As filed with the Securities and Exchange Commission on October 26, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
WORLDWIDE FIBER INC.
(Exact name of registrant as specified in its charter)
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Canada 1731 Not Applicable
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
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1510-1066 West Hastings Street
Vancouver, BC Canada V6E 3X1
(604) 681-1994
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
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CT Corporation System
1633 Broadway
New York, New York 10019
(212) 246-5070
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
with a copy to:
Roger Andrus, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3000
Approximate date of commencement of proposed sale to the 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. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, check the following and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _____________________
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed Maximum
Title of Each Class of Securities Amount to be Maximum Price Aggregate Offering Amount of
to be Registered Registered Per Unit Price (1) Registration Fee (2)
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12% Senior Notes due 2009 $500,000,000 100% $500,000,000 $139,000.00
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as amended
(the "Securities Act").
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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<PAGE>
Information contained in this prospectus is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of the relevant
jursidiction.
PROSPECTUS
Subject to Completion, dated October 26, 1999
WORLDWIDE FIBER
[GRAPHIC OMITTED]
Worldwide Fiber Inc.
Offer to Exchange our 12% senior notes due 2009,
which have been registered under the Securities Act,
for our 12% senior notes due 2009, which have not been registered
Terms of the Exchange Offer:
o Offer to exchange up to $500,000,000 aggregate principal amount of our
new 12% senior notes, which will mature in 2009, for an equal amount
of our old 12% senior notes, which will mature in 2009.
o Expires 5:00 p.m., New York City time, on , 1999 unless extended.
o You may withdraw your tender of old notes any time before the exchange
offer expires.
o We will accept any and all old notes validly tendered and not
withdrawn for exchange before the exchange offer expires.
o Not subject to any condition, other than that the exchange offer not
violate applicable law or any applicable interpretation of the staff
of the Securities and Exchange Commission and certain other customary
conditions.
o We will not receive any proceeds from the exchange offer.
o The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
o The terms of the new notes and the old notes are identical in all
material respects, except for certain transfer restrictions relating
to the old notes.
o The new notes will be evidence of the same indebtedness as the old
notes and will be issued under, and entitled to the benefits of, the
same indenture that governs the old notes.
The New Notes:
o Interest Payment: semiannually in arrears on February 1 and August 1,
beginning on February 1, 2000.
o Redemption: The new notes will be redeemable on or after August 1,
2004. Up to 35% of the new notes will be redeemable before August 1,
2002, from the net proceeds of one or more Public Equity Offerings.
See "Risk Factors," which begins on page 14, for a discussion of certain
factors that should be considered by holders before tendering their old notes in
the exchange offer.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 1999.
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TABLE OF CONTENTS
Page
Available Information......................................................i
Prospectus Summary.........................................................1
Risk Factors..............................................................14
Capitalization............................................................34
Selected Financial Data...................................................35
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................38
Business..................................................................47
Management................................................................65
Transactions with Our Parent..............................................67
Regulation................................................................70
Description of WFI-USA Agreements.........................................81
Description of IC and CN Agreements.......................................83
Description of Our Recently Completed Private Equity Placements...........85
The Exchange Offer........................................................88
Description of Notes......................................................96
Description of Other Indebtedness........................................136
Book-Entry, Delivery and Form............................................139
Material United States and Canadian Income Tax Considerations............142
Plan of Distribution.....................................................144
Legal Matters............................................................147
Experts..................................................................147
Enforceability of Civil Liabilities Against Foreign Persons..............148
Currency Translation.....................................................148
Glossary.................................................................A-1
Index to Pro Forma Financial Information................................PF-1
Index to Financial Statements............................................F-1
AVAILABLE INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form F-4, including amendments and exhibits, under the Securities
Act concerning the new notes offered by this prospectus. This prospectus, which
forms a part of the registration statement, does not contain all of the
information included in or annexed as exhibits or schedules to the registration
statement. This additional information, and other information filed by Worldwide
Fiber, may be inspected and copied at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Any statements made in this prospectus concerning the
provisions of certain documents may be incomplete and, in each instance, you
should refer to the copy of the document filed as an exhibit to the registration
statement otherwise filed with the Securities and Exchange Commission.
We are a "foreign private issuer" as defined in Rule 405 of the Securities
Act. As a foreign private issuer, we are exempt from provisions of the Exchange
Act which prescribe the furnishing and content of proxy statements to
shareholders and relating to short swing profits reporting and liability. We
have agreed that for so long as any notes remain outstanding we will furnish to
the holders of notes the information required to be delivered under Rule
144A(d)(4) under the Securities Act. Whether or not we are subject to Section
13(a) or 15(d) of the Exchange Act, we will file with the Securities and
Exchange Commission and furnish to the holders of notes and the trustee (1)
within 140 days after the end of each fiscal year, annual reports on Form 20-F
or 40-F, as applicable (or any successor form), containing the required
information, or required in the successor form,
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and (2) (a) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q or (b) within 60 days after
the end of each of the first three fiscal quarters of each fiscal year, reports
on Form 6-K (or any successor form) which, regardless of applicable
requirements, shall, at a minimum, contain a "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Copies of any documents referred to in this prospectus and filed with the
Securities and Exchange Commission can be obtained without charge to any holders
of notes by contacting Stephen Stow c/o Worldwide Fiber Inc., 1510-1066 West
Hastings Street, Vancouver, BC Canada V6E 3X1. Telephone number: (604) 681-1994.
In order to obtain timely delivery of these documents holders of notes must
request this information no later than five business days before the date on
which they would like to receive their documents.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data, including the related notes, appearing elsewhere
in this prospectus. Industry and market data in this prospectus are based on or
derived from sources that we believe are reliable. There can be no assurance,
however, as to the accuracy of the industry or market data. As used in this
prospectus, unless the context indicates otherwise, "we" or "us" refers to the
combined business of Worldwide Fiber Inc. (and its predecessor) and all of its
subsidiaries. In this prospectus, except where otherwise indicated, all dollar
amounts are expressed in U.S. dollars. Certain terms used in this prospectus are
defined in Annex A--Glossary or elsewhere in this prospectus.
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The Exchange Offer
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Purpose and Effect........................ Worldwide Fiber sold the old notes on July 28, 1999 to Donaldson
Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, Salomon Smith Barney Inc. and TD Securities (USA)
Inc., the initial purchasers, who privately placed the old notes
with certain institutional investors. In connection with this
sale, we executed and delivered for the benefit of the holders of
the old notes a registration rights agreement providing for,
among other things, the exchange offer. See "The Exchange
Offer--Terms of the Exchange Offer."
Terms of the Exchange Offer............... New notes are being offered in exchange for an equal amount of
old notes. Old notes may be exchanged only in integral multiples
of $1,000. We will issue the new notes on or promptly after the
expiration of the exchange offer. See "Risk Factors--Consequences
of Failure to Exchange."
Minimum Condition......................... The exchange offer is not conditioned upon any minimum total
amount of old notes being tendered or accepted for exchange. See
"The Exchange Offer--Certain Conditions to the Exchange Offer."
Expiration Date........................... 5:00 p.m., New York City time, on , 1999, unless
the exchange offer is extended, in which case the expiration date
means the latest date and time to which the exchange offer is
extended. See "The Exchange Offer--Terms of the Exchange Offer."
Conditions................................ The exchange offer is subject to certain customary conditions,
which may be waived by us. We reserve the right to terminate or
amend the exchange offer at any time before the expiration date
if these conditions occur. The exchange offer is also subject to
the terms and provisions of the registration rights agreement.
See "The Exchange Offer--Certain Conditions to the Exchange Offer."
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Procedures for Tendering Old Notes........ If you wish to tender your old notes through the exchange offer,
you must either (1) complete, sign and date the letter of
transmittal, or a facsimile of it, according to the instructions
contained in this prospectus and in the letter of transmittal or
(2) send an agent's message to the exchange agent, which is a
message that indicates you have agreed to the contents of the
letter of transmittal and the letter of transmittal may be
enforced against you. You must mail or otherwise deliver the
letter of transmittal, or a facsimile of it, or the agent's
message with the old notes or a Book-Entry Confirmation (as
defined) and any other required documentation to the exchange
agent at the address listed in this prospectus. The method of
delivery of this documentation is at your election and risk. By
executing the letter of transmittal, or sending the agent's
message you will represent to us, among other things, that:
o the new notes acquired through the exchange offer by you
and any beneficial owners of old notes are being obtained in the
ordinary course of business of the person receiving the new
notes;
o neither you nor the beneficial owner is participating in,
intends to participate in or has an arrangement or understanding
with any person to participate in the distribution of the notes;
and
o neither you nor the beneficial owner is an affiliate, as
defined under Rule 405 of the Securities Act, of Worldwide Fiber.
Each broker-dealer that receives new notes for its own account in exchange for old
notes, where the old notes were acquired by the broker or dealer as a result of
market-making activities or other trading activities (except for old notes
acquired directly from us), must acknowledge in the letter of transmittal that it
will deliver a prospectus for any resale of the new notes. See "The Exchange
Offer--Procedures for Tendering Old Notes" and "Plan of Distribution."
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Special Procedures for Beneficial
Owners............................... If you are a beneficial owner whose old notes are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your old notes in the
exchange offer, you should contact the registered holder promptly
and instruct the registered holder to tender on your behalf. If
you wish to tender on your own behalf, you must, before
completing and executing the letter of transmittal and delivering
your old notes, either make appropriate arrangements to register
ownership of the old notes in your name or obtain a properly
completed bond power from the registered holder. The transfer of
registered ownership may take considerable time and may not be
able to be completed before the expiration date. See "The
Exchange Offer--Procedures for Tendering Old Notes."
Book-Entry Transfer....................... Any financial institution that is a participant in the Book-Entry
Transfer Facility's (as defined) system may make book-entry
delivery of old notes by causing the Book-Entry Transfer Facility
to transfer these old notes into the exchange agent's account at
the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. See "The
Exchange Offer--Book Entry Transfer."
Withdrawal Rights......................... Tenders may be withdrawn at any time before 5:00 p.m., New York
City time, on the expiration date. See "The Exchange
Offer--Withdrawal of Tenders."
Acceptance of Old Notes and Delivery
of New Notes......................... Upon satisfaction or waiver of all conditions of the exchange
offer, we will accept for exchange any and all old notes which
are properly tendered and not withdrawn before 5:00 p.m., New
York City time, on the expiration date. The new notes issued
through the exchange offer will be delivered promptly following
acceptance of the old notes by us after the expiration date. See
"The Exchange Offer--Acceptance of Old Notes for Exchange;
Delivery of New Notes."
U.S. Federal Income Tax Consequences...... The exchange of old notes for new notes by tendering holders will
not be a taxable exchange for United States federal income tax
purposes as a result of the exchange. See "Material United
States and Canadian Federal Income Tax Considerations--United
States."
Regulatory Approvals...................... We do not believe that the receipt of any material federal or
state regulatory approvals will be necessary for the exchange
offer. See "The Exchange Offer--Regulatory Approvals."
Use of Proceeds........................... We will not receive any proceeds from the exchange offer.
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Exchange Agent............................ HSBC Bank USA is serving as exchange agent in the exchange
offer. See "The Exchange Offer--Exchange Agent."
Resales of the New Notes.................. The new notes are being offered by this prospectus to satisfy
certain obligations contained in the registration rights
agreement. Based on positions of the Securities and Exchange
Commission and no-action or interpretive letters issued to
others, we believe that the new notes issued through the exchange
offer may be offered for resale, resold and otherwise transferred
by you, without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that:
o you are acquiring the new notes in the ordinary course of
your business;
o you are not participating, do not intend to participate
and have no arrangement or understanding with any person
to participate in the distribution of the new notes; and
o you are not an affiliate of Worldwide Fiber.
If you acquire new notes in the exchange offer to distribute or participate in a
distribution of new notes, you cannot rely on the position of the staff of the
Securities and Exchange Commission contained in its no-action and interpretive
letters and must comply with the registration and prospectus delivery requirements
of the Securities Act concerning a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives new notes for its own account through the exchange offer must acknowledge
that:
o old notes tendered by it in the exchange offer were acquired in the
ordinary course of its business as a result of market-making or other
trading activities; and
o it will deliver a prospectus in connection with any
resale of new notes received in the exchange offer.
This prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of the new notes received
in exchange for old notes where the old notes were acquired by a broker-dealer as a
result of market-making or other trading activities, except for old notes acquired
directly from us. We have agreed that, for a period of 180 days following the
consummation of the exchange offer, we will make this prospectus available to any
broker-dealer for use with resale. See "The Exchange Offer--Resales of the New
Notes" and "Plan of Distribution."
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Summary Description of New Notes
Securities Offered........................ $500,000,000 aggregate principal amount of 12% senior notes that
will mature in 2009.
Issuer.................................... Worldwide Fiber Inc.
Maturity Date............................. August 1, 2009.
Interest.................................. Interest on the new notes will accrue from the last interest
payment date on which interest was paid on the old notes
surrendered in exchange for new notes or, if no interest has been
paid on the old notes, from the date of original issuance of the
old notes and will be payable in cash in arrears semiannually on
February 1 and August 1 of each year, commencing on February 1,
2000.
Ranking of the New Notes.................. The new notes are senior debts and will rank ahead of all our
future debts that expressly provide that they are subordinated to
the new notes. They will effectively rank behind all of our
secured debts to the extent of the value of the assets securing
our debts and all existing and future debts and other liabilities
of our subsidiaries.
They will rank equally with all of our existing and future unsubordinated, unsecured
debts that do not expressly provide that they are subordinated to the new notes,
including any old notes not exchanged. On June 30, 1999 the notes were effectively
subordinated to approximately $130.1 million of liabilities of our subsidiaries.
No debt of ours having an equal ranking with the new notes or which is subordinate
to the new notes would have been outstanding at this date.
Optional Redemption....................... On or after August 1, 2004, we may redeem some or all of the new
notes at any time at the redemption prices, and subject to certain
limitations, described in the section "Description of Notes" under
the heading "Optional Redemption."
