................................. F-63
Condensed Consolidated Statements of Comprehensive Income for the three
months ended December 31, 2000 and 1999.................................. F-65
Notes to Condensed Consolidated Financial Statements...................... F-66
</TABLE>
The GlobalCenter group is an integrated business of Global Crossing Ltd.
and is not a separate legal entity. The holders of GlobalCenter group stock
and Global Crossing group stock will be shareholders of a single company,
Global Crossing Ltd. The GlobalCenter group stock is a 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 that does not reflect direct ownership of the tracked assets. The
issuance of GlobalCenter group stock and the allocation of assets and
liabilities 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 Global Crossing
Ltd.'s ownership of the assets or responsibility for its liabilities or those
of its subsidiaries. The assets attributed to the GlobalCenter group are owned
by Global Crossing Ltd. and could be subject to the liabilities of Global
Crossing group. The liabilities attributed to GlobalCenter group continue to
be liabilities of Global Crossing Ltd. The Global Crossing Ltd. board of
directors will have the ability to control transfers of funds or other assets
between the Global Crossing group and the GlobalCenter group. The financial
statements of the GlobalCenter group are presented to provide additional
disclosure to investors related to the underlying business that will be
tracked by the GlobalCenter group stock. Management intends to continue
providing audited financial statements prepared in accordance with generally
accepted accounting principles for the GlobalCenter group as long as the
GlobalCenter group stock is outstanding.
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 and comprehensive income, group net worth 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. 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
(An integrated business of Global Crossing Ltd.)
COMBINED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter
---------------- -----------------------
December 31, March 31,
--------------------------- -----------
1998 1999 2000
---------------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of
allowance for doubtful accounts of
$975, $1,379 and $2,878,
respectively....................... $ 6,492 $ 18,811 $ 30,309
Equipment held for resale........... 773 6,941 10,019
Prepaid expenses and other current
assets............................. 300 2,825 1,555
Deferred tax asset.................. 2,393 2,926 3,503
-------- ---------- ----------
Total current assets................ 9,958 31,503 45,386
-------- ---------- ----------
Property and equipment, net........... 30,372 116,315 162,241
Goodwill and intangibles, net......... 7,470 1,448,265 1,411,130
Investment............................ -- -- 9,871
Other assets.......................... 221 -- --
-------- ---------- ----------
Total assets........................ $ 48,021 $1,596,083 $1,628,628
======== ========== ==========
LIABILITIES AND GROUP NET WORTH
Current liabilities:
Capital lease obligations........... $ 404 $ 374 $ 398
Accounts payable.................... 5,995 28,046 44,657
Other current liabilities........... 5,099 8,514 12,784
-------- ---------- ----------
Total current liabilities........... 11,498 36,934 57,839
-------- ---------- ----------
Capital lease obligations, net of
current portion...................... 586 194 90
Long-term deferred tax liability...... -- 28,316 28,108
Other liabilities..................... -- 494 1,033
-------- ---------- ----------
Total liabilities................... 12,084 65,938 87,070
-------- ---------- ----------
Group net worth:
Funds allocated by Frontier
Corporation/Global Crossing Ltd.... 49,439 1,572,870 1,625,440
Other comprehensive income.......... -- -- (77)
Accumulated net losses.............. (13,502) (42,725) (83,805)
-------- ---------- ----------
Total group net worth............... 35,937 1,530,145 1,541,558
-------- ---------- ----------
Total liabilities and group net
worth................................ $ 48,021 $1,596,083 $1,628,628
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts in thousands)
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter Old GlobalCenter New GlobalCenter
-------------------------------- ---------------- ---------------- ----------------
Year Ended Nine Months Three Months
December 31, Ended Ended Three Months Ended March 31,
----------------- September 30, December 31, ---------------------------------
1997 1998 1999 1999 1999 2000
------- -------- ------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service revenues....... $ 6,511 $ 19,600 $ 29,951 $ 17,753 $ 6,451 $ 24,562
Equipment revenues..... 1,228 3,640 17,228 5,971 4,496 13,747
------- -------- -------- -------- ------- --------
Total revenues........ 7,739 23,240 47,179 23,724 10,947 38,309
Costs and expenses:
Cost of service
revenues.............. 5,257 14,804 36,451 17,328 9,363 21,442
Cost of equipment
revenues.............. 995 3,208 15,573 5,365 4,057 13,089
Sales and marketing.... 1,966 8,948 9,531 6,088 2,110 6,455
General and
administrative........ 2,044 4,694 6,897 3,067 1,216 5,835
Depreciation and
amortization.......... 912 4,023 4,242 1,913 1,103 3,155
Goodwill and
intangibles
amortization.......... 325 1,294 974 37,135 324 37,135
Merger costs........... -- 2,060 -- -- -- --
------- -------- -------- -------- ------- --------
Total costs and
expenses.............. 11,499 39,031 73,668 70,896 18,173 87,111
------- -------- -------- -------- ------- --------
Loss from operations... (3,760) (15,791) (26,489) (47,172) (7,226) (48,802)
Other income (expense),
net................... 45 55 (44) 114 (18) (211)
------- -------- -------- -------- ------- --------
Loss before income
taxes................. (3,715) (15,736) (26,533) (47,058) (7,244) (49,013)
Income tax benefit..... 941 4,911 9,742 4,333 2,660 7,933
------- -------- -------- -------- ------- --------
Net loss............... $(2,774) $(10,825) $(16,791) $(42,725) $(4,584) $(41,080)
------- -------- -------- -------- ------- --------
Other comprehensive
earnings, net of
taxes:
Unrealized holding
losses arising during
period................ -- -- -- -- -- (77)
------- -------- -------- -------- ------- --------
Comprehensive loss..... $(2,774) $(10,825) $(16,791) $(42,725) $(4,584) $(41,157)
======= ======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
COMBINED STATEMENTS OF GROUP NET WORTH
(Amounts in thousands)
<TABLE>
<CAPTION>
Funds Allocated by
Frontier Other Total
Corporation/Global Comprehensive Accumulated Group Net
Crossing Ltd. Income Net Losses Worth
------------------ ------------- ----------- ----------
<S> <C> <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)
Funds allocated by
Frontier
Corporation, net .. 36,811 -- -- 36,811
---------- ----- -------- ----------
Balance at December
31, 1998............. 49,439 -- (13,502) 35,937
Net loss............ -- -- (16,791) (16,791)
Funds allocated by
Frontier
Corporation, net .. 31,267 -- -- 31,267
---------- ----- -------- ----------
Balance at September
30, 1999............. $ 80,706 $ -- $(30,293) $ 50,413
========== ===== ======== ==========
New GlobalCenter
Net loss............ $ -- $ -- $(42,725) $ (42,725)
Funds allocated by
Global Crossing
Ltd., net.......... 71,025 -- -- 71,025
Contribution from
Global Crossing
Ltd................ 1,501,845 -- -- 1,501,845
---------- ----- -------- ----------
Balance at December
31, 1999............. $1,572,870 $ -- $(42,725) $1,530,145
========== ===== ======== ==========
Unrealized loss on
available for sale
securities, net of
$52 tax
(unaudited)........ -- (77) -- (77)
Net loss
(unaudited)........ -- -- (41,080) (41,080)
Funds allocated by
Global Crossing
Ltd., net
(unaudited)........ 52,570 -- -- 52,570
---------- ----- -------- ----------
Balance March 31, 2000
(unaudited).......... $1,625,440 $ (77) $(83,805) $1,541,558
========== ===== ======== ==========
</TABLE>
The accompanying notes are an integrated part of these combined financial
statements
F-5
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
COMBINED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Old New
Old GlobalCenter New GlobalCenter GlobalCenter GlobalCenter
---------------------------------- ---------------- ------------ ------------
Year Ended Nine Months Three Months Three Months
December 31, Ended Ended Ended March 31,
------------------- September 30, December 31, -------------------------
1997 1998 1999 1999 1999 2000
-------- --------- ------------- ---------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net loss............... $ (2,774) $ (10,825) $ (16,791) $ (42,725) $ (4,584) $(41,080)
Adjustments to
reconcile net loss to
net cash (used in)
from operating
activities
Depreciation and
amortization.......... 912 4,023 4,242 1,913 1,103 3,155
Goodwill and
intangibles
amortization.......... 325 1,294 974 37,135 324 37,135
Deferred income taxes.. (888) (2,049) 983 (2,279) 299 (730)
Changes in operating
assets and liabilities
net of the effects of
acquisitions:
Accounts receivable.... (949) (4,047) (11,346) (973) (1,146) (11,498)
Prepaid expenses and
other assets.......... (93) 335 (1,602) (923) (1,135) 1,270
Equipment held for
resale................ -- (704) 177 (6,345) (1,210) (3,078)
Accounts payable and
accrued liabilities... 320 6,221 13,306 12,654 2,329 21,420
-------- --------- --------- ----------- -------- --------
Net cash (used in) from
operating activities... (3,147) (5,752) (10,057) (1,543) (4,020) 6,594
-------- --------- --------- ----------- -------- --------
Investing activities:
Purchases of property
and equipment......... (1,853) (28,978) (20,871) (69,399) (4,891) (49,084)
Investment............. -- -- -- -- -- (10,000)
Cash from acquisition.. 568 -- -- -- -- --
-------- --------- --------- ----------- -------- --------
Net cash used in
investing activities... (1,285) (28,978) (20,871) (69,399) (4,891) (59,084)
-------- --------- --------- ----------- -------- --------
Financing activities:
Payments on capital
leases and debt....... (90) (2,573) (339) (83) (132) (80)
Proceeds from issuance
of debt............... 1,937 -- -- -- -- --
Funds allocated by
Frontier
Corporation/Global
Crossing Ltd., net.... -- 36,811 31,267 71,025 9,043 52,570
-------- --------- --------- ----------- -------- --------
Net cash from financing
activities............. 1,847 34,238 30,928 70,942 8,911 52,490
-------- --------- --------- ----------- -------- --------
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
(An integrated business of Global Crossing Ltd.)
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 the Offering, the Global Crossing group
will hold a 100% interest in the earnings and losses of the GlobalCenter
group. GlobalCenter Inc., together with its subsidiaries in the United Kingdom
and Australia, is an indirect wholly owned subsidiary of Global Crossing and
owns all of the operating assets and liabilities of the GlobalCenter group.
The goodwill and other intangible assets of the GlobalCenter group are owned
by GlobalCenter Holding Co., an indirect wholly owned subsidiary of Global
Crossing. 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 net worth 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 net worth 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 funds allocated
by Frontier and Global Crossing to Old GlobalCenter and New GlobalCenter,
respectively, are included with accumulated losses in group net worth. The
assets attributed to the GlobalCenter group are owned by Global Crossing Ltd.
and could be subject to the liabilities of Global Crossing group. The
liabilities attributed to GlobalCenter group continue to be liabilities of
F-7
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Global Crossing Ltd. The Global Crossing Ltd. Board of Directors will have the
ability to control transfers of funds or other assets between the Global
Crossing group and the GlobalCenter group. The financial statements of the
GlobalCenter group are presented to provide additional disclosure to investors
related to the underlying business that will be tracked by the GlobalCenter
group stock. Management intends to continue providing audited financial
statements prepared in accordance with generally accepted accounting
principles for the GlobalCenter group as long as the GlobalCenter group stock
is outstanding.
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, 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
Interim Financial Data
The combined financial statements for the three months ended March 31, 1999
and 2000 and the related amounts in the Notes to Combined Financial Statements
are unaudited, but, in the opinion of management, reflect all normal and
recurring adjustments necessary for a fair presentation of the results of
those periods. Operating results for the three months ended March 31, 2000 are
not necessarily an indication of the results that may be expected for the year
ended December 31, 2000.
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.
F-8
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Investment
As of March 31, 2000, the GlobalCenter Group's investment consisted of a
single investment in marketable equity securities classified as available for
sale. Accordingly, the investment is recorded at its fair value with any
unrealized holding gains or losses reported as other comprehensive income. Any
decline in value, which is other than a temporary decline, is charged
immediately to earnings in the period in which the impairment occurs. As of
March 31, 2000, the Company's investment had a fair value of $9.9 million, a
cost basis of $10 million and an unrealized loss before tax benefit of $0.1
million.
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 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, investment,
accounts payable, accrued liabilities and capital leases approximate their
fair value.
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, Unaudited
----------------------- March 31,
1998 1999 2000
---------------- ------ ---------
(Amounts in thousands)
<S> <C> <C> <C>
Accrued professional fees................ $1,250 $2,000 $ 2,060
Accrued benefits, compensation and re-
lated taxes............................. 1,596 3,627 5,309
Other.................................... 2,253 2,887 5,415
------ ------ -------
Total other current liabilities........ $5,099 $8,514 $12,784
====== ====== =======
</TABLE>
Income Taxes
Beginning with the acquisition by Frontier Corporation of GlobalCenter
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
F-9
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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.
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 monthly
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
F-10
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which is required to be adopted by Global Crossing Ltd. in the
quarter ending June 30, 2000. SAB 101 provides additional guidance on revenue
recognition as well as criteria for when revenue is generally realized and
earned. Management is currently assessing the impact of SAB 101 on the results
of operations and financial position of the GlobalCenter group and Global
Crossing group, respectively. Management does not expect the effects of SAB
101 to have a material effect on the accompanying financial statements of the
GlobalCenter group.
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.
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
Cash Management
Prior to the merger with Frontier, GlobalCenter Inc. maintained its own
cash management function. Old GlobalCenter utilized the central cash
management systems of Frontier. New GlobalCenter utilizes the central cash
management of Global Crossing. Under a centralized cash management system, no
cash balances are maintained at a subsidiary level. As a subsidiary of Global
Crossing, GlobalCenter Inc. maintains no cash balances and no cash has been
allocated to the GlobalCenter group in the accompanying combined financial
statements. Historically, Global Crossing Ltd. determined the amount of
funding provided to the GlobalCenter group based on actual cash used for
capital and operating expenses, net of GlobalCenter cash receipts. Such
funding has been recorded as funds allocated by Frontier Corporation/Global
Crossing Ltd. in the accompanying combined financial statements. Funds
required by the GlobalCenter group are subject to the ongoing approval and
budgeting processes of Global Crossing Ltd. All proceeds from the Offering
will be allocated to the GlobalCenter group. The GlobalCenter group will
continue to utilize the cash management systems of Global Crossing Ltd. to
manage the offering proceeds allocated to the GlobalCenter group.
Corporate Allocations
The direct operating expenses of the GlobalCenter Group, such as network
costs, are charged directly to the GlobalCenter group. The GlobalCenter group
is allocated a portion of corporate overhead costs. For the year ended
December 31, 1997, Old GlobalCenter operated on a standalone basis and no
corporate allocation costs were recorded in the statement of operations.
F-11
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The following table summarizes corporate charges and allocations included
in the accompanying combined financial statements.
<TABLE>
<CAPTION>
Old GlobalCenter New GlobalCenter Old GlobalCenter New GlobalCenter
-------------------------- ---------------- ---------------- ----------------
Nine months Three months Unaudited
Year ended ended ended Three months ended March 31,
December 31, September 30, December 31, ---------------------------------
1998 1999 1999 1999 2000
------------ ------------- ---------------- ---------------- ----------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
caption:
Cost of service
revenues............. $ -- $4,722 $1,978 $1,128 $2,322
General and
administrative....... 1,284 1,740 867 580 952
------ ------ ------ ------ ------
Total corporate
charges and
allocations.......... $1,284 $6,462 $2,845 $1,708 $3,274
====== ====== ====== ====== ======
</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.
Management believes that the historical corporate charges and allocations are
comparable to the expected future allocations. 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. Following the completion of the Offering, the
GlobalCenter group's IP transit capacity will be provided by the Global
Crossing group based on preferred market-based pricing, taking into account
volume, term and the exclusive nature of the arrangement and any guarantee of
service levels provided by the Global Crossing group. The GlobalCenter group
will pay for access based on actual usage.
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 headcount,
square footage and revenue, depending on the type of cost to be allocated.
Policy Statement Between the Global Crossing Group and the GlobalCenter Group
The Board of Directors of Global Crossing Ltd. has fiduciary duties to all
shareholders of Global Crossing Ltd., and not separate fiduciary duties to the
holders of GlobalCenter group stock and Global Crossing group stock. The Board
of Directors of Global Crossing Ltd. has adopted a policy statement regarding
GlobalCenter group and Global Crossing group matters. Global Crossing Ltd.'s
Board of Directors may amend, modify or rescind the policies set forth in this
policy statement at any time at the sole discretion of the Global Crossing
Ltd.'s Board of Directors and without shareholder approval. 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
F-12
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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 which are determined by Global Crossing Ltd.'s
Board of Directors to be 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.
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.
F-13
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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, GlobalCenter Inc. acquired approximately
229,000 shares of Tanning common stock for an aggregate purchase price of $10
million based on the fair market value of Tanning's stock on that date. This
investment represents less than 2% of the outstanding shares of Tanning common
stock as of March 31, 2000. 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, Unaudited
------------------------- March 31,
1998 1999 2000
---------------- -------- ---------
(Amounts in thousands)
<S> <C> <C> <C>
Network and computer equipment........ $13,410 $ 16,200 $ 25,822
Furniture and fixtures................ 307 2,143 8,499
Leasehold improvements................ 2,179 20,759 59,150
------- -------- --------
15,896 39,102 93,471
Accumulated depreciation and amortiza-
tion................................. (5,096) (1,913) (5,067)
------- -------- --------
10,800 37,189 88,404
Construction in progress.............. 19,572 79,126 73,837
------- -------- --------
Total property and equipment, net... $30,372 $116,315 $162,241
======= ======== ========
</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, $1.3 million
and $1.4 million at December 31, 1998 and 1999 and March 31, 2000,
respectively. Interest paid on capital lease obligations is not material to
the combined financial statements for all periods presented.
(5) Goodwill and Intangibles, Net
In connection with the acquisition of Frontier Corporation by Global
Crossing Ltd. approximately $1.5 billion of the purchase price was determined
to be the fair value of net assets, goodwill and intangibles related 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
F-14
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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>
March 31,
Estimated Life December 31, 1999 2000
-------------- ---------------------- ----------
(Amounts in thousands) Unaudited
<S> <C> <C> <C>
Customer lists........... 10 years $ 78,000 $ 78,000
Goodwill................. 10 years 1,407,400 1,407,400
---------- ----------
1,485,400 1,485,400
Less accumulated amorti-
zation.................. (37,135) (74,270)
---------- ----------
Goodwill and intangibles,
net..................... $1,448,265 $1,411,130
========== ==========
</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-15
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
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
F-16
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
net deferred income tax asset is dependent on the consolidated tax group, of
which GlobalCenter group is a component, generating taxable income. Although
realization is not assured, management believes it is more likely than not
that the deferred income tax asset at December 31, 1999 will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced if estimates of taxable income in future years are reduced.
