<PAGE>
As filed with the Securities and Exchange Commission on February 2, 1999
Registration No. 333-69459
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL CROSSING HOLDINGS LTD.
(Exact name of Registrant as specified in its charter)
Bermuda 4813 98-0186828
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code No.)
organization) Number)
---------------
Wessex House
45 Reid Street
Hamilton HM12 Bermuda
(441) 296-8600
(Address and telephone number of Registrant's principal executive offices)
CT Corporation System
1633 Broadway
New York, New York 10019
(212) 479-8200
(Name, address, including zip code, and telephone number of agent for service)
---------------
with copies to:
D. Rhett Brandon, Esq. James C. Gorton, Esq.
Simpson Thacher & Bartlett Global Crossing Holdings Ltd.
425 Lexington Avenue 150 El Camino Drive, Suite 204
New York, New York 10017 Beverly Hills, California 90212
(212) 455-2000
(310) 385-5200
---------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which shall specifically state that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. We may not sell these securities until +
+the registration statement has become effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this prospectus will be
amended or completed, dated February 2, 1999
PROSPECTUS
Offer to Exchange all outstanding
10 1/2% Senior Exchangeable Preferred Stock due 2008
for
10 1/2% Senior Exchangeable Preferred Stock due 2008
which have been registered under the
Securities Act of 1933, as amended
[LOGO OF GLOBAL CROSSING HOLDINGS LTD. APPEARS HERE]
Investment in these securities involves certain risks. See "Risk Factors"
beginning on page 16.
The Company:
.We are developing the world's first independent global fiber optic
network.
.Global Crossing Holdings Ltd.
Wessex House, 45 Reid Street
Hamilton, Bermuda HM12
(441) 296-8600
globalcrossing.bm
Proposed Trading Format:
.The over-the-counter market, negotiated transactions, or a combination of
these methods.
The Exchange Offer:
. The Exchange Offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
. All outstanding preferred stock that is validly tendered and not
withdrawn will be exchanged.
. Tenders of outstanding preferred stock may be withdrawn at any time
prior to the expiration of the Exchange Offer.
. The exchange of outstanding preferred stock for exchange preferred stock
should not be a taxable event for U.S. federal income tax purposes.
. We will not receive any proceeds from the Exchange Offer.
The Exchange Preferred Stock:
. The terms of the exchange preferred stock are substantially identical to
the outstanding preferred stock, except that the exchange preferred
stock will be freely tradeable.
The New Exchange Notes:
. The terms of the new exchange notes are substantially identical to the
exchange notes, except that the new exchange notes will be freely
tradeable.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 1999.
<PAGE>
In this prospectus, the "Issuer" refers to Global Crossing Holdings Ltd., and
the "Company," "Global Crossing," "We," "Our" and "Us" refers to the Issuer and
its consolidated subsidiaries (unless the context otherwise requires). "GCL"
refers to Global Crossing Ltd., the parent company of the Issuer.
This prospectus uses a number of technical terms, such as DWDM, indefeasible
right of use, ISP and xDSL, that are not easily understandable. Certain
technical terms used in this prospectus are defined in the glossary which is
included at the end of this prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Service of Process and Enforcement of Liabilities........................ ii
Information Regarding Forward-Looking Statements......................... ii
Summary.................................................................. 1
Risk Factors............................................................. 16
Use of Proceeds.......................................................... 27
Capitalization........................................................... 27
Selected Consolidated Financial Data..................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
The Exchange Offer....................................................... 42
Business................................................................. 50
Management............................................................... 65
Principal Shareholders................................................... 75
Certain Transactions..................................................... 77
Description of Preferred Stock........................................... 83
Description of Exchange Notes............................................ 100
Description of Certain Indebtedness...................................... 134
Tax Considerations....................................................... 137
Plan of Distribution..................................................... 147
Available Information.................................................... 148
Legal Matters............................................................ 148
Experts.................................................................. 148
Index to Consolidated Financial Statements............................... F-1
Glossary of Certain Defined Terms........................................ GL-1
</TABLE>
i
<PAGE>
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
We are organized under the laws of Bermuda. In addition, certain of our
directors and officers live outside of the United States and a large amount of
our assets are located outside of the United States. As a result, it may be
difficult for you to effect service of process upon those directors and
officers who live outside the United States. Also, it may be difficult for you
to enforce judgments of the courts of the United States under the U.S. federal
securities laws against our assets that are located outside the United States.
Furthermore, our Bermuda counsel, Appleby Spurling & Kempe, has advised us that
it may be hard for you to bring a case in Bermuda based on U.S. federal
securities laws. They have also advised us that it may be difficult for you to
enforce a judgment of a U.S. court based upon U.S. federal securities laws.
Since we are organized in a jurisdiction other than the United States, we
have expressly submitted to the jurisdiction of the U.S. federal and New York
state courts sitting the Borough of Manhattan, The City of New York for the
purposes of any suit action or proceeding arising out of this offering. We have
appointed CT Corporation to accept service of process in any such action.
----------------
In this prospectus, references to "dollars" and "$" are to United States
dollars, the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction and the term "Exchange Offer" means the offer by Global
Crossing to exchange restricted preferred stock for unrestricted preferred
stock. See "Summary--Summary of Terms of the Exchange Offer."
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
We have included "forward-looking statements" throughout this prospectus.
These statements describe our attempt to predict future occurrences. We use the
words "believes," "anticipates," "expects," and similar expressions to identify
forward-looking statements. Forward-looking statements are subject to a number
of risks, assumptions and uncertainties, such as:
. risks associated with our ability to complete our systems within
currently estimated time frames and budgets,
. risks associated with our ability to sell capacity on our systems,
. risks associated with our successful transition from a system
development company to an operating company, and
. risks associated with our ability to effectively compete in a rapidly
evolving and price competitive marketplace.
This list is only an example of some of the risks, uncertainties and
assumptions that may affect our forward-looking statements. If any of these
risks or uncertainties materialize (or fail to materialize), or if the
underlying assumptions prove incorrect, actual results may differ materially
from those projected in the forward-looking statements. We do not intend to
update or revise any forward-looking statements included in this prospectus to
reflect future events. You should consider the information provided in the
section "Risk Factors" and other information in this prospectus before
investing in these securities.
ii
<PAGE>
SUMMARY
This summary highlights some information from this prospectus. Because this
is only a summary, it does not contain all of the information that may be
important to you. To understand this Exchange Offer you should read the entire
prospectus, especially "Risk Factors" and the Consolidated Financial Statements
and notes.
Global Crossing
We are developing the world's first independent global fiber optic network,
consisting of both undersea and terrestrial digital fiber optic cable systems.
We operate as a "carriers' carrier", providing tiered pricing and segmented
products to licensed providers of international Internet and telecommunications
services. Our cable systems under development will form a state-of-the-art
interconnected worldwide high capacity fiber optic network (the "Global
Crossing Network"). The undersea component of the Global Crossing Network will
initially total 51,600 km and the terrestrial component will add 9,500 km for a
combined total of 61,100 km. We are also planning several new cable systems and
evaluating other business development opportunities which, if implemented, will
complement the Global Crossing Network.
Our business is designed to meet the varying needs of the global carrier
market. We offer customers the ability to purchase capacity which is available
on demand, thereby:
. eliminating their need to commit in advance the substantial capital
which would otherwise be required to build cable capacity, and
. decreasing the risks associated with forecasting their future capacity
requirements.
Compared with traditional cable systems, we offer more comprehensive, flexible
and low-cost purchasing alternatives.
We meet current market requirements of international carriers and Internet
service providers and provide them with:
. direct international city-to-city connectivity,
. the ability to purchase capacity periodically,
. discounts based upon aggregate volume purchased on the Global Crossing
Network, and
. one-stop shopping and customer service.
We are engineering and constructing the Global Crossing Network to allow for
multiple upgrades to its initial circuit capacity at a fraction of the original
network cost. We are focusing on expanding the products and services we offer
to our customers in order to increase revenues and profits. We anticipate that
our future revenues, beyond the sale of capacity on the initial components of
the Global Crossing Network, will derive from several sources, including:
. the sale of additional capacity resulting from system upgrades,
. the development of additional undersea cable projects,
. the development or purchase of additional terrestrial fiber capacity,
and
. the introduction of new services.
1
<PAGE>
Business Strategy
Global Crossing's mission is to create the world's first independent global
fiber optic network designed to offer the highest quality city-to-city
communications connectivity among approximately 100 of the largest metropolitan
communications markets worldwide. The principal elements of our business
strategy are to:
Create a Worldwide Network. Upon completion, the currently announced segments
of the Global Crossing Network will directly connect Asia, North America,
Europe, Central America and the Caribbean utilizing state-of-the-art fiber
optic technology. By developing or acquiring terrestrial capacity, we offer
customers low cost global city-to-city connectivity. We also intend to actively
pursue additional opportunities for the expansion and utilization of the Global
Crossing Network, including complementary businesses and facilities.
Maintain Position as a Leading Wholesale Service Provider. We are the world's
first independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of digital fiber
optic cable systems. Our products are segmented to meet the varying needs of
the global carrier market, with shore-to-shore capacity, city-to-city capacity
and network purchasing options. We also offer volume-based purchasing
flexibility.
Utilize State-of-the-Art Technology. The Global Crossing Network is being
engineered and constructed using the latest cable technology which we believe
will:
. provide a cost advantage over existing alternatives,
. make it more reliable than competing systems,
. allow us to offer substantially more capacity than existing cable
systems, and
. enable system capacity to be upgraded rapidly at a fraction of the
initial cost.
Maintain Position as Low-Cost Provider. Global Crossing believes that its
low-cost position results from:
. ownership of state-of-the-art facilities, resulting in low unit costs
and low operating and maintenance costs,
. low sales, marketing and general and administrative costs, and
. purchasing efficiencies.
Provide "One-Stop" Sales and Service. We offer one-stop sales and service to
carrier customers worldwide. Our marketing professionals located in our Bermuda
headquarters and in major cities throughout the world facilitate the sale of
our telecommunications capacity and increase market awareness and name
recognition.
Leverage Extensive Management Experience. Global Crossing has assembled and
will continue to build a strong management team comprised of executives with
extensive operating experience in the telecommunications industry and the
undersea cable sector. For more information, see "Management."
2
<PAGE>
The Global Crossing Network
The following table contains summary information regarding the Company's
currently planned systems:
<TABLE>
<CAPTION>
Estimated
System Cost Expected Initial
System Market (millions) RFS Date
- ----------------------------- --------------------------------- ----------- ---------------------------
<S> <C> <C> <C>
Atlantic Crossing ("AC-1") United States and Europe $ 750 May 1998 (US-UK)
February 1999 (Full Ring)
Pacific Crossing ("PC-1") United States and Asia 1,200 March 2000
July 2000 (Full Ring)
Mid-Atlantic Crossing ("MAC") United States and the Caribbean 330 December 1999
Pan American Crossing ("PAC") Western United States, 475 February 2000
Central America and the Caribbean
Pan European Crossing ("PEC") 18 European cities and AC-1 700 December 1999 (First Phase)
Global Access Limited ("GAL") Cities in Japan and PC-1 110 December 1999 (First Phase)
------
$3,565
======
</TABLE>
Organization of Global Crossing
[LOGO OF GLOBAL CROSSING NETWORK APPEARS HERE]
* We have a 58% economic interest in PC-1 and a 49% economic interest in GAL.
All other subsidiaries of the Issuer are wholly-owned.
Our executive offices are located at Wessex House, 45 Reid Street, Hamilton,
Bermuda and our telephone number is (441) 296-8600. Our home page on the
Internet is http://www.globalcrossing.bm.
3
<PAGE>
Financing Plan
As of September 30, 1998, we have incurred approximately $708.6 million of
the $750 million in total estimated costs for AC-1 (excluding upgrades). All
future costs excluding upgrades with respect to AC-1 are fully financed. We
estimate that the total cost of developing and deploying PC-1, MAC, PAC, PEC
and GAL is approximately $2,815 million (excluding costs of potential future
upgrades and the amounts capitalized with respect to the warrants (the "PCG
Warrants") issued pursuant to the Warrant Agreement, dated as of January 21,
1998, as amended), which is comprised of $1,200 million for PC-1, $330 million
for MAC, $475 million for PAC, $700 million for PEC and $110 million for GAL.
On May 18, 1998, we consummated an offering (the "Senior Notes Offering")
pursuant to which we issued an aggregate of $800 million in principal amount of
notes (the "Senior Notes"). We utilized approximately $295 million of the net
proceeds of the Senior Notes Offering to refinance certain obligations incurred
as part of the initial financing of AC-1. The balance will be utilized to make
equity investments in certain of our systems and for general corporate
purposes.
On August 13, 1998, Global Crossing Ltd., our parent, and certain of its
shareholders sold 24,150,000 shares of common stock (the "GCL Common Stock")
offered in concurrent offerings made in the United States, Canada and
internationally (the "GCL Stock Offerings"). We received approximately $392.1
million of the net proceeds from the GCL Stock Offerings in the form of a
capital contribution from our parent. We intend to use these proceeds as
follows: (i) to make investments in the Global Crossing Network, (ii) to make
minority investments in telecommunications companies and Internet service
providers, (iii) to fund our equity investment in GAL and (iv) for general
corporate purposes.
Recent Developments
Lucent Agreement
On January 26, 1999, GCL announced that it signed a technology cooperation
agreement with Lucent Technologies Inc. that will give us access to Lucent's
terrestrial and undersea fiber optic systems. In addition, we entered into a
supply contract with Lucent to provide fiber and equipment for PEC. As part of
the supply contract, Lucent will provide financing for PEC. The supply contract
also provides that Lucent will provide financing for future systems if Lucent
is selected as contractor.
Financial Results
Our consolidated unaudited revenues for the three and twelve months ended
December 31, 1998 amounted to approximately $205 million and $424 million,
respectively, and resulted in consolidated net earnings applicable to common
shareholder of approximately $60 million and a consolidated net loss applicable
to common shareholder of $96 million, respectively for such periods.
4
<PAGE>
Summary of Terms of the Exchange Offer
The Exchange Offer relates to the exchange of up to $500,000,000 aggregate
liquidation preference of our outstanding 10 1/2% Senior Exchangeable Preferred
Stock due 2008 ("Old Preferred Stock") for up to an equal aggregate liquidation
preference of our 10 1/2% Senior Exchangeable Preferred Stock due 2008 (the
"Exchange Preferred Stock"), which has been registered under the Securities Act
of 1933. The shares of the Exchange Preferred Stock will be our obligations
governed by our bye-laws, as amended (the "Bye-laws"). The form and terms of
the shares of the Exchange Preferred Stock are identical in all material
respects to the form and terms of the shares of the Old Preferred Stock except:
. that the shares of the Exchange Preferred Stock have been registered under
the Securities Act,
. that the shares of the Exchange Preferred Stock are not entitled to
certain registration rights which are applicable to the shares of the Old
Preferred Stock under a registration rights agreement, and
. for certain contingent interest rate provisions.
The shares of the Old Preferred Stock and the shares of the Exchange
Preferred Stock are together referred to herein as the "Preferred Stock." For
more information, see "Description of Preferred Stock."
The Exchange Offer.......... We are offering to exchange $100 liquidation
preference of Exchange Preferred Stock for each
$100 liquidation preference of Old Preferred
Stock.
As of the date hereof, $500,000,000 in aggregate
liquidation preference of Old Preferred Stock is
outstanding. The Old Preferred Stock was
originally issued in a private placement. As a
condition to the purchase of the Old Preferred
Stock, the initial purchasers required that we
make a registered offer to exchange the Old
Preferred Stock for other securities
substantially similar to the Old Preferred Stock.
We are making this Exchange Offer to satisfy this
contractual obligation.
Resale...................... Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in
no-action letters issued to third parties, we
believe that Exchange Preferred Stock issued
pursuant to the Exchange Offer in exchange for
Old Preferred Stock may be offered for resale,
resold and otherwise transferred by you (unless
you are an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act of
1933, or a broker-dealer which acquired the Old
Preferred Stock directly from the Company)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act of 1933, provided that you are acquiring the
Exchange Preferred Stock in the ordinary course
of your business and that you have not engaged
in, do not intend to engage in, and have no
arrangement or understanding with any person to
participate in the distribution of the Exchange
Preferred Stock. Each participating broker-dealer
that receives shares of Exchange Preferred Stock
for its own account pursuant to the Exchange
Offer in exchange for shares of Old Preferred
Stock that were acquired as a result of market-
making or other trading activity
5
<PAGE>
must acknowledge that it will deliver a
prospectus in connection with any resale of the
shares of Exchange Preferred Stock. See "Plan of
Distribution."
Any holder of Old Preferred Stock who (i) is an
affiliate of the Company, (ii) does not acquire
Exchange Preferred Stock in the ordinary course
of its business, (iii) tenders in the Exchange
Offer with the intention to participate, or for
the purpose of participating, in a distribution
of Exchange Preferred Stock, or (iv) is a broker-
dealer which acquired the Old Preferred Stock
directly from the Company, cannot rely on the
position of the staff of the Securities and
Exchange Commission enunciated in Exxon Capital
Holdings Corporation (as defined), Morgan Stanley
& Co. Incorporated (as defined) or similar no-
action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act of 1933 in connection with
the resale of the Exchange Preferred Stock.
Expiration Date.............
5:00 p.m., New York City time, on , 1999,
(20 business days after effectiveness of the
registration statement of which this prospectus
is a part), unless we extend the Exchange Offer,
in which case the term "Expiration Date" means
the latest date and time to which the Exchange
Offer is extended.
Accrued Dividends on the
Exchange Preferred Stock
and the Old Preferred
Stock......................
The shares of Exchange Preferred Stock will
accrue dividends from December 2, 1998. If your
shares of Old Preferred Stock are accepted for
exchange, you will not receive accrued dividends
on the shares of Old Preferred Stock, and will be
deemed to have waived the right to receive any
payment in respect of interest on such shares of
Old Preferred Stock from and after December 2,
1998.
Certain Conditions to the
Exchange Offer.............
The Exchange Offer is subject to certain
customary conditions, which we may waive. For
more information, see "The Exchange Offer--
Certain Conditions to the Exchange Offer."
Procedures for Tendering
Shares of Old Preferred
Stock...................... If you wish to accept the Exchange Offer, you
must complete, sign and date the accompanying
letter of transmittal, or a facsimile thereof
(the "Letter of Transmittal"), in accordance with
its instructions and the instructions in this
prospectus, and mail or otherwise deliver the
Letter of Transmittal, or such facsimile,
together with the shares of Old Preferred Stock
and any other required documentation to the
Exchange Agent (as defined) at the address set
forth in the Letter of Transmittal. If you hold
Old Preferred Stock through the Depositary
(initially The Depository Trust Company ("DTC"))
and wish to accept the Exchange Offer,
6
<PAGE>
you must do so pursuant to DTC's Automated Tender
Offer Program, by which you will agree to be
bound by the Letter of Transmittal. By executing
or agreeing to be bound by the Letter of
Transmittal, you will represent to us that, among
other things, you are, or the person receiving
such shares of Exchange Preferred Stock is,
acquiring the shares of the Exchange Preferred
Stock in the ordinary course of business and that
neither you nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such shares of
the Exchange Preferred Stock within the meaning
of the Securities Act of 1933.
Special Procedures for
Beneficial Holders.........
If you are a beneficial owner whose shares of Old
Preferred Stock are registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee and you wish to tender in the
Exchange Offer, you should contact the person in
whose name your shares of Old Preferred Stock are
registered promptly and instruct such person to
tender on your behalf. If you wish to tender in
the Exchange Offer on your own behalf, you must,
prior to completing and executing the Letter of
Transmittal and delivering your shares of Old
Preferred Stock, either make appropriate
arrangements to register ownership of the shares
of Old Preferred Stock in your name or obtain a
properly completed bond power from the person
whose name your shares of Old Preferred Stock are
registered. The transfer of registered ownership
may take considerable time.
Guaranteed Delivery If you wish to tender your shares of Old
Procedures................. Preferred Stock and your shares of Old Preferred
Stock are not immediately available or you cannot
deliver your shares of Old Preferred Stock, the
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date, you must tender your shares of Old
Preferred Stock according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date pursuant to the procedures described under
"The Exchange Offer--Withdrawal Rights."
Acceptance of Old Preferred
Stock and Delivery of
Exchange Preferred Stock...
We will accept for exchange any and all shares of
Old Preferred Stock that are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The shares of
Exchange Preferred Stock will be delivered
promptly after the Expiration Date. For more
details, see "The Exchange Offer--Terms of the
Exchange Offer."
7
<PAGE>
Certain Tax Consequences....
The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal
income tax purposes. For more details, see "Tax
Considerations--Tax Consequences of the Exchange
Offer."
Exchange Agent.............. EquiServe-First Chicago Trust Division is serving
as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
8
<PAGE>
Summary Description of the Securities to be Registered
Exchange Preferred Stock
Exchange Preferred Stock ... 5,000,000 shares of 10 1/2% Senior Exchangeable
Preferred Stock mandatorily redeemable on
December 1, 2008.
Dividends................... . Dividends will accumulate at 10 1/2% per annum
of the liquidation preference per share of
Exchange Preferred Stock.
.Payment frequency--every six months on June 1
and December 1.
. First payment--June 1, 1999.
. Before June 1, 2002, we have the option to pay
dividends in cash or additional shares of
Exchange Preferred Stock. On or after June 1,
2002, we are required to pay dividends only in
cash.
Ranking..................... The Exchange Preferred Stock will be junior in
right of payment to all of our consolidated
indebtedness and other liabilities.
Assuming the offering of the Old Preferred Stock
had been completed on September 30, 1998 and the
proceeds had been applied as intended, the
Exchange Preferred Stock would have been junior
in right of payment to $1,327.7 million of our
consolidated indebtedness and other liabilities.
Liquidation Preference...... $100.00 per share, plus accumulated and unpaid
dividends.
Mandatory Redemption........ On December 1, 2008, we must redeem all
outstanding shares of the Exchange Preferred
Stock. The redemption prices are discussed under
the caption "Description of Preferred Stock--
Redemption--Mandatory Redemption."
Optional Redemption......... On or after December 1, 2003, we may redeem some
or all of the Exchange Preferred Stock at any
time at the redemption prices listed in the
"Description of Preferred Stock" section under
the heading "Redemption--Optional Redemption."
Before December 1, 2001, we may redeem up to 35%
of the liquidation preference of the Exchange
Preferred Stock with the proceeds of one or more
equity offerings at the price listed in the
"Description of Preferred Stock--Redemption--
Optional Redemption."
Before December 1, 2003, if we experience
specific kinds of changes in control, we may also
redeem all, but not part, of the Exchange
Preferred Stock. See "Description of Preferred
Stock--Redemption--Optional Redemption."
Optional Tax Redemption..... If there is a Change in Tax Law (as defined)
requiring the payment of Additional Amounts (as
defined) by Global Crossing, we may redeem the
Exchange Preferred Stock, in whole but not in
part, at
9
<PAGE>
the price listed in the "Description of Preferred
Stock" section under the heading "Redemption--
Optional Tax Redemption."
Mandatory Offer to If we sell certain assets or experience specific
Repurchase................. kinds of changes of control and do not exercise
our rights to redeem the Exchange Preferred Stock
in full, we must offer to repurchase the Exchange
Preferred Stock at the prices listed in the
"Description of Preferred Stock" section.
Basic Covenants of the Bye- We will issue the Exchange Preferred Stock
Laws....................... pursuant to terms of the Bye-laws. The Bye-laws
will, among other things, restrict our ability
and the ability of our restricted subsidiaries
to:
. borrow money;
. pay dividends on stock or purchase stock;
. make investments; and
. sell certain assets or merge with or into other
companies.
For more details, see the "Description of
Preferred Stock" section under the heading
"Certain Covenants."
Exchange.................... Subject to certain conditions, we may exchange
all, but not less than all, outstanding shares of
Exchange Preferred Stock for New Exchange Notes
(as defined) on any date on which we are
scheduled to pay any dividends.
Voting Rights............... The holders of the Exchange Preferred Stock will
have no voting rights, except as:
. required by law; and
. provided in the terms of the Exchange Preferred
Stock.
The terms of the Exchange Preferred Stock will
provide that the holders of a majority of the
then outstanding shares of Exchange Preferred
Stock, voting as a separate single class, will be
entitled to elect two members to the Issuer's
Board of Directors upon certain voting rights
triggering events. The accumulation of accrued
and unpaid dividends on the outstanding Exchange
Preferred Stock in an amount equal to three semi-
annual dividend payments is one of the voting
rights triggering events.
These voting rights will continue until all
dividends in arrears have been paid in full and
all other voting rights triggering events have
been cured or waived.
In addition, holders of at least two-thirds of
the then outstanding Exchange Preferred Stock
must approve certain changes that would be
materially adverse to their rights.
10
<PAGE>
New Exchange Notes
New Exchange Notes ......... 10 1/2% Senior Subordinated Exchange Notes due
2008 (the "New Exchange Notes"). (The Exchange
Preferred Stock and the New Exchange Notes will
be referred to herein as the "Securities.") The
New Exchange Notes are issuable at our option in
exchange for Exchange Preferred Stock in an
aggregate principal amount equal to the
liquidation preference of the Exchange Preferred
Stock so exchanged, plus, without duplication,
accumulated and unpaid dividends to the date
fixed for the exchange thereof, plus any
additional New Exchange Notes issued from time to
time in lieu of cash interest.
Maturity.................... December 1, 2008.
Interest.................... Annual fixed rate--10 1/2%.
Payment frequency--every six months on June 1 and
December 1.
First payment--the first June 1 or December 1
following the date the New Exchange Notes were
issued.
Before June 1, 2002, we have the option to pay
interest in cash or additional New Exchange
Notes. On or after June 1, 2002, we are required
to pay interest only in cash.
Ranking..................... The New Exchange Notes are senior subordinated
indebtedness. They rank behind all of our current
and future indebtedness (other than trade
payables), except indebtedness that expressly
provides that it is not senior to the New
Exchange Notes.
Optional Redemption......... On or after December 1, 2003, we may redeem some
or all of the New Exchange Notes at any time at
the redemption prices listed in the "Description
of Exchange Notes" section under the heading
"Optional Redemption."
Before December 1, 2001, we may redeem up to 35%
of the principal amount of the New Exchange Notes
with the proceeds of one or more equity offerings
at the redemption price listed in the
"Description of Exchange Notes--Optional
Redemption."
Before December 1, 2003, if we experience
specific kinds of changes in control, we may
redeem all, but not part, of the New Exchange
Notes.
Optional Tax Redemption..... If there is a Change in Tax Law requiring the
payment of Additional Amounts by Global Crossing,
we may redeem the New Exchange Notes, in whole
but not in part, at the price listed in the
"Description of Exchange Notes" section under the
heading "Optional Tax Redemption."
Mandatory Offer to If we sell certain assets or experience specific
Repurchase................. kinds of changes of control, and do not exercise
our rights to redeem the New Exchange Notes in
full, we must offer to repurchase the New
11
<PAGE>
Exchange Notes at the prices listed in the
"Description of Exchange Notes" section.
Basic Covenants of We will issue the New Exchange Notes under an
Indenture.................. indenture that will, among other things, restrict
our ability and the ability of our restricted
subsidiaries to:
. borrow money;
. pay dividends on stock or purchase stock;
. make investments;
. use assets as security in other transactions;
and
. sell certain assets or merge with or into other
companies.
For more details, see the "Description of
Exchange Notes" section under the heading
"Certain Covenants."
General
Exchange Offer; Holders of Exchange Preferred Stock and New
Registration Rights........ Exchange Notes are not entitled to registration
rights with respect to such securities. To remove
the transferability restrictions on the Old
Preferred Stock, we have agreed:
. to file the registration statement of which
this prospectus is a part with the Securities
and Exchange Commission under the Securities
Act of 1933, to exchange the Old Preferred
Stock for the Exchange Preferred Stock by March
2, 1999,
. to use our reasonable best efforts to cause the
registration statement to be declared effective
under the Securities Act by May 28, 1999, and
. to keep the Exchange Offer open for not less
than 20 business days.
If the exchange offer is not permitted by
applicable law or Securities and Exchange
Commission policy, or a holder is not otherwise
able to exchange its shares of the Old Preferred
Stock for certain reasons, we will file with the
Securities and Exchange Commission, subject to
our receipt of certain information, a shelf
registration statement to register the shares of
Old Preferred Stock for public resale. If we
default on any of these registration obligations,
we will pay certain liquidated damages to each
holder of shares of Old Preferred Stock. For more
information, see "Description of Exchange Notes--
Exchange Offer; Registration Rights."
Use of Proceeds............. We will not receive any cash proceeds from the
Exchange Offer. For more details, see the "Use of
Proceeds" section.
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<PAGE>
Summary Consolidated Financial and Operating Data
The summary data presented below under the captions "Statement of Operations
Data" and "Balance Sheet Data" as of December 31, 1997 and for the period from
March 19, 1997 (date of inception) through December 31, 1997 are derived from
the Consolidated Financial Statements of the Company included herein, which
financial statements are prepared in accordance with United States Generally
Accepted Accounting Principles ("U.S. GAAP") and have been audited by Arthur
Andersen & Co., independent public accountants, as indicated in their report
thereon included elsewhere in this prospectus. The financial data as of and for
the three and nine months ended September 30, 1998 are derived from the
Company's unaudited interim financial statements. The unaudited interim
financial statements include all adjustments, consisting of normal recurring
adjustments, that management considers necessary for fair presentation of the
financial position as of September 30, 1998 and results of operations for the
interim periods presented. Results of operations for the interim periods are
not necessarily indicative of the results of operations for a full year. The
operating data presented below are derived from the Company's records. The
financial data presented herein and elsewhere in this prospectus are not
necessarily indicative of the financial position or results of operations of
the Company in the future. You should read the summary data below along with
the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and the Consolidated Financial
Statements and the notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the Period
Three Months Nine Months March 19, 1997
Ended Ended (Date of Inception)
September 30, September 30, to December 31,
1998 1998 1997
------------- ------------- -------------------
<S> <C> <C> <C>
Statement of Operations Data:
Sales and Operating Revenues.. $117,692,925 $ 218,948,792 $ --
------------ ------------- ------------
Expenses:
Cost of Capacity Sold........ 49,237,947 90,438,176 --
Sales, General,
Administrative and Other
(1)......................... 24,063,902 192,430,368 3,101,708
------------ ------------- ------------
Total Expenses................ 73,301,849 282,868,544 3,101,708
------------ ------------- ------------
Operating Income (Loss)....... 44,391,076 (63,919,752) (3,101,708)
Equity in loss of Pacific
Crossing Ltd................. (1,036,536) (1,036,536) --
Interest Income (Expense)
Interest Income.............. 8,265,769 12,939,207 2,941,352
Interest Expense............. (17,983,947) (25,659,937) --
Provision for Income Taxes
(2).......................... (7,331,590) (16,331,590) --
Extraordinary Loss on
Retirement of GTH Senior
Notes (3).................... -- (19,709,472) --
------------ ------------- ------------
Net Income (Loss)............. 26,304,772 (113,718,080) (160,356)
GTH Preference Share Non-Cash
Dividends (4)................ -- (8,306,433) (12,689,923)
Redemption of GTH Preference
Shares (5)................... -- (34,140,067) --
------------ ------------- ------------
Net Income (Loss) Applicable
to Common Shareholder........ $ 26,304,772 $(156,164,580) $(12,850,279)
============ ============= ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
1998 1997
-------------- ------------
<S> <C> <C>
Balance Sheet Data:
Cash and Restricted Cash (6).................... $ 877,499,797 $26,727,880
Accounts Receivable, Net of Allowance for
Doubtful Accounts.............................. 62,750,201 --
Construction in Progress and Capacity Available
for Sale (7)................................... 870,976,856 518,518,509
Investment in Pacific Crossing Ltd. (8)......... 162,109,023 --
Deferred Finance and Organizational Costs, Net
of Accumulated Amortization.................... 41,599,923 25,934,021
Other Assets.................................... 34,160,267 1,015,958
-------------- ------------
Total Assets.................................... $2,049,096,067 $572,196,368
============== ============
Long Term Debt and Other Obligations(9)......... $1,164,255,472 $315,334,000
GTH Preference Shares(10)....................... -- 90,643,919
Shareholder's Equity:
GCL Common Stock.............................. 12,000 12,000
Other Shareholder's Equity.................... 835,226,100 74,269,032
Accumulated Deficit........................... (113,878,436) (160,356)
-------------- ------------
Total Shareholder's Equity...................... 721,359,664 74,120,676
-------------- ------------
Total Capitalization............................ $1,885,615,136 $480,098,595
============== ============
</TABLE>
<TABLE>
<CAPTION>
As of
September 30,
1998
--------------
<S> <C> <C>
Operating Data:
Executed CPAs..................................... $767 million
<CAPTION>
Estimated (11)
--------------
<S> <C> <C>
Route Kilometers
In Service....................................... 13,400
Under Contract................................... 54,200
Announced........................................ 61,100
Network Service Capacity
(STM-1 Circuits)................................. 128
Estimated System Costs (excluding potential future
upgrades and amounts capitalized with respect to
the PCG Warrants)
AC-1 ........................................... $750 million
Other Systems Under Development (PC-1, MAC, PAC,
PEC and GAL)................................... $2,815 million
</TABLE>
- --------
(1) Includes a charge for the Advisory Services Agreement Termination on June
30, 1998. See "Certain Transactions." GCL acquired the rights on behalf of
the Company of those entitled to fees payable under the Advisory Services
Agreements in consideration for the issuance of GCL Common Stock having an
aggregate value of $135 million and the cancellation of approximately $2.7
million owed to GCL under a related advance agreement. As a result of this
transaction, the Company has recorded a non-recurring charge in the
approximate amount of $137.7 million during the nine months ended
September 30, 1998. Also, during the nine months ended September 30, 1998,
we recognized $8.2 million from a total of $22.9 million of stock-related
expense relating to stock options issued during such period, which entitle
the holders to purchase GCL Common Stock. The remaining $14.7 million will
be recognized as follows: $1.7 million in the fourth quarter of 1998, $6.8
million in 1999, $5.0 million in 2000 and $1.2 million in 2001.
(2) Reflects income taxes on profits earned during the three and nine months
ended September 30, 1998 attributable to both United States and other
foreign jurisdictions. A significant portion of our operating losses have
been incurred in non-taxable jurisdictions and therefore these operating
losses cannot be applied to offset our future taxable earnings.
(3) On May 18, 1998, a portion of the proceeds from the issuance of the Senior
Notes was used to repurchase the 12% Senior Notes Due 2004 ("GTH Senior
Notes") of Global Telesystems Holdings Ltd., a direct subsidiary of the
Company. We recognized an extraordinary loss of $19.7 million on this
14
<PAGE>
repurchase, comprising a repurchase premium of approximately $9.8 million
and a write-off of approximately $9.9 million of unamortized deferred
financing costs.
(4) The holders of the 14% senior increasing rate redeemable exchangeable
preference shares of GTH (the "GTH Preference Shares") were entitled to
receive cumulative, compounding dividends at an initial annual rate of
14%. Preference share dividends include cumulative 14% dividends and
amortization of the discount and issuance costs. Effective June 17, 1998,
we used proceeds from the Senior Notes to redeem all outstanding GTH
Preference Shares. All dividends prior to the redemption had been paid
through the issuance of additional preference shares and charged against
additional paid-in-capital.
(5) As a result of the redemption of the GTH Preference Shares, we incurred a
one time $34.1 million charge against additional paid-in-capital. The
charge was comprised of: (i) a $15.9 million charge for the redemption
premium and (ii) a write-off of $18.2 million of unamortized discount and
unamortized deferred financing costs.
(6) The majority of Cash and Restricted Cash is comprised of proceeds from the
issuance of the Senior Notes and from the GCL Stock Offerings contributed
to the Company.
(7) Construction in Progress and Capacity Available for Sale includes direct
and indirect expenditures for construction of AC-1 and other systems and
is stated at cost. Includes costs incurred under (i) the construction
contracts; (ii) advisory, consulting and legal fees; (iii) interest
(including amortization of debt issuance costs incurred during the
construction phase); and (iv) other costs necessary for developing AC-1
and other systems. Additionally, GCL granted the PCG Warrants to Pacific
Capital Group, Inc. ("PCG"), a shareholder of GCL, for the PC-1, MAC and
PAC systems and related rights. The $275.3 million value of the GCL Common
Stock issued under the PCG Warrants was contributed to the Company and
allocated to Construction in Progress in the amount of $112.2 million and
as Investment in Pacific Crossing Ltd. ("PCL") in the amount of $163.1
million.
(8) Includes $163.1 million as of September 30, 1998, as described above,
representing the value of the PCG Warrants applicable to Pacific Crossing
Ltd., less $1.0 million representing the Company's equity share in the
loss of PCL for the nine months ended September 30, 1998.
(9) Not including current portion of borrowings under the AC-1 Credit Facility
of $27.4 million and $33.3 million current portion of obligations under
inland service agreements and capital leases.
(10) The December 31, 1997 amount is comprised of (i) $100 million of GTH
Preference Shares originally issued, plus (ii) $9.8 million of GTH
Preference Shares issued as dividends thereon, less (iii) $19.2 million
reflecting the unamortized discount and issue costs associated therewith.
The Company redeemed all of the outstanding GTH Preference Shares
effective as of June 17, 1998.
(11) Assumes full completion of AC-1, PC-1, MAC, PAC, PEC and GAL based upon
our current estimates, including anticipated financing costs. See "Risk
Factors--Risks Related to Completing our Cable Systems" and "--Risk of
Error in Forward-Looking Statements."
15
<PAGE>
RISK FACTORS
Before you participate in the Exchange Offer, you should be aware that there
are various risks, including the ones listed below. You should carefully
consider these risk factors, as well as the other information contained in this
prospectus, in evaluating your participation in the Exchange Offer.
Consequences of Failure to Exchange Old Preferred Stock
We will issue Exchange Preferred Stock in exchange for the Old Preferred
Stock pursuant to the Exchange Offer only following the satisfaction of the
procedures and conditions set forth in "The Exchange Offer--Procedures for
Tendering Shares of Old Preferred Stock." Such procedures and conditions
include timely receipt by the Exchange Agent of such shares of Old Preferred
Stock, and of a properly completed and duly executed Letter of Transmittal.
Shares of Old Preferred Stock which you do not tender or we do not accept will,
following the Exchange Offer, continue to be restricted securities and you may
not offer or sell them except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act of 1933 and applicable state
securities law.
Any shares of Old Preferred Stock tendered and exchanged in the Exchange
Offer will reduce the aggregate principal amount of the Old Preferred Stock
outstanding. Following the Exchange Offer, if you did not tender your shares of
Old Preferred Stock you generally will not have any further registration
rights, and such shares of Old Preferred Stock will continue to be subject to
certain transfer restrictions. Accordingly, the liquidity of the market for
such shares of Old Preferred Stock could be adversely affected. The shares of
Old Preferred Stock are currently eligible for sale pursuant to Rule 144A
through the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") market of the National Association of Securities Dealers, Inc.
Because we anticipate that most holders of Old Preferred Stock will elect to
exchange such shares of Old Preferred Stock, we anticipate that the liquidity
of the market for any shares of Old Preferred Stock remaining after the
consummation of the Exchange Offer may be substantially limited.
Lack of Public Market for the Securities
The shares of Exchange Preferred Stock will be new securities for which there
currently is no established trading market. We do not intend to apply for
listing of the Exchange Preferred Stock on a national securities exchange or
automatic quotation system. Although the initial purchasers of the Old
Preferred Stock have informed us that they currently intend to make a market in
the Exchange Preferred Stock, the initial purchasers are not obligated to do
so, and any such market making may be discontinued at any time without notice.
The liquidity of any market for the shares of Exchange Preferred Stock will
depend upon the number of holders of the Exchange Preferred Stock, the interest
of securities dealers in making a market in the Exchange Preferred Stock and
other factors. Accordingly, there can be no assurance as to the development or
liquidity of any market for the shares of Exchange Preferred Stock. If an
active trading market for the shares of Exchange Preferred Stock does not
develop, the market price and liquidity of the shares of Exchange Preferred
Stock may be adversely affected. If the shares of Exchange Preferred Stock are
traded, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities,
our financial performance and certain other factors. The liquidity of, and
trading markets for, the shares of Exchange Preferred Stock also may be
adversely affected by general declines in the market for payment-in-kind
preferred stock. Such declines may adversely affect the liquidity of, and
trading markets for, the shares of Exchange Preferred Stock, independent of our
financial performance or prospects.
Historically, the market for payment-in-kind preferred stock has been subject
to disruptions that have caused substantial volatility in the prices of
securities similar to the Exchange Preferred Stock. There can be no assurance
that the market, if any, for the shares of Exchange Preferred Stock will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on the holders of the Exchange Preferred Stock.
16
<PAGE>
Limited Operating History
Global Crossing was organized in March 1997 and has a limited operating
history. Our financial information relates principally to a period in which we
were constructing and developing AC-1 and, until June 1998, had minimal
revenues and operating costs. Despite recognizing approximately $218.9 million
in revenues, we have incurred a net loss applicable to common shareholder of
approximately $169.0 million for the period from March 19, 1997 (date of
inception) through September 30, 1998, due primarily to the termination of
certain advisory services agreements, awards under our Stock Incentive Plan,
the extraordinary loss on the retirement of the GTH Senior Notes and the
redemption of GTH Preference Shares. Global Crossing has financed its net
losses, debt service, capital expenditures and other cash needs to date through
the proceeds of sales of common and preferred equity and the issuance of debt,
including non-recourse indebtedness of Atlantic Crossing Ltd., PCL and Mid-
Atlantic Crossing Ltd. In addition, we will require substantial additional
capital in order to carry out our business plan. For more information, see "--
Substantial Future Capital Requirements."
Our success will depend substantially on sales of capacity on our systems. We
have been marketing and selling capacity primarily on AC-1 which has resulted
in executed capacity purchase agreements and inland capacity purchase
agreements as of September 30, 1998 to purchase capacity totaling $767 million,
including related sales of terrestrial capacity. We cannot be certain that we
will continue to be successful in selling capacity on AC-1 or our other systems
under development. Additionally, we cannot be certain that we will be able to
realize our business plan. Furthermore, even if we realize our plan, we still
may not be able to sustain operating profitability or generate sufficient cash
flow to service our indebtedness. For more information, see "--Sales of
Capacity; Realization of Other Revenues," "--Termination of Capacity Purchase
Agreements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
Leverage
We have incurred a high level of debt. As of September 30, 1998, we had a
total of $1,328 million of total liabilities, including approximately $1,213
million in senior indebtedness, of which $365 million was secured. In addition,
PCL has entered into a $850 million non-recourse credit facility with respect
to PC-1, under which as of September 30, 1998, PCL had incurred $200 million of
indebtedness. Furthermore, in November 1998, Mid-Atlantic Crossing Ltd. entered
into a $260 million non-recourse credit facility with respect to MAC. We have
also entered into a $300 million commitment letter for project financing for
PAC. For more information, see "Description of Certain Indebtedness."
The amount of our debt could have important consequences for our future,
including, among other things:
. restrictive debt covenants may impair our ability to pay cash dividends
or make required redemption payments on the Preferred Stock,
. cash from operations may be insufficient to meet the principal and
interest on our indebtedness, including the Exchange Notes, as they
become due,
. payments of principal and interest on borrowings may leave us with
insufficient cash resources for our operations, and
. restrictive debt covenants may impair our ability to obtain additional
financing.
For more information see "Description of Certain Indebtedness."
Our ability to repay our debt depends upon a number of factors, many of which
are beyond our control. In addition, we rely on dividends, loan repayments and
other intercompany cash flows from our subsidiaries to repay our obligations.
Our operating subsidiaries intend to enter into various credit arrangements.
Accordingly, once they enter into these credit arrangements, the payment of
dividends from our operating subsidiaries and the making and repayments of
loans and advances will become subject to statutory, contractual and other
restrictions.
17
<PAGE>
In addition, if we are unable to generate sufficient cash flow to meet our
debt service requirements, we may have to renegotiate the terms of our long
term debt. There can be no assurance that we would be able to successfully
renegotiate such terms or refinance our indebtedness when required or that
satisfactory terms of any such refinancing would be available. If we were not
able to refinance our indebtedness or obtain new financing under these
circumstances, we would have to consider other options, such as:
.sales of certain assets to meet our debt service obligations,
.sales of equity,
.negotiations with our lenders to restructure applicable indebtedness, or
.other options available to us under applicable law.
Substantial Future Capital Requirements
We will require substantial capital investment to implement our business
plan. Because we anticipate that each of our systems will require separate
financing in addition to our equity investment in each system, we intend to
raise additional non-recourse debt or equity capital at the system level to
meet these financing requirements. We currently estimate that our capital
resources, together with the additional capital that we intend to raise at the
system level, will be sufficient to fund our currently planned systems. If we
are unable to fund the development of our systems, our business, financial
condition and results of operations will be materially adversely affected. For
more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Risks Related to Completing our Cable Systems
Our ability to achieve our strategic objectives will depend in large part
upon the successful, timely and cost-effective completion of our planned cable
systems as well as on achieving substantial capacity sales on these systems
once they become operational. The construction of our systems will be affected
by a variety of factors, uncertainties and contingencies, many of which are
beyond our control. There can be no assurance that each of these systems will
be completed at the cost and in the time frame currently estimated by Global
Crossing, or even at all. Although we will be awarding contracts for
construction of our systems to certain suppliers who in most cases are expected
to be bound by a fixed-price construction cost schedule, and to provide
guarantees in respect of completion dates and system design specifications,
there can be no assurance that the actual construction costs or the time
required to complete these systems will not exceed our current estimates. Such
circumstances could have a material adverse effect on our results of operations
or financial condition. For more information, see "Business--Suppliers."
Our successful completion of our cable systems will depend, among other
things, upon:
.our ability to manage their construction effectively,
.our ability to obtain all construction permits and licenses,
.third-party contractors performing their obligations on schedule, and
.our ability to enter into favorable construction contracts with a limited
number of suppliers.
Failure with respect to any of the foregoing may significantly delay or
prevent completion of one or more of our systems, which could have a material
adverse effect on our business, financial condition and results of operations.
Holding Company Structure; Effective Subordination of the Securities
We are a holding company and derive substantially all of our revenues from
our subsidiaries. We intend to lend or contribute all of the net proceeds from
the offering of the Old Preferred Stock to certain of our subsidiaries. We will
rely on payments from our subsidiaries to be able to meet our obligations. We
will not be
18
<PAGE>
able to pay out cash dividends on the Preferred Stock, redeem the Preferred
Stock or pay interest and principal on the Exchange Notes or redeem the
Exchange Notes without receiving dividends from our subsidiaries. Our
subsidiaries' ability to make such payments to us will be subject to the
availability of sufficient cash. Some subsidiaries' abilities to pay dividends
to us may also be subject to restrictive covenants in existing or future debt
agreements.
Subordination
The Exchange Notes, if and when issued, will rank behind all of our existing
indebtedness (other than trade payables) and all of our future borrowings
(other than trade payables), except any future indebtedness that expressly
provides that it ranks equal with, or subordinated in right of payment to, the
Exchange Notes. As a result, upon any distribution to our creditors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or our property, the holders of senior debt of our Company will be entitled to
be paid in full in cash before any payment may be made with respect to the
Exchange Notes.
In addition, all payments on the Exchange Notes will be blocked in the event
of a payment default on designated senior debt and may be blocked for up to 179
of 360 consecutive days in the event of certain non-payment defaults on senior
debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our Company, holders of the Exchange Notes will
participate with trade creditors and all other holders of subordinated
indebtedness of the Company in the assets remaining after we have paid all of
the senior debt. However, because the indenture will require that amounts
otherwise payable to holders of the Exchange Notes in a bankruptcy or similar
proceeding be paid to holders of senior debt instead, holders of the Exchange
Notes may receive less, ratably, than holders of trade payables in any such
proceeding. In any of these cases, we may not have sufficient funds to pay all
of our creditors and holders of Exchange Notes may receive less, ratably, than
the holders of senior debt.
Assuming we had completed the offering of the Old Preferred Stock on
September 30, 1998, the Exchange Notes would have been subordinated to $1,213
million of senior debt. We will be permitted to borrow substantial additional
indebtedness, including senior debt, in the future under the terms of the
indenture.
Sales of Capacity; Realization of Other Revenues
Our ability to achieve our business objectives will also depend in large part
upon our sales and marketing capabilities. Through our wholly-owned subsidiary,
Global Crossing International, Ltd. ("GCI"), we have assembled a dedicated
sales and marketing force. We depend upon the ability of such employees to
effectively market and sell capacity. We cannot be certain that we will be able
to effectively sell capacity on our cable systems. If we are unable to
effectively sell capacity on our cable systems, our results of operations could
be materially affected.
We intend to grow revenues and profits by:
.upgrading capacity on our planned systems,
.developing additional undersea cable projects,
.developing or purchasing additional terrestrial fiber capacity, and
.introducing new services.
For more information, see "Business." If we are unable to effect these
upgrades, develop additional cable projects or develop or obtain additional
terrestrial capacity, our business, financial condition and results of
operations could be adversely affected.
19
<PAGE>
Termination of Capacity Purchase Agreements
Under all of our capacity purchase agreements for AC-1, the customer may
terminate the agreement for capacity on any segment other than the United
States-United Kingdom segment if the ready for service date for the applicable
segment has not occurred by June 30, 1999. Furthermore, under some AC-1
capacity purchase agreements, the customer will receive a refund on the United
States-United Kingdom segment if the ready for service date for the full AC-1
system has not occurred by June 30, 1999. In addition, under some AC-1
capacity purchase agreements, the customer may terminate the agreement if we
do not obtain and hold certain governmental authorizations, approval,
consents, licenses and permits. Capacity purchase agreements for our other
systems may contain similar provisions. If a substantial number of capacity
purchase agreements are terminated for any of the foregoing reasons, our
business, financial condition and results of operations could be adversely
affected. For more information, see "Business--Sales and Marketing" and "--
Summary of Principal Terms of Standard Contractual Documentation."
Competition
The international telecommunications industry is highly competitive. We face
competition from existing and planned systems along each of our planned
routes. We also compete with satellite providers, including existing
geosynchronous satellites and low-earth orbit systems now under construction.
On certain routes, we compete against terrestrial cable systems. We compete
primarily on the basis of price, availability, transmission quality and
reliability, customer service and the location of our systems. Traditionally,
carriers have made substantial long term investments in ownership of cable
capacity. This has meant that low price and high-end service have not been
determining factors in such carriers' decisions to purchase additional
capacity. Accordingly, there can be no assurance that we will be able to
compete successfully against systems to which prospective customers have made
long term commitments.
The routes underlying our systems are currently served by several undersea
cables, terrestrial systems as well as satellites. Primary future sources of
competition for Global Crossing may result from, among others:
(1) TAT-14, a transatlantic cable system which is being developed by its
consortium members,
(2) Gemini, a transatlantic cable system being operated and marketed by MCI
WorldCom, Inc., and Cable & Wireless PLC,
(3) FLAG Atlantic-1, a transatlantic system which is being developed by
FLAG Telecom and Global TeleSystems Group, Inc.,
(4) China-US, a transpacific system being developed as a "private cable
system" by fourteen large carriers, including SBC Communications Inc.,
MCI WorldCom, Inc, AT&T Corp. and Sprint Corp., most of whom have
traditionally sponsored consortium cables, and
(5) the Japan-US Cable Network, a transpacific system being developed by a
consortium of major telecommunications carriers including MCI WorldCom,
Inc., AT&T Corp., KDD, Nippon Telegraph & Telephone Corp., Cable &
Wireless PLC and GTE Corporation.
Other regional and global systems are being considered by developers,
including Project Oxygen, a global system being evaluated by CTR Group, Ltd.
We believe that the other transatlantic systems will directly compete with AC-
1 and may reduce customer demand on AC-1. We believe that the other planned
transpacific systems will not satisfy the demand for capacity between the
United States and Japan and that there is currently enough demand projected to
accommodate all such systems. Nevertheless, the other planned transpacific
systems will receive commitments for capacity that PC-1 could have received in
their absence. In addition, we may face competition from existing and planned
regional undersea cable systems and satellites on our MAC and PAC routes,
where entrants are vying for purchases from a small but rapidly growing
customer base. Furthermore, we will face competition on PEC from various
carriers who are either currently building or
20
<PAGE>
planning to build trans-European network assets. For more information, see "--
Rapid Growth in a Changing Industry; Pricing Uncertainties" and "Business--
Competition."
Relationship with Principal Shareholders; Conflicts of Interest
As of September 30, 1998, Pacific Capital Group, Inc. ("PCG") had a 23.51%
beneficial ownership interest in GCL. Global Crossing and GCL have entered into
various transactions with PCG and have assumed the on-going development of PC-
1, PAC and MAC from an affiliate of PCG. Mr. Gary Winnick, Co-Chairman of GCL's
Board of Directors, controls PCG and its subsidiaries. In addition, several
other officers and directors of GCL and the Company are affiliated with PCG.
Furthermore, through an affiliate, Canadian Imperial Bank of Commerce ("CIBC")
had a 22.39% beneficial ownership interest in GCL as of September 30, 1998. An
affiliate of CIBC was an initial purchaser of the Old Preferred Stock, was an
underwriter in the GCL Stock Offerings, was an initial purchaser in the Senior
Notes Offering, and CIBC and its affiliates have also entered into certain
financing transactions with Global Crossing in connection with the development
and construction of its systems. Several members of GCL's Board of Directors
are affiliated with CIBC. For more information, see "Management," "Principal
Shareholders," and "Certain Transactions."
Upon completion of the GCL Stock Offerings, PCG and CIBC collectively
beneficially owned 46.46% of the outstanding GCL Common Stock. Accordingly, PCG
and CIBC may be able to determine the vote on matters submitted to a vote of
the stockholders of GCL, including the election of directors of GCL.
Certain of GCL's officers and directors also serve as officers and directors
of other companies. Additionally certain of GCL's officers and directors are
active investors in the telecommunications industry. For more information, see
"Management." Service as GCL's director or officer and as a director or officer
of another company could create conflicts of interest when the director or
officer is faced with decisions that could have different implications for GCL
or Global Crossing and the other company. A conflict of interest could also
exist with respect to allocation of time and attention of persons who are
officers of both GCL and another company. The pursuit of these other business
interests could distract these officers and directors from pursuing
opportunities on GCL's behalf. Such conflicts of interest could have a material
adverse affect on our financial condition.
Transition from Management to Operating Company
The transition from a development stage company to an operating company
places significant demands on our management and operations. We are in the
process of expanding the management and operational capabilities necessary for
this transition.
Our ability to manage this transition successfully will depend on, among
other things:
. expanding, training and managing our employee base, including
attracting, retaining and motivating highly skilled personnel,
. taking over or outsourcing our customer interface and operations,
administrative and maintenance systems,
.procuring terrestrial capacity to provide connectivity to inland cities,
and
.controlling expenses.
There can be no assurance that we will succeed in developing all or any of
these capabilities, and any failure to do so could have a material adverse
effect on our results of operations. For more information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Management."
21
<PAGE>
Rapid Growth in a Changing Industry; Pricing Uncertainties
Part of our strategy is to construct several cable systems in a short time
frame in order to take advantage of the supply and demand imbalance that
currently exists and is projected to exist in the global marketplace. Each of
our currently announced systems is expected to be operational between now and
2000. As a result of this aggressive strategy, we are experiencing rapid
expansion and expect it to continue for the foreseeable future. This growth has
increased our operating complexity. At the same time, the international
telecommunications industry is changing rapidly due to, among other things:
.the easing of regulatory constraints,
.the privatization of established carriers,
.the expansion of telecommunications infrastructure,
.the globalization of the world's economies, and
.the changing technology for wireless and satellite communication.
Much of our planned growth is predicated upon the growth in demand for
international telecommunications capacity. There can be no assurance that such
anticipated demand growth will occur.
The fiber optic cable transmission industry has experienced significant per
circuit price declines resulting from technological advances in fiber optic
technology. Recent changes in technology caused prices for circuits to go down
even further. If there is less demand than we project or a bigger drop in
prices per circuit than we project, there could be a material adverse effect on
our business, financial condition and results of operations. There can be no
assurance, even if our projections with respect to such factors are realized,
that we will be able to implement our strategy or that our strategy will be
successful in the rapidly evolving telecommunications market.
Rapid Technological Change
The telecommunications industry is subject to rapid and significant changes
in technology. For instance, recent technological advances permit substantial
increases in the transmission capacity of both new and existing fiber. The
introduction of new products or the emergence of new technologies also may
reduce the cost and increase the supply of certain services similar to those
provided by Global Crossing. While we believe that being the first to construct
and to market cable systems with significant capacity on certain routes may
stop competitors from overbuilding in those situations, we cannot predict the
behavior of potential competitors who might otherwise build a system even if it
would be uneconomical. We believe that for the foreseeable future, technology
changes will neither materially affect the continued use of fiber optic cable
nor materially hinder our ability to deploy the state-of-the-art technology.
However, we cannot predict the effect of technological changes on our
operations and such changes could have a material effect on our business,
financial condition and results of operations.
Operations Risks
Each of our systems will be subject to the risks inherent in a large-scale,
complex fiber optic telecommunications system. The operations, administration,
maintenance and repair of these systems requires the coordination and
integration of sophisticated and highly specialized hardware and software
technologies and equipment located throughout the world. There can be no
assurance that, even if built to specifications, our systems will function as
expected in a cost-effective manner. The failure of the hardware or software to
function as required could render a cable system unable to perform at design
specifications.
AC-1 has, and each of our other systems are expected to have, a design life
of not less than 25 years; however, there can be no assurance of the actual
useful life of any of these systems. A number of factors will affect the useful
life of each of our systems, including, among other things:
.quality of construction,
22
<PAGE>
.unexpected deterioration, and
.technological or economic obsolescence.
Failure of any of our systems to operate for its full design life could have
a material adverse effect on our business, financial condition and results of
operations.
Dependence on Key Personnel
Our future success depends on the skills, experience and efforts of certain
of the officers and key technical and sales employees of GCL and of Global
Crossing. Some of these officers and employees are new to Global Crossing. We
cannot be certain that we will be able to integrate new management into our
existing operations. In addition, competition for these individuals is intense,
and we may not be able to attract, motivate and retain highly skilled qualified
personnel. We do not have "key person" life insurance policies covering any of
our employees. For more information, see "Management--Employment Contracts and
Termination of Employment and Change-in-Control Arrangements."
Risks Associated with International Operations
We will derive substantial revenues from international operations. We intend
to have substantial physical assets in several jurisdictions along the routes
of our planned systems.
Accordingly, our business is subject to certain risks inherent in
international operations. These risks include:
.political and economic conditions,
.unexpected changes in regulatory environments,
.exposure to different legal standards, and
.difficulties in staffing and managing operations.
We have not experienced any material adverse effects with respect to our
foreign operations arising from such factors. However, problems associated with
such risks could arise in the future. Finally, managing operations in multiple
jurisdictions will place further strain on our ability to manage our overall
growth.
Foreign Exchange; Exchange Controls
We will invoice the majority of our sales in U.S. dollars, and the majority
of our customers will incur maintenance and other obligations denominated in
U.S. dollars. Many of our actual and prospective customers derive their
revenues in currencies other than U.S. dollars. Such customers will have to pay
more money for the same maintenance if their currencies devalue relative to the
U.S. dollar. Furthermore, such customers may be or may become subject to
exchange control regulations which might restrict or prohibit the conversion of
their revenue currencies into dollars. We then may be unable to receive payment
because the customer may not have any U.S. dollars available to it. We cannot
be certain that the occurrence of any such factors will not have a material
adverse effect on our business, financial condition and results of operations.
Effect of Government Regulation
We will be required to obtain and maintain various permits, licenses and
other authorizations in both the United States and in foreign jurisdictions
where our cables land and exist. In particular, undersea cable landing or
similar licenses will be required in many of the jurisdictions where Global
Crossing's systems will land and exist. These licenses are typically issued for
a term of years, subject to renewal. Moreover, these licenses may subject our
business and operations to varying forms of regulation, which could change over
the course of time.
23
<PAGE>
If we fail to obtain or renew a license or if there is a material change in the
nature of the regulation to which we are subject, there could be a material
adverse effect on our business, financial condition and results of operations.
In addition, political developments and national and locals laws may affect our
international operations. Specifically, we must obtain construction and
operating licenses during the construction phase of each of our cable systems.
Although Global Crossing intends that the construction contracts for each of
its cable systems will impose the burden of acquiring and maintaining
construction licenses and permits on the contractor for each of such systems,
there can be no assurance that such contractor will successfully obtain such
permits and licenses. If we or the contractor fails to obtain or maintain any
construction or operating license, there could be a material adverse effect on
our business, financial condition and results of operations. For more
information, see "Business--Regulation."
Dependence on Third Parties
We depend and will continue to depend upon third parties to:
.construct systems and provide equipment,
.provide access to certain origination and termination points of our
systems in various countries,
.construct and operate landing stations in certain countries,
.acquire rights of way,
.provide terrestrial capacity to our customers through contractual
arrangements, and
.act as joint venture participants with regard to PC-1, GAL and other
possible future systems.
There can be no assurance that such third parties will perform their
contractual obligation or that they will not be subject to political or
economic events which may have a material adverse effect on our business,
financial condition and results of operations.
Risk of Error in Forward-Looking Statements
We have included "forward-looking statements" throughout this prospectus.
These statements describe our attempt to predict future occurrences. We use the
words "believes," "anticipates," "expects," and similar expressions to identify
forward-looking statements. Forward-looking statements are subject to a number
of risks, assumptions and uncertainties, such as:
. risks associated with our ability to complete our systems within
currently estimated time frames and budgets,
. risks associated with our ability to sell capacity on our systems,
. risks associated with our successful transition from a system
development company to an operating company, and
. risks associated with our ability to effectively compete in a rapidly
evolving and price competitive marketplace.
This list is only an example of some of the risks, uncertainties and
assumptions that may affect our forward-looking statements. If any of these
risks or uncertainties materialize (or fail to materialize), or if the
underlying assumptions prove incorrect, actual results may differ materially
from those projected in the forward-looking statements. We do not intend to
update or revise any forward-looking statements included in this prospectus to
reflect future events. Factors that could cause actual results to differ
materially are those set forth in this section of the prospectus. You should
carefully read this section before making any decision to purchase these
Securities.
24
<PAGE>
Covenant Restrictions
The terms of the Exchange Preferred Stock and the New Exchange Notes will
impose certain operating and financial restrictions on us and our Restricted
Subsidiaries. These restrictions will significantly limit or prohibit, among
other things, our ability and our Restricted Subsidiaries' ability to:
. incur additional indebtedness,
. repay indebtedness prior to stated maturities,
. sell assets,
. make investments,
. engage in transactions with shareholders and affiliates,
. issue capital stock,
. create liens, or
. engage in mergers or acquisitions.
These restrictions could also limit our ability and our Restricted
Subsidiaries' ability to:
. effect future financings,
. make needed capital expenditures,
. withstand a future downturn in our business or the economy in general, or
. otherwise conduct necessary corporate activities.
Our ability and our Restricted Subsidiaries' ability to comply with the
covenants and restrictions contained in the Bye-laws or the Indenture may be
affected by events beyond our control, including prevailing economic and
financial concerns. If we or our Restricted Subsidiaries fail to comply with
these restrictions, it could lead to a default under the terms of the Preferred
Stock or the Exchange Notes. In addition, in such circumstances we and our
Restricted Subsidiaries may not be able to meet our respective debt service
obligations. In the event of a default, holders of the Preferred Stock or the
Exchange Notes could elect to declare all of the indebtedness to be due and
payable together with accrued and unpaid interest. In such event, a significant
portion of our and our Restricted Subsidiaries' other indebtedness may become
immediately due and payable and there can be no assurance that we and our
Restricted Subsidiaries would be able to make such payments or borrow
sufficient funds from alternative sources to make any such payment. See
"Description of Preferred Stock--Certain Covenants" and "Description of
Exchange Notes--Certain Covenants."
Purchase of Securities Upon a Change of Control
The terms of the Preferred Stock and the Exchange Notes will require us to
make an offer to purchase the Securities upon the occurrence of a Change of
Control (if we do not exercise our rights to redeem the Preferred Stock in
full) at a purchase price equal to 101% of the liquidation preference of the
Preferred Stock or the principal amount of the Exchange Notes, plus accumulated
and unpaid dividends at the time of purchase or interest to the date of
purchase. Prior to commencing such an offer to purchase, we would be required
to (i) repay in full all of our indebtedness that would prohibit the purchase
of the Securities or (ii) obtain any requisite consent to permit the purchase.