Upon a change in the withholding tax laws of Canada, we may redeem
all of the new notes at any time at the face amount of the new
notes.
Before August 1, 2002, we may redeem up to 35% of the new notes with the proceeds of
certain public offerings of our equity at the price listed in the section
"Description of Notes" under the heading "Optional Redemption."
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Mandatory Offer to Repurchase............. If in certain circumstances we sell certain assets, receive
certain excess cash flows, or experience specific kinds of changes
in control, we must offer to repurchase the new notes at the
prices listed in the section "Description of Notes" under the
heading "Repurchase at the Option of Holders."
Basic Covenants of Indenture.............. The indenture governing the new notes contains certain limitations
on our ability, and the ability of some of our subsidiaries, to:
o borrow money,
o pay dividends on stock or repurchase stock,
o make investments,
o use assets as security in other transactions, and
o sell certain assets or merge with or into other companies.
For more details, see the section "Description of Notes" under the
heading "Certain Covenants."
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The Company
We are a provider of technologically advanced fiber optic communications
infrastructure in North America using our state-of-the-art fiber optic network.
We recently have begun marketing bandwidth services and intend to provide these
services by the end of the year.
o We completed construction of a 5,068 route mile fiber optic network
development across Canada and the Northern United States in January
1999. Our interests in this development include a total of 74,000
fiber miles along the following routes:
-- a 2,735 route mile segment from Vancouver to Detroit, via
Calgary, Winnipeg, Minneapolis/St. Paul and Chicago and
-- a 2,333 route mile segment from Edmonton to Toronto and
additional fiber strands along the route from Seattle to Detroit.
o In May 1999, we completed construction of the segment of our network
that extends from Seattle to Portland.
Together this fiber forms the initial backbone of our high-bandwidth fiber optic
communications network and related infrastructure in North America. Our
terrestrial network, when complete, is expected to cover approximately 21,600
route miles and encompass both long haul and intra-city route miles in North
America (comprising in excess of 1,000,000 fiber miles). Our terrestrial network
will consist of:
o fiber optic strands installed in protective conduit buried along
diverse rights-of-way and strands acquired from other developers and
carriers through swaps, and
o related infrastructure such as regeneration shelters.
Our network is being developed to satisfy increasing demand for fiber optic
capacity for the transmission of data, voice and video generated by
high-bandwidth communications and the requirements of new entrants to the
telecommunications business. We plan to realize the value of the network
through:
o the sale, grant of indefeasible rights-of-use, lease or swap of dark
fiber strands and conduit, and
o the provision of bandwidth services, initially along the route from
Seattle to Toronto via Vancouver, Calgary, Winnipeg, Minneapolis/St.
Paul, Chicago and Detroit and, in the future, along other parts of our
network.
Our present and targeted customer group includes:
o communications carriers,
o Internet service providers, and
o large corporations with enterprise network needs.
We have also contracted to install a transatlantic fiber optic cable to
expand the connectivity of our network.
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We will continue to construct fiber optic networks for third parties on a
contract basis when a project will allow us to retain fiber or conduit assets,
including through indefeasible rights-of-use. We plan to construct these
networks only on routes that complement and reduce the costs of completing our
network or enhance our ability to make a sale, grant of indefeasible
rights-of-use, lease or swap of network capacity or the provision of bandwidth
services.
Market Opportunity
Our network is designed to provide our customers with secure, independent
transmission facilities and sufficient capacity on a local, regional or national
basis to accommodate their increasing demand and plans for expansion. According
to The Yankee Group and other industry sources, growth in the high-bandwidth
telecommunications industry is expected to continue due to a number of factors,
which include:
o innovations and advances in transmission technology,
o increasing demand for high-bandwidth applications, largely driven by
the increase in Internet traffic, and
o deregulation within the telecommunications industry, which has
resulted in a proliferation of service providers.
The North American telecommunications industry has been characterized by
significant demand for high-bandwidth communications services. According to an
industry survey by The Yankee Group:
o voice and data telecommunications services revenue in the United
States is expected to grow at a compounded annual growth rate of
approximately 8%, from approximately $167 billion in 1997 to
approximately $241 billion in 2002,
o data telecommunications services revenue is expected to grow at a
compounded annual growth rate of approximately 26%, from approximately
$15 billion in 1997 to approximately $47 billion in 2002, and
o carriers' carrier telecommunications services revenue, which our
bandwidth services strategy is specifically intended to target, is
expected to grow at a compounded annual growth rate of approximately
60%, from approximately $1.2 billion in 1997 to approximately $12.3
billion in 2002.
Business Strategy
Our strategy is to be a leading independent provider of technologically
advanced dark fiber and related infrastructure and high-bandwidth fiber optic
transmission capacity. The key elements of our business strategy include:
o developing and building a technologically advanced fiber optic network
connecting many of the major population centers in North America,
o maximizing route diversity and connectivity of the network, enabling
us to target a broad range of customers, by offering participation on
a local, regional, national or international basis,
o creating a low cost position,
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o realizing the value of the network through the sale, grant of
indefeasible rights of use, lease or swap of network assets and the
provision of bandwidth services,
o providing our customers with low-cost bandwidth services and the
flexibility to control their service platforms,
o allowing for technological upgrades and additional capacity,
o installing at least one additional conduit in each segment we develop,
and
o capitalizing on management experience.
The Network
Our terrestrial network will consist of the following:
o a North American long-haul fiber optic network including: (1) two
primary east-west routes, running from Vancouver to Halifax and
Sacramento to Boston, and (2) three primary north-south routes,
running along the West Coast, the Mississippi River valley and the
East Coast, and
o a series of high-bandwidth intra-city networks planned in Toronto,
Vancouver, Montreal, Ottawa, and Calgary in addition to the intra-city
network currently under construction in Seattle.
In addition, we are expanding our network outside of North America through
our transatlantic fiber optic cable project, "Hibernia."
Products and Services
In connection with the development of our network, we offer customers a
broad range of products and services which enable us to provide customized
solutions. See "Business--Products and Services."
Our products and services include:
o dark fiber and conduit for sale, grant of indefeasible rights-of-use,
lease or swap, and
o construction services supporting the development of our network.
We recently have begun marketing bandwidth services, including optical
transmission, private line, virtual voice, IP transport and ATM. We plan to
begin providing these services by the end of 1999.
Recent Developments
Private Equity Investment. On September 9, 1999 we completed a private
placement of our convertible preferred shares for $345 million to affiliates of
Tyco International Ltd., Providence Equity Partners Inc., DLJ Merchant Banking
II Inc. and GS Capital Partners III, LP. Together, the privately placed
securities represent a minority equity interest in us. Under the terms of the
sale, each purchaser nominated a representative to our Board of Directors who
has been elected a Director.
Hibernia Project. In connection with the financing of our $850 million
transatlantic fiber optic cable Hibernia project, we will utilize $300 million
of the proceeds from our equity private placement to fund the equity portion of
the project. We have entered into a project financing commitment letter with
Goldman Sachs
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Credit Partners LP, DLJ Capital Funding, Inc. and Credit Suisse First Boston.
Under the project financing commitment, it is anticipated that the lenders will
provide up to $600 million in project debt financing to one of our subsidiaries,
non-recourse to Worldwide Fiber Inc.
Financing Plan
In addition to the fiber assets contributed by Ledcor, we formed a capital
plan in 1998 to develop approximately 12,900 route miles. That plan and the
implementation of bandwidth services contemplate capital expenditures of
approximately $1.26 billion through 2001.
Consistent with our strategy to create a low-cost position, we have
agreements, subject to terms and conditions we consider customary, with
co-developers and participants. These parties in the aggregate have agreed to
commit approximately $480 million in cash to fund the completion of segments of
our terrestrial network. We expect to complete our network in 2001. We intend to
enter into additional arrangements with co-developers and participants.
We expect to obtain the balance of the funding necessary to complete our
terrestrial network and to implement our bandwidth services strategy from
o the cash remaining from the notes and the 12 1/2% notes issued in
December 1998, and
o up to $150 million in cash available under our planned bank credit
facility.
We anticipate that these funding sources will provide us with sufficient
capital to complete our network and to implement our bandwidth services
strategy. However, our costs will depend on a variety of factors, many of which
are beyond our control, including changes in the competitive environment of our
current and planned markets. Our actual costs may vary materially from those
currently budgeted.
The plan described above does not include equity or debt financing for
Hibernia, which we are funding with the proceeds of our recently completed
equity private placement as well as from our planned non-recourse project
facility.
We cannot assure you that we will be successful in raising the capital
necessary for the unfunded portion of the remainder of our planned network
development, the implementation of our bandwidth services strategy or for the
Hibernia project on a timely basis or on terms that are acceptable to us, or at
all.
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Summary Financial Data
The summary historical financial data for the year ended March 31, 1996,
the five months ended August 31, 1996, the year ended August 31, 1997 and the
nine months ended May 31, 1998 of our predecessor, the telecommunications
division of Ledcor, are derived from the audited financial statements of the
predecessor division, which have been audited by Deloitte & Touche LLP,
independent auditors. Worldwide Fiber was incorporated on February 5, 1998 and
acquired certain assets of the predecessor division on May 31, 1998. Before May
31, 1998, Worldwide Fiber was a shell company. The summary consolidated
historical financial data for the period from February 5, 1998 to December 31,
1998 of Worldwide Fiber are derived from our audited consolidated financial
statements, which have been audited by PricewaterhouseCoopers LLP, independent
auditors. The unaudited pro forma financial data for the year ended December 31,
1998 are derived from the audited consolidated financial statements of Worldwide
Fiber, the financial statements of the predecessor division, and the
consolidated financial statements of Worldwide Fiber (USA), Inc. included
elsewhere in this prospectus. The summary consolidated historical financial data
as of and for the periods ended June 30, 1999 and 1998 are derived from
Worldwide Fiber's unaudited consolidated financial statements and include, in
the opinion of Worldwide Fiber's management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the data for those
periods. The unaudited pro forma financial data for the six months ended June
30, 1999 are derived from the unaudited interim consolidated financial
statements for the six month period ended June 30, 1999 of Worldwide Fiber
included elsewhere in this Prospectus. Our consolidated financial statements and
the divisional financial statements of the predecessor division have been
prepared in accordance with U.S. GAAP. The results of operations for the
predecessor division are not comparable to our results of operations after the
Reorganization. You should read the following information along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes included
elsewhere in this prospectus.
Capital expenditures represent actual cash expenditures incurred during the
period and do not include acquisitions of assets for non-cash consideration.
Route miles represent the number of miles spanned by fiber optic cable owned at
the end of the period, calculated without including physically overlapping
segments of cable. Fiber miles represent the number of strands of fiber in a
length of fiber optic cable owned at the end of the period, multiplied by the
length of the cable in miles.
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<PAGE>
<TABLE>
<CAPTION>
Summary Financial Data
(Dollars in thousands)
Predecessor Division Worldwide Fiber
------------------------------------------ ------------------------------------------------------
Six Pro
Five Nine February February Pro Forma Months Forma
Year Months Year Months 5, 1998 5, 1998 Year Ended Six
Ended Ended Ended Ended to to Dec- Ended Dec- June Months
March August August May 31, June 30, ember 31, ember 31, 30, Ended
31, 1996 31, 1996 31, 1997 1998 1998 1998 1998(2)(3) 1999 1999(2)(3)
--------- -------- -------- -------- --------- ---------- ---------- ------- ----------
Income Statement
Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........... $3,824 $7,373 $58,008 $54,634 $12,280 $164,319 $207,038 $123,884 $123,884
Operating
expenses:
Costs........... 3,440 5,739 48,474 44,919 10,621 147,621 182,518 85,614 85,614
General &
administrative. 57 91 863 710 403 2,274 8,140 5,837 7,087
Depreciation.... 24 15 112 317 49 464 639 453 453
------ ------ ------- ------- ------- -------- -------- ------- -------
Total operating
expenses.......... 3,521 5,845 49,449 45,946 11,073 150,359 191,297 91,904 93,154
------ ------ ------- ------- ------- -------- -------- ------- -------
Operating income.. 303 1,528 8,559 8,688 1,207 13,960 15,741 31,980 30,730
Interest expense, -- 15 600 86 -- 225 85,352 5,671 36,871
net...............
Equity income..... -- -- -- -- 2 928 -- -- --
------ ------ ------- ------- ------- -------- -------- ------- -------
Earnings (loss)
before income
taxes........... 303 1,513 7,959 8,602 1,209 14,663 (69,611) 26,309 (6,141)
Income tax
expense 139 686 3,620 3,909 526 5,643 (26,710) 10,921 (1,574)
(recovery)......
164 827 4,339 4,693 683 9,020 (42,901) 15,388 (4,567)
------ ------ ------- ------- ------- -------- -------- ------- -------
Income
attributable
to minority -- -- -- -- -- -- 464 2,995 2,995
interest........
------ ------ ------- ------- ------- -------- -------- ------- -------
Net income (loss). $164 $827 $4,339 $4,693 683 $9,020 $(43,365) $12,393 $(7,562)
====== ====== ======= ======= ======= ======== ======== ======= =======
Other Financial
Data:
EBITDA (4)........ $327 $1,543 $8,671 $9,005 $1,256 $15,352 $16,380 $32,433 $31,183
Capital
expenditures...... $72 $ 181 $1,119 $6,828 -- $1,065 -- $19,215 --
Ratio of earnings
to fixed 24.3x 45.5x 10.3x 17.7x 200.0x 26.8x -- 3.8x --
charges (5).....
Statement of Cash
Flows Data:
Operating $666 $(3,078) $(3,921) $(2,502) $681 $(13,059) $ -- $(49,824) $ --
activities........
Investing (72) (181) (1,119) (6,828) -- 1,177 -- (19,215) --
activities........
Financing $(595) $3,259 $5,040 $9,330 $(681) $168,350 $ -- $(352) $ --
activities........