(7) Commitments and Contingencies
Lease Commitments
The GlobalCenter group has entered into various lease agreements for office
space and data center facilities. Rent expense was $1.2 million, $3.6 million,
$2.3 million, $3.7 million, $1.3 million, and $1.0 million for the three
months ended March 31, 1999, March 31, 2000 and December 31, 1999, nine months
ended September 30, 1999 and the years ended December 31, 1998 and 1997,
respectively. The GlobalCenter group leases certain equipment under capital
lease arrangements.
A summary of future minimum lease payments under capital and noncancelable
operating lease agreements as of December 31, 1999 are as follows.
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- -------------
(Amounts in thousands)
<S> <C> <C>
Years Ending December 31,
2000........................................... $ 423 $ 12,509
2001........................................... 211 12,133
2002........................................... -- 12,026
2003........................................... -- 12,361
2004........................................... -- 12,843
Thereafter..................................... -- 84,354
--------- -------------
634 $ 146,226
=============
Less amount representing interest................ (66)
---------
Present value of lease payments.................. 568
Current portion of capital leases................ (374)
---------
Noncurrent portion of capital leases............. $ 194
=========
</TABLE>
It is expected that in the normal course of business, leases that expire
generally will be renewed or replaced by leases on other properties; thus, it
is anticipated that future minimum lease commitments will not be less than the
amount shown for 2000.
Other
Management believes that there are no pending or threatened legal
proceedings that, if adversely determined, would have a material adverse
effect on the GlobalCenter group.
F-17
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(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 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 is approximately 27.5 million. 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.
As of March 31, 2000, stock options to purchase approximately 9.6% of
GlobalCenter Inc. common stock or GlobalCenter group stock, subject to
election by the employees, had been approved for grant under the Management
Stock Plan. The aggregate exercise price of such options is approximately $191
million. Upon approval of the Management Stock Plan by the shareholders, the
GlobalCenter group will record deferred stock compensation equal to the
difference between the exercise price and the fair value of shares at the date
of approval. The resulting deferred stock compensation will be amortized in
accordance with the terms of vesting of such options and consistent with the
accounting policy adopted by Global Crossing Ltd.
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 is approximately 13.7 million.
F-18
<PAGE>
GLOBALCENTER GROUP
(An integrated business of Global Crossing Ltd.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
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.
(9) Subsequent Event (Unaudited)
GlobalCenter Asia Joint Venture
In May 2000, Global Center Inc. entered into a Master Joint Venture
Agreement with Asia Global Crossing Ltd. ("AGC"), a joint venture among Global
Crossing Ltd., Microsoft Corporation and Softbank Corp. The purpose of the
joint venture will be to exploit the GlobalCenter business in Asia.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Crossing Ltd.:
We have audited the accompanying consolidated balance sheets of Global
Crossing Ltd. (a Bermuda company) and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity, cash flows and comprehensive income for the years ended December 31,
1999 and 1998 and for the period March 19, 1997 (Date of Inception) to
December 31, 1997. These financial statements and schedule are the
responsibility of the Company's management. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Global Crossing
Ltd. and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years ended December 31, 1999
and 1998 and for the period March 19, 1997 (Date of Inception) to December 31,
1997, in conformity with accounting principles generally accepted in the
United States.
As explained in the Notes to the consolidated financial statements,
effective January 1, 1999, the Company changed its method of accounting for
start-up costs.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and regulations
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
/s/ Arthur Andersen
_________________________________
Arthur Andersen
Hamilton, Bermuda
February 23, 2000
F-20
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................. $ 1,633,499 $ 806,593
Restricted cash and cash equivalents...... 93,294 77,190
Accounts receivable, net.................. 966,973 71,195
Other assets and prepaid costs............ 252,767 21,637
----------- ----------
Total current assets...................... 2,946,533 976,615
Restricted cash and cash equivalents...... 138,118 367,600
Accounts receivable....................... 52,052 43,315
Capacity available for sale............... -- 574,849
Property and equipment, net............... 6,026,053 433,707
Goodwill and intangibles, net............. 9,557,422 --
Investment in and advances to/from
affiliates, net.......................... 323,960 177,334
Other assets.............................. 661,442 65,757
----------- ----------
Total assets.............................. $19,705,580 $2,639,177
=========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs................ $ 275,361 $ 129,081
Accounts payable.......................... 509,866 2,018
Accrued cost of access.................... 154,285 --
Accrued liabilities....................... 280,629 29,972
Accrued interest and preferred dividends.. 66,745 14,428
Deferred revenue.......................... 127,367 44,197
Income taxes payable...................... 140,034 15,604
Current portion of long term debt......... 5,496 6,393
Other current liabilities................. 292,810 14,572
----------- ----------
Total current liabilities................. 1,852,593 256,265
Long-term debt............................ 5,018,544 1,066,093
Deferred revenue.......................... 383,287 25,325
Deferred credits and other................ 796,606 34,174
----------- ----------
Total liabilities......................... 8,051,030 1,381,857
----------- ----------
MINORITY INTEREST.......................... 351,338 --
----------- ----------
MANDATORILY REDEEMABLE AND CUMULATIVE
CONVERTIBLE PREFERRED STOCK:
10 1/2% Mandatorily Redeemable Preferred
Stock, 5,000,000 shares issued and
outstanding as of December 31, 1999 and
1998, $100 liquidation preference per
share.................................... 485,947 483,000
----------- ----------
6 3/8% Cumulative Convertible Preferred
Stock, 10,000,000 and 0 shares issued and
outstanding as of December 31, 1999 and
1998, respectively, $100 liquidation
preference per share..................... 969,000 --
----------- ----------
7% Cumulative Convertible Preferred Stock,
2,600,000 and 0 shares issued and
outstanding as of December 31, 1999 and
1998, $250 liquidation preference per
share.................................... 629,750 --
----------- ----------
SHAREHOLDERS' EQUITY:
Common stock, 3,000,000,000 shares
authorized, par value $.01, 799,137,142
and 432,776,246 shares issued as of
December 31, 1999 and 1998,
respectively............................. 7,992 4,328
Treasury stock, 22,033,758 shares......... (209,415) (209,415)
Additional paid-in capital and other
shareholders' equity..................... 9,578,927 1,067,470
Accumulated deficit....................... (158,989) (88,063)
----------- ----------
9,218,515 774,320
----------- ----------
Total liabilities and shareholders'
equity................................... $19,705,580 $2,639,177
=========== ==========
</TABLE>
See accompanying notes.
F-21
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
REVENUE................. $ 1,664,824 $ 419,866 $ --
----------- ----------- -----------
EXPENSES:
Cost of sales.......... 850,483 178,492 --
Operations,
administration and
maintenance........... 134,266 18,140 --
Sales and marketing.... 152,115 31,748 1,366
Network development.... 33,304 14,204 78
General and
administrative........ 250,202 56,797 1,618
Depreciation and
amortization.......... 124,294 541 39
Goodwill and
intangibles
amortization.......... 127,621 -- --
Termination of advisory
services agreement.... -- 139,669 --
----------- ----------- -----------
1,672,285 439,591 3,101
----------- ----------- -----------
OPERATING LOSS.......... (7,461) (19,725) (3,101)
EQUITY IN INCOME (LOSS)
OF AFFILIATES.......... 15,708 (2,508) --
MINORITY INTEREST....... (1,338) -- --
OTHER INCOME (EXPENSE):
Interest income........ 67,407 29,986 2,941
Interest expense....... (139,077) (42,880) --
Other income, net...... 180,765 -- --
----------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAXES, EXTRAORDINARY
ITEM AND CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE... 116,004 (35,127) (160)
Provision for income
taxes................. (126,539) (33,067) --
----------- ----------- -----------
LOSS BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE.............. (10,535) (68,194) (160)
Extraordinary loss on
retirement of debt.... (45,681) (19,709) --
----------- ----------- -----------
LOSS BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE... (56,216) (87,903) (160)
Cumulative effect of
change in accounting
principle, net of
income tax benefit of
$1,400................ (14,710) -- --
----------- ----------- -----------
NET LOSS................ (70,926) (87,903) (160)
Preferred stock
dividends............. (66,642) (12,681) (12,690)
Redemption of preferred
stock................. -- (34,140) --
----------- ----------- -----------
LOSS APPLICABLE TO
COMMON SHAREHOLDERS.... $ (137,568) $ (134,724) $ (12,850)
=========== =========== ===========
NET LOSS PER COMMON
SHARE:
Loss applicable to
common shareholders
before extraordinary
item and cumulative
effect of change in
accounting principle,
basic and diluted..... $ (0.15) $ (0.32) $ (0.04)
----------- ----------- -----------
Extraordinary item,
basic and diluted..... (0.09) (0.06) --
----------- ----------- -----------
Cumulative effect of
change in accounting
principle,
basic and diluted..... (0.03) -- --
----------- ----------- -----------
Net loss applicable to
common shareholders,
basic and diluted..... $ (0.27) $ (0.38) $ (0.04)
=========== =========== ===========
Shares used in
computing basic and
diluted loss per
share................. 502,400,851 358,735,340 325,773,934
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
Other Shareholders'
Common Stock Treasury Stock Equity
------------------- -------------------- --------------------
Additional Total
Paid-in Accumulated Shareholders'
Shares Amount Shares Amount Capital(a) Other Deficit Equity
----------- ------ ---------- --------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash in March 1997
(Date of Inception),
net of $1,264 issuance
costs................. 325,773,934 $3,258 -- $ -- $ 83,713 $ -- $ -- $ 86,971
Preferred stock
dividends............. -- -- -- -- (12,690) -- -- (12,690)
Net loss for the
period................ (160) (160)
----------- ------ ---------- --------- ---------- -------- --------- ----------
Balance, December 31,
1997................... 325,773,934 3,258 -- -- 71,023 -- (160) 74,121
Issuance of common
stock for cash........ 1,575,000 16 -- -- 2,772 -- -- 2,788
Cash reimbursement to
certain shareholders.. -- -- -- -- (7,047) -- -- (7,047)
Unearned compensation.. -- -- -- -- 93,758 (93,758) -- --
Amortization of
compensation expense.. -- -- -- -- -- 37,111 -- 37,111
PCG Warrants........... 24,406,340 244 -- -- 275,054 -- -- 275,298
Issuance of common
stock in exchange for
termination of
advisory services
agreement............. 14,210,526 142 -- -- 134,858 -- -- 135,000
Preferred stock
dividends............. -- -- -- -- (12,681) -- -- (12,681)
Premium on redemption
of preferred stock.... -- -- -- -- (34,140) -- -- (34,140)
Common stock
transactions with
certain shareholders.. 21,733,758 217 22,033,758 (209,415) 209,198 -- -- --
Issuance of common
stock in connection
with initial public
offering, net of
$30,916 issuance
costs................. 44,420,000 444 -- -- 390,630 -- -- 391,074
Issuance of common
stock from exercise of
stock options......... 656,688 7 -- -- 692 -- -- 699
Net loss............... -- -- -- -- -- -- (87,903) (87,903)
----------- ------ ---------- --------- ---------- -------- --------- ----------
Balance, December 31,
1998................... 432,776,246 4,328 22,033,758 (209,415) 1,124,117 (56,647) (88,063) 774,320
Issuance of common
stock from exercise of
stock options......... 10,058,073 101 -- -- 111,263 -- -- 111,364
Income tax benefit from
exercise of stock
options............... -- -- -- -- 9,368 -- -- 9,368
Unearned compensation.. -- -- -- -- 55,066 (55,066) -- --
Amortization of
compensation expense.. -- -- -- -- -- 51,306 -- 51,306
Issuance of common
stock in exchange for
non-compete rights and
licenses.............. 2,239,632 22 -- -- 19,978 -- -- 20,000
Cancellation of shares
issued in connection
with terminated merger
with US West.......... (2,231,076) (22) -- -- (103,362) -- -- (103,384)
Preferred stock
dividends............. -- -- -- -- (66,642) -- -- (66,642)
Shares issued in
connection with
Frontier acquisition.. 355,263,135 3,553 -- -- 8,503,974 -- -- 8,507,527
Shares issued for
retirement of debt.... 1,031,132 10 -- -- 5,290 -- -- 5,300
Foreign currency
translation
adjustment............ -- -- -- -- -- (20,698) -- (20,698)
Unrealized gain on
securities............ -- -- -- -- -- 980 -- 980
Net loss............... -- -- -- -- -- -- (70,926) (70,926)
----------- ------ ---------- --------- ---------- -------- --------- ----------
Balance, December 31,
1999................... 799,137,142 $7,992 22,033,758 $(209,415) $9,659,052 $(80,125) $(158,989) $9,218,515
=========== ====== ========== ========= ========== ======== ========= ==========
</TABLE>
--------
(a) Additional Paid-in-Capital has been charged retroactively for the par
value of the shares issued as a result of the 2-for-1 stock split effected
in the form of a stock dividend effective on March 9, 1999.
See accompanying notes.
F-23
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period From
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES:
Net loss.............. $ (70,926) $ (87,903) $ (160)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Extraordinary loss on
retirement of senior
notes................ 45,681 19,709 --
Cumulative effect of
change in accounting
principle............ 14,710 -- --
Non-cash portion of US
West termination
agreement............ (103,384) -- --
Stock related
expenses............. 51,306 39,374 --
Termination of
advisory services
agreement............ -- 135,000 --
Equity in (income)
loss of affiliates... (15,708) 2,508 --
Depreciation and
amortization......... 251,915 541 39
Provision for doubtful
accounts............. 37,157 4,233 --
Deferred income
taxes................ 35,274 9,654 --
Capacity available for
sale excluding cash
expenditures for
investing
activities........... -- 123,329 (21,200)
Other................. 7,726 -- --
Changes in operating
assets and
liabilities.......... 252,333 (37,718) 26,442
---------- --------- --------
Net cash provided by
operating
activities.......... 506,084 208,727 5,121
---------- --------- --------
CASH FLOWS USED IN
INVESTING ACTIVITIES:
Cash paid for
construction in
progress and capacity
available for sale... (1,577,044) (413,996) (428,743)
Acquisitions, net of
cash acquired........ (2,456,811) -- --
Proceeds from sale of
unconsolidated
subsidiary........... 379,086 -- --
Purchases of property
and equipment........ (193,871) -- --
Investments in and
advances to
affiliates........... (161,337) (16,701) --
---------- --------- --------
Net cash used in
investing
activities.......... (4,009,977) (430,697) (428,743)
---------- --------- --------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock,
net.................. 111,364 392,298 73,736
Proceeds from issuance
of preferred stock,
net.................. 1,598,750 483,000 92,470
Proceeds from issuance
of senior notes...... 2,000,000 796,495 150,000
Proceeds from long-
term debt............ 3,544,083 290,556 162,325
Repayment of long-term
debt................. (3,351,732) (176,890) --
Retirement of 1997
issued senior notes.. -- (159,750) --
Redemption of 1997
issued preferred
stock................ -- (134,372) --
Finance costs
incurred............. (141,027) (37,665) (28,181)
Cash reimbursement to
certain
shareholders......... -- (7,047) --
Minority interest
investment in
subsidiary........... 350,000 -- --
Preferred dividends... (52,429) -- --
Decrease (increase) in
restricted cash and
cash equivalents..... 271,790 (419,515) (25,275)
---------- --------- --------
Net cash provided by
financing
activities.......... 4,330,799 1,027,110 425,075
---------- --------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS.. 826,906 805,140 1,453
CASH AND CASH
EQUIVALENTS, beginning
of period............. 806,593 1,453 --
---------- --------- --------
CASH AND CASH
EQUIVALENTS, end of
period................ $1,633,499 $ 806,593 $ 1,453
========== ========= ========
</TABLE>
F-24
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In thousands)
<TABLE>
<CAPTION>
Period From
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
SUPPLEMENTAL INFORMATION
ON NON-CASH FINANCING
ACTIVITIES:
Common stock issued to
holders of preferred
stock................. $ -- $ -- $ 13,325
=========== ========= ========
Common stock issued
upon conversion of
debt.................. $ 5,300 $ -- $ --
=========== ========= ========
SUPPLEMENTAL INFORMATION
ON NON-CASH INVESTING
ACTIVITIES:
Costs incurred for
construction in
progress and capacity
available for sale.... $ 1,704,258 $ 607,865 $497,319
Increase in accrued
construction costs.... (119,405) (77,077) (52,414)
Increase in accrued
interest.............. -- (8,412) (1,641)
Amortization of
deferred finance
costs................. (7,809) (7,883) (2,223)
(Increase) decrease in
obligations under
capital leases........ -- 11,660 (12,298)
PCG Warrants........... -- (112,157) --
----------- --------- --------
Cash paid for
construction in
progress and capacity
available for sale.... $ 1,577,044 $ 413,996 $428,743
=========== ========= ========
Non-cash purchases of
property and
equipment............. $ 38,300 $ -- $ --
=========== ========= ========
Transfer of capacity
available for sale to
property and
equipment............. $ 574,849 $ -- $ --
=========== ========= ========
Common stock issued for
non-compete rights.... $ 20,000 $ -- $ --
=========== ========= ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Changes in operating
assets and
liabilities:
Accounts receivable.... $ (296,467) $(118,743) $ --
Other current assets... (47,915) (46,662) (1,032)
Other Long-Term
Assets................ (98,029) -- --
Deferred revenue....... 331,475 64,197 5,325
Accounts payable and
accrued liabilities... 258,739 30,332 1,249
Income taxes payable... 73,650 15,604 --
Obligations under
inland services
agreement............. (21,994) 17,554 20,900
Deferred credits and
other................. 52,874 -- --
----------- --------- --------
$ 252,333 $ (37,718) $ 26,442
=========== ========= ========
Detail of acquisitions:
Assets acquired........ $11,120,676 $ -- $ --
Liabilities assumed.... (2,613,149) -- --
----------- --------- --------
Common stock issued.... $ 8,507,527 $ -- $ --
=========== ========= ========
Net cash paid for
acquisitions.......... $ 2,456,811 $ -- $ --
Cash acquired in
acquisitions.......... 123,855 -- --
----------- --------- --------
Cash paid for
acquisition, including
transaction fees...... $ 2,580,666 $ -- $ --
=========== ========= ========
Investments in
Affiliates:
Cost of investments in
affiliates............ $ (161,337) $(179,842) $ --
PCG Warrants........... -- 163,141 --
=========== ========= ========
$ (161,337) $ (16,701) $ --
=========== ========= ========
Cash paid for interest
and income taxes:
Interest paid and
capitalized........... $ 219,289 $ 39,424 $ 8,136
=========== ========= ========
Interest paid (net of
capitalized
interest)............. $ 141,230 $ 33,854 $ --
=========== ========= ========
Cash paid for taxes.... $ 14,589 $ 7,809 $ --
=========== ========= ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
Net loss................ $(70,926) $(87,903) $(160)
Foreign currency
translation
adjustment............ (20,698) -- --
Unrealized gain on
securities............ 980 -- --
-------- -------- -----
Comprehensive loss...... $(90,644) $(87,903) $(160)
======== ======== =====
</TABLE>
See accompanying notes.