If we are unable to repay all of such indebtedness or are unable to obtain the
necessary consents, we will be unable to offer to purchase the Securities and
such failure will constitute a voting rights triggering event under the terms
of the Preferred Stock or an event of default under the terms of the Exchange
Notes. There can be no assurance that we will have sufficient funds available
at the time of any Change of Control to make any debt payment (including
purchases of Securities) as described above. See "Description of Preferred
Stock--Repurchase at the Option of Holders--Change of Control" and "Description
of Exchange Notes--Repurchase at the Option of Holders--Change of Control."
Tax Matters
We believe that a significant portion of the income derived from our subsea
systems will not be subject to tax by any of (i) Bermuda, which currently does
not have a corporate income tax, or (ii) certain other countries in which we
conduct activities or in which our customers are located, including the United
States. However, we
25
<PAGE>
base our belief upon the anticipated nature and conduct of our business, which
may change, and upon our understanding of our position under the tax laws of
the various countries in which we have assets or conduct activities. Our
position is subject to review and possible challenge by taxing authorities and
to possible changes in law (which may have retroactive effect). We cannot
predict the amount of tax to which we may become subject. We cannot be certain
that any of the foregoing factors would not have a material adverse effect on
our business, financial condition and results of operations. For more
information, see "Tax Considerations."
Foreign Personal Holding Company, Passive Foreign Investment Company,
Controlled Foreign Corporation and Personal Holding Company Rules
It is possible that the Issuer or one of its non-United States subsidiaries
will be classified as a foreign personal holding company (an "FPHC") under the
United States Internal Revenue Code. If you are a United States Holder as
defined below and the Issuer or one of its non-United States subsidiaries is
classified as an FPHC, then you would be required to pay tax on your pro-rata
share of the Issuer's (or its relevant subsidiary's) undistributed FPHC income.
We intend to manage our affairs so as to attempt to avoid or minimize having
income imputed to United States Holders under these rules, to the extent such
management of our affairs is consistent with our business goals. However, there
can be no assurance that we will be successful in this endeavor.
The Issuer believes that it is not a passive foreign investment company (a
"PFIC") and does not expect to become a PFIC in the future. However, there can
be no assurance in this regard. In addition, this belief is based, in part, on
the Issuer 's interpretations of existing law that the Issuer believes are
reasonable, but which have not been approved by any taxing authority. If the
Issuer were a PFIC and you are a United States Holder, then you could be liable
to pay tax at the then prevailing rates on ordinary income plus an interest
charge upon certain distributions by the Issuer or when you sell the Preferred
Stock at a gain. For more information, see "Tax Considerations."
Furthermore, additional tax considerations would apply if the Issuer or any
of its affiliates were a controlled foreign corporation (a "CFC") or a personal
holding company (a "PHC"). For more information, see "Tax Considerations."
26
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer.
CAPITALIZATION
The following table sets forth as of September 30, 1998 (i) the historical
consolidated capitalization of the Company and (ii) the capitalization as
adjusted to reflect the offering of the Old Preferred Stock and the application
of the net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the notes thereto
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1998
------------------------------
Actual As Adjusted(1)
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Long Term Debt:
AC-1 Credit Facility(2).................. $ 337,754,772 $ 337,754,772
9 5/8% Senior Notes due 2008(3).......... 796,370,623 796,370,623
Long term deferred revenue............... 12,406,592 12,406,592
Obligations under inland service agree-
ments and capital leases(4)............. 17,723,485 17,723,485
-------------- --------------
Total Long Term Debt................... 1,164,255,472 1,164,255,472
-------------- --------------
10 1/2% Senior Exchangeable Preferred Stock
due 2008(5)............................... -- 483,000,000
Shareholder's Equity:
GCL Common Stock......................... 12,000 12,000
Other Shareholder's Equity............... 835,226,100 835,226,100
Accumulated Deficit...................... (113,878,436) (113,878,436)
-------------- --------------
Total Shareholder's Equity............. 721,359,664 721,359,664
-------------- --------------
Total Capitalization................... $1,885,615,136 $2,368,615,136
============== ==============
</TABLE>
- --------
(1) As adjusted to reflect the offering of the Old Preferred Stock.
(2) The AC-1 Credit Facility provides non-recourse financing at the ACL level
for the construction and development of AC-1. A total of $482.0 million was
available to be borrowed under this facility, of which $337.8 million (not
including current portion totaling $27.4 million) was outstanding as of
September 30, 1998. See "Description of Certain Indebtedness--AC-1 Credit
Facility."
(3) The Senior Notes provided funds for refinancing corporate indebtedness and
investments in the Company's PC-1, MAC and PAC systems.
(4) Net of the $33.3 million current portion of such obligations.
(5) Net of $17 million in unamortized commissions and expenses from the
offering of the Old Preferred Stock.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Statement of Operations
Data" and "Balance Sheet Data" as of December 31, 1997 and for the period from
March 19, 1997 (date of inception) through December 31, 1997 are derived from
the Consolidated Financial Statements of the Company included herein, which
financial statements are prepared in accordance with U.S. GAAP and have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their report thereon included elsewhere in this prospectus. The financial
data as of and for the three and nine months ended September 30, 1998 are
derived from the Company's unaudited interim financial statements. The
unaudited interim financial statements include all adjustments, consisting of
normal recurring adjustments, that management considers necessary for fair
presentation of the financial position as of September 30, 1998 and results of
operations for the interim periods presented. Results of operations for the
interim periods are not necessarily indicative of the results of operations for
a full year. The operating data presented below are derived from the Company's
records. The financial data presented herein and elsewhere in this prospectus
is not necessarily indicative of the financial position or results of
operations of the Company in the future. The information set forth below should
be read in conjunction with the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and the
Consolidated Financial Statements and the notes thereto appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
For the Period
Nine Months March 19, 1997
Ended (Date of Inception)
Three Months Ended September 30, to December 31,
September 30, 1998 1998 1997
------------------ -------------- -------------------
<S> <C> <C> <C>
Statement of Operations
Data
Sales and Operating
Revenues............... $117,692,925 $ 218,948,792 $ --
------------ -------------- ------------
Expenses:
Cost of Capacity Sold... 49,237,947 90,438,176 --
Operations,
Administration and
Maintenance............ 8,182,206 10,652,206 --
Sales and Marketing..... 6,342,016 13,655,010 1,366,724
Network Development..... 2,912,062 7,233,645 78,000
General and
Administrative......... 3,773,808 10,760,377 1,656,984
Termination of Advisory
Services Agreement(1).. -- 139,669,340 --
Stock Related
Compensation(2)........ 1,654,932 8,248,795 --
Provision for Doubtful
for Accounts........... 1,198,878 2,210,995 --
------------ -------------- ------------
73,301,849 282,868,544 3,101,708
------------ -------------- ------------
Operating Income
(loss)................. 44,391,076 (63,919,752) (3,101,708)
Equity in Loss of
Pacific Crossing Ltd... (1,036,536) (1,036,536) --
Interest Income
(Expense): --
Interest Income....... 8,265,769 12,939,207 2,941,352
Interest Expense...... (17,983,947) (25,659,937) --
Provision for Income
Taxes (3).............. (7,331,590) (16,331,590) --
Extraordinary Loss on
Retirement of GTH
Senior Notes (4)....... -- (19,709,472) --
------------ -------------- ------------
Net Income (loss)....... 26,304,772 (113,718,080) (160,356)
Preference Share Non-
cash Dividends (5)..... -- (8,306,433) (12,689,923)
Redemption of GTH
Preference Shares (6).. -- (34,140,067) --
------------ -------------- ------------
Net Income (Loss)
Applicable to Common
Shareholders........... $ 26,304,772 $ (156,164,580) $(12,850,279)
============ ============== ============
Other Financial Data:
Ratio of Earnings to
Fixed Charges (13)..... 1.72 -- --
Pro Forma Ratio of
Earnings to Fixed
Charges (14)........... 1.72 -- --
Excess of Earnings over
Fixed Charges (Excess
of Fixed Charges over
Earnings) (13)......... $ 22,020,673 $ (112,620,959) $ (9,937,123)
============ ============== ============
Pro Forma Excess
Earnings over Fixed
Charges (Fixed Charges
over Earnings) (14).... $ 22,020,673 $ (112,620,959) $ (9,937,123)
============ ============== ============
Ratio of Earnings to
Combined Fixed Charges
and Preferred Dividends
(13)................... 1.72 -- --
Pro Forma Ratio of
Earnings to Combined
Fixed Charges and
Preferred Dividends
(14)................... 1.20 -- --
Excess of Earnings over
Combined Fixed Charges
and Preferred Dividends
(Excess of Combined
Fixed Charges and
Preferred Dividends
over Earnings) (13).... $ 22,020,673 $ (120,927,392) $(22,627,046)
============ ============== ============
Pro Forma Excess of
Earnings over Combined
Fixed Charges and
Preferred Dividends
(Excess of Combined
Fixed Charges and
Dividends over
Earnings) (14)......... $ 8,895,673 $ (160,302,392) $(63,907,868)
============ ============== ============
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Balance Sheet Data:
Current Assets Including Cash and Restricted
Cash (7)..................................... $ 940,770,580 $ 27,743,838
Long Term Accounts Receivable................. 33,639,685 --
Construction in Progress and Capacity
Available for Sale (8)....................... 870,976,856 518,518,509
Deferred Finance and Organization Costs, Net
of Accumulated Amortization.................. 41,599,923 25,934,021
Investment in Pacific Crossing Ltd. (9)....... 162,109,023 --
-------------- --------------
$2,049,096,067 $ 572,196,368
============== ==============
Current Liabilities........................... $ 154,162,431 $ 92,097,773
Long Term Debt................................ 337,754,772 162,325,000
Senior Notes.................................. 796,370,623 150,000,000
Long Term Deferred Revenue.................... 12,406,592 --
Obligations under inland service agreements
and capital leases (10)...................... 17,723,485 3,009,000
Deferred income taxes......................... 9,318,500 --
GTH Preference Shares (11).................... -- 90,643,919
Shareholder's Equity..........................
GCL Common Stock............................ 12,000 12,000
Other Shareholder's Equity.................. 835,226,100 74,269,032
Accumulated Deficit......................... (113,878,436) (160,356)
-------------- --------------
Total Shareholder's Equity.................... 721,359,664 74,120,676
-------------- --------------
Total Liabilities and Shareholder's Equity.... $2,049,096,067 $ 572,196,368
============== ==============
Other Financial Data:
Debt to Equity Ratio.......................... 1.84:1 5.50:1
</TABLE>
<TABLE>
<CAPTION>
As of
September 30,
1998
--------------
<S> <C>
Operating Data:
Executed CPAs.................................................... $ 767 million
</TABLE>
<TABLE>
<CAPTION>
Estimated(12)
--------------
<S> <C>
Route Kilometers
In Service.................................................... 13,400
Under Contract................................................ 54,200
Announced..................................................... 61,100
Network Service Capacity
(STM-1) Circuits)............................................. 128
Estimated System Costs (excluding potential future upgrades and
amounts capitalized with respect to the PCG Warrants)
AC-1 ......................................................... $ 750 million
Other Systems Under Development (PC-1, MAC, PAC, PEC and
GAL)......................................................... $2,815 million
</TABLE>
- --------
(1) Includes a charge for the Advisory Services Agreement Termination on June
30, 1998. See "Certain Transactions." GCL acquired the rights on behalf of
the Company of those entitled to fees payable under the Advisory Services
Agreements in consideration for the issuance of GCL Common Stock having an
aggregate value of $135 million and the cancellation of approximately $2.7
million owed to GCL under a related advance agreement. As a result of this
transaction, the Company has recorded a non-recurring charge in the
approximate amount of $137.7 million.
(2) During each of the three and nine months ended September 30, 1998, the
Company recognized $1.7 and $8.2 million, respectively, from a total of
$22.9 million of stock-related expense relating to stock options issued
during nine months ended September 30, 1998. The remaining $14.7 million
will be recognized as follows: $1.7 million in the fourth quarter of 1998,
$6.8 million in 1999, $5.0 million in 2000 and $1.2 million in 2001.
(3) Reflects income taxes on profits earned during the nine months ended
September 30, 1998 attributable to both United States and foreign
jurisdictions. A significant portion of the Company's operating losses
have been incurred in non-taxable jurisdictions and therefore these
operating losses cannot be applied to future taxable earnings of the
Company.
(4) On May 18, 1998, a portion of the proceeds from the issuance of the Senior
Notes was used to repurchase the GTH Senior Notes. The Company recognized
an extraordinary loss of $19.7 million on repurchase comprising a premium
of approximately $9.8 million and a write-off of approximately $9.9
million of unamortized deferred financing costs.
(5) The holders of GTH Preference Shares were entitled to receive cumulative,
compounding dividends at an initial annual rate of 14%. Preference share
dividends include cumulative 14% dividends and amortization of the
discount and issuance costs. Effective June 17, 1998, the Company used
proceeds from the Senior Notes to redeem all outstanding GTH Preference
Shares. All dividends prior to the redemption had been paid through the
issuance of additional preference shares and charged against additional
paid-in-capital.
(6) As a result of the redemption of the GTH Preference Shares, the Company
incurred a one-time $34.1 million charge against additional paid-in
capital. The charge was comprised of: (i) a $15.9 million charge for the
redemption premium and (ii) a write-off of $18.2 of unamortized discount
and unamortized deferred financing costs.
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(7) The majority of Cash and Restricted Cash is comprised of proceeds from the
issuance of the Senior Notes and from the GCL Stock Offerings, contributed
to the Company.
(8) Construction in Progress and Capacity Available for Sale includes direct
and indirect expenditures for construction of AC-1 and other Systems and
is stated at cost. Includes costs incurred under (i) the construction
contracts; (ii) advisory, consulting and legal fees; (iii) interest
(including amortization of debt issuance costs incurred during the
construction phase); and (iv) other costs necessary for developing AC-1.
Additionally, GCL granted the PCG Warrants to PCG, a shareholder of GCL,
for the PC-1, MAC and PAC systems and related rights. The $275.3 million
value of the GCL Common Stock issued under the PCG Warrants was
contributed to the Company and recorded as Construction in Progress in the
amount of $112.2 million and Investment in Pacific Crossing Ltd. in the
amount of $163.1 million.
(9) Includes $163.1 million as of September 30, 1998, as described above,
representing the value of the PCG Warrants applicable to Pacific Crossing
Ltd., less $1.0 million representing the Company's equity share in the
loss of Pacific Crossing Ltd. for the nine months ended September 30,
1998.
(10) Certain contracts to acquire terrestrial capacity and certain capital
leases require payments over a 25-year period. The amount shown reflects
the present value of such payments, net of the $33.3 million ($30.2
million as of December 31, 1997) current portion of such payments, which
is included under "Current Liabilities."
(11) The December 31, 1997 amount is comprised of (i) $100 million of GTH
Preference Shares originally issued, plus (ii) $9.8 million of GTH
Preference Shares issued as dividends thereon, less (iii) $19.2 million
reflecting the unamortized discount and issue costs associated therewith.
The Company has redeemed all of the outstanding GTH Preference Shares
effective as of June 17, 1998.
(12) Assumes full completion of AC-1, PC-1, MAC, PAC, PEC and GAL based upon
current Company estimates, including anticipated financing costs. See
"Risk Factors--Risks Related to Completing our Cable Systems" and "--Risk
of Error in Forward-Looking Statements."
(13) For the purposes of this computation, earnings are defined as income
(loss) before income taxes plus fixed charges. Fixed charges consist of
interest expense (including amortization of deferred debt issuance costs)
and the portion of rental expense that is representative of the interest
factor (deemed to be one-third of minimum operating lease rentals).
(14) For the purposes of this pro forma computation, earnings are defined as
income (loss) before income taxes plus fixed charges. Fixed charges
consist of interest expense (including amortization of deferred debt
issuance costs) and the portion of rental expense that is representative
of the interest factor (deemed to be one-third of minimum operating lease
rentals). This computation gives effect to the November 24, 1998 issuance
of the Preferred Stock assuming that the Preferred Stock had been issued
at the beginning of each of the periods presented.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's audited Consolidated Financial Statements and the notes thereto
contained in this prospectus.
Overview
The Company is the world's first independent provider of global Internet and
long distance telecommunications facilities and services utilizing a network of
undersea and terrestrial digital fiber optic cable systems. The Company
commenced operations in March 1997, when it entered into a fixed price contract
with Tyco Submarine Systems Ltd. ("TSSL"), formerly AT&T Submarine Systems,
Inc., for the design, development, construction and installation of AC-1, and
obtained commitments for AC-1's initial financing. AC-1, the first of Global
Crossing's planned fiber optic cable systems, is designed to be a four fiber
pair system connecting (i) the United States to the United Kingdom, (ii) the
United Kingdom to The Netherlands and Germany, (iii) The Netherlands to Germany
and (iv) Germany to the United States. The first segment of AC-1, the United
States to United Kingdom route, was completed and commenced operations on May
26, 1998. The Company currently anticipates that the full AC-1 system will be
completed and commence operations by February 1999. See "Risk Factors--Risks
Related to Completing our Cable Systems."
Until May 26, 1998, the Company was a development stage company and since its
inception, has been involved in the planning, financing, marketing,
organization, development, design and construction of the AC-1 system. In
addition, the Company has been engaged in the planning, developing and
financing of the five other planned systems currently under active development
by the Company (PC-1, MAC, PAC, PEC and GAL). The Company has also achieved a
number of significant milestones, including (i) the recruitment of experienced
professionals in undersea cable and telecommunications operations, (ii) the
signing of construction contracts on AC-1, PC-1, MAC and PAC, (iii) the
execution of the AC-1, PC-1 and MAC credit facilities and the execution of a
financing commitment with respect to PAC, (iv) the construction and activation
of the United States to United Kingdom segment of AC-1, (v) the issuance of an
aggregate of $800 million in principal amount of the Company's Senior Notes,
(vi) the initial public offering of GCL Common Stock by the Company's parent,
GCL and (vii) the execution of over $767 million of capacity purchase
agreements ("CPAs") and inland capacity purchase agreements ("ICPAs").
Effective May 26, 1998, the United States--United Kingdom segment of AC-1
achieved "ready-for-service" ("RFS") and the Company began recognizing revenue
from the sale of capacity. Accordingly, the Company is no longer a development
stage company.
In March 1998, Global Crossing Ltd., LDC ("Old GCL"), a limited duration
company formed under the laws of the Cayman Islands, formed a wholly-owned
subsidiary in Bermuda known as Global Crossing Holdings Ltd. and contributed
its investment in Global Telesystems Holdings Ltd. to Global Crossing Holdings
Ltd. In April 1998, Global Crossing Holdings Ltd. changed its name to Global
Crossing Ltd. and formed the Issuer as a wholly-owned subsidiary. Global
Crossing Ltd. then contributed its investment in Global Telesystems Holdings
Ltd. to the Issuer. Prior to the GCL Stock Offerings, substantially all of the
shareholders of Old GCL exchanged their equity interests in Global Crossing
Ltd., LDC for GCL Common Stock of Global Crossing Ltd.
The Company, together with other partners, formed a joint venture company,
PCL, which on April 21, 1998 entered into a contract with TSSL to construct the
PC-1 cable system. The estimated cost of the PC-1 system is approximately $1.2
billion (excluding potential future upgrades and amounts capitalized with
respect to the PCG Warrants) and will be financed through a $400 million equity
contribution by the joint venture partners and through borrowings under the
credit facility discussed below. PC-1 is an undersea fiber optic cable system
connecting California, Washington and two landing sites in Japan. The Company
has approximately a 58% economic interest in PCL, represented by a 50% direct
voting interest in PCL and, through an equity ownership interest in one of the
other joint venture partners, a further 8% economic non-voting interest. The
Company's funding commitment in respect of the $400 million of equity in PCL
totals $231 million, which is
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proportional to its economic interest. PCL has obtained an $850 million senior
secured, non-recourse credit facility from certain lenders to finance the
remaining construction costs of the PC-1 system. The Company accounts for its
investment in PCL on an equity basis.
Effective June 2, 1998, the Company, through its wholly-owned subsidiary
Mid-Atlantic Crossing Ltd. ("MACL"), entered into a contract with Alcatel
Submarine Networks ("Alcatel") for the construction of MAC, an undersea fiber
optic cable system connecting New York, the Caribbean and Florida. The
estimated costs of the MAC system is approximately $330 million (excluding
potential future upgrades and amounts capitalized with respect to the PCG
Warrants). This will be financed through a $110 million equity contribution
and through borrowings under a non-recourse credit facility. Effective
November 25, 1998, MACL obtained $220 million in non-recourse course project
financing from certain lenders to finance the initial construction costs of
MAC.
Effective July 21, 1998, the Company, through its wholly-owned subsidiary
Pan American Crossing Ltd. ("PACL"), entered into a contract with TSSL to
construct PAC, an undersea fiber optic cable system connecting California with
two landing sites in Mexico, Panama and the Caribbean. The estimated costs of
the PAC system of approximately $475 million (excluding potential future
upgrades and amounts capitalized with respect to the PCG Warrants) will be
financed through a $175 million equity contribution and through borrowings
under a non-recourse credit facility. On July 21, 1998, PACL entered into a
commitment letter to obtain $300 million of non-recourse indebtedness.
In October 1998, the Company announced its plans to build PEC, which upon
completion, will interconnect AC-1 and 18 European cities including London,
Paris, Amsterdam, Rotterdam, Antwerp, Brussels, Hamburg, Hanover, Dusseldorf,
Cologne, Frankfurt, Strasbourg and Copenhagen. The Company also has future
plans to connect additional European cities to the system. PEC is being
initially planned as a 8,200 km system with 24 to 72 fiber pairs. The Company
is currently negotiating with various parties for the construction of PEC and,
based on those negotiations we believe that the construction cost for the
system will be approximately $700 million.
In December 1998, the Company announced its plans to build GAL, which will
among other things interconnect PC-1 and Tokyo, Osaka and Nagoya. GAL is being
initially planned as a 1,300 km system. The Company is currently negotiating
with various parties for the construction of GAL and, based on those
negotiations, the Company believes that the construction cost for the system
will be approximately $110 million.
Sales of capacity by the Company on its cable systems are effected through
CPAs pursuant to which the Company's customers obtain an indefeasible right of
use ("IRU") for a certain number of circuits. Each IRU entitles the customer
to the use of the related capacity for a period ending 25 years after the RFS
date for the related system. Global Crossing also sells terrestrial capacity
through ICPAs, linking certain of the Company's landing stations with major
cities in order to provide city-to-city connectivity to its customers.
Terrestrial capacity purchased by the Company through Inland Services
Agreements ("ISAs") from the owners of terrestrial cable systems is resold by
the Company to its customers through ICPAs. The CPAs and ICPAs generally
provide for a cash deposit upon execution, followed by full payment upon
activation of the related capacity pursuant to the terms of the agreements.
The Company also offers customers multi-year CPAs for capacity across the
entire Global Crossing Network at tiered pricing.
The Company's basic pricing structure currently provides for volume-based
discounts to its customers as well as discounts for early purchases on a
particular system. Customers are generally provided options in their CPAs to
purchase additional capacity in the future at prices which reflect the
aggregate purchases made by such customers. Consequently, the prices under
such options in the future are often lower than the current price paid by such
customers for their initial capacity.
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Revenues
Revenues from CPAs and ICPAs are recognized in the period during which (i)
the purchaser obtains the right to use the capacity, which can only be
suspended following a failure of the purchaser to pay the full purchase price
or fulfill its contractual obligations, (ii) the purchaser becomes obligated to
pay OA&M costs and (iii) the segment of the system related to the capacity
purchased is ready for service.
CPAs for capacity that do not meet the Company's revenue recognition policy
are not recorded in the Company's consolidated financial statements.
Since the RFS date for the United States--United Kingdom segment of AC-1,
which occurred on May 26, 1998, the Company's revenues have been comprised
principally of revenues from sales of cable capacity on AC-1 and the sale of
associated terrestrial capacity.
Pursuant to the CPAs, the Company bills its customers for operations, direct
administration and maintenance costs incurred, plus 10%, subject to certain
annual maximum amounts.
Cost of Capacity Sold; Construction in Progress; Capacity Available for Sale
Construction costs incurred with respect to each segment of an undersea cable
system are reflected as "Construction in Progress" in the Company's
consolidated balance sheet until a segment becomes operational, at which time
such costs are reflected as Capacity Available For Sale. Capacity Available For
Sale is recorded at the lower of cost or fair value less cost to sell and is
charged to Cost of Capacity Sold in the period the related revenues are
recognized. Fair value of capacity is derived from a third party consultant's
market study of expected sales of capacity.
The Company capitalizes the cost of acquiring terrestrial capacity and
records in Capacity Available for Sale amounts equal to the present value of
future payments associated with the acquisition of such terrestrial capacity
(excluding from such payments amounts attributable to operations and
maintenance costs).
Construction in Progress includes direct expenditures for construction of
systems, including advisory, consulting and legal fees, interest during
construction and amortized debt issuance costs incurred during the construction
phase.
Amounts charged to Cost of Capacity Sold are calculated based on the ratio of
capacity revenues recognized in a period to total expected capacity revenues
over the life of the system, multiplied by the total cost to construct the
system. Management's forecast of revenues expected over the life of the system
will be supported by an independent consultant's forecast. Changes in
management's estimate of the expected revenues to be derived from sales of a
cable system's capacity will result in adjustments to the calculations of Cost
of Capacity Sold. These adjustments will be recorded on a prospective basis
over future periods commencing with the period when management revises its
estimate. The cost of acquiring terrestrial capacity is charged to Cost of
Capacity Sold in the period during which the related revenues are recognized.
Operating Expenses
In addition to Cost of Capacity Sold, the Company's operating expenses
principally comprise sales and marketing, operations and maintenance, general
and administrative and network development costs. Costs relating to the
Company's evaluation of possible additional systems are expensed as incurred.
Results of Operations for the Period from March 19, 1997 (Date of Inception) to
December 31, 1997
Interest Income. Pursuant to the purchase agreement relating to the sale of
its outstanding $150 million GTH Senior Notes, the Company was required to
maintain certain amounts in restricted cash and cash equivalents accounts to
fund future semi-annual interest payments on such notes. Interest income earned
on this balance, together with interest income earned on cash raised from
financing and cash on CPA deposits, totaled
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approximately $2.9 million for the period from March 19, 1997 to December 31,
1997. The Company utilized a portion of the net proceeds from the Note Offering
to repurchase the GTH Senior Notes. See "--Liquidity and Capital Resources."
Expenses. During the period ended December 31, 1997, the Company incurred
expenses of $3.1 million. Of this amount, approximately $1.4 million was
attributable to sales and marketing expenses, relating principally to AC-1,
$0.1 related to network development and approximately $1.6 million was
attributable to general and administrative expenses.
GTH Preference Share Dividends. The GTH Preference Shares accrued compounding
dividends at an annual rate of 14%. During the period ended December 31, 1997,
the Company recorded preference share dividends of approximately $12.7 million.
This amount is comprised of $11.1 million in paid-in-kind ("PIK") dividends,
$1.0 million in amortization of the discount on issuance and $0.6 million in
amortization of issuance costs. The $11.1 million in PIK dividends includes
$1.3 million accrued but unpaid as of December 31, 1997.
In connection with the issuance of the GTH Preference Shares, the exclusive
placement agent thereof, CIBC Wood Gundy Securities Corp., received a total of
19,852,950 shares of Class A common stock of Global Crossing Ltd., LDC ("Old
GCL") for no additional consideration. The Company has recorded the $13,235,000
estimated fair value of such shares as a discount in the carrying value of the
GTH Preference Shares, which discount is being amortized over the term of such
shares. See "Certain Transactions--Transactions Regarding Class A Shares of Old
GCL."
The Company utilized a portion of the net proceeds from the Note Offering to
redeem the GTH Preference Shares effective June 17, 1998. See "--Liquidity and
Capital Resources."
Net Loss and Net Loss Applicable to Common Shareholder. During the period
ended December 31, 1997, the Company had a net loss applicable to common
shareholder of $12.9 million, resulting primarily from the $12.7 million of
dividends on the GTH Preference Shares described above.
Results of Operations for the Three Months Ended September 30, 1998 and
September 30, 1997
Revenues
During the three months ended September 30, 1998, the Company executed CPAs
and ICPAs totaling approximately $211.3 million, bringing the total since
inception to $767.3 million. Of this amount, the Company recognized revenues of
$115.9 million on sales of capacity relating to AC-1 for the three months ended
September 30, 1998, in addition to revenues from operation and maintenance
services of $1.8 million. Of the $767.3 million executed CPAs and ICPAs, $550.6
million has not yet been reflected in the financial statements because the
segment has not reached RFS or the purchaser has not obtained the right to use
the capacity. During the three months ended September 30, 1998, the Company
entered into CPAs and ICPAs with two additional international
telecommunications carriers and sold approximately 10% of the minimum projected
sales capacity of 512 circuits on the AC-1 system.
Expenses
Cost of capacity sold. For the three months ended September 30, 1998, the
Company recognized $49.2 million in cost of capacity sold, resulting in a gross
margin on capacity sales of 58%. The Company calculates cost of capacity sold
for AC-1 based on the ratio of the period's actual revenue to total expected
revenues given a minimum projected sales capacity of 512 circuits times the
construction cost of the system. This calculation of cost of sales matches
costs with the relative value of each sale. Cost of capacity sold also includes
the cost of terrestrial capacity sold of approximately $7.7 million during the
three months ended September 30, 1998. There were no sales or related costs
recognized in the three months ended September 30, 1997, as the Company was in
its development stage.
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Operations, administration and maintenance ("OA&M"). The Company incurred
OA&M costs on AC-1 of $8.2 million during the three months ended September 30,
1998. The Company has entered into an agreement with TSSL relating to
operations, administration and maintenance of AC-1 which limits the Company's
total OA&M expense for the system. Following the AC-1 full system RFS date, the
Company anticipates that its OA&M costs will be largely recovered through
charges to its customers under the terms of CPAs. There were no OA&M costs in
the three months ended September 30, 1997, as the Company was in its
development stage.
Sales and marketing. During the three months ended September 30, 1998, the
Company incurred sales and marketing expenses of $6.3 million, including
commissions of $3.4 million incurred on the capacity sales recognized during
this period. During the three months ended September 30, 1997, the Company
incurred sales and marketing costs of approximately $0.1 million. The increase
from 1997 was due to additions in headcount, occupancy costs, plus marketing,
commissions paid and other promotional expenses to support the Company's rapid
growth.
Network development. The Company incurred network development costs during
the three months ended September 30, 1998 of $2.9 million relating to the
development of systems. No such costs were incurred during the three months
ended September 30, 1997.
General and administrative. General and administrative expenses totaled $3.8
million during the three months ended September 30, 1998, and was comprised
principally of salaries, employee benefits and recruiting fees reflecting the
Company's staffing for multiple systems, travel, insurance costs, rent
expenses, plus depreciation and amortization. During the three months ended
September 30, 1997, the Company incurred general and administrative costs of
approximately $0.6 million.
Stock related compensation expense. The Company recognized approximately $1.7
million of compensation expense during the three months ended September 30,
1998 relating to options issued under GCL's Stock Incentive Plan. GCL's Stock
Incentive Plan commenced on January 21, 1998 and therefore no issuances were
made during the three months ended September 30, 1997.
Equity in loss of Pacific Crossing Ltd. During April 1998, the Company
entered into a joint venture to construct an undersea cable system, PC-1. PC-1
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. The $1.0
million loss represents the Company's 58% equity in the loss of this joint
venture for the three months ended September 30, 1998.
Interest Income and Interest Expense
Interest income. The Company earned interest income of $8.3 million and $1.2
million in the three months ended September 30, 1998 and 1997, respectively.
Such interest income represents earnings on cash raised from financings, the
Stock Offerings of GCL which were contributed to the Company and on CPA
deposits.
Interest expense. During the three months ended September 30, 1998, the
Company incurred $30.7 million in interest costs, including the amortization of
finance costs and debt discount. Of this amount, the Company capitalized to
construction in progress interest of $12.7 million, and expensed $18.0 million.
During the three months ended September 30, 1997, the Company incurred interest
costs of $0.3 million, all of which was capitalized to construction in
progress.
Provision for income taxes
The income tax provision of $7.3 million for the three months ended September
30, 1998, provides for taxes on profits earned from capacity sales and OA&M
revenues where subsidiaries of the Company have a presence in taxable
jurisdictions. During the three months ended September 30, 1997, the Company
has
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incurred operating losses, which relate to non-taxable jurisdictions and
therefore, such losses cannot be applied against future taxable earnings.
Accordingly, no tax provision or deferred tax benefit was recorded in 1997.
Preference share dividends
During the three months ended September 30, 1998, there were no preference
share dividends since the preference shares were redeemed during June 1998.
Preference share dividends for the three months ended September 30, 1997, were
$4.2 million.
Net income and Net income (loss) applicable to common shareholder
During the three months ended September 30, 1998 the Company reported net
income of $26.3 million compared to net income of $0.5 million in the three
months ended September 30, 1997.
During the three months ended September 30, 1998, the Company reported net
income applicable to common shareholder of $26.3 million. During the three
months ended September 30, 1997, the Company reported a net loss applicable to
the common shareholder of $3.7 million resulting from $4.2 million of dividends
on preference shares.
Results of Operations for the Nine Months Ended September 30, 1998 and the
Period from March 19, 1997 (date of inception) to September 30, 1997
Revenues
During the nine months ended September 30, 1998, the Company executed CPAs
and ICPAs totaling approximately $626.3 million bringing the total since
inception to $767.3 million. Of this amount, the Company recognized revenues of
$216.7 million on sales of capacity relating to AC-1 for the nine months ended
September 30, 1998, in addition to revenues from operations and maintenance
services of $2.2 million. The remaining $550.6 million has not yet been
reflected in the financial statements because the segment has not reached RFS,
or the purchaser has not obtained the right to use the capacity. During the
nine months ended September 30, 1998, the Company entered into CPAs and ICPAs
with 24 international telecommunications carriers and sold approximately 30% of
the minimum projected sales capacity of 512 circuits on the AC-1 system.
Expenses
Cost of capacity sold. For the nine months ended September 30, 1998, the
Company recognized $90.4 million in cost of capacity sold, resulting in a gross
margin on capacity sales of 58%. The Company calculates cost of capacity sold
for AC-1 based on the ratio of the period's actual revenue to total expected
revenues, assuming minimum projected sales capacity of 512 circuits, times the
construction cost of the system. This calculation of cost of sales matches
costs with the relative value of each sale. Cost of capacity sold also includes
the cost of terrestrial capacity sold of approximately $16.6 million during the
nine months ended September 30, 1998. There were no sales or related costs
recognized in the nine months ended September 30, 1997, as the Company was in
its development stage.
Operations, administration and maintenance ("OA&M"). The Company incurred
OA&M costs of $10.7 million during the nine months ended September 30, 1998.
The Company entered into an agreement with TSSL relating to operations,
administration and maintenance of AC-1, which limits the Company's total OA&M
expense for the system. Following the AC-1 full system RFS date, the Company
anticipates that its OA&M costs will be largely recovered through charges to
its customers under the terms of CPAs. There were no OA&M costs during the
period March 19, 1997 (Date of Inception) to September 30, 1997, as the Company
was in its development stage.
Sales and marketing. During the nine months ended September 30, 1998, the
Company incurred sales and marketing expenses of $13.7 million, including
commissions of $7.5 million incurred on the capacity sales
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recognized during this period. During the period from March 19, 1997 (Date of
Inception) to September 30, 1997, the Company incurred sales and marketing
costs of approximately $0.1 million. The increase from 1997 was due to
additions in headcount and occupancy costs, plus marketing, commissions paid
and other promotional expenses to support the Company's rapid growth.
Network development. The Company incurred network development costs during
the nine months ended September 30, 1998 of $7.2 million relating to the
development of systems. No such costs were incurred during the period from
March 19, 1997 (Date of Inception) to September 30, 1997.
General and administrative. General and administrative expenses totaled $10.8
million during the nine months ended September 30, 1998, and comprised
principally of salaries, employee benefits and recruiting fees reflecting the
Company's staffing for multiple systems, travel, insurance costs and rent
expenses, plus depreciation and amortization. During the period from March 19,
1997 (Date of Inception) to September 30, 1997, the Company incurred general
and administrative costs of $0.7 million.
Termination of Advisory Services Agreement with PCG Telecom Services LLC. In
connection with the development and construction of AC-1, GCL entered into an
Advisory Services Agreement with PCG Telecom Services LLC, an affiliate of the
Company, providing for the payment by the Company of an advisory fee of 2.0% of
the gross revenues of ACL. GCL's Board of Directors also approved similar
advisory fees and authorized GCL to enter into similar agreements with respect
to other cable systems being developed by the Company. GCL has acquired the
rights of the persons entitled to the fees payable under these agreements in
consideration for the issuance of GCL Common Stock which had at the time of
issuance an aggregate value of $135.0 million, and the cancellation of
approximately $2.7 million owed to GCL under a related advance agreement. This
charge of $137.7 million relating to the termination of the Advisory Services
Agreement was contributed to the Company and is reflected in the statement of
operations for the nine month period ended September 30, 1998. In addition, the
Company recognized approximately $2.0 million of advisory fees incurred prior
to termination of the contract.
Stock related compensation expense. The Company recognized approximately $8.2
million of stock related compensation expense during the nine months ended
September 30, 1998 relating to options issued under GCL's Stock Incentive Plan.
GCL's Stock Incentive Plan commenced on January 21, 1998 and therefore no
issuances were made during the period from March 19, 1997 (Date of Inception)
to September 30, 1997. During the nine months ended September 30, 1998, the
Company also recorded stock-related expense of $2.3 million relating to shares
issued during this period.
Equity in loss of Pacific Crossing Ltd. During April 1998, the Company
entered into a joint venture to construct a cable system project, PC-1. PC-1 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. The $1.0
million loss represents the Company's 58% equity in the loss of this joint
venture for the nine months ended September 30, 1998.
Interest Income and Interest Expense
Interest income. The Company reported interest income of $12.9 million in the
nine months ended September 30, 1998 and $2.5 million during the period from
March 19, 1997 (Date of Inception) to September 30, 1997. Such interest income
represents earnings on cash raised from financings, the GCL Stock Offerings of
GCL which was contributed to the Company and on CPA deposits.
Interest expense. During the nine months ended September 30, 1998, the
Company incurred $62.6 million in interest costs, including the amortization of
finance costs and debt discount. Of this amount, the Company capitalized to
construction in progress interest of $36.9 million, and expensed $25.7 million.
During the period from March 19, 1997 (Date of Inception) to September 30,
1997, the Company incurred interest expense of $4.6 million, all of which was
capitalized to construction in progress.
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Provision for income taxes
The income tax provision of $16.3 million for the nine months ended September
30, 1998, provides for taxes on profits earned from capacity sales and OA&M
revenues where subsidiaries of the Company have a presence in taxable
jurisdictions. During the period from March 19, 1997 (Date of Inception) to
September 30, 1997, the Company has incurred operating losses, which relate to
non-taxable jurisdictions and therefore, such losses incurred to date cannot be
applied against future taxable earnings. Accordingly, no tax provision or
deferred tax benefit was recorded in 1997.
Extraordinary item
On May 18, 1998, the Company recognized an extraordinary loss of $19.7
million on the repurchase of the Global Telesystems Holding Ltd.'s senior notes
("GTH Senior Notes"), comprised of a premium of $9.8 million and a write-off of
$9.9 million of unamortized deferred financing costs.
Preference share dividends
The former GTH Preference Shares accrued compounding dividends at an annual
rate of 14%. During the nine months ended September 30, 1998, the Company
recorded preference share dividends of approximately $8.3 million. Preference
share dividends for the period from March 19, 1997 (Date of Inception) to
September 30, 1997 were $8.4 million.
Redemption of preference shares
The redemption of the GTH Preference Shares occurred on June 17, 1998 and
resulted in a $34.1 million charge against equity. This amount was comprised of
a $15.9 million redemption premium and a write-off of $18.2 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 statement of
operations.
Net income (loss) and Net income (loss) applicable to common shareholder
The Company incurred a net loss of $113.7 million for the nine months ended
September 30, 1998, compared to net income of $1.7 million in the period from
March 19, 1997 (Date of Inception) to September 30, 1997. The net loss for the
nine months ended September 30, 1998 reflects an extraordinary loss on
retirement of the GTH Senior Notes of $19.7 million and a non-recurring charge
of $139.7 million relating to the termination of its Advisory Services
Agreement. The Company's net income before these items would have been $45.7
million.
During the nine months ended September 30, 1998, the Company reported a net
loss applicable to common shareholder of $156.2 million. This loss reflects GTH
Preference Share dividends of $8.3 million and the redemption of GTH Preference
Shares of $34.1 million. During the period from March 19, 1997 (Date of
Inception) to September 30, 1997, the Company incurred a net loss applicable to
common shareholder of $6.7 million after GTH Preference Share dividends of $8.4
million.
Balance Sheet as of September 30, 1998
Cash and cash equivalents. At September 30, 1998, cash and cash equivalents
of $485.7 million include proceeds of GCL's Stock Offerings of $392.1 million,
which was contributed to the Company.
Restricted cash and cash equivalents. At September 30, 1998, restricted cash
and cash equivalents includes: $231.0 million for the collateralization of the
credit facility used to make initial payments on the PC-1 construction, $74.8
million reserved for funding future interest payable on the Senior Notes, and
$86.0 million received pursuant to CPAs and ICPAs on AC-1 only in accordance
with the terms of the AC-1 credit facility.
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These funds may be used only for purchases of terrestrial capacity relating to
AC-1, interest and principal payments on the AC-1 credit facility and to fund
reserves for future upgrades to AC-1.
Capacity available for sale, Construction in progress and Investment in
PCL. The Company's investment in capacity available for sale, construction in
progress, and investment in PCL totaled approximately $1,033 million as of
September 30, 1998. Upon the GCL Stock Offerings each PCG Warrant then
outstanding was converted into a fraction of a share of GCL Common Stock based
upon the ratio of the per share valuation at the time of conversion less the
per share exercise price of the warrants, divided by the per share valuation at
the time of conversion, together with a new warrant ("New PCG Warrants") to
purchase the remaining fraction of shares at an exercise price equal to $19.00
(the Price to Public per share of the GCL Stock Offerings). These amounts were
contributed to the Company and increased additional paid-in-capital by $275.3
million. This amount was allocated on a pro rata basis to PCL, PAC and MAC
according to the estimated cost of each system. Accordingly, the Company
recorded $163.1 million as an investment in PCL and $64.6 million and $47.6
million as Construction in Progress for PAC and MAC, respectively.
Long term debt and Senior Notes. The long term debt of $337.8 million as of
September 30, 1998 represents the long term portion of the Company's
outstanding balance on the AC-1 Credit Facility. The Senior Notes balance of
$796.4 million represents the net proceeds from the Company's issuance of the
Senior Notes, adjusted for amortization of the original issue discount.
During the nine months ended September 30, 1998, the Company paid fees of
$7.0 million to PCG, a shareholder of GCL, relating to system evaluation costs
incurred by PCG. This amount was treated as a dividend and charged against
additional paid-in-capital.
Liquidity and Capital Resources
The Company's principal capital expenditure requirements involve the
construction of undersea and terrestrial cable systems. As of September 30,
1998 and September 30, 1997, the Company had incurred approximately $764.2
million and $298.5 million, respectively, of capital expenditures in respect of
AC-1, principally for system construction costs and purchases of terrestrial
capacity. The Company was also committed to a further $44.1 million and $364.5
million, respectively, of capital expenditures under the AC-1 Contract in
connection with the completion of AC-1. Terrestrial capacity purchases are
recorded at the present value of future payments (excluded from such payments
are amounts attributable to OA&M required to be made by the Company for such
capacity).
The total cost of AC-1 is estimated at approximately $750 million, excluding
purchases of terrestrial capacity and potential future upgrades but including
financing costs capitalized during the period AC-1 is under construction. As of
September 30, 1998 and September 30, 1997, the Company had borrowings
outstanding of $365.1 million and $5.0 million, respectively, under the AC-1
Credit Facility.
On May 18, 1998, the Company obtained $796.2 million in proceeds from the
issuance of its Senior Notes. The Company utilized the net proceeds from these
notes (i) to purchase all of the $150 million outstanding GTH Senior Notes,
(ii) to redeem all of the $100 million outstanding GTH Preference Shares, (iii)
to repay in full the $67.2 million outstanding under a bridge credit facility,
(iv) to make approximately $315 million of equity investments in certain of the
Company's systems and (v) for general corporate purposes, including $74 million
to fund a one-year interest reserve on the Senior Notes.
During August 1998, GCL completed its GCL Stock Offerings and received net
proceeds of $392.1 million. This amount was contributed to the Company and the
Company intends to use the proceeds for (i) construction of the Global Crossing
Network, (ii) investment in telecommunications companies and Internet service
providers, (iii) investment in GAL and (iv) general corporate purposes. As of
September 30, 1998, these proceeds were invested in short-term, interest-
bearing U.S. Government securities and certain other short term, investment
grade securities.
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Cash provided by operating activities was approximately $82.6 million for the
nine months ended September 30, 1998, and $2.7 million for the period from
March 19, 1997 (Date of Inception) to September 30, 1997, and principally
represents cash received from deposits and payments for activated capacity
pursuant to signed CPAs, plus interest income received, less sales and
marketing, network development, and general and administrative expenses paid.
Cash provided by financing activities was approximately $689.1 million for
the nine months ended September 30, 1998, and primarily represents borrowings
under the AC-1 Credit Facility, proceeds from the issuance of the Senior Notes
and proceeds from the GCL Stock Offerings, less the redemption of the GTH
Preference Shares and the retirement of the GTH Senior Notes and less the
increase in proceeds on borrowings held in restricted cash and cash
equivalents. Cash provided by financing activities of $296.8 million for the
period from March 19, 1997 (Date of Inception) to September 30, 1997, relates
to net proceeds from the issuance of common stock, GTH Preference Shares and
GTH Senior Notes, and borrowings under the AC-1 Credit Facility, less finance
and organization costs paid, and less costs related to the issuance of common
and preferred stock.
Cash used in investing activities was approximately $287.4 million and $262.5
million for the nine months ended September 30, 1998, and the period from March
19, 1997 (Date of Inception) to September 30, 1997, respectively, and
represents cash paid for Construction in Progress and Capacity Available for
Sale.
The Company is currently actively developing five additional systems, PC-1,
MAC, PAC, PEC and GAL. The Company estimates that the costs of constructing
these systems will total approximately $2,815 million, including financing
costs but excluding potential future upgrades and amounts capitalized with
respect to the PCG Warrants. The Company expects to use approximately $315
million of the net proceeds from the Senior Notes to fund initial investments
in PC-1, MAC and PAC.
Effective July 21, 1998, the Company signed a commitment letter for $300
million non-recourse project debt financing of PAC. Effective July 30, 1998,
the Company entered into a credit agreement for the $850 million non-recourse
project debt financing of PC-1 (including $50 million for the initial upgrade
of the PC-1 system). Effective November 25, 1998, the Company entered into a
credit agreement for the $260 million non-recourse project debt financing of
MAC (including $30 million for the initial upgrade of the MAC system).
Because the Company's cost of developing and constructing its systems, as
well as operating its business, will depend on a variety of factors (including
the Company's ability to successfully negotiate construction supply contracts
at favorable prices, the ability of the Company to generate sufficient sales to
customers, changes in the competitive environment of the markets served by the
Company, the estimated levels of participation by the Company's joint venture
partners and changes in technology), actual costs and revenues may vary from
expected amounts, possibly materially, and such variations will likely impact
the Company's future capital requirements. The development of additional
systems, which may be pursued by the Company, would lead to additional future
capital requirements.
The Company has raised or expects to raise the additional capital required to
finance these cable systems through a combination of commercial bank
borrowings, non-recourse project financings, public and private offerings of
debt and equity securities, vendor financing and sales of dark fiber on PEC. In
this regard, subsequent to the period ending September 30, 1998, the Company
has signed an agreement with Cable & Wireless PLC for the sale of dark fiber on
the PEC network for a purchase price of approximately $100 million. There can
be no assurance that the Company will be successful in raising additional
capital at all or on terms acceptable to the Company. See "Risk Factors--
Substantial Future Capital Requirements" and "Risk Factors--Risks Related to
Completing our Cable Systems."
During April 1998, a supply contract (the "PC-1 Contract") was entered into
with TSSL to construct PC-1. The estimated total cost of PC-1 is $1,200
million, including financing costs which will be capitalized during the period
PC-1 is under construction. Of this amount, the Company will be required to
contribute
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equity in the amount of approximately $231 million. This amount has been placed
in escrow pursuant to the terms of the PC-1 credit facility and is included in
amounts shown as restricted cash. The balance of the $1,200 million will be
funded by the joint venture partners and the PC-1 credit facility. During June
1998, the Company entered into a supply contract (the "MAC Contract") with
Alcatel requiring construction payments of approximately $221 million to
construct MAC. In July 1998, the Company entered into a supply contract (the
"PAC Contract") requiring construction payments of approximately $313 million
with TSSL to construct PAC.
The Company has extended financing to a small number of customers in
connection with certain CPAs. The financing terms provide for installment
payments over a period of up to four years. The Company believes that its
extension of financing to its customers will not have a material effect on the
Company's liquidity.
The Company has entered into commission sharing agreements providing for the
payment to third parties of commissions with respect of marketing of capacity
on the AC-1 and PC-1 systems. Payments by the Company of these commissions is
fully contingent upon the receipt by the Company of cash payment under the
related CPAs and, accordingly, payment by the Company of these commissions has
no material effect on its liquidity.
Foreign Currency Exposure
Most of the Company's sales and most of its expenditures are denominated in
U.S. dollars. Monetary assets and liabilities denominated in foreign currencies
at year end are translated into U.S. dollars at the rate of exchange at that
date. Resulting gains or losses on exchange are recorded in the statement of
operations.
Inflation
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
Year 2000 Compliance
Global Crossing believes that its computer information systems are or will be
Year 2000 ("Y2K") compliant. The Company has received assurances regarding AC-
1, the Company's only active system at this time, from TSSL and Lucent
Technologies stating Y2K compliance status of their respective systems. The
Company does not currently have such information regarding other suppliers of
the Company's networks under development.
The Company is also subject to external forces that generally affect industry
and commerce, such as utility, transportation or other infrastructure failures
and interruptions. In addition to reviewing its own systems, the Company is
submitting requests to third party service providers to obtain information as
to their compliance efforts. In the event that any of the Company's significant
third parties do not successfully and timely achieve Y2K compliance, the
Company's business or operations could be adversely affected. The Company is
developing contingency plans to address any potential Y2K compliance failure.
Management does not believe that the costs of addressing Y2K issues will have
a material adverse impact on the Company's financial condition or results of
operations. The costs of Y2K compliance and the dates on which the Company
believes it will complete Y2K remediation and modifications are based on
management's best estimates of future events, including the continued
availability of certain resources, third-party modifications, plans, and other
factors. Actual results could differ from those anticipated.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Issuer issued and sold the Old Preferred Stock to the initial purchasers
on November 24, 1998 pursuant to a purchase agreement. The initial purchasers
subsequently resold the Old Preferred Stock in reliance on Rule 144A and other
exemptions from registration under the Securities Act of 1933. The initial
purchasers required as a condition to the purchase of the shares of Old
Preferred Stock that the Issuer grant the purchasers of the shares of Old
Preferred Stock certain registration rights pursuant to a registration rights
agreement (the "Registration Rights Agreement"). The Registration Rights
Agreement required the Issuer to file with the Securities and Exchange
Commission following the closing of the offering of the shares of Old Preferred
Stock on December 2, 1998 (the "Closing Date"), a registration statement
relating to an exchange offer pursuant to which shares which are substantially
identical to the shares of Old Preferred Stock would be offered in exchange for
the then outstanding shares of Old Preferred Stock tendered at the option of
the holders thereof. The form and terms of the shares of Exchange Preferred
Stock will be identical in all material respects to the form and terms of the
shares of Old Preferred Stock except:
. that the shares of Exchange Preferred Stock will have been registered
under the Securities Act,
. that the shares of Exchange Preferred Stock will not be entitled to
certain registration rights which are applicable to the shares of Old
Preferred Stock under the Registration Rights Agreement, and
. certain contingent dividend rate provisions applicable to the shares of
Old Preferred Stock are generally not applicable to the shares of
Exchange Preferred Stock.
New Exchange Notes issuable in exchange for shares of Exchange Preferred
Stock will have the same terms as Exchange Notes issuable in exchange for
shares of Old Preferred Stock. In the event that the applicable interpretations
of the staff of the Securities and Exchange Commission do not permit the Issuer
to effect the Exchange Offer, the Issuer agreed to use its reasonable best
efforts to cause to become effective a shelf registration statement with
respect to the resale of the shares of Old Preferred Stock and to keep such
resale registration statement effective for a period of at least two years. The
Issuer is making the Exchange Offer to satisfy its contractual obligations
under the Registration Rights Agreement.
The holders of any shares of Old Preferred Stock not tendered in the Exchange
Offer will not be entitled to require the Issuer to file a resale registration
statement, and the dividend rate on such shares of Old Preferred Stock will
remain at 10 1/2%. For more information, see "Description of the Exchange
Notes--Exchange Offer; Registration Rights."
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and
in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Old Preferred Stock which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. The shares of Exchange Preferred Stock issued pursuant to the
Exchange Offer will be delivered promptly following the Expiration Date. The
Issuer will issue $100 liquidation preference of Exchange Preferred Stock in
exchange for each $100 liquidation preference of outstanding Old Preferred
Stock accepted in the Exchange Offer.
Based on an interpretation by the staff of the Securities and Exchange
Commission set forth in SEC no-action letters issued to unrelated third
parties, the Issuer believes that shares of Exchange Preferred Stock issued
pursuant to the Exchange Offer in exchange for shares of Old Preferred Stock
may be offered for resale, resold and otherwise transferred by the holders
thereof (other than a Restricted Holder) without compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933,
provided that such shares of Exchange Preferred Stock are acquired in the
ordinary course of such holders' business and such holders are
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not participating, do not intend to participate and have no arrangement or
understanding with any person to participate in the distribution of such shares
of Exchange Preferred Stock. See "K-III Communications Corporation," SEC No-
Action Letter (available May 14, 1993); "Mary Kay Cosmetics, Inc.," SEC No-
Action Letter (available June 5, 1991); "Morgan Stanley & Co., Incorporated,"
SEC No-Action Letter (available June 5, 1991); and "Exxon Capital Holdings
Corporation," SEC No-Action Letter (available May 13, 1988). Each broker-dealer
that receives shares of Exchange Preferred Stock for its own account in
exchange for shares of Old Preferred Stock, where such shares of Old Preferred
Stock were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such shares of Exchange Preferred
Stock. For more information, see "Plan of Distribution."
If any person were to participate in the Exchange Offer for the purpose of
distributing securities in a manner not permitted by the Security and Exchange
Commission's interpretation, such person:
. could not rely on the position of the staff of the Security and Exchange
Commission enunciated in "Exxon Capital Holdings Corporation" or similar
interpretive letters, and
. must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 in connection with a secondary resale
transaction.
Accordingly, each eligible holder wishing to accept the Exchange Offer must
represent to the Issuer in the letter of transmittal that the conditions
described above have been met.
In connection with the issuance of the shares of Old Preferred Stock, the
Issuer arranged for the inclusion of the Old Preferred Stock initially
purchased by qualified institutional buyers on the Private Offerings, Resales
and Trading through Automated Linkages (PORTAL) Market of the National
Association of Securities Dealers, Inc. The Issuer also arranged for the shares
of Old Preferred Stock initially purchased by qualified institutional buyers to
be issued and transferable in book-entry form through the facilities of the
Depository, acting as depository, and in the DTC's Same-Day Funds Settlement
System. The shares of Exchange Preferred Stock will also be issuable and
transferable in book-entry form through the Depository in the Same-Day Funds
Settlement System.
As of the date of this prospectus, $500,000,000 in aggregate liquidation
preference of the Old Preferred Stock is outstanding.
This prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of shares of Old Preferred Stock as of , 1999 (the
"Record Date").
The Issuer shall be deemed to have accepted validly tendered shares of Old
Preferred Stock when, as and if the Issuer has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of shares of Old Preferred Stock for the purpose of receiving
shares of Exchange Preferred Stock from the Issuer and delivering shares of
Exchange Preferred Stock to such holders.
If any tendered shares of Old Preferred Stock are not accepted for exchange
because of an invalid tender or the occurrence of certain other events set
forth herein, certificates for any such unaccepted shares of Old Preferred
Stock will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Expiration Date; Extensions; Amendments
The term "Expiration Date" means 5:00 p.m., New York City time, on ,
1999; provided, however, that if the Issuer, in its sole discretion, has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
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The Issuer expressly reserves the right:
. to delay acceptance of any shares of Old Preferred Stock, to extend the
Exchange Offer or to terminate the Exchange Offer and to refuse to accept
shares of Old Preferred Stock not previously accepted, if any of the
conditions set forth herein under "--Conditions" shall have occurred and
shall not have been waived by the Issuer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, and
. to amend the terms of the Exchange Offer in any manner deemed by the
Issuer to be advantageous to the holders of the shares of Old Preferred
Stock.
The Issuer will notify any holder as promptly as practicable either orally or
by written notice of any such delay in acceptance, extension, termination or
amendment. If the Exchange Offer is amended in a manner determined by the
Issuer to constitute a material change, the Issuer will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of shares of
Old Preferred stock of such amendment.
Without limiting the manner in which the Issuer may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, the Issuer shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other than by
making a timely release to a financial news service.
Accrual of Dividends on the Exchange Preferred Stock
The Exchange Preferred Stock will accrue dividends from December 2, 1998,
payable semi-annually in arrears on June 1 and December 1 of each year
commencing on June 1, 1999, at the rate per annum equal to 10 1/2% of the
liquidation preference per share of the Exchange Preferred Stock. Holders of
shares of Old Preferred Stock whose shares of Old Preferred Stock are accepted
for exchange will be deemed to have waived the right to receive any payment in
respect of dividends on such shares of Old Preferred Stock accrued from
December 2, 1998 until the date of the issuance of the Exchange Preferred
Stock.
Procedures for Tendering Shares of Old Preferred Stock
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof and mail or otherwise deliver
such Letter of Transmittal or such facsimile, together with the shares of Old
Preferred Stock (unless such tender is being effected pursuant to the procedure
for book-entry transfer described below) and any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or another eligible institution (an "Eligible Institution")
unless the share of Old Preferred Stock tendered pursuant thereto are tendered
by:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal, or
.for the account of an Eligible Institution.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the shares of Old Preferred
Stock by causing the DTC to transfer such shares of Old Preferred Stock into
the Exchange Agent's account in accordance with the DTC's procedure for such
transfer. Although delivery of shares of Old Preferred Stock may be effected
through book-entry transfer into the Exchange Agent's account at the DTC, the
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received or
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confirmed by the Exchange Agent at its addresses set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Delivery of documents to DTC
in accordance with its procedures does not constitute delivery to the Exchange
Agent.
The tender by a holder of shares of Old Preferred Stock will constitute an
agreement between such holder and the Issuer in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
Holders must deliver all documents to the Exchange Agent at its address set
forth herein. Holders may also request that their respective brokers, dealers,
commercial banks, trust companies or nominees effect such tender for such
holders.
Holders may choose any method of delivery of the shares of Old Preferred
Stock and the Letter of Transmittal and all other required documents to the
Exchange Agent. It is recommended that holders use an overnight or hand
delivery service, instead of delivery by mail. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or shares
of Old Preferred Stock should be sent to the Issuer.
Only a holder of shares of Old Preferred Stock may tender such shares of Old
Preferred Stock in the Exchange Offer. The term "holder" with respect to the
Exchange Offer means any person in whose name shares of Old Preferred Stock are
registered on the books of the Issuer or any other person who has obtained a
properly completed bond power from the registered holder or any person whose
shares of Old Preferred Stock are held of record by DTC who desires to deliver
such shares of Old Preferred Stock at DTC.
Any beneficial holder whose shares of Old Preferred Stock are registered in
the name of his broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender his shares of Old Preferred Stock should contact the
registered holder promptly and instruct such registered holder to tender on
his/her behalf. If such beneficial holder wishes to tender on his/her own
behalf, such beneficial holder must, prior to completing and executing the
Letter of Transmittal and delivering his/her shares of Old Preferred Stock,
either make appropriate arrangements to register ownership of the shares of Old
Preferred Stock in such holder's name or obtain a properly completed bond power
from the registered holder. The transfer of record ownership may take
considerable time.
If the Letter of Transmittal is signed by a person other than the registered
holder of any shares of Old Preferred Stock listed therein, such shares of Old
Preferred Stock must be endorsed or accompanied by appropriate bond powers
which authorize such person to tender the shares of Old Preferred Stock on
behalf of the registered holder, in either case signed as the name of the
registered holder or holders appears on the shares of Old Preferred Stock.
If the Letter of Transmittal or any shares of Old Preferred Stock or bond
powers are signed by trustees, executors, administrators, guardians, attorneys-
in-fact, officers of a corporation or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing. In
addition, unless waived by the Issuer, evidence satisfactory to the Issuer of
their authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered shares of Old Preferred
Stock will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the absolute right
to reject any and all shares of Old Preferred Stock not validly tendered or any
shares of Old Preferred Stock the Issuer's acceptance of which would, in the
opinion of counsel for the Issuer, be unlawful. The Issuer also reserves the
absolute right to waive any irregularities or conditions of tender as to
particular shares of Old Preferred Stock. The Issuer's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of shares of Old
Preferred Stock must be cured within such time as the Issuer shall determine.
Neither the Issuer, the Exchange Agent nor any other person shall be under any
duty to give notification of
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defects or irregularities with respect to tenders of shares of Old Preferred
Stock nor shall any of them incur any liability for failure to give such
notification. Tenders of shares of Old Preferred Stock will not be deemed to
have been made until such irregularities have been cured or waived. Any shares
of Old Preferred Stock received by the Exchange Agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent without cost to the tendering
holder of such shares of Old Preferred Stock unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
By tendering, each holder will represent to the Issuer that, among other
things:
. the shares of Exchange Preferred Stock acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of such holder's
business,
. such holder is not participating, does not intend to participate and has
no arrangement or understanding with any person to participate, in a
distribution of such shares of Exchange Preferred Stock,
. such holder is not an "affiliate," as defined under Rule 405 of the
Securities Act of 1933, of the Issuer, and
. such holder is not a broker-dealer who acquired shares of Old Preferred
Stock directly from the Issuer to resell pursuant to Rule 144A or any
other available exemption under the Securities Act of 1933.
Tender of Old Preferred Stock Held Through DTC
The Exchange Agent and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may, in lieu of physically completing and signing the applicable
Letter of Transmittal and delivering it to the Exchange Agent, electronically
transmit their acceptance of the Exchange Offer by causing DTC to transfer
shares of Old Preferred Stock to the Exchange Agent in accordance with DTC's
ATOP procedures for transfer. DTC will then send an Agent's Message to the
Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which
states that DTC has received an expressed acknowledgment from a participant in
DTC that is tendering shares of Old Preferred Stock which are the subject of
such Book-Entry Confirmation, that such participant has received and agrees to
be bound by the terms of the applicable Letter of Transmittal (or, in the case
of an Agent's Message relating to guaranteed delivery, that such participant
has received and agrees to be bound by the applicable Notice of Guaranteed
Delivery), and that the Company may enforce such agreement against such
participant.
Guaranteed Delivery Procedures
Holders who wish to tender their shares of Old Preferred Stock and whose
shares of Old Preferred Stock are not immediately available or who cannot
deliver their shares of Old Preferred Stock or any other documents required by
the Letter of Transmittal to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date (or complete the procedure for book-entry
transfer on a timely basis), may tender their shares of Old Preferred Stock
according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures:
. such tender must be made by or through an Eligible Institution and a
Notice of Guaranteed Delivery (as defined in the Letter of Transmittal)
must be signed by such holder,
. on or prior to the Expiration Date, the Exchange Agent must have received
from the holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate
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number or numbers of such tendered shares of Old Preferred Stock, and the
principal amount of Old Preferred Stock tendered, stating that the tender
is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or facsimile thereof), together with the certificate(s) representing the
shares of Old Preferred Stock to be tendered in proper form for transfer
and any other documents required by the Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent, and
. such properly completed and executed Letter of Transmittal and all
documents required by the Letter of Transmittal, together with the
certificate(s) representing all tendered shares of Old Preferred Stock in
proper form for transfer (or confirmation of a book-entry transfer into
the Exchange Agent's account at DTC of shares of Old Preferred Stock
delivered electronically) and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within three New York
Stock Exchange trading days after the Expiration Date.
Withdrawal Rights
Tenders of Old Preferred Stock may be withdrawn at any time prior to the
Expiration Date.