Operating Data:
Route miles....... -- -- 1,090 1,430 -- 2,735 -- -- --
Fiber miles ...... -- -- 22,740 34,320 -- 36,179 -- -- --
June 30, 1999
-------------------------------
Actual Pro Forma (6)
------ -------------
Balance Sheet Data:
Cash and cash equivalents...................................................... $ 86,812 $ 873,812
Fixed assets, net.............................................................. 57,790 83,790
Total assets................................................................... 365,025 1,206,025
Total debt..................................................................... 175,000 675,000
Redeemable preferred stock..................................................... -- 345,000
Shareholder's equity.......................................................... $ 55,510 19,310
</TABLE>
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<PAGE>
- ---------------------------------------------------
(1) Gives pro forma effect to (1) the transfer on May 31, 1998 of certain of
the operations of the predecessor division and the Construction Services,
Management Services and Employee Services Agreements between Worldwide
Fiber and affiliates of Ledcor, (2) the consolidation of WFI-USA as a
result of Worldwide Fiber's agreement to increase its interest in WFI-USA
from 50% to 75% on December 31, 1998 and (3) the effect of the interest
expense, including amortization of deferred financing costs, relating to
the $175,000,000 12 1/2% senior notes issued December 23, 1998 and the
$500,000,000 12% senior notes issued July 28, 1999.
(2) Gives pro forma effect to the interest expense, including amortization of
deferred financing costs, on the $500,000,000 12% senior notes issued July
28, 1999.
(3) The initial annual interest expense on the $500,000,000 12% senior notes is
$62,400,000 and the initial annual interest expense on the $175,000,000
12 1/2% senior notes is $23,200,000.
(4) EBITDA consists of net income (loss) before interest expense, net of
interest income, income tax expense (recovery), depreciation and income
attributable to minority interest. EBITDA is presented because we believe
it is a useful indicator of a company's ability to meet debt service and
capital expenditure requirements. It is not intended as an alternative
measure of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles). EBITDA is not
necessarily comparable to similarly titled measures for other companies and
does not necessarily represent amounts of funds available for management's
discretionary use.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consists of earnings (loss) before equity income, income tax
expense (recovery), income attributable to minority interest and fixed
charges. Fixed charges consists of interest expensed and capitalized, plus
the portion of rental expense which we believe to be representative of
interest (assumed to be one-third of rental expense). Pro forma loss for
the year ended December 31, 1998 would have been insufficient to cover
fixed charges by $69,611,000 and pro forma loss for the six month period
ended June 30, 1999 would have been insufficient to cover fixed charges by
$6,141,000.
(6) Gives pro forma effect to (1) the issuance on July 28, 1999 of the
$500,000,000 12% senior notes, (2) the issuance on August 31, 1999, of
150,000 Class B Subordinate Voting Shares for $3,000,000 of cash, (3) the
issuance on September 9, 1999 of 8,866,808 Series A Non-Voting Preferred
Shares for $345,000,000 of cash, (4) a stock dividend on September 9, 1999
of 5,000,000 Series C Redeemable Preferred Shares and a redemption on
September 9, 1999 of 45,000,000 Series C Redeemable Preferred Shares for
$45,000,000 of cash and (5) the acquisition on September 27, 1999, from
affiliates of Ledcor Inc., of certain fiber optic network assets in
exchange for 4,500,000 Class C Multiple Voting Shares of the Company.
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<PAGE>
RISK FACTORS
In addition to the other matters described in this prospectus, you should
carefully consider the following risk factors before making an investment in the
notes.
Limited History of Operations--Given our limited operating history while our
network is being built, you should consider the notes to be a highly speculative
investment.
You have very limited historical financial information upon which to base
your evaluation of our performance and an investment in the notes. We began
operations as an independent company in May 1998 and have a limited operating
history. Before that time we conducted business as the telecommunications
division of Ledcor. We believe our financial results are not directly comparable
to theirs. You must consider our prospects in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development.
Negative Cash Flows--Given our negative cash flows while our network is being
built, you should consider the notes to be a highly speculative investment.
Continued negative cash flow may restrict our ability to pursue our
business strategy. In addition, if we cannot achieve profitability or positive
cash flows from operating activities, we may not be able to meet our debt
service obligations, including our obligations under the notes, capital
expenditure requirements or working capital needs.
We intend to use most of the proceeds from the sale of these notes and a
significant amount of additional capital to develop and construct our network.
Until the principal segments of the network are complete, we will spend more
money building the network than we will earn from exploiting it. Accordingly, we
expect to experience negative cash flows after capital expenditures during
network development. We cannot assure you that the exploitation of our network,
including the sale of our fiber and bandwidth services, will result in an
adequate revenue base to meet our debt service obligations or that we will ever
generate profitability or positive cash flow.
Substantial Leverage--Our substantial debt could adversely affect our financial
health and prevent us from fulfilling our obligations under the notes.
We have substantial debt and debt service requirements.
Our substantial indebtedness could have important consequences to you. For
example, it could:
o make it more difficult for us to satisfy our obligations under the
notes,
o increase our vulnerability to general adverse economic and industry
conditions,
o limit our ability to fund future capital expenditures, working capital
and other general corporate requirements,
o require us to dedicate a substantial portion of our cash flow from
operations to make interest and principal payments on our
indebtedness, reducing the availability of our cash flow to fund
capital expenditures, working capital, and other general corporate
purposes,
o make it more difficult for us to make interest and principal payments
on our other indebtedness, which would be a default under the
indenture,
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<PAGE>
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate, and
o place us at a competitive disadvantage compared to our competitors
that have less debt.
We intend to obtain credit facilities from one or more institutional
lenders in an aggregate amount of up to $150 million. Borrowings under these
credit facilities may be secured by certain of our assets. See "Description of
Other Indebtedness." We also intend to obtain other sources of financing for the
construction of the network, including project financing for individual segments
of our network. This project financing would also be secured by the assets being
financed. The following chart shows certain important credit statistics as of
the date or for the periods specified below:
As of June 30, 1999
--------------------------------------
Actual Pro Forma (1)(2)
----------------- -------------------
Total indebtedness.................... $175,000,000 $675,000,000
Shareholder's equity.................. $55,510,000 $19,310,000
Debt to equity ratio.................. 3.2x 34.5x
(1) Gives pro forma effect to (1) the issuance on July 28, 1999 of the
$500,000,000 12% senior notes, (2) the issuance on August 31, 1999 of
150,000 Class B Subordinate Voting Shares for $3,000,000 of cash, (3) a
stock dividend on September 9, 1999 of 5,000,000 Series C Redeemable
Preferred Shares and a redemption on September 9, 1999 of 45,000,000 Series
C Redeemable Preferred Shares for $45,000,000 of cash and (4) the
acquisition on September 27, 1999, from affiliates of Ledcor Inc., of
certain fiber optic network assets in exchange for 4,500,000 Class C
Multiple Voting Shares of the Company.
(2) Does not give pro forma effect to the issuance on September 9, 1999 of
8,866,808 Series A Non-Voting Preferred Shares for $345,000,000 of cash.
The initial annual interest expense on the $500,000,000 12% senior notes is
$62,400,000 and the initial annual interest expense on our $175,000,000 12 1/2%
senior notes is $23,200,000.
Pro forma loss for the year ended December 31, 1998 would have been
insufficient to cover fixed charges by $69,611,000 and pro forma loss for the
six month period ended June 30, 1999 would have been insufficient to cover fixed
charges by $6,141,000.
Additional Borrowings Required--Despite our current debt level, we and our
subsidiaries plan to incur substantially more debt. Increased debt could worsen
the risks described above, but failure to obtain the debt needed could prevent
the completion of the network.
If additional debt is incurred, the risks mentioned above that are
associated with high leverage will increase. We expect to need significant
amounts of additional capital to complete the build-out of our planned network
and fulfill our long-term business strategies. The terms of the indenture
generally permit us and our restricted subsidiaries to incur additional debt to
finance the cost of designing and building or acquiring our network. The
indenture also allows us to incur additional indebtedness for other purposes,
subject to certain limitations. In addition, the indenture permits us to create
"unrestricted subsidiaries" that will be allowed to incur debt without regard to
the limitations on debt incurrence contained in the indenture. Our ability to
arrange financing and the cost of financing depend upon many factors, including:
o general economic and capital markets conditions, and in particular the
non-investment grade debt market,
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<PAGE>
o conditions in the telecommunications industry,
o regulatory developments,
o investor confidence and credit availability from banks or other
lenders,
o the success of our network, and
o provisions of tax and securities laws that affect raising capital.
Our inability to raise additional funds would have an adverse effect on our
ability to complete the network. If we decide to raise additional funds through
the incurrence of debt, we may become subject to additional or more restrictive
financial covenants. In addition, we expect to incur additional debt that is
secured by our assets and therefore those assets will be available to other
creditors before they are available to you.
We are funding a portion of our anticipated investment in Hibernia from our
recently completed private sale of our equity securities. We also expect the
indebtedness to finance that project to be incurred by our subsidiary without
recourse to Worldwide Fiber Inc. We estimate that approximately $550,000,000 of
indebtedness will be required for the Hibernia project. Hibernia will be owned
by one or more subsidiaries created for the purpose of owning the project. They
will not hold any assets unrelated to Hibernia. We currently expect that these
subsidiaries will not be restricted subsidiaries under the indenture. If we were
to incur additional debt at the Worldwide Fiber Inc. level in order to
contribute to the financing of Hibernia, however, it would further increase the
risks associated with high leverage.
Ability to Service Debt--To service our debt we will require significant amounts
of cash and our ability to generate sufficient cash will depend on many factors
beyond our control.
We cannot assure you that we will be successful in implementing our
strategy or in realizing our anticipated financial results. You should be aware
that our ability to repay or refinance the notes and any other debt we incur
will depend on our successful financial and operating performance and on our
ability to successfully implement our business strategy. You should also be
aware that our financial and operating performance depends upon a number of
factors, many of which are beyond our control. These factors include:
o our ability to complete our network on time and in a cost-effective
manner,
o the economic and competitive conditions in the telecommunications
industry, including the demand for fiber-optic systems,
o any construction or operating difficulties, increased operating costs
or pricing pressures we may experience,
o the passage of legislation or other regulatory developments that may
adversely affect us, and
o any material delays in implementing any strategic projects.
We cannot assure you that our cash flow and capital resources will be
sufficient to repay the notes and any other debt we may incur in the future, or
that we will be successful in obtaining alternative financing. If we are unable
to repay our debts, we may be forced to reduce or delay the completion or
expansion of our network, sell some of our assets, obtain additional equity
capital or refinance or restructure our debt. If we are unable to meet our debt
service obligations or comply with our covenants, a default under our debt
agreements would result. To avoid a default, we might need waivers from third
parties, which might not be granted.
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<PAGE>
Holding Company Structure--We will depend on the cash flow of our subsidiaries
to satisfy our obligations under the notes.
Our operating cash flow and our ability to service our indebtedness,
including the notes, depends upon the operating cash flow of our subsidiaries
and their payments to us in the form of loans, dividends or otherwise. Our
subsidiaries are separate legal entities and have no obligation to pay any
amounts due on the notes or to make any funds available for that purpose,
whether by dividends, interest, loans, advances or other payments. In addition,
our subsidiaries' payment of dividends and the making of loans, advances and
other payments to us may be subject to regulatory and contractual restrictions.
These restrictions include requirements to maintain minimum levels of working
capital and other assets. Subsidiary payments are contingent upon earnings and
various business and other considerations.
Restrictions Imposed by Terms of Our Indebtedness--We may be unable to repay the
notes and our other indebtedness if there is an event of default.
If an event of default occurs under any of our credit facilities or the
indenture, the lenders under the credit facilities and the holders of our notes
could elect to declare all amounts outstanding under the credit facilities and
the notes, along with accrued and unpaid interest, to be immediately due and
payable. The indenture will limit, and the indenture for our $175,000,000 12
1/2% senior notes due 2005 does limit, among other things, our ability to incur
additional indebtedness, pay dividends and make certain other restricted
payments, incur liens, enter into certain transactions with affiliates and
consummate asset sales and does impose restrictions on our ability to merge or
consolidate with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets. In addition, credit
facilities that we may enter into in the future may contain other and more
restrictive covenants, including concerning debt incurrence and the making of
capital expenditures and may require us to meet or maintain specified financial
ratios and tests. Our ability to meet these financial ratios could be affected
by events beyond our control, and no assurance can be given that we will be able
to comply with these provisions. A breach of any of these covenants could result
in a default under these credit facilities and/or the indenture. If we were
unable to repay any of these amounts, the lenders could proceed against any
collateral securing the indebtedness, which could include security interests, in
all future accounts receivable and inventory of Worldwide Fiber and other
assets. If the lenders under potential credit facilities were to accelerate the
payment of the indebtedness under these credit facilities, there would be no
assurance that our assets at the time would be sufficient to repay in full the
indebtedness and our other indebtedness, including the notes.
Failure to Exchange or Comply with the Exchange Offer--This will result in
continuing transfer restrictions or result in the inability to exchange.
There has previously been only a limited secondary market, and no public
market, for the old notes. To the extent that old notes are tendered and
accepted in the exchange offer, the trading market, if any, for the old notes
not so tendered could be adversely affected. We cannot assure the future
development of a market for the old notes or the ability of holders of the old
notes to sell their old notes or the price at which the old notes may be sold.
If you do not exchange your old notes for new notes under the exchange offer,
you will continue to be restricted from transferring your old notes.
In general, the old notes may not be offered or sold, unless registered
under the Securities Act, except under an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We do
not currently anticipate that we will register the old notes under the
Securities Act. Based on interpretations by the staff of the Securities and
Exchange Commission contained in no-action letters issued to third parties, we
believe that the new notes issued to you under the exchange offer in exchange
for old notes may be offered for resale, resold or otherwise transferred by any
holder of them, except for any holder which is an affiliate of Worldwide Fiber
within the meaning of Rule 405 under the Securities Act, without compliance with
the
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<PAGE>
registration and prospectus delivery provisions of the Securities Act, if the
new notes are acquired in the ordinary course of the holder's business and the
holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of the new notes. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer for any resale of new notes
received in exchange for old notes where the old notes were acquired by this
broker-dealer as a result of market-making activities or other trading
activities, except for old notes acquired from us. We have agreed that, for a
period of 180 days following the completion of the exchange offer, we will make
this prospectus available to any broker-dealer for use in any resale. However,
your ability to resell the new notes is subject to applicable state securities
laws. See "The Exchange Offer" and "Plan of Distribution."