F-26
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
Global Crossing Ltd. (a Bermuda company, together with its consolidated
subsidiaries, "GCL" or the "Company") is building and offering services over
the world's first independent global fiber optic network, consisting of
101,000 announced route miles and serving five continents, 27 countries and
more than 200 major cities. Upon completion of our currently announced
systems, our network and our telecommunications and Internet product offerings
will be available in markets constituting over 80% of the world's
international communications traffic.
The Company's strategy is to be the premier provider of global broadband
Internet Protocol ("IP") and data services for both wholesale and retail
customers. The Company is building a state-of-the-art fiber optic network that
management believes to be of unprecedented global scope and scale to serve as
the backbone for this strategy. Management believes that the Company's network
will enable it to be the low cost service provider in most of its addressable
markets.
Asia Global Crossing, a joint venture with Softbank Corp. and Microsoft
Corporation intends to become the first truly pan-Asian carrier to offer
worldwide bandwidth and data communications. The Asia Global Crossing joint
venture was established on November 24, 1999.
GlobalCenter, a wholly-owned subsidiary of GCL, will expand its product set
to become a single-source e-commerce service solution that will provide web-
centric businesses with the high availability, flexibility and scalability
necessary to compete in the rapidly expanding digital economy.
Global Crossing Ltd. serves as a holding company for its subsidiaries'
operations, including Global Marine Systems (acquired July 2, 1999), Frontier
Corporation (acquired September 28, 1999), and Racal Telecom (acquired
November 24, 1999).
In February 1999, the Company's Board of Directors declared a 2-for-1 split
of the Company's common stock in the form of a stock dividend which was
effective on March 9, 1999. All share information presented in these
consolidated financial statements gives retroactive effect to the 100-for-1
stock split in January 1998, 1.5-for-1 stock dividend in August 1998 and 2-
for-1 stock dividend on March 9, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
significant accounting policies are summarized as follows:
a) Principles of Consolidation
The consolidated financial statements include the accounts of GCL and its
wholly-owned subsidiaries. All significant intercompany transactions have been
eliminated.
As described in Note 3, the Company completed the acquisitions of Global
Marine Systems, Frontier and Racal Telecom during 1999. These acquisitions
have had a major impact on the comparability of the Company's financial
statements. To assist the reader of these financial statements and related
notes, the Company has disclosed certain financial information in Note 3
including the pro forma impact of these acquisitions.
b) 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
F-27
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. Actual amounts and results could differ from
those estimates.
The Company's operations and ability to grow may be affected by numerous
factors, including changes in customer requirements, new laws and governmental
regulations and policies, technological advances, entry of new competitors and
changes in the willingness of financial institutions and other lenders to
finance acquisitions and operations. The Company cannot predict which, if any,
of these or other factors might have a significant impact on the
telecommunications industry in the future, nor can it predict what impact, if
any, the occurrence of these or other events might have on the Company's
operations.
c) Development Stage Company
The Company was in its development stage until May 1998 when the United
States to United Kingdom segment of the AC-1 system was placed into service,
and the Company began generating significant amounts of revenue.
d) Revenue Recognition
Services
Revenue derived from telecommunication, incumbent local exchange ("ILEC")
and maintenance services, including sales of capacity under operating type
leases, are recognized as services are provided, net of an estimate for
uncollectible accounts. Payments received from customers before the relevant
criteria for revenue recognition are satisfied are included in deferred
revenue in the accompanying consolidated balance sheets.
Sales-Type Leases
Revenue from Capacity Purchase Agreements ("CPAs") that meet the criteria
of sales-type lease accounting are recognized in the period that the rights
and obligations of ownership transfer to the purchaser, which occurs when (i)
the purchaser obtains the right to use the capacity, which can only be
suspended if the purchaser fails to pay the full purchase price or fulfill its
contractual obligations, (ii) the purchaser is obligated to pay Operations,
Administration and Maintenance ("OA&M") costs and (iii) the segment of a
system related to the capacity purchased is available for service. Certain
customers who have entered into CPAs for capacity have paid deposits toward
the purchase price which have been included as deferred revenue in the
accompanying consolidated balance sheets.
Prior to July 1, 1999, substantially all CPAs were treated as sales-type
leases as described in Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" ("SFAS 13"). On July 1, 1999, the Company adopted
Financial Accounting Standards Board Interpretation No. 43, "Real Estate
Sales, an interpretation of FASB Statement No. 66" ("FIN 43"), which requires
prospective transactions to meet the criteria set forth in Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate"
("SFAS 66") to qualify for sales-type lease accounting. Since sales of
terrestrial capacity did not meet the new criteria, the terrestrial portion of
CPAs executed subsequent to June 30, 1999 were recognized over the terms of
the contracts, as services.
Percentage-of-Completion
Revenue and estimated profits under long-term contracts for undersea
telecommunication installation by Global Marine Systems are recognized under
the percentage-of-completion method of accounting.
F-28
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
e) Cost of Sales
Services
Costs of the network relating to capacity contracts accounted for as
operating leases are treated as fixed assets and, accordingly, are depreciated
over the estimated useful life of the capacity.
Sales-Type Leases
Prior to October 1, 1999, the effective date of the Frontier merger, cost
of sales for subsea circuits was calculated based on the ratio of capacity
revenue recognized in the period to total expected capacity revenue over the
life of the network system, multiplied by the total remaining costs of
constructing the network system. This calculation of cost of sales matches
costs with the value of each sale relative to total expected revenue. Until
the entire system was completed, for purposes of calculating cost of sales,
the total system costs incurred included an estimate of remaining costs to be
incurred to complete the entire system plus the cost of system upgrades that
management had the intent and ability to complete, provided the need for such
upgrades was supported by a third party consultant's independent revenue
forecast.
Beginning October 1, 1999, the Company initiated service contract
accounting and therefore began depreciating all of its systems; however,
certain contracts still qualified for sales-type lease accounting. For these
transactions, the Company's policy provided for recording cost of sales in the
period in which the related revenue was recognized, in addition to the
depreciation charge described below (see Property and Equipment and
Construction in Progress). Under service contract accounting, the amount
charged to cost of sales relating to subsea capacity was calculated by
determining the estimated net book value of the specific subsea capacity at
the time of the sale. The estimated book value includes expected costs of
capacity the Company has the intent and ability to add through upgrades of
that system, provided the need for such upgrades is supported by a third-party
consultant's independent revenue forecast.
f) Commissions and Advisory Services Fees
The Company's policy is to record sales commissions and advisory fee
expenses and related payables upon the recognition of revenue so as to
appropriately match these costs with the related revenue. Under the Advisory
Services Agreement ("ASA"), which was terminated by December 31, 1998, the
Company paid PCG Telecom Services LLC ("PCG Telecom") and its affiliates 2% of
revenue for advisory services performed. Under the Sales Agency Agreement, the
Company paid Tyco Submarine Systems Ltd. ("TSSL") a commission based on a
percentage of revenue from the sale of capacity on certain of the Company's
systems.
g) Cash and Cash Equivalents, Restricted Cash and Cash Equivalents (Current
and Long Term)
The Company considers cash in banks and short term highly liquid
investments with an original maturity of three months or less at the date of
purchase to be cash equivalents. Cash and cash equivalents and restricted cash
and cash equivalents are stated at cost which approximates fair value.
h) Property and Equipment and Construction in Progress
Property and equipment, which includes capitalized leases, are stated at
cost, net of depreciation and amortization. Major enhancements are
capitalized, while expenditures for repairs and maintenance are expensed when
incurred. Costs incurred prior to a segment's completion are reflected as
construction in progress in the accompanying consolidated balance sheets and
recorded as property and equipment at the date each segment of the applicable
system becomes operational.
F-29
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Construction in progress includes direct expenditures for construction of
network systems and is stated at cost. Capitalized costs include costs
incurred under the construction contract; advisory, consulting and legal fees;
interest; and amortized finance costs incurred during the construction phase.
Once it is probable that a cable system will be constructed, costs directly
identifiable with the cable system under development are capitalized. Costs
relating to the evaluation of new projects incurred prior to the date the
development of the network system becomes probable are expensed as incurred.
In connection with the construction of the Global Crossing network, the
Company has entered into various agreements to sell or exchange dark fiber,
ducts, rights of ways, and certain capacity. These non-monetary exchanges are
recorded at the cost of the asset transferred or, if applicable, the fair
value of the asset received.
Interest incurred, which includes the amortization of deferred finance fees
and issuance discount ("interest cost"), are capitalized to construction in
progress. Total interest cost incurred and interest capitalized to
construction in progress during the periods presented were:
<TABLE>
<CAPTION>
For the period
March 31, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
(In thousands)
<S> <C> <C> <C>
Interest cost incurred.. $217,136 $92,813 $9,777
======== ======= ======
Interest cost
capitalized to
construction in
progress............... $ 78,059 $49,933 $9,777
======== ======= ======
</TABLE>
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets, with the exception of leasehold improvements and assets
acquired through capital leases, which are depreciated over the lesser of the
estimated useful lives or the term of the lease. Estimated useful lives are as
follows:
<TABLE>
<S> <C>
Buildings...................................................... 10-40 years
Leasehold improvements......................................... 2-25 years
Furniture, fixtures and equipment.............................. 2-30 years
Transmission equipment......................................... 3-25 years
</TABLE>
Beginning October 1, 1999, the Company commenced service contract
accounting. Carrying amounts related to completed subsea systems were
reclassified from capacity available for sale to depreciable assets, and are
being depreciated over their remaining economic useful lives.
When property or equipment is retired or otherwise disposed of, the cost
and accumulated depreciation are relieved from the accounts, and resulting
gains or losses are reflected in the determination of current net income.
The Company reviews the carrying value of property and equipment for
impairment whenever events and circumstances indicate that the carrying value
of an asset may not be recoverable from the estimated future cash flows
expected to result from its use and eventual disposition. In cases where
undiscounted expected future cash flows are less than the carrying value, an
impairment loss would be recognized equal to an amount by which the carrying
value exceeds the fair value of the assets.
i) Goodwill and Intangibles
Costs in excess of net assets of acquired businesses are amortized on the
straight-line method over 3 to 25 years. In cases where undiscounted expected
future cash flows are less than the carrying value, the impairment
F-30
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
loss would be included in the determination of current net income. Subsequent
to acquisitions, the Company continually evaluates whether later events and
circumstances have occurred which indicate that the remaining estimated useful
life of intangible assets may warrant revision or that the remaining balance
of such assets may not be recoverable. When factors indicate that intangible
assets should be evaluated for possible impairment, the Company uses an
estimate of the undiscounted operating income over the remaining life of the
intangible assets in measuring whether the intangible assets are recoverable.
j) Deferred Finance Costs
Costs incurred to obtain financing through the issuance of senior notes and
long-term debt have been reflected as an asset included in other assets in the
accompanying consolidated balance sheets. Costs incurred to obtain financing
through the issuance of preferred stock have been reflected as a reduction in
the carrying value of the issued preferred stock. The financing costs relating
to the debt are amortized over the lesser of the term of the related debt
agreements or the expected payment date of the debt obligation. In 1998,
certain preferred stock was redeemed at which time the remaining balance of
unamortized discount and offering costs was charged against additional paid-in
capital. In 1999 and 1998, certain long-term debt was extinguished, at which
time the remaining balance of unamortized discount and offering costs was
written off and included in extraordinary loss on retirement of debt.
During the construction period, the amortized portion of deferred financing
costs relating to the senior notes and the long-term debt are included in
construction in progress as a component of interest capitalized or recorded as
interest expense in accordance with Statement of Financial Accounting
Standards (SFAS) No. 34, "Capitalization of Interest Cost". The amortized
portion of the deferred financing costs relating to the preferred stock is
included as a component of preferred stock dividends.
k) Investments
Investments in which the Company does not have significant influence or in
which the Company holds an ownership interest of less than 20% are recorded
using the cost method of accounting. The equity method of accounting is
applied for investments in affiliates, if the Company owns an aggregate of 20%
to 50% of the affiliate and if the Company exercises significant influence
over the affiliate. The equity method is also applied for entities in which
the Company's ownership is in excess of 50% but over which the Company is
unable to exercise effective control, due to minority shareholders
participating in significant decisions in the ordinary course of business. If
the Company holds more than 50% of the ownership and is able to exercise
effective control, the owned entity's financial statements and the appropriate
deductions for minority interest are included in the accompanying consolidated
financial statements.
l) Financial Instruments
The Company uses derivative financial instruments to reduce its exposure to
adverse fluctuations in interest rates and foreign currency exchange rates.
The Company has established policies and procedures for risk assessment and
the approval, reporting and monitoring of derivative financial instrument
activities. The Company does not enter into financial instruments for trading
or speculative purposes. Accordingly, they are presented on the accompanying
consolidated balance sheet at their carrying values, which approximates their
fair values. Fair values are based on market quotes, current interest rates or
management estimates, as appropriate.
The Company has entered into forward currency contracts, hedging the
exchange risk on committed foreign currency transactions. Gains and losses on
these contracts are recognized at the time the underlying transaction is
completed.
As discussed in Note 15, the Company has entered into an interest rate swap
agreement to hedge its variable interest-rate exposure on debt. Hedge
accounting was applied in respect of these instruments; accordingly, the
F-31
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
net cash amounts to be paid or received on the agreement are accrued and
recognized as an adjustment to interest expense on the related debt.
m) Income Taxes
The Company recognizes current and deferred income tax assets and
liabilities based upon all events that have been recognized in the
consolidated financial statements as measured by the enacted tax laws.
n) Effect of Foreign Currencies
For those subsidiaries using the U.S. Dollar as their functional currency,
transaction loss is recorded in the accompanying consolidated statements of
operations. The Company's foreign transaction loss was $26.9 million for the
year ended December 31, 1999. The effect of foreign currency transactions in
all periods prior to the year ended December 31, 1999 were immaterial.
For those subsidiaries not using the U.S. Dollar as their functional
currency, assets and liabilities are translated at exchange rates in effect at
the balance sheet date and income and expense accounts are translated at
average exchange rates during the period. Resulting translation adjustments
are recorded directly to a separate component of shareholders' equity. For the
year ended December 31, 1999, the Company incurred a foreign currency
translation loss of $20.7 million. For all periods prior to December 31, 1999,
the translation adjustments were immaterial.
o) Stock Option Plan
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and, accordingly, recognizes compensation expense for stock option
grants to the extent that the estimated fair value of the stock exceeds the
exercise price of the option at the measurement date. The compensation expense
is charged against operations ratably over the vesting period of the options.
p) Concentration of Credit Risk
The Company has some concentration of credit risk among its customer base.
The Company performs ongoing credit evaluations of its larger customer's
financial condition. As of and for the year ended December 31, 1999, five
customers represented 14% and 29% of the Company's receivables and revenue,
respectively.
q) Change in Accounting Policy
The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") in the first quarter of 1999. Accordingly, a
one-time charge of $15 million (net of tax benefit), representing start-up
costs incurred and capitalized during previous periods, was charged against
net income.
r) Pending Accounting Standards
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
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. The
impact of the adoption of this standard has not been quantified.
F-32
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
s) Reclassifications
Certain prior year amounts have been reclassified in the consolidated
financial statements to conform to current year presentation.
3. MERGERS AND ACQUISITIONS
The following mergers and acquisitions occurred during 1999 and have been
accounted for in the accompanying consolidated financial statements under the
purchase method of accounting for business combinations. The purchase price
was allocated based on the estimated fair value of acquired assets and
liabilities at the date of acquisition.
Global Marine Systems Acquisition
On July 2, 1999, the Company acquired the Global Marine business of Cable &
Wireless Plc for approximately $908 million, consisting of a combination of
cash and assumed indebtedness. This resulted in an excess of purchase price
over net assets acquired of $693 million, which was allocated to goodwill and
other intangible assets and are being amortized on the straight-line method
over 3-25 years. Global Marine Systems provides services, including
maintenance under a number of long-term contracts, to cables built by carriers
and is the world's largest undersea cable installation and maintenance
company. The Company initially financed the acquisition with committed bank
financing in the amount of $600 million and the remainder with cash on hand.
Frontier Corporation Merger
On September 28, 1999, the Company completed its merger with Frontier
Corporation, resulting in Frontier becoming a wholly owned subsidiary of the
Company.
Frontier shareholders received 2.05 shares of the Company's common stock for
each outstanding share of common stock of Frontier Corporation, for a total of
355 million shares of Global Crossing common stock, including outstanding and
unexercised stock options. The purchase price of $10.3 billion reflects a
Global Crossing stock price of $22 15/16 per share, the average closing price
of Global Crossing common stock from September 1, 1999 through September 3,
1999, and includes long term debt and Frontier stock options assumed by Global
Crossing. For accounting purposes, the merger with the Company is deemed to
have occurred as of the close of business on September 30, 1999. The excess of
purchase price over net assets acquired of $7.7 billion was allocated to
goodwill and other intangible assets; goodwill and intangible assets are being
amortized on the straight-line method over 6-25 years
Racal Telecom Acquisition
On November 24, 1999, the Company acquired Racal Telecom for approximately
$1.6 billion in cash. The Company entered into a (Pounds)675 million
(approximately $1,091 million as of December 31, 1999) credit facility to
finance the acquisition. The excess of purchase price over net assets acquired
of $1.3 billion was allocated to goodwill and is being amortized on the
straight-line method over 6-25 years. Racal Telecom owns one of the most
extensive fiber telecommunications networks in the United Kingdom. For
accounting purposes, the acquisition is deemed to have occurred as of the
close of business on November 30, 1999.