To withdraw a tender of shares of Old Preferred Stock in the Exchange Offer,
a written or facsimile transmission notice of withdrawal must be received by
the Exchange Agent at one of its addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must:
. specify the name of the person having deposited the shares of Old
Preferred Stock to be withdrawn (the "Depositor"),
. identify the shares of Old Preferred Stock to be withdrawn (including the
certificate number or numbers and principal amount of such shares of Old
Preferred Stock),
. be signed by the Depositor in the same manner as the original signature
on the Letter of Transmittal by which such shares of Old Preferred Stock
were tendered (including required signature guarantees) or be accompanied
by documents of transfer sufficient to permit the transfer agent with
respect to the Old Preferred Stock to register the transfer of such
shares of Old Preferred Stock into the name of the Depositor withdrawing
the tender, and
. specify the name in which any such shares of Old Preferred Stock are to
be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Issuer, whose
determination shall be final and binding on all parties. Any shares of Old
Preferred Stock so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no shares of Exchange Preferred Stock
will be issued with respect thereto unless the shares of Old Preferred Stock so
withdrawn are validly retendered. Any shares of Old Preferred Stock which have
been tendered but which are not accepted for exchange will be returned by the
Exchange Agent to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn shares of Old Preferred Stock may be
retendered by following one of the procedures described above under "--
Procedures for Tendering Shares of Old Preferred Stock" at any time prior to
the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other term of the Exchange Offer, the Issuer will not be
obligated to consummate the Exchange Offer if the shares of Exchange Preferred
Stock to be received will not be tradeable by the holder, other than in the
case of Restricted Holders, without restriction under the Securities Act of
1933 and the Securities Exchange Act of 1934 and without material restrictions
under the blue sky or securities laws of
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<PAGE>
substantially all of the states of the United States. Such condition will be
deemed to be satisfied unless a holder provides the Issuer with an opinion of
counsel reasonably satisfactory to the Issuer to the effect that the shares of
Exchange Preferred Stock received by such holder will not be tradeable without
restriction under the Securities Act of 1933 and the Securities Exchange Act of
1934 and without material restrictions under the blue sky laws of substantially
all of the states of the United States. The Issuer may waive this condition.
If the condition described above exists, the Issuer will be entitled to
refuse to accept any shares of Old Preferred Stock and, in the case of such
refusal, will return all tendered shares of Old Preferred Stock to exchanging
holders of the shares of Old Preferred Stock. See "Description of Exchange
Notes--Exchange Offer; Registration Rights."
Exchange Agent
EquiServe--First Chicago Trust Division has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
<S> <C>
By Registered or Certified Mail: By Hand Delivery:
EquiServe--First Chicago Trust Division EquiServe--FirstChicago Trust Division
P.O. Box 2569 100 William Street
Jersey City, New Jersey 07303-2569 New York, New York 10005
Attn: Corporate Actions Attn: Corporate Actions
</TABLE>
By Overnight Delivery:
EquiServe--First Chicago Trust Division
14 Wall Street 8th Floor
New York, New York 10005
Attn: Corporate Actions
Delivery of the Letter of Transmittal to an address other than as set forth
above or transmission via facsimile other than as set forth above does not
constitute a valid delivery of such Letter of Transmittal.
Fees and Expenses
The Issuer will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
The Issuer estimates that the cash expenses to be incurred and paid by it in
connection with the Exchange Offer will in the aggregate be approximately
$700,000.
Transfer Taxes
Holders who tender their shares Old Preferred Stock for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that if
holders instruct the Issuer to deliver to, register or issue Exchange Preferred
Stock in the name of, or request that shares of Old Preferred Stock not
tendered or not accepted in
48
<PAGE>
the Exchange Offer be delivered to, registered or issued in the name of, any
person other than the registered holder, or if tendered shares of Old Preferred
Stock are registered in the name of any person other than the person signing
the Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the transfer of shares of Old Preferred Stock to the Issuer or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
tendering holder.
Accounting Treatment
No gain or loss for accounting purposes will be recognized by the Issuer upon
the consummation of the Exchange Offer. The expenses of the Exchange Offer will
be recorded as a reduction of the preferred share face value and amortized over
the term of the Exchange Preferred Stock under generally accepted accounting
principles.
49
<PAGE>
BUSINESS
Global Crossing is the world's first independent provider of global Internet
and long distance telecommunications facilities and services utilizing a
network of undersea and terrestrial digital fiber optic cable systems. As such,
the Company believes it is the first to offer "one-stop shopping" for its
customers to multiple destinations worldwide. The Company operates as a
"carriers' carrier", providing tiered pricing and segmented products to
licensed providers of international telecommunications services. Capacity on
the Global Crossing Network is offered to all customers on an open, equal
access basis. The cable systems under development by the Company, together with
associated terrestrial capacity, will form a state-of-the-art interconnected
worldwide high capacity fiber optic network: AC-1, an undersea system
connecting the United States and Europe; PC-1, an undersea system connecting
the United States and Asia; MAC, an undersea system connecting the eastern
United States and the Caribbean; PAC, an undersea system connecting the western
United States, Mexico, Panama and the Caribbean; PEC, a terrestrial system,
connecting 18 European cities to AC-1; and GAL a terrestrial system connecting
certain cities in Japan to PC-1. The undersea component of this initial network
totals 51,600 km and the terrestrial component adds 9,500 km for a combined
total of 61,100 km. The Company is in the process of developing several new
cable systems and evaluating other business development opportunities which
will complement the Global Crossing Network.
Global Crossing's business is designed to meet the varying needs of the
global carrier market. The Company offers customers the ability to purchase
capacity on demand, thereby (i) eliminating their need to commit the
substantial capital which would otherwise be required to build cable capacity
and (ii) decreasing the risks associated with forecasting their future capacity
requirements. Compared with traditional cable systems, the Company offers more
comprehensive, flexible and low-cost purchasing alternatives designed to meet
current market requirements of international carriers and licensed Internet
service providers, including direct international city-to-city connectivity,
the ability to purchase capacity periodically and discounts based upon
aggregate volume purchased on the Global Crossing Network.
The Global Crossing Network is being engineered and constructed to allow
multiple upgrades to its initial circuit capacity at a fraction of the initial
system cost, and the Company is exploring opportunities to expand its undersea
and terrestrial systems, as well as the range of the products it offers. The
Company anticipates that its future revenues, beyond those obtained from the
sale of the initial capacity of its first five cable systems, will derive from
several sources. First, each of the currently-planned systems under development
by the Company is upgradeable to capacities significantly beyond the initial
capacity at a fraction of the original system cost. These upgrades can be used
to meet growth in market demand for telecommunications capacity and to achieve
additional revenues. In addition, the Company is currently evaluating a number
of additional undersea and terrestrial cable projects. These potential projects
will be pursued to the extent that they further the Company's strategy of
developing an integrated global network that serves approximately 100 of the
largest metropolitan communications markets worldwide. As the Company's global
network is developed, additional wholesale revenues may be generated from the
sale of additional products and services. See "Risk Factors--Sales of Capacity;
Realization of Other Revenues."
Global Crossing was formed to capitalize on the accelerating growth of
international voice and data telecommunications traffic. The significant
increase in Internet usage and other bandwidth-intensive applications and the
growing use of corporate networks have substantially increased the demand for
international fiber optic cable capacity. The proliferation of
telecommunications service providers due, in large part, to industry
deregulation has further contributed to increased demand for such international
cable capacity. Additionally, the Company believes that other technological
developments, such as improvements in "last mile" access technology, including
xDSL and cable modems, and the increasing video content of Internet
applications, will result in further capacity demand growth.
The Company commenced operations in March 1997, when it contracted for the
construction of AC-1, a 14,300 km digital fiber optic undersea cable system
that will link the United States, the United Kingdom, The Netherlands and
Germany and will initially offer 40 Gbps of service capacity, which is
upgradeable to a minimum of 80 Gbps, increasing the existing undersea fiber
optic cable capacity along the heavily trafficked
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transatlantic route by approximately 65% prior to upgrades. AC-1 commenced
service on its United States-United Kingdom segment on May 26, 1998 and the
full system, encompassing a four fiber pair self-healing ring, is scheduled for
completion by February 1999. In April 1998, Global Crossing contracted for the
construction of PC-1, a 21,000 km digital undersea cable system that will link
the United States and Japan and will initially offer 80 Gbps of service
capacity, upgradeable to a minimum of 160 Gbps. PC-1, a four fiber pair self
healing ring, is scheduled to commence initial service in March 2000. In June
1998, Global Crossing contracted for the construction of MAC, a 9,300 km
digital subsea cable system that will connect New York, the Caribbean and
Florida and will initially offer 20 Gbps of service capacity, upgradeable to a
minimum of 40 Gbps. In addition, in July 1998, Global Crossing contracted for
the construction of PAC, a 7,000 km two fiber pair digital undersea cable that
will connect California, Mexico, Panama and the Caribbean and will initially
offer 20 Gbps of service capacity, upgradeable to a minimum of 40 Gbps.
In addition to the announced segments of the Global Crossing Network, the
Company has made, and expects to continue to make, acquisitions of fiber
capacity which complement its core cable businesses and which address customer
demands for global city-to-city connectivity. Global Crossing intends to pursue
such connectivity in approximately 100 of the largest metropolitan
communications markets worldwide. In October 1998, Global Crossing announced
PEC, a 8,200 km terrestrial system, with 24 to 72 fiber pairs that will link 18
European cities with the United States, Asia and Latin America. The Company
recently obtained a 49% economic interest in GAL, a 1,300 km fiber optic
terrestrial system being developed by Marubeni that among other things, will
connect PC-1 with Tokyo and Osaka. Once completed, the undersea and terrestrial
segments of the Global Crossing Network will form an integrated worldwide
network with multiple access points offering low-cost wholesale capacity.
Market Opportunity
The Global Crossing Network is being developed to capitalize on certain
trends in the international telecommunications industry:
Rapid Growth of International Internet and Telecommunications Traffic. While
international voice traffic from 1996-2000 is expected to grow at a rate of 13%
annually, international data traffic growth is expected to significantly
outpace voice traffic growth. One of the key factors contributing to the growth
in data traffic is the increasing use of broadband applications dominated by
the Internet, which has grown at a compound annual rate of 86% for the past
five years as measured by the number of Internet hosts. Reflecting this growth,
the number of ISPs is growing explosively on a global basis. ISPs outside the
United States, particularly in Europe, Asia and Latin America, are expected to
require significant subsea optical circuit capacity to provide efficient
service to their customers to popular Internet web sites in the United States.
In addition, improvements in "last mile" technology, such as xDSL and cable
modems, are contributing to the significant increase in the number of
subscribers using such bandwidth-intensive applications. Several additional key
factors are expected to drive the rapid growth in worldwide telecommunications
traffic, including:
. the worldwide growth in the use of bandwidth-intensive applications,
such as video conferencing and corporate intranets,
. increased globalization of commerce, and
. a general decline in international tariffs.
Impact of Global Deregulation. The continued deregulation of the global
telecommunications industry has resulted in a significant increase in the
number of competitors, including traditional carriers, wireless operators, ISPs
and new local exchange service providers, due in large part to:
. the breadth and volume of privatization activity globally, and
. the ability of new entrants to compete effectively against the formerly
protected incumbent providers. This change in the global competitive
landscape is generating significant demand for broadband communications
capacity as carriers seek to secure sufficient capacity for their
expansion plans. As of
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July 1998, the ITU estimated that there were 1,000 international
carriers, representing a 181% increase since the end of 1996. In
addition, further telecom privatization is expected during 1999, which
in turn is expected to generate increased global competition.
Shortage of Available Capacity. The Company believes that additional network
capacity and faster response times will be required to satisfy current and
anticipated growth in telecommunications traffic. While there has been a
significant increase in the demand for global telecommunications capacity,
there has not been a corresponding growth in the number of new transport
facilities, especially in the undersea cable industry. The Company believes
that construction of competing undersea cable systems will be limited in the
near future due to barriers to entry, including:
. the extensive lead time required to engineer and construct cable
systems,
. the limited number of major undersea cable supply and construction
companies,
. the limited number of qualified personnel with extensive experience in
the undersea cable industry, and
. the significant capital required to develop undersea cable systems.
Increasing Challenges for Consortia Systems. Historically, the planning and
ownership of undersea cable systems was conducted through large consortia
typically led by the monopoly telecommunications providers. Global Crossing
believes that the consortium approach to constructing, owning and operating
undersea cable systems is becoming far less effective as:
. carriers increasingly view significant long term capital investments in
capacity to be a suboptimal utilization of resources,
. deregulation of international telecommunications markets leads to direct
competition among consortia members for customers,
. competition from new entrants makes carriers' market share and capacity
requirements increasingly difficult to predict, and
. the rapid pace of technological change creates difficulties in the
ability of carriers to accurately forecast the growth of
telecommunications traffic.
Acceptance of Privately Sponsored Cable Systems. The Company believes that
telecommunications service providers have become increasingly receptive to the
advantages of independent, privately-owned cable systems. In connection with
the marketing of capacity on the Global Crossing Network, carriers have
responded positively to the Company's ability to offer:
. capacity as and when needed without the incurrence of significant
initial capital investments,
. a wide range of purchasing options appealing to both established
carriers and new market entrants,
. state-of-the-art system quality combined with cost-effective high
quality operations, administration and maintenance support, and
. the absence of direct competition with its customers.
Business Strategy
Global Crossing's mission is to create the world's first independent global
fiber optic network designed to offer its customers the highest quality city-
to-city communications connectivity among approximately 100 of the largest
metropolitan communications markets worldwide. The principal elements of the
Company's business strategy are to:
Create a Worldwide Network. Upon completion, the currently announced segments
of the Global Crossing Network will directly connect Asia, North America,
Europe, Central America and the Caribbean utilizing state-of-the-art fiber
optic technology. By developing or acquiring terrestrial capacity, we offer
customers low-cost global city-to-city connectivity. The Company also intends
to actively pursue additional opportunities for the expansion and utilization
of the Global Crossing Network, including complementary businesses and
facilities.
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The Company has entered into contractual arrangements to provide terrestrial
backhaul service between its landing stations in the United States and the
United Kingdom and New York City and London, respectively, as well as other
arrangements to provide terrestrial capacity in Germany and The Netherlands. In
addition, the Company entered into an agreement with Qwest Communications
International Inc. ("Qwest") whereby Global Crossing will receive access to
over 25 U.S. metropolitan communications markets on Qwest's terrestrial network
and is in discussions with other carriers regarding other arrangements for
terrestrial capacity in the U.S.
Additionally, the Company, through PEC plans to provide terrestrial services
to 18 European cities. Furthermore, through GAL, the Company intends to offer
terrestrial services to PC-1 customers from the Company's Japanese landing
stations directly to Tokyo at prices substantially lower than existing
alternatives. The Company has obtained a 49% investment interest in GAL, a
fiber optic terrestrial system being developed by Marubeni which will connect
the PC-1 cable stations with Tokyo, Osaka and Nagoya.
Maintain Position as a Leading Wholesale Service Provider. Global Crossing is
the world's first independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea and
terrestrial digital fiber optic cable systems. The Company's products are
segmented to meet the varying needs of the global carrier market, with shore-
to-shore capacity offered to major carriers that have their own terrestrial
capacity and city-to-city capacity provided to other customers that require
such service. Global Crossing also offers carriers, through wholesale channels,
a combination of volume-based purchasing flexibility, typically according to a
tiered scale with various incentive levels, and volume discounts for purchases
of capacity on one cable system based upon purchases previously made on the
Company's other systems. See "--Sales and Marketing."
Utilize State-of-the-Art Technology. The Global Crossing Network is being
engineered and constructed using the latest in fiber optic technology, self-
healing ring structures, erbium doped fiber amplifier repeaters, DWDM and
redundancies of capacity to ensure instantaneous restoration. The Company
believes that incorporating such technology in the Global Crossing Network
will:
. provide a cost advantage over existing alternatives,
. make it more reliable than competing systems,
. allow the Company to offer substantially more capacity than existing
cable systems, and
. enable the capacity of each of the Company's cable systems to be
upgraded at the landing stations rapidly and at a fraction of the
initial system cost without physical modification of the submerged
portion of the system.
Maintain Position as Low-Cost Provider. The Company plans to maintain its
position as a low-cost provider of facilities and services to its carrier
customers relative to its competitors. Global Crossing believes that this low-
cost position results from a combination of:
. low sales, marketing and general and administrative costs, reflecting a
commitment to wholesale customers,
. ownership of state-of-the-art facilities, resulting in low unit costs
and low operating and maintenance costs that will be passed on to its
customers, and
. purchasing efficiencies.
Provide "One-Stop" Sales and Service. Through both its marketing and sales
force, as well as its ongoing operations, administrative and maintenance
support, Global Crossing plans to offer one-stop sales and service to customers
worldwide. The Company currently employs 21 marketing professionals located in
the Company's headquarters in Bermuda and in major cities throughout the world
in order to facilitate the sales of
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its telecommunications capacity and increase market awareness and name
recognition. See "--Sales and Marketing." The efforts of the sales force have
resulted in significant contractual arrangements to date with international
telecommunications carriers. In addition, Global Crossing is developing a
centralized operations, administration and maintenance support system to serve
the entire Global Crossing Network, including a customer care center, network
operations center and technical support center. Through such integrated
customer support, in combination with its sales force, the Company intends to
enable customers to have a single point of contact regarding capacity sales and
service on the Global Crossing Network.
Leverage Extensive Management Experience. Global Crossing has assembled and
will continue to build a strong management team comprised of executives with
extensive operating experience in the telecommunications industry and the
undersea cable sector. Prior to joining the Company, Jack Scanlon, GCL's Chief
Executive Officer, was President and General Manager of the Cellular Networks
and Space Sector of Motorola, Inc., responsible for approximately $6 billion in
annual revenues and 16,000 employees. Mr. Scanlon has over 30 years of
experience in the telecommunications industry, including 24 years with AT&T and
Bell Laboratories. In addition, William Carter, the Company's senior executive
in charge of system development, was formerly the President and Chief Executive
Officer of AT&T Submarine Systems International ("SSI"), overseeing the
research and development, engineering, implementation and integration of AT&T's
international cable and satellite facilities. Mr. Carter had been at AT&T for
30 years prior to joining the Company. During Mr. Carter's tenure, SSI had the
leading worldwide market share in the undersea cable industry. Dan J. Cohrs,
GCL's Chief Financial Officer, was formerly Vice President and Chief Planning
and Development Officer at GTE, where he was responsible for corporate
development activities, including mergers and acquisitions and strategic
transactions, as well as strategic planning and competitive analysis. In
addition, the Company's system development team includes several individuals
with extensive undersea cable and telecommunications experience. See
"Management."
The Global Crossing Network
As part of Global Crossing's mission to create an integrated global, high
capacity fiber optic cable network, the Global Crossing Network is being
engineered and constructed to connect the most heavily trafficked international
corridors in the world via AC-1 (United States to Europe) and PC-1 (United
States to Asia). Furthermore, the Company will provide terrestrial services via
PEC (trans-Europe) and GAL (trans-Japan). Global Crossing plans to interconnect
these systems with two north-south systems (MAC and PAC), directly connecting
the Caribbean, Central America and, through unaffiliated cable systems, South
America. Of the fiber optic cable systems currently being constructed by Global
Crossing, AC-1, MAC, PAC and PEC are wholly-owned projects by the Company,
while PC-1 is being constructed through a joint venture with one or more
partners, principally Marubeni. Global Crossing will initially have
approximately a 58% interest in PC-1 and a 49% interest in GAL and, in
conjunction with Marubeni, will manage their development, sales and operation.
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The following table contains information regarding the estimated system cost,
initial RFS date and ownership structure of the Company's currently planned
systems:
<TABLE>
<CAPTION>
Estimated
System Cost(1) Expected Initial Ownership
System (millions) RFS Date(2) Structure
------ -------------- --------------------------- -------------
<S> <C> <C> <C>
AC-1 $ 750 May 1998 (US-UK) Wholly-Owned
February 1999 (Full Ring)
PC-1 1,200 March 2000 Joint Venture
July 2000 (Full Ring)
MAC 330 December 1999 Wholly-Owned
PAC 475 February 2000 Wholly-Owned
PEC 700 December 1999 (First Phase) Wholly-Owned
GAL 110 December 1999 (First Phase) Joint Venture
------
$3,565
======
</TABLE>
- --------
(1) Includes anticipated financing costs. Excludes the costs of potential
future upgrades and any amount capitalized with respect to the PCG
Warrants. The amount indicated under "Estimated System Cost" is based upon
executed supply and financing documents. Certain factors, such as increases
in interest rates and delays in construction, could result in higher actual
costs or later RFS dates than currently estimated. See "Risk Factors--Risks
Related to Completing our Cable Systems" and "Risk Factors--Risk of Error
in Forward-Looking Statements."
(2) Based upon executed supply and financing documents. In the case of PEC,
based upon current negotiations regarding supply arrangements. Certain
factors, such as reliance upon third party suppliers, could result in
timing delays. See "Risk Factors--Dependence on Third Parties."
Atlantic Crossing
AC-1, the Company's first undersea fiber optic cable in the Atlantic region,
is a 14,000 km four fiber pair self-healing ring that, upon completion, will
connect the United States and Europe with landing stations in the United
States, the United Kingdom, The Netherlands and Germany. AC-1 is equipped with
state-of-the-art DWDM and the full ring was initially designed to offer 40 Gbps
of service capacity, increasing the existing undersea fiber optic cable
capacity along the heavily trafficked transatlantic route by approximately 65%
prior to upgrades. AC-1 commenced service on its United States-United Kingdom
segment on May 26, 1998, and the full system, encompassing a self-healing ring,
is scheduled for completion by February 1999.
The aggregate costs of AC-1, which are estimated to be approximately $750
million (excluding potential future upgrades), have been fully financed prior
to the offering of Old Preferred Stock. The Company recently entered into a $50
million contract with TSSL to upgrade the capacity on AC-1 from 40 Gbps to 80
Gbps. In addition to the AC-1 Contract with TSSL for construction of the
system, Global Crossing has entered into other contracts with TSSL pursuant to
which TSSL will provide operations, administration and maintenance services for
the system.
The Company has successfully marketed capacity on AC-1 to licensed
telecommunications providers, including PTTs, Internet service providers and
established and emerging telecommunications companies. Sales of capacity on AC-
1 and related backhaul commenced in October 1997 and, as of September 30, 1998,
the Company had entered into CPAs and ICPAs with customers providing for
payments to the Company of $767 million, and $217 million of payments
(including deposits) had been received in respect thereof. These CPAs represent
approximately 30% of the minimum projected sales capacity of 512 circuits on
the AC-1 system. The balance of these payments is scheduled to be collected
over the next four years. The Company's AC-1 customers now total more than 24
international telecommunications carriers, including Deutsche Telekom AG, GTE
Intelligent Network Services Inc., Qwest, Teleglobe Canada Inc., Swisscom, PTT
Telecom BV, Telia AB, Ultraline (Bermuda) Limited and a number of emerging
telecommunications companies. The Company generally grants customers who have
entered into CPAs options to acquire further capacity on AC-1. The amount of
such capacity depends upon a number of factors, including upgrades to AC-1,
future prices for AC-1
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capacity and the amount of unsold capacity on AC-1 at certain dates after the
AC-1 system RFS date. The timing of payments by purchasers under CPAs generally
depends on when service commences on the segment or segments of AC-1 on which
capacity is acquired. All of the foregoing payment amounts assume the
completion of the related segment prior to specified dates falling after the
scheduled RFS date for that segment.
Based upon its current expectations regarding sales of capacity on AC-1, the
Company believes that it will develop and eventually construct AC-2, an
additional four fiber pair cable connecting the United States to Europe. When
combined with AC-1, AC-2 would double the capacity that Global Crossing would
be able to offer customers on the transatlantic route.
Pacific Crossing
PC-1, the Company's first undersea fiber optic cable in the Pacific region,
is being developed as a 21,000 km four fiber pair self-healing ring that, upon
completion, will connect California, Washington and two landing sites in Japan,
providing connectivity to other points in Asia through interconnection with
other third party cable systems. PC-1 is designed to operate initially at 80
Gbps of service capacity and to be upgradeable to a minimum of 160 Gbps, using
DWDM technology.
In April 1998, the Company executed the PC-1 Contract with TSSL for the
construction of PC-1, which provides for a system completion date of Summer
2000 at an aggregate cost of approximately $1.2 billion. Equity investments in
PC-1 by Global Crossing and its partners are currently estimated at $400
million (of which $231 million will be provided by the Company), with the
remaining $800 million financed through incurrence of non-recourse indebtedness
at the PC-1 level. The credit agreement for the financing of such indebtedness
was executed on July 30, 1998.
Mid-Atlantic Crossing
MAC is being developed as a 9,300 km two fiber pair self-healing ring that,
upon completion, will connect New York, the Caribbean and Florida. Global
Crossing intends that MAC will be connected to AC-1 via its cable station in
Brookhaven, New York, providing connectivity between Europe, the eastern United
States and the Caribbean and, through interconnection with other non-Global
Crossing submarine cable systems, South America. MAC is being designed to
operate initially at 20 Gbps of service capacity and to be upgradeable to a
minimum of 40 Gbps using DWDM technology.
In June 1998, the Company executed a contract with Alcatel for the
construction of MAC, which provides for a system completion date of December
1999 at an aggregate cost of approximately $330 million (excluding potential
future upgrades and amounts capitalized with respect to the PCG Warrants), of
which approximately $110 million will be financed by equity contributions by
the Company and $220 million is to be financed through non-recourse
indebtedness at the MAC level. Effective November 25, 1998, MACL obtained $220
million in non-recourse project financing from certain lenders to finance the
initial construction costs of MAC.
Pan American Crossing
PAC is being developed as a 7,000 km two fiber pair cable that, upon
completion, will connect California, Mexico, Panama and the Carribean. PAC is
being designed to interconnect with PC-1 through the Company's landing station
in Grover Beach, California and with MAC through the Company's landing station
in St. Croix. It is anticipated that PAC will transverse Panama via an existing
terrestrial right-of-way. PAC is being designed to operate initially at 20 Gbps
of service capacity and to be upgradeable to a minimum of 40 Gbps using DWDM
technology.
In July 1998, the Company executed a contract with TSSL for the construction
of this system which provides for a system completion date of February 2000 and
will cost approximately $475 million (excluding potential future upgrades and
amounts capitalized with respect to the PCG Warrants), with $175 million
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financed through equity contributions from the Company and $300 million to be
financed through non-recourse indebtedness at the PAC level. The contractual
commitment for the financing of such indebtedness was obtained on July 22,
1998.
Terrestrial Capacity
In addition to the undersea segments of the Global Crossing Network, the
Company has made and expects to continue to construct and to make acquisitions
of terrestrial fiber capacity which complement its undersea cable business and
which address customer demands for global city-to-city connectivity. Global
Crossing intends to provide such connectivity to approximately 100 of the
largest metropolitan telecommunication markets worldwide.
Pan European Crossing. The Company recently announced plans to build PEC
which, upon completion, would offer connectivity to AC-1 and 18 European cities
including London, Paris, Frankfurt, Amsterdam, Rotterdam, Antwerp, Brussels,
Hamburg, Hanover, Dusseldorf, Cologne, Strasbourg and Copenhagen. The Company
also has future plans to connect additional European cities to the system. PEC
is being initially planned as a 8,200 km system with 24 to 72 fiber pairs. The
Company is currently negotiating with various parties for the construction of
PEC and, based on those negotiations, the Company believes that the
construction cost for the system will be approximately $700 million. The
Company will develop PEC in several phases, initially providing connectivity
between 13 cities. The initial phase has an anticipated completion date in the
fourth quarter of 1999. The second phase will add 5 cities and has an
anticipated completion date in 2000.
In October 1998, the Company entered into an agreement with VersaTel Telecom
Europe B.V. ("VersaTel") whereby the Company will secure ownership of optical
fiber conduits on VersaTel's routes connecting Amsterdam, Brussels and the
French border by March 31, 1999 in exchange for capacity and dark fiber on PEC.
This agreement is a key step in securing rights of way for the development of
PEC. In addition, in November 1998, the Company executed an agreement with
Cable & Wireless PLC for the sale of dark fibers on PEC for a purchase price of
approximately $100 million. Furthermore, in November, the Company executed an
agreement with Gas Line for the construction of a portion of PEC located in
Germany. The Company is currently negotiating with other suppliers for the
construction of the remaining portions of PEC.
Global Access. The Company recently obtained a 49% economic interest in GAL,
a fiber optic terrestrial system being developed in Japan by Marubeni that,
among other things, will connect the PC-1 cable stations with Tokyo, Osaka and
Nagoya. Through GAL, the Company intends to offer terrestrial services to PC-1
customers at prices substantially lower than currently available alternatives.
GAL is being initially planned as a 1,300 km system. The Company is currently
negotiating with various parties for the construction of GAL and, based on
those negotiations, the Company believes that the construction cost for GAL
will be approximately $110 million.
Purchased Capacity. The Company has acquired terrestrial connectivity between
its landing stations in the United States and the United Kingdom, in New York
City and London, respectively, as well as entered into other agreements to
provide terrestrial service in Germany and The Netherlands. In addition the
Company entered into an agreement with Qwest whereby Global Crossing may, at
its option, receive access to over 25 U.S. metropolitan communication markets
on Qwest's terrestrial network and is in discussions with other carriers
regarding other arrangements for terrestrial capacity in the U.S.
Additional Network Expansion Opportunities
The Company is in the process of planning several new cable systems and
evaluating other business development opportunities which will complement the
Global Crossing Network. There can be no assurance that the Company will
ultimately elect to proceed with such opportunities or, if it elects to do so,
that such opportunities will help the Company achieve and sustain operating
profitability.
Further Undersea Opportunities. The undersea routes served by the Global
Crossing Network and other cable systems are projected to have substantial
growth greatly exceeding all capacity currently in use and under development
(including planned upgrades). To address such demand, the Company plans to
evaluate and, as
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appropriate, build additional systems on such routes. It is anticipated that
such systems, where possible, would be restored on the existing systems and
would achieve further cost efficiencies through the use of existing landing
stations.
Other Development Opportunities. The Company is actively pursuing development
opportunities whereby Global Crossing would provide "fee for service" expertise
in the planning, design, implementation and operation of global undersea cable
systems and associated terrestrial capacity.
Other Activities
Neptune Acquisition. On November 13, 1998, GCL and the Company's indirect
subsidiary GC Pacific Landing Corp. ("GC Pacific Landing") entered into an
agreement and plan of merger (the "Merger Agreement") with Neptune
Communications, L.L.C. ("Neptune") and its wholly-owned subsidiary, Neptune
Communications Corp. ("NCC"). Under the Merger Agreement, GC Pacific Landing
will merge with and into NCC in exchange for 1,052,632 shares of GCL Common
Stock. Neptune is controlled by the Carlyle Group, an international investment
firm ("Carlyle"), and was formed to pursue opportunities in the undersea cable
business. Carlyle's managing director William Conway also serves on GCL's Board
of Directors.
Possible Investments. The Board of Directors of GCL has approved in principle
the making of minority investments in telecommunications and Internet service
providers that do not compete with the Company in its core business and that
will also be current or prospective purchasers of capacity on the Global
Crossing Network. Such investments may consist of purchases of equity
securities for either cash or contributions of capacity on the Global Crossing
Network. Such investments may be managed either by the Company directly or, if
GCL's Board of Directors deems advisable, by one or more third-party investment
advisers so as to minimize potential conflicts of interest and the amount of
time allocated by the Company's senior management to such investments.
Financing Plan
As of September 30, 1998, the Company has incurred approximately $708.6
million of the $750 million in total estimated costs for AC-1 (excluding
upgrades). All future costs excluding upgrades with respect to AC-1 are fully
financed.
Global Crossing estimates that the total cost of developing and deploying PC-
1, MAC, PAC, PEC and GAL is approximately $2,815 million (excluding costs of
potential future upgrades and the amounts capitalized with respect to the PCG
Warrants, which is comprised of $1,200 million for PC-1, $330 million for MAC,
$475 million for PAC, $700 million for PEC and $110 million for GAL. Equity
investments in PC-1 by Global Crossing and its partners will be $400 million
(we expect to provide $231 million), with the remaining $800 million of
estimated costs to be financed initially through the incurrence of non-recourse
indebtedness at the PC-1 level. With respect to MAC and PAC the Company
currently anticipates making equity investments of approximately $110 million
in MAC and $175 million in PAC. The Company has obtained $220 million in non-
recourse project financing from certain lenders to finance the initial
construction costs of MAC. We expect to finance the remaining estimated $300
million in costs for PAC, through the incurrence of non-recourse indebtedness
at the project level. We anticipate that additional financing will be required
for AC-2 and other network expansion opportunities currently under evaluation.
Global Crossing has historically been able to secure indebtedness for its
systems for at least 65% of system costs and intends to finance its future
expansion opportunities in a similar fashion. The actual amounts of our future
capital requirements will depend on certain factors including the cost of
developing our cable systems, the speed of developing our systems and the
pricing of our services. There can be no assurance that financing for such
systems will be available to us or, if available, that such financing can be
obtained on a timely basis and on acceptable terms. See "Risk Factors--
Substantial Future Capital Requirements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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System Performance
AC-1, PC-1, MAC, PEC and GAL are each designed utilizing self-healing ring
technology to optimize system performance. Two types of protection switching,
span switching and ring switching, are provided. Span switching protects a
system against failures between adjacent landing sites which only affect
service line traffic and not the protection fibers. Ring switching protects a
system against complete failures between adjacent landing sites. Because such
technology will protect any single system failure in less than 500
milliseconds, no outages will result as a consequence of a single system
failure. Accordingly, the estimated system availability on any point-to-point
link on such systems is 99.995%.
As undersea and terrestrial cable systems become more powerful (i.e., carry
more traffic along their transmission paths), it is important to provide a
"self-restoration solution" because other systems do not have the capacity to
provide restoration for these new high performance cable systems. Single span
systems must enter into reciprocal arrangements with either other fiber-optic
operators or satellite carriers to pick up and deliver this traffic if a system
failure should occur. Providing self-restoration through this ring design with
the switching techniques described above is now viewed as offering a
qualitative advantage over single span systems with external restoration.
With respect to PAC, which does not employ self-healing ring technology, the
Company is exploring options to enter into restoration arrangements with
terrestrial fiber optic cable operators to protect against system traffic
interruptions. The Company may also enter into similar arrangements to protect
against catastrophic system malfunction on its other cable systems.
Sales and Marketing
The Company markets capacity on its systems to licensed telecommunications
providers, including PTTs, Internet service providers and established and
emerging telecommunications companies. The Company believes its current
customers represent a broad array of telecommunications companies.
The initial sales strategy of the Company emphasizes the sale of capacity on
an IRU basis, whereby the customer purchases a unit of capacity for the
remaining design life of a particular cable system. On AC-1, the Company is
selling capacity at an increment of 155 megabits (Mbps), known as an STM-1, for
the 25-year life of AC-1. For the other Global Crossing cable systems, the
Company also expects to sell capacity to customers at the STM-1 level, and
smaller increments, where warranted based upon the actual demand levels along
certain routes. The Company has instituted a tiered pricing schedule for all of
its systems which provides for volume discounts, thereby allowing customers to
reduce their average circuit cost as more circuits are purchased. In addition,
the Company offers pricing discounts on purchases of capacity prior to a
system's commercial operation date, in order to induce customers to make early
purchase commitments.
To further increase the attractiveness of the Company's network, Global
Crossing intends to make selective wholesale acquisitions of terrestrial
capacity, thereby enabling customers to achieve city-to-city connectivity
through the Global Crossing Network at prices significantly lower than if such
customers had attempted to gain such connectivity by separately purchasing such
terrestrial capacity. For AC-1 customers, the Company entered into contractual
arrangements providing terrestrial capacity between its landing stations in the
United States and the United Kingdom, and New York City and London,
respectively. In addition, Deutsche Telecom and KPN provide terrestrial
capacity directly to the Company's AC-1 customers in Germany and The
Netherlands, respectively. In addition, the Company has entered into an
agreement with Qwest whereby Global Crossing will receive access to over 25
U.S. cities on Qwest's terrestrial network and is in discussions with other
carriers regarding other arrangements for terrestrial capacity in the U.S.
Furthermore, the Company through PEC plans to provide terrestrial connectivity
to 18 European cities.
Global Crossing is exploring the development of other products designed to
take advantage of its ownership of several cable systems in different parts of
the world. For example, the Company has offered its customers volume discounts
for purchases of capacity on one system based upon purchases previously made on
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the Company's other systems and the ability to transfer a portion of unused
capacity purchases from one Global Crossing system to another depending on
customers' individual traffic needs. The Company also offers customers multi-
year CPAs for capacity across the entire Global Crossing Network at tiered
pricing.
The Company's marketing entity, Global Crossing International, was
established to facilitate the sales of communications capacity on the Global
Crossing Network, as well as to increase market awareness and name recognition
of Global Crossing. Global Crossing has been able to recruit and train a full-
service sales and marketing team, including Mr. Jack Finlayson, President of
Global Crossing International, a former senior executive of Motorola who joined
the Company in 1998, and Mr. Patrick Joggerst, Vice President, Worldwide Sales
and Marketing, who had been at TSSL and AT&T for a total of 17 years prior to
joining the Company, most recently as Managing Director of TSSL's Americas
Region. Mr. Joggerst directly oversees the Americas Region and is responsible
for overseeing the duties of the two regional vice presidents, each being in
charge of one of the two other regions of the Company's marketing organization,
Europe/Middle East/Africa and Asia. Each regional vice-president oversees the
performance of regional marketing directors who have direct account
responsibility in certain geographic areas of the region. In total, the Company
employed 21 marketing professionals as of September 30, 1998. While the Company
intends to expand the current size of its marketing organization, management
believes that a moderately-sized sales force is sufficient to adequately
address all customers seeking to acquire undersea cable capacity on a wholesale
basis.
During the pre-operational period for AC-1, in which the Company sought to
generate significant pre-sales of capacity, the Company presented project
information meetings (otherwise known as data gathering meetings) in order to
better educate potential customers about AC-1 and Global Crossing's other
planned cable systems. Attendees of such meetings have been affiliated with
both existing and prospective customers and have represented a variety of
sectors of the telecommunications industry. Ongoing, the Company intends to
organize at least one major international conference per year in order to
provide updated information on the Global Crossing Network. The Company also
intends to host regional project information meetings focusing on a particular
cable system, with such meetings scheduled to precede the anticipated
commercial operation date for such system.
The Company intends to reinforce customer awareness through a variety of
marketing campaigns, including its Global Crossing international conferences
and regional marketing events, participation in key industry and user group
conferences, speaking engagements, press conferences and promotional campaigns.
In addition, Global Crossing expects its marketing team to periodically visit
current and prospective customers to obtain a greater understanding of the
individual needs of such customers.
Summary of Principal Terms of Standard Contractual Documentation
Capacity Purchase Agreements (CPAs)
In general, a CPA provides for the sale of capacity by the Company on an IRU
basis, whereby the purchaser owns a unit of capacity for the remaining design
life of a particular system. The term of a CPA is 25 years from the RFS date
for the system on which capacity is being acquired, which is the entire useful
life of the system. Upon execution of a CPA prior to a segment RFS date, the
Company generally receives 10% of the purchase price immediately, with the
balance of the purchase price due to the Company upon the applicable RFS date
for that segment. A limited number of CPAs provide for payment of the purchase
price in installments over two to four year periods. Each purchaser under a CPA
is required to pay its allocated share of the cost of operating, maintaining
and repairing the system. A purchaser's payment obligation under a CPA shall
generally terminate with respect to any purchased capacity on AC-1 other than
the United States-United Kingdom segment (and, in some cases, with respect to
purchased capacity on the United States-United Kingdom segment), if the RFS
date for the AC-1 system has not occurred by June 30, 1999. Performance under
CPAs is also contingent upon the obtaining and continuance of such approvals,
consents, governmental authorizations, licenses and permits as may be required
or reasonably deemed necessary by each party thereto for performance by such
party thereunder and as may be satisfactory to it. The obligations of
purchasers under
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certain CPAs are additionally contingent upon the execution of related ICPAs.
See "Risk Factors--Sales of Capacity; Realization of Other Revenues" and "--
Termination of Capacity Purchase Agreements."
Additionally, each purchaser acquiring capacity on AC-1 prior to the system
RFS date is granted the right to receive additional capacity ("residual
capacity") at no additional cost upon the date which is 12 1/2 years after the
RFS date for the system. Furthermore, neither party is liable to the other for
consequential, incidental, indirect or special damages sustained by reason of
(i) any failure in or breakdown on the system or the facilities associated with
the system, (ii) the failure of any inland carrier to perform the terms and
conditions of any agreement to which it and the purchaser are parties or (iii)
for any interruption of service, whatever the cause and however long it shall
last. Each CPA is subject to an arbitration clause. Some CPAs are supported by
a parent guarantee from the purchaser.
Inland Services Agreements (ISAs)
The Company has entered into agreements with certain terrestrial fiber cable
systems to purchase inland capacity on such systems for resale to its
purchasers. In general, the term of each ISA is 25 years from the RFS date of
the particular system or until the system is retired, whichever occurs first.
In certain cases, the Company has the option to extend the term of each ISA for
an additional five years. Neither party to an ISA is responsible for any loss,
damage, delay or failure of performance resulting from an event of Force
Majeure (as defined therein). If an event of Force Majeure continues for a
period of 30 days, the Company may terminate the ISA. Each ISA is subject to an
arbitration clause.
Inland Capacity Purchase Agreements (ICPAs)
The Company has entered into ICPAs with some of its customers. Under an ICPA,
the Company provides the customer with a portion of the terrestrial capacity it
purchased from owners of terrestrial cable systems under ISAs. The term of each
ICPA is 25 years from the RFS date for the particular system. Upon execution of
an ICPA, the Company generally receives 10% of the purchase price immediately,
with the balance due no later than the RFS date for the particular segment. A
limited number of ICPAs provide for payment of the purchase price in
installments over two to four year periods. A purchaser's payment obligation
under an ICPA generally shall terminate with respect to any purchased capacity
on AC-1 other than the United States-United Kingdom segment (and, in some
cases, with respect to purchased capacity on the United States-United Kingdom
segment), if the RFS Date for the AC-1 system has not occurred by June 30,
1999. Unlike a CPA, the purchaser under an ICPA is generally not required to
make any additional payments for costs associated with operating, maintaining
and repairing the terrestrial capacity in which the IRU is granted. Neither
party is liable to the other for consequential, incidental, indirect or special
damages sustained (i) by reason of any failure of any inland carrier to perform
the terms and conditions of any ISA to which it is a party or (ii) for any
interruption of service, whatever the cause and however long it shall last.
Each ICPA is subject to an arbitration clause. An ICPA may be supported by a
corresponding parent guarantee from the purchaser.
Operations, Administration and Maintenance Support
Pursuant to the AC-1 OA&M Agreement, TSSL will provide operations,
administration and maintenance support on behalf of AC-1 for a term of eight
years following the commencement of commercial operations. As of September 30,
1998, the Company was committed under the AC-1 OA&M Agreement to make payments
totaling approximately $254 million. Such agreement is extendible at the option
of the Company for two additional periods of 8.5 years each. For AC-1, TSSL's
network operations center is designed to ensure the overall ongoing monitoring
of the system's operation, maintenance and control systems. The network
management equipment located at the Brookhaven, New York landing station
provides fault management, security management, configuration management and
performance management, while undersea network management equipment located at
all landing stations provides system level monitoring of the undersea
terminating equipment. The full integration of these control elements allows
the AC-1 cable system to be "self-diagnostic," with such control elements
facilitating localization and repair in the event of the occurrence of a system
fault.
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In addition, Global Crossing is separately developing a worldwide operations,
administration and maintenance support system to serve each of its cable
systems (exclusive of AC-1 for the initial term of the TSSL OA&M Agreement).
Such support will be handled through three work centers: a customer care center
("CCC"), network operations center ("NOC") and technical support center
("TSC"). It is currently anticipated that the CCC will be located in Bermuda
and both the NOC and TSC will be located in Europe.
Customer Care Center. The CCC will provide capacity purchasers with a single
point of contact for service provisioning, interconnect coordination support
and billing inquiries.
Network Operations Center. The NOC will handle operations, administrative and
maintenance activities for each of the Company's cable systems, including
capacity provisioning, network performance, repair and restoration activities.
Capacity provisioning relates to the appropriate allocation of capacity on the
Company's cable systems among capacity purchasers. Management of network
performance entails detection and response to system degradation and other
performance parameters, as well as preventative activities.
Technical Support Center. The TSC will be a 24-hour center managed by highly-
trained experts to handle technical inquiries from purchasers regarding system
performance and interconnection arrangements.
Competition
The international telecommunications industry is highly competitive. The
Company faces competition from existing and planned cable systems along each of
its planned routes and from satellite providers, including existing
geosynchronous satellites and low-earth orbit systems now under construction.
The Company competes primarily on the basis of price, availability,
transmission quality and reliability, customer service and the location of its
systems. Traditionally, carriers have made long term investments in ownership
of cable capacity, making lower price and superior service less determinative
in convincing such carriers to acquire additional capacity on the Company's
systems than is the case in industries without such long-term relationships.
See "Risk Factors--Competition."
Existing and Planned Cable Systems
The routes addressed by Global Crossing's planned systems are currently
served by several cable systems as well as satellites. Currently, there are
several fiber optic transatlantic cable systems, each of which will compete
directly with AC-1. Primary future sources of transatlantic competition for the
Company may result from, among others, (i) TAT-14, a transatlantic cable system
which is being developed by its consortium members, including British Telecom,
AT&T, France Telecom and Deutsche Telekom, (ii) FLAG Atlantic-1, a
transatlantic system which is being developed by FLAG Telecom and Global
TeleSystems Group, Inc. and (iii) Gemini, a transatlantic cable system being
operated and marketed by MCI WorldCom, Inc. and Cable & Wireless PLC. The
Company believes that such other cable systems will compete directly with AC-1
and the commitments of the developers and other carriers on these systems could
substantially reduce demand for capacity on AC-1.
Similarly, there are several cable systems currently operating between the
United States and Asia, the route to be served by PC-1. Competition in the
transpacific market may result from, among others, (i) China-US, a transpacific
system being developed as a "private cable system" by fourteen large carriers,
including SBC, MCI, AT&T and Sprint, most of whom have traditionally sponsored
consortium cables and (ii) Japan-US, a transpacific system being developed by a
consortium of major telecommunications carriers, including MCI WorldCom, AT&T,
KDD, NTT, Cable & Wireless PLC and GTE. Although the Company believes that such
other cable systems will not satisfy the demand for capacity between the United
States and Japan and that there is currently enough demand projected to
accommodate all such systems, such other cable systems will receive commitments
for capacity that PC-1 could have received in their absence.
In addition, the Company will face competition on its planned trans-European
network. There are several carriers, including Viatel, KPN-Qwest, MCI WorldCom,
Inc., a joint venture between Deutsche Telekom and France Telecom, British
Telecom and Hermes, who are currently planning or building trans-European
network assets.
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Other regional and global systems are being considered by developers,
including Project Oxygen, a global system being evaluated by CTR Group, Ltd. In
addition, the Company may face competition from existing and planned regional
systems and satellites on its MAC and PAC routes, where entrants are vying for
purchases from a small but rapidly growing customer base.
Satellite Transmission
When comparing cable transmission against satellite transmission, the Company
believes that cable has a distinct advantage with respect to latency (i.e.,
transmission delay) and voice quality. Cable transmission has a lower cost per
circuit, higher capacity and longer expected equipment life than satellite
transmission. Satellite transmission is generally considered to have a
comparative advantage versus cable transmission for mobile communications only
in the area of point-to-multipoint broadcast and "thin route" transmission, as
opposed to the more common point-to-point, high volume transmission for which
cable usage is considered to be preferable.
In early 1997, the FCC granted Ka-band licenses and orbital locations to 13
companies. The firms developing future satellite technology envision a network
of satellites that will provide broadband data transmission with data rates of
2 Mbps, 20 Mbps, and even 155 Mbps. Potential participants in the field include
Astrolink, Skybridge, Teledesic Corporation, CyberStar and SpaceWay, who are
seeking to provide high bandwidth transmission sublet networks. Due to (i) the
significant initial costs related to these systems, (ii) the risks relating to
satellite launch systems and (iii) the significantly lower transmission
capacity versus current fiber optic systems, the Company believes that the new
satellite systems will not be able to offer competitive cost per unit of
transmission capacity in the dense metropolitan markets the Company is
targeting. Further, the Company believes it will have at least five years lead
time to help it solidify a sustainable competitive market position before true
broadband satellite service commences.
Suppliers
There are currently three major supply companies in the undersea cable
industry: TSSL, Alcatel and KDD SCS. Cable & Wireless PLC and Pirelli also have
a presence in the industry and there are a number of smaller suppliers who have
focused primarily on regional routes or non-repeatered systems. TSSL is
completing construction of AC-1, is responsible for the design and installation
of PAC and, together with KDD SCS (as a subcontractor), is responsible for
design and installation of PC-1. Alcatel is responsible for design and
construction of MAC. See "Risk Factors--Dependence on Third Parties."
Properties
The Company leases executive and administrative offices at its worldwide
headquarters at Wessex House, 45 Reid Street, Hamilton HM12 Bermuda. The
Company owns a cable station in Brookhaven, New York and a cable station in
White Sands, United Kingdom. The Company leases cable station space in Sylt,
Germany and cable station space in Beverwijk, The Netherlands. Such leases run
for the anticipated 25-year term of AC-1. The Company also leases office space
in Amsterdam, Los Angeles, Morristown, New Jersey, Dallas, London, San
Francisco, New York, Coral Gables, Florida and Buenos Aires, Argentina.
Regulation
The Company, in the ordinary course of development, construction and
operation of its fiber optic cable systems, will be required to obtain and
maintain various permits, licenses and other authorizations in both the United
States and in foreign jurisdictions where its cables land, and will be subject
to applicable telecommunications regulations in such jurisdictions. In
particular, submarine cable landing or similar licenses will be required in
many of the jurisdictions where Global Crossing's planned systems will land.
With respect to AC-1, an undersea cable landing license (the "AC-1 Landing
License") and a subsequent modification have been obtained from the United
States Federal Communications Commission ("FCC"), which license permits AC-1 to
land in the United States at the Brookhaven, New York landing site and to
operate between the United
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States, the United Kingdom, The Netherlands and Germany. The AC-1 Landing
License authorizes the Company to provide capacity on a private carriage basis,
and AC-1 is not presently regulated by the FCC as a common carrier. Global
Crossing has obtained landing licenses similar to the AC-1 Landing License in
each of the other jurisdictions where the AC-1 cable system will land and where
such licenses are required. With respect to each of the Company's cable systems
other than AC-1, the Company anticipates both filing applications for cable
landing licenses with the FCC (and, where necessary, foreign regulatory
agencies) and seeking private carriage status for these systems as well. These
licenses are typically issued for a term of years (in the case of the FCC-
issued cable landing license, 25 years), and are subject to renewal. United
States law (and the law of several foreign jurisdictions, as well) limits
foreign ownership, direct or indirect, of entities holding cable landing
licenses, although the FCC has progressively relaxed to the rules to examine
only those foreign holders that are affiliated with a foreign
telecommunications carrier that has market power in the destination country.
More recently, in order to implement a multilateral World Trade Organization
agreement, the FCC adopted regulations that presumptively permit unlimited
foreign ownership by nationals of countries that are party to that agreement.
See "Risk Factors--Effect of Government Regulation."
Construction of each of the Company's cable systems also requires the
acquisition and maintenance of various permits and licenses in the ordinary
course of business. Pursuant to its construction contracts for AC-1 and PC-1,
TSSL is contractually obligated to obtain and maintain all such licenses and
permits. Although Global Crossing intends that the construction contracts for
each of the Company's other planned cable systems will impose the burden of
acquiring and maintaining construction licenses and permits on the contractor
for each of such systems, there can be no assurance that such contractor will
successfully obtain such permits and licenses. See "Risk Factors--Risks Related
to Completing our Cable Systems."
Employees
As of December 31, 1998, the Company had approximately 148 employees. The
Company considers its relations with its employees to be good.
Legal Proceedings
The Company is not presently subject to any material legal claims or
proceedings.
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MANAGEMENT
Directors and Executive Officers--GCL
The following table sets forth the names, ages and positions of the directors
and executive officers of GCL.
GCL's bye-laws provide for a Board of Directors consisting of 17 members
divided into three classes with terms of three years each. Mr. Casey, Mr.
Brown, Mr. Porter, Mr. Phoenix, Mr. Levine and Mr. Conway were elected as Class
A Directors, with a term expiring in 1999; Mr. Cook, Mr. Lee, Mr. Raben, Mr.
Kent and Mr. Scanlon were elected as Class B Directors, with a term expiring in
2000; and Mr. Winnick, Mr. Bloom, Mr. Kehler, Mr. Weinberger, Mr. Steed and
Mr. Ogasawara were elected as Class C Directors, with a term expiring in 2001.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gary Winnick............ 51 Co-Chairman of the Board and Director
Lodwrick M. Cook........ 70 Co-Chairman of the Board and Director
Thomas J. Casey......... 46 Managing Director, Vice Chairman of the Board and Director
Jack M. Scanlon......... 57 Chief Executive Officer and Director
David L. Lee............ 49 President, Chief Operating Officer and Director
Barry Porter............ 41 Senior Vice President and Director
Abbott L. Brown......... 55 Senior Vice President and Director
Dan J. Cohrs............ 45 Senior Vice President and Chief Financial Officer
James C. Gorton......... 37 Senior Vice President, General Counsel and Secretary
K. Eugene Shutler....... 60 Senior Vice President
Hillel Weinberger....... 45 Director
Jay R. Bloom............ 43 Director
Dean C. Kehler.......... 42 Director
Jay R. Levine........... 42 Director
William P. Phoenix...... 42 Director
Bruce Raben............. 45 Director
Michael R. Steed........ 49 Director
William E. Conway....... 49 Director
Toshiaki Ogasawara...... 67 Director
Geoffrey J.W. Kent...... 56 Director
</TABLE>
Gary Winnick--Mr. Winnick, founder of Global Crossing, has been Co-Chairman
of the Board of GCL since January 1998 and, prior thereto, was Chairman of the
Board since the inception of the Company in March 1997. Mr. Winnick is the
founder and has been the Chairman and Chief Executive Officer of Pacific
Capital Group since its inception, having been in the principal equity
investment and merchant banking business since 1985. Mr. Winnick holds a BA in
Economics and Business Management from C.W. Post College.
Lodwrick M. Cook--Mr. Cook has been Co-Chairman of the Board of GCL since
January 1998 and Vice Chairman, Managing Director of PCG since 1997. Prior to
joining PCG, Mr. Cook spent 39 years at Atlantic Richfield Co., serving as
President and Chief Executive Officer from 1985 to 1995 and as Chairman of the
Board of Directors from 1986 to 1995, when he became Chairman Emeritus. Mr.
Cook is also a member of the Board of Directors of Castle and Cooke, Litex and
Ocean Energy, Inc. Mr. Cook received BS degrees in mathematics and petroleum
engineering from Louisiana State University and holds an MBA degree from
Southern Methodist University.
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Thomas J. Casey--Mr. Casey was elected Vice Chairman of the Board of GCL in
December 1998 and was appointed Managing Director of GCL in September, 1998.
Mr. Casey also serves as president and director of PCG. Prior to joining GCL,
Mr. Casey was co-head of Merrill Lynch & Co.'s Global Communications Investment
Banking Group for 3 years. From 1990 to 1995, Mr. Casey also was a partner and
co-head of the telecommunications and media group for the law firm of Skadden,
Arps, Slate, Meagher and Flom. Mr. Casey received his BA degree from Boston
College and his JD degree from George Washington University Law School.
Jack M. Scanlon--Mr. Scanlon has been Chief Executive Officer and a director
of GCL since April 1998. Prior to joining the Company, Mr. Scanlon was
President and General Manager of the Cellular Networks and Space Sector of
Motorola Inc. and had been affiliated with Motorola Inc. since 1990. Mr.
Scanlon was Chief Operating Officer of Cambridge Technology Group from 1988 to
1990 and, prior thereto, spent 24 years with AT&T Corp. and Bell Laboratories,
rising to Group Vice President at AT&T Corp. Mr. Scanlon received his BS degree
from the University of Toronto and a MS degree in electrical engineering from
Cornell University.
David L. Lee--Mr. Lee has been President and Chief Operating Officer and a
director of GCL since the inception of the Company in March 1997. He has also
been a managing director of PCG since 1989. Prior to joining PCG, Mr. Lee was
Group Vice President of Finance and Acquisitions at TRW Information Systems
Group. Mr. Lee is a graduate of McGill University and holds a PhD in Physics
and Economics from the California Institute of Technology.
Barry Porter--Mr. Porter is Senior Vice President, Corporate Development and
a director of GCL. Mr. Porter has been a director of the Company since 1997 and
has also been a managing director of PCG since 1993. From 1986 to 1993, Mr.
Porter was affiliated with Bear, Stearns & Co. Inc., rising to a Senior
Managing Director in the investment banking department. Mr. Porter received his
JD and MBA degrees from the University of California (Berkeley) and his BS
degree from The Wharton School.
Abbott L. Brown--Mr. Brown is Senior Vice President, Corporate Affairs and a
director of GCL. Mr. Brown has been a director of the Company since 1997 and
has also been a managing director and Chief Financial Officer of PCG since
1994. From 1990 through 1994, Mr. Brown was Executive Vice President, Chief
Financial Officer and a member of the board of directors of Sony Pictures
Entertainment Inc., a wholly-owned subsidiary of Sony Corporation. Prior
thereto, Mr. Brown was a partner in the international accounting firm of Price
Waterhouse LLP. Mr. Brown holds a BS degree from Lehigh University and is a
Certified Public Accountant.
Dan J. Cohrs--Mr. Cohrs has been Senior Vice President and Chief Financial
Officer of GCL since May 18, 1998. From 1993 to 1998, Mr. Cohrs was affiliated
with GTE Corporation, rising to the position of Vice President and Chief
Planning and Development Officer in 1997. From 1990 to 1993, he was at
Northwest Airlines and prior to leaving Northwest Airlines served as Vice
President of International Finance (Tokyo, Japan); from 1986 to 1990, he was at
the Marriott Corporation and served in such capacities as Vice President of
Financial Planning and Acquisitions and Vice President of Project Finance; and
from 1983 to 1986, he was a Strategy and Financial Consultant at Marakon
Associates. Mr. Cohrs received his BS degree from Michigan State University in
Engineering and his PhD degree from Cornell University in Economics, Finance
and Public Policy.
James C. Gorton--Mr. Gorton became Senior Vice President and General Counsel
of GCL effective July 15, 1998 and Secretary of GCL effective August 9, 1998.
From 1994 to 1998, Mr. Gorton was a member of the New York law firm Simpson
Thacher & Bartlett and had been associated with the firm since 1986. Mr. Gorton
holds a BA degree from Columbia College and a JD degree from New York
University School of Law.
K. Eugene Shutler--Mr. Shutler is a Senior Vice President of GCL and is also
President of ACL. From 1996 to 1997, Mr. Shutler served as Chairman of the
Board and Chief Executive Officer of Styles On Video, Inc. Prior thereto, Mr.
Shutler was Executive Vice President, General Counsel and a Director of MGM
Grand, Inc. from 1991 to 1995; a member of the Los Angeles law firm of Troy and
Gould from 1983 to 1991; and Vice President/General Counsel of Republic
Corporation, Continental Aircraft Services (Continental Airlines)
66
<PAGE>
and Caesars World, Inc. Mr. Shutler holds a BA degree from the University of
Pennsylvania and an LLB degree from Yale Law School.
Hillel Weinberger--Mr. Weinberger, a director of GCL since June 1997, has
been a Senior Vice President of Loews/CNA Holdings Corp. since 1988. Prior
thereto, Mr. Weinberger was a Senior Vice President of Presidential Life from
1982 to 1988. Mr. Weinberger serves as director to News Communications Inc.
Jay R. Bloom--Mr. Bloom, a director of GCL since the Company's inception in
March 1997, is a managing director of CIBC Oppenheimer Corp. ("CIBC
Oppenheimer"), co-head of its High Yield Group and co-head of CIBC World
Markets High Yield Merchant Banking Funds. Mr. Bloom also serves on the board
of directors of Heating Oil Partners, L.P., Consolidated Advisers Limited,
L.L.C. and Morris Material Handling, Inc. Prior to joining CIBC Oppenheimer in
August 1995, Mr. Bloom was a founder and managing director of The Argosy Group
L.P. From 1984 to 1990, Mr. Bloom was a managing director in the Mergers and
Acquisitions Group of Drexel Burnham Lambert Incorporated. Mr. Bloom was an
investment banker associated with Lehman Brothers Kuhn Loeb Incorporated from
1982 to 1984 and, from 1981 to 1982, practiced law at Paul Weiss Rifkind
Wharton & Garrison in New York. Mr. Bloom received his BS and MBA degrees from
Cornell University and his JD degree from Columbia University School of Law.
Dean C. Kehler--Mr. Kehler, a director of GCL since the Company's inception,
is a managing director of CIBC Oppenheimer and co-head of its High Yield Group.
In addition, he is a member of CIBC's Investment Committee and co-head of CIBC
World Markets High Yield Merchant Banking Funds. Prior to joining CIBC
Oppenheimer in 1995, Mr. Kehler was a founder and managing director of The
Argosy Group. From 1985 to 1990, Mr. Kehler was a managing director in the
Mergers and Acquisitions Group, Co-Head of Merchant Banking and a member of the
Corporate Finance Executive Committee of Drexel Burnham Lambert Incorporated.
Mr. Kehler serves on the board of directors of Booth Creek Group, Inc.,
Telebanc Financial Corporation and Heating Oil Partners, L.P. From 1979 to
1985, Mr. Kehler was an investment banker at Lehman Brothers. Mr. Kehler
received his BS degree from The Wharton School.
Jay R. Levine--Mr. Levine, a director of GCL since the Company's inception,
is a managing director of CIBC Oppenheimer, and manages the CIBC World Markets
High Yield Merchant Banking Funds. Prior to joining CIBC Oppenheimer in May,
1997, Mr. Levine was President of PPMJ Inc., a private consulting firm, from
September 1996 to April 1997 that advised its clients on private equity
investments. From August 1990 to June 1996, Mr. Levine was a senior executive
in the Morningside and Springfield Group, Inc., a private investment company.
Mr. Levine serves as a director of Aircraft Service International Group,
Consolidated Advisers Limited, L.L.C., Heating Oil Partners, L.P. and Talton
Holdings, Inc. Mr. Levine received a BS degree from Syracuse University, a JD
degree from Tulane University and an LLM in Taxation from New York University.
William P. Phoenix--Mr. Phoenix, a director of GCL since its inception, is a
managing director of CIBC Oppenheimer and co-head of Credit Capital Markets.
Prior to joining CIBC Oppenheimer in 1995, Mr. Phoenix had been the Managing
Director of the Canadian Imperial Bank of Commerce since 1982. Mr. Phoenix
serves as a director of the Electrolux Corporation. Mr. Phoenix received his BA
degree from the University of Western Ontario and his MBA degree from the
University of Toronto.
Bruce Raben--Mr. Raben, a director of GCL since its inception, is a managing
director of CIBC Oppenheimer. Prior to joining CIBC Oppenheimer in January
1996, Mr. Raben was a founder, managing director and co-head of the Corporate
Finance Department of Jefferies & Co., Inc. since 1990. Mr. Raben serves as a
director of Optical Security, Inc., Talton Holdings, Inc., Terex Corporation
and Equity Marketing, Inc. Mr. Raben received his MBA degree from Columbia
Business School and his AB degree from Vassar College.
Michael R. Steed--Mr. Steed, a director of GCL since its inception, is Senior
Vice President of Investments for the Union Labor Life Insurance Company,
ULLICO Inc. ("ULLICO") and its Family of
67
<PAGE>
Companies and President of Trust Fund Advisors, ULLICO's investment management
subsidiary. Mr. Steed joined ULLICO in November 1992 after serving seven years
as President and Founder of A.F.I.C. Group, Ltd., a financial and investment
consulting firm. From 1983 to 1985, Mr. Steed was the Executive Director of the
Democratic National Committee. Mr. Steed serves as a director of The Lewis &
Clark Snake River Beverage Company. He received his JD degree from Loyola
University School of Law in Los Angeles and his BA degree from Loyola Marymount
University in Los Angeles.
William E. Conway--Mr. Conway became a director of GCL in August 1998. Mr.
Conway has been a managing director of The Carlyle Group since 1987. Mr. Conway
was Senior Vice President and Chief Financial Officer of MCI Communications
Corporation from 1984 until he jointly founded The Carlyle Group in August
1987. Mr. Conway serves as director to GTS Duratek, Inc., Nextel
Communications, Inc. and Hownet International Corporation. Mr. Conway received
his BA degree from Dartmouth College and his MBA in Finance from Chicago
Graduate School of Business.