To participate in the exchange offer and avoid the restrictions on transfer
of the old notes, you must deliver a properly completed letter of transmittal,
including all other documents required by the letter of transmittal, to the
exchange agent at one of the addresses listed below under "The Exchange
Offer--Exchange Agent" on or before the expiration date. In addition, either
o certificates for the old notes must be received by the exchange agent
along with the letter of transmittal,
o a timely confirmation of a book-entry transfer of the old notes, if
this procedure is available, into the exchange agent's account at the
Book-Entry Transfer Facility under the procedure for book-entry
transfer described in this prospectus must be received by the exchange
agent before the expiration date, or
o the holder must comply with the guaranteed delivery procedures
described in this prospectus and in the letter of transmittal. You may
elect to choose method of delivery of the old notes and the letter of
transmittal and all other required documents to the exchange agent but
it is at your own risk. See "The Exchange Offer."
Effective Subordination--Although your notes are referred to as "senior notes,"
they will be effectively subordinated to our secured debt and the debt of our
subsidiaries.
The notes are unsecured and therefore will be effectively subordinated to
any secured debt we may incur to the extent of the value of the assets securing
it. In the event of a bankruptcy or similar proceeding involving us, our assets
which serve as collateral will be available to satisfy the obligations under any
secured debt before any payments are made on the notes. In addition, our
subsidiaries will not guarantee the notes. In the event of a bankruptcy,
liquidation or reorganization of any of our subsidiaries, creditors of our
subsidiaries will generally be entitled to payment of their claims from the
assets of those subsidiaries before any assets are made available for
distribution to us, except to the extent we may also have a claim as a creditor.
Risks Associated with Construction and Expansion of Our Network--Our inability
to implement our business strategy and manage our growth could cause significant
delays in the completion of our network.
Successful implementation of our business strategy depends on numerous
factors beyond our control, including economic, competitive and other conditions
and uncertainties, the ability to obtain licenses, permits, franchises and
rights-of-way on reasonable terms and conditions and the ability to hire and
retain qualified management personnel. Adverse economic or competitive
conditions or the failure to obtain the necessary authorizations or to hire and
retain qualified management personnel could prevent or delay the completion of
all or part of our network or increase completion costs. In order to implement
our proposed business strategy, we must accomplish the following in a timely
manner at a reasonable cost to us and on conditions acceptable to us:
o obtain access to capital markets,
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<PAGE>
o design and engineer fiber networks,
o install fiber optic facilities, transmission equipment and related
infrastructure,
o acquire rights-of-way,
o attract and retain high-quality operating personnel and management,
and
o continue to implement and improve our operational, financial and
accounting systems.
In addition, construction of future networks entails significant risks,
including:
o management's ability to effectively control and manage these projects,
o shortages of materials or skilled labor,
o unforeseen engineering, environmental or geological problems, and
o work stoppages, weather interference, floods and unanticipated cost
increases.
We cannot assure you that the anticipated costs of our current and future
projects will not be exceeded or that these projects will commence operations
within the contemplated schedules, if at all.
Our ability to implement our business plan depends, to a significant
degree, upon our ability to secure a market for our fiber capacity and obtain
and maintain contractual and other relationships with communications carriers
and corporate customers. If we are unable to enter into contracts, comply with
the terms of contracts or maintain relationships with these constituencies, our
operations would be materially and adversely affected. Certain of our current
contracts to supply fiber capacity allow the buyer or lessee to terminate the
contracts and provide for liquidated damages if we do not supply the stated
fiber capacity by a specified time. Terminating any of these contracts could
adversely affect our operations.
Additionally, we may expand the range of services that we offer. These
services may include leasing bandwidth or entering into joint ventures where we
supply customers with dark fiber and our partners supply the appropriate optical
transmission equipment by facilitating the involvement of third party suppliers,
vendors and contractors. We also intend to offer bandwidth services to carriers
and other service providers. We cannot assure you that a market will develop for
our new services, that implementing these services will be technically or
economically feasible, that we can successfully develop or market them or that
we can operate and maintain our new services profitably.
Need for Rights-of-Way--A failure to obtain or maintain appropriate
rights-of-way could delay the completion of the network and increase its cost.
We cannot assure you that we will be successful in obtaining additional
rights-of-way and other permits required to install underground conduit from
parties such as railroads, utilities, highway authorities and local governments
and transit authorities. After we have obtained rights-of-way, we may not be
able to maintain them. Some of our rights-of-way agreements may be short-term or
revocable at will. Certain rights-of-way may require regulatory filings or may
be subject to legal challenge by third parties such as municipal governments,
aboriginal citizens or land owners concerning rights-of-way granted for specific
purposes. For example, one of our subsidiaries is seeking an order from the
Canadian telecommunications regulatory authority which will permit us to
continue to have access to street crossings and other municipal properties in
the City of Vancouver. See "--Extensive Regulation--Canada--CRTC Applications."
In addition, landholders who granted rights-of-
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<PAGE>
way to certain railroad companies in the past have filed class action lawsuits
against communications carriers that received rights-of-way from railroad
companies in order to develop their fiber optic networks. The rights-of-way
challenged in these class action lawsuits are similar to some of the
rights-of-way that we use to develop our network, including the rights-of-way
granted to us in the agreements with Illinois Central Railroad Company and
Canadian National Railway Company. Loss of substantial rights and permits or
loss of the ability to use these rights-of-way or the failure to enter into or
maintain required arrangements for the network could have a material adverse
effect on our business, financial condition and results of operations, if, as a
result, the completion of our network is delayed or becomes more costly. See
"Business--General."
Limited Nature of our Activities--We do not offer a broad range of products or
services and this could increase our vulnerability to changing trends in our
industry or increased competition.
The limited nature of our current activities could limit potential revenues
and result in lower revenues than competitors who now provide a wider array of
services. Presently, we derive substantially all of our revenues from the sale,
grant of indefeasible rights-of-use or lease of dark fiber and conduit and
construction services. While we have recently commenced marketing bandwidth
services to carriers and other service providers, we cannot assure you that we
will be successful in entering this business. See "Business--Customers" and
"--Competition."
Pricing Pressures--We anticipate that prices for fiber assets and bandwidth
services will start to decline.
We anticipate that prices for our products and services specifically, and
network transmission capacity in general, will continue to decline over the next
several years, due primarily to the following:
o price competition as various network providers complete construction
of networks that might compete with our network,
o installation by us and our competitors of excess fiber capacity,
o recent technological advances that permit substantial increases in the
transmission capacity of both new and existing fiber optic networks,
and
o strategic alliances or similar transactions, such as long distance
capacity purchasing alliances among certain Regional Bell Operating
Companies, that increase the parties' purchasing power.
Risk of Network Failure--Network disruptions could adversely affect our
operating results.
Our success will require that our network provide competitive reliability,
capacity and security. Some of the risks to our network and infrastructure
include:
o physical damage,
o power loss,
o capacity limitations,
o software defects,
o excessive sustained or peak user demand,
o breaches of security, and
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<PAGE>
o disruptions beyond our control.
These disruptions may cause interruptions in service or reduced capacity
for customers, any of which could have an adverse effect on our ability to
retain customers.
We intend to offer bandwidth services which will require the addition of
transmission equipment to our network. The network will use a combination of
communications equipment, software, operating protocols and proprietary
applications for the high speed transportation of large quantities of digital
signals among multiple locations. Given the complexity of our network, digital
signals may become lost or distorted, which may cause significant losses to our
customers. The network may also contain undetected design faults and software
"bugs" that, despite our testing, may be discovered only after the network has
been completed and is in use. The failure of any equipment or facility on our
network could result in the interruption of customer service until we make
necessary repairs or install replacement equipment and have an adverse impact on
our ability to secure customers in the future. We do not possess adequate
insurance to guard against the losses we could incur as a result of the factors
enumerated above.
Risks Associated with Joint Ventures--Our business strategy contemplates
investments in joint ventures to leverage our fiber assets. These investments
may involve significant risks and our capital or assets may not be returned.
We are continually evaluating potential joint ventures and strategic
opportunities. An affiliate of Michels Pipeline Construction Inc., a U.S.
pipeline construction company, has a 25% interest in Worldwide Fiber (USA), Inc.
Illinois Central Railroad Company and Canadian National Railway Company have
minority interests in our subsidiaries which will construct our network along
the rights-of-way of these railroads and we are seeking equity participants in
our transatlantic cable project. Although, except as described in this
prospectus, we do not have any definitive commitment or agreement concerning any
material investment, strategic alliance or related effort, we may seek
additional arrangements of this sort. Any investments, strategic alliances or
related efforts are accompanied by risks such as:
o the difficulty of identifying appropriate joint venture partners or
opportunities,
o the time our senior management must spend negotiating agreements and
monitoring joint venture activities,
o potential regulatory issues applicable to telecommunications
businesses,
o the investment of our capital or fiber assets and the loss of control
over the return of this capital or assets,
o the inability of management to capitalize on the growth opportunities
presented by joint ventures, and
o the insolvency of any joint venture partner.
We cannot assure you that we would be successful in overcoming these risks
or any other problems encountered with these joint ventures, strategic alliances
or related efforts.
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Risks Associated with International Markets--We will encounter additional risks
as we pursue international business opportunities.
Our strategy includes expanding our services to provide fiber optic
networks and bandwidth services outside of North America. In particular, we have
recently entered into an agreement for a transatlantic cable project called
Hibernia. We are still evaluating all of the risks associated with this new
project. We expect that the risks associated with Hibernia include:
o activities from our competitors which could limit the market share
obtained by Hibernia,
o pricing pressures which could reduce profitability,
o risk that there will be delay under our supply agreement as a result
of the highly concentrated nature of the cable manufacturing and
installation industry, and
o inability to obtain sufficient pre-construction sales commitments and
post-construction sales below targets.
Other risks associated with Hibernia and our international plans include:
o regulatory limitations restricting or prohibiting us from providing
our services,
o additional regulatory requirements, tariffs, customs, duties and other
trade barriers,
o difficulties in staffing and managing foreign operations,
o problems in collecting accounts receivable,
o political risks,
o fluctuations in the currency exchange and restrictions on the
repatriation of earnings,
o delays from customs brokers or government agencies, and
o potentially adverse tax consequences resulting from operating in
multiple countries with different laws and regulations.
Furthermore, the international rates customers are charged are likely to
decrease in the future for many reasons, including increased competition between
existing carriers, increased competition with new carriers in the international
markets and additional strategic alliances or joint ventures among large
international carriers that facilitate targeted pricing and cost reductions. We
cannot assure you that we will be successful in overcoming these risks or any
other problems arising from operating in international markets.
Dependence on Third Parties, Including Suppliers--The loss of key sources of
supply could adversely affect us.
We are dependent upon third party suppliers, including Pirelli Cables and
Systems Inc., for a number of components and parts used in the network. We are
also dependent on Nortel Networks, Newbridge Networks and Fore Systems for the
transmission equipment we will need to offer bandwidth services. We believe that
there are alternative suppliers or alternative components for all of the
components and transmission equipment contained in the network or required to
offer bandwidth services. However, any delay or extended interruption
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in the supply of any of the key components, changes in the pricing arrangements
with our suppliers and manufacturers or delay in transitioning a replacement
supplier's product into the network could disrupt our operations. If the
disruption continued for an extended period of time, it could have a material
adverse effect on our business, financial condition and results of operations.
In addition, we have contracted with Tyco Submarine Systems Ltd. as our primary
contractor for our transatlantic cable project. See "Prospectus Summary--Recent
Developments--International Expansion." We plan to continue to use third party
contractors on various segments of the network. The failure of the contractors
to complete their activities in a timely manner, within anticipated budgets and
in accordance with our quality standards and performance criteria could have a
material adverse effect on our business, financial condition and results of
operations, if, as a result, the completion of our network is delayed or becomes
more costly.
Competition--Our business is very competitive and increased competition could
adversely affect us.
The telecommunications industry is extremely competitive, particularly
concerning price and service. We face competition from existing and planned
telecommunications systems on each of our planned routes. Our competitors
include:
o interexchange carriers, including AT&T Corp., MCI WorldCom, Inc. and
Sprint Corporation,
o wholesale providers, including Qwest Communications International
Inc., Williams Communications Group, Inc., IXC Communications, Inc.,
DTI Holdings, Inc., Global Crossing Ltd. and Level 3 Communications,
Inc.,
o incumbent local exchange carriers, which currently dominate their
local telecommunications markets, including Ameritech Corporation and
GTE Corporation,
o competitive local exchange carriers, including GST Telecommunications,
Inc. and Metromedia Fiber Network, Inc., and
o potential competitors capable of offering services similar to those
offered by us, including communications service providers, cable
television companies, electric utilities, microwave carriers,
satellite carriers, wireless telephone operators and large end-users
with private networks.
Some of our competitors have already made substantial long term investments
in the construction of fiber optic networks and the acquisition of bandwidth.
Some of these competitors have substantially greater resources and more
experience than us and could directly compete with us in the market for fiber
assets or bandwidth services.
In addition, some communications carriers and local cable companies have
extensive networks in place that could be upgraded to fiber optic cable, as well
as numerous personnel and substantial resources to begin construction to equip
their networks. If communications carriers and local cable companies decide to
equip their networks with fiber optic cable, they could become significant
competitors of ours in a short period of time.
Other companies may choose to compete with us in our current or planned
markets, by selling or leasing fiber assets or bandwidth to our targeted
customers. A significant increase in industry capacity or reduction in overall
demand would adversely affect our ability to maintain or increase prices.
Additional competition could materially and adversely affect our operations. See
"Business--Competition."
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Rapid Technological Change--New technologies could reduce the demand for fiber
optic systems.