Asia Global Crossing
On November 24, 1999, the Asia Global Crossing joint venture was
established. In exchange for a majority interest, the Company contributed to
the joint venture its development rights in East Asia Crossing ("EAC") and its
58% interest in Pacific Crossing ("PC-1"). Softbank Corp. and Microsoft
Corporation each contributed
F-33
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$175 million in cash to Asia Global Crossing. In addition, Softbank and
Microsoft committed to make a total of at least $200 million in capacity
purchases on our network over a three-year period, expected to be utilized
primarily on PC-1 and EAC. Softbank and Microsoft have also agreed to use Asia
Global Crossing's network in the region, subject to specified conditions.
Minority interest of $351 million was recorded in 1999 in connection with this
joint venture.
Hutchison Global Crossing
On November 15, 1999, the Company entered into an agreement with Hutchison
Whampoa Limited ("Hutchison") to form a joint venture called Hutchison Global
Crossing, which began operations on January 12, 2000. The joint venture is
owned in equal parts by the Company and Hutchison. In exchange for its 50
percent interest, the Company will contribute certain assets and services to
the joint venture and, in January 2000, issued to Hutchison $400 million
aggregate liquidation preference of its 6 3/8% cumulative convertible
preferred stock, series B, convertible into its common stock. Hutchison Global
Crossing will be accounted for as an unconsolidated joint venture under the
equity method of accounting.
The initial purchase price allocations for the 1999 business combinations
are based on current estimates. The Company will make final purchase price
allocations based upon final values for certain assets and liabilities. As a
result, the final purchase price allocation may differ from the presented
estimate.
The following unaudited pro forma condensed combined financial information
of Global Crossing, Global Marine Systems, Frontier, Racal Telecom and the
Hutchison Global Crossing joint venture demonstrates the results of operations
had the merger and acquisitions related transactions been completed at the
beginning of the periods presented.
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
(unaudited)
(In thousands, except
share and per share data)
<S> <C> <C>
Revenue........................................ $ 4,139,897 $ 3,643,521
============ ============
Net loss before extraordinary items and
cumulative effect of change in accounting
principles.................................... $ (462,544) $ (474,882)
============ ============
Net loss....................................... $ (522,935) $ (496,346)
============ ============
Loss applicable to common shareholders before
extraordinary items and cumulative effect of
change in accounting principles............... $ (554,715) $ (513,063)
============ ============
Loss applicable to common shareholders......... $ (614,986) $ (568,487)
============ ============
Loss per common share:
Loss applicable to common shareholders
Basic and diluted............................ $ (0.80) $ (0.80)
============ ============
Loss applicable to common shareholders before
extraordinary items and cumulative effect of
change in accounting principles
Basic and diluted............................ $ (0.72) $ (0.72)
============ ============
Shares used in computing loss per share
Basic and diluted............................ 767,355,151 708,518,640
============ ============
</TABLE>
F-34
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. RESTRICTED CASH AND CASH EQUIVALENTS
Current and long term restricted cash and cash equivalents include the
following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Funds restricted for PC-1 construction................... $138,118 $231,790
Funds restricted under the AC-1 Credit Facility.......... -- 89,000
Funds restricted for MAC construction.................... -- 65,000
Funds restricted for dividends payments to parent
company................................................. 76,202 --
Funding for future interest on senior notes.............. -- 38,000
Other.................................................... 17,092 21,000
-------- --------
$231,412 $444,790
======== ========
</TABLE>
Under the Open Market Plan, dividend payments to the parent company are
temporarily prohibited until Frontier Telephone of Rochester, Inc. ("FTR")
receives clearance from the New York State Public Service Commission that
service requirements are being met. Cash restricted for dividend payments by
FTR, as of December 31, 1999, was approximately $76.2 million.
5. ACCOUNTS RECEIVABLE
Current and long term accounts receivable are comprised of:
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
Accounts receivable.................................... $1,114,135 $118,743
Allowance for doubtful accounts........................ (95,110) (4,233)
---------- --------
Accounts receivable, net............................... $1,019,025 $114,510
========== ========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
Land................................................... $ 14,886 $ --
Buildings.............................................. 184,827 --
Leasehold improvements................................. 29,096 774
Furniture, fixtures and equipment...................... 771,585 5,306
Transmission equipment................................. 2,544,903 --
---------- --------
3,545,297 6,080
Accumulated depreciation............................... (124,874) (580)
---------- --------
3,420,423 5,500
Construction in progress............................... 2,605,630 428,207
---------- --------
Total property and equipment, net...................... $6,026,053 $433,707
========== ========
</TABLE>
F-35
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization expense for the year ended December 31, 1999
was approximately $124 million. Depreciation expense for December 31, 1998 and
for the period ended March 19, 1997 (date of inception) to December 31, 1997
was insignificant.
7. GOODWILL AND INTANGIBLES
The Company acquired three companies in 1999 as described in Note 3. All
companies acquired have been accounted for as purchases with the excess of the
purchase price over the estimated fair value of the net assets acquired
recorded as goodwill.
Goodwill and intangibles are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
---------- ----
(In thousands)
<S> <C> <C>
Goodwill and intangibles................................... $9,685,043 $--
Accumulated amortization................................... (127,621) --
---------- ----
Goodwill and intangibles, net.............................. $9,557,422 $--
========== ====
</TABLE>
8. INVESTMENT IN AND ADVANCES TO/FROM AFFILIATES
Investment in Pacific Crossing Ltd. ("PCL")
In April 1998, the Company entered into a joint venture to construct the
PC-1 cable system which is owned and operated by PCL. The Company has an
economic interest in PCL represented by a 50% direct voting interest and,
through one of the joint venture partners, owns a further 8% economic non-
voting interest.
Investment in Global Access Ltd.
In December 1998, the Company entered into a joint venture, Global Access
Ltd., to construct and operate GAL, a terrestrial cable system connecting
Tokyo, Osaka and Nagoya with PC-1. The Company has a 49% interest in Global
Access Ltd.
The Company's investments in PCL and GAL are accounted for as interest in
affiliates under the equity method because the Company is not able to exercise
effective control over their operations.
The Company's investment in affiliates consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Investment in Pacific Crossing Ltd........................ $266,068 $160,639
Investment in Global Access Ltd........................... 22,693 16,695
Other investments and advances to/from affiliates......... 35,199 --
-------- --------
Investment in and advances to/from affiliates............. $323,960 $177,334
======== ========
</TABLE>
F-36
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109"). The provision for income taxes is
comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Current................................................... $144,906 $23,413
Deferred.................................................. (18,367) 9,654
-------- -------
Total income tax expense.................................. $126,539 $33,067
======== =======
</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.
Bermuda does not impose a statutory income tax and consequently the
provision for income taxes recorded relates to income earned by certain
subsidiaries of the Company which are located in jurisdictions which impose
income taxes.
The following is a summary of the significant items giving rise to
components of the Company's deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998
--------------------- --------------------
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Bad debt reserve................ $ 11,199 $ -- $ -- $ --
Research and development costs.. -- (41,018) -- --
Depreciation.................... -- (380,893) -- (4,042)
Basis adjustment to purchased
companies...................... -- (9,282) -- --
Employee benefits obligation.... -- (32,918) -- --
Net operating loss (NOL)
carryforwards.................. 58,865 -- -- --
Deferred and stock related
compensation................... 11,066 -- 504 --
Other........................... 35,156 (15,235) -- (6,116)
-------- --------- -------- --------
116,286 (479,346) 504 (10,158)
Valuation allowance............. (54,780) -- -- --
-------- --------- -------- --------
$ 61,506 $(479,346) $ 504 $(10,158)
======== ========= ======== ========
</TABLE>
The Company established a valuation allowance of $54,780 as of December 31,
1999. The valuation allowance is related to deferred tax assets due to the
uncertainty of realizing the full benefit of the NOL carryforwards. In
evaluating the amount of valuation allowance needed, the Company considers the
acquired companies' prior operating results and future plans and expectations.
The utilization period of the NOL carryforwards and the turnaround period of
other temporary differences are also considered. The Company's NOLs begin to
expire in 2004.
F-37
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. LONG-TERM DEBT
Outstanding debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
9 1/2% Senior Notes due 2009........................ $1,100,000 $ --
9 1/8% Senior Notes due 2006........................ 900,000 --
9 5/8% Senior Notes due 2008........................ 800,000 800,000
Senior Secured Revolving Credit Facility............ 648,597 --
Racal Telecom Term Loan A........................... 646,130 --
Medium-Term Notes, 7.51%--9.3%, due 2000 to 2004.... 219,000 --
7 1/4% Senior Notes due 2004........................ 300,000 --
6% Dealer Remarketable Securities (DRS) due 2013.... 200,000 --
AC-1 Credit Facility................................ -- 266,799
Other............................................... 242,028 9,192
---------- ----------
Total debt.......................................... 5,055,755 1,075,991
Less: discount on long-term debt, net............... (31,715) (3,505)
Less: current portion of long-term debt............. (5,496) (6,393)
---------- ----------
Long-term debt...................................... $5,018,544 $1,066,093
========== ==========
</TABLE>
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
2000.......................................................... $ 5,496
2001.......................................................... 121,411
2002.......................................................... 43,618
2003.......................................................... 38,336
2004.......................................................... 1,167,256
Thereafter.................................................... 3,679,638
----------
Total......................................................... $5,055,755
==========
</TABLE>
Senior Notes
On November 12, 1999, Global Crossing Holdings Ltd. ("GCH"), a wholly-owned
subsidiary of GCL, 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 $1.1 billion. The New Senior Notes are guaranteed by GCL.
Interest will be paid on the notes on May 15 and November 15 of each year,
beginning on May 15, 2000.
On May 18, 1998, GCH also issued 9 5/8% senior notes due May 15, 2008, with
a face value of $800 million ("9 5/8% Senior Notes"). The 9 5/8% Senior Notes
are guaranteed by GCL. Interest will be paid on the notes on May 15 and
November 15 of each year.
The 12% senior notes issued by Global Telesystems Holdings Ltd. ("GTH"),
now known as Atlantic Crossing Holdings Ltd., with a face value of $150
million, due March 31, 2004 ("Old Senior Notes"), were repurchased in May 1998
with the proceeds from the issuance of the 9 5/8% Senior Notes. The Company
F-38
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recognized an extraordinary loss of approximately $20 million on repurchase
comprised of a premium of approximately $10 million and a write-off of
approximately $10 million of unamortized deferred financing costs during 1998.
Senior Secured Revolving Credit Facility
On July 2, 1999, the Company, through GCH, entered into a $3 billion senior
secured corporate credit facility ("Corporate Credit Facility") with several
lenders. The proceeds from the Corporate Credit Facility were used to repay
existing indebtedness and fund capital expenditures. The Corporate Credit
Facility consisted of two term loans and a revolving credit facility, which
matures on July 2, 2004. The term loans were paid in full during fiscal year
1999. Unused credit under the revolving credit facility is approximately $350
million as of December 31, 1999. Interest is payable at LIBOR plus 2.25
percent (8.44 percent at December 31, 1999).
During 1999, the Company recognized an extraordinary loss resulting from
the payoff of existing debt in connection with the issuance of the Corporate
Credit Facility, comprised of a write-off of $15 million of unamortized
deferred financing costs.
On November 12, 1999, the proceeds from the issuance of the New Senior
Notes were used to pay down the fixed term portion of the Corporate Credit
Facility, resulting in a write-off of $31 million of unamortized deferred
financing costs.
AC-1 Credit Facility
During 1997, the Company's wholly-owned subsidiary, Atlantic Crossing Ltd.
("ACL"), entered into a $482 million aggregate senior secured non-recourse
loan facility (the "AC-1 Credit Facility") with a group of banks led by CIBC
and Deutsche Bank AG, for the construction and financing costs of AC-1. The
AC-1 Credit Facility was paid in full in July 1999.
MAC Credit Facility
During November 1998, the Company's wholly-owned subsidiary, Mid-Atlantic
Crossing Ltd. ("MACL"), entered into a $260 million aggregate senior secured
non-recourse loan facility (the "MAC Credit Facility"). As of December 31,
1998, the outstanding balance was $9 million. The MAC Credit Facility was paid
in full in July 1999.
6% Dealer Remarketable Securities
The 6% DRS were issued by Frontier Corporation and were outstanding at the
date of acquisition. The 6% DRS are due on October 15, 2013. Interest will be
paid on April 15 and October 15 each year. These notes may be put back to the
Company in October 2003, depending on the interest rate environment at that
time.
7 1/4% Senior Notes
The 7 1/4% Senior Notes were issued by Frontier Corporation and were
outstanding at the date of acquisition. The 7 1/4% Senior Notes are due May
14, 2004. Interest will be paid on May 15 and November 15 each year.
In December 1997, the Company entered into an interest rate hedge agreement
that effectively converts $200 million of the Company's 7.25% fixed-rate notes
due May 2004 into a floating rate based on the US dollar London Interbank
Offered Rate ("LIBOR") index rate plus 1.26%. The agreement expires in May
2004. Interest expense and the related cash flows under the agreement are
accounted for on an accrual basis. The Company periodically enters into such
agreements to balance its floating rate and fixed rate obligations to insulate
against interest rate risk and minimize interest expense.
F-39
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Racal Telecom Term Loan A
On November 24, 1999, the Company entered into a GBP 675 million
(approximately $1,091 million as of December 31, 1999) credit facility to
finance the acquisition of Racal Telecom. The facility consists of two term
loans due November 24, 2007. Interest is payable at LIBOR plus 2.5 percent
(8.44 percent at December 31, 1999).
Medium Term Notes
The Medium Term Notes were issued by Frontier Corporation and were
outstanding at the date of acquisition. The Company intends to refinance the
notes due in fiscal 2000 with proceeds from the other available debt
facilities.
Certain of the debt facilities mentioned above contain various financial
and non financial restrictive covenants and limitations, including, among
other things, the satisfaction of tests of "consolidated cash flow", as
defined. Additionally, certain ILEC assets are pledged as security.
11. OBLIGATIONS UNDER INLAND SERVICES AGREEMENT, CAPITAL LEASES AND OPERATING
LEASES
The Company has capitalized the minimum lease payment of property and
equipment under leases that qualify as capital leases.
At December 31, 1999, future minimum payments under these capital leases
are as follows (in thousands) and are included in Deferred credits and other
in the accompanying Consolidated Balance Sheet:
<TABLE>
<S> <C>
Year Ending December 31,
2000.............................................................. $ 53,235
2001.............................................................. 43,279
2002.............................................................. 38,390
2003.............................................................. 36,486
2004.............................................................. 53,195
Thereafter........................................................ 436,580
---------
Total minimum lease payments...................................... 661,165
Less: Amount representing maintenance payments.................... (133,240)
Less: Amount representing interest................................ (272,358)
---------
Present value of minimum lease payments........................... $ 255,567
=========
The Company has commitments under various non-cancelable operating leases.
Estimated future minimum lease payments on operating leases are approximately
as follows (in thousands):
Year Ending December 31,
2000.............................................................. $ 131,569
2001.............................................................. 79,932
2002.............................................................. 77,646
2003.............................................................. 70,678
2004.............................................................. 65,908
Thereafter........................................................ 347,924
---------
Total............................................................. $ 773,657
=========
</TABLE>
F-40
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense for the years December 31, 1999 and 1998 and period from
March 19, 1997 (Date of Inception) to December 31, 1997 is $74,249, $754 and
none, respectively (in thousands).
12. COMMITMENTS, CONTINGENCIES AND OTHER
As of December 31, 1999, ACL was committed under contracts with Tyco
Submarine Systems Ltd. ("TSSL") for AC-1 upgrades totaling approximately $59
million and is committed under the OA&M contract with TSSL to quarterly
payments, over the next eight years, totaling approximately $247 million which
will be borne by the Company's customers or by the Company to the extent there
is unsold capacity.
ACL was committed to paying TSSL commissions ranging from 3% to 7% on
revenue received until 2002, subject to certain reductions. The Company also
had a commission sharing agreement with TSSL whereby GCL had primary
responsibility for the marketing and sale of capacity of AC-1 and PC-1 and
shared a percentage of commissions payable to TSSL as consideration for
assuming primary responsibility for the sales effort and marketing of the
Company's projects. The Sales Agency Agreement with TSSL will terminate in
March 2002 with an option by the Company to extend it until March 2005. The
Company provided TSSL with a notice of termination with respect to these
agreements effective February 22, 2000.
As of December 31, 1999, the Company was committed under the contracts to
construct its Mid-Atlantic Crossing, Pan American Crossing, South American
Crossing, Pan European Crossing and East Asia Crossing systems for future
construction costs totaling approximately $2 billion.
In addition, as of December 31, 1999, the Company was committed to make
future equity contributions to PCL in the amount of $240 million.
The Company and a number of its subsidiaries in the normal course of
business are party to a number of judicial, regulatory and administrative
proceedings. The Company's management does not believe that any material
liability will be imposed as a result of any of these matters.
13. PREFERRED STOCK
Cumulative Convertible Preferred Stock
In September 1999, GCL authorized 20,000,000 shares of preferred stock on
terms and conditions to be established from time to time at the discretion of
the Board of Directors.
In December 1999, GCL issued 2,600,000 shares of 7% cumulative convertible
preferred stock at a liquidation preference of $250.00 per share for net
proceeds of $630 million. Each share of preferred stock is convertible into
4.6948 shares of common 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%. Dividends accrued as of
December 31, 1999 were $1.9 million.
In November 1999, GCL issued 10,000,000 shares of 6 3/8% cumulative
convertible preferred stock at a liquidation preference of $100.00 per share
for net proceeds of approximately $969 million. Each share of preferred stock
is convertible into 2.2222 shares of common 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%.
Dividends accrued as of December 31, 1999 were $9.7 million.
F-41
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The convertible preferred stock ranks junior to each other class of capital
stock other than common stock of GCL with respect to dividend rights, rights
of redemption or rights on liquidation and on a parity with any future
preferred stock of GCL. The convertible preferred stock is junior in right of
payment of all indebtedness of GCL and its subsidiaries. The preferred stock
is non-voting unless the accumulation of unpaid dividends on the outstanding
preferred stock is an amount equal to six quarterly dividend payments. The
preferred stock can be redeemed, at the Company's option, starting in 2004 at
specified premiums declining to par in 2009. Holders of preferred stock have
the right to require the Company to repurchase shares of the preferred stock
at par following the occurrence of certain change of control transactions.