Toshiaki Ogasawara--Mr. Ogasawara, a director of GCL since August 1998, has
been Chairman and Publisher of The Japan Times, Limited since 1985 and
President and Representative Director of Nifco Inc. since 1967. Mr. Ogasawara
serves as Chairman and Representative Director for FM Inter-Wave, Inc. and
Simmons Co. Ltd.
Geoffrey J.W. Kent--Mr. Kent, a director of GCL since August 1998, is
Chairman and Chief Executive Officer of the Abercrombie & Kent Group of
companies and has been associated with these companies since 1967.
Additional Management
Global Crossing's management team utilizes additional executives with
extensive experience in the telecommunications industry and the undersea cable
sector, including the following individuals:
William B. Carter, Jr. is President of Global Crossing Development Co. and
the Company's Senior executive in charge of development. Prior to joining the
Company, Mr. Carter spent 30 years with AT&T, where he headed up the
International Facilities Planning (both cable and satellite) and served as
President and Chief Executive Officer for SSI and as Director of International
Network Operations for AT&T. During Mr. Carter's tenure, SSI had the leading
worldwide market share in the undersea cable industry, with an average market
share of 35-50%. Mr. Carter is a member of the World Telecommunications
Advisory Council to the International Telecommunications Union (ITU) and Senior
Advisory Council to the U.S. government on communications and economic
development. Mr. Carter received a BEE degree from Georgia Institute of
Technology and has completed the advanced program for senior managers at MIT's
Sloan School.
Jack Finlayson--Mr. Finlayson has been President of Global Crossing
International, Ltd. since June 1998. Prior to joining the Company, Mr.
Finlayson was corporate vice president and general manager of Motorola Inc.'s
Asia Pacific Cellular Infrastructure group, where he was responsible for
managing the wireless infrastructure business, and had been affiliated with
Motorola Inc. since 1994. Prior to joining Motorola Inc., Mr. Finlayson was
employed by AT&T, where he was sales vice president of Business Network Sales
for the southeastern United States. Mr. Finlayson has more than 17 years
experience in the telecommunications field. Mr. Finlayson received his BS
degree in marketing from LaSalle University and holds an MBA degree in
information management from St. Joseph's University.
S. Wallace Dawson, Jr., Senior Vice President of Operations of Global
Crossing Development Co., worked at SSI for 29 years, where he had overall
delivery responsibility for the implementation of all submarine cable projects.
Prior thereto, he held various positions at AT&T, where his work centered on
specialized equipment design for military and commercial undersea cable systems
and development of various network services. Mr. Dawson holds a BEE degree from
the University of Virginia, and an MSEE degree from Duke University. He also
completed the Advanced Management Program at INSEAD, Fountainbleu, France.
68
<PAGE>
Harold D. Grossnickle, Managing Director of Global Crossing Development Co.,
is responsible for directing the operations, administration and maintenance of
the Global Crossing Network. Mr. Grossnickle has 28 years of experience in the
telecommunications industry, including over 24 years at AT&T and AT&T Paradyne,
where he served as a vice president of network management systems and services.
Mr. Grossnickle received his BS from Iowa State University and his MBA from the
University of Missouri.
Patrick Joggerst is Vice President of Global Sales & Marketing of Global
Crossing International Ltd. and the Company's Senior executive in charge of
sales. Prior to joining the Company, Mr. Joggerst served as Managing Director
for the Americas Region at TSSL. His 17-year tenure at AT&T included positions
with several departments, including international services operations,
organizational development/human resources, and communications products and
service sales. Mr. Joggerst graduated from Georgetown University's School of
Foreign Service.
Ian McLean--Mr. McLean is Vice President of GCL and also serves as Chief
Financial Officer of ACL. Prior to joining the Company in September, 1997, Mr.
McLean was Chief Financial Officer and Systems Information Officer at Price
Waterhouse, Bermuda from 1994 to 1997; Chief Financial Officer for Horizons
Limited from 1992 to 1994; Deputy Manager, Corporate Trust at Bank of Bermuda
Limited from 1988 to 1992 and Vice President of Finance for the Baillargeon
Group from 1985 to 1988. Mr. McLean is a Canadian Chartered Accountant and
holds a Bba degree from Bishop's University and a graduate diploma in
accountancy from McGill University.
William T. Richards is Vice President of Operations of ACL. Mr. Richards was
employed at British Telecommunications for seven years, most recently as
Manager of Subsea Projects & Consultancies, and served as Independent Engineer
on the FLAG system. Prior to his position at British Telecommunications, he
served as Business Development Manager at Dowty Magnetics. Mr. Richards
received his BFc (Hons.) degree from City University of London.
Lisa Dadouris, Director of Business Development of Global Crossing
Development Co., spent 12 years at AT&T and Lucent Technologies, where she held
a number of positions in business development, marketing and finance, including
Chief Financial Officer for Local Service in the northeast United States and
Director of Manufacturing Planning for Lucent. Ms. Dadouris graduated from Wake
Forest University with a BS in business, and received her MBA in accounting
from Fuqua School of Business at Duke University.
Mool Singhi is Director of Network Planning of Global Crossing Development
Co. Prior to joining the Company, Mr. Singhi served as the Director of Market
Planning at TSSL. Mr. Singhi spent 27 years at AT&T, where he held various key
positions in manufacturing, finance, engineering, operations and international
network planning. Mr. Singhi received a bachelor's degree in mechanical
engineering and a master's degree in operations research and industrial
engineering from the University of Buffalo.
Charles D. Hogan, Director of Operations of Asia Systems of Global Crossing
Development Co., spent 42 years at AT&T, serving as Regional Managing Developer
of AT&T's General Departments. Immediately prior to joining the Company, Mr
Hogan was based in Hong Kong where he was responsible for the planning of
international digital lightwave undersea cables for AT&T in the Asia/Pacific
region, including the planned China-United States cable system.
John Mercogliano, Vice President of Sales and Marketing of Global Crossing
International Ltd., has over 19 years of experience in the telecommunications
industry. Prior to joining the Company, Mr. Mercogliano was employed as Vice
President-Europe of Bell Atlantic Network Systems (Bermuda) Ltd., where he was
responsible for developing strategies and directing sales and marketing
opportunities in the FLAG European region. Mr. Mercogliano received his B.A.
degree from New York University and his MBA from Pace University.
69
<PAGE>
Directors and Executive Officers--the Issuer
The following table sets forth the names, ages and positions of the directors
and executive officers of the Issuer.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
S. Wallace Dawson, Jr... 52 Chief Executive Officer and Director
K. Eugene Shutler....... 60 President and Director
Ian McLean.............. 41 Senior Vice President, Chief Operating Officer and Director
Robert Klug............. 31 Controller and Director
Douglas Molyneux........ 41 Secretary
</TABLE>
S. Wallace Dawson, Jr.--Mr. Dawson is the Chief Executive Officer and a
Director of the Issuer. He is also Senior Vice President of Operations of
Global Crossing Development Co. Prior to joining the Company, he worked at SSI
for 29 years, where he had overall responsibility for the implementation of all
submarine cable projects. Prior thereto, he held various positions at AT&T,
where his work centered on specialized equipment design for military and
commercial undersea cable systems and development of various network services.
Mr. Dawson holds a BEE degree from the University of Virginia, and an MSE
degree from Duke University. He also completed the Advanced Management Program
at INSEAD, Fountainbleu, France.
K. Eugene Shutler--Mr. Shutler is the President and a Director of the Issuer.
He is also serves as a Senior Vice President of GCL and President of ACL. From
1996 to 1997, Mr. Shutler served as Chairman of the Board and Chief Executive
Officer of Styles on Video, Inc. From 1991 to 1995, Mr. Shutler was Executive
Vice President, General Counsel and a Director of MGM Grand, Inc and from 1983
to 1991, he was a member of the Los Angeles law firm of Troy and Gould. Mr.
Shutler holds a BA degree from the University of Pennsylvania and an LLB degree
from Yale Law School.
Ian McLean--Mr. McLean is the Senior Vice President, Chief Operating Officer
and a Director of the Issuer. Mr. McLean also serves as Vice President of GCL
and Chief Financial Officer of ACL. Prior to joining the Company in September
1997, Mr. McLean was Chief Financial Officer and Systems Information Officer at
Price Waterhouse in Bermuda from 1984 to 1997; and Chief Financial Officer for
Horizons Limited from 1992 to 1994. Mr. McLean is a Canadian Chartered
Accountant and holds a Bba degree from Bishop's University and a graduate
diploma in accountancy from McGill University.
Robert Klug--Mr. Klug is the Controller and a Director of the Issuer. He also
serves as the Chief Financial Officer of PCL. Prior to joining the Company in
September 1997, Mr. Klug was a manager at Price Waterhouse from 1994 to 1997
and was associated with the firm since 1989.
Douglas Molyneux--Mr. Molyneux is the Secretary and Senior Counsel of the
Issuer. Prior to joining the Company, he was a Senior Associate with Appleby,
Spurling & Kempe for three years. From 1991 to 1992, Mr. Molyneux worked at
Jardine Matheson Ltd. in Hong Kong; from 1986 to 1992 he worked at Citicorp
Investment Bank in London. Mr. Molyneux received an honors degree in law from
the University of Strathelyde (Glasgow) and is currently working to complete
his MBA from the University of Edinburgh.
Compensation--GCL
Total compensation paid or accrued to the executive officers of GCL and its
consolidated subsidiaries as a group during the fiscal year ended December 31,
1997 was $155,409. Directors of GCL and its consolidated subsidiaries do not
receive compensation, except as officers or employees of GCL or its
consolidated subsidiaries.
70
<PAGE>
Option Grants and Option Values
The table below sets forth information as of September 30, 1998 concerning
options granted since January 1, 1998 to principal officers of GCL and its
subsidiaries. Options representing a total of 10,057,500 shares of GCL Common
Stock have been issued to officers or directors of GCL and its subsidiaries at
exercise prices ranging from $1.67 per share to $20.50 per share.
<TABLE>
<CAPTION>
Grant
Date
Individual Grants Value(1)
---------------------------------------------- ----------
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise or Grant Date
Granted Employees in Base Price Expiration Present
Name (#) Fiscal Year ($/Share) Date Value($)
---- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Jack M. Scanlon......... 1,800,000 14.83% 1.67 04/01/08 31,200,000
Chief Executive Officer
Thomas J. Casey......... 1,000,000 (2) 4.00 09/24/08 17,875,000
Managing Director
William B. Carter....... 1,500,000 12.36% 1.67 09/02/07 26,000,000
President, Global
Crossing Development
Co.
James C. Gorton......... 750,000 6.18% 6.67 06/12/08 9,250,000
Senior Vice President
and General Counsel
Jack Finlayson.......... 585,000 4.82% 6.67 06/12/08 7,215,000
President, Global
Crossing International,
Ltd. 150,000 1.24% 19.00 06/12/08 --
</TABLE>
- --------
(1) For options granted prior to the date of the GCL Stock Offerings, amounts
are based upon the difference between exercise price and the Price to
Public per Share of the GCL Stock Offerings. For options granted subsequent
to the date of the GCL Stock Offerings, amounts shown are based upon the
difference between exercise price and the closing market price per share of
GCL Common Stock on the grant date.
(2) Thomas J. Casey has been granted economic rights to 1,000,000 shares of GCL
Common Stock at an effective price of $4 per share. GCL granted him rights
to 800,000 shares and an affiliate of PCG granted him rights to the
remaining 200,000 shares.
The table below sets forth information as of September 30, 1998 concerning
exercises of stock options by the individuals named above for the current year
and the value of such individuals' unexercised options as of such date.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options(#) Options($)
Shares Value ----------------- --------------------
Acquired on Realized Exercisable/ Exercisable/
Name Exercise(#) ($) Unexercisable Unexercisable(1)
---- ----------- -------- ----------------- --------------------
<S> <C> <C> <C> <C>
Jack M. Scanlon......... -- -- 450,000/1,350,000 8,642,250/25,926,750
Chief Executive Officer
Thomas J. Casey(2)...... -- -- 333,334/666,666 5,062,500/11,812,500
Managing Director
William B. Carter....... -- -- 500,000/1,000,000 9,602,500/19,205,000
President, Global
Crossing Development
Co.
James C. Gorton......... -- -- 187,500/562,500 2,663,438/7,990,313
Senior Vice President
and General Counsel
Jack Finlayson.......... -- -- 292,500/442,500 4,154,963/4,436,213
President, Global
Crossing International,
Ltd.
</TABLE>
- --------
(1) Amounts shown are based upon the difference between exercise price and the
closing market price per share of GCL Common Stock on September 30, 1998 of
$20.88.
(2) Amounts indicated are with respect to the economic rights of Mr. Casey to
1,000,000 shares of GCL Common Stock referenced above.
71
<PAGE>
Compensation--the Issuer
Total compensation paid or accrued to the executive officers of the Issuer
and its consolidated subsidiaries as a group during the fiscal year ended
December 31, 1997 was $155,409. Directors of the Issuer and its consolidated
subsidiaries do not receive compensation, except as officers or employees of
the Issuer or its consolidated subsidiaries.
Option Grants and Option Values--the Issuer
The table below sets forth information as of September 30, 1998 concerning
options granted since January 1, 1998 to principal officers of the Company.
Options representing a total 5,032,500 shares of GCL Common Stock have been
issued to officers and directors of the Company at exercise prices ranging from
$1.67 per share to $20.50 per share.
<TABLE>
<CAPTION>
Grant
Date Value
Individual Grants (1)
--------------------------------------------- --------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base Grant Date
Options Employees in Price Expiration Present
Name Granted (#) Fiscal Year ($/Share) Date Value ($)
---- ----------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
S. Wallace Dawson....... 450,000 3.71% 1.67 9/02/07 7,798,500
Chief Executive Officer 75,000 0.62% 19.00 9/15/08 --
K. Eugene Shutler ......
President 300,000 2.47% 1.67 8/16/07 5,199,000
Ian McLean .............
Chief Operating Officer 75,000 0.62% 1.67 9/15/07 1,299,750
Robert Klug.............
Controller 45,000 0.37% 1.67 9/15/07 779,850
Douglas Molyneux........
Secretary 45,000 0.37% 19.00 9/1/07 --
</TABLE>
- --------
(1) For options granted prior to the date of the GCL Stock Offerings, amounts
shown are based upon the difference between exercise price and the Price to
Public per Share of the GCL Stock Offerings. For options granted subsequent
to the date of the GCL Stock Offerings, amounts shown are based upon the
difference between exercise price and the closing market price per share of
GCL Common Stock on the grant date.
The table below sets forth information as of September 30, 1998 concerning
exercises of stock options by the individuals named above for the current year
and the value of such individuals' unexercised options.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options (#) Options ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable (1)
---- --------------- ------------ --------------- -------------------
<S> <C> <C> <C> <C>
S. Wallace Dawson.......
Chief Executive Officer -- -- 150,000/375,000 2,927,625/5,855,250
K. Eugene Shutler.......
President -- -- 100,000/200,000 1,920,500/3,841,000
Ian McLean..............
Chief Operating Officer -- -- 25,000/50,000 480,125/960,250
Robert Klug.............
Controller -- -- 15,000/30,000 288,075/576,150
Douglas Molyneux........
Secretary -- -- 0/45,000 0/84,375
</TABLE>
- --------
(1) Amounts shown are based upon the difference between exercise price and the
closing market price per share of GCL Common Stock on September 30, 1998 of
$20.88.
72
<PAGE>
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The 1998 Global Crossing Ltd. Stock Incentive Plan (the "Stock Incentive
Plan") provides that, upon a "change in control," certain of the awards granted
under the Stock Incentive Plan will vest immediately. A "change in control" is
defined under the Stock Incentive Plan as the occurrence of any of the
following: (i) any Person (other than a Person holding securities representing
10% or more of the combined voting power of GCL's outstanding securities as of
July 15, 1998, GCL, any trustee or other fiduciary holding securities under an
employee benefit plan of GCL, or any company owned, directly or indirectly, by
the shareholders of GCL in substantially the same proportions as their
ownership of stock of GCL) becomes the beneficial owner (as defined under Rule
13d-3 under the Exchange Act) of securities of GCL (a) in excess of the
interest held by the existing shareholders of GCL as of July 15, 1998 and (b)
representing 30% or more of the combined voting power of GCL's then outstanding
securities; (ii) during any period of 24 months, individuals who at the
beginning of such period constitute the board of directors and any new director
(other than those directors who meet certain exceptions specified in the Stock
Incentive Plan) whose election was approved in advance by a vote of at least
two-thirds of the directors then still in office, cease for any reason to
constitute at least a majority of the board of directors; (iii) the
shareholders of GCL approve any transaction under which GCL is merged or
consolidated with any other company, other than a merger or consolidation which
would result in shareholders of GCL immediately prior thereto continuing to own
more than 65% of the combined voting power of the voting securities of GCL or
such surviving entity; or (iv) the shareholders of GCL approve a plan of
complete liquidation of the company or an agreement for the sale or disposition
by GCL of all or substantially all of GCL's assets, other than the liquidation
of GCL into a wholly-owned subsidiary.
GCL has entered into an employment agreement, dated as of April 1, 1998, with
Mr. Jack Scanlon, providing for Mr. Scanlon's employment as GCL's Chief
Executive Officer for a term of two years and continuing thereafter for
successive two-year terms unless either GCL or Mr. Scanlon provides at least
three months' notice in advance of the expiration of the current term. In
connection with such agreement, Mr. Scanlon was issued an option to purchase a
total of 1,800,000 shares of GCL Common Stock at an exercise price of $1.67 per
share. Such options vest in 25% increments upon the first day of employment and
at the end of each of the first three years of Mr. Scanlon's employment with
GCL. Upon a "change of control", as defined in the Stock Incentive Plan, or any
other "non-fault" termination as defined in Mr. Scanlon's employment agreement,
vesting of all of such options shall immediately occur and Mr. Scanlon shall be
entitled to terminate the agreement and receive a lump sum payment equal to the
sum of two times Mr. Scanlon's then annual base salary and bonus.
GCL has entered into an employment arrangement with Mr. Jack Finlayson which
grants Mr. Finlayson the option to sell 150,000 shares of GCL Common Stock to
the Company at $13.33 per share after two years of employment.
GCL has entered into an employment arrangement with Mr. Thomas J. Casey
providing for his services as GCL's managing director. In connection with such
arrangement, Mr. Casey was granted economic rights to 1,000,000 shares of GCL
Common Stock at $4.00 per share. 800,000 shares were granted by GCL and 200,000
shares were granted by an affiliate of PCG. The right to purchase one third of
these shares vested immediately and the balance will vest over two years.
GCL Committees
Audit Committee. The purpose of the Audit Committee of GCL is to: (i) make
recommendations concerning the engagement of independent public accountants;
(ii) review with GCL management and the independent public accountants the
plans for, and scope of, the audit procedures to be utilized and results of
audits; (iii) approve the professional services provided by the independent
public accountants; (iv) review the adequacy and effectiveness of GCL's
internal accounting controls; (v) review GCL's insurance program; and (vi)
perform any other duties and functions required by any organization under which
GCL's securities may be listed. Messrs. Weinberger, Conway and Kent are the
current members of the Audit Committee.
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<PAGE>
Compensation Committee. The purpose of the Compensation Committee of GCL is
to establish and submit to the Board of Directors of GCL recommendations with
respect to (i) compensation of officers and other key employees of GCL and (ii)
awards to be made under the Stock Incentive Plan. Messrs. Cook, Steed and
Levine are the current members of the Compensation Committee.
Issuer Committees
The Issuer does not have any committees of its Board of Directors.
74
<PAGE>
PRINCIPAL SHAREHOLDERS
The Issuer is wholly owned by GCL. The following table and the accompanying
footnotes set forth, as of September 30, 1998, certain information regarding
the beneficial ownership of the common stock of GCL ("GCL Common Stock") by (i)
each person or entity who is known to GCL to own beneficially five percent or
more voting GCL Common Stock, (ii) each of GCL's directors and executive
officers and (iii) all directors and executive officers of GCL as a group. To
the knowledge of GCL, each such stockholder has sole voting and investment
power with respect to the shares shown, unless otherwise noted. The GCL Common
Stock is traded on the Nasdaq Stock Market's National Market and the Bermuda
Stock Exchange under the symbol "GBLX."
<TABLE>
<CAPTION>
Beneficial Ownership
of GCL Common Stock
----------------------
Number
of
Beneficial Owner Shares (1) Percentage
---------------- ----------- ----------
<S> <C> <C>
Pacific Capital Group, Inc.(2) ......................... 51,022,471 23.51%
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Canadian Imperial Bank of Commerce(3)................... 48,588,400 22.39%
161 Bay Street, 8th Floor--BCE Place
P.P. Box 500
M5J258
Toronto, Canada
Continental Casualty Company(4)......................... 20,037,585 9.23%
CNA Plaza, Floor 23 South
Chicago, Illinois 60685
MRCo, Inc.(5)........................................... 16,939,097 7.80%
111 Massachusetts Avenue NW
Washington, DC 20001
Gary Winnick(6)......................................... 51,322,471 23.65%
Lodwrick M. Cook(7)..................................... 2,356,227 1.09%
Jack M. Scanlon(8)...................................... 450,000 *
Thomas J. Casey(9)...................................... 333,334 *
William B. Carter(10)................................... 500,000 *
Dan J. Cohrs(11)........................................ 230,000 *
David L. Lee(12)........................................ 11,496,239 5.30%
Abbott L. Brown(13)..................................... 6,749,504 3.11%
Barry Porter(14)........................................ 10,557,508 4.86%
James C. Gorton(15)..................................... 187,500 *
Jack Finlayson(16)...................................... 292,500 *
S. Wallace Dawson(17)................................... 153,000 *
K. Eugene Shutler(14)(18)............................... 251,986 *
Hillel Weinberger(19)................................... 21,345,900 9.83%
Jay R. Bloom(20)........................................ 48,588,400 22.39%
Dean C. Kehler(20)...................................... 48,588,400 22.39%
Jay R. Levine(20)(21)................................... 48,588,400 22.39%
William P. Phoenix(20)(21).............................. 48,588,400 22.39%
Bruce Raben(20)(21)..................................... 48,588,400 22.39%
Michael R. Steed(22).................................... 16,954,097 7.81%
William E. Conway(23)................................... 15,000 *
Toshiaki Ogasawara(23).................................. 65,000 *
Geoffrey J.W. Kent(23).................................. 15,000 *
All Directors and Executive Officers as a Group......... 171,863,666 79.18%
</TABLE>
- --------
*Percentage of shares beneficially owned does not exceed one percent.
(1) As of September 30, 1998, 205,042,900 shares of GCL Common Stock were
issued and outstanding. An additional 3,194,000 shares of GCL Common Stock
would have been issuable upon the exercise of options within 60 days of
September 30, 1998; an additional 2,554,179 shares of GCL Common Stock
would have been issuable upon the exercise of the GCL Warrants; and an
additional 6,250,006 shares of GCL Common Stock would have been issuable
upon the exercise of the New PCG Warrants. Amounts appearing in the
foregoing table include (i) all shares of GCL Common Stock outstanding as
of September 30, 1998, (ii) all shares of GCL Common Stock issuable upon
the exercise of options within 60 days of September 30, 1998 and (iii) all
shares of GCL Common Stock issuable upon the exercise of the GCL Warrants
and New PCG Warrants.
75
<PAGE>
(2) Includes 38,742,872 shares of GCL Common Stock and 1,257,894 shares of GCL
Common Stock issuable upon the exercise of GCL Warrants which in May 1998
were transferred to GKW Unified Holdings, LLC, a company formed for the
benefit of Gary Winnick and members of his family that is managed by PCG.
Includes 3,025,002 shares of GCL Common Stock issuable upon the exercise
of New PCG Warrants.
(3) Includes 75,000 shares of GCL Common Stock issuable upon the exercise of
options within 60 days of September 30, 1998 granted to the members of
GCL's Board of Directors affiliated with CIBC.
(4) Includes 8,397,750 shares of GCL Common Stock owned by Continental
Casualty Corporation and 933,150 shares of GCL Common Stock held by
Continental Casualty Corp. Designated High Yield, for which Continental
Casualty Corporation holds sole voting and investment power. Includes
10,706,685 shares of GCL Common Stock acquired by Continental Casualty
Corp. Designated High Yield prior to the GCL Stock Offerings.
(5) Includes 348,967 shares of GCL Common Stock issuable upon the exercise of
GCL Warrants.
(6) Includes all shares of GCL Common Stock owned by GKW Unified Holdings,
LLC, of which PCG is manager, and all shares of GCL Common Stock owned by
PCG, of which Mr. Winnick is Chairman and Chief Executive Officer.
Includes 300,000 shares of GCL Common Stock issuable upon the exercise of
options within 60 days of September 30, 1998.
(7) Includes 475,001 shares of GCL Common Stock issuable upon the exercise of
New PCG Warrants. Includes 150,000 shares of GCL Common Stock issuable
upon the exercise of options within 60 days of September 30, 1998.
(8) Includes 450,000 shares of GCL Common Stock issuable upon the exercise of
options within 60 days of September 30, 1998.
(9) Includes 333,334 shares of GCL Common Stock issuable upon the exercise of
options within 60 days of September 30, 1998.
(10) Includes 500,000 shares of GCL Common Stock issuable upon exercise of
options within 60 days of September 30, 1998.
(11) Includes 225,000 shares of GCL Common Stock issuable upon exercise of
options within 60 days of September 30, 1998.
(12) Includes 4,950,411 shares of GCL Common Stock and 256,578 shares of GCL
Common Stock issuable upon the exercise of GCL Warrants owned by San
Pasqual Corp., of which Mr. Lee and his family are the sole shareholders.
Includes 2,716,617 shares of GCL Common Stock and 75,150 shares of GCL
Common Stock issuable upon the exercise of GCL Warrants owned by the David
and Ellen Lee Family Trust of which Mr. Lee and his wife are the sole
shareholders. Includes 150,000 shares of GCL Common Stock issuable upon
the exercise of options within 60 days of September 30, 1998. Includes
912,501 shares of GCL Common Stock issuable upon the exercise of New PCG
Warrants.
(13) Includes all 3,772,709 shares of GCL Common Stock and 183,833 shares of
GCL Common Stock issuable upon the exercise of GCL Warrants owned by
Ridgestone Corp., of which Mr. Brown's family and a related trust are the
sole shareholders. Includes 150,000 shares of GCL Common Stock issuable
upon the exercise of options within 60 days of September 30, 1998.
Includes 725,001 shares of GCL Common Stock issuable upon the exercise of
New PCG Warrants.
(14) Includes all 5,941,984 shares of GCL Common Stock and 282,816 shares of
GCL Common Stock issuable upon the exercise of GCL Warrants owned by
Galenight Corp., of which Mr. Porter is the sole shareholder. Includes
150,000 shares of GCL Common Stock issuable upon the exercise of options
within 60 days of September 30, 1998. Includes 22,317 shares of GCL Common
Stock issuable upon the exercise of GCL Warrants and 912,501 shares of GCL
Common Stock issuable upon the exercise of New PCG Warrants.
(15) Includes 187,500 shares of GCL Common Stock issuable upon exercise of
options within 60 days of September 30, 1998.
(16) Includes 292,500 shares of GCL Common Stock issuable upon exercise of
options within 60 days of September 30, 1998.
(17) Includes 150,000 shares of GCL Common Stock issuable upon exercise of
options within 60 days of September 30, 1998.
(18) Includes 100,000 shares of GCL Common Stock issuable upon exercise of
options within 60 days of September 30, 1998.
(19) Includes all shares of GCL Common Stock owned by Continental Casualty
Company, an affiliate of Loews/CNA Holdings Corp. Mr. Weinberger is an
officer of Loews/CNA Holdings Corp. Includes 1,293,315 shares of GCL
Common Stock, consisting of 1,050,000 shares to be held by Global Crossing
Trust 1998, of which Mr. Weinberger is a trustee and 243,315 shares to be
held by a partnership of which Mr. Weinberger is a managing partner.
Includes 15,000 shares of GCL Common Stock issuable upon the exercise of
options within 60 days of September 30, 1998.
(20) Includes all shares of GCL Common Stock beneficially owned by CIBC.
Messrs. Bloom, Kehler, Levine, Phoenix and Raben are all affiliated with
CIBC Oppenheimer, an affiliate of CIBC.
(21) Beneficial ownership of all shares of GCL Common Stock indicated is
disclaimed.
(22) Includes all shares of GCL Common Stock owned by MRCo, Inc. Mr. Steed is
the Senior Vice President of ULLICO and the President of MRCo, Inc., which
is a wholly-owned subsidiary of ULLICO. Includes 15,000 shares of GCL
Common Stock issuable upon the exercise of options within 60 days of
September 30, 1998. Includes 348,967 shares of GCL Common Stock issuable
upon the exercise of GCL Warrants.
(23) Includes 15,000 shares of GCL Common Stock issuable upon the exercise of
options within 60 days of September 30, 1998.
76
<PAGE>
CERTAIN TRANSACTIONS
General
GCL and Global Crossing have entered into certain transactions described
below with entities affiliated with GCL and Global Crossing and their officers
and directors.
Transactions with Pacific Capital Group (PCG) and its Affiliates
GCL and Global Crossing have entered into certain transactions with PCG and
its affiliates, including PCG Telecom Services LLC ("PCG Telecom") and Ocean
Systems International LLC ("OSI"), in connection with the development by PCG
and its affiliates of several of Global Crossing's systems, including AC-1, PC-
1, PAC and MAC. The Board of Directors of GCL decided to assume the ongoing
development of systems (other than AC-1) from OSI. Revenue from GCL comprises
the sole source of revenues for PCG Telecom. PCG and its affiliates are
controlled by Mr. Gary Winnick, the Co-Chairman of the Board of Directors of
GCL, and certain other officers and directors of GCL are affiliated with PCG,
including Messrs. Cook, Lee, Porter and Brown. See "Management" and "Principal
Shareholders."
Advisory Services Agreements. ACL entered into an Advisory Services
Agreement, dated as of March 25, 1997 (as amended, the "AC-1 Advisory
Agreement"), with PCG Telecom with respect to AC-1. Under the AC-1 Advisory
Agreement PCG Telecom was entitled to an advisory fee of 2.0% of the gross
revenues of ACL. The Board of Directors of GCL agreed that each other direct
subsidiary of GCL shall from time to time enter into, or cause each of its
subsidiaries to enter into, similar Advisory Services Agreements (together with
the AC-1 Advisory Agreement, the "Advisory Services Agreements") with PCG
Telecom, providing for an advisory services fee of 2% of such subsidiary's
gross revenues (not double counting any portion of intercompany revenues on
which the advisory services fee has already been calculated). The aggregate
amount of all advisory fees payable under the Advisory Services Agreements was
to be reduced by the amount, if any, by which principals of PCG received cash
compensation (as opposed to reimbursement of expenses) from GCL other than cash
compensation paid to such principals in their capacities as officers or
directors of GCL as approved by the Board of Directors. In addition, until the
earlier of (i) the date GCL had a public equity market value in excess of
$1.5 billion and (ii) March 25, 2002 (such earlier date, the "Deferred Fee
Payment Date"), the aggregate cumulative amount of the fees paid under the
Advisory Services Agreements in respect of the calendar years prior to and
including each calendar year set forth below was not to exceed the amounts set
forth below, with any excess being deferred and paid (together with interest
thereon at a rate per annum equal to LIBOR) on the Deferred Fee Payment Date:
1998--$10 million; 1999--$20 million; 2000--$30 million; and 2001--$40 million.
Amounts payable under the AC-1 Advisory Services Agreement were to be divided
annually in the following manner: 90% of the initial $5 million in advisory
services fees was retained by PCG Telecom, 5% of the initial $5 million in
advisory service fees was payable to ULLICO, Inc. ("ULLICO"), which is the
ultimate parent of MRCo, Inc., and 5% of the initial $5 million in advisory
service fees was payable to PCG. With respect to amounts over the initial $5
million annually in advisory services fees, 15.5% was payable to ULLICO, 15.5%
was payable to PCG, 35% was payable to CIBC and the remaining 34% is retained
by PCG Telecom. Amounts retained by PCG Telecom, after deducting associated
expenses incurred by PCG relating to salaries, bonuses, overhead and an annual
discretionary expense reduction, were divided amongst Messrs. Winnick, Brown,
Lee, and Porter in the following percentages: 40%, 15%, 22.5%, and 22.5%,
respectively.
All amounts payable annually under each of the other Advisory Services
Agreements was to be retained by PCG Telecom and, after deducting associated
expenses incurred by PCG relating to salaries, bonuses, overhead and an annual
discretionary expense reduction, divided amongst Messrs. Winnick, Cook, Brown,
Lee, and Porter in the percentages: 50%, 8%, 12%, 15%, and 15% respectively.
GCL acquired the rights to advisory fees payable under the Advisory Services
Agreements on the behalf of the Company in consideration for the issuance,
through PCG Telecom, to the persons entitled to receive such
77
<PAGE>
fees of shares of GCL Common Stock having an aggregate value of $135 million
(based upon the Price to Public per Share ($19.00) payable in the GCL Stock
Offerings) and the cancellation of approximately $2.7 million owed to the
Company under a related advance agreement (the "Advisory Services Agreement
Termination"). Concurrently with the GCL Stock Offerings, all of the
obligations of GCL and ACL in respect of the Advisory Services Agreements were
terminated. GCL obtained a fairness opinion from an independent financial
advisor in connection with this transaction. As a result of this transaction,
the Company incurred a charge of approximately $137.7 million which has been
reflected in its statement of operations for the period ended June 30, 1998. Of
this amount, $135 million was determined by applying the 2% advisory fee to
projected revenues for the Company's systems. The present value of the
aggregate advisory fees was then calculated at $155.5 million, using a discount
rate of 12% in respect of AC-1 and 15% in respect of systems other than AC-1.
This amount was subsequently reduced to $135 million. Both the discount rates
and the ultimate valuation were determined as a result of a negotiation process
including a disinterested director of GCL and the various persons entitled to
fees under the Advisory Services Agreements. The shares of GCL Common Stock
issued in connection with the Advisory Services Agreement Termination were
issued to the following persons in the following amounts:
<TABLE>
<CAPTION>
Shares of GCL
Recipient Common Stock
--------- -------------
<S> <C>
Gary Winnick (including PCG and PCG Telecom)................ 3,257,577
CIBC........................................................ 670,000
ULLICO...................................................... 366,579
Lodwrick M. Cook............................................ 304,974
Abbott L. Brown............................................. 683,711
David L. Lee................................................ 911,211
Barry Porter................................................ 911,211
---------
Total..................................................... 7,105,263
=========
</TABLE>
PCG Warrants. Old GCL and PCG entered into a warrant agreement, dated as of
January 21, 1998 (the "PCG Warrant Agreement"), pursuant to which Old GCL
issued PCG three separate warrants (collectively, the "PCG Warrants") providing
PCG with the right to purchase (i) 9,226,592 of Old GCL's Class B Shares for an
aggregate purchase price of $50,000,000; (ii) an additional 4,613,297 of Old
GCL's Class B Shares for an aggregate purchase price of $31,250,000; and (iii)
an additional 4,613,297 of Old GCL's Class B Shares for an aggregate purchase
price of $37,500,000. Such PCG Warrants would entitle PCG to acquire an
additional 10% of the capital stock of Old GCL (as of the date of issuance of
the PCG Warrants), with the exercise price of each PCG Warrant based upon a
different market valuation of the Company. In connection with issuance of the
PCG Warrants, the PC-1, MAC and PAC systems (then under development) were
acquired by the Company, as was the development team that had been assembled by
Pacific Capital Group (led by William Carter, former President of SSI and Wally
Dawson, former Senior Vice President of SSI). The exercise of each of the PCG
Warrants was conditioned upon (i) an initial public offering of shares of Old
GCL (or any successor thereto), underwritten by an investment banking firm of
national reputation (as determined by a majority of the Board of Directors of
Old GCL) from which Old GCL shall have received at least $50,000,000 in net
proceeds, (ii) the investment by Old GCL in the aggregate of at least
$500,000,000 of Net Attributable Capital (as defined below) in cable systems
other than AC-1 and (iii) the generation in the aggregate by cable systems
other than AC-1 of at least $100,000,000 in Net Attributable Revenues (as
defined below). For purposes of the PCG Warrant Agreement, with respect to any
cable system, (i) "Net Attributable Capital" means the aggregate debt and
equity capitalization of such system multiplied by the percentage ownership of
Old GCL (directly or indirectly) in such system, and (ii) "Net Attributable
Revenues" means the net revenues of such system multiplied by the percentage
ownership interest of Old GCL (directly or indirectly) in such system. Rights
under each of the PCG Warrants were divided amongst Messrs. Winnick, Cook,
Brown, Lee and Porter in the following percentages: 50%, 8%, 12%, 15% and 15%,
respectively.
The Board of Directors of Old GCL determined that upon the successful
completion of the GCL Stock Offerings the conditions precedent to exercising
the PCG Warrants were met and therefore the PCG Warrants were deemed
exercisable. The Board of Directors of Old GCL also amended the terms of the
PCG Warrants to
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<PAGE>
give each holder the option to convert each share under warrant into a fraction
of a Class B Share based upon the ratio of the current per share valuation at
the time of conversion less the per share exercise price of the warrant divided
by the current per share valuation at the time of conversion multiplied by the
number of warrants to be converted, 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 Price to Public per Share ($19.00) payable in the
GCL Stock Offerings. The New PCG Warrants will terminate on August 13, 2003,
five years from the date of issuance. Prior to the GCL Stock Offerings, PCG
converted the PCG Warrants in such manner into Class B Shares and New PCG
Warrants, utilizing the anticipated price of the GCL Stock Offerings as the
current per share valuation for such purposes, with the Company assuming the
obligations of Old GCL under the New PCG Warrants (the "PCG Warrant
Conversion"). Upon the PCG Warrant Conversion, Messrs. Winnick, Cook, Brown,
Lee and Porter transferred 100,000, 25,000, 25,000, 25,000 and 25,000 New PCG
Warrants, respectively, to Nelson S. Zand, an employee of PCG.
Following such transactions, shares of GCL Common Stock and New PCG Warrants
issued in connection with the conversion of the PCG Warrants were issued to the
following persons in the following amounts:
<TABLE>
<CAPTION>
Shares of GCL New PCG
Name Common Stock Warrants
---- ------------- ---------
<S> <C> <C>
Gary Winnick....................... 6,101,589 3,025,002
David L. Lee....................... 1,830,475 912,501
Barry Porter....................... 1,830,475 912,501
Abbott L. Brown.................... 1,464,379 725,001
Lodwrick M. Cook................... 976,252 475,001
Nelson S. Zand..................... 0 200,000
---------- ---------
Total............................ 12,203,170 6,250,006
========== =========
</TABLE>
Advance Agreements. GCL entered into an Advance Agreement, dated as of March
24, 1998 (the "AC-1 Advance Agreement"), with PCG Telecom, pursuant to which
GCL agreed to make advances to PCG Telecom within three days of a written
request from PCG in respect of fees owing to PCG Telecom under the AC-1
Advisory Agreement in an amount not to exceed 1% of the amounts payable under
long-form capacity purchase agreements executed by ACL. As security for the
obligation of PCG Telecom to repay such advances, PCG Telecom granted a
security interest to GCL in its rights to receive payments under the
AC-1 Advisory Agreement. The AC-1 Advance Agreement was terminated and the
obligation of PCG Telecom to repay approximately $2.7 million to the Company
thereunder cancelled in connection with the termination of the Advisory Service
Agreements discussed above.
Of the $4,669,340 advanced to PCG Telecom under the AC-1 Advance Agreement,
the following amounts were paid to directors, executive officers and
shareholders of GCL:
<TABLE>
<CAPTION>
Name Amount
---- ----------
<S> <C>
Gary Winnick............................. $3,191,630(1)
David L. Lee............................. 481,130
Barry Porter............................. 481,130
Abbott L. Brown.......................... 320,754
MRCo, Inc................................ 194,696
----------
Total.................................. $4,669,340
==========
</TABLE>
- --------
(1) Includes amounts received by PCG, including reimbursement of PCG expenses
of $1,987,914.
Assignment of Rights. As part of the consideration for the assumption by the
Company of the rights of OSI to the ongoing development of cable systems, in
the first quarter of 1998 the Company paid PCG $7.0 million for costs incurred
by PCG to such date in connection with such development.
79
<PAGE>
Arrangement Fees. Additionally, during 1997, $7,250,000 in fees were paid to
PCG and certain of its key executives, who are shareholders of GCL, and another
shareholder of GCL for services provided in respect of arranging the AC-1
Credit Facility, the GTH Senior Notes and GTH Preference Shares. Of such fees,
the following amounts were paid to directors, executive officers and
shareholders of the Company:
<TABLE>
<CAPTION>
Name Amount
---- ----------
<S> <C>
Gary Winnick................................ $3,000,000
David L. Lee................................ 1,250,000
Abbott L. Brown............................. 1,000,000
Barry Porter................................ 1,000,000
MRCo, Inc. ................................. 1,000,000
----------
Total..................................... $7,250,000
==========
</TABLE>
Transactions with CIBC and its Affiliates
CIBC and its affiliates have entered into certain financing transactions with
GCL and Global Crossing in connection with the development and construction of
the Company's systems: (i) CIBC, Inc. was the arranger and initial lender under
a $200 million bridge facility, which was repaid and terminated on May 18,
1998; (ii) CIBC, Inc. is one of the lead agents under the $482 million AC-1
Credit Facility, (iii) CIBC Wood Gundy Securities Corp., an affiliate of CIBC,
acted as exclusive placement agent for the issuance by GTH of its $100 million
outstanding GTH Preference Shares and the issuance by GTH of its $150 million
outstanding GTH Senior Notes; (iv) CIBC Oppenheimer was an Initial Purchaser in
connection with the issuance by the Issuer of its $800 million Senior Notes;
(v) CIBC, Inc. and other banks entered into a credit agreement with Global
Crossing, effective July 30, 1998, for the $850 million non-recourse project
debt financing of PC-1; (vi) CIBC, Inc. and other lenders issued a $104 million
loan to Pacific Crossing Ltd. to make the initial payments with respect to the
PC-1 construction contract, which was repaid and terminated on July 30, 1998,
(vii) CIBC Oppenheimer was an underwriter in the GCL Stock Offerings; (viii)
CIBC Oppenheimer was an initial purchaser in the offering of the Old Preferred
Stock; and (ix) CIBC, Inc. and other banks entered into a credit agreement with
Global Crossing, effective November 25, 1998, for the $260 million non-recourse
project debt financing of MAC. See "Description of Certain Indebtedness." GCL
and Global Crossing paid CIBC approximately $25 million in 1997 and $25 million
in 1998 in fees in connection with these transactions. CIBC is a substantial
shareholder in GCL and certain members of the Board of Directors of the GCL are
affiliated with CIBC, including Messrs. Bloom, Kehler, Phoenix, Raben and
Levine. See "Management" and "Principal Shareholders." CIBC is also the
ultimate parent company of CIBC Oppenheimer Corp., one of the initial
purchasers of the Preferred Stock. See "Plan of Distribution."
Transactions with Worldport
On April 7, 1998, the Company entered into a CPA with Worldport
Communications, Inc. ("Worldport"), whereby Worldport acquired a total of five
STM-1s of capacity on AC-1 in a transaction that occurred in the ordinary
course of business of the Company and on terms and conditions no less favorable
to the Company than those contained in its other CPAs. Worldport also executed
an MOU to purchase capacity on PC-1, PAC and MAC. Certain officers and
directors GCL, including Mr. Winnick, Mr. Cook, Mr. Scanlon, Mr. Lee, Mr.
Porter, Mr. Brown, Mr. Raben, Mr. Bloom, Mr. Kehler and Mr. Steed, have direct
or indirect equity ownership positions in Worldport aggregating approximately
10% of the current common stock of Worldport. In addition, Continental Casualty
Corporation, with which Mr. Weinberger is affiliated, holds warrants to
purchase common stock in Worldport aggregating less than 1% of the current
common stock of Worldport and has also engaged in certain debt financing
transactions with Worldport. Campuslink Communications Systems Inc., a private
company which provides telecommunications services to colleges and universities
and which is indirectly majority-owned by Mr. Winnick and Union Labor Life
Insurance Company, an affiliate of MRCo, Inc., has reached an agreement in
principle to be acquired by Worldport. In addition, in connection with the
Company's recent decision to explore the making of minority investments in
telecommunications and Internet service providers that are current or
prospective customers on the Global Crossing Network, the Company is
80
<PAGE>
considering an investment in Worldport. If the Company chooses to make such
investment, it is currently anticipated that such investment would amount to
approximately $10 million of cash and two STM-1 circuits on AC-1.
Transactions with Telecommunications Development Corporation
Prior to the GCL Stock Offerings and after giving effect to the Old GCL
Exchange, Telecommunications Development Corporation, a Cayman Islands
corporation ("TDC"), owned 11,016,879 shares of GCL Common Stock, as well as
291,477 GCL Warrants. TDC was formed in 1996 for the purpose of making
investments in start-up telecommunications companies and one of the companies
in which TDC invested was Old GCL. Mr. Lee was the Chairman and Mr. Winnick was
a director of TDC. Messrs. Lee, Winnick, Brown and Porter beneficially owned a
majority of the outstanding common stock of TDC and approximately 29% of the
outstanding preferred stock of TDC. The balance of such stock was owned by
persons not affiliated with the Company (the "Unaffiliated Shareholders"). TDC
informed GCL that, in connection with the GCL Stock Offerings, it was
undergoing a reorganization to facilitate the ability of Unaffiliated
Shareholders to sell GCL Common Stock in the open market following the GCL
Stock Offerings. In connection with this reorganization, TDC proposed a
transaction (the "TDC Exchange") pursuant to which GCL acquired the 11,016,879
shares of GCL Common Stock owned by TDC in exchange for 10,866,879 newly-issued
shares of GCL Common Stock (based on a Price to Public per Share in the GCL
Stock Offerings of $19.00). The TDC Exchange was intended to enable TDC to
achieve the reorganization without the incurrence of gain for tax purposes.
Following the TDC Exchange, TDC distributed all of the shares of GCL Common
Stock and GCL Warrants owned by it to the holders of its preferred and common
stock and then liquidated (the "TDC Liquidation"). The TDC Exchange was
approved by a committee of disinterested members of the GCL's Board of
Directors. The benefit to GCL from the TDC Exchange was that it effectively
acquired 150,000 shares of GCL Common Stock for no cost. Following the TDC
Exchange and TDC Liquidation, shares of GCL Common Stock and GCL Warrants
originally held by TDC were issued to the following persons in the following
amounts:
<TABLE>
<CAPTION>
Shares of GCL GCL
Name Common Stock Warrants
---- ------------- --------
<S> <C> <C>
Gary Winnick....................................... 2,398,540 65,714
David L. Lee....................................... 2,716,617 75,150
Barry Porter....................................... 812,908 22,317
Abbott L. Brown.................................... 270,970 7,439
Non-affiliates..................................... 4,667,844 120,857
---------- -------
Total............................................ 10,866,879 291,477
========== =======
</TABLE>
Transactions Regarding Class A Shares of Old GCL
The Class A common stock of Old GCL was issued in connection with the sale by
Old GCL of the GTH Preference Shares and was offered for nominal or no
consideration as an inducement to purchase the GTH Preference Shares. The
holders of Old GCL's Class B and Class C common stock agreed to the dilutive
effects of issuing the Class A stock on the understanding that Class A stock
not ultimately needed in connection with the sale of the GTH Preference Shares
would be transferred to the holders of the Class B and Class C common stock on
a pro rata basis. Of the 31,102,950 shares of Class A common stock issued by
Old GCL, 11,250,000 shares were sold to purchasers of the GTH Preference Shares
at a price of $.67 per Class A share. The remaining 19,852,950 shares were
issued to an affiliate of CIBC Wood Gundy Securities Corporation ("CIBC
Securities"), the placement agent for the offering of the GTH Preference
Shares. This affiliate of CIBC Securities transferred 14,696,150 Class A shares
to purchasers from it of the GTH Preference Shares for no additional
consideration and retained the remaining 5,161,800 Class A shares and CIBC
Securities retained a substantial ownership interest in the GTH Preference
Shares. The holders of the Old GCL Class B and Class C shares took the position
that, consistent with their understanding regarding the disposition of Class A
shares not needed in connection with sales by CIBC Securities of the GTH
Preference Shares, the Class A shares
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<PAGE>
retained by its affiliate should be transferred to the holders of Old GCL's
Class B and Class C shares. Accordingly, such affiliate of CIBC Securities
retained 2,580,900 of the Class A shares based upon its ownership of Class C
shares and transferred the remaining 2,580,899 Class A shares as follows:
<TABLE>
<CAPTION>
Class A
Name Shares
---- ---------
<S> <C>
Gary Winnick(1).............................. 1,122,213
MRCo, Inc. .................................. 611,769
Telecommunications Development Corporation... 382,356
PCG Telecom LDC.............................. 170,148
Barry Porter(2).............................. 130,000
David L. Lee(3).............................. 95,589
Abbott L. Brown(4)........................... 68,824
---------
Total...................................... 2,580,899
=========
</TABLE>
- --------
(1) Shares indicated for Gary Winnick were acquired by GKW Unified Holdings,
LLC, which is managed by PCG.
(2) Shares indicated for Barry Porter were acquired by Galenight Corp., of
which Mr. Porter is sole shareholder.
(3) Shares indicated for David L. Lee were acquired by San Pasqual Corp., of
which Mr. Lee and his family are the sole shareholders.
(4) Shares indicated for Abbott L. Brown were acquired by Ridgestone Corp., of
which Mr. Brown's family and a related trust are the sole shareholders.
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<PAGE>
DESCRIPTION OF PREFERRED STOCK
General
The Exchange Preferred Stock will be issued pursuant to and the terms are
defined by the Bye-laws. The summary contained herein of certain provisions of
the Exchange Preferred Stock to be issued by the Company in exchange for the
Old Preferred Stock in the Exchange Offer does not purport to be complete and
is qualified in its entirety by reference to the provisions of the Bye-laws,
which are filed as an exhibit to the registration statement of which this
prospectus is a part and a copy of which may be obtained upon request from the
Company. The definitions of certain terms used in the following summary are set
forth below under "--Certain Definitions." For purposes of this summary, the
term "Company" refers only to Global Crossing Holdings Ltd. and not to any of
its Subsidiaries or GCL, and references to the Preferred Stock shall be deemed
to include the Old Preferred Stock and the Exchange Preferred Stock.
The shares of the Exchange Preferred Stock will be issued solely in exchange
for Old Preferred Stock pursuant to the Exchange Offer. The terms of the
Exchange Preferred Stock will be identical in all material respects to those of
the Old Preferred Stock, except that:
. the shares of the Exchange Preferred Stock will have been registered
under the Securities Act of 1933 and will be generally freely tradeable
by holders thereof who are not a Restricted Holder, and
. the registration rights and contingent interest rate provisions
applicable to the shares of the Old Preferred Stock are generally not
applicable to the Exchange Preferred Stock.
The Company is authorized to issue and have outstanding at any time 7,500,000
shares of Preferred Stock. As of the date of this prospectus, 5,000,000 shares
of Old Preferred Stock are outstanding. Up to 2,500,000 shares will be
designated and reserved for issuance to pay dividends on the Preferred Stock if
the Company elects to pay dividends on the Preferred Stock in additional shares
of Preferred Stock prior to June 1, 2002 in accordance with the terms thereof.
All of the shares of Exchange Preferred Stock will be designated as shares of
Preferred Stock and initially will have a liquidation preference of $100.00 per
share (the "Liquidation Preference"). On December 1, 2008 (the "Mandatory
Redemption Date"), the Company will be required to redeem all outstanding
shares of Preferred Stock at a price in cash equal to the Liquidation
Preference thereof, plus all accumulated and unpaid dividends thereon to the
date of redemption. Subject to certain conditions, the Exchange Preferred Stock
will be exchangeable for the New Exchange Notes at the option of the Company on
any Dividend Payment Date. The Exchange Preferred Stock, when issued in
accordance with the terms of the Exchange Offer, will be fully paid and non-
assessable, and the Holders thereof will not have any subscription or
preemptive rights in connection therewith.
The transfer agent and registrar (the "Transfer Agent") for the Preferred
Stock will be EquiServe--First Chicago Trust Division unless and until a
successor is selected by the Company.
Ranking
The Preferred Stock will rank junior in right of payment to all indebtedness
and other liabilities of the Company. As of September 30, 1998, after giving
pro forma effect to the offering of the Preferred Stock and the application of
the net proceeds therefrom, the Preferred Stock would have been junior in right
of payment to approximately $1,328 million of total indebtedness and other
liabilities of the Company. The Company will have the ability to issue
additional shares of Preferred Stock to pay dividends thereon, if it so elects,
on any Dividend Payment Date prior to June 1, 2002.
With respect to dividends and rights upon the liquidation, winding-up and
dissolution of the Company, the Preferred Stock will rank (i) senior to each
other class of capital stock of the Company outstanding or
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<PAGE>
established after the Issue Date by the Company's Board of Directors the terms
of which do not expressly provide that it ranks senior to, or on a parity with,
the Preferred Stock as to dividends and rights upon the liquidation, winding-up
and dissolution of the Company (collectively referred to herein, together with
the common stock of the Company, as "Junior Securities"); (ii) subject to
certain conditions, on a parity with each other class of preferred stock
established after the Issue Date by the Company's Board of Directors the terms
of which expressly provide that such class or series will rank on a parity with
the Preferred Stock as to dividends and rights upon the liquidation, winding-up
and dissolution of the Company (collectively referred to herein as "Parity
Securities"); and (iii) subject to certain conditions, junior to each class of
preferred stock established after the Issue Date by the Company's Board of
Directors the terms of which expressly provide that such class or series will
rank senior to the Preferred Stock as to dividends and rights upon the
liquidation, winding-up and dissolution of the Company (collectively referred
to herein as "Senior Securities"). The Company may not authorize any new class
of Senior Securities without the approval of the Holders of at least a majority
of the then outstanding shares of Preferred Stock, voting or consenting as a
separate class. The Company may, however, authorize any new class of Parity
Securities or Junior Securities without the approval of any holder of Preferred
Stock.
Dividends
The Holders of the Preferred Stock will be entitled to receive when, as and
if dividends are declared by the Company's Board of Directors out of funds
legally available therefor, dividends on the Preferred Stock from the Issue
Date at the rate per annum equal to 10 1/2% of the Liquidation Preference per
share of Preferred Stock, payable semi-annually in arrears on each June 1 and
December 1, or, if any such date is not a Business Day, on the next succeeding
Business Day (each, a "Dividend Payment Date"), to the Holders of record as of
the immediately preceding May 15 and November 15 (each, a "Record Date").
Dividends will be payable in cash, except that on each Dividend Payment Date
occurring prior to June 1, 2002, dividends may be paid, at the Company's
option, by the issuance of additional shares of Preferred Stock (including
fractional shares) having an aggregate Liquidation Preference per share of
Preferred Stock equal to the amount of such dividends. The issuance of such
additional shares of Preferred Stock will constitute "payment" of the related
dividend for all purposes. The first dividend payment of Preferred Stock will
be payable on June 1, 1999. Beginning on June 1, 2002 dividends on the
Preferred Stock will be payable only in cash. Dividends payable on the
Preferred Stock will be computed on the basis of a 360-day year consisting of
twelve 30-day months. For a discussion of certain United States federal income
tax considerations relevant to Holders of the Preferred Stock with respect to
the payment of dividends thereon, see "Tax Considerations--Taxation of Holders
of Preferred Stock and Exchange Notes--United States Federal Income Tax
Considerations."
Dividends on the Preferred Stock will accrue whether or not the Company has
earnings or profits, whether or not there are funds legally available for the
payment of such dividends and whether or not dividends are declared. Dividends
will accumulate to the extent they are not paid on the Dividend Payment Date
for the period to which they relate. In the event that dividends on the
Preferred Stock are in arrears and unpaid for three or more semi-annual
Dividend Periods (whether or not consecutive), Holders of the Preferred Stock
will be entitled to certain voting rights. See "--Voting Rights; Amendment."
The terms of the Preferred Stock will provide that the Company will take all
actions required or permitted under Bermuda law to permit the payment of
dividends on the Preferred Stock, including, without limitation, through the
revaluation of its assets in accordance with Bermuda law, and to make or keep
funds legally available for the payment of dividends. Dividends on account of
arrears for any past Dividend Period and dividends in connection with any
optional redemption may be declared and paid at any time, without reference to
any regular Dividend Payment Date, to Holders of record of Preferred Stock on
such date, not more than 45 days prior to the payment thereof, as may be fixed
by the Company's Board of Directors.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of Preferred Stock
with respect to any Dividend Period unless all dividends for all preceding
Dividend Periods have been declared and paid, or declared and a sufficient sum
set apart for the payment of such dividend, upon all outstanding shares of
Preferred Stock. No full dividends may be declared or
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<PAGE>
paid or funds set apart for the payment of dividends on any Parity Securities
for any period unless full cumulative dividends shall have been or
contemporaneously are declared and paid (or are deemed declared and paid) in
full or declared and, if payable in cash, a sum in cash sufficient for such
payment set apart for such payment on the Preferred Stock. If full dividends
are not so paid, the Preferred Stock will share dividends pro rata with the
Parity Securities. So long as any Preferred Stock is outstanding and unless and
until full cumulative dividends have been paid (or are deemed paid) in full on
the Preferred Stock: (i) no dividend shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any shares of Junior Securities;
(ii) no other distribution shall be declared or made upon, or any sum set apart
for the payment of any distribution upon, any shares of Junior Securities;
(iii) no shares of Parity Securities or Junior Securities shall be purchased,
redeemed or otherwise acquired or retired for value; (iv) no warrants, rights,
calls or options to purchase any Parity Securities or Junior Securities shall
be directly or indirectly issued; and (v) no monies shall be paid into or set
apart or made available for a sinking or other like fund for the purchase,
redemption or other acquisition or retirement for value of any shares of Parity
Securities or Junior Securities.
The Senior Notes Indenture contains, and future credit agreements or other
agreements relating to Indebtedness to which the Company becomes a party may
contain, prohibitions or restrictions on the ability of the Company to pay cash
dividends on the Preferred Stock. See "Risk Factors--Covenant Restrictions" and
"Description of Certain Indebtedness--9 5/8% Senior Notes." All references
herein to dividends shall be deemed to include any special dividends which may
become payable on the Preferred Stock.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company or a reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of the Company's
capital stock, each Holder of the Preferred Stock will be entitled to payment
out of the assets of the Company available for distribution of an amount equal
to the then effective Liquidation Preference per share of Preferred Stock held
by such Holder, plus all accumulated and unpaid dividends thereon to the date
fixed for such liquidation, dissolution, winding-up or reduction or decrease in
capital stock, before any distribution is made on any Junior Securities,
including, without limitation, common stock of the Company. After payment in
full of the then effective Liquidation Preference and all accumulated and
unpaid dividends thereon to which Holders of Preferred Stock are entitled, such
Holders will not be entitled to any further participation in any distribution
of assets of the Company. If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company or a reduction or decrease in its
capital stock, the amounts payable with respect to the Preferred Stock and all
other Parity Securities are not paid in full, the Holders of the Preferred
Stock and the Parity Securities will share equally and ratably in any
distribution of assets of the Company in proportion to the full liquidation
preference and all accumulated and unpaid dividends to which each such Holder
is entitled. However, neither the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Company nor the
consolidation or merger of the Company with or into one or more corporations
will be deemed to be a voluntary or involuntary liquidation, dissolution or
winding-up of the Company or a reduction or decrease in its capital stock.
The Bye-laws do not contain any provision requiring funds to be set aside to
protect the Liquidation Preference of the Preferred Stock, although such
Liquidation Preference will be substantially in excess of the par value of the
shares of the Preferred Stock and there can be no assurance that, upon any such
voluntary or involuntary liquidation, dissolution or winding-up of the Company
or a reduction or decrease in its capital stock that there will be funds
available in an amount sufficient to pay such Liquidation Preference in full,
in part or at all.
Exchange
The Company may, at its option, on any Dividend Payment Date, exchange, in
whole, but not in part, all then outstanding shares of Preferred Stock for
Exchange Notes with a principal amount equal to the then effective Liquidation
Preference of the Preferred Stock; provided that (i) on the date of such
exchange there are
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<PAGE>
no accumulated and unpaid dividends on the Preferred Stock (including the
dividend payable on such date) or other contractual impediments to such
exchange; and (ii) immediately after giving effect to such exchange, no Default
or Event of Default under the Indenture or the Senior Notes Indenture (in each
case as defined therein) would exist or be caused thereby. The exchange of the
Preferred Stock into Exchange Notes would be restricted by the current terms of
the Senior Notes Indenture, including with respect to the incurrence of
Indebtedness. See "Description of Certain Indebtedness--9 5/8% Senior Notes."
Upon any exchange pursuant to the preceding paragraph, Holders of Preferred
Stock will be entitled to receive $1.00 principal amount of Exchange Notes for
each $1.00 of the then effective Liquidation Preference per share of Exchange
Preferred Stock held by such Holders. The Exchange Notes will be issued in
registered form, without coupons and will be issued in principal amounts of
$1,000 and integral multiples thereof (to the extent possible) so that the
Holders of Preferred Stock will receive certificates representing the entire
amount of Exchange Notes to which the Holders of Preferred Stock are entitled;
provided that the Company may pay cash in lieu of issuing Exchange Notes having
a principal amount less than $1,000.
Notice of the intention to exchange the Preferred Stock into Exchange Notes
will be sent by or on behalf of the Company not more than 60 nor less than 30
days prior to the date of exchange (the "Exchange Date"), by first class mail,
postage prepaid, to each Holder of record of Preferred Stock at its registered
address. In addition to any information required by law or by the applicable
rules of any exchange upon which the Preferred Stock may then be listed or
admitted to trading, such notice will state: (i) the Exchange Date; (ii) the
place or places where certificates for such shares are to be surrendered for
exchange, including any procedures applicable to exchanges to be accomplished
through book-entry transfers; and (iii) that dividends on the Preferred Stock
to be exchanged will cease to accumulate on the Exchange Date. If notice of any
exchange has been properly given, and if on or before the Exchange Date the
Exchange Notes have been duly executed and authenticated and deposited with the
Transfer Agent, then on and after the close of business on the Exchange Date,
the Preferred Stock to be exchanged will no longer be deemed to be outstanding
and may thereafter be issued in the same manner as the other authorized but
unissued preferred stock of the Company, but not as Preferred Stock, and all
rights of the Holders thereof as shareholders of the Company will cease, except
the right of such Holders to receive upon surrender of their certificates the
Exchange Notes and all accrued and unpaid interest thereon.
Redemption
Mandatory Redemption
On the Mandatory Redemption Date, the Company will be required to redeem all
outstanding shares of Preferred Stock 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 Company will not be required
to make sinking fund payments with respect to the Preferred Stock. The Bye-laws
will provide that the Company will take all actions required or permitted under
Bermuda law to permit such redemption.
Optional Redemption
Except as set forth below and under "--Optional Tax Redemption," the
Preferred Stock will not be redeemable at the Company's option prior to
December 1, 2003. Thereafter, the Preferred Stock will be subject to redemption
at any time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of the then effective Liquidation Preference) set forth below, plus
all accumulated and unpaid dividends thereon to the applicable redemption date,
if redeemed during the twelve-month period beginning on December 1 of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003........................................................... 105.250%
2004........................................................... 103.500%
2005........................................................... 101.750%
2006 and thereafter............................................ 100.000%
</TABLE>
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<PAGE>
Notwithstanding the foregoing, at any time prior to December 1, 2001, the
Company may, on any one or more occasions, redeem up to 35% of the then
effective aggregate Liquidation Preference of the Preferred Stock then
outstanding at a redemption price equal to 110.500% of the then effective
Liquidation Preference thereof, plus all accumulated and unpaid dividends
thereon to the redemption date, with the net cash proceeds received from one or
more equity offerings made by the Company or GCL (to the extent such net cash
proceeds received by GCL were contributed to the Company as common equity
capital); provided that at least 65% of the then effective aggregate
Liquidation Preference of Preferred Stock then outstanding remains outstanding
immediately after the occurrence of any such redemption. The Company may make
any such redemption upon not less than 30 nor more than 60 days' notice (but in
no event more than 90 days after the closing of the related Equity Offering).
Any such notice may be given prior to the completion of the related Equity
Offering and any such redemption may, at the Company's discretion, be subject
to the satisfaction of one or more conditions precedent, including, but not
limited to, the completion of the related equity offering.