The telecommunications industry generally is subject to rapid and
significant changes in technology that may adversely affect the continued use of
fiber optic cable. Although we have been able to capitalize on certain recent
technological advances, such as the use of dense wave division multiplexing to
greatly expand the capacity of our network at constant construction costs, we
cannot assure you that the introduction of new products or the emergence of new
technologies will not enable competitors to install competing systems at a lower
per-circuit cost on routes currently targeted by us. Moreover, these potential
competitors may be able to expand capacity on existing competitive systems,
which could render our network and bandwidth services uncompetitive from a cost
perspective. We cannot predict the likelihood of these changes and we cannot
assure you that any technological changes will not materially and adversely
affect our business and operating results.
Potential Conflicts of Interest with Ledcor--We are controlled by Ledcor and
rely on it for certain things. Its interests may conflict with your interests.
As of the date of this prospectus, Ledcor holds shares in us which entitle
Ledcor to over 99% of the votes attached to our shares and Ledcor has the
ability to control our affairs and business. It is possible that Ledcor's
interests could conflict with your interests. In addition, Ledcor may have an
interest in causing us to pursue transactions that, in its judgment, enhance the
value of its equity investment in us, even though these transactions may involve
greater risks to you. There can be no assurance that any of these conflicts of
interests will be resolved in your favor.
Ledcor has agreed not to compete with us in the business of developing or
constructing fiber optic communications infrastructure for a period ending on
the earlier of May 31, 2008 and six months after a change of control of
Worldwide Fiber. Ledcor has also agreed to grant to us a worldwide exclusive
license for the use and other exploitation of the railplow technology. The
license will cease to be exclusive six months after a change of control of
Worldwide Fiber. As a result, if a change of control of Worldwide Fiber were to
occur, Ledcor would be legally entitled to compete with us and to grant a
license for the use and other exploitation of the railplow technology to
competitors of ours. Either of these events could have a material adverse effect
on our business, financial condition and results of operations. See
"Transactions with Our Parent--Description of Reorganization and Related
Agreements."
We also rely on Ledcor to provide us with administrative and other
services. Ledcor has the right to cease providing these services at any time.
See "Transactions with Our Parent--Description of Reorganization and Related
Agreements."
Year 2000 Compliance--We could be adversely affected if Year 2000 problems are
significant.
The Year 2000 issue is the result of many computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Most of our systems that would require
Year 2000 modifications are currently maintained by Ledcor under the Management
Services Agreement and by Worldwide Fiber Networks, Inc. While we believe that
they are taking adequate steps to prepare our computer systems for the Year
2000, if necessary modifications and conversions are not made, or are not
completed in time, the Year 2000 issue could have a material adverse impact on
our operations. Furthermore, the systems of other companies on which our systems
rely, including those of Ledcor, may not be prepared for the Year 2000, or these
companies may implement Year 2000 preparations with systems that are
incompatible with our systems. In that event, our operations and financial
condition may be materially and adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000 Date
Conversion."
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Extensive Regulation--Regulatory matters could impact our ability to conduct our
business.
Existing and future governmental regulation may substantially affect the
way in which we conduct business, and the procedural and substantive regulatory
requirements with which we must comply. These regulations may increase the cost
of doing business or may restrict the way in which we offer products and
services. There is no way to predict the future regulatory framework of our
business. These regulations are summarized in more detail in the section
entitled "Regulation."
United States
Federal telecommunications law directly shapes the telecommunications
market. Consequently, regulatory requirements and/or changes could adversely
affect our operations by increasing our costs or restricting the way in which we
offer products and services. Federal telecommunications law imposes special
legal requirements on "common carriers" who engage in "interstate or foreign
communication by wire or radio," and on "telecommunications carriers." The
different ways we intend to offer fiber-optic supported services could trigger
four alternative types of regulatory requirements: (1) non-communications
services, (2) private carrier services, (3) telecommunications services or
common carriage, and (4) competitive local exchange carrier offerings. The law
establishing these alternative regulatory requirements is often unclear, so it
is impossible to predict in many instances how the Federal Communications
Commission will classify our services. Risks associated with each type of
offering are described below.
Non-communications Services
The provision of dark fiber can be viewed as a non-communications service
in that it is not a service, but rather the provision of a physical facility
that is indistinguishable from other non-communications offerings such as the
construction of an office building. Many providers of dark fiber are currently
operating on the assumption that they are providing unregulated facilities.
Nevertheless, the Federal Communications Commission had previously found that
when an incumbent local exchange carrier provided dark fiber it was providing a
common carrier service. A federal appeals court reversed and remanded this
decision to the agency for further proceedings. The Federal Communications
Commission's action in response to this remand could affect our position that
dark fiber is not a communications service.
Private Carrier Services
Even if some of our offerings are treated as communications services, they
could be viewed as a private carrier offering. Private carrier offerings
typically entail the offering of telecommunications, but are provided to a
limited class of users on the basis of individually negotiated terms and
conditions that do not meet the definition of a telecommunications service under
the Telecommunications Act of 1996. If our services are treated as private
carriage, they are generally unregulated by the Federal Communication
Commission, but would be subject to universal service payments based on the
gross revenues from end users. See "Regulation--United
States--Federal--Telecommunications Service--Universal Service." Private
carriers may also be subject to access charges if they interconnect with local
exchange carriers.
Telecommunications Services
Some of our services, such as the provision of bandwidth capacity and lit
fiber, may be treated as telecommunications services by the Federal
Communications Commission. If any of our services are treated as
telecommunications services, we could be subject to a number of new and
potentially burdensome regulations.
The precise parameters of the definition of a telecommunications service
are currently unclear. A decision by the Federal Communications Commission that
telecommunications and common carrier services are
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essentially the same is on appeal to a federal appeals court. A reversal or
remand of that decision could impact the Company's position that it should not
be regulated as either a telecommunications or a common carrier. In addition,
certain railroad, power and telecommunications providers have asked the Federal
Communications Commission to clarify the status of fiber providers. If the
Federal Communications Commission decides that these companies are
telecommunication carriers, we would be subject to certain regulatory
requirements which may impose substantial administrative and other burdens on
us. If any of our services are treated as telecommunications services, we may be
subject to a number of new and potentially burdensome regulations. These general
regulations include the obligation not to charge unreasonable rates or engage in
unreasonable practices, the obligations not to unreasonably discriminate in our
service offerings, the need to tariff our services (subject to the proceeding
described below), the potential obligation to permit others to offer their
services for resale under certain circumstances, and the fact that third parties
may file complaints against us at the Federal Communications Commission for
violations of the Communications Act of 1934 or the Federal Communications
Commission's regulations. Certain statistical reporting requirements may also
apply. Telecommunications carriers are also required to interconnect, either
directly or indirectly, with the facilities of other telecommunications carriers
and to ensure that they do not install network features, functions or
capabilities that do not comply with Federal Communications Commission
guidelines on accessibility by disabled persons and regulations promoting
interconnectivity of networks. In addition, Federal Communications Commission
rules require that telecommunications carriers contribute to universal service
support mechanisms, the Telecommunications Relay Services fund, the number
portability fund and the North American Numbering Plan Administrator fund. Also,
the Communications Assistance for Law Enforcement Act requires
telecommunications carriers to provide law enforcement officials with
call-related information and reserved circuits. There can be no assurance that
the cost of compliance with these various programs will not have a material
adverse effect upon our results of operations and financial condition and our
ability to meet our obligations under the notes.
The continuation of tariff filing requirements for interstate domestic
services provided by nondominant carriers is in dispute. The Federal
Communications Commission has ordered that all nondominant carriers, the
classification we would qualify for, may not file tariffs with the Federal
Communications Commission for domestic service. The D.C. Circuit has stayed the
effect of this decision. Filing tariffs can entail increased costs and may lead
to intrusive regulation by the Federal Communications Commission, although to
date the Federal Communications Commission has engaged in only minor regulation
of nondominant carriers. On the other hand, if tariffs are no longer required,
telecommunications carriers will no longer be able to rely on the filing of
tariffs with the Federal Communications Commission as a means of providing
notice to customers of prices, terms and conditions on which they offer
interstate services, since tariff provisions limit carriers' liability for
defects in service and consequential damages from such defects. The FCC has
ruled that non-dominant interexchange carriers must post on their Internet web
site their rates, terms and conditions for all of their interstate, domestic
services if they have an Internet web site. This ruling is to be effective when
the decision to mandate de-tariffing takes place. In addition, if tariffs are
eliminated, we may become subject to significantly increased liability risks,
and there can be no assurance that the liabilities will not have a material
adverse effect on our results of operations and financial conditions and our
ability to meet our obligations under the notes.
The Federal Communications Commission adopted rules which govern the use of
customer proprietary network information by telecommunications carriers. These
rules may impede our ability to effectively market integrated packages of
services and to expand existing customers' use of our offerings.
Competitive Local Exchange Carrier Offerings
It is also possible that some of our lit fiber or bandwidth capacity
services could be viewed as the provision of local exchange service. See
"Regulation--United States--Federal--CLEC Offerings." To the extent that any of
our offerings are treated as competitive local exchange carrier services, we
would also be subject to a number of interconnection obligations under the
Telecommunications Act of 1996. We would be required to offer our services for
resale at retail prices, provide number portability if technically feasible,
provide dialing
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parity to competing providers, and nondiscriminatory access to telephone
numbers, directory assistance, operator services and directory listings, provide
access to poles, ducts, conduits and rights-of-way, and establish reciprocal
compensation arrangements for the transport and termination of
telecommunications. Although CLEC interstate access charges are generally
regulated as non-dominant carrier offerings and subject to minimal burdens, the
FCC recently adopted a Notice of Proposed Rulemaking that asks whether it should
regulate the terminating access charges of such providers.
The Federal Communications Commission recently determined that Internet
traffic is interstate in nature, not local, and has initiated a proceeding to
determine appropriate carrier-to-carrier compensation. At the same time, the
Federal Communications Commission declined to overturn a multitude of state
decisions requiring incumbent local exchange carriers to pay competitive local
exchange carriers compensation for delivering Internet traffic to Internet
service providers. To the extent we are treated as a competitive local exchange
carrier, this ruling would adversely affect the revenues that we might expect to
receive from the carriage of Internet service provider-bound traffic.
International Facilities
The Company is required to obtain regulatory approval to construct and
operate facilities used to provide international telecommunications services. If
any of our services are treated as international telecommunications services, we
may be required to obtain regulatory approvals and file tariffs to offer these
international services. Although these facilities authorizations and tariffs are
regulated on a streamlined basis subject to minimal regulation, there is a risk
that the Federal Communications Commission may deny or place burdensome
conditions on authorizations and tariff filings.
Other Federal Communications Regulations
With limited exceptions, the current policy of the Federal Communications
Commission prohibits incumbent local exchange carriers from lowering prices to
some customers without also lowering charges for the same service to all
similarly situated customers in the same geographic area. The Federal
Communications Commission, however, modified this constraint on incumbent local
exchange carriers who have specified levels of competition from competing local
exchange service providers and permit them to offer special rate packages to
certain customers, as it has done in a few cases, and permit other forms of rate
flexibility. The rules contemplate an increasing level of flexibility on a
city-by-city basis as competitors have facilities in place to compete for local
exchange services in those markets. Once such facilities attain 50% coverage the
rules contemplate only minimal regulation of carrier access offerings. This
added flexibility could have a material adverse effect on our ability to compete
in providing facilities or services that compete with incumbent local exchange
carrier interstate access services.
The Telecommunications Act of 1996 currently requires Regional Bell
Operating Companies to obtain Federal Communications Commission authorization
prior to providing inter-LATA telecommunications. None has received such
authority to date. It is anticipated that some Regional Bell Operating Companies
may receive authorization in some states to provide inter-LATA
telecommunications as early as the end of 1999. If such authority is granted,
this could increase competition from Regional Bell Operating Companies in
providing fiber and fiber services, which could adversely affect our business
operations.
The Federal Communications Commission has the responsibility under the
Telecommunications Act of 1996 to determine what elements of an incumbent local
exchange carrier's network must be provided to competitors on an unbundled
basis. In August 1999, the Federal Communications Commission required dark fiber
to be offered as an unbundled element. In addition, the Federal Communications
Commission had previously allowed state commissions to establish additional
unbundling requirements, and some states have required that incumbent local
exchange carriers unbundle dark fiber. The decisions by the Federal
Communications Commis-
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sion to require unbundling of incumbent local exchange carriers' dark fiber
could increase the supply of dark fiber and decrease the demand for our dark
fiber, and thereby have an adverse effect on the results of our operations.
The FCC recently instituted a proceeding that could impose obligations on
telecommunication carriers' obligation to provide access to competitors or
customers to their wiring located in multi-tenant residential and business
buildings. It is unknown at this time how the FCC will rule in this proceeding
so it is impossible to evaluate its impact on our operations.
State Regulation
Each state in the United States, as well as the District of Columbia and
U.S. territories, which are treated as states for the purpose of regulation of
telecommunications services, has its own laws for regulating providers of
certain telecommunications-related services as "common carriers," as "public
utilities," or under similar rubrics. We believe that the sale or lease of dark
fiber facilities is not subject to this type of regulation in most jurisdictions
in which we plan to construct facilities. However, our offering of transmission
services, as distinct from dark fiber capacity, likely will be subject to
regulation in each of these jurisdictions to the extent that these services are
offered for intrastate use, and the regulation may have an adverse effect on the
results of our operations.
Local Regulation
In addition to federal and state laws, local governments exercise legal
authority that may affect our business. For example, some local governments
retain the ability to license public rights-of-way, subject to the federal
limitation that local authorities may not prohibit entities from entering
telecommunications markets. Compliance with local requirements may delay entry
and increase our costs of doing business.
Canada
Regulation under the Telecommunications Act (Canada)
We intend to retain fiber assets in our network which will be available for
sale, grant of indefeasible rights-of-use, lease or swap. To the extent that we
engage in these activities, particularly when we provide dark or lit fiber on a
leased basis, we will be subject to the provisions of the Telecommunications Act
(Canada) and to regulation by Canada's telecommunications regulatory authority,
the Canadian Radio-television and Telecommunications Commission. Although we do
not believe that these activities will be subject to extensive regulation, there
can be no assurance that the underlying policies of the Canadian
Radio-television and Telecommunications Commission, which generally foster
competition in Canada's local and long distance telecommunications services
markets, will not change in the future.