10 1/2% Mandatorily Redeemable Preferred Stock
In December 1998, GCH authorized the issuance of 7,500,000 shares of
preferred stock ("GCH Preferred Stock") at a liquidation preference of $100.00
per share plus accumulated and unpaid dividends. In December 1998, 5,000,000
shares of GCH Preferred Stock were issued for $500 million in cash. The
Company reserved for future issuances up to 2,500,000 shares to pay dividends.
Dividends accrued as of December 31, 1999 and 1998 were $4 million.
Unamortized issuance costs were $14.1 million and $17 million as of December
31, 1999 and 1998, respectively.
The holders of the GCH Preferred Stock are entitled to receive cumulative,
semi-annual compounding dividends at an annual rate of 10 1/2% of the $100
liquidation preference per share. At the Company's option, accrued dividends
may be paid in cash or paid by issuing additional preferred stock (i.e. pay-
in-kind) until June 1, 2002, at which time they must be paid in cash. As of
December 31, 1999, all dividends had been paid in cash. Dividends are payable
semi-annually in arrears on each June 1 and December 1. The preferred stock
ranks senior to all common stock of GCH with respect to dividend rights,
rights of redemption or rights on liquidation and on a parity with any future
preferred stock of GCH. The preferred stock is junior in right of payment of
all indebtedness of GCH and its subsidiaries. The preferred stock is non-
voting unless the accumulation of unpaid dividends (or if, beginning on June
1, 2002, such dividends are not paid in cash) on the outstanding preferred
stock is an amount equal to three semi-annual dividend payments.
The preferred stock has a mandatory redemption on December 1, 2008 at a
price in cash equal to the then effective liquidation preference thereof, plus
all accumulated and unpaid dividends thereon to the date of redemption. The
preferred stock can be redeemed, in whole or in part, at the Company's option
at redemption prices starting at 105.25% of the liquidation preference in
2003, declining to 103.5% in 2004, 101.75% in 2005 and 100% thereafter.
The certificate of designation governing the preferred stock imposes
certain limitations on the ability of the Company to, among other things, (i)
incur additional indebtedness and (ii) pay certain dividends and make certain
other restricted payments and investments, which limitations are in part based
upon satisfaction of tests of "consolidated cash flow," as defined.
14% Mandatorily Redeemable Preferred Stock
In March 1997, GTH authorized and issued 500,000 shares of preferred stock
("GTH Preferred Stock") at a liquidation preference of $1,000 per share.
In June 1998, proceeds from the issuance of the 9 5/8% Senior Notes were
used to redeem this preferred stock. The redemption resulted in a $34 million
charge against additional paid-in capital comprised of a $16 million
redemption premium and $18 million of unamortized discount and issuance cost
on the preferred stock on the date of the redemption. The redemption premium
and write-off of unamortized discount and issuance costs on the preferred
stock were treated as a deduction to arrive at the net loss applicable to
common shareholders in the consolidated statement of operations.
F-42
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Preferred stock dividends included the following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Preferred stock dividends................................. $63,742 $11,712
Amortization of discount on preferred stock............... -- 618
Amortization of preferred stock issuance costs............ 2,900 351
------- -------
$66,642 $12,681
======= =======
</TABLE>
14. NET LOSS PER SHARE
Losses per share are calculated in accordance with SFAS No. 128, "Earnings
Per Share." Share and per share data presented reflects all stock dividends
and stock splits.
The following is a reconciliation of the numerators and the denominators of
the basic and diluted loss per share:
<TABLE>
<CAPTION>
For the period
December 31, March 31, 1997
-------------------------------- (Date of Inception)
1999 1998 to December 31, 1997
--------------- --------------- --------------------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
Loss before
extraordinary item and
cumulative effect of
change in accounting
principle.............. $ (10,535) $ (68,194) $ (160)
Preferred stock
dividends.............. (66,642) (12,681) (12,690)
Redemption of preferred
stock.................. -- (34,140) --
--------------- --------------- ---------------
Loss applicable to
common shareholders
before extraordinary
item and cumulative
effect of change in
accounting principle... $ (77,177) $ (115,015) $ (12,850)
=============== =============== ===============
Weighted average share
outstanding:
Basic and diluted..... 502,400,851 358,735,340 325,773,934
=============== =============== ===============
Loss applicable to
common shareholders
before extraordinary
items and cumulative
effect of change in
accounting principle
Basic and diluted..... $ (0.15) $ (0.32) $ (0.04)
=============== =============== ===============
</TABLE>
Dilutive options and warrants did not have an effect on the computation of
diluted loss per share in 1999 and 1998 since they were anti-dilutive. The
impact of dilutive options and warrants increases the weighted average shares
outstanding to 552,466,665 shares as of December 31, 1999.
F-43
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, restricted cash and
cash equivalents, accounts receivable, accrued construction costs, accounts
payable and accrued liabilities, accrued interest, obligations under inland
services agreements and capital leases and long term debt approximate their
fair value. The fair value of the senior notes (the New Senior Notes and 9
5/8% Senior Notes), mandatorily redeemable preferred stock, cumulative
convertible preferred stock and the interest rate swap are based on market
quotes and the fair values are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------- --------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Senior notes............ $3,135,000 $3,090,294 $796,495 $834,000
Mandatorily redeemable
preferred stock........ 485,947 498,750 483,000 480,000
Cumulative convertible
preferred stock........ 1,598,750 1,975,300 -- --
Interest rate swap...... $ -- $ 6,602 $ -- $ 26
</TABLE>
16. STOCK OPTION PLAN
GCL maintains a stock option plan under which options to acquire shares may
be granted to directors, officers, employees and consultants of the Company.
The Company accounts for this plan under APB Opinion No. 25, under which
compensation cost is recognized only to the extent that the market price of
the stock exceeds the exercise price. Terms and conditions of the Company's
options, including exercise price and the period in which options are
exercisable, generally are at the discretion of the Compensation Committee of
the Board of Directors; however, no options are exercisable more than ten
years after date of grant.
Prior to its merger with the Company, Frontier maintained stock option
plans for its directors, executives and certain employees. The exercise price
for options under all Frontier plans was the fair market value of the stock on
the date of the grant. The stock options expire ten years from the date of the
grant and vest over a period from one to three years. The Frontier plans
provided for discretionary grants of stock options which were subject to the
passage of time and continued employment restrictions.
In connection with the Frontier merger, the Company exchanged all of the
outstanding Frontier stock options for 25.3 million Global Crossing stock
options which vested immediately at the date of the merger. As of December 31,
1999, 17.7 million stock options under the Frontier plans remained vested and
outstanding.
Additional information regarding options granted and outstanding for the
years ended December 31, 1998 and 1999 are summarized below:
<TABLE>
<CAPTION>
Weighted
Options Number of Average
Available Options Exercise
For Grant Outstanding Price
----------- ----------- --------
<S> <C> <C> <C>
Balance as of December 31, 1997........... -- -- --
Authorized.............................. 33,215,730
Granted................................. (30,762,466) 30,762,466 $ 2.85
Exercised............................... (656,688) 1.06
Cancelled............................... 3,253,000 (3,253,000) 1.11
----------- ----------- ------
Balance as of December 31, 1998........... 5,706,264 26,852,778 3.11
Authorized.............................. 82,010,014 -- --
Granted................................. (65,019,955) 65,019,955 24.20
Exercised............................... (10,058,073) 11.07
Cancelled............................... 3,175,154 (3,175,154) 22.17
----------- ----------- ------
Balance as of December 31, 1999........... 25,871,477 78,639,506 $18.76
=========== =========== ======
</TABLE>
F-44
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize information concerning outstanding and
exercisable options:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------------
Weighted Average Weighted Average Weighted Average Weighted Average
Range of Number Remaining Contractual Exercise Price Number Exercise Price
Exercise Prices Outstanding Life (in years) per Share Exercisable per Share
--------------- ---------------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.35 to $ 1.43 14,153,480 7.79 $ 0.83 7,871,980 $ 0.83
2.00 to 9.00 7,157,036 8.18 3.14 3,635,345 3.29
9.30 to 13.80 12,539,297 7.71 11.61 10,207,026 11.60
13.96 to 19.82 11,961,988 8.54 17.15 8,961,988 16.26
20.60 to 23.44 19,975,778 9.65 25.82 1,175,228 24.48
$33.00 to $61.38 12,851,927 9.73 44.68 1,741,334 46.15
<CAPTION>
---------------- ---------------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Total 78,639,506 8.73 $18.76 33,592,901 $11.66
<CAPTION>
================ ===================== ================ =========== ================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------------
Weighted Average Weighted Average Weighted Average Weighted Average
Range of Number Remaining Contractual Exercise Price Number Exercise Price
Exercise Prices Outstanding Life (in years) per Share Exercisable per Share
--------------- ---------------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.35 to $0.83 15,717,280 9.2 $ 0.83 4,803,833 $ 0.83
2.00 to 3.33 6,844,598 9.5 3.13 1,625,000 3.33
9.50 to 13.26 4,290,900 9.7 11.44 302,834 11.34
<CAPTION>
--------------- ---------------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Total 26,852,778 9.3 $ 3.11 6,731,667 $ 1.91
<CAPTION>
================ ===================== ================ =========== ================
</TABLE>
During the years ended December 31, 1999 and 1998, the Company recorded in
additional paid-in capital $55 million and $94 million, respectively, of
unearned compensation, relating to awards under the stock incentive plan plus
the grant of certain economic rights and options to purchase common stock.
During 1999 and 1998 the Company recognized expense of $51 million and $39
million, respectively, of stock related compensation relating to the stock
incentive plan and the vested economic rights to purchase common stock. The
remaining $60 million of unearned compensation will be recognized as follows:
$36 million in 2000, $20 million in 2001 and $4 million in 2002.
The Company entered into an employment arrangement with a key executive,
and granted him economic rights to purchase two million shares of common stock
at $2.00 per share. One-third of these economic rights vested immediately and
the balance vests over two years. The Company recorded the excess of the fair
market value of these options and rights over the purchase price as unearned
stock compensation in the amount of $15 million during the year ended December
31, 1998. The unearned compensation is being recognized as expense over the
vesting period of the economic right.
F-45
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), the Company accounted for employee stock options under APB 25
and is recognizing compensation expense over the vesting period to the extent
that the fair value of the stock on the date the options were granted exceeded
the exercise price. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with the SFAS 123 fair value
approach, the impact on the Company's loss applicable to common shareholders
and loss per share would be as follows:
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
(In thousands, except per share information)
<S> <C> <C> <C>
Net loss applicable to
common shareholders:
As reported........... $(137,568) $(134,724) $(12,850)
Pro forma............. $(236,184) $(141,585) $(12,850)
Basic and diluted net
loss per share:
As reported........... $ (0.27) $ (0.38) $ (0.04)
Pro forma............. $ (0.47) $ (0.39) $ (0.04)
</TABLE>
Under SFAS 123, the fair value of each option is estimated on the date of
grant using the Black-Scholes option-pricing model assuming the following
weighted average assumptions used for the year ended December 31, 1999; zero
dividend yield, expected volatility of 40.00, weighted average risk free rate
of return of 6.56% and expected life of 4 years. For the year ended December
31, 1998; zero dividend yield, expected volatility of 0% to 42%, weighted
average risk free rate of return of 5.45% and expected life of 4 years.
17. EMPLOYEE BENEFIT PLANS
401(k) Plan
Beginning in 1998, the Company offered its qualified employees the
opportunity to participate in a defined contribution retirement plan
qualifying under the provisions of Section 401(k) of the Internal Revenue
Code. Each eligible employee may contribute on a tax-deferred basis a portion
of their annual earnings not to exceed certain limits. The Company matches
one-half of individual employee contributions up to a maximum level not to
exceed 7.5% of the employee's compensation. The Company's contributions to the
plan vest immediately. Expenses recorded by the Company relating to its 401(k)
plan were approximately $0.6 million and $0.2 million for the years ended
December 31, 1999 and 1998, respectively.
The Company also sponsors a number of defined contribution plans for
Frontier employees. The most significant plan covers non-bargaining employees,
who can elect to make contributions through payroll deduction. The Company
provides a contribution of .5 percent of gross compensation in common stock
for every employee eligible to participate in the plan. The common stock used
for matching contributions is purchased on the open market by the plan's
trustee. The Company also provides one hundred percent matching contributions
in its common stock up to three percent of gross compensation, and may, at the
discretion of the Management Benefit Committee, provide additional matching
contributions based upon Frontier's financial results. The total cost
recognized for all defined contribution plans was $2.6 million from the date
of the merger through December 31, 1999.
Pension Plan
As a result of the merger with Frontier, the Company has noncontributory
plans which have been frozen, providing for service pensions and certain death
benefits for substantially all Frontier employees. The assets and
F-46
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
liabilities related to these plans were recorded at fair market value at the
date of the merger. In 1995 and 1996, these defined benefit plans were frozen.
On an annual basis, contributions are remitted to the trustees to ensure
proper funding of the plans.
The majority of the Company's pension plans have plan assets that exceed
accumulated benefit obligations. There are certain plans, however, with
accumulated benefit obligations which exceed plan assets. The following table
summarizes the funded status of the Company's pension plans and the related
amounts that are included in "Other assets" in the Consolidated Balance Sheet
of the Company as of December 31, 1999 (in thousands):
<TABLE>
<S> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at September 30, 1999........................ $451,600
Service cost.................................................... 14
Interest cost................................................... 8,397
Actuarial gain.................................................. (11,025)
Benefits paid................................................... (9,151)
--------
Benefit obligation at December 31, 1999......................... $439,835
========
CHANGE IN PLAN ASSETS
Fair value of plan assets at September 30, 1999................. $621,100
Actual return on plan assets.................................... 86,516
Employer contribution........................................... 550
Benefits paid................................................... (9,151)
--------
Fair value of plan assets at December 31, 1999.................. $699,015
========
Funded status................................................... $259,180
Unrecognized net gain........................................... (83,192)
--------
Prepaid benefit cost, net....................................... $175,988
========
The net periodic pension cost consists of the following for the three month
period ended December 31, 1999 (in thousands):
Service cost...................................................... $ 14
Interest cost on projected benefit obligation..................... 8,397
Return on plan assets............................................. (14,349)
--------
Net periodic pension benefit...................................... $ (5,938)
========
The following rates and assumptions were used to calculate the projected
benefit obligation as of December 31, 1999:
Weighted average discount rate.................................... 8.00%
Rate of salary increase........................................... 5.00%
Expected return on plan assets.................................... 9.50%
</TABLE>
The Company's policy is to make contributions for pension benefits based on
actuarial computations which reflect the long-term nature of the pension plan.
However, under SFAS No. 87, "Employers' Accounting for Pensions," the
development of the projected benefit obligation essentially is computed for
financial reporting purposes and may differ from the actuarial determination
for funding due to varying assumptions and methods of computation.
F-47
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Postretirement Benefit Other Than Pensions
The Company provides postretirement health care and life insurance
benefits, which have been frozen, to most of its employees. Plan assets
consist principally of life insurance policies and money market instruments.
In 1996, Frontier amended its healthcare benefits plan to cap the cost
absorbed by the Company for healthcare and life insurance for its bargaining
employees who retire after December 31, 1996. The assets and liabilities
related to these plans were recorded at fair market value at the date of the
merger.
The following table summarizes the funded status of the plan (in thousands)
and the related amounts included in "Deferred credits and other" in the
Consolidated Balance Sheet of the Company as of December 31, 1999 (in
thousands):
<TABLE>
<S> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at September 30, 1999...................... $ 114,305
Service cost.................................................. 135
Interest cost................................................. 2,134
Actuarial gain................................................ (2,970)
Benefits paid................................................. (2,016)
---------
Benefit obligation at December 31, 1999....................... $ 111,588
=========
CHANGE IN PLAN ASSETS
Fair value of plan assets at September 30, 1999............... $ 2,989
Actual return on plan assets.................................. 180
Employer contribution......................................... 1,902
Benefits paid................................................. (2,016)
---------
Fair value of plan assets at December 31, 1999................ $ 3,055
=========
Funded status................................................. $(108,533)
Unrecognized net loss......................................... (2,133)
---------
Accrued benefit cost, net..................................... $(110,666)
=========
The components of the estimated postretirement benefit cost are as follows
for the three month period ended December 31, 1999 (in thousands):
Service cost.................................................... $ 135
Interest cost on projected benefit obligation................... 2,134
Expected return on plan assets.................................. (67)
---------
Net periodic pension cost (benefit)............................. $ 2,202
=========
The following rates and assumptions were used to calculate the projected
benefit obligation as of December 31, 1999:
Weighted average discount rate.................................. 8.00%
Rate of salary increase......................................... 5.00%
Expected return on plan assets.................................. 9.50%
Assumed rate of increase in cost of covered health care
benefits....................................................... 6.17%
</TABLE>
Increases in health care costs were assumed to decline consistently to a
rate of 5.0% by 2006 and remain at that level thereafter. If the health care
cost trend rates were increased by one percentage point, the accumulated
F-48
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
postretirement benefit health care obligation as of December 31, 1999 would
increase by $8.2 million while the sum of the service and interest cost
components of the net postretirement benefit health care costs for 1999 would
increase by $191,000. If the health care cost trend rates were decreased by
one percentage point, the accumulated postretirement benefit health care
obligations as of December 31, 1999 would decrease by $7.3 million while the
sum of the service interest cost components of the net postretirement benefit
health care cost for 1999 would decrease by $168,000.
18. RELATED PARTY TRANSACTIONS
Transactions with Global Access Ltd. and Pacific Crossing Ltd.
During 1999, Global Crossing entered into certain transactions with GAL and
PCL to purchase $101.4 million of terrestrial and subsea capacity.
Transactions with Pacific Capital Group and its Affiliates
Prior to 1999, Global Crossing entered into certain transactions with
affiliates of Pacific Capital Group ("PCG"), including the acquisition of
development rights to certain of the Company's fiber optic cable systems. PCG
is controlled by certain officers and directors of Global Crossing who either
currently are or at one time were affiliated with PCG. During 1999, Global
Crossing subleased from PCG two suites of offices in Beverly Hills for
payments aggregating approximately $287,000 over the year. In October 1999,
Global Crossing entered into a lease with North Crescent Realty V, LLC, which
is managed by and affiliated with PCG, for an aggregate monthly cost of
approximately $400,000. North Cresent Realty, LLC paid approximately $7.5
million to improve the property to meet Global Crossing's specifications and
was reimbursed approximately $3.2 million of this amount by Global Crossing.