In addition, at any time prior to December 1, 2003, the Preferred Stock may
also be redeemed at the option of the Company, in whole but not in part, upon
the occurrence of a Change of Control, upon not less than 30 nor more than 60
days' prior notice (but in no event may any such redemption occur more than 90
days after the occurrence of such Change of Control) mailed by first-class mail
to each Holder's registered address, at a redemption price equal to 100% of the
then effective Liquidation Preference thereof, plus the Applicable Premium as
of, and all accumulated and unpaid dividends thereon to, the date of redemption
(the "Redemption Date").
"Applicable Premium" means, with respect to any share of Preferred Stock on
any Redemption Date, the greater of (i) 1.0% of the then effective Liquidation
Preference of such share of Preferred Stock or (ii) the excess of (a) the
present value at such Redemption Date of (1) dividends on the Preferred Stock
accumulating until and including December 1, 2003 (assuming payment thereof in
cash on the applicable Dividend Payment Dates) and (2) the Liquidation
Preference and any applicable optional redemption premium therefor payable on
such Redemption Date for such share (assuming payment thereof on December 1,
2003), computed using a discount rate equal to the Treasury Rate plus 50 basis
points over (b) the then effective Liquidation Preference of such share of
Preferred Stock, if greater.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as of
such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the period from the Redemption Date to December 1, 2003;
provided, however, that if the period from the Redemption Date to December 1,
2003 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
Optional Tax Redemption
The Preferred Stock will be subject to redemption at the option of the
Company or a successor corporation at any time, in whole but not in part, upon
not less than 30 nor more than 60 days' notice, at a redemption price equal to
the then effective Liquidation Preference thereof, plus all accumulated and
unpaid dividends thereon to the redemption date if, as a result of any change
in or amendment to the laws or any regulations or ruling promulgated thereunder
of (x) Bermuda or any political subdivision or governmental authority thereof
or therein having the power to tax, (y) any jurisdiction, other than the United
States, from or through which payment on the Preferred Stock is made by the
Company or a successor corporation, or its paying agent in its capacity as such
or any political subdivision or governmental authority thereof or therein
having the power to tax or (z) any other jurisdiction, other than the United
States, in which the Company or a successor corporation is organized, or any
political subdivision or governmental authority thereof or therein having the
power to tax, or any change in the official application or interpretation of
such laws, regulations or rulings, or any change in the official application or
interpretation of, or any execution of or amendment to, any treaty or treaties
affecting
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<PAGE>
taxation to which such jurisdiction (or such political subdivision or taxing
authority) is a party (a "Change in Tax Law"), which becomes effective on or
after the date hereof, the Company or a successor corporation is or would be
required on the next succeeding dividend payment date to pay Additional Amounts
with respect to the Preferred Stock (as described under "--Payment of
Additional Amounts"), and the payment of such Additional Amounts cannot be
avoided by the use of any reasonable measures available to the Company or a
successor corporation.
In addition, the Preferred Stock will be subject to redemption at the option
of the Company at any time, in whole but not in part, upon not less than 30 nor
more than 60 days' notice, at a redemption price equal to the then effective
Liquidation Preference thereof, plus all accumulated and unpaid dividends
thereon to the redemption date, if the Person formed by a consolidation or
amalgamation of the Company or into which the Company is merged or to which the
Company conveys, transfers or leases its properties and assets substantially as
an entirety is required, as a consequence of such consolidation, amalgamation,
merger, conveyance, transfer or lease and as a consequence of a Change in Tax
Law occurring after the date of such consolidation, amalgamation, merger,
conveyance, transfer or lease, to pay Additional Amounts in respect of any tax,
assessment or governmental charge imposed on any Holder of Preferred Stock.
Payment of Additional Amounts
If any deduction or withholding for any present or future taxes, assessments
or other governmental charges of (x) Bermuda or any political subdivision or
governmental authority thereof or therein having power to tax, (y) any
jurisdiction, other than the United States, from or through which payment on
the Preferred Stock is made by the Company or a successor corporation, or its
paying agent in its capacity as such or any political subdivision or
governmental authority thereof or therein having the power to tax or (z) any
other jurisdiction, other than the United States, in which the Company or a
successor corporation is organized, or any political subdivision or
governmental authority thereof or therein having the power to tax shall at any
time be required by such jurisdiction (or any such political subdivision or
taxing authority) in respect of any amounts to be paid by the Company or a
successor corporation with respect to the Preferred Stock, the Company or a
successor corporation will pay to each Holder of Preferred Stock as additional
dividends, such additional amounts ("Additional Amounts") as may be necessary
in order that the net amounts paid to such holder of such Preferred Stock who,
with respect to any such tax, assessment or other governmental charge, is not
resident in, or a citizen of, such jurisdiction, after such deduction or
withholding, shall be not less than the amount specified in such Preferred
Stock to which such Holder is entitled; provided, however, that the Company or
a successor corporation shall not be required to make any payment of Additional
Amounts for or on account of:
(i) Any tax, assessment or other governmental charge that would not have
been imposed but for (a) the existence of any present or former
connection between such Holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over,
such Holder, if such Holder is an estate, trust, partnership, limited
liability company or corporation) and the taxing jurisdiction or any
political subdivision or territory or possession thereof or area subject
to its jurisdiction, including, without limitation, such Holder (or such
fiduciary, settlor, beneficiary, member, shareholder or possessor) being
or having been a citizen or resident thereof or being or having been
present or engaged in a trade or business therein or having or having
had a permanent establishment therein, (b) the presentation of Preferred
Stock (where presentation is required) for payment on a date more than
30 days after (x) the date on which such payment became due and payable
or (y) the date on which payment thereof is duly provided for, whichever
occurs later, or (c) the presentation of Preferred Stock for payment in
Bermuda or any political subdivision thereof or therein, unless such
Preferred Stock could not have been presented for payment elsewhere;
(ii) Any estate, inheritance, gift, sales, transfer, personal property or
similar tax, assessment or other governmental charge;
(iii) Any tax, assessment or other governmental charge that is payable
otherwise than by withholding from payment of the Liquidation
Preference of or any dividends on the Preferred Stock;
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<PAGE>
(iv) Any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the Holder or the beneficial owner
of the Preferred Stock to comply with a request of the Company addressed
to the Holder (a) to provide information, documents or other evidence
concerning the nationality, residence or identity of the Holder or such
beneficial owner or (b) to make and deliver any declaration or other
similar claim (other than a claim for refund of a tax, assessment or
other governmental charge withheld by the Company) or satisfy any
information or reporting requirements, which, in the case of (a) or (b),
is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing jurisdiction as a precondition to
exemption from all or part of such tax, assessment or other governmental
charge; or
(v) Any combination of items (i), (ii), (iii) and (iv) above;
nor shall Additional Amounts be paid with respect to any payment of the
Liquidation Preference of or dividends on any Preferred Stock to any Holder who
is a fiduciary or partnership or limited liability company or other than the
sole beneficial owner of such payment to the extent such payment would be
required by the laws of (x) Bermuda or any political subdivision or
governmental authority thereof or therein having the power to tax, (y) any
jurisdiction, other than the United States, from or through which payment on
the Preferred Stock is made by the Company or a successor corporation, or its
paying agent in its capacity as such or any political subdivision or
governmental authority thereof or therein having the power to tax or (z) any
other jurisdiction, other than the United States, in which the Company or a
successor corporation is organized, or any political subdivision or
governmental authority thereof or therein having the power to tax to be
included in the income for tax purposes of a beneficiary or settlor with
respect to such fiduciary or a member of such partnership, limited liability
company or beneficial owner who would not have been entitled to such Additional
Amounts had it been the Holder of such Preferred Stock.
The Company shall provide the Transfer Agent with the official acknowledgment
of the relevant taxing authority (or, if such acknowledgment is not available,
a certified copy thereof) evidencing the payment of the withholding taxes, if
any, by the Company. Copies of such documentation shall be made available to
the Holders of the Preferred Stock or the Transfer Agent, as applicable, upon
request therefor.
All references herein to dividends on the Preferred Stock shall include any
Additional Amounts payable by the Company in respect of such Preferred Stock.
Voting Rights; Amendment
Holders of record of the Preferred Stock will have no voting rights, except
as required by law and as provided in the Bye-laws. The Bye-laws, however, will
provide that upon: (i) the accumulation of unpaid dividends (and, if beginning
on June 1, 2002, such dividends are not paid in cash) on the outstanding
Preferred Stock in an amount equal to three semi-annual dividend payments
(whether or not consecutive); (ii) failure by the Company to satisfy any
repurchase obligation (including, without limitation, pursuant to any required
Change of Control Offer) or mandatory redemption obligation with respect to the
Preferred Stock; (iii) failure by the Company to comply with the provisions
described below under the caption "--Repurchase at the Option of Holders--
Change of Control"; (iv) failure by the Company for 60 days after notice to
comply with any of its other agreements applicable to the Preferred Stock set
forth in the Bye-laws; or (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the Issue Date, which default results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness the maturity of which has been
so accelerated, aggregates $25.0 million or more (each of the events described
in the immediately preceding clauses (i)-(v) being referred to herein as a
"Voting Rights Triggering Event"); then the Holders of a majority of the then
outstanding shares of Preferred Stock, voting as a separate single class, will
be entitled to elect two
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members to the Company's Board of Directors and the number of members of the
Company's Board of Directors will immediately and automatically be increased by
two. Voting rights arising as a result of a Voting Rights Triggering Event will
continue until such time as all dividends in arrears on the Preferred Stock
have been paid in full and all other Voting Rights Triggering Events have been
cured or waived by the Holders of at least a majority of the then outstanding
shares of Preferred Stock, at which time the term of office of any such members
of the Company's Board of Directors so elected shall terminate and such
directors shall be deemed to have resigned.
In addition to the provisions described above under the caption "--Ranking,"
the Bye-laws also will provide that the Company will not, without the approval
of the Holders of at least two-thirds of the then outstanding shares of
Preferred Stock, amend, alter or repeal any of the provisions of the Company's
Bye-laws so as to adversely affect the powers, preferences or rights of the
Holders of the Preferred Stock, or reduce the time for any notice to which the
Holders of the Preferred Stock may be entitled. Subject to the provisions
described above under "--Ranking," the Bye-laws will provide that an amendment
thereof solely to authorize or create, or to increase the amount of Junior
Securities, Parity Securities or Senior Securities, shall not be deemed to
adversely affect the powers, preferences or rights of the Holders of the
Preferred Stock.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Preferred Stock
will have the right to require the Company to purchase all or any part of such
Holder's Preferred Stock pursuant to the offer described below (the "Change of
Control Offer") at a purchase price in cash (the "Change of Control Payment")
equal to 101% of the then effective Liquidation Preference thereof, plus all
accumulated and unpaid dividends thereon to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive dividends
due on the relevant Dividend Payment Date); provided, however, that the Company
shall not be obligated to repurchase Preferred Stock pursuant to this covenant
in the event that it has exercised its rights to redeem all of the Preferred
Stock as described above under "--Optional Redemption." Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to purchase such Holder's Preferred Stock on the date
specified in such notice, which date shall be no earlier than 30 and no later
than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), in accordance with the procedures required by the Bye-laws and
described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws and regulations are applicable in connection with the purchase of
Preferred Stock as a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with any of the
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will be deemed not to have breached its
obligations under this covenant by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Preferred Stock properly tendered pursuant
to the Change of Control Offer, (2) deposit with the Transfer Agent an amount
equal to the Change of Control Payment in respect of the Preferred Stock so
tendered and (3) deliver or cause to be delivered to the Transfer Agent
Preferred Stock so accepted together with an Officers' Certificate stating the
aggregate Liquidation Preference of Preferred Stock being purchased by the
Company. The Transfer Agent will promptly mail or deliver to each Holder of
Preferred Stock so tendered the Change of Control Payment for such Preferred
Stock, and the Transfer Agent will promptly countersign and mail or deliver (or
cause to be transferred by book-entry) to each Holder new Preferred Stock equal
in Liquidation Preference to any unpurchased portion of Preferred Stock
surrendered, if any. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
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The Company will not be required to make a Change of Control Offer upon the
occurrence of a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Bye-laws applicable to a Change of Control Offer
made by the Company, and purchases all Preferred Stock validly tendered and not
withdrawn under such Change of Control Offer.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, consummate any Asset Sale, unless (i) the Company
(or such Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by the Board of Directors (including as to the value
of all noncash consideration) and set forth in an Officer's Certificate
delivered to the Transfer Agent) of the assets or Equity Interests issued or
sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor is in the form of cash and/or Cash Equivalents, and (iii) the Net
Proceeds received by the Company (or such Restricted Subsidiary, as the case
may be) from such Asset Sale are applied within 360 days following the receipt
of such Net Proceeds (a) first, to the extent the Company (or such Restricted
Subsidiary, as the case may be) elects, to the redemption or repurchase of
outstanding Indebtedness and (b) to the extent of the balance of such Net
Proceeds after application as described in (a) above and to the extent the
Company (or such Restricted Subsidiary, as the case may be) elects, to
reinvest, or enter into a legally binding agreement to reinvest, such Net
Proceeds (or any portion thereof) in assets that are used or useful in a
Permitted Business. The balance of such Net Proceeds, after the application of
such Net Proceeds as described in the immediately preceding clauses (a) and
(b), shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $15.0 million
(taking into account income earned on such Excess Proceeds), the Company will
be required to make an offer to all Holders of Preferred Stock (an "Asset Sale
Offer") to purchase the maximum Liquidation Preference of Preferred Stock that
may be purchased out of the Excess Proceeds, at a purchase price in cash in an
amount equal to 100% of the effective Liquidation Preference thereof, plus all
accumulated and unpaid dividends thereon to the date of purchase, in accordance
with the procedures set forth in the Bye-laws. To the extent that any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Company may use
such Excess Proceeds at its discretion. If the aggregate Liquidation Preference
of Preferred Stock tendered into such Asset Sale Offer surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Transfer Agent shall select
the Preferred Stock to be purchased on a pro rata basis. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero for
purposes of the first sentence of this paragraph.
The amount of (x) any liabilities (as shown on the Company's (or such
Restricted Subsidiary's, as the case may be) most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities) that
are assumed by the transferee of any such assets pursuant to an agreement that
releases the Company or any Restricted Subsidiary from all liability in respect
thereof, (y) Indebtedness of any Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Sale, to the extent that the
Company and each other Restricted Subsidiary are released from any guarantee of
payment of the principal amount of such Indebtedness in connection with such
Asset Sale and (z) any securities, notes or other obligations received by the
Company (or such Restricted Subsidiary, as the case may be) from such
transferee that are contemporaneously (subject to ordinary settlement periods)
converted by the Company (or such Restricted Subsidiary, as the case may be)
into cash and/or Cash Equivalents (to the extent of the cash and/or Cash
Equivalents received), will be deemed to be cash and/or Cash Equivalents for
purposes of this provision.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any
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of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Company's or any of its Restricted Subsidiaries'
Equity Interests (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or to the Company or
a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any Junior
Securities (other than dividends or distributions payable in Junior Securities
(other than Disqualified Stock) of the Company or to the Company or a
Restricted Subsidiary of the Company); or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless:
(a) at the time of and after giving effect to such Restricted Payment, no
Voting Rights Triggering Event shall have occurred and be continuing or
would occur as a consequence thereof;
(b) in the case of clauses (i), (ii) and (iii) above, and, in the case of
any Restricted Investment that is not an Investment in a Permitted
Business, the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to either clause (i) or (ii) of the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
and any Permitted Investments made pursuant to clause (h) of the
definition of Permitted Investments after the date hereof (excluding
Restricted Payments permitted by clauses (iii), (iv), (v), (vii), (viii)
and (ix) (but, in the case of clause (ix), only to the extent that such
Restricted Payments are reflected as an expense on the income statement
of GCL) of the next succeeding paragraph), is less than the sum, without
duplication, of (i) the remainder of (x) 100% of the cumulative
Consolidated Cash Flow (or, in the case Consolidated Cash Flow shall be
negative, less 100% of such deficit) from the Issue Date through the
last day of the last full fiscal quarter immediately preceding such
Restricted Payment minus (y) the product of 1.5 times the cumulative
Consolidated Interest Expense from the Issue Date through the last day
of the last full fiscal quarter immediately preceding such Restricted
Payment, plus (ii) 100% of the aggregate net cash proceeds and the fair
market value (as determined in good faith by the Board of Directors) of
property or assets received by the Company since the Issue Date as a
contribution to its common equity capital or from the issue or sale of
Equity Interests of the Company (other than Disqualified Stock and
including the Preferred Stock) or from the issue or sale of Disqualified
Stock or debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or Disqualified
Stock or convertible debt securities) sold to a Subsidiary of the
Company), plus the amount of cash or the fair market value (as
determined above) of property or assets received by the Company or any
Restricted Subsidiary upon such conversion or exchange, plus (iii) the
aggregate amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (x) dividends, distributions,
interest payments, return of capital, repayments of Investments or other
transfers of assets to the Company or any Restricted Subsidiary from any
Unrestricted Subsidiary, (y) proceeds realized by the Company or any
Restricted Subsidiary upon the sale of such Investment to a Person other
than GCL, the Company or any Subsidiary of the Company, or (z) the
redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary,
not to exceed in the case of any of the immediately preceding clauses
(x), (y) or (z) the aggregate amount of Restricted Investments made by
the Company or any Restricted Subsidiary in such Unrestricted Subsidiary
after the Issue Date, plus (iv) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the amount of proceeds (net of
any cost of disposition) equal to the initial amount of such Restricted
Investment.
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The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the foregoing provisions;
(ii) the payment of any dividend on the Preferred Stock; (iii) the redemption,
repurchase, retirement, defeasance or other acquisition of any subordinated
Indebtedness or Equity Interests of the Company in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iv) the defeasance, redemption, retirement, repurchase or
other acquisition of Indebtedness with the net cash proceeds from an incurrence
of Permitted Refinancing Indebtedness; (v) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of its Equity Interests on
a pro rata basis; (vi) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of GCL, the Company or any of its
Restricted Subsidiaries held by any member of GCL's, the Company's or such
Restricted Subsidiary's management; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $10.0 million in any twelve-month period (with unused amounts being
carried over to succeeding twelve-month periods, subject to a maximum of $15.0
million in any twelve-month period); (vii) Investments in the PC-1 Companies
and Global Access Limited in an aggregate amount not to exceed $275.0 million;
(viii) Investments made with the net cash proceeds received from an equity
offering made by the Company or GCL (but only to the extent such net cash
proceeds received by GCL were contributed to the Company as common equity
capital) (provided that the amount of any such net cash proceeds that are
utilized for any such Investment shall be excluded from clause (c)(ii) of the
preceding paragraph) plus 50% of the net gain realized and not otherwise
included in Consolidated Cash Flow from the sale of Restricted Investments;
(ix) the payment of any dividend or the making of any distribution to GCL by
the Company or any Restricted Subsidiary to pay or permit GCL to pay any GCL
Expenses or any Related Taxes; and (x) other Restricted Payments in an
aggregate amount not to exceed $25.0 million.
The Board of Directors may not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made
(other than the amount required to capitalize such Subsidiary in connection
with its organization)) as an Unrestricted Subsidiary (a "Designation") unless:
(i) no Voting Rights Triggering Event shall have occurred and be continuing at
the time of or after giving effect to such Designation; (ii) the Company would,
immediately after giving effect to such Designation, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to either clause (i)
or (ii) of the first paragraph of the covenant described below under "--
Incurrence of Indebtedness and Issuance of Preferred Stock" and (iii) the
Company would not be prohibited under the terms of the Preferred Stock from
making an Investment at the time of such Designation (assuming the
effectiveness of such Designation for purposes of clauses (a) and (b) of the
first paragraph of this covenant) in an amount equal to the fair market value
of the net Investment of the Company or any other Restricted Subsidiary in such
Subsidiary on such date.
In the event of any such Designation, all outstanding Investments owned by
the Company and its Restricted Subsidiaries in the Subsidiary so designated
will be deemed to be an Investment made as of the time of such Designation and
will reduce the amount available for Restricted Payments under the first
paragraph of this covenant or Permitted Investments, as applicable. All such
outstanding Investments will be deemed to constitute Restricted Payments in an
amount equal to the fair market value of such Investments at the time of such
Designation.
The terms of the Preferred Stock will further provide that a Designation may
be revoked (a "Revocation") by a resolution of the Board of Directors delivered
to the Transfer Agent, provided that the Company will not make any Revocation
unless: (i) no Voting Rights Triggering Event shall have occurred and be
continuing at the time of or after giving effect to such Designation and (ii)
all Indebtedness of such Unrestricted Subsidiary outstanding immediately
following such Revocation would, if incurred at such time, have been permitted
to be incurred at such time for all purposes under the covenant described below
under "--Incurrence of Indebtedness and Issuance of Preferred Stock."
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The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company (or such
Restricted Subsidiary, as the case may be) pursuant to the Restricted Payment.
The fair market value of any asset(s) or securities that are required to be
valued by this covenant shall be determined in good faith by the Board of
Directors (such determination to be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $15.0 million).
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt)
and the Company will not issue any Disqualified Stock and will not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and its Restricted Subsidiaries may
incur Indebtedness or issue Disqualified Stock or preferred stock if either:
(i) the Consolidated Leverage Ratio is less than 5.5 to 1.0 (prior to
December 1, 2001) or 5.0 to 1.0 (subsequent to December 1, 2001); or
(ii) the Consolidated Capital Ratio is less than 2.5 to 1.0.
Notwithstanding the foregoing, the provisions of the paragraph set forth
above will not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Indebtedness"):
(a) The incurrence by the Company or any of its Restricted Subsidiaries of
Existing Indebtedness;
(b) The incurrence of Indebtedness by the Company to any Restricted
Subsidiary or Indebtedness of any Restricted Subsidiary to the Company
or any other Restricted Subsidiary (but only for so long as such
Indebtedness is held by the Company or such Restricted Subsidiary);
(c) The issuance by the Company of preferred stock to any other Restricted
Subsidiary or the issuance by any Restricted Subsidiary of preferred
stock to the Company or any other Restricted Subsidiary (but only for so
long as such preferred stock is held by the Company or such Restricted
Subsidiary);
(d) The incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness pursuant to acquisitions of capacity made in the ordinary
course of business;
(e) The incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest or foreign currency exchange rate risk with respect to
any floating rate Indebtedness that is permitted to be outstanding;
(f) The incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness of a Restricted Subsidiary incurred and outstanding on the
date on which such Restricted Subsidiary was acquired by the Company;
provided, however, that at the time such Restricted Subsidiary is
acquired by the Company (giving effect to such acquisition), the Company
would have been able to incur $1.00 of additional Indebtedness pursuant
to the immediately preceding paragraph;
(g) The incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted to be incurred
pursuant to the immediately preceding paragraph hereof or clauses (a),
(f), (g), (h), (j), (m) or (n) of this paragraph;
(h) The incurrence by the Company or any of its Restricted Subsidiaries of
additional Indebtedness not otherwise permitted to be incurred pursuant
to this paragraph in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (h), not to exceed $50.0
million;
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(i) The incurrence of Indebtedness by a Receivables Entity in a Qualified
Receivables Transaction, provided that the proceeds thereof are applied
in accordance with the covenant described above under "--Repurchase at
the Option of Holders--Asset Sales."
(j) The incurrence by the Company or any Restricted Subsidiary of Purchase
Money Indebtedness, provided that the amount of such Purchase Money
Indebtedness does not exceed 100% of the cost of construction,
installation, acquisition, lease, development, design, engineering,
financing, testing, start-up, upgrade, completion or improvement of
assets (together with related costs and expenses) used in the business
of the Company or such Restricted Subsidiary;
(k) Letters of Credit that are cash collateralized;
(l) Letters of Credit in an aggregate principal amount equal to $200.0
million less the amount of outstanding Indebtedness under clause (m) of
this paragraph;
(m) The incurrence by the Company or any of its Restricted Subsidiaries of
revolving credit Indebtedness in an aggregate amount not to exceed
$200.0 million at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (m); and
(n) The guarantee by the Company or any Restricted Subsidiary of
Indebtedness of the Company or any Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant.
Merger, Consolidation, or Sale of Assets
Without the affirmative vote of the holders of a majority of the then
outstanding shares of Preferred Stock, voting or consenting as a separate
class, the Company may not, directly or indirectly, consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
its properties or assets, in one or more related transactions, to another
Person unless: (i) the Company is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia,
or Bermuda; (ii) the Preferred Stock shall be converted into or exchanged for
and shall become shares of such successor, transferee or resulting Person,
having in respect of such successor, transferee or resulting Person the same
powers, preferences and relative participating, optional or other special
rights and qualifications, limitations or restrictions thereon that the
Preferred Stock had immediately prior to such transactions; (iii) immediately
after such transaction, except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company or the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will,
immediately after such transaction and after giving pro forma effect thereto
and any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to either clause (i) or (ii) of the
first paragraph of the covenant described above under "--Incurrence of
Indebtedness and Issuance of Preferred Stock." The terms of the Preferred Stock
will also provide that the Company may not, directly or indirectly, lease all
or substantially all of its properties or assets, in one or more related
transactions, to any other Person.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or
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guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are not materially less favorable to the Company or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person and (ii) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $25.0
million, the Company delivers to the Transfer Agent a resolution of the Board
of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction is approved by a majority of the disinterested members of the Board
of Directors and an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view is obtained from an accounting,
appraisal or investment banking firm of national standing. Notwithstanding the
foregoing, the following items shall not be deemed to be Affiliate
Transactions: (i) (a) the entering into, maintaining or performance of any
employment contract, collective bargaining agreement, benefit plan, program or
arrangement, related trust agreement or any other similar arrangement for or
with any employee, officer or director heretofore or hereafter entered into in
the ordinary course of business, including vacation, health, insurance,
deferred compensation, retirement, savings or other similar plans, (b) the
payment of compensation, performance of indemnification or contribution
obligations, or an issuance, grant or award of stock, options, or other equity-
related interests or other securities to employees, officers or directors in
the ordinary course of business, (c) any transaction with an officer or
director in the ordinary course of business not involving more than $250,000 in
any one case, or (d) Management Advances and payments in respect thereof, (ii)
transactions between or among the Company and/or its Restricted Subsidiaries or
any Receivables Entity, (iii) payment of reasonable directors fees, (iv) any
sale or other issuance of Equity Interests (other than Disqualified Stock) of
the Company, (v) Affiliate Transactions in effect or approved by the Board of
Directors on the Issue Date, including any amendments thereto (provided that
the terms of such amendments are not materially less favorable to the Company
or the relevant Restricted Subsidiary than the terms of such agreement prior to
such amendment), (vi) transactions with respect to capacity or dark fiber
between the Company or any Restricted Subsidiary and any Unrestricted
Subsidiary or other Affiliate and joint sales and marketing pursuant to an
agreement or agreements between the Company or any Restricted Subsidiary and
any Unrestricted Subsidiary or other Affiliate (provided that in the case of
this clause (vi), such agreements are on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that could have
been obtained at the time of such transaction in an arm's-length transaction
with an unrelated third party or, in the case of a transaction with an
Unrestricted Subsidiary, are either (x) entered into in connection with a
transaction involving the selection by a customer of cable system capacity
entered into in the ordinary course of business or (y) involve the provision by
the Company or a Restricted Subsidiary to an Unrestricted Subsidiary of sales
and marketing services, operations, administration and maintenance services or
development services for which the Company or such Restricted Subsidiary
receives a fair rate of return (as determined by the Board of Directors and set
forth in an Officers' Certificate delivered to the Transfer Agent) above its
expenses of providing such services; (vii) any transaction entered into in the
ordinary course of business between the Company or any Restricted Subsidiary
and any Unrestricted Subsidiary or any Affiliate (provided that in the case of
this clause (vii), such agreements are on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that could have
been obtained at the time of such transaction in an arm's-length transaction
with an unrelated third party) and (viii) Restricted Payments that are
permitted by the covenant described above under "--Restricted Payments."
Business Activities
The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage in any business other than a Permitted Business.
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any Preferred Stock is outstanding, the Company will furnish to the
Holders of the Preferred Stock (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q
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and 10-K if the Company was required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants, and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company was required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the Exchange
Offer contemplated by the Registration Rights Agreement, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Company will be deemed to have satisfied such requirements if GCL
files and provides reports, documents and information of the types otherwise so
required by the Commission, in each case within the applicable time periods,
and the Company is not required by the Commission to file such reports,
documents and information separately under the applicable rules and regulations
of the Commission (after giving effect to any exemptive relief) because of the
filings by GCL. Furthermore, the Company will agree that, for so long as any
Preferred Stock remains outstanding (and regardless of the immediately
preceding sentence), it will furnish to the Holders of the Preferred Stock and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Governing Law
The terms of the Preferred Stock and the Bye-laws will be governed by the
laws of Bermuda. The Company will submit to the jurisdiction of the U.S.
federal and New York state courts located in the Borough of Manhattan, City and
State of New York for purposes of all legal actions and proceedings instituted
in connection with the Preferred Stock and the Bye-laws. The Company has
appointed CT Corporation System as its authorized agent upon which process may
be served in any such action. See "Service of Process and Enforcement of
Liabilities."
Currency Indemnity
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Preferred Stock (except
for dividends thereon prior to June 1, 2002 which may be paid in additional
shares of Preferred Stock), including damages. Any account received or
recovered in a currency other than dollars (whether as a result of, or the
enforcement of, a judgment or order of a court of any jurisdiction, in the
liquidation, dissolution or other winding-up of the affairs of the Company or
otherwise) by any Holder of Preferred Stock in respect of any sum expressed to
be due to it from the Company shall only constitute a discharge to the Company
to the extent of the dollar amount which the recipient is able to purchase with
the amount so received or recovered in that other currency on the date of that
receipt or recovery (or, if it is not practicable to make that purchase on that
date, on the first date on which it is practicable to do so). If that dollar
amount is less than the dollar amount expressed to be due to the recipient with
respect to the Preferred Stock, the Company shall indemnify it against any loss
sustained by it as a result. In any event, the Company shall indemnify the
recipient against the cost of making any such purchase. For the purposes of
this paragraph, it will be sufficient for the Holder of Preferred Stock to
certify in a satisfactory manner (indicating the sources of information used)
that it would have suffered a loss had an actual purchase of dollars been made
with the amount so received in that other currency on the date of receipt or
recovery (or, if a purchase of dollars on such date had not been practicable,
on the first date on which it would have been practicable, it being required
that the need for a change of date be certified in the manner mentioned above).
These indemnities constitute a separate and independent obligation from the
Company's other obligations, shall give rise to a separate and independent
cause of action, shall apply irrespective of any indulgence granted by any
Holder of Preferred Stock and shall constitute in full force and effect despite
any other judgment, order, claim or proof for a liquidated amount in respect of
any sum due under the Preferred Stock.
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Certain Definitions
See "Description of Exchange Notes--Certain Definitions" for a description of
certain defined terms used herein.
Book-Entry, Delivery and Form
The Exchange Preferred Stock will be represented by one or more permanent
global stock certificates in fully registered form (the "Global Security"),
which will be deposited with the Transfer Agent as custodian for DTC and
registered in the name of DTC or of a nominee of DTC.
DTC has advised the Company that it is (i) a limited purpose company
organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York Banking Law, (iii) a member of
the Federal Reserve System, (iv) a "clearing corporation" within the meaning of
the Uniform Commercial Code, as amended, and (v) a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
charges to the accounts of its Participants, thereby eliminating the need for
physical transfer and delivery of certificates. DTC's Participants include
securities brokers and dealers (including the initial purchasers), banks and
trust companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to other entities such as
banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Investors who are not Participants
may beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
issuance of a Global Security, DTC will credit, on its internal system, the
aggregate Liquidation Preference of the Exchange Preferred Stock of the
individual beneficial interests represented by such Global Security to the
respective accounts of persons who have accounts with such depository and (ii)
ownership of beneficial interests in such Global Security will be shown on, and
the transfer of such ownership will be effected only though, records maintained
by DTC (with respect to interest of Participants) and the records of
Participants and Indirect Participants (with respect to interests of persons
other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of securities is definitive form.
Accordingly, the ability to transfer interests in the Preferred Stock
represented by a Global Security to such persons may be limited. In addition,
because DTC can act only on behalf of its Participants, who in turn act on
behalf of persons who hold interests through Participants, the ability of a
person having an interest in Preferred Stock represented by a Global Security
to pledge or transfer such interest to persons or entities that do not
participate in DTC's system, or to otherwise take actions in respect of such
interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or such nominee, as the case may be, will be considered to be the sole
owner or holder of the Preferred Stock represented by the Global Security for
all purposes under the Bye-laws. Except as provided below, owners of beneficial
interests in a Global Security will not be entitled to have Exchange Preferred
Stock represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Exchange Preferred Stock
certificates, and will not be considered the owners or holders thereof under
the Bye-laws for any purpose. Accordingly, each holder owning a beneficial
interest in a Global Security must rely on the procedures of DTC and, if such
holder is not a Participant or an Indirect Participant, on the procedures of
the Participant through which such holder owns its interest, to exercise any
rights of a holder of Exchange Preferred Stock under the Bye-laws or such
Global Security. The Company understands that under existing industry practice,
in the event that the Company requests any action of holders of Exchange
Preferred Stock, or a holder that is an owner of a beneficial interest in a
Global Security desires to take any action that DTC, as the holder of such
Global
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Security, is entitled to take, DTC would authorize the Participants to take
such action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither the Company nor the Transfer Agent will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, Exchange Preferred Stock by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such
Exchange Preferred Stock.
Payments with respect to the Liquidation Preference of and dividends on the
Preferred Stock represented by a Global Security registered in the name of DTC
or its nominee on the applicable record date will be payable at the direction
of DTC or its nominee in its capacity as the registered holder of the Global
Security representing the Exchange Preferred Stock. Under the terms of the Bye-
laws, the Company may treat the persons in whose names the Exchange Preferred
Stock, including the Global Security, are registered as the owners thereof for
the purpose of receiving payment thereon and for any and all other purposes
whatsoever. Accordingly, neither the Company nor the Transfer Agent has or will
have any responsibility or liability for the payment of such amounts to owners
of beneficial interests in a Global Security. Payments by the Participants and
the Indirect Participants to the owners of beneficial interests in a Global
Security will be governed by standing instructions and customary industry
practice and will be the responsibility of the Participants or the Indirect
Participants and DTC.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to:
(i) impress upon them the importance of such services being Year 2000
compliant; and (ii) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
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DESCRIPTION OF EXCHANGE NOTES
General
If and when issued, the New Exchange Notes will be issued pursuant to an
indenture, to be dated as of the date of first issuance (the "Exchange Date")
of the New Exchange Notes (the "Indenture"), between the Company and a trustee.
The terms of the New Exchange Notes will include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The New Exchange Notes will be
subject to all such terms, and Holders of Exchange Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. A copy of a form
of the Indenture is an exhibit to the registration statement of which this
prospectus is a part. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. The definitions of certain terms used in the following summary are
set forth below under "--Certain Definitions." For purposes of this summary,
the term "Company" refers only to Global Crossing Holdings Ltd. and not to any
of its Subsidiaries or GCL, and references to the Notes shall be deemed to
include the Old Exchange Notes and the New Exchange Notes.
Terms of Notes
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Debt. As of
September 30, 1998 the Company would have had Senior Debt outstanding of
approximately $1,213 million. The Indenture will permit the Company to incur
additional Senior Debt in the future.
The Company conducts substantially all of its operations through its
Subsidiaries and, therefore, the Company is dependent on the cash flow of its
Subsidiaries to meet its obligations, including its obligations with respect to
the Notes. The Notes will be effectively subordinated to all Indebtedness and
other liabilities and commitments (including trade payables and lease
obligations) of the Company's Subsidiaries. Any right of the Company to receive
assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary that is senior to that held
by the Company. As of September 30, 1998, the Company's Subsidiaries had
approximately $531.4 million of Indebtedness and other liabilities (including
trade payables and lease obligations) outstanding, to which the Notes would
have been effectively subordinated had they been outstanding on September 30,
1998. See "Risk Factors--Covenant Restrictions."
Principal, Maturity and Interest
The Notes will mature on December 1, 2008. Interest on the Notes will accrue
at the rate of 10 1/2% per annum and will be payable semi-annually in arrears
on June 1 and December 1 of each year that the Notes are outstanding to Holders
of record on the immediately preceding May 15 and November 15. Before June 1,
2002, the Company may elect to pay interest in cash or additional Exchange
Notes. On or after June 1, 2002, the Company is required to pay interest only
in cash. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest on the Notes may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments of principal, premium, if any, and
interest on Notes the Holders of which have given wire transfer instructions to
the Company will be required to be made by wire transfer of
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immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued in denominations of $1,000 and integral multiples thereof.
The Trustee initially will be Paying Agent and Registrar under the Indenture,
and the Company may act as Paying Agent or Registrar under the Indenture.
The interest rate on the Notes is subject to increase under certain
circumstances, as set forth herein under "--Exchange Offer; Registration
Rights." All references herein to interest shall be deemed to include any
special interest which may become payable on the Notes.
Subordination
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full in cash of all Senior Debt, whether outstanding on the
date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the Holders of the Notes will
be entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, in cash, any
distribution to which the Holders of the Notes would be entitled shall be made
to the holders of Senior Debt (except that Holders of the Notes may receive and
retain Permitted Junior Securities and payments made from the trust described
below under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described below under
"--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or the holders of any
Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in
the case of a payment default, upon the date on which such default is cured or
waived and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated. No new period of payment
blockage may be commenced unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been waived for a period of not
less than 90 days.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of the Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. See "Risk Factors--
Holding Company Structure; Effective Subordination of the Securities."
Optional Redemption
Except as set forth below and under "--Optional Tax Redemption," the Notes
will not be redeemable at the Company's option prior to December 1, 2003.
Thereafter, the Notes will be subject to redemption at any
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time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on December 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.............................. 105.250%
2004.............................. 103.500%
2005.............................. 101.750%
2006 and thereafter............... 100.000%
=======
</TABLE>
Notwithstanding the foregoing, at any time prior to December 1, 2001, the
Company may, on any one or more occasions, redeem up to 35% of the aggregate
principal amount of Notes originally issued pursuant to the Indenture at a
redemption price equal to 110.500% of the principal amount thereof, plus
accrued and unpaid interest thereon to the redemption date, with the net cash
proceeds received from one or more equity offerings made by the Company or GCL
(to the extent such net cash proceeds received by GCL were contributed to the
Company as common equity capital); provided that at least 65% of the then
effective aggregate principal amount of Notes originally issued pursuant to the
Indenture remains outstanding immediately after the occurrence of any such
redemption. The Company may make any such redemption upon not less than 30 nor
more than 60 days' notice (but in no event more than 90 days after the closing
of the related equity offering). Any such notice may be given prior to the
completion of the related equity offering and any such redemption may, at the
Company's discretion, be subject to the satisfaction of one or more conditions
precedent, including, but not limited to, the completion of the related equity
offering.
In addition, at any time prior to December 1, 2003, the Notes may also be
redeemed at the option of the Company, in whole but not in part, upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60 days'
prior notice (but in no event may any such redemption occur more than 90 days
after the occurrence of such Change of Control) mailed by first-class mail to
each Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof, plus the Applicable Premium as of, and accrued and
unpaid interest thereon to, the date of redemption (the "Redemption Date).
"Applicable Premium" means, with respect to any Note on any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess
of (A) the present value at such Redemption Date of (1) the redemption price of
such Note at December 1, 2003 (such redemption price being set forth in the
table above) plus (2) all required interest payments due on such Note through
December 1, 2003 (excluding accrued but unpaid interest), computed using a
discount rate equal to the Treasury Rate plus 50 basis points over (B) the
principal amount of such Note, if greater.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as of
such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the period from the Redemption Date to December 1, 2003;
provided, however, that if the period from the Redemption Date to December 1,
2003 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
Optional Tax Redemption
The Notes will be subject to redemption at the option of the Company or a
successor corporation at any time, in whole but not in part, upon not less than
30 nor more than 60 days' notice, at a redemption price equal to the principal
amount thereof, plus accrued and unpaid interest thereon to the redemption date
if, as a result
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of any change in or amendment to the laws or any regulations or ruling
promulgated thereunder of (x) Bermuda or any political subdivision or
governmental authority thereof or therein having the power to tax, (y) any
jurisdiction, other than the United States, from or through which payment on
the Notes is made by the Company or a successor corporation, or its paying
agent in its capacity as such or any political subdivision or governmental
authority thereof or therein having the power to tax or (z) any other
jurisdiction, other than the United States, in which the Company or a successor
corporation is organized, or any political subdivision or governmental
authority thereof or therein having the power to tax, or any change in the
official application or interpretation of such laws, regulations or rulings, or
any change in the official application or interpretation of, or any execution
of or amendment to, any treaty or treaties affecting taxation to which such
jurisdiction (or such political subdivision or taxing authority) is a party (a
"Change in Tax Law"), which becomes effective on or after the Issue Date, the
Company or a successor corporation is or would be required on the next
succeeding interest payment date to pay Additional Amounts with respect to the
Notes (as described under "--Payment of Additional Amounts"), and the payment
of such Additional Amounts cannot be avoided by the use of any reasonable
measures available to the Company or a successor corporation.
In addition, the Notes will be subject to redemption at the option of the
Company at any time, in whole but not in part, upon not less than 30 nor more
than 60 days' notice, at a redemption price equal to the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, if
the Person formed by a consolidation or amalgamation of the Company or into
which the Company is merged or to which the Company conveys, transfers or
leases its properties and assets substantially as an entirety is required, as a
consequence of such consolidation, amalgamation, merger, conveyance, transfer
or lease and as a consequence of a Change in Tax Law occurring after the date
of such consolidation, amalgamation, merger, conveyance, transfer or lease, to
pay Additional Amounts in respect of any tax, assessment or governmental charge
imposed on any Holder of Notes.
Payment of Additional Amounts
If any deduction or withholding for any present or future taxes, assessments
or other governmental charges of (x) Bermuda or any political subdivision or
governmental authority thereof or therein having power to tax, (y) any
jurisdiction, other than the United States, from or through which payment on
the Notes is made by the Company or a successor corporation, or its paying
agent in its capacity as such or any political subdivision or governmental
authority thereof or therein having the power to tax or (z) any other
jurisdiction, other than the United States, in which the Company or a successor
corporation is organized, or any political subdivision or governmental
authority thereof or therein having the power to tax shall at any time be
required by such jurisdiction (or any such political subdivision or taxing
authority) in respect of any amounts to be paid by the Company or a successor
corporation under the Notes, the Company or a successor corporation will pay to
each Holder of Notes as additional interest, such additional amounts
("Additional Amounts") as may be necessary in order that the net amounts paid
to such holder of such Notes who, with respect to any such tax, assessment or
other governmental charge, is not resident in, or a citizen of, such
jurisdiction, after such deduction or withholding, shall be not less than the
amount specified in such Notes to which such Holder is entitled; provided,
however, that the Company or a successor corporation shall not be required to
make any payment of Additional Amounts for or on account of:
(i) Any tax, assessment or other governmental charge that would not have
been imposed but for (a) the existence of any present or former connection
between such Holder (or between a fiduciary, settlor, beneficiary, member
or shareholder of, or possessor of a power over, such Holder, if such
Holder is an estate, trust, partnership, limited liability company or
corporation) and the taxing jurisdiction or any political subdivision or
territory or possession thereof or area subject to its jurisdiction,
including, without limitation, such Holder (or such fiduciary, settlor,
beneficiary, member, shareholder or possessor) being or having been a
citizen or resident thereof or being or having been present or engaged in a
trade or business therein or having or having had a permanent establishment
therein, (b) the presentation of a Note (where presentation is required)
for payment on a date more than 30 days after (x) the date on which such
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payment became due and payable or (y) the date on which payment thereof is
duly provided for, whichever occurs later, or (c) the presentation of a
Note for payment in Bermuda or any political subdivision thereof or
therein, unless such Note could not have been presented for payment
elsewhere;
(ii) Any estate, inheritance, gift, sales, transfer, personal property or
similar tax, assessment or other governmental charge;
(iii) Any tax, assessment or other governmental charge that is payable
otherwise than by withholding from payment of principal of, premium, if
any, or any interest on the Notes;
(iv) Any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the Holder or the beneficial owner of
the Note to comply with a request of the Company addressed to the Holder
(a) to provide information, documents or other evidence concerning the
nationality, residence or identity of the Holder or such beneficial owner
or (b) to make and deliver any declaration or other similar claim (other
than a claim for refund of a tax, assessment or other governmental charge
withheld by the Company) or satisfy any information or reporting
requirements, which, in the case of (a) or (b), is required
or imposed by a statute, treaty, regulation or administrative practice of
the taxing jurisdiction as a precondition to exemption from all or part of
such tax, assessment or other governmental charge; or
(v) Any combination of items (i), (ii), (iii) and (iv) above;
nor shall Additional Amounts be paid with respect to any payment of the
principal of, or any premium or interest on, any Note to any Holder who is a
fiduciary or partnership or limited liability company or other than the sole
beneficial owner of such payment to the extent such payment would be required
by the laws of (x) Bermuda or any political subdivision or governmental
authority thereof or therein having the power to tax, (y) any jurisdiction,
other than the United States, from or through which payment on the Notes is
made by the Company or a successor corporation, or its paying agent in its
capacity as such or any political subdivision or governmental authority thereof
or therein having the power to tax or (z) any other jurisdiction, other than
the United States, in which the Company or a successor corporation is
organized, or any political subdivision or governmental authority thereof or
therein having the power to tax to be included in the income for tax purposes
of a beneficiary or settlor with respect to such fiduciary or a member of such
partnership, limited liability company or beneficial owner who would not have
been entitled to such Additional Amounts had it been the Holder of such Note.
The Company shall provide the Trustee with the official acknowledgment of the
relevant taxing authority (or, if such acknowledgment is not available, a
certified copy thereof) evidencing the payment of the withholding taxes, if
any, by the Company. Copies of such documentation shall be made available to
the Holders of the Notes or the Paying Agent, as applicable, upon request
therefor.
All references herein to principal of, premium, if any, and interest on the
Notes shall include any Additional Amounts payable by the Company in respect of
such principal, such premium, if any, and such interest.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are then listed, or, if the Notes are not so then listed, on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days prior to the redemption date to each Holder of Notes to
be redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in
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principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption will become due on the date fixed for redemption. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption.
Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders," the
Company will not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to purchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase price in cash
(the "Change of Control Payment") equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon to the date of
purchase (subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date); provided,
however, that the Company shall not be obligated to repurchase Notes pursuant
to this covenant in the event that it has exercised its rights to redeem all of
the Notes as described above under "--Optional Redemption." Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to purchase Notes on the date specified in such notice,
which date shall be no earlier than 30 and no later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date"), in accordance
with the procedures required by the Indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent such
laws and regulations are applicable in connection with the purchase of Notes as
a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with any of the provisions of this
covenant, the Company will comply with the applicable securities laws and
regulations and will be deemed not to have breached its obligations under this
covenant by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail or deliver to each Holder of Notes
so tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail or deliver (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of Notes surrendered, if any; provided that each such new Note will be
in a principal amount of $1,000 or an integral multiple thereof. The Indenture
will provide that, prior to complying with the provisions of this covenant, but
in any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture will not
contain provisions that permit the Holders of the Notes to require that the
Company purchase or
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redeem the Notes in the event of a takeover, recapitalization or similar
transaction. In addition, due to a Change of Control repayment provision in the
Senior Notes Indenture, the Company may be unable to repurchase all of the
Notes tendered upon the occurrence of a Change of Control. Furthermore, the
Company's ability to purchase Notes upon a Change of Control may be limited by
the Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any such required
purchases. See "Risk Factors--Purchase of Securities Upon a Change of Control."
Any future credit agreements or other agreements relating to Senior Debt to
which the Company becomes a party may contain provisions that prohibit or
restrict the Company from repurchasing Notes. In the event a Change of Control
occurs at a time when the Company is prohibited or restricted from purchasing
Notes, the Company could seek the consent of its lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition or restriction. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited or restricted from
purchasing Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default under the Indenture which would, in
turn, likely constitute a default under any future credit agreement or other
agreements relating to Senior Debt to which the Company becomes a party. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon the
occurrence of a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture applicable to a
Change of Control Offer made by the Company, and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, consummate any Asset Sale, unless (i) the Company
(or such Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by the Board of Directors (including as to the value
of all noncash consideration) and set forth in an Officer's Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor is in
the form of cash and/or Cash Equivalents, and (iii) the Net Proceeds received
by the Company (or such Restricted Subsidiary, as the case may be) from such
Asset Sale are applied within 360 days following the receipt of such Net
Proceeds (a) first, to the extent the Company (or such Restricted Subsidiary,
as the case may be) elects, to the redemption or repurchase of outstanding
Senior Debt and (b) to the extent of the balance of such Net Proceeds after
application as described in (a) above and to the extent the Company (or such
Restricted Subsidiary, as the case may be) elects, to reinvest, or enter into a
legally binding agreement to reinvest, such Net Proceeds (or any portion
thereof) in assets that are used or useful in a Permitted Business. The balance
of such Net Proceeds, after the application of such Net Proceeds as described
in the immediately preceding clauses (a) and (b), shall constitute "Excess
Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $15.0 million
(taking into account income earned on such Excess Proceeds), the Company will
be required to make an offer to all Holders of Notes and pari passu
Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount
of Notes and pari passu Indebtedness that may be purchased out of the Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase, in accordance with the procedures set forth in the Indenture and
the agreements governing such pari passu Indebtedness. To the extent that any
Excess Proceeds remain after consummation of an Asset Sale Offer, the Company
may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes and pari passu
Indebtedness tendered into such Asset Sale Offer surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero for
purposes of the first sentence of this paragraph.
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The amount of (x) any liabilities (as shown on the Company's (or such
Restricted Subsidiary's, as the case may be) most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to an
agreement that releases the Company or any Restricted Subsidiary from all
liability in respect thereof, (y) Indebtedness of any Restricted Subsidiary
that is no longer a Restricted Subsidiary as a result of such Asset Sale, to
the extent that the Company and each other Restricted Subsidiary are released
from any guarantee of payment of the principal amount of such Indebtedness in
connection with such Asset Sale and (z) any securities, notes or other
obligations received by the Company (or such Restricted Subsidiary, as the case
may be) from such transferee that are contemporaneously (subject to ordinary
settlement periods) converted by the Company (or such Restricted Subsidiary, as
the case may be) into cash and/or Cash Equivalents (to the extent of the cash
and/or Cash Equivalents received), will be deemed to be cash and/or Cash
Equivalents for purposes of this provision.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company or any of its
Restricted Subsidiaries) or to the direct or indirect holders of the Company's
or any of its Restricted Subsidiaries' Equity Interests (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or a Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent
of the Company (other than any such Equity Interests owned by the Company or
any Wholly Owned Restricted Subsidiary of the Company); (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except a
payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted
Payments"), unless:
(a) at the time of and after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof;
(b) in the case of clauses (i), (ii) and (iii) above, and, in the case of
any Restricted Investment that is not an Investment in a Permitted
Business, the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
either clause (i) or (ii) of the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries and any Permitted Investments made pursuant to clause (h) of
the definition of Permitted Investments after the date hereof (excluding
Restricted Payments permitted by clauses (ii), (iii), (iv), (vi), (vii) and
(viii) (but, in the case of clause (viii), only to the extent that such
Restricted Payments are reflected as an expense on the income statements of
GCL) of the next succeeding paragraph), is less than the sum, without
duplication, of (i) the remainder of (x) 100% of the cumulative
Consolidated Cash Flow (or, in the case Consolidated Cash Flow shall be
negative, less 100% of such deficit) from the date hereof through the last
day of the last full fiscal quarter immediately preceding such Restricted
Payment minus (y) the product of 1.5 times the cumulative Consolidated
Interest Expense from the Issue Date through the last day of the last full
fiscal quarter immediately preceding such Restricted Payment, plus (ii)
100% of the aggregate net cash proceeds and the fair market value (as
determined in good faith by the Board of Directors) of property or assets
received by the
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Company since the Issue Date as a contribution to its common equity capital
or from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock and including the Preferred Stock) or from the issue or
sale of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company), plus the amount of cash or the fair market value (as
determined above) of property or assets received by the Company or any
Restricted Subsidiary upon such conversion or exchange, plus (iii) the
aggregate amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from (x) dividends, distributions, interest
payments, return of capital, repayments of Investments or other transfers
of assets to the Company or any Restricted Subsidiary from any Unrestricted
Subsidiary, (y) proceeds realized by the Company or any Restricted
Subsidiary upon the sale of such Investment to a Person other than GCL, the
Company or any Subsidiary of the Company, or (z) the redesignation of any
Unrestricted Subsidiary as a Restricted Subsidiary, not to exceed in the
case of any of the immediately preceding clauses (x), (y) or (z) the
aggregate amount of Restricted Investments made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary after the Issue Date,
plus (iv) to the extent that any Restricted Investment that was made after
the Issue Date is sold for cash or otherwise liquidated or repaid for cash,
the amount of proceeds (net of any cost of disposition) equal to the
initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the foregoing provisions;
(ii) the redemption, repurchase, retirement, defeasance or other acquisition of
any subordinated Indebtedness or Equity Interests of the Company in exchange
for, or out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of, other Equity Interests of the
Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
retirement, repurchase or other acquisition of Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of the Company to the
holders of its Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interests
of GCL, the Company or any of its Restricted Subsidiaries held by any member of
GCL's, the Company's or such Restricted Subsidiary's management; provided that
the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $10.0 million in any twelve-month
period (with unused amounts being carried over to succeeding twelve-month
periods, subject to a maximum of $15.0 million in any twelve-month period);
(vi) Investments in the PC-1 Companies and Global Access Limited in an
aggregate amount not to exceed $275.0 million; (vii) Investments made with the
net cash proceeds received from an equity offering made by the Company or GCL
(but only to the extent such net cash proceeds received by GCL were contributed
to the Company as common equity capital) (provided that the amount of any such
net cash proceeds that are utilized for any such Investment shall be excluded
from clause (c)(ii) of the preceding paragraph) plus 50% of the net gain
realized and not otherwise included in Consolidated Cash Flow from the sale of
Restricted Investments ; (viii) the payment of any dividend or the making of
any distribution to GCL by the Company or any Restricted Subsidiary to pay or
permit GCL to pay any GCL Expenses or any Related Taxes; and (ix) other
Restricted Payments in an aggregate amount not to exceed $25.0 million.
The Board of Directors may not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made
(other than the amount required to capitalize such Subsidiary in connection
with its organization)) as an Unrestricted Subsidiary (a "Designation") unless:
(i) no Default or Event of Default shall have occurred and be continuing at the
time of or after giving effect to such Designation; (ii) the Company would,
immediately after giving effect to such Designation, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to either clause (i)
or (ii) of the first paragraph of the covenant described below under "--
Incurrence of Indebtedness and Issuance of Preferred Stock" and (iii) the
Company would not be prohibited under the Indenture from making an Investment
at the time of such
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Designation (assuming the effectiveness of such Designation for purposes of
clauses (a) and (b) of the first paragraph of this covenant) in an amount equal
to the fair market value of the net Investment of the Company or any other
Restricted Subsidiary in such Subsidiary on such date.
In the event of any such Designation, all outstanding Investments owned by
the Company and its Restricted Subsidiaries in the Subsidiary so designated
will be deemed to be an Investment made as of the time of such Designation and
will reduce the amount available for Restricted Payments under the first
paragraph of this covenant or Permitted Investments, as applicable. All such
outstanding Investments will be deemed to constitute Restricted Payments in an
amount equal to the fair market value of such Investments at the time of such
Designation.
The Indenture will further provide that a Designation may be revoked (a
"Revocation") by a resolution of the Board of Directors delivered to the
Trustee, provided that the Company will not make any Revocation unless: (i) no
Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such Designation; and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately following
such Revocation would, if incurred at such time, have been permitted to be
incurred at such time for all purposes under the Indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company (or such
Restricted Subsidiary, as the case may be) pursuant to the Restricted Payment.
The fair market value of any asset(s) or securities that are required to be
valued by this covenant shall be determined in good faith by the Board of
Directors (such determination to be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $15.0 million).
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt)
and the Company will not issue any Disqualified Stock and will not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and its Restricted Subsidiaries may
incur Indebtedness or issue Disqualified Stock or preferred stock if either:
(i) the Consolidated Leverage Ratio is less than 5.5 to 1.0 (prior to
December 1, 2001) or 5.0 to 1.0 (subsequent to December 1, 2001); or
(ii) the Consolidated Capital Ratio is less than 2.5 to 1.0.
Notwithstanding the foregoing, the provisions of the paragraph set forth
above will not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Indebtedness"):
(a) The incurrence by the Company of Indebtedness represented by the
Notes;
(b) The incurrence by the Company or any of its Restricted Subsidiaries
of Existing Indebtedness;
(c) The incurrence of Indebtedness by the Company to any Restricted
Subsidiary or Indebtedness of any Restricted Subsidiary to the Company or
any other Restricted Subsidiary (but only for so long as such Indebtedness
is held by the Company or such Restricted Subsidiary);
(d) The issuance by the Company of Preferred Stock to any Restricted
Subsidiary or the issuance by any Restricted Subsidiary of Preferred Stock
to the Company or any other Restricted Subsidiary (but only for so long as
such preferred stock is held by the Company or such Restricted Subsidiary);
(e) The incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness pursuant to acquisitions of capacity made in the ordinary
course of business;
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(f) The incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest or foreign currency exchange rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of the Indenture
to be outstanding;
(g) The incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness of a Restricted Subsidiary incurred and outstanding on the
date on which such Restricted Subsidiary was acquired by the Company;
provided, however, that at the time such Restricted Subsidiary is acquired
by the Company (giving effect to such acquisition), the Company would have
been able to incur $1.00 of additional Indebtedness pursuant to the
immediately preceding paragraph;
(h) The incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred pursuant to the immediately preceding paragraph hereof or clauses
(a), (b), (g), (h), (i), (k), (n) or (o) of this paragraph;
(i) The incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness not otherwise permitted to be incurred pursuant
to this paragraph in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (i), not to exceed $50.0 million;
(j) The incurrence of Indebtedness by a Receivables Entity in a Qualified
Receivables Transaction, provided that the proceeds thereof are applied in
accordance with the covenant described above under "--Repurchase at the
Option of Holders--Asset Sales."
(k) The incurrence by the Company or any Restricted Subsidiary of
Purchase Money Indebtedness, provided that the amount of such Purchase
Money Indebtedness does not exceed 100% of the cost of construction,
installation, acquisition, lease, development, design, engineering,
financing, testing, start-up, upgrade, completion or improvement of assets
(together with related costs and expenses) used in the business of the
Company or such Restricted Subsidiary;
(l) Letters of Credit that are cash collateralized;
(m) Letters of Credit in an aggregate principal amount equal to $200.0
million less the amount of outstanding Indebtedness under clause (n) of
this paragraph;
(n) The incurrence by the Company or any of its Restricted Subsidiaries
of revolving credit Indebtedness in an aggregate amount not to exceed
$200.0 million at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (n); and
(o) The guarantee by the Company or any Restricted Subsidiary of
Indebtedness of the Company or any Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant.
No Senior Subordinated Debt
The Company will not, directly or indirectly, incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinated
or junior in right of payment to any Senior Debt and senior in any respect in
right of payment to the Notes.
Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind securing Indebtedness which is pari passu with
or subordinated to the Notes (other than Permitted Liens) upon any of their
property or assets, now
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owned or hereafter acquired, unless all payments due under the Indenture and
the Notes are secured on an equal and ratable basis with (or prior to, in the
case of Indebtedness which is subordinated to the Notes) the obligations so
secured until such time as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries. However, the foregoing
restrictions will not apply to encumbrances or restrictions existing under or
by reason of (a) Existing Indebtedness as in effect on the date hereof, (b)
agreements as in effect as of the date hereof, (c) Indebtedness incurred in
accordance with clause (g), (h), (i), (k) or (n) of the second paragraph of the
covenant set forth above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock," provided that such encumbrances or restrictions
are customary with respect to such types of Indebtedness (as determined in good
faith by the Chief Financial Officer of the Company) and provided further that
the provisions of such Indebtedness do not prohibit payments by the Company of
principal, premium, interest and Additional Amounts pursuant to the terms of
the Notes and the Indenture, (e) the Indenture and the Notes, (f) applicable
law, (g) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided, that in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (h)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (i) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (j) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition, (k) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive,
taken as a whole, than those contained in the agreements governing the
Indebtedness being refinanced, (l) Liens securing Indebtedness otherwise
permitted to be incurred pursuant to the provisions of the covenant described
above under the caption "--Liens" that limit the right of the Company or any of
its Restricted Subsidiaries to dispose of the assets subject to such Lien, (m)
provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered into
in the ordinary course of business and (n) restrictions on cash or other
deposits or net worth imposed by customers under contracts entered into in the
ordinary course of business.
Certain restrictions under credit facilities entered into, or expected to be
entered into, to finance Permitted Businesses will substantially limit the
payment of dividends or distributions to the Company until the Indebtedness
incurred under such facilities is retired. See "Risk Factors--Holding Company
Structure; Effective Subordination of the Securities" and "Description of
Certain Indebtedness--AC-1 Credit Facility."
Merger, Consolidation, or Sale of Assets
The Company may not, directly or indirectly, consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
its properties or assets, in one or more related transactions, to another
Person unless: (i) the Company is the surviving corporation or the Person
formed by or surviving any such consolidation or merger
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(if other than the Company) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia, or Bermuda; (ii) the Person formed by or surviving any
such consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, conveyance or other disposition shall have
been made assumes all the obligations of the Company under the Registration
Agreement, the Notes and the Indenture pursuant to a supplemental indenture in
a form reasonably satisfactory to the trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made (A)
will have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will, immediately after such transaction and after
giving pro forma effect thereto and any related financing transactions as if
the same had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to
either clause (i) or (ii) of the first paragraph of the covenant described
above under "--Incurrence of Indebtedness and Issuance of Preferred Stock." The
Indenture will also provide that the Company may not, directly or indirectly,
lease all or substantially all of its properties or assets, in one or more
related transactions, to any other Person. The provisions of this covenant will
not be applicable to a sale, assignment, transfer, conveyance or other
disposition of assets between or among the Company and its Wholly Owned
Restricted Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are not materially less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $25.0 million, the Company delivers to the Trustee a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction is approved by a majority of the disinterested
members of the Board of Directors and an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view is
obtained from an accounting, appraisal or investment banking firm of national
standing. Notwithstanding the foregoing, the following items shall not be
deemed to be Affiliate Transactions: (i) (a) the entering into, maintaining or
performance of any employment contract, collective bargaining agreement,
benefit plan, program or arrangement, related trust agreement or any other
similar arrangement for or with any employee, officer or director heretofore or
hereafter entered into in the ordinary course of business, including vacation,
health, insurance, deferred compensation, retirement, savings or other similar
plans, (b) the payment of compensation, performance of indemnification or
contribution obligations, or an issuance, grant or award of stock, options, or
other equity-related interests or other securities to employees, officers or
directors in the ordinary course of business, (c) any transaction with an
officer or director in the ordinary course of business not involving more than
$250,000 in any one case, or (d) Management Advances and payments in respect
thereof, (ii) transactions between or among the Company and/or its Restricted
Subsidiaries or any Receivables Entity, (iii) payment of reasonable directors
fees, (iv) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Company, (v) Affiliate Transactions in effect or
approved by the Board of Directors on the Issue Date, including any amendments
thereto (provided that the terms of such amendments are not materially less
favorable to the Company or the relevant Restricted Subsidiary than the terms
of such agreement prior to such amendment), (vi) transactions with respect to
capacity or dark fiber between the Company or any Restricted Subsidiary and any
Unrestricted Subsidiary or other Affiliate and joint sales and marketing
pursuant to an agreement or agreements between the
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Company or any Restricted Subsidiary and any Unrestricted Subsidiary or other
Affiliate (provided that in the case of this clause (vi), such agreements are
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that could have been obtained at the time of such
transaction in an arm's-length transaction with an unrelated third party or, in
the case of a transaction with an Unrestricted Subsidiary, are either (x)
entered into in connection with a transaction involving the selection by a
customer of cable system capacity entered into in the ordinary course of
business or (y) involve the provision by the Company or a Restricted Subsidiary
to an Unrestricted Subsidiary of sales and marketing services, operations,
administration and maintenance services or development services for which the
Company or such Restricted Subsidiary receives a fair rate of return (as
determined by the Board of Directors and set forth in an Officers' Certificate
delivered to the trustee) above its expenses of providing such services; (vii)
any transaction entered into in the ordinary course of business between the
Company or any Restricted Subsidiary and any Unrestricted Subsidiary or any
Affiliate (provided that in the case of this clause (vii), such agreements are
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that could have been obtained at the time of such
transaction in an arm's-length transaction with an unrelated third party) and
(viii) Restricted Payments that are permitted by the covenant described above
under "--Restricted Payments."