In a 1995 decision, the Canadian Radio-television and Telecommunications
Commission concluded that telecommunications services provided by non-dominant
carriers should not be subject to extensive regulation. We believe that all of
the telecommunications services that we will provide qualify under this decision
as non-dominant carrier services. As such, we do not believe that our operations
in Canada will be subject to extensive regulation by the Canadian
Radio-television and Telecommunications Commission. However, the Canadian
Radio-television and Telecommunications Commission's view as to the need for and
extent of regulation over non-dominant carriers may change. As a result, there
can be no assurance that the regulatory environment in Canada will continue to
be favorable to non-dominant carriers. Any change in the Canadian
Radio-television and Telecommunications Commission's policies or regulations
relating to non-dominant carriers could have a material adverse effect on our
business, financial condition and results of operations if, as a result of those
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changes, our services, rates or operations become subject to greater regulatory
oversight and intervention by the Canadian Radio-television and
Telecommunications Commission.
Restrictions on Foreign Ownership
Under the Canadian ownership provisions of the Telecommunications Act, a
"Canadian carrier" is not eligible to operate as a Canadian telecommunications
common carrier unless it is Canadian owned and controlled. Furthermore, no more
than 20% of the members of the board of directors of a Canadian carrier may be
non-Canadians, and no more than 20% of the voting shares of a Canadian carrier
may be beneficially owned by non-Canadians. In addition, no more than 33-1/3% of
the voting shares of a non-operating parent corporation holding a Canadian
carrier may be beneficially owned or controlled by non-Canadians and neither the
Canadian carrier nor its parent may be otherwise controlled in fact by
non-Canadians.
To the extent that we make available the retained fiber in our network in
Canada on an indefeasible rights-of-use or lease basis, we will be subject to
the Canadian ownership provisions of the Telecommunications Act. Although we
believe that we are in compliance with the relevant legislation, there can be no
assurance that a future Canadian Radio-television and Telecommunications
Commission determination or events beyond our control will not result in us
ceasing to comply with the ownership provisions of the Telecommunications Act.
Should this occur, our ability to operate as a Canadian carrier under the
Telecommunications Act could be jeopardized and our business could be materially
adversely affected.
On October 1, 1998, the Canadian Radio-television and Telecommunications
Commission issued Telecom Decision CRTC 98-17, which established a framework for
competition in Canada's international telecommunications services market to
coincide with the Government of Canada's decision to terminate the monopoly of
Teleglobe Canada Inc. over telecommunications facilities linking Canada to
overseas destinations. In that decision, the Canadian Radio-television and
Telecommunications Commission determined that a party acquiring an indefeasible
rights-of-use interest in an international submarine cable would not necessarily
fall within the definition of a telecommunications common carrier. As a result,
acquirors of indefeasible rights-of-use in international submarine cables need
not be Canadian owned and controlled. However, given the fact that the Canadian
Radio-television and Telecommunications Commission's findings in Decision 98-17
were limited to indefeasible rights-of-use interests held in international
submarine cables, as well as the fact that indefeasible rights-of-use
arrangements can involve varying degrees of ownership and control over fiber
facilities, there can be no assurance that holders of indefeasible rights-of-use
acquired in domestic fiber facilities, including those constructed by us, would
be exempt from the Canadian ownership provisions contained in the
Telecommunications Act.
In addition to determining the status of indefeasible rights-of-use under
the Telecommunications Act, the Canadian Radio-television and Telecommunications
Commission made a determination in Decision 98-17 to eliminate Canada's "bypass"
rules, which had prohibited the routing of Canada-Canada and Canada-overseas
traffic through the United States. Effective October 1, 1998, telecommunications
service providers and users in Canada may route basic telecommunications traffic
which either originates or terminates in Canada through the United States. Given
the fact that a decision to bypass Canadian network facilities may be based on a
variety of factors, including, but not limited to, cost, technology, traffic
patterns, and the availability of suitable facilities, there is a risk that
prospective customers for segments of the network in Canada may choose to
purchase, lease or obtain indefeasible rights-of-use in dark or lit fiber in the
United States rather than in Canada. There can be no assurance that we will be
able to attract and retain a sufficient number of customers for the Canadian
portions of our network, which could have a material adverse effect on our
business, financial condition and results of operations.
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Contribution
As a result of a September 17, 1998 application by four interexchange
carriers, the Canadian Radio-television and Telecommunications Commission is
considering reform of the current contribution regime. The Canadian
Radio-television and Telecommunications Commission's contribution regime was
originally established in 1992 as a means of ensuring that rates for local
residential telephone service remain affordable. Under the regime, providers of
certain types of long distance voice and data services are required to pay a
subsidy or "contribution" on each minute of traffic that is originated or
terminated on local switched telephone networks or on cross-border or overseas
access circuits. These contribution payments are pooled within each incumbent
local exchange carrier's territory and are paid out to incumbent local exchange
carriers and competitive local exchange carriers serving residential local
customers, based on the number of residential network access services they serve
and the level of the subsidy available in the rate band being served. On March
1, 1999, the Canadian Radio-television and Telecommunications Commission
initiated a proceeding to consider possible reforms to the current contribution
mechanism. In the public notice that initiated the proceeding, the Canadian
Radio-television and Telecommunications Commission invited interested parties to
submit proposals on other mechanisms which could be used to collect
contribution. If the Canadian Radio-television and Telecommunications Commission
decides to adopt the approach advocated in the application filed by the four
interexchange carriers, the current contribution regime would be converted to a
revenue-based regime under which contribution would be paid on a percentage of a
telecommunications service provider's revenues (regardless of the types of
services offered by the service provider), rather than on certain types of
telecommunications traffic.
We do not believe that our operations in Canada would be subject to the
requirement to pay contribution under the current contribution regime, except
with the possible exception of fiber which we may lease on a lit basis. However,
given that the current contribution regime is under review by the Canadian
Radio-television and Telecommunications Commission, there can be no assurance
that we would be exempt from the requirement to pay contribution in the future,
particularly if the Canadian Radio-television and Telecommunications Commission
decides to adopt a revenue-based regime.
CRTC Applications
On March 19, 1999, we filed an application with the Canadian
Radio-television and Telecommunications Commission seeking orders under the
Telecommunications Act which would permit us to continue to have access to
street crossings and other municipal properties in the City of Vancouver for the
purpose of constructing, testing and operating our network facilities within
that city. In an answer to our application, the City of Vancouver took the
position that we were not eligible to apply to the Canadian Radio-television and
Telecommunications Commission for relief under the Telecommunications Act. On
the same day, the City filed an application with the Canadian Radio-television
and Telecommunications Commission requesting orders which would permit certain
of the carriers that have obtained indefeasible rights-of-use from us to
continue to construct, operate and maintain those facilities on a zero rate
basis until the Canadian Radio-television and Telecommunications Commission has
made a determination on the appropriate terms, conditions and compensation that
should be payable to the City for the use of municipal property. The Canadian
Radio-television and Telecommunications Commission has yet to render a decision
with respect to these applications. Failure to obtain the orders we have
requested could have a material adverse effect on our business, financial
condition and results of operations.
Bankruptcy and Related Laws--Your rights concerning the notes could be adversely
affected in a United States or Canadian bankruptcy proceeding.
Canadian courts have exercised their powers under the Bankruptcy and
Insolvency Act, and particularly under the Companies' Creditors Arrangement Act,
broadly to protect a restructuring entity from actions taken by creditors and
other parties. Accordingly, it is impossible to predict if payments under the
notes would be made
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during these proceedings, whether or when the trustee could exercise rights
under the indenture or whether and to what extent you would be compensated for
any delays in payments, if any, of principal and interest.
There could also be a bankruptcy filing by or against us in the United
States. U.S. bankruptcy courts typically have jurisdiction over a debtor's
property, wherever it is located, including property located in other countries.
However, courts outside of the United States might not recognize the U.S.
bankruptcy court's jurisdiction. Accordingly, difficulties may arise in
administering a United States bankruptcy case involving a Canadian debtor with
property located outside of the United States. Orders or judgments of a
bankruptcy court in the United States may not be enforceable against third
parties outside the United States.
We are organized under the laws of Canada. At present, a significant
portion of our assets is located in Canada. The notes and the indenture will be
governed by New York law. The rights of the trustee under the indenture to
enforce remedies could be significantly impaired by the restructuring provisions
of applicable Canadian or United States federal bankruptcy, insolvency and other
restructuring legislation if the benefit of this legislation is sought
concerning us. For example, in Canada, both the Bankruptcy and Insolvency Act
(Canada) and the Companies' Creditors Arrangement Act (Canada) contain
provisions enabling "an insolvent person" to obtain a stay of proceeding against
its creditors and others and to prepare and file a proposal for consideration by
all or some of its creditors to be voted on by the various classes of its
creditors. This restructuring proposal, if accepted by the requisite majorities
of creditors and if approved by the court, would be binding on all creditors who
fall within one of the classes of creditors contemplated by the restructuring
proposal. Moreover, this "proposal" legislation permits, in certain
circumstances, the insolvent debtor to retain possession and administration of
its property, even though it may be in default under the applicable debt
instruments.
If there were a filing by or against us in the United States, the U.S.
Bankruptcy Code provides for an automatic stay of virtually all proceedings
against a debtor which stay continues until a bankruptcy plan of reorganization
is confirmed or the stay is lifted under a noticed motion. Similar to the
Canadian laws, the U.S. Bankruptcy Code provides that a plan of reorganization,
if accepted by the requisite majorities of creditors and if approved by the
court, would be binding on all creditors who fall within one of the classes of
creditors contemplated by the plan of reorganization. Moreover, the U.S.
Bankruptcy Code also generally permits the insolvent debtor to retain possession
and administration of its property, even though it may be in default under the
applicable debt instruments. Accordingly, it is also impossible to predict if
payments under the notes would be made during a U.S. bankruptcy proceeding,
whether or when the trustee could exercise its rights under the indenture or
whether and to what extent you would be compensated for any delays in payments,
if any, of principal and interest.
Financing Change of Control Offer--We may not have the ability to raise the
funds necessary to finance the change of control offer required by the
indenture.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes or that restrictions in our
credit facilities or other indebtedness will not allow these repurchases. In
addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a change of control under the indenture. See "Description of
Notes--Repurchase at the Option of Holders."
There may be no public market for the new notes.
There has previously been only a limited secondary market, and no public
market, for the old notes. The new notes are a new issue of securities, have no
established trading market, and may not be widely distributed. Worldwide Fiber
does not intend to list the new notes on any national securities exchange or the
Nasdaq Stock Market or to apply for the trading of the notes on any automated
quotation system. No assurance can be
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<PAGE>
given that an active public or other market will develop for the new notes or as
to the liquidity of or the trading market for the new notes. If a trading market
does not develop or is not maintained, holders of the new notes may experience
difficulty in reselling the new notes or may be unable to sell them at all. If a
market for the new notes develops, this market may be discontinued at any time.
If a public trading market develops for the new notes, future trading prices of
the new notes will depend on many factors, including, among other things,
prevailing interest rates, our results of operations and the market for similar
securities, and the price at which the holders of new notes will be able to sell
the new notes is not assured and the new notes could trade at a premium or
discount to their purchase price or face value. Depending on prevailing interest
rates, the market for similar securities and other factors, including our
financial condition, the new notes may trade at a discount from their principal
amount.
You may not be able to rely on forward-looking statements.
The information contained in this prospectus includes some forward-looking
statements that involve a number of risks and uncertainties. A number of factors
could cause our actual results, performance, achievements or industry results to
be very different from the results, performance or achievements expressed or
implied by our forward-looking statements. These factors include, but are not
limited to:
o general economic and business conditions, both nationally and in the
markets in which we operate or will operate,
o our ability to access markets, design effective fiber optic routes,
install cable and facilities, and obtain rights-of-way, building
access rights and any required governmental authorizations, franchises
and permits, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions,
o demographic change,
o competition,
o existing government regulations and changes in, or the failure to
comply with, government regulations,
o the loss of any significant number of customers,
o changes in business strategy or development plans,
o technological developments,
o the ability to attract and retain qualified personnel, and
o other factors we refer to throughout this prospectus.
Certain of these factors are discussed in more detail elsewhere in this
prospectus including, without limitation, under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In addition, forward-looking statements depend upon assumptions, estimates
and dates that may not be correct or precise and involve known and unknown
risks, uncertainties and other factors. Accordingly, a forward-looking statement
in this prospectus is not a prediction of future events or circumstances and
those future events or circumstances may not occur. Given these uncertainties,
you are warned not to rely on the forward-
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<PAGE>
looking statements. Neither we nor any other person assumes responsibility for
the accuracy and completeness of these statements. A forward-looking statement
is usually identified by our use of certain terminology, including "believes,"
"expects," "may," "will," "should," "seeks," "pro forma," "anticipates" or
"intends" or by discussions of strategy or intentions. We are not undertaking
any obligation to update these factors or to publicly announce the results of
any changes to our forward-looking statements due to future events or
developments.
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<PAGE>
CAPITALIZATION
The following table sets forth our actual and pro forma consolidated cash
and capitalization as of June 30, 1999. This table should be read along with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the consolidated financial statements and related notes and the Pro
Forma Financial Information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of June 30, 1999
Actual Pro Forma (1)
(In thousands)
(unaudited)
<S> <C> <C>
Cash and cash equivalents.................................................. $86,812 $873,812
Debt (including current portion):
12 1/2% senior notes due 2005........................................... 175,000 175,000
12% senior notes due 2009............................................... -- 500,000
-------- ---------
175,000 675,000
Redeemable preferred stock................................................. -- 345,000
Shareholder's equity:
Common stock ........................................................... 32,419 43,419
Contributed surplus..................................................... 2,242 2,242
Retained earnings (deficit)............................................. 21,413 (25,787)
Accumulated other comprehensive income (loss)........................... (564) (564)
-------- ---------
Total shareholder's equity.............................................. 55,510 19,310
-------- ---------
Total capitalization...................................................... $230,510 1,039,310
======== =========
</TABLE>
- ---------------------
(1) Gives pro forma effect to (1) the issuance on July 28, 1999 of the
$500,000,000 12% senior notes, (2) the issuance on August 31, 1999 of
150,000 Class B Subordinate Voting Shares for $3,000,000 of cash, (3) the
issuance on September 9, 1999 of 8,866,808 Series A Non-Voting Preferred
Shares for $345,000,000 of cash, (4) a stock dividend on September 9, 1999
of 5,000,000 Series C Redeemable Preferred Shares and a redemption on
September 9, 1999 of 45,000,000 Series C Redeemable Preferred Shares for
$45,000,000 of cash and (5) the acquisition on September 27, 1999, from
affiliates of Ledcor Inc., of certain fiber optic network assets in
exchange for 4,500,000 Class C Multiple Voting Shares of the Company.