Global Crossing engaged an independent real estate consultant to review the
terms of Global Crossing's occupancy of the building, which terms were found
by the consultant to be consistent with market terms and conditions and the
product of an arm's length negotiation. Global Crossing subleases
approximately 12,000 square feet of the building to PCG for an aggregate
monthly cost of approximately $53,000.
PCG has fractional ownership interests in aircrafts used by Global Crossing
during 1999. Global Crossing reimburses PCG for PCG's cost of maintaining
these ownership interests such that PCG realizes no profit from the
relationship. During 1999, PCG billed Global Crossing approximately $2 million
in aggregate under this arrangement.
In 1997, the Company paid $7 million in fees to PCG and certain of its key
executives, who are shareholders of GCL, and another shareholder for services
provided in respect of obtaining the AC-1 Credit Facility, Old Senior Notes
and the GTH Preferred Stock financing. Of the fees paid, $5 million was
allocated to the AC-1 Credit Facility and Old Senior Notes and recorded as
deferred finance costs, $1 million was allocated to the GCH Preferred Stock
and recorded as a reduction in the carrying value of the preferred stock and
$1 million was recorded as common stock issuance costs.
Transactions with Canadian Imperial Bank of Commerce and its affiliates
During 1999, Canadian Imperial Bank of Commerce and its affiliates ("CIBC")
entered into certain financing transactions with Global Crossing. In
particular, CIBC: (1) acted as an arranger for the $600 million ten-day demand
note issued by Global Marine Systems in July, (2) acted as an arranger for the
$3 billion senior secured credit facility entered into by GCH in July, (3) was
an initial purchaser of the $2 billion aggregate principal amount of unsecured
senior notes issued by GCH in November, and (4) was an initial purchaser of
GCL's $650 million aggregate liquidation preference 7% cumulative convertible
preferred stock issued in
F-49
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December. During 1999, Global Crossing paid CIBC approximately $5.6 million in
fees in connection with these transactions. CIBC has a substantial beneficial
ownership interest in Global Crossing, and certain directors of Global
Crossing are employees of an affiliate of CIBC.
In 1998, CIBC was one of the initial purchasers of the New Senior Notes and
GCH Preferred Stock, a member of the PC-1 and MAC credit facility syndicates,
and was also one of the underwriters of the Company's initial public offering
("IPO"). CIBC was paid $19 million in fees and credit facility interest during
the year ended December 31, 1998. In 1997, GCL paid CIBC approximately $25
million in fees related to the financing obtained under the Old Senior Notes,
the AC-1 Credit Facility, and the issuance of the GTH Preferred Stock. Of the
fees incurred, approximately $6 million related to underwriting and commitment
fees pertaining to the issuance of the GTH Preferred Stock and was recorded as
a reduction in the carrying value of the GTH Preferred Stock, approximately $9
million related to underwriting, commitment and advisory fees in connection
with the issuance of the Old Senior Notes and approximately $10 million
related to fees associated with obtaining the AC-1 Credit Facility which was
recorded as deferred finance costs.
Relationship to Ziff-Davis Inc. and Affiliates
A director of Global Crossing is the chairman and chief executive officer
of Ziff-Davis Inc., a majority of the common stock of which is beneficially
owned by Softbank Corp. Softbank is a party to the Asia Global Crossing joint
venture established to provide advanced network-based telecommunications
services to businesses and consumers throughout Asia. Global Crossing, which
is responsible for the management and operation of the network, contributed to
the venture its 57.75% share of the Pacific Crossing system and its
development rights in East Asia Crossing. Softbank and Microsoft each
contributed $175 million in cash to Asia Global Crossing and also committed to
make a total of at least $200 million in Global Crossing Network capacity
purchases over a three-year period, expected to be utilized primarily on the
Pacific Crossing system and East Asia Crossing. Softbank and Microsoft also
agreed to use Asia Global Crossing's network in the region. Global Crossing
currently owns 93% of Asia Global Crossing, with Softbank and Microsoft each
owning 3.5%. When the fair market value of Asia Global Crossing is determined
to exceed $5 billion, the ownership interest of Softbank and Microsoft will
increase to a maximum of 19% each at a valuation of $7.5 billion and above.
The Global Crossing director is Softbank's representative on the Asia Global
Crossing board of directors. In addition, Ziff-Davis is one of the largest
web-hosting customers of our GlobalCenter subsidiary.
Relationship to Hutchison Whampoa Limited
The managing director of Hutchison was recently appointed a director of
Global Crossing. In November 1999, Hutchison and Global Crossing entered into
an agreement to form a 50/50 joint venture to pursue fixed-line
telecommunications and Internet opportunities in the Hong Kong Special
Administrative Region, China. The joint venture, the formation of which was
completed in January 2000, combines Hutchison's existing territory-wide,
building-to-building fixed-line fiber optic telecommunications network and
certain Internet-related assets in Hong Kong with Global Crossing's
international fiber optic broadband cable capacity and web hosting, Internet
applications and data services. For its 50% share, Global Crossing provided to
Hutchison $400 million in Global Crossing 6 3/8% cumulative convertible
preferred stock. Additionally, Global Crossing committed to contribute to the
joint venture international telecommunications capacity rights on its global
fiber optic network and data center related capabilities which together are
valued at $350 million, as well as $50 million in cash.
Agreements with Global Crossing Stockholders
In August 1998, PCG, GKW Unified Holdings (an affiliate of PCG), affiliates
of CIBC, Global Crossing and some other Global Crossing shareholders,
including some officers and directors and their affiliates, entered
F-50
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
into a Stockholders Agreement and a Registration Rights Agreement. Under the
Stockholders Agreement, Global Crossing has been granted a right of first
refusal on specified private transfers by these shareholders during the first
two years after the consummation of the IPO on August 14, 1998. In addition,
subject to the exceptions in the Stockholders Agreement, some of these
shareholders have rights, which are referred to as tag-along rights,
permitting these shareholders to participate, on the same terms and
conditions, in some transfers of shares by any other of these shareholders as
follows: (1) PCG, GKW Unified Holdings and CIBC and their affiliates and
permitted transferees have the right to participate in any transaction
initiated by any of them to transfer 5% or more of our outstanding securities;
and (2) PCG, GKW Unified Holdings, CIBC and their affiliates and permitted
transferees have the right to participate in any transaction initiated by any
of them to transfer any Global Crossing securities if that transaction would
result in a change of control of Global Crossing. Under the Registration
Rights Agreement, Global Crossing shareholders who are parties to that
agreement and a number of their transferees have demand and piggyback
registration rights and will receive indemnification and, in some
circumstances, reimbursement for expenses from the Company in connection with
an applicable registration.
Principal shareholders of Global Crossing, representing at that time over a
majority of the voting power of the Company's common stock, entered into a
Voting Agreement with Frontier Corporation in March 1999 in connection with
the Frontier merger. These Global Crossing shareholders reaffirmed their
voting obligations under the Voting Agreement in connection with subsequent
amendments made to the merger agreement during 1999. Pursuant to the Second
Reaffirmation of Voting Agreement and Share Transfer Restriction Agreement
dated September 2, 1999, the Global Crossing shareholders that are parties to
the Voting Agreement also agreed, from September 2, 1999 until March 28, 2000,
not to transfer record or beneficial ownership of any shares of Global
Crossing common stock held by such shareholders, other than transfers to
charities, transfers made with the consent of the Company and other limited
exceptions, and to work in good faith toward implementing a program with the
purpose that, if the Global Crossing shareholders that are parties to the
Voting Agreement wish to sell or transfer their shares after March 28, 2000,
these sales or transfers would be completed in a manner that would provide for
an orderly trading market for the shares of Global Crossing common stock.
Also on September 2, 1999, fourteen of the Company's executive officers and
three executive officers of Frontier entered into a Share Transfer Restriction
Agreement with Global Crossing. Under this agreement, the Global Crossing
executive officers agreed not to sell or transfer shares of the Company's
common stock, and the Frontier executive officers agreed not to sell or
transfer shares of Frontier common stock and the shares of Global Crossing
common stock they would receive in exchange for their Frontier common stock in
the merger, until March 28, 2000, subject in each case to substantially the
same exceptions as are applicable to the Second Reaffirmation of Voting
Agreement and Share Transfer Restriction Agreement described in the
immediately preceding paragraph.
Advisory Services Agreement ("ASA")
ACL entered into the ASA with PCG Telecom, an affiliate of PCG which is a
shareholder of GCL. Under the ASA, PCG Telecom provided ACL with advice in
respect of the development and maintenance of AC-1, development and
implementation of marketing and pricing strategies and the preparation of
business plans and budgets. As compensation for its advisory services, PCG
Telecom received a 2% fee on the gross revenue of the Company over a 25 year
term, subject to certain restrictions, with the first such payment to occur at
the AC-1 RFS date. Advances on fees payable under the ASA were being paid to
PCG Telecom at a rate of 1% on signed CPAs until the ASA was terminated, as
described below. Fees paid under the ASA to PCG Telecom were shared amongst
Union Labor Life Insurance Company ("ULLICO"), PCG, CIBC, and certain
directors and officers of the Company, all of whom are shareholders of GCL.
Effective June 1998, GCL acquired the rights under the ASA on behalf of the
Company for common stock and contributed such rights to the Company as the ASA
was terminated. This transaction was recorded in the consolidated financial
statements as an increase in additional
F-51
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
paid-in capital of $135 million and a charge against operations in the amount
of $138 million. The $138 million is comprised of a $135 million settlement of
the fees that would have been payable and the cancellation of $3 million owed
to the Company under a related advance agreement. The $135 million amount was
calculated by applying the 2% advisory services fee to projected future
revenue and discounting the amount relating to AC-1 revenue by 12% and the
amount relating to all other system's revenue by 15%. The result of this
calculation was $156 million, which amount was subsequently reduced to $135
million. Both the discount rates and the ultimate valuation were determined as
a result of a negotiation process including a non management director of the
Company and the various persons entitled to fees under the ASA. The Company
obtained a fairness opinion from an independent financial advisor in
connection with this transaction. In addition, the Company incurred
approximately $2 million of advisory fees prior to termination of the
contract, for a total expense of $140 million for the year ended December 31,
1998.
PCG Warrants
PCG Warrants, issued in 1998 by the Company's predecessor, Global Crossing
Ltd., LDL ("Old GCL") became exercisable upon the completion of the IPO. The
PCG Warrants gave each holder the option to convert each share under warrant
into a fraction of a Class B of Old GCL share based upon the ratio of the
current per share valuation at the time of conversion less the per share
exercise price of the warrant divided by the current per share valuation at
the time of conversion multiplied by the 36,906,372 shares available under the
PCG Warrants, together with a new warrant ("New PCG Warrants") to purchase the
remaining fraction of such Class B share at an exercise price equal to the
then current per share valuation. Prior to the IPO, the holders of the PCG
Warrants exercised their warrants to acquire Class B of Old GCL shares by way
of the cashless conversion and the New PCG Warrants were issued with an
exercise price based on the per share valuation at the conversion date, the
obligation on which were assumed by GCL.
The Company accounted for the cashless conversion of the PCG Warrants,
which occurred as of June 1998, using the current estimated per share
valuation at the expected conversion date, multiplied by the number of Class B
shares of Old GCL estimated to be converted in exchange for the PCG Warrants.
The resulting value under this calculation is approximately $213 million,
which was allocated to the new systems in exchange for the PCG Warrants. In
connection with the formation of PCL, the Company agreed to make available to
PCL the consideration received by the Company in connection with the grant of
the PCG Warrants, in addition to the $231 million cash investment made by the
Company. Therefore, the Company recorded an increase in its investment in PCL
in the amount of approximately $127 million and an increase in construction in
progress for PAC and MAC in the amounts of approximately $50 million and $36
million, respectively, with a corresponding increase of $213 million in
additional paid-in capital. The $213 million was allocated on a pro rata basis
to the three projects according to the estimated cost of each system. The
Company's accounting for the PCG Warrants is pursuant to Emerging Issues Task
Force 96-18, "Accounting for Equity Instruments with Variable Terms that are
Issued for Consideration other than Employee Services under FASB Statement No.
123" ("EITF 96-18"). Under EITF 96-18, the fair value of equity instruments
issued for consideration other than employee services should be measured using
the stock price or other measurement assumptions as of the date at which a
firm commitment for performance level has been reached. The Company has
recorded the estimated value of the PCG Warrants as of June 1998, since the
IPO was probable at that date. The $213 million value attributed to the PCG
Warrants as of June 1998 was adjusted to the actual value of $275 million on
the date of the IPO based upon the $9.50 price per share of the IPO.
The Company gave accounting recognition for the New PCG Warrants on the
date these warrants were issued, which was the date of the IPO. The Company
valued each of the New PCG Warrants at $3.48 based on an independent valuation
based on the IPO price of $9.50 per share. The New PCG Warrants had a total
value of approximately $43 million. The Company recorded the actual value of
the New PCG Warrants in a manner
F-52
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
similar to that described above whereby the total value was allocated to the
investment in PC-1, MAC and PAC based on their relative total contract costs.
Other transactions
In 1998, GCL purchased all common shares owned by Telecommunications
Development Corporation ("TDC") in the Company in exchange for 300,000 fewer
newly issued shares of common stock based upon the per share value at the
repurchase date. The transaction benefited GCL since 300,000 fewer shares were
outstanding after the repurchase without any cost to GCL. This transaction was
accounted for as the acquisition of treasury stock and was recorded as $209
million, the fair value of the consideration given. Certain officers and
directors of the Company held direct or indirect equity ownership positions in
TDC, resulting in these officers and directors having a majority of the
outstanding common stock of TDC. Following this transaction, TDC distributed
all of its shares of common stock and GCL warrants to the holders of its
common stock and was then liquidated.
19. SEGMENT REPORTING
The Company is a worldwide provider of Internet and long distance
telecommunications facilities and related services supplying its customers
with global "point to point" connectivity and, through its Global Marine
Systems subsidiary, providing cable installation and maintenance services. The
Company's reportable segments include telecommunications services,
installation and maintenance services, and incumbent local exchange carrier
services. There are other corporate related charges not attributable to a
specific segment. While the Company's chief decision maker monitors the
revenue streams of the various products and geographic locations, operations
are managed and financial performance evaluated based on the delivery of
multiple, integrated services to customers over a single network. As a result,
there are many shared expenses generated by the various revenue streams and
management believes that any allocation of the expenses incurred to multiple
revenue streams would be impractical and arbitrary.
F-53
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The information below summarizes certain financial data of the Company by
segment (in thousands):
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
Telecommunication
Services
Revenue
Commercial............ $ 279,603 $ -- $ --
Consumer.............. 46,661 -- --
Carrier............... 991,984 419,866 --
----------- ---------- --------
$ 1,318,248 $ 419,866 $ --
=========== ========== ========
Operating expenses..... $ 1,370,534 $ 299,922 $ 3,101
=========== ========== ========
Operating income
(loss)................ $ (52,286) $ 119,944 $ (3,101)
=========== ========== ========
Adjusted EBITDA........ $ 581,912 $ 364,948 $ 2,263
=========== ========== ========
Cash paid for capital
expenditures.......... $ 1,552,019 $ 413,996 $428,743
=========== ========== ========
Total assets........... $16,813,242 $2,639,177 $572,197
=========== ========== ========
Installation and
Maintenance Services
Revenue................
Total revenue.......... 160,655 -- --
=========== ========== ========
Operating expenses..... 162,209 -- --
=========== ========== ========
Operating loss......... $ (1,554) $ -- $ --
=========== ========== ========
Adjusted EBITDA........ $ 39,263 $ -- $ --
=========== ========== ========
Cash paid for capital
expenditures.......... $ 170,585 $ -- $ --
=========== ========== ========
Total assets........... $ 1,519,166 $ -- $ --
=========== ========== ========
Incumbent Local Exchange
Carrier Services
Revenue................ $ 185,921 $ -- $ --
=========== ========== ========
Operating expenses..... 131,942 -- --
=========== ========== ========
Operating income....... $ 53,979 $ -- --
=========== ========== ========
Adjusted EBITDA........ $ 94,606 $ -- $ --
=========== ========== ========
Cash paid for capital
expenditures.......... $ 48,311 $ -- $ --
=========== ========== ========
Total assets........... $ 1,373,172 $ -- --
=========== ========== ========
Corporate and Other
Revenue................ $ -- $ -- $ --
=========== ========== ========
Operating expenses..... 7,600 139,669 --
=========== ========== ========
Operating loss......... $ (7,600) $ (139,669) $ --
=========== ========== ========
Adjusted EBITDA........ $ (7,600) $ -- $ --
=========== ========== ========
Cash paid for capital
expenditures.......... $ -- $ -- $ --
=========== ========== ========
Total assets........... $ -- $ -- $ --
=========== ========== ========
</TABLE>
F-54
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
Consolidated
Consolidated revenue... $ 1,664,824 $ 419,866 $ --
Consolidated operating
expense............... 1,672,285 439,591 3,101
----------- ---------- --------
Consolidated operating
(loss)................ $ (7,461) $ (19,725) $ (3,101)
=========== ========== ========
Adjusted EBITDA........ $ 708,181 $ 364,948 $ 2,263
=========== ========== ========
Consolidated cash paid
for capital
expenditures.......... $ 1,770,915 $ 413,996 $428,743
=========== ========== ========
Consolidated total
assets................ $19,705,580 $2,639,177 $572,197
=========== ========== ========
</TABLE>
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization
(Adjusted EBITDA) is calculated 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. Global Crossing Ltd. presents Adjusted EBITDA because it
is a financial indicator used by investors and analysts to analyze and compare
companies on the basis of operating performance and because management
believes that Adjusted EBITDA is an additional, meaningful measure of
performance and liquidity. Global Crossing Ltd.'s management uses Adjusted
EBITDA to monitor its compliance with its financial covenants and to
understand the financial indicators investors and analysts are using to
measure its performance. 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. The calculation of Adjusted EBITDA is as follows:
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
Operating loss.......... $ (7,461) $(19,725) $(3,101)
Goodwill amortization... 127,621 -- --
Depreciation and
amortization........... 124,294 541 39
Stock related expense... 51,306 39,374 --
Non-cash cost of
capacity sold.......... 291,764 140,892 --
Incremental cash
deferred revenue....... 120,657 64,197 5,325
Termination of Advisory
Services Agreement..... -- 139,669 --
-------- -------- -------
Adjusted EBITDA......... $708,181 $364,948 $ 2,263
======== ======== =======
</TABLE>
F-55
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Long-Lived Long-Lived
Revenue Assets Revenue(1) Assets(2)
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
North America
United States.................. $ 997,025 $3,029,828 $193,142 $ 76,055
Other.......................... 64,040 26,515 64,558 --
---------- ---------- -------- ----------
1,061,065 3,056,343 257,700 76,055
Europe
The Netherlands................ 89,600 92,251 46,770 82,433
Germany........................ 145,289 204,564 36,047 30,021
England........................ 106,815 722,462 34,777 49,081
Other.......................... 244,351 302,645 44,572 --
---------- ---------- -------- ----------
586,055 1,321,922 162,166 161,535
International waters............. -- 1,339,614 -- 770,966
Other............................ 17,704 308,174 -- --
---------- ---------- -------- ----------
Consolidated..................... $1,664,824 $6,026,053 $419,866 $1,008,556
========== ========== ======== ==========
</TABLE>
--------
(1) During 1998, there was one customer located in the United States that
accounted for 16% of consolidated revenue, another customer located in
Canada that accounted for 16% of consolidated revenue, and one customer
located in the Netherlands that accounted for 11% of consolidated revenue.