Business Activities
The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage in any business other than a Permitted Business.
Payments for Consent
Neither the Company nor any of its Restricted Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend such
terms or provisions of the Indenture or the Notes in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company will furnish to the trustee and
the Holders of the Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company was required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants, and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company was required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the Exchange
Offer contemplated by the Registration Rights Agreement, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Company will be deemed to have satisfied such requirements if GCL
files and provides reports, documents and information of the types otherwise so
required by the Commission, in each case within the applicable time periods,
and the Company is not required by the Commission to file such reports,
documents and information separately under the applicable rules and regulations
of the Commission (after giving effect to any exemptive relief) because of the
filings by GCL. Furthermore, the Company will agree that, for so long as any
Notes remain outstanding (and regardless of the immediately preceding
sentence), it will furnish to the Holders of the Notes and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act
of 1933.
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Events of Default and Remedies
The Indenture will provide that each of the following will constitute an
Event of Default: (i) default for 30 days in the payment when due of interest
on the Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in the payment when due of the principal of, or
premium, if any, on, the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company or any of its
Restricted Subsidiaries to comply with the provisions described above under the
captions "--Repurchase at the Option of Holders--Change of Control," "--
Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants--
Restricted Payments" or "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock"; (iv) failure by the Company or any of its
Restricted Subsidiaries for 60 days after notice to comply with any of its
other agreements in the Indenture or the Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the Issue Date, which default results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness the maturity of which has been
so accelerated, aggregates $25.0 million or more; (vi) failure by the Company
or any of its Restricted Subsidiaries to pay final judgments not subject to
appeal aggregating in excess of $25.0 million (net of applicable insurance
coverage which is acknowledged in writing by the insurer), which judgments are
not paid, discharged or stayed for a period of 60 days; and (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal of, premium, if any, or interest on, the
Notes) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium also
will become immediately due and payable, to the extent permitted by law, upon
the acceleration of the Notes. If an Event of Default occurs prior to December
1, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to December 1, 2003, then the premium specified
in the Indenture also will become immediately due and payable, to the extent
permitted by law, upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes by notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of principal of, premium, if any, or interest on, the
Notes.
The Company will be required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company will be required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
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No Personal Liability of Directors, Officers, Employees, Incorporators or
Shareholders
No director, officer, employee, incorporator or shareholder of the Company,
as such, will have any liability for any obligations of the Company with
respect to the Notes or the Indenture, or for any claim based on, or in respect
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note will waive and release any and all such liability. Such waiver
and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under federal securities laws
and it is the view of the Commission that such a waiver is against public
policy.
Legal Defeasance and Covenant Defeasance
The Indenture will be discharged and canceled upon the delivery by the
Company to the Trustee for cancellation of all the Notes or upon irrevocable
deposit with the Trustee, within not more than one year prior to the redemption
of the Notes, or when the Notes are to be called for redemption within one year
under arrangements satisfactory to the Trustee, of funds sufficient for the
payment or redemption of all the Notes. In addition, the Indenture will provide
that the Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"), except for: (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below; (ii)
the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Exchange Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust; (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and the Company's obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have its
obligations released with respect to certain covenants that are contained in
the Indenture ("Covenant Defeasance") and, thereafter, any omission to comply
with such obligations will not constitute a Default or Event of Default. In the
event Covenant Defeasance occurs, certain events (but not including non-
payment, bankruptcy, receivership, rehabilitation or insolvency events)
described under "--Events of Default and Remedies" will no longer constitute an
Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit, or cause to be deposited, with the Trustee,
in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes on the stated maturity thereof or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or since the Issue Date,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance, and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company must deliver to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance, and such Holders will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under,
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any material agreement or instrument (other than the Indenture) to which the
Company or any of its Restricted Subsidiaries is a party or by which the
Company or any of its Restricted Subsidiaries is bound; (vi) the Company must
deliver to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights and remedies generally; (vii) the Company must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of the Notes over other creditors of the
Company, or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; (viii) the Company must deliver to the
Trustee an opinion of counsel in Bermuda reasonably acceptable to the Trustee
to the effect that the Holders of the outstanding Notes will not be adversely
affected under Bermuda law; and (ix) the Company must deliver to the trustee an
Officers' Certificate and an opinion of counsel in the United States reasonably
acceptable to the Trustee, each stating that all conditions precedent provided
for or relating to Legal Defeasance or Covenant Defeasance, as applicable, have
been complied with.
Transfer and Exchange
A Holder may transfer or exchange Exchange Notes in accordance with the
procedures set forth in the Indenture. The registrar and the trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents, and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company will not be
required to transfer or exchange any Note selected for redemption. Also, the
Company will not be required to transfer or exchange any Note for a period of
15 days before (i) a selection of Notes to be redeemed, (ii) an interest
payment date or (iii) the mailing of notice of a Change of Control Offer or
Asset Sale Offer. The registered Holder of a Note will be treated as the owner
of it for all purposes under the Indenture.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the then outstanding Notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, such an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal or change the fixed maturity of
any Note, or alter the redemption provisions of the Notes (other than
redemption provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders"); (iii) reduce the rate of, or
change the time for, payment of interest on any Note; (iv) waive a Default or
Event of Default in the payment of principal of, premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders
of at least a majority in aggregate principal amount thereof and a waiver of
the payment default that resulted from such acceleration); (v) make any Note
payable in money other than that stated in the Notes; (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of the Notes to receive payments of principal of, premium, if
any, or interest on the Notes; (vii) waive a redemption payment with respect to
any Note (other than a payment required by one of the covenants described above
under the caption "--Repurchase at the Option of Holders"); or (viii) make any
change in the foregoing amendment and waiver provisions. In addition, any
amendment to the provisions of the Indenture which relate to subordination will
require the consent of the Holders of at least 75% in aggregate principal
amount of the Notes then outstanding if such amendment would adversely affect
the rights of the Holders of the Notes.
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Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, or to comply with the requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue, or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. In case an Event of Default shall occur (which shall not be
cured), the trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of their own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
Governing Law
The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York.
The Company will submit to the jurisdiction of the U.S. federal and New York
state courts located in the Borough of Manhattan, City and State of New York
for purposes of all legal actions and proceedings instituted in connection with
the Notes and the Indenture. The Company has appointed CT Corporation System as
its authorized agent upon which process may be served in any such action. See
"Service of Process and Enforcement of Liabilities."
Currency Indemnity
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes, including
damages. Any account received or recovered in a currency other than dollars
(whether as a result of, or the enforcement of, a judgment or order of a court
of any jurisdiction, in the liquidation, dissolution or other winding-up of the
affairs of the Company or otherwise) by any Holder of a Note in respect of any
sum expressed to be due to it from the Company shall only constitute a
discharge to the Company to the extent of the dollar amount which the recipient
is able to purchase with the amount so received or recovered in that other
currency on the date of that receipt or recovery (or, if it is not practicable
to make that purchase on that date, on the first date on which it is
practicable to do so). If that dollar amount is less than the dollar amount
expressed to be due to the recipient under any Note, the Company shall
indemnify it against any loss sustained by it as a result. In any event, the
Company shall indemnify the recipient against the cost of making any such
purchase. For the purposes of this paragraph, it will be sufficient for the
Holder of a Note to certify in a satisfactory manner (indicating the sources of
information used) that it would have suffered a loss had an actual purchase of
dollars been made with the amount so received in that other currency on the
date of receipt or recovery (or, if a purchase of dollars on such date had not
been practicable, on the first date on which it would have been practicable, it
being required that the need for a change of date be certified in the manner
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mentioned above). These indemnities constitute a separate and independent
obligation from the Company's other obligations, shall give rise to a separate
and independent cause of action, shall apply irrespective of any indulgence
granted by any Holder of a Note and shall constitute in full force and effect
despite any other judgment, order, claim or proof for a liquidated amount in
respect of any sum due under any Note.
Certain Definitions
Set forth below are certain defined terms used in the Indenture and in the
Bye-Laws. Reference is made to the Indenture and the Bye-Laws for a full
disclosure of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"AC-1 Credit Facility" means that certain Credit Agreement, dated as of June
27, 1997 and amended as of December 15, 1997, between ACL and the lenders named
therein.
"AC" or "Atlantic Crossing" means the four fiber pair, self healing ring,
fiber optic submarine cable system known as "Atlantic Crossing" or "AC-1" which
will provide direct telecommunications service between the United States and
Northern Europe with landing stations in the United States, United Kingdom, The
Netherlands and Germany, and all extensions and upgrades thereto.
"ACL" means Atlantic Crossing Ltd., a Bermuda company.
"AC Subsidiaries" means GTH and all of its direct and indirect Subsidiaries.
"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness
of any other Person existing at the time such other Person is merged with or
into or became a Subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, transfer, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business and other than any sale, lease, transfer, conveyance or other
disposition of capacity or dark fiber on any cable system owned, controlled or
operated by the Company or any Restricted Subsidiary or of telecommunications
capacity or transmission rights acquired by the Company or any Restricted
Subsidiary for use in a Permitted Business (provided that the sale, lease,
transfer, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of its Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $25.0 million or
(b) for net proceeds in excess of $25.0 million. Notwithstanding the foregoing,
the following items shall not be deemed to be Asset Sales: (i) a transfer of
assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly
Owned Restricted Subsidiary to the Company or to another Wholly Owned
Restricted Subsidiary, (ii) an issuance of Equity Interests by a Wholly
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Owned Restricted Subsidiary to the Company or to another Wholly Owned
Restricted Subsidiary, (iii) a Restricted Payment that is permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments," (iv) a transfer of assets by the Company or a Restricted Subsidiary
in connection with a Qualified Receivables Transaction and (v) a disposition of
obsolete or worn out equipment or equipment that is no longer useful in the
conduct of a Permitted Business and that is disposed of in the ordinary course
of business.
"Board of Directors" means the board of directors or other governing body of
the Company or, if the Company is owned or managed by a single entity, the
board of directors or other governing body of such entity, or, in either case,
any committee thereof duly authorized to act on behalf of such board or
governing body.
"Board Resolution" means a duly authorized resolution of the Board of
Directors.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock, (ii)
in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and a Thompson Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (ii) and
(iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within six months after the date
of acquisition and (vi) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (i)-(v) of this
definition.
"Change of Control" means the occurrence of any of the following: (i) any
"person" (as such term is unused in Section 13(d)(3) of the Exchange Act),
other than a Permitted Holder, is or becomes the beneficial owner, directly or
indirectly, of 35% or more of the Voting Stock (measured by voting power rather
than number of shares) of the Company or GCL, and the Permitted Holders own, in
the aggregate, a lesser percentage of the total Voting Stock (measured by
voting power rather than by number of shares) of the Company or GCL than such
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of the Company or GCL (for the purposes of this clause, such other
person shall be deemed to "beneficially own" any Voting Stock of a specified
corporation held by a parent corporation if such other person beneficially
owns, directly or indirectly, more than 35% of the Voting Stock (measured by
voting power rather than by number of shares) of such parent corporation and
the Permitted Holders beneficially own, directly or indirectly, in the
aggregate a lesser percentage of Voting Stock (measured by voting power rather
than by number of shares) of such parent corporation and do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent corporation), (ii)
during any period of two consecutive years, Continuing Directors cease for any
reason to constitute a majority of the Board of Directors
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of the Company or GCL, (iii) the Company or GCL consolidates or merges with or
into any other Person, other than a consolidation or merger (a) of the Company
into GCL or GCL into the Company, or the Company or GCL into a Wholly Owned
Restricted Subsidiary of the Company or (b) pursuant to a transaction in which
the outstanding Voting Stock of the Company or GCL is changed into or exchanged
for cash, securities or other property with the effect that the beneficial
owners of the outstanding Voting Stock of the Company or GCL, respectively,
immediately prior to such transaction, beneficially own, directly or
indirectly, more than 35% of the Voting Stock (measured by voting power rather
than number of shares) of the surviving corporation immediately following such
transaction or (iv) the sale, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of GCL or the Company
and its Restricted Subsidiaries taken as a whole to any person other than a
Wholly Owned Restricted Subsidiary of the Company or a Permitted Holder or a
person more than 50% of the Voting Stock (measured by voting power rather than
by number of shares) of which is owned, directly or indirectly, following such
transaction or transactions by the Permitted Holders; provided, however, that
sales, transfers, conveyances or other dispositions in the ordinary course of
business of capacity on cable systems owned, controlled or operated by the
Company or any Restricted Subsidiary or of telecommunications capacity or
transmission rights acquired by the Company or any Restricted Subsidiary for
use in its business, including, without limitation, for sale, lease, transfer,
conveyance or other disposition to any customer of the Company or any
Restricted Subsidiary shall not be deemed a disposition of assets for purposes
of this clause (iv).
The definition of a Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of GCL or the Company and its Restricted Subsidiaries taken as a
whole, as such phrase is used in the Revised Model Business Corporation Act.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of such phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to purchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of GCL or the
Company and its Restricted Subsidiaries taken as a whole to another Person or
group may be uncertain.
"Consolidated Capital Ratio" means, with respect to the Company or any of its
Restricted Subsidiaries, as of the date of any incurrence of Indebtedness or
issuance of Disqualified Stock, the ratio of (i) the aggregate consolidated
principal amount of Indebtedness outstanding and the liquidation preference of
Disqualified Stock as of the most recent quarterly or annual balance sheet
date, after giving pro forma effect to the incurrence of such Indebtedness or
the issuance of such Disqualified Stock and any other Indebtedness incurred and
Disqualified Stock issued since such balance sheet date, and the receipt and
application of the proceeds therefrom to (ii) Consolidated Net Worth as of such
balance sheet date after giving pro forma effect to the issuance of Equity
Interests (other than Disqualified Stock) issued since the balance sheet date
and the receipt and application of the proceeds therefrom.
"Consolidated Cash Flow" means, with respect to the Company for any period,
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period plus, to the extent that any of the following items were deducted
or added (without duplication) in computing such Consolidated Net Income, (i)
an amount equal to any extraordinary loss (less any gain) plus any net loss
(less any gain) realized in connection with any Asset Sale, plus (ii) provision
for taxes based on income or profits of the Company and its Restricted
Subsidiaries for such period, plus (iii) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized, plus (iv) any Preferred Stock dividends
to the extent subtracted in arriving at net income, plus (v) depreciation,
amortization (including amortization of goodwill and other intangibles and the
amount of capacity available for sale charged to cost of sales), but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period
or amortization of a prepaid cash expense that was paid in a prior period) of
the Company and its Restricted Subsidiaries for such period, minus (vi) non-
cash items increasing such Consolidated Net Income for such period (other than
items that were accrued in the ordinary
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course of business), plus (vii) any change in Deferred Revenue, in each case,
on a consolidated basis and determined in accordance with GAAP. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash expenses of, a Restricted
Subsidiary of the Company shall be added to Consolidated Net Income to compute
Consolidated Cash Flow of the Company only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior governmental approval (that
has not been obtained), and without direct or indirect restriction pursuant to
the terms of its charter and all agreements (excluding agreements evidencing
Indebtedness incurred in accordance with clause (k) of "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock", to which this
provision shall not apply), instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Restricted Subsidiary or
its shareholders.
"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its Consolidated
Subsidiaries for such period, including without limitation or duplication (or,
to the extent not so included, with the addition of), (i) amortization of debt
issuance costs and original issue discount, (ii) non-cash interest payments,
(iii) the interest component of any deferred payment obligations, (iv) the
interest component of all payments associated with Capital Lease Obligations,
(v) commissions, discounts and other fees and charges incurred in respect of
Letter of Credit or bankers' acceptance financings and (vi) net payments (if
any) pursuant to Hedging Obligations).
"Consolidated Leverage Ratio" means, with respect to the Company or any of
its Restricted Subsidiaries, as of the date of any incurrence of Indebtedness
or issuance of Disqualified Stock, the ratio of (i) the aggregate consolidated
principal amount of Indebtedness outstanding and the liquidation preference of
Disqualified Stock as of the most recent quarterly or annual balance sheet
date, after giving pro forma effect to the incurrence of such Indebtedness or
the issuance of such Disqualified Stock and any other Indebtedness incurred and
Disqualified Stock issued since such balance sheet date, and the receipt and
application of the proceeds therefrom to (ii) Consolidated Cash Flow for the
four full fiscal quarters ending on or prior to the date of incurrence of such
Indebtedness or issuance of such Disqualified Stock for which consolidated
financial statements are available.
"Consolidated Net Income" means, with respect to the Company for any period,
the aggregate of the net income of the Company and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
plus, to the extent that any of the following items were deducted in computing
such Consolidated Net Income, (a) non-recurring, non-cash charges (other than
charges arising from write-downs of assets) and (b) non-cash compensation
charges arising from stock options or other similar employee benefit or
compensation plans; provided that (i) the net income (but not loss) of any
Restricted Subsidiary that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the Company or a Wholly Owned Restricted
Subsidiary thereof by such Restricted Subsidiary, (ii) the net income (or loss)
of any Person that is not a Restricted Subsidiary shall be included only to the
extent of the amount of dividends or other distributions actually paid to the
Company or a Restricted Subsidiary by such Person during such period, (iii) for
purposes of clause (c) of the covenant "--Certain Covenants--Restricted
Payments," the net income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that net income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, (excluding any such restrictions relating to AC-1 to
which this clause (iii) shall not apply), instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its shareholders, except that the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend, (iv) the net income of
any Person acquired in a pooling of interests transaction for
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any period prior to the date of such acquisition shall be excluded, (v) the
equity of the Company or any Restricted Subsidiary in the net income of any
Unrestricted Subsidiary shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Unrestricted
Subsidiary during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (but not in excess of the amount of the net
income of such Unrestricted Subsidiary for such period) and (vi) the cumulative
effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to the Company as of any date,
the sum of (i) the consolidated equity of the common shareholders of the
Company and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on the Company's balance sheet as of such date
with respect to the Preferred Stock and any series of preferred stock (other
than Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to
the extent of any cash received by the Company upon issuance of such preferred
stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business and other
than write-ups attributable to the PCG Warrants) subsequent to the Issue Date
in the book value of any asset owned by the Company or a consolidated
Restricted Subsidiary of the Company, (y) all investments as of such date in
unconsolidated Restricted Subsidiaries and in Persons that are not Restricted
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Consolidated Tangible Assets" means the total amount of assets (less
applicable reserves and other properly deductible items) which under generally
accepted accounting principles would be included on a consolidated balance
sheet of the Company and its Restricted Subsidiaries after deducting therefrom
all goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, which in each case under generally accepted
accounting principles would be included on such consolidated balance sheet.
"Continuing Directors" means individuals who at the beginning of the period
of determination constituted the Board of Directors of the Company or GCL, as
the case may be, together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the
Company or GCL, as the case may be, was approved by a vote of at least a
majority of the directors of the Company or GCL, as the case may be, then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved or is designee
of any one of the Permitted Holders or any combination thereof or was nominated
or elected by any such Permitted Holder(s) or any of their designees.
"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or beneficiary.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Deferred Revenue" means amounts appearing as a liability on the financial
statements of the Company as prepared according to GAAP classified as deferred
revenue to the extent of cash received in connection therewith.
"Designated Senior Debt" means (i) Indebtedness represented by the Senior
Notes, (ii) Indebtedness pursuant to paragraph (n) of the second full paragraph
of "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" and (iii) any Senior Debt permitted to be incurred under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
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"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature; provided, however, that any Capital Stock which
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require the Company to repurchase or redeem such
Capital Stock upon the occurrence of a Change of Control occurring prior to the
final Stated Maturity of the Notes shall not constitute Disqualified Stock if
the change of control provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions applicable
to the Notes contained in the covenant described under "--Repurchase at the
Option of Holders--Change of Control" and such Capital Stock specifically
provides that the Company will not repurchase or redeem any such stock pursuant
to such provisions prior to the Company's repurchase of such Notes as are
required to be repurchased pursuant to the covenant described under "--
Repurchase at the Option of Holders--Change of Control."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering for cash by GCL or the Company of its
common stock, or options, warrants or rights to acquire such common stock.
"Exchange Offer" means the registered exchange offer to be made by the
Company with respect to the Preferred Stock or the Exchange Notes, as
applicable, pursuant to the terms of the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries in existence on the date hereof, until such amounts are paid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"GCL" means Global Crossing Ltd., a Bermuda Company.
"GCL Expenses" means (i) costs (including all professional fees and expenses)
incurred by GCL to comply with its reporting obligations under federal or state
laws or under the Indenture, including any reports filed with respect to the
Securities Act, the Exchange Act or the respective rules and regulations
promulgated thereunder, (ii) indemnification obligations of GCL owing to
directors, officers, employees or other Persons under its charter or by-laws or
pursuant to written agreements with any such Person, (iii) fees and expenses
payable by GCL in connection with the issuance of the Notes, (iv) other
operational expenses of GCL incurred in the ordinary course of business and (v)
expenses incurred by GCL in connection with any public offering of Capital
Stock or Indebtedness (x) where the net proceeds of such offering are intended
to be received by or contributed or loaned to the Company or a Restricted
Subsidiary, or (y) in a prorated amount of such expenses in proportion to the
amount of such net proceeds intended to be so received, contributed or loaned,
or (z) otherwise on an interim basis prior to completion of such offering so
long as GCL shall cause the amount of such expenses to be repaid to the Company
or the relevant Restricted Subsidiary out of the proceeds of such offering
promptly if completed.
"Global Access Limited" means Global Access Limited, a Japanese corporation,
and all of its direct and indirect Subsidiaries.
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"GTH" means Global Telesystems Holdings Ltd., a Bermuda company.
"Government Securities" means securities that are (a) direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentally thereof) of
the payment of which the full faith and credit of the United States of America
is pledged, (b) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America or (c) obligations of a Person the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America, which, in each case, are not callable or
redeemable at the issuer's option.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under any Interest Rate Agreement or Currency Agreement.
"Holder" means, as applicable, a Person in whose name Preferred Stock is, or
Notes are, registered.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness issued with original issue discount,
and (ii) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is a party or beneficiary.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to directors, officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any of its Restricted Subsidiaries sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company or such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
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"Issue Date" means December 2, 1998.
"Letters of Credit" means one or more irrevocable direct pay letters of
credit issued by a bank or other financial institution to support the payment
of equity obligations of the Company to its Project Subsidiaries.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in, and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"MAC Subsidiaries" means Mid-Atlantic Crossing Holdings Ltd., a Bermuda
company, and all of its direct and indirect Subsidiaries.
"Management Advances" means loans or advances made to directors, officers or
employees of GCL, the Company or any Restricted Subsidiary (i) in respect of
travel, entertainment or moving-related expenses incurred in the ordinary
course of business, (ii) in respect of moving-related expenses incurred in
connection with any closing or consolidation of any facility, or (iii) in the
ordinary course of business not exceeding $10.0 million in the aggregate at any
time outstanding.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any Restricted Subsidiary (a) provides any guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor or otherwise) and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default under such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means any Co-Chairman of the Board, the President, the Chief
Executive Officer, the Chief Operating Officer, the Chief Financial Officer,
any Senior Vice President, any Vice President, the Treasurer or the Secretary
of the Company.
"Officers Certificate" means a certificate signed by two Officers.
"PCG Warrants" means the warrants issued pursuant to the Warrant Agreement,
dated as of January 21, 1998, as amended through the date of the Senior Notes
Indenture.
"PC-1 Companies" means Pacific Crossing Ltd., a Bermuda company, and all of
its direct and indirect Subsidiaries.
"Permitted Business" means any business that is the same as or related,
ancillary or complementary to any of the businesses of the Company or any of
its Restricted Subsidiaries on the date of issuance of the Preferred Stock.
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"Permitted Holder" means Pacific Capital Group, Inc. and CIBC Oppenheimer
Corp., and their respective Affiliates.
"Permitted Investments" means (a) any Investment in the Company or in
Restricted Subsidiaries of the Company that are engaged in a Permitted
Business; (b) any Investment in Cash Equivalents; (c) any Investment by the
Company or any of its Restricted Subsidiaries in a Person, if as a result of
such Investment (i) such Person becomes a Restricted Subsidiary of the Company
that is engaged in a Permitted Business or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company that is engaged in a Permitted Business; (d) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales"; (e) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; (f) other
Investments having an aggregate fair market value (measured on the date each
such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (f) that are at the time outstanding, not to exceed $25.0 million; (g)
any Investment made in a Receivables Entity in a Qualified Receivables
Transaction; and (h) any investment by the Company or a Restricted Subsidiary
in any Person engaged in a Permitted Business with the Company or such
Restricted Subsidiary, provided that such investment is necessary or integral
to the Company's or such Restricted Subsidiary's Permitted Business and
provided, further that any such investment is the minimum amount reasonably
necessary for such Permitted Business and to comply with local law.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to
a greater extent than, the Notes are subordinated to Senior Debt pursuant to
the Indenture.
"Permitted Liens" means (i) Liens to secure Senior Debt permitted to be
incurred under the Indenture; (ii) Liens in favor of the Company or any
Restricted Subsidiary; (iii) Liens on property of a Person existing at the time
such Person is merged with or into or consolidated with the Company or any of
its Restricted Subsidiaries; provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary; (iv) Liens on property existing at the
time of acquisition thereof by the Company or any of its Restricted
Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the date hereof; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the Company or any
of its Restricted Subsidiaries with respect to obligations that do not exceed
$5.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; (ix) Liens with respect to assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or a Restricted
Subsidiary to secure Indebtedness owing to the Company or such Restricted
Subsidiary; (x) Liens, pledges and deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of statutory obligations; (xi) Liens, pledges or deposits made to
secure the performance of tenders, bids, leases, public or statutory
obligations, sureties, stays appeals, indemnities, performance or other similar
bonds and other obligations of like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (xii)
zoning restrictions, servitudes, easements, rights-of-way, restrictions and
other similar charges or encumbrances incurred in the ordinary course of
business which, in the aggregate, do
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not materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the Company
or its Restricted Subsidiaries; (xiii) Liens arising out of judgments or awards
against or other court proceedings concerning the Company or any Restricted
Subsidiary with respect to which the Company or such Restricted Subsidiary is
prosecuting an appeal or proceeding for review and the Company or such
Restricted Subsidiary is maintaining adequate reserves in accordance with
generally accepted accounting principles; (xiv) any interest or title of a
lessor in the property subject to any lease other than a capital lease. and
(xv) Liens not otherwise permitted by the foregoing clauses (i) through (xiv)
securing Indebtedness in an aggregate amount not to exceed 10% of the Company's
Consolidated Tangible Assets.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is expressly subordinated in right
of payment to, the Notes on terms at least as favorable to the Holders of the
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or the Restricted Subsidiary who
is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, incorporated or unincorporated association, joint-
stock company, trust, unincorporated organization or government or other agency
or political subdivision thereof or other entity of any kind.
"Preferred Stock" means the Company's 10 1/2% Senior Exchangeable Preferred
Stock due 2008.
"Purchase Money Indebtedness" means Indebtedness (including Acquired Debt and
Capital Lease Obligations, mortgage financings and purchase money obligations)
incurred for the purpose of financing all or any part of the cost of
construction, financing, installation, acquisition, lease, development, design,
engineering, financing, testing, start-up, upgrade, completion or improvement
of any assets used or useful in a Permitted Business, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any of its Subsidiaries may sell, convey or
otherwise transfer to (a) a Receivables Entity (in the case of a transfer by
the Company or any of its Subsidiaries) and (b) any other Person (in the case
of a transfer by a Receivables Entity), or may grant a security interest in,
any receivables (whether now existing or arising in the future) of the Company
or any of its Subsidiaries, and any assets related thereto including, without
limitation, all collateral securing such receivables, all contracts and all
guarantees or other obligations in respect of such receivables, and the
proceeds of such receivables.
"Receivables Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company may make
an Investment and to which the Company or any Subsidiary of the Company
transfers receivables and related assets) which engages in no activities other
than in connection with the financing of receivables and which is designated by
the Board of Directors (as provided
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below) as a Receivables Entity, (a) no portion of the Indebtedness or any other
Obligations (contingent or otherwise) of which (i) is guaranteed by the Company
or any Subsidiary of the Company (excluding guarantees of Obligations (other
than the principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (ii) is recourse to or obligates the Company or
any Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the
Company or any Subsidiary of the Company, directly or indirectly, contingently
or otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings, (b) with which neither the Company nor any
Subsidiary of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons that are
not Affiliates of the Company, other than fees payable in the ordinary course
of business in connection with servicing receivables, and (c) to which neither
the Company nor any Subsidiary of the Company has any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the resolution of the Board of Directors giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of December 2, 1998, by and among the Company and the other parties
named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Related Taxes" means any taxes, charges or assessments, including, but not
limited to, sales, use, transfer, rental, ad valorem, value-added, stamp,
property, consumption, franchise, license, capital, net worth, gross receipts,
excise, occupancy, intangibles or similar taxes, charges or assessments (other
than taxes measured by income and withholding imposed on payments made by GCL
required to be paid by GCL by virtue of its being incorporated or having
Capital Stock outstanding (but not by virtue of owning stock or other equity
interests of any corporation or other entity other than the Company or any of
its Subsidiaries), or being a holding company parent of the Company of
receiving dividends from or other distributions in respect of the Capital Stock
of the Company, or having guaranteed any obligations of the Company of any
Subsidiary thereof, or having made any payment in respect of any of the items
for which the Company is permitted to make payments to GCL pursuant to the
covenant described above under "--Certain Covenants--Restricted Payments."
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary and, with respect to the PC-1
Companies, upon designation thereof by the Board of Directors as "Restricted
Subsidiaries," whether or not the PC-1 Companies meet the 50% test specified in
the definition of "Subsidiary."
"Senior Debt" means (i) all Indebtedness represented by the Senior Notes,
(ii) any other Indebtedness permitted to be incurred by the Company under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Notes and (iii) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local or other
taxes owed or owing by the Company, (x) any Indebtedness of the Company to any
of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the Senior Notes Indenture.
"Senior Notes" means the Company's 9 5/8% Senior Notes due 2008.
"Senior Notes Indenture" means the indenture pursuant to which the Senior
Notes were issued.
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"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in securitization of receivables
transactions.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels of operating
results; and (c) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall
be evidenced by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period, and (ii) no Default or
Event of Default would be in existence following such designation. As of the
Issue Date, all of the Company's Subsidiaries will be Restricted Subsidiaries,
except for the PC-1 Companies, and the AC Subsidiaries may not be designated as
Unrestricted Subsidiaries unless and until the PC-1 Companies are designated as
Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then
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remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
Book-Entry, Delivery and Form
All Notes, if and when issued, will be represented by permanent Global Notes
in fully registered from without coupons (the "Global Notes"), which will be
deposited with the Trustee as custodian for DTC and registered in the name of
DTC or of a nominee of DTC.
DTC has advised the Company that it is (i) a limited purpose company
organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York Banking Law, (iii) a member of
the Federal Reserve System, (iv) a "clearing corporation" within the meaning of
the Uniform Commercial Code, as amended, and (v) a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
charges to the accounts of its Participants, thereby eliminating the need for
physical transfer and delivery of certificates. DTC's Participants include
securities brokers and dealers (including the initial purchasers), banks and
trust companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to other entities such as
banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Investors who are not Participants
may beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
issuance of a Global Note, DTC will credit, on its internal system, the
principal amount of Notes of the individual beneficial interests represented by
such Global Note to the respective accounts of persons who have accounts with
such depository and (ii) ownership of beneficial interests in such Global Notes
will be shown on, and the transfer of such ownership will be effected only
though, records maintained by DTC (with respect to interest of Participants)
and the records of Participants and Indirect Participants (with respect to
interests of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of securities is definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in Notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered to be the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interest in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instruction or
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approval to the Trustee thereunder. Accordingly, each holder owning a
beneficial interest in a Global Note must rely on the procedures of DTC and, if
such holder is not a Participant or an Indirect Participant, on the procedures
of the Participant through which such holder owns its interest, to exercise any
rights of a holder of Notes under the Indenture or such Global Note. The
Company understands that under existing industry practice, in the event that
the Company requests any action of holders of Notes, or a holder that is an
owner of a beneficial interest in a Global Note desires to take any action that
DTC, as the holder of such Global Note, is entitled to take, DTC would
authorize the Participants to take such action and the Participants would
authorize holders owning through such Participants to take such action or would
otherwise act upon the instruction of such holders. Neither the Company nor the
Trustee will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving payment thereon and for any and all other purposes
whatsoever. Accordingly, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global Note (including principal, premium, if any,
and interest). Payments by the Participants and the Indirect Participants to
the owners of beneficial interests in a Global Note will be governed by
standing instructions and customary industry practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may
be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Cedel, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Notes in DTC, and making or receiving payment
in accordance with normal procedures for same-day funds settlement applicable
to DTC. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following
the settlement date of DTC. Cash received in
Euroclear or Cedel as a result of sales of interest in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received for value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither the Company nor the Trustee will have any responsibility for
the performance by DTC, Euroclear or
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Cedel or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
DTC management is aware that some Systems that are dependent upon calendar
dates, including dates before, on, and after January 1, 2000, may encounter
"Year 2000 problems." DTC has informed its Participants and the Industry that
it has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and income
payments) to securityholders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to:
(i) impress upon them the importance of such services being Year 2000
compliant; and (ii) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
Certificated Notes
If (i) the Company notifies the trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the trustee in writing that it elects to cause the issuance of
Notes in definitive form under the Indenture or (iii) upon the occurrence of
certain other events as provided in the Indenture, then, upon surrender by DTC
of the Global Notes, certificated Notes will be issued to each person that DTC
identifies as the beneficial owner of the Notes represented by the Global
Notes. Upon any such issuance, the trustee is required to register such
certificated Notes in the name of such person or persons (or the nominee of any
thereof) and cause the same to be delivered thereto.
Neither the Company nor the trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
Exchange Offer; Registration Rights
The Company and the Initial Purchasers entered into the Registration Rights
Agreement pursuant to which the Company agreed, for the benefit of the holders
of the Old Preferred Stock or the Old Exchange Notes, as applicable, that the
Company will, at its cost:
. to file the registration statement of which this prospectus is a part
with the Securities and Exchange Commission under the Securities Act of
1933, to exchange the Old Preferred Stock for the Exchange Preferred
Stock by March 2, 1999,
. to use its reasonable best efforts to cause the registration statement
to be declared effective under the Securities Act by May 28, 1999, and
. to keep the Exchange Offer open for the minimum period required by
applicable federal law and state securities laws, provided, however that
it shall remain open for no less than 20 Business Days.
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For each share of Preferred Stock or each Exchange Note surrendered to the
Company and accepted for exchange pursuant to the Exchange Offer, the holder of
such security will receive a registered security having a liquidation
preference or principal amount equal to that of the surrendered restricted
security.
If (i) the Exchange Offer is not permitted by applicable law or Securities
and Exchange Commission policy or (ii) if any Holder shall notify the Company
within 20 Business Days following the consummation of the Exchange Offer that
(A) such holder was prohibited by law or Securities and Exchange Commission
policy from participating in the Exchange Offer or (B) such holder may not
resell the securities acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the exchange
offer registration statement is not appropriate or available for such resales
by such holders or (C) such holder is a broker-dealer and holds Securities
acquired directly from the Company or any of its affiliates, then the Company
will, at its cost, (a) use its reasonable best efforts to cause to be filed a
shelf registration statement (the "Shelf Registration Statement") covering
resales of the restricted securities, (b) use its reasonable best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act of 1933 and (c) use its reasonable best efforts to keep the
Shelf Registration Statement effective until two years after its effective date
or such shorter period ending when all resales of the securities covered by
such Shelf Registration Statement have been made. A holder selling such
securities pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act of 1933 in connection with such
sales and will be bound by the provisions of the Registration Rights Agreement
which are applicable to such holder (including certain indemnification
obligations).
If (a) the Company fails to file any of the registration statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness, or (c)
the Company fails to consummate the Exchange Offer within 210 days of the
Closing Date with respect to the exchange offer registration statement, or (d)
any registration statement required by the Registration Rights Agreement is
declared effective but thereafter ceases to be effective or usable in
connection with its intended purpose (each such event referred to in clause (a)
through (d) above a "Registration Default"), then the Company will pay to each
holder of the securities affected thereby special interest which will
accumulate or accrue and be payable semi-annually thereon (in addition to the
stated dividends or stated interest) from and including the date such
Registration Default occurs to, but excluding the date on which the applicable
registration statement is filed or is declared effective, the Exchange Offer is
consummated, or the applicable registration statement is again declared
effective or made usable. During the time that special dividends or special
interest is accumulating or accruing continuously, the rate of such special
dividends or special interest shall be 0.50% per annum during the first 90-day
period and shall increase by 0.25% per annum for each subsequent 90-day period,
but in no event shall such rate exceed 1.0% per annum in the aggregate
regardless of the number of Registration Defaults. If, after the cure of all
Registration Defaults then in effect, there is a subsequent Registration
Default, the rate of special dividends or special interest for such subsequent
Registration Default shall initially be 0.50% regardless of the special
dividends or special interest rate in effect with respect to any prior
Registration Default at the time of the cure of such Registration Default.
The summary herein of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, which is an exhibit to the registration statement of which this
prospectus is a part.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
9 5/8% Senior Notes
On May 18, 1998, we consummated the Senior Notes Offering pursuant to which
we issued an aggregate of $800 million in principal amount of 9 5/8% Senior
Notes. The Senior Notes are guaranteed by GCL and certain of our subsidiaries.
The Senior Notes mature on May 15, 2008. Interest on the Senior Notes is
payable in U.S. dollars on May 15 and November 15 of each year. The Senior
Notes were issued under an indenture with the United States Trust Company of
New York, dated as of May 18, 1998. This indenture restricts our ability and
the ability of certain of our subsidiaries to: borrow money, pay dividends on
stock or purchase stock, make investments, use assets as security in other
transactions and sell certain assets or merge with or into other companies. See
"Summary--Financing Plan."
AC-1 Credit Facility
ACL is the borrower under the $482.0 million senior secured AC-1 Credit
Facility, comprised of a $472.0 million term loan facility and a $10.0 million
working capital facility, with certain commercial lending institutions and CIBC
and Deutsche Bank AG, New York Branch, an affiliate of Deutsche Bank Securities
Inc., as lead agents for the lenders. The AC-1 Credit Facility is secured by
pledges of the stock of ACL and its subsidiaries (and other entities holding
landing licenses or AC-1 assets) and security interests in the assets and
revenues of ACL and its subsidiaries and is being used to provide financing for
a portion of AC-1. A portion of the AC-1 Credit Facility is available only to
pay interest on the loans prior to the AC-1 RFS date, and a portion is
available to issue letters of credit to the contractor of AC-1. The loans under
the AC-1 Credit Facility will amortize in eight semi-annual installments,
commencing on the first initial principal payment date (which shall be May 31
or November 30) to occur more than two months after the commercial operation
date (anticipated to occur in February 1999), with 15% of the principal amount
to be amortized in the first year, 25% in the second year, 30% in the third
year and 30% in the fourth year. Borrowings bear interest at an adjustable rate
based on the adjusted base rate or LIBOR plus an applicable margin. The
facility also requires mandatory prepayments to be made from, among other
things, 50% of excess cash flow, 50% of net cash proceeds of any equity
offering of ACL and 100% of net cash proceeds of any permitted debt offerings
of ACL or its immediate parent, permitted asset sales or insurance proceeds. As
of September 30, 1998, a total of $365.1 million in indebtedness (to which the
Securities would be effectively subordinated) was outstanding under the AC-1
Credit Facility.
The AC-1 Credit Facility contains covenants that, among other things,
restrict ACL's use of the term loan proceeds to the financing of AC-1 and the
payment of fees and expenses directly thereto and the use of the working
capital facility proceeds to AC-1 costs and for working capital purposes and
limit ACL's ability to make certain dividends, distributions or investments and
mergers. The facility generally only permits dividends or distributions with
respect to a portion of ACL's excess cash flow, but severely restricts the
payment of other dividends or distributions to GCL. The AC-1 Credit Facility
contains certain financial covenants relating to minimum sales of capacity on
AC-1 and ratio of EBITDA to interest expense, the failure to comply with which
would cause all excess cash flow to be applied to the lenders under the AC-1
Credit Facility for such period. The AC-1 Credit Facility contains certain
events of default including, among other things, failure to pay amounts when
due, failure to comply with covenants and insolvency. An event of default shall
also occur upon the occurrence of certain failures in connection with AC-1.
Upon the occurrence of an event of default, the AC-1 Credit Facility permits
the lenders to declare all outstanding borrowings to be immediately due and
payable and to proceed against the collateral. In addition, the AC-1 Credit
Facility prescribes the order by which proceeds from the sale of AC-1 capacity
shall be applied, both prior to and after the commencement of commercial
operations, and requires ACL to maintain certain reserve accounts. As a result
of the foregoing, the ability of ACL to use and distribute revenue is severely
restricted so long as the AC-1 Credit Facility remains in existence.
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PC-1 Credit Facility
PCL is the borrower under the $850.0 million senior secured PC-1 Credit
Facility, comprised of a $840.0 million term loan and a $10.0 million working
capital facility, with certain commercial lending institutions and Deutsche
Bank AG, New York Branch, an affiliate of Deutsche Bank Securities, CIBC Inc.
and Goldman, Sachs Credit Partners L.P., as Lead Agents for the lenders. The
PC-1 Credit Facility is secured by pledges of the stock of PCL and its
subsidiaries and security interests in certain of the assets and revenues of
PCL and its subsidiaries and is being used to provide financing for a portion
of PC-1. The subsidiaries of PCL also guaranteed PCL's obligations under the
PC-1 Credit Facility. A portion of the PC-1 Credit Facility is available only
to pay interest on the loans prior to the PC-1 RFS date. The term loans under
the PC-1 Credit Facility will amortize over ten semi-annual installments,
scheduled to commence approximately 165 days after the commercial operation
date. Borrowings bear interest at an adjustable rate based on the adjusted base
rate or LIBOR plus an applicable margin. The facility also requires mandatory
prepayments to be made from, among other things, 50% of excess cash flow, 50%
of the net cash proceeds of any equity offering of PCL and 100% of net cash
proceeds of any permitted debt offering of PCL, permitted asset sale and
insurance proceeds. As of September 30, 1998, a total of $200 million was
outstanding.
The PC-1 Credit Facility contains covenants that, among other things,
restrict PCL's ability to incur indebtedness, make investments, guarantees or
acquisitions and make dividends or distributions. The facility generally only
permits dividends or distributions by PCL out of a portion of excess cash flow,
and securely restricts the payment of other dividends or distributions. The PC-
1 Credit Facility contains certain financial covenants relating to minimum
sales of capacity on PC-1 and the ratio of system revenues to interest expense,
the failure to comply with which would cause all excess cash flow to be applied
to the lenders under the PC-1 Credit Facility. The PC-1 Credit Facility
contains events of default including, among other things, failure to pay
amounts when due, failure to comply with certain covenants and insolvency. An
event of default shall also occur upon the occurrence of certain failures in
connection with PC-1. Upon the occurrence of an event of default, the PC-1
Credit Facility permits the lenders to (1) declare the loans then outstanding
to be immediately due and payable, (2) demand that any equity commitments not
theretofore funded to be immediately funded, and (3) proceed against the
collateral. In addition, the PC-1 Credit Facility prescribes the order by which
proceeds from the sale of PC-1 capacity shall be applied, both prior to and
after the commencement of commercial operation, and requires PCL to maintain
certain reserve warrants. As a result of the foregoing, the ability of PCL to
use and distribute revenue is severely restricted so long as the PC-1 Credit
Facility remains in existence.
MAC Credit Facility
MACL is the borrower under the $260.0 million senior secured MAC Credit
Facility, comprised of a $220.0 million term loan to fund the construction of
MAC, a $30.0 million term loan to fund future upgrades of MAC and a $10.0
million working capital facility, with certain commercial lending institutions
and CIBC Inc. and Deutsche Bank AG, New York Branch, an affiliate of Deutsche
Bank Securities Inc., as lead agents for the lenders. The MAC Credit Facility
is secured by pledges of the stock of MACL and its subsidiaries and security
interests in certain of the assets and revenues of MACL and its subsidiaries
and is being used to provide financing for a portion of MAC. A portion of the
MAC Credit Facility is available only to pay interest on the loans prior to the
MAC RFS date. The term loans under the MAC Credit Facility will amortize over
ten semi-annual installments, scheduled to commence approximately in August
2000. Borrowings bear interest at an adjustable rate based on the adjusted base
rate or LIBOR plus an applicable margin. The facility also requires mandatory
prepayments to be made from, among other things, 50% of excess cash flow, 50%
of net cash proceeds of any equity offering of MACL and 100% of net cash
proceeds of any permitted debt offerings of MACL, permitted asset sale or
insurance proceeds.
The MAC Credit Facility contains covenants that, among other things, restrict
MACL's ability, and any subsidiary's ability, to incur indebtedness, make
investments, loans, advances, guarantees and acquisitions, and make dividends
and distributions. The facility generally only permits dividends or
distributions with respect to a portion of MACL's excess cash flow, and
securely restricts the payments of other dividends and payments.
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The MAC Credit Facility contains certain financial covenants relating to
minimum sales of capacity on MAC, minimum interest coverage ratio and minimum
remaining asset value to debt, the failure to comply with which would cause all
excess cash flow to be applied to the lenders under the MAC Credit Facility.
The MAC Credit Facility contains events of default including, among other
things, failure to pay amounts when due, failure to comply with covenants and
insolvency. An event of default shall also occur upon the occurrence of certain
failures in connection with MAC. Upon the occurrence of an event of default,
the MAC Credit Facility permits the lenders to (1) declare the loans then
outstanding to be immediately due and payable and (2) to proceed against the
collateral. In addition, the MAC Credit Facility prescribes the order by which
proceeds from the sale of MAC capacity shall be applied, both prior to and
after the commencement of commercial operations, and requires MACL to maintain
certain reserve accounts. As a result of the foregoing, the ability of MACL to
use and distribute revenue is severely restricted so long as the MAC Credit
Facility remains in existence.
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TAX CONSIDERATIONS
Taxation of the Company
The Company believes that a significant portion of the income derived from
its subsea systems will not be subject to tax in Bermuda, which currently has
no corporate income tax, or other countries in which the Issuer or its
affiliates conduct activities or in which customers of the Company are located,
including the United States. However, this belief is based upon the anticipated
nature and conduct of the business of the Company, which may change, and upon
the Company's understanding of its position under the tax laws of the various
countries in which the Company has assets or conducts activities, which
position is subject to review and possible challenge by taxing authorities and
to possible changes in law (which may have retroactive effect). The extent to
which certain taxing jurisdictions may require the Company to pay tax or to
make payments in lieu of tax cannot be determined in advance. In addition, the
operations of and payments due to the Company may be affected by changes in
taxation, including retroactive tax claims or assessments of withholding on
amounts payable to the Company or other taxes assessed at the source, in excess
of the taxation anticipated by the Company based on business contacts and
practices of the Company and the current tax regimes. There can be no assurance
that these factors will not have a material adverse effect on the Company.
United States Federal Income Tax Considerations
The Issuer and its non-United States subsidiaries will be subject to United
States federal income tax at regular corporate rates (and to United States
branch profits tax) on their income that is effectively connected with the
conduct of a trade or business within the United States, and will be required
to file federal income tax returns reflecting that income. The Company intends
to conduct its operations so as to reduce the amount of its effectively
connected income. However, no assurance can be given that the Internal Revenue
Service ("IRS") will agree with the positions taken by the Company in this
regard. Moreover, the United States subsidiaries of the Issuer will be subject
to United States federal income tax on their worldwide income regardless of its
source (subject to reduction by allowable foreign tax credits), and
distributions by such United States subsidiaries to the Issuer or its foreign
subsidiaries generally will be subject to United States withholding tax.
Bermuda Tax Considerations
Under current Bermuda law, the Company is not subject to tax on income or
capital gains. Furthermore, the Company has obtained from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 (as
amended), 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 such tax will not be applicable to the Company or to any of
its operations, or the Preferred Stock or Exchange Notes of the Company, until
March 28, 2016. This undertaking does not, however, prevent the imposition of
property taxes on any company owning real property or leasehold interests in
Bermuda.
Taxation of Holders of Preferred Stock and Exchange Notes
Bermuda Tax Considerations
Under current Bermuda law, no income, withholding or other taxes or stamp or
other duties are imposed upon the issue, transfer or sale of the Preferred
Stock or the Exchange Notes or on any payments thereunder. See "--Taxation of
the Company--Bermuda Tax Considerations" for a description of the undertaking
on taxes obtained by the Company from the Minister of Finance of Bermuda.
United States Federal Income Tax Considerations
The following summary describes certain United States federal income tax
consequences of the purchase, ownership and disposition of Preferred Stock and
Exchange Notes by initial holders who acquired the Preferred Stock pursuant to
the offering of the Old Preferred Stock. Except where noted, this summary
assumes that
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investors will hold their Preferred Stock and Exchange Notes as capital assets
and does not discuss special situations, such as those of dealers in securities
or currencies, financial institutions, tax-exempt entities, life insurance
companies, persons holding Preferred Stock and Exchange Notes as a part of a
hedging, short-sale, "integrated" or conversion transaction or a straddle or
holders of Preferred Stock or Exchange Notes whose "functional currency" is not
the United States dollar all of whom may be subject to rules that differ
significantly from those summarized below. In addition, the summary generally
does not address the tax consequences to United States Holders (as defined
below) that own (or are deemed for United States federal income tax purposes to
own, pursuant to complex attribution and constructive ownership rules) 10% or
more of the voting stock of the Issuer or any of its non-United States
subsidiaries ("10% Shareholders"). 10% Shareholders are advised to consult
their own tax advisors regarding the federal, state, local and foreign income
and other tax considerations incident to an investment in the Preferred Stock
and Exchange Notes.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in United States federal income
tax consequences different from those discussed below.
As used herein, a "United States Holder" of Preferred Stock or Exchange Notes
means a holder that is (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source or (iv) a trust which is subject to the supervision of a court within
the United States and the control of one or more United States persons as
described in section 7701(a)(30) of the Code. A Non-United States Holder means
a holder other than a United States Holder.
Persons considering the purchase, ownership or disposition of Preferred Stock
or Exchange Notes should consult their own tax advisors concerning the United
States federal, state and local income and other tax consequences in light of
their particular circumstances as well as any consequences arising under the
laws of any other taxing jurisdiction.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Preferred Stock for Exchange Preferred Stock in the
Exchange Offer will not constitute a taxable event to holders. Consequently, no
gain or loss will be recognized by a holder upon receipt of the Exchange
Preferred Stock. The holding period of the Exchange Preferred Stock will
include the holding period of the Old Preferred Stock and the basis of the
Exchange Preferred Stock will be the same as the basis of the Old Preferred
Stock immediately before the exchange.
In any event, persons considering the exchange of Old Preferred Stock for
Exchange Preferred Stock should consult their own tax advisors concerning the
United States federal income tax consequences in light of their particular
situations as well as any consequences arising under the laws of any other
taxing jurisdiction.
UNITED STATES HOLDERS
Classification of Preferred Stock and Exchange Notes
Although the characterization of an instrument as debt or equity is a factual
determination that cannot be predicted with certainty, the Issuer intends to
treat the Preferred Stock as stock and the Exchange Notes as debt for United
States federal income tax purposes. The remainder of this discussion assumes
that such treatment will be respected, but no opinion is either expressed or
implied on this issue. Any change in these assumptions would alter the tax
consequences described below.
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Preferred Stock
Dividends
Subject to the PFIC rules described below, distributions on the Preferred
Stock will constitute dividend income for United States federal income tax
purposes, subject to tax as ordinary income, to the extent paid from current or
accumulated earnings and profits of the Issuer (as determined under United
States federal income tax principles) ("earnings and profits"). Such dividends
will not be eligible for the dividends received deduction allowed to
corporations under the Code. Dividends "paid in kind" through the issuance of
additional Preferred Stock will be treated as distributions in an amount equal
to the fair market value of such additional Preferred Stock as of the date of
distribution. Such amount will also be the initial issue price and tax basis of
the newly distributed Preferred Stock for United States federal income tax
purposes. The holding period for such newly distributed Preferred Stock will
commence with its distribution, and will not include the United States Holder's
holding period for outstanding shares of Preferred Stock with respect to which
such newly distributed Preferred Stock was distributed.
The Issuer believes that it currently has no current or accumulated earnings
and profits. The existence of current and accumulated earnings and profits in
subsequent years will depend on future levels of profits and losses which the
Issuer cannot accurately predict at this time. To the extent that the amount of
any distribution on the Preferred Stock, exceeds the Issuer's current and
accumulated earnings and profits, the distribution will first be treated as a
tax-free return of capital, causing a reduction in the adjusted basis of the
Preferred Stock (thereby increasing the amount of gain, or decreasing the
amount of loss, to be recognized by the United States Holder on a subsequent
disposition of the Preferred Stock), and the balance in excess of the adjusted
basis will be subject to tax as capital gain.
For so long as the Issuer is a "United States-owned foreign corporation,"
distributions with respect to the Preferred Stock that are taxable as dividends
generally will be treated for United States foreign tax credit purposes as (i)
foreign source "passive income" (or, in the case of certain United States
Holders, foreign source "financial services income") and (ii) United States
source income, in proportion to the earnings and profits of the Issuer in the
year of such distribution allocable to foreign and United States sources,
respectively. For this purpose, the Issuer 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 the Issuer is owned, directly or indirectly, by United
States Holders. The Issuer believes that it currently is characterized as a
United States-owned foreign corporation for United States federal income tax
purposes.
Redemption Premium
Under Section 305(c) of the Code and the applicable regulations thereunder,
if in certain circumstances the redemption price of the Preferred Stock exceeds
its issue price by more than a de minimis amount, the difference ("redemption
premium") will be taxable as a constructive distribution of additional
Preferred Stock to the United States Holder under a constant interest rate
method similar to that described below for accruing original issue discount
("OID") (see "--Exchange Notes--Original Issue Discount"). Because the
Preferred Stock provides for optional rights of redemption by the Issuer at
prices in excess of the issue price, stockholders could be required to
recognize such excess if, based on all of the facts and circumstances, the
optional redemptions are more likely than not to occur. Applicable regulations
provide a "safe harbor" under which a right to redeem will not be treated as
more likely than not to occur if (i) the Issuer and the United States Holder
are not related within the meaning of the regulations; (ii) there are no plans,
arrangements, or agreements that effectively require or are intended to compel
the Issuer to redeem the stock (disregarding, for this purpose, a separate
mandatory redemption), and (iii) exercise of the right to redeem would not
reduce the yield of the stock, as determined under the regulations. Regardless
of whether the optional redemptions are more likely than not to occur,
constructive dividend treatment will not result if the redemption premium does
not exceed a de minimis amount or is in the nature of a penalty for premature
redemption. The Issuer intends to take the position that the existence of the
Issuer's optional redemption rights does not result in a constructive
distribution to United States Holders.
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Any additional shares of Preferred Stock distributed by the Issuer in lieu of
cash dividend payments on the Preferred Stock will bear redemption premium if
the issue price of such shares (i.e., the fair market value of such shares on
the date of issuance) is less than their redemption price. This may give rise
to constructive distributions as described above. If such shares bear
redemption premium, such shares generally will have different tax
characteristics than other shares of Preferred Stock. This difference in tax
characteristics could adversely affect the liquidity of the shares.
Disposition of Preferred Stock
A United States Holder's adjusted tax basis in the Preferred Stock will, in
general, be the United States Holder's initial tax basis of such Preferred
Stock increased by any redemption premium previously included in income by the
United States Holder, and reduced by any previous distributions that are not
characterized as dividends. Subject to the PFIC rules described below, upon the
sale or other disposition of Preferred Stock (other than by redemption,
discussed below) a United States Holder will generally recognize capital gain
or loss equal to the difference between the amount realized upon the
disposition and the adjusted tax basis of the Preferred Stock. Such gain or
loss will be capital gain or loss and will be long-term capital gain or loss if
at the time of sale, exchange, redemption or other disposition the Preferred
Stock has been held for more than one year. Net capital gain of individuals
derived in respect of capital assets held for more than one year are eligible
for reduced rates of taxation. The deductibility of capital losses is subject
to limitations. Any gain recognized by a United States Holder generally will be
treated as United States source income. It is presently unclear whether any
loss realized by a United States Holder will be treated as United States or
foreign source.
A redemption of the Preferred Stock by the Issuer would be treated, under
Section 302 of the Code, either as a sale or exchange giving rise to capital
gain or loss or as described below as a dividend. In the case of a redemption
of Preferred Stock for Exchange Notes, the amount realized on the exchange
would be equal to the "issue price" of the Exchange Note plus any cash received
on the exchange. The issue price of an Exchange Note would be equal to (i) its
fair market value as of the exchange date if the Exchange Notes are traded on
an established securities market on or at any time during a specified period or
(ii) the fair market value at the exchange date of the Preferred Stock if such
Preferred Stock is traded on an established securities market during a
specified period but the Exchange Notes are not. If neither the Preferred Stock
nor the Exchange Notes are so traded, the issue price of the Exchange Notes
would be determined under Section 1274 of the Code, in which case the issue
price would be the stated principal amount of the Exchange Notes provided that
the yield on the Exchange Notes is equal to or greater than the "applicable
federal rate" in effect at the time the Exchange Notes are issued. If the yield
on the Exchange Notes is less than such applicable federal rate, its issue
price under section 1274 of the Code would be equal to the present value as of
the issue date of all payments to be made on the Exchange Notes discounted at
the applicable federal rate. It cannot be determined at the present time
whether the Preferred Stock or the Exchange Notes will be, at the relevant
time, traded on an established securities market or whether the yield on the
Exchange Notes will equal or exceed the applicable federal rate, as discussed
above.
If a redemption of shares of the Preferred Stock for cash or an exchange of
the Preferred Stock for Exchange Notes is treated as a dividend with respect to
a particular exchanging United States Holder under Section 302 of the Code,
such United States Holder (i) will not recognize any loss on the exchange, (ii)
will recognize dividend income (rather than capital gain) in an amount equal to
the issue price of the Exchange Notes received, without regard to the United
States Holder's basis in the shares of Preferred Stock surrendered in the
exchange, to the extent of its proportionate share of the Issuer's current or
accumulated earnings and profits and (iii) the holding period for the Exchange
Notes will begin on the day after the day on which the Exchange Notes are
acquired by the exchanging United States Holder. Pursuant to Section 302 of the
Code, the redemption or exchange will not be treated as a dividend provided
that, after giving effect to the constructive ownership rules of Section 318 of
the Code, the redemption or exchange (i) represents a "complete termination" of
the exchanging United States Holder's stock interest in the Issuer, (ii) is
"substantially disproportionate" with respect to the exchanging United States
Holder or (iii) is "not essentially equivalent to a dividend" with respect to
the exchanging United States Holder, all within the meaning of Section 302(b)
of
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the Code. An exchange will be "not essentially equivalent to a dividend" as to
a particular United States Holder if it results in a "meaningful reduction" in
such United States Holder's interest in the Issuer (after application of the
constructive ownership rules of Section 318 of the Code). In general, there
are no fixed rules for determining whether a "meaningful reduction" has
occurred. Each United States Holder should consult its own tax advisor as to
its ability in light of its own particular circumstances to satisfy any of the
foregoing tests.
Depending upon a United States Holder's particular circumstances, the tax
consequences of holding Exchange Notes may be less advantageous than the tax
consequences of holding Preferred Stock, for example, as discussed at "--
Exchange Notes--Original Issue Discount," Exchange Notes may be issued with
OID.
Passive Foreign Investment Company
The Issuer believes that it is not a PFIC and does not expect to become a
PFIC in the future for United States federal income tax purposes, although
there can be no assurance in this regard. This conclusion is a factual
determination made annually and thus is subject to change. In addition, it is
based, in part, on interpretations of existing law that the Issuer believes
are reasonable, but which have not been approved by any taxing authority.
In general, the Issuer will be a PFIC with respect to a United States Holder
if, for any taxable year in which the United States Holder held Preferred
Stock, either (i) at least 75% of the gross income of the Issuer for the
taxable year is passive income or (ii) at least 50% of the value (determined
on the basis of a quarterly average) of the Issuer's assets is attributable to
assets that produce or are held for the production of passive income. For this
purpose, passive income generally includes dividends, interest, royalties,
rents (other than rents and royalties derived in the active conduct of a trade
or business and not derived from a related person), annuities and gains from
assets that produce passive income. If the Issuer owns (directly or
indirectly) at least 25% by value of the stock of another corporation, the
Issuer will be treated for purposes of the PFIC tests as owning its
proportionate share of the assets of the other corporation, and as receiving
directly its proportionate share of the other corporation's income. If the
Issuer is classified as a PFIC in any year with respect to which a United
States person is a shareholder, the Issuer generally will continue to be
treated as a PFIC with respect to such 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
certain circumstances.
If the Issuer is treated as a PFIC, unless a United States Holder makes a
"QEF election" or a "mark to market election," each as described below:
1. Distributions made by the Issuer during a taxable year to a United
States Holder with respect to Preferred Stock that are "excess
distributions" (defined generally as the excess of the amount received
with respect to the Preferred Stock in any taxable year over 125% of the
average received in the shorter of either the three previous years or
the United States Holder's holding period before the taxable year) must
be allocated ratably to each day of the United States Holder's holding
period. The amounts allocated to the current taxable year and to taxable
years prior to the first year in which the Issuer was classified as a
PFIC are included as ordinary income in the United States Holder's gross
income for that current year. The amount allocated to each other prior
taxable year is taxed as ordinary income at the highest rate in effect
for the United States Holder in that prior year and the tax is subject
to an interest charge at the rate applicable to deficiencies in income
taxes.
2. The entire amount of any gain realized upon the sale or other
disposition (including for these purposes a pledge) of Preferred Stock
will be treated as an excess distribution made in the year of sale or
other disposition and as a consequence will be treated as ordinary
income and, to the extent allocated to years prior to the year of sale
or disposition, will be subject to the interest charge described above.
In addition, United States Holders who acquire their Preferred Stock
from decedents generally will not receive a "stepped-up" basis in such
Preferred Stock. Instead, such United States Holder will have a tax
basis equal to the lower of the fair market value of such Preferred
Stock or the decedent's basis.
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The special PFIC tax rules described above will not apply to a United States
Holder if the United States Holder elects to have the Issuer treated as a
"qualified electing fund" (a "QEF election") and the Issuer provides certain
information to United States Holders. If the Issuer is treated as a PFIC, it
intends to notify United States Holders and to provide to United States Holders
such information as may be required to make such QEF election effective.
A United States Holder that makes a QEF election will be taxable currently on
its pro rata share of the Issuer's ordinary earnings and net capital gain (at
ordinary income and capital gain rates, respectively) for each taxable year of
the Issuer during which it is treated as a PFIC, regardless of whether or not
distributions were received. The United States Holder's basis in the Preferred
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 Preferred Stock and will not be taxed
again as a distribution to the United States Holder.
Alternatively, a United States Holder of stock in a PFIC that is treated as
"marketable stock" may make a mark to market election. A United States Holder
that makes such an election will not be subject to the PFIC rules described
above. Instead, in general, an electing United States Holder will include in
income each year as ordinary income the excess, if any, of the fair market
value of such 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 such 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 United States
Holder's basis in the stock will be adjusted to reflect any such income or loss
amounts. Any gain or loss on the sale of the Preferred Stock will be ordinary
income or loss (except that such loss will be ordinary loss only to the extent
of the previously included net mark to market gain.) The mark to market
election is only available with respect to stock that is regularly traded on
certain United States exchanges and other exchanges designated by the United
States Treasury. The Company does not expect that the Preferred Stock will meet
such requirements.
A United States Holder who owns Preferred Stock during any year that the
Issuer is a PFIC must file IRS Form 8621. United States Holders are urged to
consult their tax advisors concerning the United States federal income tax
consequences of holding Preferred Stock of the Issuer if it is considered a
PFIC, including the advisability and availability of making any of the
foregoing elections.
Foreign Personal Holding Company
If the Issuer or one of its non-United States subsidiaries were classified as
an FPHC, all United States Holders (including certain indirect holders),
regardless of their percentage ownership, would be required to include in
income, as a dividend, their pro rata share of the Issuer's (or its relevant
non-United States subsidiary's) undistributed FPHC income (generally, taxable
income with certain adjustments) if they were holders on the last day of the
Issuer's taxable year (or if earlier, the last day on which the Issuer
satisfied the shareholder test). In addition, if the Issuer were classified as
an FPHC, United States Holders who acquire their Preferred Stock from decedents
would not receive a "stepped-up" basis in such Preferred Stock. Instead, such
United States Holders would have a tax basis equal to the lower of the fair
market value of such Preferred Stock or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) 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) (the "shareholder test")
and (ii) 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 (the "income test"). It is possible that the Issuer and
its subsidiaries could meet the shareholder test in a given taxable year. It is
also possible that the Issuer or one of its non-United States subsidiaries
would meet the income test in a given year and would be treated as an FPHC. The
Company intends to manage its affairs so as to attempt to avoid or minimize
having income
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<PAGE>
imputed to its United States Holders under these rules, to the extent such
management of its affairs is consistent with its business goals, although there
can be no assurance in this regard.