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<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the year ended March 31,
1996, the five months ended August 31, 1996, the year ended August 31, 1997 and
the nine months ended May 31, 1998 of our predecessor, the telecommunications
division of Ledcor, are derived from the audited financial statements of the
predecessor division, which have been audited by Deloitte & Touche LLP,
independent auditors. Worldwide Fiber was incorporated on February 5, 1998 and
acquired certain assets of the predecessor division on May 31, 1998. Before May
31, 1998, Worldwide Fiber was a shell company. The selected historical financial
data presented for the period February 5, 1998 through December 31, 1998 of
Worldwide Fiber are derived from our audited consolidated financial statements,
which have been audited by PricewaterhouseCoopers LLP, independent auditors. The
unaudited pro forma financial data for the year ended December 31, 1998 are
derived from the audited consolidated financial statements of Worldwide Fiber,
the financial statements of the predecessor division, and the consolidated
financial statements of Worldwide Fiber (USA), Inc. ("WFI-USA") included
elsewhere in this prospectus. The selected historical financial data presented
for the periods ended June 30, 1999 and 1998 are derived from Worldwide Fiber's
unaudited consolidated financial statements and include, in the opinion of
Worldwide Fiber's management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the data for those periods.
The unaudited pro forma financial data for the six months ended June 30, 1999
are derived from the unaudited interim consolidated financial statements for the
six month period ended June 30, 1999 of Worldwide Fiber included elsewhere in
this Prospectus. Our consolidated financial statements and the divisional
financial statements of the predecessor division are not comparable to our
results of operations after the Reorganization. You should read the following
information along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and the financial statements
and the related notes included elsewhere in this prospectus.
Capital expenditures represent actual cash expenditures incurred during the
period and do not include acquisitions of assets for non-cash consideration.
Route miles represent the number of miles spanned by fiber optic cable owned at
the end of the period, calculated without including physically overlapping
segments of cable. Fiber miles represent the number of strands of fiber in a
length of fiber optic cable owned at the end of the period, multiplied by the
length of the cable in miles.
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<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars in thousands)
Predecessor Division Worldwide Fiber
------------------------------------------ ------------------------------------------------------
Six Pro Forma
Five Nine February February Pro Forma Months Six
Year Months Year Months 5, 1998 5, 1998 Year Ended Months
Ended Ended Ended Ended to to Dec- Ended Dec- June Ended
March August August May 31, June 30, ember 31, ember 31, 30, June 30,
31, 1996 31, 1996 31, 1997 1998 1998 1998 1998(2)(3) 1999 1999(2)(3)
--------- -------- -------- -------- --------- ---------- ---------- ------- ----------
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............ $3,824 $7,373 $58,008 $54,634 $12,280 $164,319 $207,038 $123,884 $123,884
Operating expenses:
Costs............ 3,440 5,739 48,474 44,919 10,621 147,621 182,518 85,614 85,614
General &
administrative.. 57 91 863 710 403 2,274 8,140 5,837 7,087
Depreciation..... 24 15 112 317 49 464 639 453 453
------ ------ ------- ------- ------- -------- -------- ------- --------
Total operating
expenses........... 3,521 5,845 49,449 45,946 11,073 150,359 191,297 91,904 93,154
------ ------ ------- ------- ------- -------- -------- ------- --------
Operating income... 303 1,528 8,559 8,688 1,207 13,960 15,741 31,980 30,730
Interest expense, -- 15 600 86 -- 225 85,352 5,671 30,571
net................
Equity income...... -- -- -- -- 2 928 -- -- --
------ ------ ------- ------- ------- -------- -------- ------- --------
Earnings (loss)
before income 303 1,513 7,959 8,602 1,209 14,663 (69,611) 26,309 (6,141))
taxes............
Income tax expense
(recovery)....... 139 686 3,620 3,909 526 5,643 (26,710) 10,921 (1,574)
------ ------ ------- ------- ------- -------- -------- ------- --------
164 827 4,339 4,693 683 9,020 (42,901) 15,388 (4,567))
Income attributable
to minority -- -- -- -- -- -- 464 2,995 2,995
interest.........
------ ------ ------- ------- ------- -------- -------- ------- --------
Net income (loss).. $164 $827 $4,339 $4,693 683 $9,020 $(43,365) $12,393 $(7,562)
====== ====== ======= ======= ======= ======== ======== ======= ========
Other Financial
Data:
EBITDA (4)......... $327 $1,543 $8,671 $9,005 $1,256 $15,352 $16,380 $32,433 $31,183
Capital $72 $181 $1,119 $6,828 -- $1,065 -- $19,215 --
expenditures.......
Ratio of earnings
to fixed 24.3x 45.5x 10.3x 17.7x 200.0x 26.8x -- 3.8x --
charges (5)......
Statement of Cash
Flows Data:
Operating $666 $(3,078) $(3,921) $(2,502) $681 $(13,059) $ -- $(49,824) $ --
activities.........
Investing (72) (181) (1,119) (6,828) -- 1,177 -- (19,215) --
activities.........
Financing $(595) $3,259 $5,040 $9,330 $(681) $168,350 $ -- $(352) $ --
activities.........
Operating Data:
Route miles........ -- -- 1,090 1,430 380 2,735 3,825 --
Fiber miles ....... -- -- 22,740 34,320 4,940 36,179 91,825 --
Balance Sheet Data:
Cash and cash
equivalents........ $ -- $-- $-- $ -- -- $156,366 $ -- $86,812 $ 873,812
Fixed assets, net.. -- 464 1,471 7,982 -- 15,475 -- 57,790 83,790
Total assets....... -- 6,476 32,268 39,549 -- 236,260 -- 365,025 1,206,025
Total debt......... -- 2,067 6,774 10,933 -- 175,000 -- 175,000 675,000
Redeemable Preferred
Stock.............. -- -- -- -- -- -- -- -- 345,000
Shareholder's equity $ -- $1,473 $5,825 $8,870 -- $18,261 $ -- $55,510 $ 19,310
</TABLE>
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<PAGE>
- ---------------------------------------------------
(1) Gives pro forma effect to (1) the transfer on May 31, 1998 of certain of
the operations of the predecessor division and the Construction Services,
Management Services and Employee Services Agreements between Worldwide
Fiber and affiliates of Ledcor, (2) the consolidation of WFI-USA as a
result of Worldwide Fiber's agreement to increase its interest in WFI-USA
from 50% to 75% on December 31, 1998 and (3) the effect of the interest
expense, including amortization of deferred financing costs, relating to
the $175,000,000 121/2% senior notes and the $500,000,000 12% senior notes.
(2) Gives pro forma effect to the interest expense, including amortization of
deferred financing costs, on the $500,000,000 12% senior notes due 2009.
(3) The initial annual interest expense on the $500,000,000 12% senior notes
due 2009 is $62,400,000 and the initial annual interest expense on the
$175,000,000 12 1/2% senior notes due 2005 is $23,200,000.
(4) EBITDA consists of net income (loss) before interest expense, net of
interest income, income tax expense (recovery), depreciation and income
attributable to minority interest. EBITDA is presented because we believe
it is a useful indicator of a company's ability to meet debt service and
capital expenditure requirements. It is not intended as an alternative
measure of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles). EBITDA is not
necessarily comparable to similarly titled measures for other companies and
does not necessarily represent amounts of funds available for management's
discretionary use.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consists of earnings (loss) before equity income, income tax
expense (recovery), income attributable to minority interest and fixed
charges. Fixed charges consists of interest expensed and capitalized, plus
the portion of rental expense which we believe to be representative of
interest (assumed to be one-third of rental expense). Pro forma loss for
the year ended December 31, 1998 would have been insufficient to cover
fixed charges by $69,611,000 and pro forma loss for the six month period
ended June 30, 1999 would have been insufficient to cover fixed charges by
$6,141,000.
(6) Gives pro forma effect to (1) the issuance on July 28, 1999 of the
$500,000,000 12% senior notes, (2) the issuance on August 31, 1999 of
150,000 Class B Subordinate Voting Shares for $3,000,000 of cash, (3) the
issuance on September 9, 1999 of 8,866,808 Series A Non-Voting Preferred
Shares for $345,000,000 of cash, (4) a stock dividend on September 9, 1999
of 5,000,000 Series C Redeemable Preferred Shares and a redemption on
September 9, 1999 of 45,000,000 Series C Redeemable Preferred Shares for
$45,000,000 of cash and (5) the acquisition on September 27, 1999, from
affiliates of Ledcor Inc., of certain fiber optic network assets in
exchange for 4,500,000 Class C Multiple Voting shares of the Company.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read along with our Consolidated Financial
Statements and the Divisional Financial Statements of the telecommunications
division of Ledcor Industries Limited, including the related notes, included
elsewhere in this prospectus.
General
We are a provider of technologically advanced fiber optic communications
infrastructure in North America using our state-of-the-art fiber optic network.
We recently have begun marketing bandwidth services and intend to provide these
services by the end of the year. We are developing our network to satisfy
increasing demand for fiber optic capacity for the transmission of data, voice
and video generated by high-bandwidth communications and the requirements of new
entrants to the telecommunications business. We currently derive our revenues
from the sale, grant of indefeasible rights-of-use ("IRU") and lease of dark
fiber optic strands and conduit and related infrastructure. We have commenced
the process of adding the necessary optical transmission equipment to enable us
to provide bandwidth services to carriers and other service providers. Our
targeted customers include communications carriers, Internet service providers
("ISPs") and large corporations with enterprise network needs.
The development and build-out of our network will require significant
capital expenditures through 2001, when the network is scheduled to be complete.
Depending upon market demand, we may expand the network and will require
additional capital if we decide to do so. See "--Liquidity and Capital
Resources."
Reorganization
We were incorporated on February 5, 1998. However, we did not commence
operations until May 31, 1998. As of May 31, 1998 we entered into a series of
agreements whereby Ledcor transferred the construction equipment, certain fiber
optic strands and certain other assets of Ledcor's telecommunications division
(the "Reorganization"). Because this series of transactions was between entities
under common control, the assets have been reflected in our financial statements
using the carrying amounts recorded in Ledcor's accounts. We believe that the
fair market value of the fiber assets we received is significantly greater than
their carrying amounts.
We entered into two Construction Services Agreements in which we agreed to
fulfill Ledcor's fiber optic network construction commitments concerning certain
builds along the fiber optic transmission system across Canada and the Northern
United States (the "FOTS"). In return, Ledcor paid us an amount equal to our
costs incurred plus 15%. Our obligations under these agreements were
substantially performed by the end of January 1999. We also entered into a
Management Services Agreement and two Employee Services Agreements with Ledcor.
See "Transactions with Our Parent--Description of Reorganization and Related
Agreements."
Prior to the Reorganization, we were a shell company created for the
purpose of continuing the business of Ledcor's telecommunications division and
did not have any operations or material assets. Accordingly, two sets of
financial information are included in this prospectus. The Divisional Financial
Statements of Ledcor's telecommunications division prior to May 31, 1998 reflect
the operations of our predecessor as a contractor and network developer for the
FOTS. Our Consolidated Financial Statements for the period from the date of
incorporation through December 31, 1998 primarily reflect our operating results
due to the Construction Services Agreements.
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<PAGE>
Sources of Revenue
To date, we have primarily generated revenues from the construction of our
fiber optic network. We will continue to construct fiber optic networks for
third parties on a contract basis when these networks will either allow us to
retain fiber or conduit assets on routes that complement and reduce the costs of
completing our network, or to enhance our ability to make a sale, grant of
indefeasible rights-of-use, lease or swap of network capacity or the provision
of bandwidth services. We anticipate that, as we proceed with the development of
our network, the percentage of revenues which we receive from construction
services will decline from the level reflected in our results of operations to
date.
Revenues from construction contracts to develop fiber optic systems are
calculated on the percentage of completion basis using the cost-to-cost method
over the life of the build. This method is used because we consider costs
incurred to be the best available measure of progress of these contracts. We
make provisions for all potential losses as soon as they become evident.
As a developer, we use a condominium strategy to develop the network. Our
condominium strategy allows multiple participants to purchase, obtain
indefeasible rights-of-use or lease fiber or conduit along a segment of our
network at a fixed price. We generally commence construction of a segment when
we have pre-sold sufficient strands and conduit to cover approximately 50% of
our anticipated construction costs of that segment. Under participation
agreements, we typically receive an initial deposit with the final payment
coming after acceptance by the customer. To expedite route development or
decrease development risk, we may seek a co-developer. Co-developers typically
make a deposit and progress payments that represent their share of the project
construction costs. They may also enter into co-marketing arrangements with us
to sell the assets along the build.
We recognize revenue for participation agreements on a percentage of
completion basis. Following completion of a build, our retained fiber or conduit
may be sold, granted through an indefeasible right-of-use or leased to a third
party. Revenues and costs for a sale or grant of indefeasible rights-of-use of
these fiber or conduit assets are recognized at the time of the transaction.
Lease revenues are recognized as earned over the life of the lease.
In the future we anticipate a significant amount of our revenues will be
derived from providing bandwidth services, including optical transmission,
private line, virtual voice, IP transport and ATM.