There were no individual customers in 1999 that accounted for more than
10% of consolidated revenue.
(2) Long-lived assets include capacity available for sale and construction in
progress as of December 31, 1999 and 1998.
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's unaudited quarterly results are as follows:
<TABLE>
<CAPTION>
1999 Quarter Ended
--------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue.......................... $176,319 $188,459 $234,582 $1,065,464
Operating income (loss).......... 41,067 39,764 13,226 (101,518)
Income (loss) before
extraordinary item and
cumulative effect of change in
accounting principle............ 12,802 9,978 135,854 (169,169)
Net income (loss)................ (1,908) 9,978 120,989 (199,985)
Net income (loss) applicable to
common shareholders............. (14,952) (4,219) 106,918 (225,315)
Income (loss) per common share
before extraordinary item and
cumulative effect of change in
accounting principle, basic..... (0.00) (0.01) 0.30 (.25)
Net income (loss) per common
share, basic.................... (0.04) (0.01) 0.26 (.29)
Income (loss) per common share
before extraordinary item and
cumulative effect of change in
accounting principle, diluted... (0.00) (0.01) 0.27 (.25)
Net income (loss) per common
share, diluted.................. $ (0.04) $ (0.01) $ 0.24 $ (.29)
</TABLE>
F-56
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant 1999 interim events:
On December 15, 1999, the Company issued 2,600,000 shares of 7% cumulative
convertible preferred stock at a liquidation preference of $250.00 for net
proceeds of $630 million.
On November 24, 1999, the Company acquired Racal Telecom, a group of wholly
owned subsidiaries of Racal Electronics plc, for approximately $1.6 billion in
cash.
On November 12, 1999, GCH issued two series of senior unsecured notes. The
9 1/8% senior notes are due November 15, 2006 with a face value of $900
million, for net proceeds of $887 million and the 9 1/2% senior notes are due
November 15, 2009 with a face value of $1,100 million, for net proceeds of
$1,084 million.
On November 5, 1999, the Company 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.
On September 28, 1999, the Company consummated its merger with Frontier
Corporation in a transaction valued at $10.3 billion.
On July 2, 1999, the Company completed its acquisition of the Global Marine
Systems division of Cable & Wireless Plc for approximately $908 million in
cash and assumed liabilities.
During the third quarter, the Company recognized $210 million, net of
merger related expenses, of other income in connection with the termination of
the US WEST merger agreement.
<TABLE>
<CAPTION>
1998 Quarter Ended
---------------------------------------------
March 31 June 30 September 30 December 31
-------- --------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue......................... $ -- $ 100,244 $116,494 $203,128
Operating income (loss)......... (3,794) (123,649) 31,994 75,724
Income (loss) before
extraordinary loss............. (3,722) (135,725) 15,229 56,024
Net income (loss)............... (3,722) (155,434) 15,229 56,024
Net income (loss) applicable to
common shareholders............ (8,129) (193,473) 15,229 51,649
Income (loss) per common share
before extraordinary item,
basic.......................... (0.02) (0.52) 0.04 0.13
Net income (loss) per common
share, basic................... (0.02) (0.58) 0.04 0.13
Income (loss) per common share
before extraordinary item,
diluted........................ (0.02) (0.52) 0.04 0.12
Net income (loss) per common
share, diluted................. $ (0.02) $ (0.58) $ 0.04 $ 0.12
</TABLE>
Significant 1998 interim events:
In December 1998, 5,000,000 shares of GCH 10 1/2% Preferred Stock were
issued for proceeds of $483 million.
During August 1998, the Company completed an IPO for which the Company
received net proceeds of approximately $391 million.
In May 1998, the first segment of AC-1, the United States to United Kingdom
route, was completed and commenced operations.
During the second quarter, the Company acquired the rights from those
entitled to fees payable under the advisory services agreement in
consideration for the issuance of common stock having an aggregate value of
F-57
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$135 million and the cancellation of approximately $3 million owed to the
Company under a related advance agreement. As a result of this transaction,
the Company recorded a non-recurring charge in the approximate amount of $138
million during the second quarter. In addition, the Company recognized as an
expense approximately $2 million of advisory fees incurred prior to
termination of the contract.
On May 18, 1998, the Company issued 9 5/8% senior notes due May 15, 2008,
with a face value of $800 million.
21. SHAREHOLDERS' EQUITY
Share Cancellation
As part of the Company's break-up fee received from US West, Inc. ("US
West"), the Company received 2,231,076 shares of its common stock from US West
which were cancelled by the Company. For the year ended December 31, 1999,
other income, net was composed primarily of a $210 million termination fee
paid by US West in connection with the termination of its merger agreement
with the Company, net of related expenses.
Old GCL Common Stock and Additional Paid-in Capital
During March 1997, Old GCL, formerly GT Parent Holdings LDC, was
incorporated as an exempted limited duration company in the Cayman Islands. In
March 1998, GCL, a Bermuda company, was formed as a wholly-owned subsidiary of
Old GCL. At that time, Old GCL contributed its investment in Global
Telesystems Holdings Ltd. ("GTH") to GCL. During April 1998, GCL formed a
wholly-owned subsidiary, Global Crossing Holdings Ltd. ("GCH"), a Bermuda
company, and contributed its investment in GTH to GCH upon its formation.
In January 1998, Old GCL effected a 100-for-1 stock split of each of its
Class A, B, C and D common stock and undesignated stock and amended the par
value of each share of common stock from $.0001 per share to $.000001 per
share. Prior to GCL's IPO in August 1998, GCL declared a stock dividend to Old
GCL resulting in Old GCL holding 1.5 shares of common stock of GCL for each
share of common stock of Old GCL outstanding. Pursuant to the terms of the
Articles of Association of Old GCL and prior to the Company's IPO, each holder
of Class D shares of Old GCL converted such shares into a fraction of a Class
E share of Old GCL based upon a valuation at the time of such conversion,
together with a warrant to purchase the remaining fraction of such Class E
share at an exercise price based upon such market valuation. In addition, each
holder of Class E shares of Old GCL had such Class E shares converted into
Class B shares of Old GCL. Accordingly, each holder of Class D and Class E
shares ultimately received Class B shares, with the warrants to purchase Class
E shares received by former Class D shareholders then cancelled in exchange
for warrants ("New GCL Warrants") to purchase shares of Common Stock of GCL at
an exercise price equal to the IPO price of $9.50 per share.
Subsequent to the above transaction and prior to the Company's IPO, each
shareholder of Old GCL (other than CIBC) exchanged their interests in Old GCL
for shares of common stock of GCL held by Old GCL at a rate of 1.5 shares of
common stock of GCL for each share of common stock of Old GCL ("Old GCL
Exchange"). CIBC did not participate in the above mentioned transaction and
continued to maintain its ownership of GCL through Old GCL, which became a
wholly owned subsidiary of CIBC.
Because Old GCL, GCL and GCH were entities under common control, the
transfers by Old GCL to GCL and GCL to GCH and the Old GCL Exchange were
accounted for similar to a pooling of interests. The consolidated financial
statements presented have been retroactively restated to reflect these
transactions as if they had occurred as of March 19, 1997 (Date of Inception).
F-58
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to Old GCL common stock and additional paid-in
capital prior to the Old GCL Exchange is as follows:
Common Stock:
Authorized:
1,000,000,000 Class A common stock of $.00000067 par value
1,000,000,000 Class B common stock of $.00000067 par value
1,000,000,000 Class C common stock of $.00000067 par value
3,000,000,000 Class D common stock of $.00000067 par value
1,000,000,000 Class E common stock of $.00000067 par value
43,000,000,000 undesignated common stock of $.00000067 par value
Class A shares, Class B shares and Class C shares all had voting rights. On
March 25, 1997, Old GCL issued 22,500,000 Class A shares, 101,250,000 Class B
shares, 101,250,000 Class C shares for $.33 per share, resulting in aggregate
proceeds of $75 million. In addition to the 22,500,000 Class A shares issued
to the preference shareholders for cash in connection with the issuance of the
preference shares, a total of 39,705,900 Class A shares were distributed to
the initial preference shareholder representing 15% of the aggregate number of
Class A, B and C shares outstanding. In addition, warrants to acquire a
maximum of 92,880 shares of common stock of Old GCL were issued into escrow
for the benefit of the holders of preferred stock. Effective January 21, 1998,
Old GCL authorized 1,000,000,000 new Class E non-voting shares.
Certain of the Class B shareholders were issued a total of 66,176,400 Class
D shares on March 25, 1997. Of the $34 million of proceeds received from the
issuance of Class B shares, $3 million was allocated to the Class D shares
representing the estimated fair value of the Class D shares based on an
independent valuation. Class D shares were non-voting shares which carried
special preference rights on the cash distributions made by Old GCL. Class D
shareholders were to receive 10% of cash distributions to common shareholders
once the internal rate of return to Class C shareholders exceeded 10%, and
then increasing to 20% of cash distributions to common shareholders once the
internal rate of return to Class C shareholders exceeded 30%. Effective
January 1998, Class D share rights were amended such that Class D shareholders
received the option to convert each Class D share into one Class E share upon
payment to Old GCL of $.74 per share or to a fraction of a Class E share based
upon a valuation at the time of such conversion, together with a warrant to
purchase the remaining fraction of such Class E share at an exercise price
based upon such market valuation. By granting to holders of the Class D shares
an option to convert such shares into Class E shares, the Company obtained
effective assurance that it could effect a change to a corporate structure in
the event of a major equity event, such as a merger or other business
combination or in the event of an IPO by GCL, of its common stock, since the
holders of the Class D shares would need to exercise their options in order to
participate directly in benefits of a merger or acquisition of the Company or
in order to obtain the benefits of any trading market for the common stock of
the Company; no trading market was expected to develop for the Class D shares.
The grant of the options to Class D shareholders represents an equity
transaction since the Company granted these shareholders amended share rights
in the form of options with new warrants. Since the Company had an accumulated
deficit, the charge was made against additional paid in capital, which had no
impact on the consolidated financial statements. The Company accounted for the
new warrants as an equity transaction on the date the warrants were issued,
which was the IPO date of August 13, 1998.
In 1998, the Company issued, at a price of $0.33 per share, 900,000 Class B
shares and 675,000 Class E shares. Since the estimated fair value of shares
exceeded the issue price, the Company increased stock related expense and
shareholders' equity by $2 million in 1998.
F-59
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
22. SUBSEQUENT EVENTS
IXnet and IPC Acquisitions
On February 22, 2000, the Company announced a definitive agreement to
acquire IXnet, Inc., a leading provider of specialized IP-based network
services to the global financial services community, and its parent company,
IPC Communications, Inc., in exchange for shares of common stock of Global
Crossing valued at approximately $3.8 billion. Under the terms of the
definitive merger agreement, 1.184 Global Crossing shares will be exchanged
for each IXnet share not owned by IPC and 5.417 Global Crossing shares will be
exchanged for each share of IPC. The acquisition is expected to be completed
in the second quarter of 2000 and is subject to regulatory approval and
customary closing conditions.
GlobalCenter Japan
On January 26, 2000, the Company's Asia Global Crossing joint venture
announced an agreement to create GlobalCenter Japan, a joint venture with
Japan's Internet Research Institute, Inc. ("IRI"). GlobalCenter Japan will
design, develop and construct a media distribution center in Japan providing
connectivity worldwide through the Global Crossing Network. The joint venture
will also develop and provide complex web hosting services, e-commerce support
and applications hosting solutions. Asia Global Crossing will own 89 percent
of GlobalCenter Japan, with IRI owning the remaining 11 percent.
Hutchison Global Crossing Joint Venture
On January 12, 2000, the Company established a joint venture, called
Hutchison Global Crossing, with Hutchison to pursue fixed-line
telecommunications and Internet opportunities in Hong Kong. For its 50% share,
Hutchison contributed to the joint venture its building-to-building fixed-line
telecommunications network in Hong Kong and a number of Internet-related
assets. In addition, Hutchison has agreed that any fixed-line
telecommunications activities it pursues in China will be carried out by the
joint venture. For its 50% share, the Company provided to Hutchison $400
million in Global Crossing convertible preferred stock (convertible into
shares of Global Crossing common stock at a rate of $45 per share) and
committed to contribute to the joint venture international telecommunications
capacity rights on our network and global media distribution center
capabilities which together are valued at $350 million, as well as $50 million
in cash. The Company intends to integrate its interest in Hutchison Global
Crossing into Asia Global Crossing.
F-60
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
------------------------
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
REVENUE.............................................. $ 1,119,516 $ 176,319
----------- -----------
EXPENSES:
Cost of sales....................................... 579,907 69,387
Operations, administration and maintenance.......... 144,578 12,026
Sales and marketing................................. 104,318 10,437
Network development................................. 19,209 7,376
General and administrative.......................... 166,751 3,585
Depreciation and amortization....................... 140,943 211
Goodwill and intangibles amortization............... 131,634 --
----------- -----------
1,287,340 135,252
----------- -----------
OPERATING (LOSS) INCOME.............................. (167,824) 41,067
EQUITY IN LOSS OF AFFILIATES......................... (5,140) (2,736)
MINORITY INTEREST.................................... (15,731) --
OTHER INCOME (EXPENSE):
Interest income..................................... 22,798 14,392
Interest expense.................................... (85,676) (23,779)
Other expense, net.................................. (5,628) --
----------- -----------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE........................................... (257,201) 28,944
Provision for income taxes.......................... (5,000) (16,142)
----------- -----------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE................................ (262,201) 12,802
Cumulative effect of change in accounting
principle, net of income tax benefit............... -- (14,710)
----------- -----------
NET LOSS............................................. (262,201) (1,908)
Preferred stock dividends........................... (45,258) (13,044)
----------- -----------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS........... $ (307,459) $ (14,952)
=========== ===========
NET LOSS PER COMMON SHARE:
Loss applicable to common shareholders before
cumulative effect of change in accounting
principle
Basic and diluted................................. $ (0.39) $ (0.00)
=========== ===========
Cumulative effect of change in accounting principle
Basic and diluted................................. $ -- $ (0.04)
=========== ===========
Net loss applicable to common shareholders
Basic and diluted................................. $ (0.39) $ (0.04)
=========== ===========
Shares used in computing income (loss) per share
Basic and diluted................................. 778,780,323 410,797,073
=========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-61
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,250,953 $ 1,633,499
Restricted cash and cash equivalents.............. 133,016 93,294
Accounts receivable, net.......................... 912,072 966,973
Other assets and prepaid costs.................... 319,562 252,767
----------- -----------
Total current assets............................. 2,615,602 2,946,533
Restricted cash and cash equivalents................ 69,545 138,118
Accounts receivable, net............................ 42,419 52,052
Property and equipment, net......................... 7,985,651 6,026,053
Goodwill and intangibles, net....................... 9,436,715 9,557,422
Investment in and advances to/from affiliates, net.. 604,291 323,960
Other assets........................................ 735,746 661,442
----------- -----------
Total assets..................................... $21,489,970 $19,705,580
=========== ===========
LIABILITIES
Current liabilities:
Accrued construction costs........................ $ 570,461 $ 275,361
Accounts payable and accrued liabilities.......... 919,910 980,131
Accrued interest and preferred dividends.......... 162,260 66,745
Deferred revenue.................................. 216,234 127,367
Income taxes payable.............................. 88,325 140,034
Current portion of long term debt................. 11,649 5,496
Other current liabilities......................... 264,314 257,459
----------- -----------
Total current liabilities........................ 2,233,153 1,852,593
Long-term debt...................................... 6,031,662 5,018,544
Deferred revenue.................................... 489,331 383,287
Deferred credits and other.......................... 819,485 796,606
----------- -----------
Total liabilities................................ 9,573,631 8,051,030
Minority interest................................... 478,030 351,338
----------- -----------
Mandatorily redeemable and cumulative convertible
preferred stock:
10 1/2% mandatorily Redeemable Preferred Stock,
5,000,000 shares issued and outstanding, $100
liquidation preference per share................. 486,517 485,947
----------- -----------
6 3/8% Cumulative Convertible Preferred Stock,
10,000,000 shares issued and outstanding, $100
liquidation preference per share................. 969,000 969,000
----------- -----------
6 3/8% Cumulative Convertible Preferred Stock,
Series B, 400,000 shares issued and outstanding,
$1000 liquidation preference per share........... 400,000 --
----------- -----------
7% Cumulative Convertible Preferred Stock,
2,600,000 shares issued and outstanding, $250
liquidation preference per share................. 629,750 629,750
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, 3,000,000,000 shares authorized, par
value $.01 per share, 803,604,237 and 799,137,142
shares issued as of March 31, 2000 and December 31,
1999, respectively................................. 8,030 7,992
Treasury stock, 22,033,758 shares................... (209,415) (209,415)
Additional paid-in capital and other shareholders'
equity............................................. 9,575,617 9,578,927
Accumulated deficit................................. (421,190) (158,989)
----------- -----------
Total stockholders' equity....................... 8,953,042 9,218,515
----------- -----------
Total liabilities and shareholders' equity....... $21,489,970 $19,705,580
=========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated balance
sheets.