Personal Holding Company
A corporation classified as a PHC is subject to a 39.6% tax on its
undistributed PHC income. Foreign corporations (such as the Issuer) determine
their liability for PHC tax by considering only (i) gross income derived from
United States sources and (ii) gross income that is effectively connected with
a United States trade or business. A corporation will be classified as a PHC if
(i) 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 (by value)
directly or indirectly and (ii) the corporation receives at least 60% of its
gross income, as adjusted, from certain passive sources. However, if a
corporation is an FPHC or a PFIC, it cannot be a PHC. It is possible that the
Issuer and its subsidiaries could meet the PHC shareholder test in a given
taxable year. It is also possible that the Issuer or one of its subsidiaries
would meet the income test in a given year and would be treated as a PHC. The
Company intends to manage its affairs so as to attempt to avoid or minimize the
imposition of the PHC tax, to the extent such management of its affairs is
consistent with its business goals, although there can be no assurance in this
regard.
Controlled Foreign Corporations
If 10% Shareholders (as defined above) own, in the aggregate, more than 50%
(measured by voting power or value) of the shares of the Issuer or any of its
non-United States subsidiaries (directly, indirectly, or by attribution), the
Issuer or any such non-United States subsidiary would be a CFC. If
characterized as CFCs, then a portion of the undistributed income of the Issuer
and its non-United States subsidiaries may be includible in the taxable income
of 10% Shareholders of those entities, and a portion of the gain recognized by
such 10% Shareholders on the disposition of their shares in the Issuer (which
could otherwise qualify for capital gains treatment) may be converted into
ordinary dividend income. It is possible that the Issuer and its non-United
States corporate subsidiaries may be CFCs or may become CFCs in the future.
However, as discussed above, CFC status generally only has potentially adverse
consequences to 10% Shareholders.
Exchange Notes
Interest and OID on the Exchange Notes
The tax treatment of the Exchange Notes will depend upon whether they are
issued with OID. Exchange Notes issued on or before June 1, 2002 will be issued
with OID. Exchange Notes issued after June 1, 2002 may be issued with OID, but
only if their principal amount exceeds their issue price, as defined above. The
interest (including OID) generally will be treated as foreign source passive
income (or, in the case of certain United States Holders, foreign source
financial services income) for foreign tax credit purposes. Exchange Notes
issued with OID will be referred to as "OID Notes."
Stated Interest
Payments of interest on Exchange Notes issued after June 1, 2002 generally
will be includible in a United States Holder's income as ordinary income under
the United States Holder's method of accounting for United States federal
income tax purposes. However, because the Issuer has the option through June 1,
2002 to pay interest on the Exchange Notes by issuing additional Exchange
Notes, Exchange Notes issued prior to that date will be treated as issued with
OID, and stated interest on such Exchange Notes would not be treated as
interest for United States federal income tax purposes, but instead will be
subject to the OID rules described below.
Original Issue Discount
An Exchange Note will be issued with OID to the extent that its "stated
redemption price at maturity" exceeds its "issue price" by more than a de
minimis amount (i.e., .25% of the stated redemption price at
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<PAGE>
maturity multiplied by the number of complete years to maturity.) United States
Holders of OID Notes will be subject to special tax accounting rules, as
described in greater detail below. United States Holders of OID Notes should be
aware that they generally must include OID in gross income for United States
federal income tax purposes on an annual basis under a constant yield accrual
method. As a result, such United States Holders will include OID in income in
advance of the receipt of cash attributable to that income. However, United
States Holders of OID Notes generally will not be required to include
separately in income cash payments received on such OID Notes, even if
denominated as interest, to the extent such payments do not constitute
qualified stated interest (as defined below). The Issuer will report to United
States Holders of any Exchange Notes with OID on a timely basis the reportable
amount of OID and interest income based on its understanding of applicable law.
The "stated redemption price at maturity" of a debt instrument is the sum of
its principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest." For this purpose, "qualified stated
interest" means stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the company), at least annually at
a single fixed rate during the entire term of the debt instrument that
appropriately takes into account the length of the intervals between payments.
If the Exchange Notes are issued at a time when the Issuer has the option to
pay interest on the Exchange Notes by issuing additional Exchange Notes, none
of the stated interest on such Exchange Notes will be treated as qualified
stated interest so that all of such payments will be included in the "stated
redemption price at maturity" and the Exchange Notes will be issued with OID.
If Exchange Notes are issued when the Issuer does not have such an option, then
the stated interest on the Exchange Notes will be qualified stated interest,
includible in income in accordance with the United States Holder's method of
accounting, but Exchange Notes may still be issued with OID to the extent that
the issue price is less than the principal amount. The "issue price" of an
Exchange Note will be determined as described under "--Preferred Stock--
Disposition of Preferred Stock."
The amount of OID includible in income by the initial United States Holder of
an OID Note is the sum of the "daily portions" of OID with respect to the OID
Note for each day during the taxable year or portion of the taxable year in
which such United States Holder held such OID Note ("accrued OID"). The daily
portion is determined by allocating to each day in any "accrual period" a pro
rata portion of the OID allocable to that accrual period. The "accrual period"
for an OID Note may be of any length and may vary in length over the term of
the OID Note, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs on the first day or the
final day of an accrual period. The amount of OID allocable to any accrual
period is an amount equal to the excess, if any, of (a) the product of the OID
Note adjusted issue price at the beginning of such accrual period and its yield
to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of any qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and the
adjusted issue price at the beginning of the final accrual period. Special
rules will apply for calculating OID for an initial short accrual period. The
"adjusted issue price" of an OID Note at the beginning of any accrual period is
equal to its issue price increased by the accrued OID for each prior accrual
period (determined without regard to the amortization of any acquisition or
bond premium, as described below) and reduced by any payments made on such OID
Note (other than qualified stated interest) on or before the first day of the
accrual period. Under these rules, a United States Holder will have to include
in income increasingly greater amounts of OID in successive accrual periods.
Amortizable Bond Premium
If at the time the Preferred Stock is exchanged for the Exchange Notes, the
United States Holder's tax basis in any such Exchange Notes exceeds its stated
redemption price at maturity, the Exchange Notes will be considered to have
been issued at a premium. A United States Holder generally may elect to
amortize the premium over the term of the Exchange Notes on a constant yield
method as an offset to interest when includible in income under the United
States Holder's regular accounting method. The election to amortize premium on
a constant yield method once made applies to all debt obligations held or
subsequently acquired by
144
<PAGE>
the electing United States Holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS.
Redemption, Sale or Exchange of Exchange Notes
The adjusted tax basis of a United States Holder who receives Exchange Notes
in exchange for Preferred Stock will, in general, be equal to the initial tax
basis of such Exchange Notes, increased by any OID previously included in
income by the United States Holder and reduced by any cash payments on the
Exchange Notes other than qualified stated interest. Upon the redemption, sale,
exchange or retirement of an Exchange Note, a United States Holder will
recognize gain or loss equal to the difference between the amount realized upon
the redemption, sale, exchange or retirement (less any amount attributable to
accrued qualified stated interest that has not previously been included in
income, which will be taxable as such) and the adjusted tax basis of the
Exchange Notes. Such gain or loss will be capital gain or loss. Net capital
gains of individuals derived in respect of capital assets held for more than
one year are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations. Any gain recognized by a United
States Holder generally will be treated as United States source income. It is
presently unclear whether any loss realized by a United States Holder will be
treated as United States or foreign source.
Prospective investors are urged to consult their own tax advisors as to the
consequences of owning Exchange Notes.
Taxation of Non-United States Holders
For United States federal income tax purposes, a non-United States Holder
should not be subject to tax on distributions made with respect to, and gains
realized from the disposition of, Preferred Stock or Exchange Notes unless such
distributions and gains are attributable to an office or fixed place of
business maintained by such non-United States Holder in the United States.
Information Reporting and Backup Withholding
United States Holders. In general, information reporting requirements will
apply to dividends in respect of the Preferred Stock, certain payments of
principal, interest, OID and premium on the Exchange Notes, and the proceeds
received on the sale, exchange, or redemption of the Preferred Stock and
Exchange Notes paid within the United States (and in certain cases, outside of
the United States) to United States Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding may apply to such
amounts if the United States Holder 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 United States Holder will be allowable as a credit against the
United States Holder's United States federal income tax liability.
Non-United States Holders. Under current law, United States information
reporting requirements and backup withholding generally will not apply to
dividends paid on the Preferred Stock to a non-United States Holder at an
address outside the United States (unless the payer has knowledge that the
payee is a United States person). However, under recently finalized United
States Treasury regulations (the "Final Regulations") effective for payments
made after December 31, 1999, a non-US Holder will generally be subject to
back-up withholding unless applicable certification requirements are met.
With respect to payment of interest on the Exchange Notes, no information
reporting or backup withholding will be required with respect to payments made
to non-United States Holders if the beneficial owner of such Note, or financial
institution holding the Note on behalf of such owner, provides, in accordance
with specified procedures, a paying agent of the Issuer with a statement to the
effect that the beneficial owner is not a United States Holder (or the holder
otherwise establishes an exemption). Under current law, such requirement may be
met if the beneficial owner certifies under penalty of perjury that it is a
non-United States
145
<PAGE>
Holder (which certification may be made on IRS Form W-8 (or successor form))
and the payor does not have actual knowledge that the beneficial owner is a
United States person. Under the Final Regulations, the requirement may also be
satisfied with other documentary evidence for interest paid after December 31,
1999 with respect to an offshore account or through certain foreign
intermediaries.
As a general matter, information reporting and backup withholding will not
apply to a payment of the proceeds of a sale of Preferred Stock and Exchange
Notes effected outside the United States by a foreign office of a non-United
States Holder. However, payment of the proceeds of a sale of Preferred Stock
and Exchange Notes within the United States or conducted through certain United
States related financial intermediaries is subject to both backup withholding
and information reporting unless the certification provided for above is
provided or the holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
non-United States Holder will be allowed as a refund or a credit against such
non-United States Holder's United States Federal income tax, provided that the
required information or appropriate claim for refund is furnished to the IRS.
146
<PAGE>
PLAN OF DISTRIBUTION
Until , 1999 (40 days after the date of this prospectus), all dealers
effecting transactions in the Exchange Preferred Stock (or any New Exchange
Notes issued in exchange therefor), whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
Each broker-dealer that receives shares of Exchange Preferred Stock (or any
New Exchange Notes issued in exchange therefor) for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such shares of Exchange Preferred Stock (or any
New Exchange Notes issued in exchange therefor). This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of shares of Exchange Preferred Stock (or any New
Exchange Notes issued in exchange therefor) received in exchange for shares of
Old Preferred Stock only where such shares of Old Preferred Stock were acquired
as a result of market-making activities or other trading activities. The
Company has agreed that it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale for a period of one year from the date on which the Exchange Offer
is consummated, or such shorter period as will terminate when all shares of Old
Preferred Stock acquired by broker-dealers for their own accounts as a result
of market-making activities or other trading activities have been exchanged for
shares of Exchange Preferred Stock and such shares of Exchange Preferred Stock
(or any New Exchange Notes issued in exchange therefor) have been resold by
such broker-dealers.
The Company will not receive any proceeds from any sale of Exchange Preferred
Stock (or any New Exchange Notes issued in exchange therefor) by broker-
dealers. Shares of Exchange Preferred Stock received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the shares of Exchange
Preferred Stock (or any New Exchange Notes issued in exchange therefor) or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any shares of
Exchange Preferred Stock (or any New Exchange Notes issued in exchange
therefor). Any broker-dealer that resells shares of Exchange Preferred Stock
(or any New Exchange Notes issued in exchange therefor) that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such shares of Exchange Preferred Stock
(or any New Exchange Notes issued in exchange therefor) may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and any profit
on any such resale of shares of Exchange Preferred Stock (or any New Exchange
Notes issued in exchange therefor) and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act of 1933. The Letter of Transmittal states that by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933.
For a period of one year from the date on which the Exchange Offer is
consummated, or such shorter period as will terminate when all shares of Old
Preferred Stock acquired by broker-dealers for their own accounts as a result
of market-making activities or other trading activities have been exchanged for
shares of Exchange Preferred Stock and such shares of Exchange Preferred Stock
(or any New Exchange Notes issued in exchange therefor) have been resold by
such broker-dealers, the Company will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any broker-
dealer that requests such documents in the Letter of Transmittal. The Company
has agreed to pay all expenses incident to the Exchange Offer other than
commissions or concessions of any brokers or dealers and the fees of any
counsel or other advisors or experts retained by the holders of Preferred
Stock, except as expressly set forth in the Registration Rights Agreement, and
will indemnify the holders of Preferred Stock (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act of
1933.
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<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
Exchange Preferred Stock and the New Exchange Notes being offered hereby. This
prospectus, which forms a part of the registration statement, does not contain
all of the information set forth in the registration statement. You should
refer to the registration statement for further information. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the registration statement, each such statement is
qualified by the provision in such exhibit to which reference is hereby made.
Global Crossing Ltd., our parent, is subject to the informational
requirements of the Securities Exchange Act of 1934. Accordingly, it is
required to file reports and other information with the Securities and Exchange
Commission. We are not currently subject to the informational requirements of
the Securities Exchange Act of 1934. As a result of this offering of these
securities, we will become subject to the informational requirements of the
Securities Act of 1934. Accordingly, we will file reports and such other
information with the Securities and Exchange Commission unless and until we
obtain an exemption from such requirement. The registration statement, such
other reports and other information can be inspected and copied at the Public
Reference Section of the Securities and Exchange Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington D.C. 20549 and at
regional public reference facilities maintained by the Securities and Exchange
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material, including copies of all or any portion of
the registration statement, can be obtained from the Public Reference Section
of the Securities and Exchange Commission at prescribed rates. Such material
may be accessed electronically by means of the Securities and Exchange
Commission's home page on the Internet (http://www.sec.gov).
Furthermore, we agree that, even if we are not required to file periodic
reports and information with the Securities and Exchange Commission, for so
long as any Exchange Preferred Stock or New Exchange Notes remain outstanding
we will furnish to you the information that would be required to be furnished
by us under Section 13 of the Securities Exchange Act of 1934. We will be
deemed to have satisfied such requirements if the Securities and Exchange
Commission grants us an exemption from filing reports, documents and
information separately with the Securities and Exchange Commission because
Global Crossing Ltd. files such reports and information with them. However, we
will be deemed to have satisfied such requirements only if Global Crossing Ltd.
files and provides such reports, documents and information of the types
otherwise so required by the Securities and Exchange Commission, in each case
within the applicable time periods.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Exchange Preferred
Stock have been passed upon by Appleby, Spurling & Kempe, Hamilton, Bermuda.
Certain legal matters with respect to the legality of the New Exchange Notes
have been passed upon for the Issuer by Simpson Thacher & Bartlett, New York,
New York. Simpson Thacher & Bartlett will rely, as to matters of Bermuda law,
on the opinion of Appleby, Spurling & Kempe, Hamilton, Bermuda. Certain
partners of Simpson Thacher & Bartlett purchased certain shares of GCL Common
Stock in the GCL Stock Offerings in an aggregate amount equal to less than 1%
of the total shares offered in the GCL Stock Offerings.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen & Co.,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1997.................................................... F-3
Consolidated Statements of Operations for the three months ended
September 30, 1998 (unaudited) and September 30, 1997 (unaudited),
for the nine months ended September 30, 1998 (unaudited), for the
period from March 19, 1997 (Date of Inception) to September 30,
1997 (unaudited) and for the period from March 19, 1997 (Date of
Inception) to December 31, 1997.................................... F-4
Consolidated Statements of Shareholder's Equity for the nine months
ended September 30, 1998 (unaudited) and for the period from March
19, 1997 (Date of Inception) to December 31, 1997.................. F-5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 (unaudited), for the period from March 19, 1997
(Date of Inception) to September 30, 1997 (unaudited) and for the
period from March 19, 1997 (Date of Inception) to December 31,
1997............................................................... F-6, F-7
Notes to Consolidated Financial Statements............................ F-8
</TABLE>
Note:
The consolidated financial statements of Global Crossing Holdings Ltd. ("GCH")
and subsidiaries have been presented as if GCH was in existence on March 19,
1997 (Date of Inception).
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Global Crossing Holdings Ltd.:
We have audited the accompanying consolidated balance sheet of Global
Crossing Holdings Ltd. (a Bermuda company in its development stage) and
subsidiaries as of December 31, 1997, and the related consolidated statements
of operations, shareholder's equity and cash flows for the period from March
19, 1997 (Date of Inception) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Holdings Ltd.
and subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for the period from March 19, 1997 (Date of Inception) to
December 31, 1997, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen & Co.
Hamilton, Bermuda
April 21, 1998
F-2
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............. $ 485,686,750 $ 1,452,684
Restricted cash and cash equivalents.. 391,813,047 25,275,196
Accounts receivable, net of allowance
for doubtful accounts of $2,210,995.. 29,110,516 --
Other assets and prepaid costs........ 34,160,267 1,015,958
-------------- ------------
940,770,580 27,743,838
Long term accounts receivable........... 33,639,685 --
Capacity available for sale............. 213,834,977 21,200,000
Construction in progress................ 657,141,879 497,318,509
Deferred finance and organization
costs, net of accumulated amortization
of $8,853,393 ($2,246,857 as of
December 31, 1997)..................... 41,599,923 25,934,021
Investment in Pacific Crossing Ltd. .... 162,109,023 --
-------------- ------------
$2,049,096,067 $572,196,368
============== ============
LIABILITIES:
Current liabilities:
Accrued construction costs............ $ 17,353,599 $ 52,003,875
Accounts payable and accrued
liabilities.......................... 9,164,558 2,939,753
Accrued interest...................... 28,661,112 1,640,500
Deferred revenue...................... 38,253,242 5,325,000
Current portion of long term debt..... 27,385,522 --
Current portion of obligations under
inland services agreement and capital
leases............................... 33,344,398 30,188,645
-------------- ------------
154,162,431 92,097,773
Long term debt.......................... 337,754,772 162,325,000
Senior notes............................ 796,370,623 150,000,000
Long term deferred revenue.............. 12,406,592 --
Obligations under inland services
agreements and capital leases.......... 17,723,485 3,009,000
Deferred income taxes................... 9,318,500 --
-------------- ------------
Total liabilities..................... 1,327,736,403 407,431,773
-------------- ------------
MANDATORILY REDEEMABLE PREFERENCE SHARES
(109,830 shares as of December 31, 1997,
$1,000 liquidation per share (net of
unamortized discount and issuance costs
of $12,223,993 and $6,962,407,
respectively)).......................... -- 90,643,919
-------------- ------------
SHAREHOLDER'S EQUITY:
Common stock, 1,200,000 shares
authorized, par value $.01,
1,200,000 issued and outstanding as of
September 30, 1998 and
December 31, 1997...................... 12,000 12,000
Other shareholder's equity.............. 835,226,100 74,269,032
Accumulated deficit..................... (113,878,436) (160,356)
-------------- ------------
721,359,664 74,120,676
-------------- ------------
$2,049,096,067 $572,196,368
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period From Period From
March 19, 1997 March 19, 1997
Three Months Ended Three Months Ended Nine Months Ended (Date of Inception) (Date of Inception)
September 30, 1998 September 30, 1997 September 30, 1998 to September 30, 1997 to December 31, 1997
------------------ ------------------ ------------------ --------------------- --------------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
SALES AND OPERATING
REVENUES.............. $117,692,925 $ -- $ 218,948,792 $ -- $ --
------------ ----------- ------------- ----------- ------------
EXPENSES:
Cost of capacity
sold................. 49,237,947 -- 90,438,176 -- --
Operations,
administration and
maintenance.......... 8,182,206 -- 10,652,206 -- --
Sales and marketing... 6,342,016 101,915 13,655,010 142,150 1,366,724
Network development... 2,912,062 -- 7,233,645 -- 78,000
General and
administrative....... 3,773,808 567,673 10,760,377 669,500 1,656,984
Termination of
Advisory Services
Agreement............ -- -- 139,669,340 -- --
Stock related
expense.............. 1,654,932 -- 8,248,795 -- --
Provision for doubtful
accounts............. 1,198,878 -- 2,210,995 -- --
------------ ----------- ------------- ----------- ------------
73,301,849 669,588 282,868,544 811,650 3,101,708
------------ ----------- ------------- ----------- ------------
OPERATING INCOME
(LOSS)................ 44,391,076 (669,588) (63,919,752) (811,650) (3,101,708)
EQUITY IN LOSS OF
PACIFIC CROSSING
LTD.................. (1,036,536) -- (1,036,536) -- --
INTEREST INCOME
(EXPENSE):
Interest income....... 8,265,769 1,154,273 12,939,207 2,501,785 2,941,352
Interest expense...... (17,983,947) -- (25,659,937) -- --
------------ ----------- ------------- ----------- ------------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM.... 33,636,362 484,685 (77,677,018) 1,690,135 (160,356)
Provision for income
taxes................ (7,331,590) -- (16,331,590) -- --
------------ ----------- ------------- ----------- ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM.... 26,304,772 484,685 (94,008,608) 1,690,135 (160,356)
Extraordinary loss on
retirement of senior
notes................ -- -- (19,709,472) -- --
------------ ----------- ------------- ----------- ------------
NET INCOME (LOSS)...... 26,304,772 484,685 (113,718,080) 1,690,135 (160,356)
Preference share
dividends............ -- (4,177,095) (8,306,433) (8,413,203) (12,689,923)
Redemption of
preference shares.... -- -- (34,140,067) -- --
------------ ----------- ------------- ----------- ------------
NET INCOME (LOSS)
APPLICABLE TO COMMON
SHAREHOLDER........... $ 26,304,772 $(3,692,410) $(156,164,580) $(6,723,068) $(12,850,279)
============ =========== ============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
GCL Other Shareholder's
Common Stock Equity
----------------- --------------------------
Additional Total
Paid-in Unearned Accumulated Shareholder's
Shares Amount Capital Compensation Deficit Equity
--------- ------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash............... 1,200,000 $12,000 $ -- $ -- $ -- $ 12,000
Preference share
dividends.............. -- -- (12,689,923) -- -- (12,689,923)
Contribution of
investment in
subsidiary originally
held by Global Crossing
Ltd. .................. -- -- 86,958,955 -- -- 86,958,955
Net loss for the
period................. -- -- -- -- (160,356) (160,356)
--------- ------- ------------ ------------ ------------- -------------
Balance, December 31,
1997................... 1,200,000 12,000 74,269,032 -- (160,356) 74,120,676
--------- ------- ------------ ------------ ------------- -------------
Assumption of debt of
Global Crossing Ltd. .. -- -- (15,055,170) -- -- (15,055,170)
Contribution of related
party receivable from
Global Crossing Ltd. .. -- -- 2,795,170 -- -- 2,795,170
Contribution of
investment in
subsidiary originally
held by Global Crossing
Ltd. .................. -- -- 11,493,210 -- -- 11,493,210
Cash reimbursement to
Global Crossing Ltd. .. -- -- (7,047,044) -- -- (7,047,044)
Global Crossing Ltd.
common stock issued in
exchange for
termination of Advisory
Services Agreement..... -- -- 135,000,000 -- -- 135,000,000
Preference share
dividends.............. -- -- (8,306,433) -- -- (8,306,433)
Redemption of preference
shares................. -- -- (34,140,067) -- -- (34,140,067)
Contribution of Initial
Public Offering net
proceeds............... -- -- 392,073,261 -- -- 392,073,261
Cash contribution from
Global Crossing Ltd. .. -- -- 597,339 -- -- 597,339
Global Crossing Ltd.
common stock and PCG
Warrants issued in
exchange for project
rights................. -- -- 275,298,007 -- -- 275,298,007
Unearned compensation... -- -- 22,938,700 (22,938,700) -- --
Compensation expense.... -- -- -- 8,248,795 -- 8,248,795
Net loss for the nine
months ended September
30, 1998............... -- -- -- -- (113,718,080) (113,718,080)
--------- ------- ------------ ------------ ------------- -------------
Balance, September 30,
1998 (unaudited)....... 1,200,000 $12,000 $849,916,005 $(14,689,905) $(113,878,436) $ 721,359,664
========= ======= ============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period From Period From
Nine Months March 19, 1997 March 19, 1997
Ended (Date of Inception) (Date of Inception)
September 30, to September 30, to December 31,
1998 1997 1997
------------- ------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss applicable to
common shareholder... $(156,164,580) $ (6,723,068) $ (12,850,279)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Equity in the loss of
Pacific Crossing
Ltd. ................ 1,036,536 -- --
Depreciation and
amortization......... 336,044 116,818 39,214
Provision for doubtful
accounts............. 2,210,995 -- --
Termination of
Advisory Services
Agreement ........... 137,795,170 -- --
Stock related
compensation
expenses............. 8,248,795 -- --
Preference share
dividends............ 8,306,433 8,413,203 12,689,923
Redemption of
preference shares.... 34,140,067 -- --
Extraordinary loss on
retirement of debt... 19,709,472 -- --
Increase in accounts
receivable........... (64,961,196) -- --
Increase in other
assets and prepaid
costs................ (32,946,889) (2,386,777) (1,032,015)
Increase in capacity
available for sale... (192,634,977) -- (21,200,000)
Capacity available for
sale transferred from
construction in
progress............. 238,554,078 -- --
Increase in deferred
revenue.............. 45,334,834 -- 5,325,000
Increase in accounts
payable and accrued
liabilities.......... 6,224,805 3,275,052 1,248,133
Increase in
obligations under
inland service
agreements........... 18,048,765 -- 20,900,000
Increase in deferred
income taxes......... 9,318,500 -- --
------------- ------------- -------------
Net cash provided by
operating
activities.......... 82,556,852 2,695,228 5,119,976
------------- ------------- -------------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Finance and
organization costs
incurred............. (32,231,908) (24,432,478) (28,180,878)
Preference share
issuance costs....... -- (7,529,652) (7,529,651)
Costs related to
issuance of common
stock................ -- (1,264,045) (1,264,045)
Cash reimbursement to
Global Crossing Ltd.
..................... (7,047,044) -- --
Proceeds from issuance
of common stock and
contribution of
capital from Global
Crossing Ltd. ....... 405,050,323 75,000,000 75,000,000
Proceeds from issuance
of preference
shares............... -- 100,000,000 100,000,000
Redemption of
preference shares.... (134,371,773) -- --
Proceeds from long
term debt............ 202,815,294 5,000,000 162,325,000
Proceeds from issuance
of senior notes...... 796,232,000 150,000,000 150,000,000
Retirement of senior
notes................ (159,750,000) -- --
Increase in restricted
cash and cash
equivalents.......... (366,537,851) -- (25,275,196)
Repayment of debt..... (15,055,170) -- --
------------- ------------- -------------
Net cash provided by
financing
activities.......... 689,103,871 296,773,825 425,075,230
------------- ------------- -------------
CASH FLOWS USED IN
INVESTING ACTIVITIES:
Cash paid for
construction in
progress and capacity
available for sale... (287,420,657) (262,501,023) (428,742,522)
Investment in Pacific
Crossing Ltd......... (6,000) -- --
------------- ------------- -------------
Net cash used in
investing
activities.......... (287,426,657) (262,501,023) (428,742,522)
------------- ------------- -------------
NET INCREASE IN CASH... 484,234,066 36,968,030 1,452,684
CASH, beginning of
period................ 1,452,684 -- --
------------- ------------- -------------
CASH, end of period.... $ 485,686,750 $ 36,968,030 $ 1,452,684
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
For the Period For the Period
Nine Months March 19, 1997 March 19, 1997
Ended (Date of Inception) (Date of Inception)
September 30, to September 30, to December 31,
1998 1997 1997
------------- ------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
SUPPLEMENTAL INFORMATION
ON NON-CASH INVESTING
ACTIVITIES:
Costs incurred for
construction in
progress and capacity
available for sale.... $ 398,377,448 $305,904,883 $497,318,509
Decrease (increase) in
accrued construction
costs................. 34,650,276 (42,079,489) (52,003,875)
Increase in accrued
interest on senior
notes................. (27,020,612) -- (2,050,767)
Amortization of
deferred finance and
organization costs.... (6,606,536) (1,324,371) (2,223,700)
Increase in obligations
under capital leases.. 178,527 -- (12,297,645)
PCG Warrants........... (112,158,446) -- --
------------- ------------ ------------
Cash paid for
construction in
progress and capacity
available for sale.... $ 287,420,657 $262,501,023 $428,742,522
============= ============ ============
SUPPLEMENTAL INFORMATION
ON NON-CASH FINANCING
ACTIVITIES:
Common stock
distributed to holders
of preference shares.. $ -- $ 13,235,000 $ 13,235,000
============= ============ ============
SUPPLEMENTAL INFORMATION
ON NON-CASH INVESTING
ACTIVITIES:
Investment in Pacific
Crossing Ltd. ........ $(163,145,559) $ -- $ --
PCG Warrants........... 163,139,559 -- --
------------- ------------ ------------
$ (6,000) $ -- $ --
============= ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid and
capitalized........... $ 28,632,021 $ 4,563,000 $ 8,136,267
============= ============ ============
Interest paid (net of
capitalized
interest)............. $ 23,234 $ -- $ --
============= ============ ============
Cash paid for taxes.... $ 4,903,521 $ -- $ --
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
1. BACKGROUND
On April 30, 1998, Global Crossings Holdings Ltd. ("GCH" and together with
its subsidiaries, the "Company"), a Bermuda company, was formed as a wholly-
owned subsidiary of Global Crossing Ltd. (together with its subsidiaries,
"GCL"), a Bermuda company which was a wholly-owned subsidiary of Global
Crossing Ltd., LDC ("OLD GCL"). Because Old GCL, GCL and GCH are entities under
common control, GCH's financial statements are presented as if it was in
existence on March 19, 1997 (Date of Inception) of OLD GCL similar to a pooling
of interest. (See Note 11 for a summary of GCL's consolidated financial
information.)
On March 19, 1997, Old GCL, (formerly GT Parent Holdings LDC), was
incorporated as an exempted limited duration company in the Cayman Islands.
When GCL was formed on March 18, 1998, Old GCL contributed its investment in
Global Telesystems Holdings Ltd. ("GTH") to GCL which contributed it to GCH
upon its formation. GCL is an independent developer, owner and operator of
undersea and terrestrial digital fiber optic cable systems. Atlantic Crossing
Ltd. ("ACL"), formerly Global Telesystems Ltd., a Bermuda company which is an
indirect wholly-owned subsidiary of GCL, was incorporated to construct and
operate an undersea fiber optic cable ring with landing stations in the United
States, the United Kingdom, Germany and the Netherlands. ACL has incorporated
wholly-owned subsidiaries in each of these countries in order to own the
portion of the cable system located in each country and the related territorial
waters.
Prior to GCL's Initial Public Offering, which took place on August 13, 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 Article of Association of Old GCL and
prior to the Initial Public Offering, each holder of Class D shares converted
such shares into 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. 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 ("GCL Warrants") to purchase shares of
GCL Common Stock at an exercise price equal to the price to Public Per Share
payable in the Initial Public Offering.
After the above transaction and prior to the Initial Public Offering, each
shareholder of Old GCL (other than CIBC) agreed with GCL to exchange their
interests in Old GCL for shares of GCL Common Stock held by Old GCL at a rate
of 1.5 shares of GCL Common Stock per share of common stock of Old GCL ("Old
GCL Exchange"). CIBC did not participate in the above transaction and continues
to maintain its beneficial ownership position in GCL through Old GCL.
Subsequent to this exchange, each previous shareholder of Old GCL holds an
equal proportionate interest in GCL, with Old GCL becoming wholly-owned by
CIBC.
Because Old GCL, GCL and GCH are 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 financial statements presented have been
restated to reflect these transactions as if they had occurred as of March 19,
1997 (date of inception) (see Note 11.)
F-8
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
GCL entered into a joint venture, Pacific Crossing Ltd., ("PCL") for purposes
of constructing and operating PC-1, an undersea fiber optic cable ring system
connecting California, Washington and two landing sites in Japan (see Note 3).
Mid-Atlantic Crossing Ltd., a wholly-owned subsidiary of GCH, entered into a
contract with Alcatel Submarine Networks on June 2, 1998 for the construction
of MAC, an undersea fiber optic cable ring connecting New York, the Caribbean
and Florida at a total cost of $350 million. Mid-Atlantic Crossing Ltd. is in
the process of incorporating companies in each country in which the cable will
land in order to own the portion of the cable system located in each country
and the related territorial waters. In November 1998, the Company obtained $220
million in non-recourse project financing from certain lenders to finance the
initial construction costs of MAC.
During July, 1998, the Company through its wholly-owned subsidiary Pan
American Crossing Ltd., entered into a contract with Tyco Submarine Systems
Ltd. ("TSSL"), for the construction of PAC, an undersea fiber optic cable
system connecting California, Mexico, and Panama at a total cost of
approximately $475 million. To finance, in part, the construction of PAC, Pan
American Crossing Ltd. signed a commitment letter to obtain $300 million of
non-recourse indebtedness on July 21, 1998.
During October 1998, the Company announced the development of Pan European
Crossing (PEC), a 8,200 kilometer terrestrial system connecting 18 European
cities to each other and to the undersea systems. The construction costs of PEC
are approximately $700 million. The Company signed an agreement, during
November 1998, valued at approximately $100 million with Cable & Wireless PLC
for the sale of dark fiber on its PEC network. Together, AC-1, MAC, PAC, PC-1
and PEC are defined as Systems.
To finance construction of ACL's undersea fiber optic cable ring, GCL issued
$75 million of GCL Common Stock and GTH, an indirect wholly-owned subsidiary of
GCL, and the parent of ACL, issued $100 million of preference shares and sold
$150 million of senior notes, as described in Note 6. These proceeds, together
with a $482 million Credit Facility, as described in Note 5, are being used to
pay for construction costs, financing fees and other related costs.
ACL has entered into a fixed price contract (the "Contract") with TSSL for
the development, design, construction and installation of a four fiber pair,
fiber optic cable system connecting (i) the United States to the United
Kingdom, (ii) the United Kingdom to the Netherlands and Germany, (iii) The
Netherlands to Germany and (iv) Germany to the United States (collectively,
"AC-1" and "System"). AT&T Corp. has provided ACL with a guarantee in respect
of TSSL's obligations under the Contract. Assuming that construction of AC-1
progresses according to the Contract schedule, AC-1 will be accepted by ACL and
made available for commercial service on February 22, 1999 (the "System RFS
date"). Certain segments of AC-1 are expected to be completed in advance of the
System RFS date. The United States to the United Kingdom segment was ready for
service on May 26, 1998 and the Germany to the United States segment is
expected to be ready for service on November 30, 1998. Once ACL formally
accepts each segment of AC-1, the segment becomes ready for service and the
ownership of the segment assets transfers to ACL and its subsidiaries. The only
exception to this transfer of ownership is in respect of certain of the segment
assets located in United States territory to which TSSL retains title until
such time as GT Landing Corp., a United States wholly-owned subsidiary of ACL,
exercises its $10,000 bargain purchase option to purchase title. Pursuant to
the Contract, TSSL granted
F-9
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
GT Landing Corp. an indefeasible right of use ("IRU"), for the estimated life
of AC-1 of 25 years from the System RFS date. GT Landing Corp. has accounted
for the IRU as a capital lease, since the IRU transfers the risks and rewards
of ownership to GT Landing Corp. The United States assets governed by this IRU
includes all landing stations assets (with the exception of the building and
land, to which GT Landing Corp. has title), fiber optic cable located in the
United States and the landing license.
Customers of the Company enter into Capacity Purchase Agreements ("CPA") to
obtain an IRU in units of transatlantic and European capacity ("AC-1
Capacity"). The purchase price for AC-1 Capacity is non-refundable once the
segment of AC-1 specified in the CPA is ready for service and the IRU entitles
the customer to all rights and obligations of ownership of the AC-1 capacity
for a period ending 25 years after the System RFS date. The Company's CPAs
provide that AC-1 will have self-healing ring capability, whether or not a CPA
relates only to a segment of AC-1. Self-healing capability enables capacity on
the segment of AC-1 to be instantaneously restored either on AC-1 other
segments or within the same segment in the event of interruption so that the
same point-to-point connectivity is maintained.
Customers who purchase AC-1 capacity prior to the System RFS date will be
granted 80% of the capacity that remains unsold, if any, 12 1/2 years after the
System RFS date. However, based on sales projections provided by a third party
consultant, it is highly unlikely that there will be a material amount of
unsold capacity on AC-1 at the end of 12 1/2 years after the System RFS date.
The Company has no constraints on the pricing or structure of sales of residual
capacity and the Company would expect that if such capacity had any remaining
value, it would enter into one or more transactions to dispose of such capacity
prior to such date to realize such remaining value. As a result, the right to
residual capacity is not a substantive right.
ACL subsidiaries have entered into contracts, called Inland Services
Agreements, to obtain IRUs of capacity on terrestrial telecommunications
systems for terms of 25 years from the System RFS date. Under the IRU, the
Company is required to pay an up-front non-recurring charge plus, in certain
cases, monthly recurring charges over a 25 year period and in exchange obtains
all rights and obligations of ownership. The Company has accounted for the IRUs
as capital leases since these IRUs represent leases as defined under Statement
of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13").
The Company sells this terrestrial capacity under separate CPAs ("Terrestrial
CPA") to certain customers that have purchased capacity on AC-1 for the purpose
of extending capacity from AC-1 landing stations to major telecommunication
centers in the United States and the United Kingdom. The purchase price for
terrestrial capacity is non-refundable and grants the customer an IRU which
entitles the customer to all rights and obligations of ownership of the
terrestrial capacity for a period ending 25 years after the System RFS date.
ACL has entered into an Operations, Administration and Maintenance ("OA&M")
agreement with TSSL whereby TSSL is obligated to provide operating,
administration and maintenance functions to AC-1. The administration functions
include but are not limited to the provision of billing information and annual
expense budgets. The operations and maintenance functions include but are not
limited to the management and maintenance of a Network Operating Center,
assumption of ship costs and any related ship repair costs, obtaining and
renewing all operating permits, providing repair equipment, providing cable
protection and ordering and restocking spares. The OA&M Agreement is for an
initial term of eight years with two renewal periods of eight and one half
years each. Quarterly payments under the OA&M Agreement to TSSL will commence
as ACL accepts ownership to the various segments.
F-10
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Pursuant to the terms of CPAs, ACL is obliged to use commercially reasonable
efforts to cause AC-1 to be maintained in efficient working order and in
accordance with industry standards. In exchange for the operating,
administration and maintenance services provided by ACL through the OA&M
agreement with TSSL, customers are obligated for the term of the IRU to pay for
their allocable share of the costs for operating and maintaining the AC-1. In
accordance with the CPA, customers appoint members to a System Advisory
Committee which is charged with the responsibility of directing the operations
and maintenance of the System. Customers pay for 110% of ACL's cost to operate
and maintain the system based on their pro-rata share of total capacity subject
to annual maximum amounts per circuit purchased of $250,000 per transatlantic
circuit and $50,000 per European circuit. Their pro-rata share is effectively
calculated by taking the weighted average of purchased capacity over total
capacity multiplied by 110% of actual costs incurred. These OA&M costs are
billed to customers quarterly in advance based on the prior year's actual
costs, are non-refundable, and should a customer fail to make an OA&M payment,
ACL may suspend all rights to capacity granted under the IRU.
ACL originally entered into a Sales Agency Agreement with TSSL whereby TSSL
was responsible for the marketing and sale of capacity of the System and
received commissions on sales proceeds received at rates that varied as certain
cumulative revenue levels were reached. Effective March 5, 1998, the Company
entered into a commissions sharing agreement with TSSL whereby GCH assumed
primary responsibility for the marketing and sale of capacity of the System and
will share a percentage of commissions payable to TSSL under the Sales Agency
Agreement 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 on March 25, 2002 with an option to extend it until March
25, 2005.
On January 21, 1998, Old GCL effected a 100-for-1 stock split of each of the
Class A, B, C and D common stock and undesignated stock and amended the par
value of each share of common stock from $.0001 per share to $.000001 per
share. All share information presented in the consolidated financial
statements, including these notes, gives effect to the stock split.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The significant accounting policies
are summarized as follows:
a) Principles of Consolidation
The consolidated financial statements include the accounts of GCH and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated. Investment in PCL, in which GCH does not exercise control, has been
accounted for using the equity method.
b) Development Stage Company
The Company was in its development stage until May 26, 1998 when the United
States to United Kingdom segment of the AC-1 system was placed into service and
the Company began generating significant
F-11
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
revenues. All segments of AC-1 are scheduled to be ready for commercial service
by February 1999. Currently, construction of the Company's other undersea and
terrestrial fiber optic cable systems are underway.
Successful future operations are subject to several risks, including the
ability of the Company to ensure the successful, timely and cost-effective
completion of AC-1 and other cable systems as well as to successfully market
and generate significant revenue from the sale of capacity of the system. GCH
may encounter problems, delays and expenses, many of which may be beyond its
control. There can be no assurance that the cable systems will be completed
within the time frame and that capacity sales will meet expectations, or that
substantial delays would not adversely affect GCH's achievement of profitable
operations.
c) Cash and Cash Equivalents
The Company considers 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 include cash in banks and short-term
money market deposits with a maturity of one month.
d) Sales, Cost of Sales and Deferred Revenue
The Company enters into CPAs to sell capacity on its undersea and terrestrial
fiber optic systems. These CPAs grant the customer an IRU of capacity for the
life of the cable which is 25 years from the ready for service date. Sales of
capacity under CPAs are accounted for as sales type leases as they represent
leases of property and meet the criteria for sales-type lease accounting under
SFAS 13.
Revenues from the sale of capacity are recognized in the period that the
rights and obligations of ownership transfer to the purchaser, which occurs
when (1) the purchaser obtains the right to use the capacity, which can only be
suspended if the purchaser fails to pay the full purchase price or fulfill its
contractual obligations, (2) the purchaser is obligated to pay OA&M costs and
(3) the segment of the system related to the capacity purchased is available
for service. Customers who have entered into CPAs for AC-1 capacity have paid
deposits toward the purchase price and such amounts have been included as
deferred revenue in the accompanying consolidated balance sheet. Certain CPAs
require a refund of these deposits should the System RFS date occur after June
30, 1999. The Company's CPAs provide that the AC-1 system will have self-
healing ring capability, whether or not a customer purchases capacity on a
single segment of the system. Substantially all of the Company's customers to
date for AC-1 have assumed the risk of full ring completion. In some CPAs,
customers who have purchased capacity on the United States to United Kingdom
segment prior to the date the full AC-1 ring is operational have contractually
required full self-healing ring capability as a legal condition which, if not
satisfied, would enable them to terminate the CPA and require the Company to
refund capacity payments. Payments received relating to these CPAs are included
in deferred revenue on the consolidated balance sheet until the full self-
healing ring is operative.
Costs incurred on each segment of the System, currently reflected as
construction in progress in the accompanying consolidated balance sheet, is
recorded as capacity available for sale at the date each segment of the system
becomes operational. AC-1 capacity available for sale is recorded at the lower
of cost or fair value less costs to sell and will be charged to costs of sales
in the period the related revenues are recognized. Fair value of AC-1 capacity
will be derived from a third party consultant's market study of expected sales
of capacity.
F-12
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Cost of sales in any period relating to capacity is calculated based on the
ratio of capacity revenues recognized in the period to total expected capacity
revenues over the life of the system multiplied by the total costs incurred to
construct the system. This calculation of the cost of sales amount matches
costs with the value of each sale relative to total expected revenues. Until
the entire System is completed, for purposes of calculating cost of sales, the
total System costs incurred will include an estimate of remaining costs to be
incurred to complete the entire System. When needed, terrestrial capacity is
purchased from third party capacity providers, to fulfill the Company's
commitments under Terrestrial CPA agreements. The cost of acquiring third party
capacity will be charged to cost of sales in the period that the related
revenue is recognized.
The calculation of cost of underseas sales is based on a total system cost
and revenue forecast that includes both the initial system cost and the cost of
system upgrades that management has the intent and ability to complete,
provided the need for such upgrades is supported by a consultant's independent
revenue forecast.
The AC-1 System is designed to enable the Company to upgrade the System in
future years so as to increase the initial design capacity of 256 circuits
available for sale. The business plan for the investment in AC-1 indicated a
minimum capacity sales level of 512 circuits and management currently has both
the intent and ability to upgrade the system to that level. This is
demonstrated by the fact that (i) the Board of Directors has authorized the
purchase of the upgrade, (ii) the Company has the financial ability to purchase
the upgrade and (iii) there are no regulatory or technology issues preventing
the completion of the upgrade. In the period the Company purchases any further
upgrades, the total expected System capacity revenues and cost of the System
used in the cost of sales calculation will change to take into account the
further increase in System cost and in System capacity. The total expected
System capacity revenues used by the Company in its cost of sales calculation
will always be limited by total sales forecasted by a third party consultant
which will be updated on an annual basis. Based on the current third party
consultant's sales forecast, the Company expects to sell all 512 circuits
available for sale, which includes the initial upgrade.
In addition to capacity upgrades, management's estimate of future expected
capacity revenues may change due to a number of factors including possible
variances in actual sales prices and volume from management's estimates.
Management will continually evaluate these factors in conjunction with the
updated third party consultant's sales forecast and, as necessary, revise its
estimate of the total expected revenues to be derived over the life of AC-1.
Changes in management's estimate of the total expected revenues to be derived
from sales of capacity will result in adjustments to the calculations of cost
of sales. These adjustments will be recorded on a prospective basis over future
periods commencing with the period management revises its estimate.
Under their respective CPAs, certain customers have been provided options to
purchase additional capacity at specified prices for specified future periods
as well as the option to purchase additional capacity should the Company
upgrade the AC-1 capacity in the future. In many cases, prices under the
options to purchase capacity during these specified periods are lower than the
current price for capacity charged to the customer. Management's estimate of
future revenues for purposes of calculating cost of sales takes into
consideration prices under these options.
Undersea and terrestrial OA&M revenues are recognized in the period the
services are provided. On an annual basis the actual OA&M costs incurred by the
Company will be accumulated and an adjustment will be made to true up actual
OA&M revenues so that they equal 110% of actual costs incurred, provided
specified
F-13
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
contractual limits have not been reached. This adjustment will be recorded in
the period in which the adjustment is made.
e) Commissions and Advisory Services Fees
The Company's policy is to record the commission and advisory fee expense and
related payable upon the recognition of revenue so as to appropriately match
these costs with the related revenue. Under the Advisory Services Agreement
("ASA"), the Company pays PCG Telecom Services LLC ("PCG Telecom") and its
affiliates 2% of revenues for advisory services performed and under the Sales
Agency Agreement pays TSSL a commission based on a percentage of capacity
revenues. See Note 12 for discussion of the termination of the ASA.
f) Capacity Available For Sale
The cost of acquiring terrestrial capacity under Inland Service Agreements
has been capitalized to capacity available for sale. Under these agreements the
Company is required to pay an up-front non-recurring charge plus, in certain
cases, recurring charges over the period the capacity is provided. The Company
has capitalized the present value of total future payments (excluding OA&M
costs) in capacity available for sale and has recorded an equal amount as an
obligation under Inland Services Agreements in the accompanying consolidated
balance sheets (see Note 5). The related OA&M costs will be expensed in the
period the services are provided.
g) Construction in Progress
Construction in progress includes direct expenditures for construction of AC-
1 and is stated at cost. Capitalized costs include costs incurred under the
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 development of the cable system becomes
probable are expensed as incurred.
Additionally, the Company has included in construction in progress the
minimum lease payments related to the IRU held by GT Landing Corp. on AC-1
assets in the United States and minimum lease payments related to leases of
buildings and conduits in Germany and The Netherlands described further in Note
5.
Interest incurred which includes the amortization of deferred finance fees
and the issuance discount, ("interest cost") are capitalized to construction in
progress in accordance with Statement of Financial Accounting Standards No. 34,
"Capitalization of Interest Costs" ("SFAS 34"). Total interest cost incurred
and interest capitalized to construction in progress during the periods were:
<TABLE>
<CAPTION>
Period from Period from
Three Months Three Months Nine Months March 19, 1997 March 19, 1997
Ended Ended Ended (Date of (Date of
September 30, September 30, September 30, Inception) to Inception) to
1998 1997 1998 September 30, 1997 December 31, 1997
------------- ------------- ------------- ------------------ -----------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Interest cost incurred.. $30,666,588 $349,656 $62,494,736 $4,586,338 $9,776,767
=========== ======== =========== ========== ==========
Interest cost
capitalized to
construction in
progress............... $12,682,641 $349,656 $36,834,799 $4,586,338 $9,776,767
=========== ======== =========== ========== ==========
</TABLE>
F-14
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
h) Deferred Finance and Organization Costs
Costs incurred to obtain financing through the issuance of senior notes and
long term debt have been reflected as an asset in the accompanying
consolidated balance sheets. Costs incurred to obtain financing through the
issuance of GCL Common Stock and preference shares, respectively, have been
reflected as a reduction in the carrying value of the issued common and
preference shares. The financing costs relating to the debt are amortized over
the term of the related debt agreements. Offering costs of $7,529,651 related
to the issuance of preference shares were being amortized on a straight line
basis through the mandatory redemption date of April 1, 2007. The issuance
discount, as explained in Note 7, was also being amortized through the
mandatory redemption date. On June 17, 1998 the preference shares were
redeemed at which time the remaining balance of unamortized discount and
offering costs was charged against additional paid-in-capital. During the
construction period, the amortized portion of deferred financing costs
relating to the senior notes and the long term debt are included in
construction in progress as a component of interest capitalized or recorded as
interest expense in accordance with SFAS 34. The amortized portion of the
deferred financing costs relating to the preference shares is included as a
component of preference share dividends.
i) Translation of Foreign Currencies
Transactions in foreign currencies are translated into United States dollars
at the rate of exchange prevailing at the date of each transaction. Monetary
assets and liabilities denominated in foreign currencies at year end are
translated into United States dollars at the rate of exchange at that date.
Resulting gains or losses on exchange are recorded as other income or loss in
the statement of operations.
j) Stock Option Plan
Employees of GCH and its subsidiaries participate in the stock option plan
of GCL and GCH is therefore allocated its applicable share of stock related
compensation expense.
k) Interest Rate Derivatives
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest rates. The Company
does not utilize derivative financial instruments for trading or other
speculative purposes. The counterparty to these instruments is CIBC. The
Company is exposed to credit loss in the event of nonperformance by this
counterparty.
As discussed in Note 5, effective December 31, 1997, the Company entered
into an interest rate swap agreement to hedge its exposure to interest rates
on its long term debt. The net cash amounts paid or received on the agreement
are accrued and recognized as an adjustment to interest expense on the related
debt.
For interest rate derivatives to qualify for hedge accounting, the debt
instrument being hedged must expose the Company to interest rate risk and, at
the inception of the derivative instrument and throughout the period the
derivative is held, there must be a high correlation of changes in the market
value of the derivative and interest expense of the hedged item. Gains and
losses on interest rate derivatives and other derivative instruments which do
not meet this criteria would be recorded in the statement of operations.
F-15
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Interest rate derivative instruments terminated or replaced by another
instrument and no longer qualifying as a hedge instrument are marked to market
and carried on the balance sheet at fair value.
l) Interim Financial Information
The unaudited financial statements as of September 30, 1998, and for the
three months and nine months ended September 30, 1998, for the three months
ended September 30, 1997 and for the period from March 19, 1997 (Date of
Inception) to September 30, 1997 include, in the opinion of management, all
adjustments considered necessary for the fair presentation of such financial
statements.
m) Net Income (Loss) Per Share
GCL's basic net income (loss) per share is computed using the weighted
average number of shares of GCL Common Stock outstanding. GCL's diluted net
income (loss) per share is computed using the weighted average number of shares
of GCL Common Stock outstanding and GCL Common Stock equivalents including
shares issuable under options and warrants that are dilutive using the treasury
stock method.
Since the Company is a wholly-owned subsidiary of GCL, per share information
is not presented.
n) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). The Company recognizes current and deferred income tax assets and
liabilities based upon all events that have been recognized in the consolidated
financial statements. Deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities. A deferred tax liability or asset is recorded using the enacted
tax rates expected to apply to taxable income in the period in which the
deferred tax liability or asset is expected to be settled or realized. Future
tax benefits attributable to these differences, if any, are recognized to the
extent that realization of such benefits is more likely than not.
o) Pending and New Accounting Standards
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130
and SFAS 131 are effective for periods beginning after December 15, 1997. There
was no impact to the financial statements due to the adoption of SFAS 130 in
the first nine months of 1998. Management does not expect the impact of the
adoption of SFAS 131 on the Company's financial position or results of
operations to be material.
The Financial Accounting Standards Board has also recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") which is effective for
periods beginning after June 15, 1999. Management does not expect the impact of
the adoption of SFAS 133 on the Company's financial position or results of
operations to be material.
F-16
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Cost of Start-Up Activities"
("SOP 98-5"). The Company is required to adopt SOP 98-5 on January 1, 1999. The
management estimates that this change in accounting will result in a cumulative
charge to 1999 net income of approximately $15 million. This charge represents
startup and organization costs incurred during System development and
capitalized in prior years. The $15 million charge represents less than 1% of
the projected total costs of the Systems currently under development by the
Company.
p) Reclassifications
Certain reclassifications have been made to the December 31, 1997
consolidated financial statements to conform with the presentation as of
September 30, 1998.
3. INVESTMENT IN PACIFIC CROSSING LTD.
On April 9, 1998, a wholly-owned subsidiary of GCH entered into a joint
venture to construct a cable system, PC-1. PC-1 is owned and operated by PCL.
The Company has an economic interest in PCL represented by a 50% direct voting
interest and, through one of the joint venture partners, owns a further 8%
economic non-voting interest. PCL entered into a contract on April 21, 1998
with TSSL to construct PC-1 for a total price of approximately $1.2 billion,
which will be financed through a $400 million equity contribution by the joint
venture partners and an $850 million credit facility. On July 30, 1998, an $850
million aggregate senior secured non-recourse loan facility ("the PCL Credit
Facility") was executed, for the construction and financing costs of PC-1. The
PCL Credit Facility is comprised of an $840 million multiple drawdown term loan
facility and a $10 million working capital facility. On July 30, 1998, an
initial drawdown was made on the term loan facility to repay the $104 million
promissory note used for initial construction costs on PC-1 as well as fees
incurred to secure the credit facility. The Company also placed $231 million
into a restricted cash collateral account on July 30, 1998 to satisfy its
equity funding commitment for its 58% joint venture economic interest in PCL.
This amount was accounted for as an equity investment in the joint venture.
The investment in Pacific Crossing Ltd. consists of the following items:
<TABLE>
<S> <C>
Equity investment in PCL................................... $ 6,000
PC-1 development costs..................................... 163,139,559
Equity in loss of PCL...................................... (1,036,536)
------------
Investment in Pacific Crossing Ltd. ....................... $162,109,023
============
</TABLE>
The PC-1 development costs represents the estimated value of the PCG Warrants
as of September 30, 1998 which were granted to PCG in exchange for the PC-1
system and related rights. In connection with the formation of PCL, the Company
agreed to make available to PCL the consideration received by the Company in
connection with the grant of the PCG Warrants, in addition to the $231 million
cash investment made by the Company. See Note 11.
4. RESTRICTED CASH AND CASH EQUIVALENTS
At September 30, 1998, restricted cash and cash equivalents includes $231
million ($nil as of December 31, 1997) for the cash investment made by the
Company in connection with the PC-1 construction, $75 million as of September
30, 1998 ($20 million as of December 31, 1997) reserved for purposes of funding
future
F-17
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
interest payable on senior notes, $74 million as of September 30, 1998 ($5
million as of December 31, 1997) in funds received pursuant to CPAs that may be
used only in accordance with the terms of the long term debt agreement and $12
million as of September 30, 1998 ($nil as of December 31, 1997) restricted for
purchases of terrestrial capacity.
5. LONG TERM DEBT AND OBLIGATIONS UNDER INLAND SERVICES AGREEMENTS AND CAPITAL
LEASES
On June 27, 1997, ACL entered into a $410 million aggregate senior secured
non-recourse loan facility (the "Credit Facility") with a group of banks led by
CIBC and Deutsche Bank AG, for the construction and financing costs of AC-1. On
December 15, 1997, the Credit Facility was amended to increase it to $482
million comprised of a $472 million multiple draw down term loan facility (the
"Term Facility") and a $10 million working capital facility (the "Working
Capital Facility") for the purpose of extending AC-1 to include, among other
things, a Netherlands landing site. The Credit Facility is secured by pledges
of the stock of ACL and its subsidiaries and security interests in its assets
and revenues. As of September 30, 1998, ACL had outstanding $365,140,294
($162,325,000 as of December 31, 1997) under the Credit Facility. As of
September 30, 1998, $59,260,959 of the Credit Facility had been repaid to the
lenders ($nil as of December 31, 1997). Any amounts repaid to the lenders
cannot be re-borrowed, and are effectively permanent reductions in the Credit
Facility.
Under the Credit Facility, ACL may select loan arrangements as either a
Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The Eurodollar
interest rate is LIBOR plus 2.5% and the ABR interest rate is the greatest of
(a) the Prime Rate (b) the Base CD Rate plus 1% and (c) the Federal Funds
Effective Rate plus 0.5%, plus 1.5%. ACL pays a commitment fee of 0.5% per
annum on the unused portion of the Credit Facility. The Credit Facility
contains various covenants that, (i) limit further indebtedness by ACL and its
subsidiaries, (ii) limit the ability of ACL to pay dividends, (iii) require ACL
to meet certain minimum capacity sales levels and (iv) require ACL to meet a
minimum interest coverage ratio for the years 1999 through to maturity of the
Credit Facility. The Credit Facility will be repaid in eight semi-annual
installments ("Mandatory Repayments"), commencing on the first May 31 or
November 30 occurring two months after the AC-1 RFS date, with $72.3 million of
the principal amount due in the initial year and $120.5 million, $144.6
million, and $144.6 million due in the second, third and fourth years,
respectively. If at any semi-annual installment date the outstanding loan
balance is lower than the installment amounts noted in the previous sentence,
then the outstanding loan balance amount will be repaid. In addition, on each
semi-annual installment date, ACL will apply an amount equal to 50% of Excess
Cash Flow to the mandatory prepayment of the remaining outstanding balance
under the Credit Facility. Excess Cash Flow is defined under the terms of the
Credit Facility as all cash received from revenues during the period reduced by
the payment of OA&M expenses, commissions under the Sales Agency Agreement, and
transfers to certain reserve accounts. The Credit Facility also requires
mandatory prepayments to be made from 50% of net cash proceeds of any equity
offering of ACL and 100% of net cash proceeds from permitted debt offerings by
ACL or GTH. Optional prepayments may be made at any time without premium or
penalty. All revenues received prior to the RFS date are used to fund certain
reserve accounts, as defined by the Credit Facility, and thereafter applied
against the borrowings under the Credit Facility. However, any amounts repaid
to the lenders prior to the System RFS date can be used to reduce the Mandatory
Repayments.
F-18
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
On September 30, 1997, pursuant to the Contract with TSSL and the Credit
Facility agreement, ACL put in place a $50 million letter of credit in favor
of TSSL which will expire at such time as ACL has paid all costs under the
contract. ACL pays a commitment fee of 2.5% per annum on the full amount of
the letter of credit. As of September 30, 1998, the letter of credit had been
reduced to $45.2 million.
As of September 30, 1998, approximately $5 million was borrowed under the
working capital facility ($500,000 as of December 31, 1997), and approximately
$360 million was borrowed under the Term Facility ($162 million as of December
31, 1997). Effective December 31, 1997, ACL entered into an interest rate swap
transaction based on one month LIBOR to minimize its exposure to increases in
interest rates on its borrowings. The swap transaction was amended on February
2, 1998 and currently fixes ACL's floating interest rate at 5.7825% on a
notional amount of borrowings ranging between $200 million and $310 million
until January 31, 1999.
As described in Note 1, the Company has capitalized the minimum lease
payments of the IRU held by GT Landing Corp. on AC-1 assets held in the United
States. The Company has been granted a bargain purchase option to purchase for
$10,000 all rights and title to these assets at any time during the term of
this contract which is 25 years from the System RFS date. As of September 30,
1998, the present value of the payments under the IRU recorded as an
obligation under capital leases is $4,107,615 ($12,297,645 as of December 31,
1997).
The Company has capitalized building and conduit leases in The Netherlands
and Germany. The leases are for a period of 25 years which represents more
than 75 percent of the economic life of the asset being purchased. The Company
has the option to extend the Netherlands lease for an additional 5 year term.
As of September 30, 1998, the present value of the obligation has been
recorded as an obligation under capital leases in the accompanying
consolidated balance sheet in the amount of $8,011,503 ($ nil as of December
31, 1997.)
Contracts to purchase terrestrial capacity have a duration of 25 years from
System RFS which represents more than 75 percent of the economic life of the
asset being purchased. Certain of these contracts require payments over the 25
year period. As of September 30, 1998, the present value of the payments under
these contracts (excluding amounts attributable to operations and maintenance)
has been recorded as obligations under Inland Services Agreements in the
accompanying consolidated balance sheets in the amount of $38,948,765
($20,900,000 as of December 31, 1997).
F-19
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
At September 30, 1998 future minimum payments, in the aggregate for the three
months ending December 31, 1998 and for the four succeeding years, under these
Inland Services Agreements and capital leases are as follows:
<TABLE>
<S> <C>
For the three months ending December 31, 1998.................. $ 20,053,331
1999........................................................... 29,147,983
2000........................................................... 5,294,206
2001........................................................... 5,433,701
2002........................................................... 5,586,261
Thereafter until 2024.......................................... 169,537,132
------------
Total minimum lease payments................................... 235,052,614
Less: Amount representing maintenance payments................. 147,109,091
------------
87,943,523
Less: Amount representing interest............................. 36,875,640
------------
Present value of net minimum lease payments.................... $ 51,067,883
============
</TABLE>
6. SENIOR NOTES
New Senior Notes
The 9 5/8% senior notes due May 15, 2008 with a face value of $800 million
("New Senior Notes") are general unsecured obligations of GCH and will rank
senior to any future subordinated indebtedness of GCH and pari passu in right
of payment with any future unsecured senior indebtedness of GCH. GCH has set
aside $74 million to fund the first two interest payments and is included in
the restricted cash balance. Interest is payable semi-annually in arrears on
each May 15 and November 15 commencing on November 15, 1998. The New Senior
Notes are redeemable at the option of GCH on May 15, 2003 at 104.813%, May 15,
2004 at 103.208%, on May 15, 2005 at 101.604% and on May 15, 2006 and on May 15
thereafter at par. The New Senior Notes are redeemable at the option of the
Holder only upon the occurrence of a change in control in GCL. The New Senior
Notes agreement imposes certain limitations on the ability of GCH and its
subsidiaries to, among other things, (i) incur additional indebtedness
including senior indebtedness and (ii) pay certain dividends and make certain
other restricted payments and investments.
Old Senior Notes
The 12% senior notes due March 31, 2004 with a face value of $150 million
("Old Senior Notes") are general unsecured obligations of GTH and will rank
senior to any future subordinated indebtedness of GTH and pari passu in right
of payment with any future unsecured senior indebtedness of GTH. The Old Senior
Notes bear an initial interest rate of 12% per annum. Interest is payable semi-
annually in arrears on each June 1 and December 1. If the Old Senior Notes are
not repaid by April 1, 2000, the interest rate will increase by 0.5% on April
1, 2000 and by an additional 0.5% on each subsequent April 1, until repaid. If
the interest rate exceeds 15% per annum (the interest rate payable increases by
2% upon any event of default) GTH may, at its option, cause such interest in
excess of 15% to be paid in additional senior notes.
F-20
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
As described in Note 5, revenues received prior to the System RFS date are
used to fund certain reserve accounts which are then applied against borrowings
under the Credit Facility and the Old Senior Notes as determined by the Credit
Facility agreement. Additionally, GTH will on each June 1 and December 1,
commencing on the first such date to occur more than 90 days after the System
RFS date, apply an amount equal to 50% of ACL's Excess Cash Flow (as defined in
Note 5), to redeem the Old Senior Notes at face value, plus accrued interest to
the date of repurchase. The Old Senior Notes are redeemable at the option of
GTH, at redemption prices starting at 106% of the face value beginning April 1,
2000, declining to 103% in 2001, and 100% in 2002 and 2003, plus accrued
interest.
On May 18, 1998, a portion of the proceeds from the issuance of the New
Senior Notes was used to repurchase the Old Senior Notes. The Company
recognized an extraordinary loss of $19.7 million on repurchase comprising a
premium of $9.8 million and a write-off of $9.9 million of unamortized deferred
financing costs.
7. MANDATORILY REDEEMABLE PREFERENCE SHARES
The authorized preference shares consist of 500,000 shares at a liquidation
preference of $1,000 per share. Effective March 25, 1997, 100,000 shares were
issued for $100 million in cash and as of September 30, 1998, nil shares
(109,830 shares as of December 31, 1997) were issued and outstanding.
The holders of preference shares are entitled to receive cumulative,
compounding dividends at an initial annual rate of 14% of the $1,000
liquidation preference per share. If the preference shares are not redeemed on
or prior to April 1, 2001, the annual dividend rate will increase by 0.5% per
annum (the dividend rate payable increases by 2% upon any event of default)
thereafter, subject to a maximum annual dividend rate of 20%. At the option of
GTH, accrued dividends may be paid in cash or paid by issuing additional
preference shares (i.e. pay-in-kind) until April 1, 2002, at which time they
must be paid in cash. However, if the dividend rate exceeds 15% per annum, GTH
may cause dividends in excess of 15% to be paid in additional preference
shares. Dividends paid in additional preference shares are payable on a
quarterly basis and cash dividends are payable on a semi-annual basis. All
dividends declared to date have been paid in additional preference shares. The
preference shares rank senior to all common stock with respect to dividend
rights, rights of redemption or rights on liquidation and senior to any future
preferred stock. The preference shares are non-voting unless GTH fails to pay a
dividend, fails to make a mandatory redemption or upon a change in control,
fails to make an offer to purchase the preference shares at 101%, at which time
the holders of a majority of the preference shares will be entitled to elect
one to two directors. In the event that any preference shares are still
outstanding on April 1, 2001, the holders thereof will receive warrants to
purchase shares of Class A common stock of Old GCL at an exercise price of $.01
per share, up to a maximum of 46,440 shares of Old GCL common stock.
The preference shares have a mandatory redemption on April 1, 2007 at their
liquidation preference. In addition, the preference shares will be redeemed out
of ACL's Excess Cash Flows (as described in Note 5) after repayment of the
Credit Facility and Senior Notes at redemption prices starting at 114% for both
1997 and 1998, declining to 112% in 1999 and 2000, 107% in 2001 and 100%
thereafter. The preference shares can be redeemed, in whole or in part, at the
option of GTH at redemption prices starting at 114% of the liquidation
preference through 2001, declining to 111% in 2002, 108% in 2003, 105% in 2004,
102% in 2005 and 100% thereafter. The outstanding preference shares are
exchangeable, in whole, at the option of GTH for Senior
F-21
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Subordinated Exchange Notes ("Exchange Notes") issued by ACL at a rate of
$1,000 principal amount of Exchange Notes for each $1,000 of liquidation
preference of preference shares. These Exchange Notes will bear an interest
rate equal to the dividend rate of the preference shares and will have
repayment terms similar to the preference shares described above.
In connection with the issuance of the preference shares, the holders of
preference shares purchased an aggregate of 11,250,000 shares of Old GCL's
Class A common stock for total proceeds of $7.5 million. Additionally, in
connection with the issuance of the preference shares, the initial purchaser of
the preference shares received 19,852,950 shares of Old GCL's Class A common
stock for no additional consideration representing 15% of the aggregate number
of Old GCL's Class A, B and C shares outstanding, after giving effect to the
issuance. The initial purchaser had the right to distribute these Class A
shares to purchasers of the preference shares. The Company has reflected the
$13,235,000 estimated fair value of the Old GCL's Class A common stock as a
discount in the carrying value of the preference shares.
The fair value of the 19,852,950 shares of Old GCL's Class A common stock
distributed to preference shareholders was based on the $.67 per share paid by
the holders of preference shares for the 11,250,000 Old GCL's Class A shares
purchased for cash.
On June 17, 1998, proceeds from the issuance of the New Senior Notes were
used to redeem the preference shares. The redemption of the preference shares
resulted in a charge against additional paid-in-capital comprised of a $15.9
million redemption premium and $18.2 million of unamortized discount and
issuance cost on the preference shares on the date of the redemption. The
redemption premium and write-off of unamortized discount and issuance costs on
the preference shares were treated as a deduction to arrive at the net loss
applicable to common shareholders in the consolidated statement of operations.
Furthermore, upon the redemption of the preference shares, the warrants
attached to the preference shares expired.
Preference share dividends included the following:
<TABLE>
<CAPTION>
For the For the
Period Period
Three from from
Three Months Nine March 19, March 19,
Months Ended Months 1997 (Date of 1997 (Date of
Ended September Ended Inception to Inception) to
September 30, 30, September 30, September 30, December 31,
1998 1997 1998 1997 1997
------------- ----------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Preference share
dividends.............. $ -- $3,659,827 $7,337,031 $7,354,272 $11,111,672
Amortization of discount
on preference shares... -- 330,876 617,634 680,133 1,011,007
Amortization of
preference share
issuance costs......... -- 186,392 351,768 378,798 567,244
-------- ---------- ---------- ---------- -----------
$ -- $4,177,095 $8,306,433 $8,413,203 $12,689,923
======== ========== ========== ========== ===========
</TABLE>
F-22
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
8. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash, restricted cash
and cash equivalents... $ 877,499,797 $ 877,499,797 $ 26,727,880 $ 26,727,880
Current portion of long
term debt, obligations
under Inland Services
Agreements and capital
leases................. (60,729,920) (60,729,920) (30,188,645) (30,188,645)
Long term debt, obliga-
tions under Inland
Services Agreements
and capital leases..... (355,478,257) (355,478,257) (165,334,000) (165,334,000)
Preference shares....... -- -- (90,643,919) (90,643,919)
Senior notes............ (796,370,623) (796,370,623) (150,000,000) (150,000,000)
Interest rate swap
transaction............ -- (372,688) -- (115,115)
</TABLE>
Cash, restricted cash and cash The carrying amount of restricted cash and
equivalents................... cash equivalents is a reasonable estimate of
fair value as the balances include amounts
held in banks and money market deposits with
a short-term maturity.
Long term debt, obligations
under Inland Services
Agreements and capital The Credit Facility is a special financing
leases........................ for the construction of the System, and the
interest rates provided under the existing
Credit Facility are the best estimate of
current market rates available to ACL for
financing with similar terms. Obligations
under Inland Services Agreements and capital
leases are recorded at their present value
using a weighted average interest rate of the
Credit Facility, preference shares, and
Senior Notes.
Preference shares.............. Since the preference shares are a special
financing for the construction of the System,
the dividend rates provided under the
existing preference share agreement are the
best estimate of current market rates
available for financing with similar terms
and redemption provisions.
Senior notes................... Since the senior notes are a special
financing for the construction of the
Systems, the interest rates provided under
the existing senior notes arrangement are the
best estimate of current market rates
available for financing with similar terms.
Interest rate swap The interest rate swap transaction is "zero
transaction................... cost" meaning that the cost of acquiring the
transaction is embedded in the fixed interest
rate paid. As the transaction is accounted
for as a hedge against interest rate
fluctuations on the long term debt there is
no carrying value. The fair value is a mid-
market valuation provided by CIBC.
F-23
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
9. TAXES
The Company accounts for income taxes in accordance with SFAS 109. The
components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
(unaudited)
<S> <C> <C>
U.S. .................................. $6,831,590 $14,831,590
Other foreign.......................... 500,000 1,500,000
---------- -----------
Total income tax expense............... $7,331,590 $16,331,590
========== ===========
</TABLE>
Bermuda does not impose a statutory income tax and consequently the provision
for income taxes recorded relates to income earned where subsidiaries of the
Company have a presence in taxable jurisdictions. There are no significant
temporary differences between accounting and taxable income.
Since the Company has not recognized any income in periods prior to April 1,
1998, no tax provision has been reflected in those periods. Operating losses
incurred in those periods relate almost entirely to non-taxable jurisdictions
and therefore these operating losses cannot be applied to future taxable
earnings of the Company. Therefore the Company has not recorded any deferred
tax asset as a result of such losses in accordance with SFAS 109.
10. COMMITMENTS
As of September 30, 1998, ACL was committed under its contract with TSSL for
future construction costs totaling approximately $44 million ($195 million as
of December 31, 1997) and is committed under the OA&M contract with TSSL to
quarterly payments, over the next eight years, totaling approximately $254
million ($263 million as of December 31, 1997).
ACL is committed to paying TSSL commissions ranging from 4% to 7% on revenues
received until 2002, subject to certain reductions. As of September 30, 1998,
Mid Atlantic Crossing Ltd. was committed under its contract with Alcatel
Submarine Networks for future construction costs totaling approximately $221
million and as of September 30, 1998 Pan American Crossing Ltd. was committed
under its contract with TSSL for future construction costs totaling
approximately $262 million.
GCH and its subsidiaries have commitments under various operating leases
primarily relating to its office facility in Bermuda. Estimated future minimum
lease payments on all operating leases are approximately as follows:
<TABLE>
<S> <C>
For the three months ended December 31, 1998................. $ 219,000
1999......................................................... 953,000
2000......................................................... 963,000
2001......................................................... 971,000
2002......................................................... 652,000
Thereafter................................................... 1,910,000
</TABLE>
F-24
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
11. FINANCIAL INFORMATION OF GCL CONSOLIDATED, GCH, GUARANTORS AND NON-
GUARANTORS
Old GCL, GCL and certain subsidiaries each provide a guarantee of the New
Senior Notes described in Note 6. Additionally, Global Crossing International,
Inc. ("GCI"), a wholly-owned subsidiary of GCH that provides marketing and
development services to GCL, along with its wholly-owned subsidiaries, also
provide guarantees of the New Senior Notes. All guarantees are full,
unconditional, joint and several. To the extent companies providing a guarantee
have excess cash, dividends or loans of this cash can be made to GCH without
restriction. One of the Non-Guarantors is restricted under its long term debt
agreement from making any dividends or loans to GCH effectively for the
duration of such long term debt agreement. Separate financial statements of
each subsidiary guarantor have not been provided because they would not be
meaningful to investors.
We have presented the Balance Sheets, Statements of Operations and Statements
of Cash Flows for GCL consolidated, GCH, Guarantors and Non-Guarantors as of
and for the nine months ended September 30, 1998 and as of and for the period
from March 19, 1997 (Date of Inception) to December 31, 1997. We have also
included the GCL Consolidated Statements of Changes in Shareholders' Equity for
the periods from March 19, 1997 (Date of Inception) to December 31, 1997 and
for the nine months ended September 30, 1998. In addition, the reconciliation
of the numerator and denominator for the basic and diluted net income (loss)
per share has been presented along with notes to the GCL consolidated financial
statements, which are not applicable to GCH.
F-25
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated, GCH, Guarantors and
Non-Guarantors (continued)
($ amounts in '000s)
(unaudited)
<TABLE>
<CAPTION>
Consolidation
and
Elimination GCL
GCL GCH Guarantors Non-guarantors Entries Consolidated
As of September 30, 1998 --------- ---------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 5,408 $ 465,787 $ 16,416 $ 3,483 $ -- $ 491,094
Other current assets.... 409 80,997 2,786 377,301 (6,000) 455,493
Senior notes............ -- 150,000 -- -- (150,000) --
Long term accounts
receivable............. -- -- -- 33,640 -- 33,640
Capacity available for
sale................... -- 287 3,671 209,877 -- 213,835
Construction in
progress............... -- 4,630 11,742 641,598 (828) 657,142
Deferred finance costs,
net.................... -- 30,714 9,386 10,886 (9,386) 41,600
Investments in
subsidiaries........... 721,360 816,720 370,759 474,197 (2,383,036) --
Investments in Pacific
Crossing Ltd. ......... -- -- -- 162,109 -- 162,109
--------- ---------- -------- ---------- ----------- ----------
Total assets............ $ 727,177 $1,549,135 $414,760 $1,913,091 $(2,549,250) $2,054,913
========= ========== ======== ========== =========== ==========
Current liabilities..... $ 10,523 $ 31,405 $ 10,359 $ 116,875 $ (4,478) $ 164,684
Long term debt.......... -- -- 150,000 337,755 (150,000) 337,755
Senior notes............ -- 796,370 -- -- -- 796,370
Long term deferred
revenue................ -- -- -- 12,407 -- 12,407
Obligations under inland
services agreements and
capital leases......... -- -- -- 17,724 -- 17,724
Deferred income taxes... -- -- -- 9,319 -- 9,319
GCL Common Stock........ 2,050 12 24 96 (132) 2,050
Treasury stock.......... (209,415) -- -- -- -- (209,415)
Other Shareholders'
equity................. 1,068,106 835,226 235,622 1,385,722 (2,456,570) 1,068,106
Accumulated deficit..... (144,087) (113,878) 18,755 33,193 61,930 (144,087)
--------- ---------- -------- ---------- ----------- ----------
Total liabilities and
shareholders' equity... $ 727,177 $1,549,135 $414,760 $1,913,091 $(2,549,250) $2,054,913
========= ========== ======== ========== =========== ==========
- ------------------------------------------------------------------------------------------------------
<CAPTION>
For the Nine Months Ended
September 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Sales and operating
revenues............... $ -- $ -- $ 8,909 $ 218,676 $ (8,636) $ 218,949
--------- ---------- -------- ---------- ----------- ----------
Cost of capacity sold... -- 128 1,632 88,678 -- 90,438
Operations,
administration and
maintenance............ -- -- -- 10,652 -- 10,652
Termination of Advisory
Services Agreement..... 82,194 -- 57,475 -- 139,669
Stock related
compensation expense... 24,809 8,249 -- -- -- 33,058
Selling, general and
administrative
expenses............... 6,721 3,215 14,745 15,467 433 40,581
--------- ---------- -------- ---------- ----------- ----------
Operating income
(loss)................. (31,530) (93,786) (7,468) 46,404 (9,069) (95,449)
Other income (expense),
net.................... 1,321 (11,483) (5,284) 3,264 (255) (12,437)
Provision for income
taxes.................. -- -- (332) (16,000) -- (16,332)
Extraordinary loss...... -- (9,750) -- -- (9,959) (19,709)
--------- ---------- -------- ---------- ----------- ----------
Net income (loss) before
equity income.......... (30,209) (115,019) (13,084) 33,668 (19,283) (143,927)
Equity in income (loss)
of subsidiaries........ (113,718) 1,301 31,957 -- 80,460 --
--------- ---------- -------- ---------- ----------- ----------
Net income (loss)....... $(143,927) $ (113,718) $ 18,873 $ 33,668 $ 61,177 $ (143,927)
========= ========== ======== ========== =========== ==========
</TABLE>
F-26
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated, GCH, Guarantors and
Non-Guarantors (continued)
($ amounts in '000s)
(unaudited)
<TABLE>
<CAPTION>
Non- Elimination GCL
For the Nine Months Ended GCL GCH Guarantors Guarantors Entries Consolidated
September 30, 1998 --------- --------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) operating
activities............. $ 2,804 $ (48,551) $ (7,563) $ 138,671 $ -- $ 85,361
--------- --------- --------- --------- -------- --------
Cash flows from
financing activities:
Finance and
organization costs
incurred.............. -- (32,232) -- -- -- (32,232)
Investment in and
advances from (to)
affiliates............ (382,948) (31) 144,382 253,520 (14,923) --
Proceeds from issuance
of common stock....... 397,196 12 24 96 (132) 397,196
Costs related to
issuance of common
stock................. (4,597) -- -- -- -- (4,597)
Cash reimbursement to
certain shareholders.. (7,047) -- -- -- -- (7,047)
Redemption of
preference shares..... -- -- (134,372) -- -- (134,372)
Proceeds from long term
debt ................. -- -- -- 202,815 -- 202,815
Proceeds from issuance
of senior notes....... -- 796,232 -- -- -- 796,232
Repurchase of senior
notes................. -- (159,750) -- -- -- (159,750)
Repayment of debt...... -- (15,055) -- -- 15,055 --
(Increase) decrease in
restricted cash and
cash equivalents...... -- (74,838) 19,851 (311,551) -- (366,538)
--------- --------- --------- --------- -------- --------
Net cash provided by
financing activities.. 2,604 514,338 29,885 144,880 -- 691,707
========= ========= ========= ========= ======== ========
Cash flows from
investing activities:
Cash paid for
construction in
progress and capacity
available for sale.... -- -- (7,205) (280,216) -- (287,421)
Investment in Pacific
Crossing Ltd.......... -- -- -- (6) -- (6)
--------- --------- --------- --------- -------- --------
Net cash provided by
(used in) investing
activities............ -- -- (7,205) (280,222) -- (287,427)
--------- --------- --------- --------- -------- --------
Net increase in cash and
cash equivalents....... 5,408 465,787 15,117 3,329 -- 489,641
Cash and cash
equivalents, beginning
of period.............. -- -- 1,299 154 -- 1,453
--------- --------- --------- --------- -------- --------
Cash and cash
equivalents, end of
period................. $ 5,408 $ 465,787 $ 16,416 $ 3,483 $ -- $491,094
========= ========= ========= ========= ======== ========
</TABLE>
F-27
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated, GCH, Guarantors and
Non-Guarantors (continued)
($ amounts in '000s)
<TABLE>
<CAPTION>
Consolidation
and
Old Elimination GCL
GCL GCL GCH Guarantors Non-guarantors Entries Consolidated
-------- -------- -------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Cash and cash
equivalents............ $ -- $ -- $ -- $ 1,299 $ 154 $ -- $ 1,453
Other current assets.... 33 12 12 19,996 6,443 (205) 26,291
Capacity available for
sale................... -- -- -- -- 21,200 -- 21,200
Construction in
progress............... -- -- -- 9,014 488,305 -- 497,319
Investments in
subsidiaries........... 73,952 73,952 73,940 276,897 -- (498,741) --
Deferred finance costs,
net.................... 208 -- -- 10,619 15,107 -- 25,934
-------- -------- -------- -------- -------- --------- --------
Total assets............ $ 74,193 $ 73,964 $ 73,952 $317,825 $531,209 $(498,946) $572,197
======== ======== ======== ======== ======== ========= ========
Current liabilities..... $ 72 $ -- $ -- $ 3,253 $ 88,978 $ (205) $ 92,098
Long term debt.......... -- -- -- -- 162,325 -- 162,325
Senior notes............ -- -- -- 150,000 -- -- 150,000
Obligations under inland
service agreements and
capital leases......... -- -- -- -- 3,009 -- 3,009
Mandatorily redeemable
preference shares...... -- -- -- 90,644 -- -- 90,644
Common Stock............ -- * 1,629 12 12 12 (36) 1,629
Other shareholders'
equity................. 74,281 72,453 74,058 74,034 277,359 (499,533) 72,652
Accumulated deficit..... (160) (118) (118) (118) (474) 828 (160)
-------- -------- -------- -------- -------- --------- --------
Total liabilities and
shareholders' equity... $ 74,193 $ 73,964 $ 73,952 $317,825 $531,209 $(498,946) $572,197
======== ======== ======== ======== ======== ========= ========
- ------------------------------------------------------------------------------------------------------------
For the Period from
March 19, 1997 (Date of
Inception) to December
31, 1997
Interest income......... $ -- $ -- $ -- $ 556 $ 2,385 $ -- $ 2,941
Selling, general and
administrative
expenses............... 42 -- -- 200 2,859 -- 3,101
-------- -------- -------- -------- -------- --------- --------
Net income (loss)....... (42) -- -- 356 (474) -- (160)
Equity in income (loss)
of subsidiaries........ (12,808) (12,808) (12,808) (474) -- 38,898 --
-------- -------- -------- -------- -------- --------- --------
Net income (loss) ...... $(12,850) $(12,808) $(12,808) $ (118) $ (474) $ 38,898 $ (160)
======== ======== ======== ======== ======== ========= ========
</TABLE>
* Amount less than $1,000.
F-28
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from
March 19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Summarized Financial Information of GCH, Guarantors and
Non-Guarantors (continued)
($ amounts in '000s)
<TABLE>
<CAPTION>
For the Period from
March 19, 1997
(Date of Inception) to Non- Elimination GCL
December 31, 1997 Old GCL GCL GCH Guarantors Guarantors Entries Consolidated
---------------------- ------- ------- ------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows provided by
operating activities.. $ -- $ -- $ -- $ 528 $ 4,592 $ -- $ 5,120
------- ------- ------- -------- -------- -------- --------
Cash flows from
financing activities:
Finance and
organization costs
incurred............. -- -- -- (16,456) (11,725) -- (28,181)
Investment in and
advances to
affiliates........... (75,000) (75,000) (75,000) (272,468) -- 497,468 --
Preference share
issuance costs....... -- -- -- (7,530) -- -- (7,530)
Costs related to
issuance of common
stock................ -- -- -- (1,264) -- -- (1,264)
Proceeds from issuance
of common stock and
additional paid-in
capital.............. 75,000 75,000 75,000 75,000 272,468 (497,468) 75,000
Proceeds from issuance
of preference
shares............... -- -- -- 100,000 -- -- 100,000
Proceeds from long
term debt............ -- -- -- -- 162,325 -- 162,325
Proceeds from issuance
of senior notes...... -- -- -- 150,000 -- -- 150,000
Increase in restricted
cash and cash
equivalents.......... -- -- -- (19,851) (5,424) -- (25,275)
------- ------- ------- -------- -------- -------- --------
Net cash provided by
financing
activities.......... -- -- -- 7,431 417,644 -- 425,075
------- ------- ------- -------- -------- -------- --------
Cash flows from
investing activities:
Cash paid for
construction in
progress and capacity
available for sale... -- -- -- (6,660) (422,082) -- (428,742)
------- ------- ------- -------- -------- -------- --------
Net cash used in
investing
activities.......... -- -- -- (6,660) (422,082) -- (428,742)
------- ------- ------- -------- -------- -------- --------
Net increase in cash
and cash equivalents.. -- -- -- 1,299 154 -- $ 1,453
Cash and cash
equivalents, beginning
of period............. -- -- -- -- -- -- --
------- ------- ------- -------- -------- -------- --------
Cash and cash
equivalents, end of
period................ $ -- $ -- $ -- $ 1,299 $ 154 $ -- $ 1,453
------- ------- ------- -------- -------- -------- --------
</TABLE>
F-29
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated (continued)
<TABLE>
<CAPTION>
Common stock Other shareholders' equity
-------------------------------------- -----------------------------
Total
Treasury Additional Paid- Unearned Accumulated Shareholders'
Shares Amount Stock in Capital Compensation Deficit Equity
----------- ---------- ------------- ---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Class A
common stock for cash
on March 25, 1997.... 11,250,000 $ 7 $ -- $ 7,499,993 $ -- $ -- $ 7,500,000
Class A common stock
distributed for nil
consideration to the
initial purchaser of
preference shares on
March 25, 1997....... 19,852,950 13 -- 13,234,987 -- -- 13,235,000
Issuance of Class B
common stock for cash
on March 25, 1997.... 50,625,000 34 -- 31,249,966 -- -- 31,250,000
Issuance of Class C
common stock for cash
on March 25, 1997.... 50,625,000 34 -- 33,749,966 -- -- 33,750,000
Issuance of Class D
common stock for cash
to certain Class B
shareholders on March
25, 1997............. 33,088,200 22 -- 2,499,978 -- -- 2,500,000
Costs incurred related
to the issuance of
common stock......... -- -- -- (1,264,045) -- -- (1,264,045)
Preference share
dividends............ -- -- -- (12,689,923) -- -- (12,689,923)
Class D Conversion and
Old GCL Exchange..... (2,554,183) 1,628,760 -- (1,628,760) -- -- --
Net loss for the
period............... -- -- -- -- -- (160,356) (160,356)
----------- ---------- ------------- -------------- ------------ ------------- -------------
Balance, December 31,
1997................. 162,886,967 $1,628,870 $ -- $ 72,652,162 $ -- $ (160,356) $ 74,120,676
----------- ---------- ------------- -------------- ------------ ------------- -------------
Issuance of common
stock for cash on
January 21 and April
22, 1998............. 787,500 7,875 -- 2,779,804 -- -- 2,787,679
Cash reimbursement to
certain
shareholders......... -- -- -- (7,047,044) -- -- (7,047,044)
Unearned
compensation......... -- -- -- 81,730,700 (81,730,700) -- --
Compensation expense.. -- -- -- -- 30,795,215 -- 30,795,215
PCG Warrants.......... 12,203,170 122,032 -- 275,175,974 -- -- 275,298,006
Common stock issued in
exchange for
termination of
Advisory Services
Agreement............ 7,105,263 71,053 -- 134,928,947 -- -- 135,000,000
Preference share
dividends............ -- -- -- (8,306,433) -- -- (8,306,433)
Premium on redemption
of preference
shares............... -- -- -- (34,140,067) -- -- (34,140,067)
Repurchase of issued
common stock from
certain
shareholders......... (150,000) (1,500) (209,414,620) 209,416,120 -- -- --
Initial Public
Offering............. 22,210,000 222,100 -- 391,851,161 -- -- 392,073,261
Net loss for period
for nine months ended
September 30, 1998... -- -- -- -- -- (143,926,710) (143,926,710)
----------- ---------- ------------- -------------- ------------ ------------- -------------
Balance, September 30,
1998 (unaudited)..... 205,042,900 $2,050,430 $(209,414,620) $1,119,041,324 $(50,935,485) $(144,087,066) $ 716,654,583
=========== ========== ============= ============== ============ ============= =============
</TABLE>
- --------
The 1997 amounts presented above reflect the historical equity transactions of
Old GCL that occurred on March 19, 1997 and the Old GCL Exchange as if it had
occurred immediately after the historical equity transactions on March 19,
1997.
F-30
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated (continued)
<TABLE>
<CAPTION>
For the Period
March 19, 1997
Nine Months Ended (Date of Inception)
September 30, 1998 to December 31, 1997
------------------ --------------------
(Unaudited)
<S> <C> <C>
NET LOSS PER COMMON SHARE
Net loss before extraordinary item
Basic................................. $(0.97) $(0.08)
Diluted............................... $(0.97) $(0.08)
Extraordinary item
Basic................................. $(0.12) --
Diluted............................... $(0.12) --
Net loss to common shareholders
Basic................................. $(1.09) $(0.08)
Diluted............................... $(1.09) $(0.08)
Shares for computing basic income
(loss) per share...................... 170,685,928 162,886,967
Shares for computing diluted income
(loss) per share...................... 170,685,928 162,886,967
The following is a reconciliation of the numerator and the denominator of the
basic and diluted net loss per share:
<CAPTION>
For the Period
March 19, 1997
Nine Months Ended (Date of Inception)
September 30, 1998 to December 31, 1997
------------------ --------------------
(Unaudited)
<S> <C> <C>
Basic and Diluted
Net loss before extraordinary item.... $(124,217,240) $ (160,356)
Preference share dividends............ (8,306,433) (12,689,923)
Redemption of preference shares....... (34,140,067) --
------------- ------------
Net loss applicable to common
shareholders before extraordinary
item................................. $(166,663,740) $(12,850,279)
============= ============
Weighted average shares outstanding:
Basic................................. 170,685,928 162,886,967
============= ============
Diluted............................... 170,685,928 162,886,967
============= ============
</TABLE>
F-31
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated, GCH, Guarantors and
Non-Guarantors (continued)
All footnotes in these GCH consolidated financial statements are applicable
to both GCH and GCL. The footnotes below are applicable to GCL only:
(i) OLD GCL COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL
As discussed in Note 1, on January 21, 1998, Old GCL effected a 100 for 1
stock split of each of the Class A, B, C and D common stock and undesignated
stock and amended the par value of each share of common stock from $.0001 per
share to $.000001 per share. Shares of common stock of Old GCL outstanding have
been restated to reflect the equivalent number of shares of GCL that were
issued in the Old GCL Exchange as discussed in "Note 1". Class A shares, Class
B shares and Class C shares all have voting rights. On March 25, 1997, Old GCL
issued 11,250,000 Class A shares, 50,625,000 Class B shares, 50,625,000 Class C
shares for $.67 per share, resulting in aggregate proceeds of $75 million. As
discussed in Note 7, in addition to the 11,250,000 Class A shares issued to the
preference shareholders for cash, in connection with the issuance of the
preference shares, a total of 19,852,950 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 46,440 shares of common stock of Old GCL were issued into escrow for the
benefit of the holders of preference shares. All or a portion of the warrants
may be exercised at a price of $.01 per share if the preference shares are
outstanding on April 1, 2001. Effective January 21, 1998, Old GCL authorized
1,000,000,000 of new Class E non-voting shares.
Certain of the Class B shareholders were issued a total of 33,088,200 Class D
shares. Of the $33,750,000 of proceeds received from the issuance of Class B
shares, $2,500,000 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 are non-voting shares which carry special preference rights on
the cash distributions made by Old GCL. Class D shareholders will receive 10%
of cash distributions to common shareholders once the internal rate of return
to Class C shareholders exceeds 10%, and then increasing to 20% of cash
distributions to common shareholders once the internal rate of return to Class
C shareholders exceeds 30%. Effective January 21, 1998, Class D share rights
were amended such that Class D shareholders now have the option to convert each
Class D share into one Class E share upon payment to Old GCL of $1.47 per share
or are entitled 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 GCL 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 GCL or in order to obtain the benefits of any
trading market for the common stock of the GCL; 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 GCL granted these
shareholders amended share rights in the form of options with new warrants. As
an equity transaction, the fair value of the option would be recorded as an
increase in additional paid-in-capital and a corresponding charge against
retained earnings, but since the GCL has an accumulated deficit, the charge
would be made against additional paid-in-capital which would have no impact on
the consolidated financial statements. The GCL will account for the new
warrants as an equity transaction on the date the warrants are issued, which is
expected to be the IPO date. The accounting would increase additional paid-in-
capital and a charge to retained earnings to the extent the GCL has retained
earnings on that date, or against additional paid-in-capital if the GCL does
not have retained earnings.
F-32
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated, GCH, Guarantors and
Non-Guarantors (continued)
During the nine months ended September 30, 1998, GCL issued, at a price of
$.67 per share, 450,000 Class B shares and 337,500 Class E shares. Since the
estimated fair value of shares exceeded the issue price, GCL increased stock
related expense and shareholders' equity by $nil and $2,262,679 in the three
and nine months ended September 30, 1998, respectively.
(ii) STOCK OPTION PLAN AND STOCK RELATED EXPENSE
GCL accounts for stock option grants in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
and, 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. Disclosures will be made in the
consolidated financial statements of future periods in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123").
On January 21, 1998, GCL adopted the 1998 Stock Incentive Plan ("the Plan")
which grants non-qualified stock options to key officers and employees of the
GCL at the discretion of the Board of Directors. As of September 30, 1998, the
maximum number of options which may be issued under the Plan was 16,607,865 for
the rights to purchase an equivalent number of shares of common stock.
Generally, options vest equally over a period of three years and expire ten
years from the date of grant.
The following table summarizes the transaction of GCL's stock option plans
for the nine months ended September 30, 1998.
<TABLE>
<CAPTION>
Weighted
Number of average Number exercisable
options exercise as of
outstanding price September 30, 1998
----------- -------- ------------------
<S> <C> <C> <C>
Options outstanding as of December
31, 1997......................... -- -- --
Options granted on January 21,
1998............................. 4,231,500 $ 1.67 895,250
Options granted on April 3, 1998.. 5,557,500 1.67 1,467,500
Options granted on June 12, 1998.. 3,352,950 6.67 831,250
Options granted on August 9,
1998............................. 507,750 19.00 --
Options granted on September 18,
1998............................. 99,500 20.50 --
Options forfeited................. (1,608,500) 1.67 --
---------- ------ ---------
Options outstanding as of
September 30, 1998............... 12,140,700 $ 4.41 3,194,000
========== ====== =========
</TABLE>
The weighted average remaining life of the options outstanding as of
September 30, 1998 is 9.5 years. During the three month and nine month periods
ended September 30, 1998, no options had expired or were exercised.
During the nine months ended September 30, 1998 the Company entered into an
employment arrangement with a key executive, hired during the third quarter,
and granted him the economic rights to purchase 800,000 shares of common stock
at $4.00 per share. The right to purchase one third of these shares vested
immediately and the balance will vest over two years. The Company recorded the
excess of the fair market value of these rights over the purchase price as
unearned stock compensation in the amount of $14.6 million during the nine
months ended September 30, 1998. The unearned compensation is being recognized
as an expense over the vesting period of the rights.
F-33
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Financial Information of GCL Consolidated, GCH, Guarantors and
Non-Guarantors (continued)
As of September 30, 1998, GCL recorded $81.7 million of unearned
compensation, relating to the stock option plan plus the economic rights to
purchase common stock granted to a key executive. The unearned compensation is
being recognized as an expense over the vesting period of these options and
economic rights to purchase common stock. GCL recognized $9.7 million of
compensation expense during the three months ended September 30, 1998. During
the nine months ended September 30, 1998, the Company also recorded stock-
related expense of $2.3 million relating to shares issued during this period.
For the nine months ended September 30, 1998, GCL recognized $25.9 million of
stock related compensation relating to its Stock Incentive Plan and $4.9
million for the vested economic rights to purchase common stock. The remaining
$50.9 million of unearned compensation will be recognized as follows: $6.0
million in the fourth quarter of 1998, $24.1 million in 1999, $17.1 million in
2000 and $3.7 million in 2001.
No compensation expense was recognized for the options granted on January 21,
1998, August 9, 1998 and September 18, 1998 since the estimated fair value of
the stock, on that date did not exceed the exercise price.
As permitted by SFAS 123, the GCL has chosen to account for employee stock
options under APB 25 and is recognizing compensation expense over the vesting
period to the extent that the estimated fair value of the stock on the date the
options were granted exceeded the exercise price on the dates of grant. Had
compensation cost for the GCL's stock-based compensation plans been determined
consistent with the SFAS 123 fair value approach, the impact on the GCL's loss
applicable to common shareholders and loss per share would be as follows:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Net income (loss) applicable to com-
mon shareholders:
As reported....................... $15,289 $(186,373)
Pro forma......................... $14,665 $(188,892)
Basic and diluted net (loss) per
share:
As reported....................... $ 0.08 $ (1.09)
Pro forma......................... $ 0.08 $ (1.11)
</TABLE>
The fair value of options for purposes of the SFAS 123 disclosure is
estimated on the date of grant using the Black-Scholes method with the
following average assumptions: no dividend yield, risk-free interest rates of
5.45%, an average expected life of 4 years and a 32% volatility factor. The
estimated fair value of the options granted on January 21, April 3, June 12,
1998, August 9, 1998 and September 18, 1998 were $0.49, $11.40, $15.90, $6.38
and $6.88, respectively.
12. RELATED PARTY TRANSACTIONS
Advisory Services Agreement ("ASA")
GCL has entered into the ASA with PCG Telecom, an affiliate of Pacific
Capital Group, Inc. ("PCG") which is a shareholder of GCL. Under the ASA, PCG
Telecom provides 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
F-34
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
receives a 2% fee on the gross revenues of the Company, subject to certain
restrictions, with the first such payment occurring at the System RFS date.
Advances on fees payable under the ASA are being paid to PCG Telecom at a rate
of 1% on signed CPAs and Backhaul CPAs until the System RFS date and are
secured by amounts payable under the ASA. Fees paid under the ASA to PCG
Telecom are shared amongst ULLICO, Inc., PCG, CIBC, and Messrs. Winnick, Cook,
Brown, Lee and Porter, all of whom are shareholders of GCL. The Advisory
Service Agreements ("ASA") which were terminated effective on June 30, 1998 had
terms of 25 years subject to termination, however, the ASA did not contain
provisions regarding cancellation fees or liquidated damages in the event of
termination or breach. GCL acquired the rights under the ASA on behalf of the
Company and contributed such rights to the Company. This transaction was
recorded in the consolidated financial statements as an increase in additional
paid-in-capital and a charge against the statement of operations in the amount
of $137.7 million. The $137.7 million is comprised of a $135 million settlement
of the fees that would have been payable and the cancellation of approximately
$2.7 million owed to the Company under a related advance agreement. The $135
million amount was calculated by applying the 2% advisory services fee to
projected future revenues and discounting the amount relating to AC-1 revenues
by 12% and the amount relating to all other system's revenues by 15%. The
result of this calculation was $155.5 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 disinterested
director of the Company and the various persons entitled to fees under the ASA.
The Company has obtained a fairness opinion from an independent financial
advisor in connection with this transaction.
PCG Warrants
Prior to January 21, 1998, PCG and its affiliates had commenced development
of systems other than AC-1, namely PC-1, MAC and PAC. Through January 21, 1998,
such development included assembling a management team, negotiating with
potential suppliers, partners, financing sources, obtaining preliminary market
and feasibility studies and developing technical requirements. On January 21,
1998, the Board determined that it was in the Company's best interests to
pursue these new systems, obtain the results of the work and the employees then
within the scope of activity of PCG and broaden the goals, objectives and
business plan of the Company. In consideration of PCG transferring the results
of its activities and becoming
F-35
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
limited in its future activities in fiber optic telecommunications other than
through GCL, the Board approved and the shareholders subsequently approved the
transaction whereby PCG received approximately $7 million representing PCG's
costs related thereto and Old GCL entered into a warrant agreement ("PCG
Warrants") under which PCG was issued three separate warrants permitting PCG to
purchase (i) 9,226,592 of Old GCL's Class B shares for an aggregate price of
$50,000,000; (ii) an additional 4,613,297 of Old GCL's Class B shares for an
aggregate price of $31,250,000; and (iii) an additional 4,613,297 of Old GCL's
Class B shares for an aggregate price of $37,500,000. The PCG Warrants were
granted in exchange for the rights to commence the development of the new
projects that previously had been under development by an affiliate of PCG.
These warrants are intended to entitle PCG to acquire, in addition to their
existing ownership, 10% of the capital stock of GCL, as of the date these
warrants were issued. Exercise of these warrants is contingent upon (i) an IPO
of shares of Old GCL (or any successor thereto), underwritten by an investment
banking firm of national reputation (as determined by a majority of the Board
of Directors of Old GCL) from which Old GCL shall have received at least
$50,000,000 in net proceeds, (ii) the investment by Old GCL in the aggregate of
at least $500,000,000 of Net Attributable Capital (as defined below) in cable
systems other than AC-1 and (iii) the generation in the aggregate by cable
systems other than AC-1 of at least $100,000,000 in Net Attributable Revenues
(as defined below). For purposes of the PCG Warrant Agreement, with respect to
any cable system, "Net Attributable Capital" means the aggregate debt and
equity capitalization of such system multiplied by the percentage ownership of
Old GCL (directly or indirectly) in such system, and "Net Attributable
Revenues" means the net revenues of such system multiplied by the percentage
ownership interest of Old GCL (directly or indirectly) in such system. No
accounting was made for the PCG Warrants at the time of issuance on the basis
that it was indeterminable when the conditions described above would be met.
In June, 1998, the Board of Directors amended the terms of the PCG Warrants
so that the PCG Warrants will become exercisable upon the successful completion
of the IPO and eliminated conditions (ii) and (iii) above. Further to this
amendment, the Board of Directors also amended the terms of the PCG Warrants to
give each holder the option to convert each share under warrant into a fraction
of a Class B share 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
18,453,185 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 current per share valuation. Prior to the
IPO, it is expected that the holders of the PCG Warrants will exercise their
warrants to acquire Class B shares by way of the cashless conversion and the
New PCG Warrants will be issued with an exercise price based on the per share
valuation at the conversion date.
The Company had accounted for the PCG Warrants by assuming the cashless
conversion took place as of June 30, 1998 using the current estimated per share
valuation at the expected conversion date, multiplied by the number of Class B
shares estimated to be converted in exchange for the PCG Warrants. The value
attributed to the PCG Warrants as described below was contributed to the
Company by the Company's parent GCL. The resulting value under this calculation
is approximately $213.3 million which has been allocated to the new systems
acquired 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. See Note 3.
F-36
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
Therefore, the Company recorded an increase in its investment in PCL in the
amount of approximately $126.5 million and an increase in construction in
progress for PAC and MAC in the amounts of approximately $49.9 million and
$36.9 million, respectively, with a corresponding increase of $213.3 million in
additional paid in capital. The $213.3 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 30, 1998, since the IPO was
probable at that date. The $213.3 million value attributed to the PCG Warrants
as of June 30, 1998 was adjusted to the actual value of $275.3 million on the
date of the IPO based upon the $19 price per share.
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
of each of the New PCG Warrants at $6.95 based on an independent valuation
based on the IPO price of $19 per share. The New PCG Warrants had a total value
of approximately $43 million. The Company recorded the actual value of the New
PCG Warrants in a manner similar to that described above whereby the total
value was allocated to the investment in PCL, MAC and PAC based on their
relative total contract costs.
Other transactions
$7,250,000 in fees were paid to PCG and certain of its key executives, who
are shareholders of GCL, and another shareholder for services provided in
respect of obtaining the Credit Facility, Senior Notes and preference share
financing. Of the fees paid, $5,523,775 was allocated to the Credit Facility
and Senior Notes and recorded as deferred finance costs, $986,725 was allocated
to the preference shares and recorded as a reduction in the carrying value of
the preference shares and $739,500 was recorded as common stock issuance costs
and is included in the approximately $1.3 million which is reflected as a
reduction in additional paid-in-capital.
GCL has paid CIBC approximately $25 million in fees related to the financing
obtained under the Old Senior Notes, Credit Facility, and the issuance of
preference shares. Of the fees incurred, approximately $6.2 million related to
underwriting and commitment fees pertaining to the issuance of the preference
shares and were recorded as a reduction in the carrying value of the preference
shares, approximately $9.2 million related to underwriting, commitment and
advisory fees in connection with the issuance of the Senior Notes and
approximately $9.6 million related to fees associated with obtaining the Credit
Facility which were recorded as deferred finance costs. CIBC is a member of the
syndicate funding the Credit Facility under which the Company has borrowings of
$365,140,294 ($162,325,000 as of December 31, 1997), as of September 30, 1998
and has been paid interest and other related fees in the amount of
approximately $21 million as of September 30, 1998 ($4.2 million as of December
31, 1997). CIBC is also one of the initial purchasers of the New Senior Notes
and received a $5,817,425 commitment and structuring fee as well as portion of
the $24,750,000 underwriting fee paid to the initial purchasers. CIBC was also
one of the underwriters of the Company's IPO and received a portion of the
approximate $25 million underwriting fee paid to the underwriters.
F-37
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(Information for the three months and nine months ended September 30, 1998,
for the three months ended September 30, 1997, and for the period from March
19, 1997
(date of inception) to September 30, 1997 is unaudited)
(Expressed in U.S. Dollars)
On April 7, 1998, the Company signed a CPA with Worldport Communications,
Inc. ("Worldport"), to acquire capacity on AC-1. This transaction occurred in
the ordinary course of business of the Company and on terms and conditions no
less favorable to the Company than in its other CPAs. Certain officers and
directors of the Company, have direct or indirect equity ownership positions in
Worldport, aggregating approximately 10% of the current common stock of
Worldport.
GCL purchased all common shares owned by Telecommunications Development
Corporation ("TDC") in the Company in exchange for 150,000 fewer shares of
newly issued common shares based upon the per share value at the repurchase
date. The transaction benefited GCL since 150,000 fewer shares were outstanding
after the repurchase without any cost to GCL. The transaction was accounted for
as the acquisition of treasury stock and will be recorded at the fair value of
the consideration given.
F-38
<PAGE>
GLOSSARY OF CERTAIN DEFINED TERMS
Unless the context otherwise requires, any reference in this prospectus to
any agreement shall mean such agreement and all schedules, exhibits and
attachments thereto, as amended, supplemented or otherwise modified as of the
date of this prospectus. All terms defined herein used or the singular shall
have the same meanings when used in the plural and vice versa.
<TABLE>
<C> <S>
Amplifier: A device used to boost the strength of an
electronic or optical signal, which is
weakened (attenuated) as it passes through
the transport network. Amplifiers add gain
to the signal by an amount equal to the
loss in the previous section of the
network since last amplification.
Band: A range of frequencies between two defined
limits.
Bandwidth: A measure of capacity of information-
carrying capacity on a communications
channel. 1) The difference between the
high and low frequencies of a transmission
band, expressed in cycles per second
(Hertz) or in wavelengths (nanometers). It
is a measure of raw capacity without
compression or coding of the information
signal. A voice transmission requires
about 3 KHz and a TV channel about 6 MHz.
2) Transmission capacity is expressed in
bits per second. For example megabits per
second (Mbps) is a bit rate expressed in
millions of bits per second while gigabits
per second (Gbps) is a bit rate expressed
in billions.
. Narrowband: Less than or equal to 64-
kbps
. Wideband: Digital rates between 64-kbps
and 1.544-Mbps (DS1) or 2.048-Mbps
(E1)--LANs, bulk files transfer, video
conferencing, and multimedia.
. Broadband: Greater than 44.736-Mbps (D3)
or 34.368-Mbps (E3)
Bit: A binary unit of information that can have
either of two values, 0 or 1. Contraction
of binary digit:
. kilobit = 1,000 bits
. megabit = 1 million bits
. gigabit = 1 billion bits
. terabit = 1 trillion bits
Broadband: A transmission channel usually carrying a
tremendous amount of information at
transmission speeds of 45 Mbps (45,000,000
bits per second) or greater. Some
facilities have transmission speeds in the
billion of bits (gigabits per second or
Gbps).
1. A communications channel with bandwidth
sufficiently large to carry voice, data
and video on a single channel.
2. Any voice communications channel having
a bandwidth greater than a voice grade
channel.
. A bandwidth of 45 Mbps can carry 672
voice connections.
. In theory up to 64 telephone grade
communication channels can be carried on
one 6 MHz broadband channel.
</TABLE>
GL-1
<PAGE>
<TABLE>
<C> <S>
Capacity: The information-carrying ability of a
telecommunications system, as defined by
its design (number of fibers, system
length, and opto/electronic equipment)
and its deployed equipment (amount of
opto/electronics in the station) and
measured in bits per second. Capacity is
sold in discrete units, usually system
interface levels such as DS-3's and STM-
1's, that in the aggregate are the
equivalent of total system capacity.
Carrier: 1. A third party provider of communications
services by wire, fiber or radio.
. Common Carrier: A private company
offering facilities or services to the
general public on a non-discriminatory
basis and regulated as to market entry,
practices, and rates by various Federal
and State authorities.
. Private Carrier: Services provided for
internal use and free of most common
carrier regulations to allow
discrimination in service provision or
pricing.
2. A signal that is modulated in order to
transmit information.
Common Carrier: A business authorized by the FCC to provide
communications services by wire or radio
from place to place without influence of
content. Services are provided to the
public on a non-discriminatory basis, and
are regulated by Title II of the
Communications Act of 1934. Regulatory
agencies are the FCC and state public
utility commissions.
. Non-dominant carrier is one which has
insufficient market power to practice
anti-competitive pricing.
. Private carriers are not regulated by
government agencies and may charge
whatever the market will bear.
Compression: Algorithm that minimizes the redundancy in
the signal to be transmitted.
Dark Fiber: Installed fiber optic cable not carrying a
signal. It is "dark" because it is sold
without light communications transmission.
The customer is expected to put his own
electronics and signals on the fiber and
make it light.
Digital: Describes a method of storing, processing
and transmitting information through the
use of distinct electronic or optic pulses
representing the binary digits 0 and 1. In
communications they will modify a carrier
at a selected frequency. The precise
signal transitions preclude any distortion
such as graininess or snow in the case of
video transmission, or static or other
background distortion in the case of audio
transmission.
Digital Transmission: Method of storing, processing and
transmitting information through the use
of distinct electronic or optical pulses
that represent the binary digits 0 and 1.
Digital transmission and switching
technologies employ a sequence of these
pulses to represent information as opposed
to a continuously variable analog signal.
The precise digital numbers preclude any
distortion such as graininess or snow in
the case of video transmission, or static
or other background distortion in the case
of audio transmission.
Doped Fibers: Various impurities may be added to silica-
based fiber-optic strands as they are
constructed to achieve specifically
desired transmission or physical
properties.
</TABLE>
GL-2
<PAGE>
<TABLE>
<C> <S>
. Erbium-Doped Optical Fiber Amplifier
(EDFA) optical amplifiers use a section
of optical fiber doped with the rare
earth erbium and optically pumped with
a laser diode. It can amplify a range
of wavelengths at the same time
surrounding a base wavelength of 1550
nm.
. Praseodymium-doped fibers produce a
signal gain of 30 dB in 1310 nm fibers.
DS1: A digital transmission hierarchy
supporting 1.544 million bits per second
that may be used for "near full-motion"
or compressed video, data or voice
circuits (24, 48 or 96).
DWDM (Dense Wavelength Division
Multiplexing): A technique which employs more than one
light source and detector operating at
different wavelengths and simultaneously
transmits optical signals through the
same fiber while message integrity of
each signal is preserved.
EDFA (Erbium Doped Fiber A purely optical (as opposed to
Amplifier): electronic) device used to boost an
optical signal. It contains several
meters of glass fiber doped with erbium
ions. When the erbium ions are excited to
a higher energy state, the doped fiber
changes from a passive medium to an
active amplifying medium.
Fiber Kilometers: The number of route kilometers installed
multiplied by the number of fiber strands
along the path.
Gbps (Gigabit per second): A data rate of 1 Gbps corresponds to 1,000
million bits per second.
Internet: A fabric of interconnected computer
networks, originally known as the DARPA
network (Defense Advanced Research
Projects Agency) connecting government
and academic sites. It currently links
about 50 million people world-wide who
use it for everything from scientific
research to simple E-Mail.
Indefeasible Right of Use (IRU): A measure of currency in the undersea
cable business. The owner of an IRU has
the right to use the capacity for the
time and bandwidth to which the IRU
applies.
ISP: Independent service provider.
ITU (International
Telecommunications
Union): The ITU is an intergovernmental agency of
the United Nations within which the
public and private sectors cooperate for
the development of telecommunications.
The ITU adopts international regulations
governing the use of the radio spectrum
and develops standards to facilitate the
interconnection of telecommunications
systems on a worldwide basis. It is
headquartered in Geneva, Switzerland. In
1996, the ITU comprised 185 Member States
and 363 members (scientific and
industrial companies, public and private
operators, broadcasters, regional and
international organizations active in
three sectors: Radio communications,
Standardization and Development).
Mbps (Megabit per second): One Mbps corresponds to a data rate of
1,000,000 bite per second.
</TABLE>
GL-3
<PAGE>
<TABLE>
<C> <S>
Multimedia: The electronic conversation between two or
more people or groups of people in
different places using two or more types
of digitally integrated communication for
voice, sound, text, data, graphics,
video, image or presence at the same
time. Applications include conferencing,
presentations, training, referencing,
games, etc.
Multiplexing: An electronic or optical process that
combines two or more lower bandwidth
transmissions into one higher bandwidth
signal by splitting the total available
bandwidth into narrower bands (frequency
division) or by allotting a common
channel to several transmitting sources
one at a time in sequence (time
division).
Multipoint: Pertaining or referring to a
communications line to which three or
more stations are connected. It implies
that the line physically extends from one
station to another until all are
connected.
Optical Fibers: Thin filaments of glass through which
light beams are transmitted. Enormous
capacity, low-cost, low-power
consumption, small space, lite-weight,
insensitivity to electromagnetic
interference characterize this transport
media.
PTTs (Post, Telephone and
Telegraph
companies): International telecommunications carriers
which are generally under the control of
the government in a country that has not
yet privatized its telecommunications
markets.
Repeater: 1. Equipment that receives a low-power
signal, possibly converting it from
light to electrical form, amplifying it
or retiming and reconstructing it for
transmission. It may need to be
reconverted to light for retransmission.
2. An optoelectrical device used at each
end and occasionally at intermediate
points of exceptionally long fiber-optic
span. Optical input is converted to
electrical form to restore a clean
signal, which drives lasers that fully
restores the optical signal at the
original signal strength.
Route Kilometers: The number of route kilometers installed.
RFS (Ready for Service): The data of provisional acceptance or
commercial service of a cable system.
STM (Synchronous Transfer Mode): New term for traditional TDM switching to
distinguish it from ATM.
STM-1: The largest standard circuit unit of
capacity, which consists of 155,500 Kbps
(equal to 155 Mbps). Thus, each Gbps
contains enough capacity for 6.4 STM-1
circuits. While capacity is sold to the
largest telecommunications companies in
minimum investment units equal to one
STM-1 unit, most telecommunications
companies buy smaller units at a price
higher than the equivalent STM-1 price.
</TABLE>
GL-4
<PAGE>
<TABLE>
<C> <S>
Wavelength: The distance between two crests of a signal
or a carrier and is measured in terms of
meters, millimeters, nanometers, etc. In
lightwave applications, because of the
extremely high frequencies, wavelength is
measured in nanometers.
xDSL: A term referring to a variety of new
Digital Subscriber Line technologies. Some
of these varieties are asymmetric with
different data rates in the downstream and
upstream directions. Others are symmetric.
Downstream speeds range from 384 Kbps (or
"SDSL") to 1.5-8 Mbps (or "ADSL").
</TABLE>
GL-5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exchange Offer
[LOGO] GLOBAL CROSSING HOLDINGS LTD.
10 1/2% Senior Exchangeable Preferred Stock due 2008
--------
PROSPECTUS
Dated , 1999
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
No provision is made in Bermuda statutory law for indemnification of officers
and directors.
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 Acts as in effect from
time to time in Bermuda.
The directors and officers of the Company are covered by directors' and
officers' insurance policies maintained by the Company.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
------- ------- ----
<C> <S> <C>
3.1b Certificate of Incorporation of Global Crossing Holdings Ltd.
3.2e Bye-laws of Global Crossing Holdings Ltd.
3.3e Memorandum of Increase of Share Capital for Global Crossing
Holdings Ltd.
3.4a Certificate of Incorporation of Global Crossing Ltd.
3.5b Amended and Restated Bye-Laws of Global Crossing Ltd.
3.6a Certificate of Incorporation of Change of Name of Global
Crossing Ltd.
3.7a Memorandum of Increase of Share Capital for Global Crossing
Ltd.
4.1e Form of Certificate for Preferred Stock
4.2e Form of Indenture relating to Exchange Notes
4.3e Registration Rights Agreement, dated as of December 2, 1998,
among Global Crossing Holdings Ltd. and the other parties
named therein
4.4b Indenture, dated as of May 18, 1998, between Global Crossing
Holdings Ltd. and United States Trust Company of New York, as
Trustee
4.5a Credit Agreement, dated as of June 27, 1997 (the "Credit
Agreement"), among Global Telesystems Ltd., various financial
institutions named therein, Deutsche Bank AG, New York Branch
and Canadian Imperial Bank of Commerce, as Lead Agents,
Deutsche Bank AG, New York Branch, as Administrative Agent,
Canadian Imperial Bank of Commerce, as Syndication Agent,
Documentation Agent and the Issuing Bank and Deutsche Morgan
Grenfell Inc. and CIBC Gundy Securities Corp., as Arrangers
4.6a First Amendment and Consent, dated as of December 15, 1997, to
the Credit Agreement, among Global Telesystems Ltd., the
lenders named therein, Deutsche Bank AG, New York Branch and
Canadian Imperial Bank of Commerce, as Lead Agents, Deutsche
Bank AG, New York Branch, as Administrative Agent, Canadian
Imperial Bank of Commerce, as Syndication Agent, Documentation
Agent and the Issuing Bank and Deutsche Morgan Grenfell Inc.
and CIBC Gundy Securities Corp., as Arrangers
4.7a Second Amendment and Consent, dated as of June 12, 1998, to the
Credit Agreement, among Atlantic Crossing Ltd. (f/k/a Global
Telesystems Ltd.), the lenders named therein, Deutsche Bank AG,
New York Branch and Canadian Imperial Bank of Commerce, as Lead
Agents,
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
------- ------- ----
<C> <S> <C>
Deutsche Bank AG, New York Branch, as Administrative Agent,
Canadian Imperial Bank of Commerce, as Syndication Agent,
Documentation Agent and the Issuing Bank and Deutsche Morgan
Grenfell Inc. and CIBC Gundy Securities Corp., as Arrangers
4.8e Credit Agreement, dated as of November 25, 1998, among Mid-
Atlantic Crossing Ltd., various financial institutions named
therein, Deutsche Bank AG, New York Branch and CIBC Inc., as
lead agents, Deutsche Bank AG, New York Branch, as
administrative agent, Canadian Imperial Bank of Commerce, as
syndication agent and CIBC Inc., as documentation agent
5.1e Opinion of Appleby, Spurling & Kempe as to the legality of the
securities being registered
5.2e Opinion of Simpson, Thacher & Bartlett as to the legality of
the securities being registered
10.1c 1998 Global Crossing Ltd. Stock Incentive Plan
10.2a Project Development and Construction Contract, dated as of
March 18, 1997, among AT&T Submarine Systems, Inc. and Global
Telesystems Ltd.
10.3a Project Development and Construction Contract, dated as of
April 21, 1998, among Tyco Submarine Systems, Ltd. and Pacific
Crossing Ltd.
10.4a Project Development and Construction Contract, dated as of June
2, 1998, among Alcatel Submarine Networks and Mid-Atlantic
Crossing Ltd.
10.5d Project Development and Construction Contract, dated as of July
21, 1998, among Tyco Submarine Systems, Ltd. and Pan American
Crossing Ltd.
12.1e Statement regarding Computation of Ratio of Earnings to Fixed
Charges
21.1e Subsidiaries of the Registrant
23.1e Consent of Appleby Spurling & Kempe (included in the opinion
filed as Exhibit 5.1)
23.2e Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 5.2)
23.3 Consent of Arthur Andersen & Co.
24.1e Power of Attorney of Global Crossing Holdings Ltd.
25.1e Form T-1 Statement of Eligibility under Trust Indenture Act of
1939 of United States Trust Company of New York, as trustee
27.1e Financial Data Schedule
99.1e Form of Letter of Transmittal
99.2e Form of Notice of Guaranteed Delivery
</TABLE>
- --------
a Incorporated by reference to Global Crossing Ltd. Registration Statement on
Form S-1 (File No. 333-53393)
b Incorporated by reference to Global Crossing Holdings Ltd. Registration
Statement on Form S-4 (File No. 333-61457)
c Incorporated by reference to Global Crossing Ltd. Registration Statement on
Form S-8 filed on December 11, 1998 (File No. 333-68825)
d Incorporated by reference to Global Crossing Ltd. Quarterly Report on Form
10-Q filed for the quarter ended September 30, 1998
e Previously Filed
(b) Financial Statement Schedules
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director,
II-2
<PAGE>
officer or controlling person of the registrant in the successful defense of
any action, suit or proceedings) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective Amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of an included in the registration statement when
it became effective.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Hamilton, Country of Bermuda, on February 2, 1999.
Global Crossing Holdings Ltd.
/s/ S. Wallace Dawson, Jr.
By: _________________________________
Name: S. Wallace Dawson,
Jr.
Title: Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed on February 2,
1999 by or behalf of the following persons in the capacities indicated with the
registrant.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ S. Wallace Dawson, Jr. Chief Executive Officer and Director
______________________________________
S. Wallace Dawson, Jr.
/*/ President and Director
______________________________________
K. Eugene Shutler
/*/ Controller and Director
______________________________________
Rob Klug
/*/ Senior Vice President, Chief Operating
______________________________________ Officer
Ian McLean and Director
/s/ John M. Scanlon Authorized Representative in the United
______________________________________ States
John M. Scanlon
- --------
*By Power of Attorney
/s/ S. Wallace Dawson, Jr. Attorney-in-Fact
______________________________________
S. Wallace Dawson, Jr.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
------- ------- ----
<C> <S> <C>
3.1b Certificate of Incorporation of Global Crossing Holdings Ltd.
3.2e Bye-laws of Global Crossing Holdings Ltd.
3.3e Memorandum of Increase of Share Capital for Global Crossing
Holdings Ltd.
3.4a Certificate of Incorporation of Global Crossing Ltd.
3.5b Amended and Restated Bye-Laws of Global Crossing Ltd.
3.6a Certificate of Incorporation of Change of Name of Global
Crossing Ltd.
3.7a Memorandum of Increase of Share Capital for Global Crossing
Ltd.
4.1e Form of Certificate for Preferred Stock
4.2e Form of Indenture relating to Exchange Notes
4.3e Registration Rights Agreement, dated as of December 2, 1998,
among Global Crossing Holdings Ltd. and the other parties named
therein
4.4b Indenture, dated as of May 18, 1998, between Global Crossing
Holdings Ltd. and United States Trust Company of New York, as
Trustee
4.5a Credit Agreement, dated as of June 27, 1997 (the "Credit
Agreement"), among Global Telesystems Ltd., various financial
institutions named therein, Deutsche Bank AG, New York Branch
and Canadian Imperial Bank of Commerce, as Lead Agents,
Deutsche Bank AG, New York Branch, as Administrative Agent,
Canadian Imperial Bank of Commerce, as Syndication Agent,
Documentation Agent and the Issuing Bank and Deutsche Morgan
Grenfell Inc. and CIBC Gundy Securities Corp., as Arrangers
4.6a First Amendment and Consent, dated as of December 15, 1997, to
the Credit Agreement, among Global Telesystems Ltd., the
lenders named therein, Deutsche Bank AG, New York Branch and
Canadian Imperial Bank of Commerce, as Lead Agents, Deutsche
Bank AG, New York Branch, as Administrative Agent, Canadian
Imperial Bank of Commerce, as Syndication Agent, Documentation
Agent and the Issuing Bank and Deutsche Morgan Grenfell Inc.
and CIBC Gundy Securities Corp., as Arrangers
4.7a Second Amendment and Consent, dated as of June 12, 1998, to the
Credit Agreement, among Atlantic Crossing Ltd. (f/k/a Global
Telesystems Ltd.), the lenders named therein, Deutsche Bank AG,
New York Branch and Canadian Imperial Bank of Commerce, as Lead
Agents, Deutsche Bank AG, New York Branch, as Administrative
Agent, Canadian Imperial Bank of Commerce, as Syndication
Agent, Documentation Agent and the Issuing Bank and Deutsche
Morgan Grenfell Inc. and CIBC Gundy Securities Corp., as
Arrangers
4.8e Credit Agreement, dated as of November 25, 1998, among Mid-
Atlantic Crossing Ltd., various financial institutions named
therein, Deutsche Bank AG, New York Branch and CIBC Inc., as
lead agents, Deutsche Bank AG, New York Branch, as
administrative agent, Canadian Imperial Bank of Commerce, as
syndication agent and CIBC Inc., as documentation agent
5.1e Opinion of Appleby, Spurling & Kempe as to the legality of the
securities being registered
5.2e Opinion of Simpson, Thacher & Bartlett as to the legality of
the securities being registered
10.1c 1998 Global Crossing Ltd. Stock Incentive Plan
10.2a Project Development and Construction Contract, dated as of
March 18, 1997, among AT&T Submarine Systems, Inc. and Global
Telesystems Ltd.
10.3a Project Development and Construction Contract, dated as of
April 21, 1998, among Tyco Submarine Systems, Ltd. and Pacific
Crossing Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
------- ------- ----
<C> <S> <C>
10.4a Project Development and Construction Contract, dated as of June
2, 1998, among Alcatel Submarine Networks and Mid-Atlantic
Crossing Ltd.
10.5d Project Development and Construction Contract, dated as of July
21, 1998, among Tyco Submarine Systems, Ltd. and Pan American
Crossing Ltd.
12.1e Statement regarding Computation of Ratio of Earnings to Fixed
Charges
21.1e Subsidiaries of the Registrant
23.1e Consent of Appleby Spurling & Kempe (included in the opinion
filed as Exhibit 5.1)
23.2e Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 5.2)
23.3 Consent of Arthur Andersen & Co.
24.1e Power of Attorney of Global Crossing Holdings Ltd.
25.1e Form T-1 Statement of Eligibility under Trust Indenture Act of
1939 of United States Trust Company of New York, as trustee
27.1e Financial Data Schedule
99.1e Form of Letter of Transmittal
99.2e Form of Notice of Guaranteed Delivery
</TABLE>
- --------
a Incorporated by reference to Global Crossing Ltd. Registration Statement on
Form S-1 (File No. 333-53393)
b Incorporated by reference to Global Crossing Holdings Ltd. Registration
Statement on Form S-4 (File No. 333-61457)
c Incorporated by reference to Global Crossing Ltd. Registration Statement on
Form S-8 filed on December 11, 1998 (File No. 333-68825)
d Incorporated by reference to Global Crossing Ltd. Quarterly Report on Form
10-Q filed for the quarter ended September 30, 1998
e Previously Filed
<PAGE>
Exhibit 23.3
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this Amendment
No. 1 to Registration Statement File No. 333-69459.
/s/ Arthur Andersen & Co.
Hamilton, Bermuda
February 2, 1999