F-62
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
---------------------
March 31, March 31,
2000 1999
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (262,201) $ (1,908)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Cumulative effect of change in accounting principle.. -- 14,710
Equity in loss of affiliates......................... 5,140 2,736
Depreciation and amortization........................ 272,577 211
Provision for doubtful accounts...................... 13,483 1,864
Stock related expense................................ 18,850 16,716
Deferred income taxes................................ (9,210) 22,125
Capacity available for sale.......................... -- 58,539
Non-cash cost of sales............................... 99,056 --
Minority Interest.................................... 15,731 --
Other................................................ 2,596 (4,831)
Changes in operating assets and liabilities.......... 84,136 (129,603)
---------- ---------
Net cash provided by (used in) operating
activities........................................ 240,158 (19,441)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction in progress and capacity
available for sale.................................... (501,622) (143,337)
Investment in and advances to affiliates............... (68,851) (12,860)
Effect of the consolidation of PC-1, net of cash
acquired.............................................. (19,979) --
Purchase of marketable securities...................... (81,200) --
Purchases of property and equipment.................... (358,924) (1,811)
---------- ---------
Net cash used in investing activities.............. (1,030,576) (158,008)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net............ 40,867 834
Proceeds from long term debt........................... 300,703 9,083
Repayment of long term debt............................ (12,094) (26,825)
Preferred dividends.................................... (22,535)
Finance costs incurred................................. 694 (77)
Minority interest investment in subsidiary............. 53,472 --
Change in restricted cash and cash equivalents......... 46,765 (47,811)
---------- ---------
Net cash provided by (used in) financing
activities........................................ 407,872 (64,796)
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............. (382,546) (242,245)
CASH AND CASH EQUIVALENTS, beginning of period......... 1,633,499 806,593
---------- ---------
CASH AND CASH EQUIVALENTS, end of period............... $1,250,953 $ 564,348
========== =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-63
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
For the Three Months Ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
--------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Costs incurred for construction in progress and capacity
available for sale..................................... $(637,996) $(180,119)
Accrued construction costs.............................. 134,284 14,282
Accrued interest........................................ -- 19,448
Amortization of deferred finance costs and other........ 2,090 3,052
--------- ---------
Cash paid for construction in progress and capacity
available for sale..................................... $(501,622) $(143,337)
========= =========
Non-cash purchases of property and equipment............ $ -- $ (38,300)
========= =========
Investments in affiliates:
Costs of investments in affiliates.................... $(468,851) $ --
Preferred stock issued for investment in joint
venture.............................................. 400,000 --
--------- ---------
$ 68,851 $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid and capitalized........................... $ 39,858 $ 6,132
========= =========
Interest paid (net of capitalized interest)............. $ 39,567 $ 772
========= =========
Cash paid for taxes..................................... $ 35,792 $ 1,788
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-64
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
-----------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net loss.......................................... $(262,201) $(1,908)
Unrealized gain on securities..................... 157 --
Foreign currency translation adjustment........... (22,792) (4,930)
--------- -------
Comprehensive loss................................ $(284,836) $(6,838)
========= =======
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
F-65
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(In thousands, except share and per share amounts)
(Unaudited)
(1) Organization and Background
Global Crossing Ltd. (a Bermuda company, together with its consolidated
subsidiaries, ("GCL" or the "Company") is building and offering services over
the world's first independent global fiber optic network, consisting of
101,000 announced route miles serving five continents, 27 countries and more
than 200 major cities. Upon completion of our currently announced systems, our
network and our telecommunications and Internet product offerings will be
available in markets constituting over 80% of the world's international
communications traffic.
The Company's strategy is to be the premier provider of global broadband
Internet Protocol ("IP") and data services for both wholesale and retail
customers. The Company is building a state-of-the-art fiber optic network that
management believes to be of unprecedented global scope and scale to serve as
the backbone for this strategy. Management believes that the Company's network
will enable it to be the low cost service provider in most of its addressable
markets.
Global Crossing Ltd. serves as a holding company for its subsidiaries'
operations, including the operations of the following acquired entities:
Global Marine Systems (acquired July 2, 1999), Frontier Corporation (acquired
September 28, 1999), Racal Telecom (acquired November 24, 1999) and a 50%
interest in the Hutchison Global Crossing joint venture (completed January 12,
2000). The acquisition of these entities is hereinafter referred to as the
"Acquisitions." In addition the Company has a significant ownership interest
in Asia Global Crossing.
Asia Global Crossing, a joint venture with Softbank Corp. and Microsoft
Corporation, intends to become the first truly pan-Asian carrier to offer
worldwide bandwidth and data communications. The Asia Global Crossing joint
venture was established on November 24, 1999.
GlobalCenter, a wholly-owned subsidiary of GCL, will expand its product set
to become a single-source e-commerce service solution that will provide web-
centric businesses with the high availability, flexibility and scalability
necessary to compete in the rapidly expanding digital economy.
(2) Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements as of March 31, 2000 and for the three months ended March 31, 2000
and 1999, include the accounts of Global Crossing Ltd. and its consolidated
subsidiaries. All material inter-company balances and transactions have been
eliminated. The unaudited interim condensed consolidated financial statements
reflect all adjustments, consisting of normal recurring items, which are, in
the opinion of management, necessary to present a fair statement of the
results of the interim period presented. The results of operations for any
interim period are not necessarily indicative of results for the full year.
These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenue and expenses during the reporting
period. Actual amounts and results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements do
not include all footnotes and certain financial presentations normally
required under generally accepted accounting principles. Therefore, these
F-66
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
(3) Net Loss Applicable to Common Shareholders
Basic Earnings Per Share (EPS) is computed by dividing net loss available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted. The dilutive effect of the assumed exercise of stock
options and convertible securities were anti-dilutive for the three months
ended March 31, 2000 and 1999, respectively. The impact of dilutive options,
warrants and convertible securities increases the weighted average shares
outstanding to 841,992,988 used in calculating Diluted EPS for the three
months ended March 31, 2000.
(4) Acquisitions
The Acquisitions are being accounted for under the purchase method of
accounting for business combinations. The initial purchase price of the
Acquisitions were allocated based on the estimated fair value of acquired
assets and liabilities at the date of acquisition. The Company will make final
purchase price allocations based upon final values for certain assets and
liabilities. As a result, the final purchase price allocation may differ from
the presented estimate. Following is the unaudited pro forma results of the
Company, assuming the Acquisitions had been completed at the beginning of the
period presented:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1999
--------------
<S> <C>
Revenue..................................................... $ 1,031,474
===========
Loss applicable to common shareholders before cumulative
effect of change in accounting principle................... $ (121,782)
===========
Loss applicable to common shareholders...................... $ (136,492)
===========
Loss per common share:
Loss applicable to common shareholders before cumulative
effect of change in accounting principle, basic and
diluted.................................................. $ (0.16)
===========
Loss applicable to common shareholders, basic and
diluted.................................................. $ (0.18)
===========
Shares used in computing loss per share, basic and
diluted.................................................. 762,470,473
===========
</TABLE>
F-67
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Land................................................ $ 25,045 $ 14,886
Buildings........................................... 230,841 184,827
Leasehold improvements.............................. 32,571 29,096
Furniture, fixtures and equipment................... 927,764 771,585
Transmission equipment.............................. 3,324,643 2,544,903
---------- ----------
4,540,864 3,545,297
Accumulated depreciation............................ (265,817) (124,874)
---------- ----------
4,275,047 3,420,423
Construction in progress............................ 3,710,604 2,605,630
---------- ----------
Total property and equipment........................ $7,985,651 $6,026,053
========== ==========
</TABLE>
(6) Shareholders' Equity
Stock Option Plan. During the three months ended March 31, 2000, the
Company granted stock options for an aggregate of 6,212,890 shares of common
stock under the Company's 1998 Stock Incentive Plan. On March 31, 2000, stock
options covering 79,528,469 shares of common stock were outstanding. Details
of the Company's 1998 Stock Incentive Plan are included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
(7) Segment Information
The Company is a worldwide provider of Internet and long distance
telecommunications facilities and related services supplying its customers
with global "point to point" connectivity and, through its Global Marine
Systems subsidiary, providing cable installation and maintenance services. The
Company's reportable segments include telecommunications services,
installation and maintenance services, and incumbent local exchange carrier
services. There are other corporate related charges not attributable to a
specific segment. As a result, there are many shared expenses generated by the
various revenue streams and management believes that any allocation of the
expenses incurred to multiple revenue streams would be impractical and
arbitrary. The Company's chief decision maker monitors the revenue streams of
the various products and geographic locations and operations are managed and
financial performance, Adjusted EBITDA, is evaluated based on the delivery of
multiple, integrated services to customers over a single network.
F-68
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The information below summarizes certain financial data of the Company by
segment (in thousands):
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------- ----------
<S> <C> <C>
Telecommunications Services:
Revenue:
Commercial........................................... $ 327,020 $ --
Consumer............................................. 43,644 --
Carrier.............................................. 489,764 176,319
----------- ----------
Total revenue.......................................... $ 860,428 $ 176,319
=========== ==========
Operating (loss) income................................ $ (208,255) $ 41,607
=========== ==========
Adjusted EBITDA........................................ $ 286,514 $ 128,208
=========== ==========
Cash paid for capital expenditures..................... $ 779,291 $ 145,148
=========== ==========
Total assets........................................... $18,389,031 $2,689,797
=========== ==========
Installation and Maintenance:
Revenue................................................ $ 72,266 $ --
=========== ==========
Operating loss......................................... $ (879) $ --
=========== ==========
Adjusted EBITDA........................................ $ 20,733 $ --
=========== ==========
Cash paid for capital expenditures..................... $ 30,315 $ --
=========== ==========
Total assets........................................... $ 1,741,712 $ --
=========== ==========
Incumbent Local Exchange Carrier:
Revenue................................................ $ 186,822 $ --
=========== ==========
Operating income....................................... $ 53,895 $ --
=========== ==========
Adjusted EBITDA........................................ $ 93,929 $ --
=========== ==========
Cash paid for capital expenditures..................... $ 50,940 $ --
=========== ==========
Total assets........................................... $ 1,359,227 $ --
=========== ==========
Corporate Operations and Other:
Operating loss......................................... $ (12,585) $ --
=========== ==========
Adjusted EBITDA........................................ $ (12,585) $ --
=========== ==========
Consolidated:
Revenues............................................... $ 1,119,516 $ 176,319
=========== ==========
Operating (loss) income................................ $ (167,824) $ 41,067
=========== ==========
Adjusted EBITDA........................................ $ 388,591 $ 128,208
=========== ==========
Cash paid for capital expenditures..................... $ 860,546 $ 145,148
=========== ==========
Total assets........................................... $21,489,970 $2,689,797
=========== ==========
</TABLE>
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization
(Adjusted EBITDA) is calculated as operating (loss) income plus depreciation
and amortization, goodwill and intangibles amortization, stock related
expense, non-cash cost of capacity sold and the incremental cash deferred
revenue. This definition is consistent with financial covenants contained in
Global Crossing Ltd.'s major financial agreements. We present
F-69
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Adjusted EBITDA because it is a financial indicator used by investors and
analysts to analyze and compare companies on the basis of operating
performance and because we believe that Adjusted EBITDA is an additional,
meaningful measure of performance and liquidity. Global Crossing Ltd.'s
management uses Adjusted EBITDA to monitor its compliance with its financial
covenants and to understand the financial indicators investors and analysts
are using to measure its performance. 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. The calculation of Adjusted EBITDA is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
-------- ---------
<S> <C> <C>
Operating loss........................................ $ 41,067 $(167,824)
Goodwill amortization................................. -- 131,634
Depreciation and amortization......................... 211 140,943
Stock related expense................................. 16,716 18,850
Non-cash cost of capacity sold........................ 53,514 99,056
Incremental cash deferred revenue..................... 16,700 165,932
-------- ---------
Adjusted EBITDA....................................... $128,208 $ 388,591
======== =========
</TABLE>
(8)Pending Accounting Standards
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which is required to be adopted by the Company in the quarter
ending June 30, 2000. SAB 101 provides additional guidance on revenue
recognition as well as criteria for when revenue is generally realized and
earned. Management is currently assessing the impact of SAB 101 on the results
of operations and financial position of the Company.
(9) Reclassifications
Certain prior year amounts have been reclassified in the condensed
consolidated financial statements for consistent presentation to current year
amounts.
(10) Significant Events
On January 12, 2000, the Company established a joint venture, called
Hutchison Global Crossing, with Hutchison Whampoa Limited ("Hutchison") to
pursue fixed-line telecommunications and Internet opportunities in Hong Kong.
For its 50% share, Hutchison contributed to the joint venture its building-to-
building fixed-line telecommunications network in Hong Kong and a number of
Internet-related assets. In addition, Hutchison has agreed that any fixed-line
telecommunications activities it pursues in China will be carried out by the
joint venture. For its 50% share, the Company provided to Hutchison $400
million in Global Crossing convertible preferred stock (convertible into
shares of Global Crossing common stock at a rate of $45 per share) and
committed to contribute to the joint venture international telecommunications
capacity rights on our network and global media distribution center
capabilities which together are valued at $350 million, as well as $50 million
in cash. The Company intends to integrate its interest in Hutchison Global
Crossing into the Company's Asia Global Crossing joint venture ("AGC").
On January 26, 2000, AGC announced an agreement to create GlobalCenter
Japan, a joint venture with Japan's Internet Research Institute, Inc. ("IRI").
GlobalCenter Japan will design, develop and construct a media
F-70
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
distribution center in Japan providing connectivity worldwide through the
Global Crossing Network. The joint venture will also develop and provide
complex web hosting services, e-commerce support and applications hosting
solutions. AGC will own 89 percent of GlobalCenter Japan, with IRI owning the
remaining 11 percent.
On February 22, 2000, we announced a definitive agreement to acquire IXnet,
Inc., a leading provider of specialized IP-based network services to the
global financial services community, and its parent company,
IPC Communications, Inc., in exchange for shares of our common stock valued at
approximately $3.8 billion. Under the terms of the definitive merger
agreement, 1.184 of our shares will be exchanged for each IXnet share not
owned by IPC, and 5.417 of our shares will be exchanged for each share of IPC.
We expect to complete the acquisition in the second quarter of 2000. That
acquisition is subject to regulatory approval and customary closing
conditions.
On March 2, 2000, we announced plans to create a new class of Global
Crossing common stock that would track the performance of the complex web
hosting business operated by our wholly-owned subsidiary, GlobalCenter, Inc.
The creation of this new class of stock will be subject to shareholder
approval.
On March 24, 2000, the Company increased its interest in the PC-1 cable
system from 57.75% to 64.50% for approximately $21 million by acquiring the
remaining ownership of another partner in PC-1. In connection with this
transaction, the PC-1 Shareholder Agreement was amended, which enabled the
Company to exercise effective control over PC-1.
On March 31, 2000, AGC announced its intention to effectuate an initial
public offering of its common stock and to file a registration statement under
the Securities Act of 1933 in respect of the proposed offering.
(10) Subsequent Events
In April 2000, we issued 21,673,706 shares of our common stock for net
proceeds of approximately $694 million. In connection with this issuance and
sale by the Company of common stock, certain existing shareholders sold an
aggregate of 21,326,294 shares of common stock, for which the Company received
no proceeds.
In April 2000, we issued 4,000,000 shares of 6 3/4% cumulative convertible
preferred stock at a liquidation preference of $250 for net proceeds of
approximately $970 million. Each share of preferred stock is convertible into
6.3131 shares of common stock, based on a conversion price of $39.60.
Dividends on the preferred stock are cumulative from the date of issue and
will be payable on January 15, April 15, July 15 and October 15 of each year
beginning on July 15, 2000, at the annual rate of 6 3/4%. In May 2000,
pursuant to an over-allotment option held by the underwriters of the preferred
stock, the Company issued an additional 600,000 shares of 6 3/4% cumulative
convertible preferred stock for net proceeds of approximately $146 million.
F-71
<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............................................ $ 314,226
Nasdaq National Market listing fee.............................. 1,000
Bermuda Stock Exchange listing fee.............................. *
NASD filing 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 (previously filed).
3.7 Form of Policy Statement Regarding Global Crossing Group and
GlobalCenter Group Matters (previously filed).
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 Group (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).
23.9 Consent of International Data Corporation (filed herewith).
24.1 Power of Attorney of the Registrant (previously filed).
</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
II-2
<PAGE>
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,
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 June 14, 2000.
Global Crossing Ltd.
/s/ Leo J. Hindery, Jr.
By: _________________________________
Name: Leo J. Hindery, Jr.
Title: Chief Executive Officer
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>
* Chairman of the Board and Director June 14, 2000
______________________________________
Gary Winnick
* Co-Chairman of the Board and June 14, 2000
______________________________________ Director
Lodwrick M. Cook
* Vice Chairman of the Board and June 14, 2000
______________________________________ Director
Thomas J. Casey
* Director June 14, 2000
______________________________________
Jack M. Scanlon
/s/ Leo J. Hindery, Jr. Chief Executive Officer and June 14, 2000
______________________________________ Director
Leo J. Hindery, Jr.
Director
______________________________________
David L. Lee
Director; President, Global
______________________________________ Crossing North America
Joseph P. Clayton
Director
______________________________________
Barry Porter
/s/ Dan J. Cohrs Chief Financial Officer (principal June 14, 2000
______________________________________ financial officer and principal
Dan J. Cohrs accounting officer)
* Director June 14, 2000
______________________________________
Robert Annunziata
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
Director
______________________________________
Jay R. Bloom
* Director June 14, 2000
______________________________________
William E. Conway, Jr.
* Director June 14, 2000
______________________________________
Canning Fok
* Director June 14, 2000
______________________________________
Eric Hippeau
Director
______________________________________
Dean C. Kehler
* Director June 14, 2000
______________________________________
Geoffrey J.W. Kent
* Director June 14, 2000
______________________________________
James F. McDonald
* Director June 14, 2000
______________________________________
Douglas H. McCorkindale
Director
______________________________________
Bruce Raben
* Director June 14, 2000
______________________________________
Michael R. Steed
* By /s/ Dan J. Cohrs Attorney-in-fact June 14, 2000
______________________________________
Dan J. Cohrs
</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 (previously filed).
3.7 Form of Policy Statement Regarding Global Crossing Group and
GlobalCenter Group Matters (previously filed).
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 Group (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).
23.9 Consent of International Data Corporation (filed herewith).
24.1 Power of Attorney of the Registrant (previously filed).
</TABLE>