Joint Ventures
Our consolidated balance sheet at June 30, 1999 and December 31, 1998
includes the assets and liabilities of WFI-USA, and a minority interest in it,
reflecting our 75% interest in WFI-USA. A fifty percent interest in WFI-USA was
transferred to us by Ledcor on August 31, 1998, and the additional 25% was
acquired on December 31, 1998 from the treasury of WFI-USA. The consolidated
income statements for the periods ended June 30, 1998 and December 1998 account
for Worldwide Fiber's initial 50% interest in WFI-USA using the equity method.
Worldwide Fiber Networks, Inc. ("WFNI") will be the primary subsidiary through
which we will develop the U.S. segments of the network. Subsequent to December
31, 1998 we also began consolidating WFI-USA's income statement and became
responsible for supplying all of the capital necessary to fund those segments of
the network developed through WFNI. See "Business--Description of WFI-USA
Agreements."
We have entered, and may in the future enter, into joint ventures to
develop particular segments of the network, to secure rights-of-way ("ROW") or
to enable us to provide bandwidth or other services on a more timely or capital
efficient manner or for other reasons. For example, we entered into agreements
with Illinois Central Railroad Company ("IC") and Canadian National Railway
Company ("CN") which allow us to develop
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<PAGE>
our network on both railroads' ROW in Canada and the United States. See
"Business--Description of IC and CN Agreements."
Results of Operations
Worldwide Fiber Inc.
Six Months Ended June 30, 1999
Revenue for the six month period ended June 30, 1999 was $123,884,000. This
revenue was primarily derived from sales of conduit and fiber optic strands
along the Seattle-Portland, Portland-Sacramento and northeast segments of our
network. The Seattle-Portland segment was completed in May 1999.
Costs were $85,614,000 for the six months ended June 30, 1999 and reflect
the costs incurred in development of our network which include costs related to
subcontractors, rights-of-way and equipment purchases. Costs as a percentage of
revenue for the period were 69%. The resulting gross margin for the period of
$38,270,000 and gross margin percentage of 31% have increased from prior periods
due to the higher margins achieved in network development compared to
construction services rendered to Ledcor and third parties during prior periods.
General and administrative expenses were $5,837,000 or 5% of revenue for
the six months ended June 30, 1999. We are continuing the process of
implementing our own management information and accounting systems. General and
administrative expenses are expected to continue to increase as we develop our
systems, hire additional personnel and implement our bandwidth services
strategy.
Interest expense was $7,970,000 for the six months ended June 30, 1999 and
was principally due to the issue of the 1998 Notes. Interest income totalled
$2,299,000 for this period and arose from the investment of the proceeds of the
1998 Notes in short-term, investment grade securities. Interest capitalized for
the period totaled $2,481,000.
Income taxes provided for the six month period of $10,921,000 consist
primarily of current taxes arising from our U.S. and Canadian operations.
Minority interest for the six month period of $2,995,000, represents 25% of
WFI-USA's net income.
Period from February 5, 1998 to June 30, 1998
(Operations commenced June 1, 1998)
Revenue for the period ended June 30, 1998 was $12,280,000 and was
principally derived from the Construction Services Agreements with Ledcor.
Costs were $10,621,000 for the period ended June 30, 1998 and reflects the
costs incurred to complete the FOTS under the Construction Services Agreements
with Ledcor. The gross margin of $1,659,000 for the period primarily represents
the 15% margin earned under the Construction Services Agreements.
General and administrative expenses were $403,000 in the period and
represent the monthly fee of Cdn. $200,000 and direct costs reimbursed by Ledcor
under the Management Services Agreements.
Income taxes provided for the period ended June 30, 1998 of $526,000
consist primarily of current taxes arising from our U.S. and Canadian
operations.
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<PAGE>
The results of operations for the period ended June 30, 1998 are not
comparable to the six-month period ended June 30, 1999 as operations commenced
on June 1, 1998 and revenues were derived primarily from the Construction
Services Agreements with Ledcor.
Period from February 5, 1998 to December 31, 1998
(Operations commenced June 1, 1998)
Revenue for the period from February 5, 1998 to December 31, 1998 was
$164,319,000. Revenue for this period was principally derived from the
Construction Services Agreements to complete the FOTS for Ledcor. This project
was completed in January 1999.
Costs were $147,621,000 for the period from February 5, 1998 to December
31, 1998. Costs reflect primarily the costs incurred in completing the FOTS.
Costs as a percentage of revenue for the period were 90%, reflecting the costs
incurred plus 15% earned under the Construction Services Agreements. A portion
of the costs related to the FOTS were reimbursed without the 15% earned margin,
including costs associated with marine subcontractors.
General and administrative expenses for the period from February 5, 1998 to
December 31, 1998 were $2,274,000, representing 1.4% of our revenues, and
consisting of the monthly fee of Cdn. $200,000 and direct costs reimbursed by
Ledcor under the Management Services Agreement.
Income taxes for the period from February 5, 1998 to December 31, 1998 of
$5,643,000 consist primarily of current taxes arising from Worldwide Fiber's
Canadian and U.S. taxes of $2,599,000 and $3,044,000, respectively.
Telecommunications Division -- Ledcor Industries Limited
Nine Months Ended May 31, 1998
Revenues generated from contracts for the nine months ended May 31, 1998
were $54,633,888. The revenues for this period were principally derived from
developing the FOTS for Ledcor Industries Limited ("LIL").
Contract costs were $45,321,566 for the nine months ended May 31, 1998.
Contract costs primarily represent the costs associated with engineering,
designing and building the FOTS and managing third party construction contracts.
Contract costs as a percentage of revenue for the nine months ended May 31, 1998
were 83%.
General and administrative expenses for the nine months ended May 31, 1998
were $710,240 representing 1.3% of revenues for the period. General and
administrative expenses for the nine month period ended May 31, 1998 are
primarily derived from overhead to accommodate progress on the FOTS and
management of builds for third parties.
Income tax expense (recovery) for the nine months ended May 31, 1998
represents a current expense of $5,509,000 and a recovery, on a deferred basis,
of $1,600,000 using an effective tax rate of 45%. As a division, we would not in
fact report taxes, but would have been consolidated within the tax return filed
by LIL. The difference between current tax expense and deferred tax recovery is
due to temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
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<PAGE>
Telecommunications Division -- Ledcor Industries Limited
Year Ended August 31, 1997
Revenues generated from contracts for the year ended August 31, 1997 were
$58,007,652. The revenues for this period are principally derived from the
commencement of building the FOTS and management of the Alaska Fiber Star build
in Alaska.
Contract costs were $49,184,985 for the year ended August 31, 1997.
Contract costs for this period are primarily derived from the costs associated
with engineering, design and building of the FOTS and management of the Alaska
Fiber Star build in Alaska. Contract costs as a percentage of revenue for the
year ended August 31, 1997 were 85%. Contract revenues and contract costs for
the year ended August 31, 1997 increased significantly due to the business in
which LIL had entered into, which was the building of the FOTS and selling of
its components to third-parties. This was a different business than the business
previously conducted by the telecommunications division in which LIL would
construct and develop fiber optic systems on a contract basis for specific
telecommunications clients. Since this was a new business for LIL the gross
margin compared to prior years is not comparable.
General and administrative expenses for the year ended August 31, 1997 were
$863,373, representing 1.5% of revenues for the period. The general and
administrative expenses for this period are primarily comprised of the overhead
necessary to accommodate the commencement of FOTS and management of the Alaska
Fiber Star build in Alaska.
Income tax expense for the year ended August 31, 1997 represents a current
expense of $338,000 and a deferred expense of $3,282,000 using an effective tax
rate of 45%. As a division, we would have been included within the tax return
filed by LIL. The difference between current tax expense and deferred tax
expense is due to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Telecommunications Division -- Ledcor Industries Limited
Five Months Ended August 31, 1996
Revenues generated from contracts for the five months ended August 31, 1996
were $7,372,942. The revenues for this period are principally derived from the
fiber optics development between Calgary and Edmonton, Alberta.
Contract costs were $5,768,543 for the five months ended August 31, 1996.
Contract costs for this period are primarily comprised of the design,
engineering and construction costs associated with the development project
between Calgary and Edmonton. Contract costs as a percentage of revenue for the
five months ended August 31, 1996 were 78%.
General and administrative expenses for the five months ended August 31,
1996 were $90,993, representing 1.2% of revenues for the period. The general and
administrative expenses for this period are primarily derived from the overhead
necessary to commence the Calgary-Edmonton project.
Income tax expense for the year ended August 31, 1997 represents a current
expense of $5,000 and a deferred expense of $681,000, using an effective tax
rate of 46%. As a division, we would have been consolidated within the tax
returns filed by LIL. The difference between current tax expense and deferred
tax expense is due to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
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<PAGE>
Liquidity and Capital Resources
At June 30, 1999, we had working capital of $167,910,000, including
$86,812,000 in cash or cash equivalents.
Cash used in operations during the six months ended June 30, 1999 totaled
$49,824,000. We have an aggressive business plan to build out the network in the
United States and Canada that will require a significant investment in the
development of fiber and conduits held for sale, grant of indefeasible
rights-of-use, swap or lease and the purchase of transmission facilities. We
anticipate that we will continue to experience negative cash flow (after capital
expenditures) as we build out the network.
In addition to the fiber assets contributed by Ledcor, we formed a capital
plan in 1998 to develop approximately 12,900 route miles. The plan and the
implementation of bandwidth services contemplate capital expenditures of
approximately $1.26 billion through 2001. This plan includes the building of
five intra-city networks ("city rings") in Canada and the installation of
electronics and transmission equipment along our entire terrestrial network,
commencing with the Vancouver-Detroit segment during the third and fourth
quarters of 1999. This plan does not include the Hibernia project, which is
discussed below. The following table describes funding sources contemplated by
the plan:
Net proceeds from the $500,000,000 12% senior notes due 2009
(the "Notes") ............................................. $484,000,000
Net proceeds from the $175,000,000 12 1/2% senior notes due
2005 (the "1998 Notes").................................... 168,350,000
Credit facilities (1)........................................ 127,650,000
Co-developers and participant sales ......................... 480,000,000
--------------
$1,260,000,000
==============
- ---------------------------------------------------
(1) We anticipate that up to $150 million may be available under our planned
bank credit facility.
Consistent with our strategy to create a low-cost position, we have
agreements, subject to terms and conditions we consider customary, with
co-developers and participants. We have received, in the aggregate to date,
commitments of approximately $480,000,000 in cash to fund the completion of
segments of our terrestrial network from co-developers and participants.
Approximately $138,000,000 of the $480,000,000 is associated with revenue from
construction services we are providing to two customers under which we will earn
a specified margin and also retain dark fiber. The remainder of the $480,000,000
is derived from the sale, IRU or lease of fiber and conduit and additional
construction services we are providing to third parties along network segments
we are developing ourselves. We intend to enter into additional arrangements
with co-developers and participants, prior to completion of the network in 2001.
We expect to obtain the balance of the funding necessary to complete our
terrestrial network and to implement our bandwidth services strategy from (1)
the cash remaining from the notes and the 1998 Notes and (2) our planned bank
credit facility. We have accepted a commitment letter from a bank lender which
contemplates that up to $150,000,000 could be made available to us in the form
of revolving credit borrowings. See "Description of Other Indebtedness--Proposed
Worldwide Fiber Credit Facility." We expect the facility to close in the fourth
quarter of 1999.
We anticipate that these funding sources will provide us with sufficient
capital to complete our terrestrial network and to implement our related
bandwidth services strategy. However, because the cost of developing our network
and implementing our bandwidth services strategy will depend on a variety of
factors, many of
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<PAGE>
which are beyond our control, including changes in the competitive environment
of our current and planned markets, we expect that our actual costs may vary
materially from those currently budgeted. In the event that our actual costs
exceed our current budget or we do not have the funds we anticipate, we have the
ability to adjust the number or sequence of segments we develop.
On September 9, 1999 we completed a private placement of our convertible
preferred shares for $345,000,000. See "Description of Our Recently Completed
Private Equity Placements." Of this amount, $45,000,000 was used to repurchase
certain of our shares held by an affiliate of our parent with the balance to be
used in the manner described below.
The plan described above does not include the Hibernia transatlantic fiber
optic cable project. We estimate the total cost of this project to be
approximately $850,000,000. We will use $300,000,000 of the proceeds from our
recently completed private equity placement to fund the equity portion of the
cost of construction of the Hibernia project. We currently expect that the debt
component of the total cost will be approximately $550,000,000, and we have
entered into a project financing commitment letter with Goldman Sachs Credit
Partners LP, DLJ Capital Funding, Inc. and Credit Suisse First Boston. Under the
project financing commitment, it is anticipated that the lenders will provide up
to $600,000,000 in debt financing to one of our subsidiaries, non-recourse to
Worldwide Fiber. See "Description of Other Indebtedness - Proposed Hibernia
Credit Facility"
We expect to pursue opportunities in addition to our planned network.
Accordingly, from time to time we may seek to raise additional capital in the
debt and/or equity capital markets prior to completion of our planned network.
We cannot assure you that we will be successful in raising the capital necessary
for the completion of construction for the remainder of our planned network
development, the implementation of our bandwidth services strategy, the Hibernia
project or for other opportunities on a timely basis or on terms that are
acceptable to us, or at all.
Impact of Year 2000
The Year 2000 problem impacts computer programs and hardware timers using
two digits (rather than four) to define the applicable year. We rely on our
computer systems and software applications in the operations and monitoring of
all major aspects of our business. Any of our computer programs that have
time-sensitive functions may recognize a date using "00" as the year 1900 rather
than 2000, which could result in miscalculations or system failures. A failure
of our computer systems, or those of Ledcor, major vendors, other material
service providers or customers, could have a material adverse effect on our
ability to develop our network and retain customers and on our ability to make
payment on the notes.
Risks of Year 2000 Issues
We can not reasonably estimate the extent to which we may experience Year
2000 problems. We are reviewing our potential exposure to the Year 2000 problem
in the course of our Year 2000 program. We have not experienced any problems to
date related to the Year 2000 problem.
Description of our Year 2000 Program
Our Year 2000 program began in 1997 while we were still a division of
Ledcor. We initiated a review of all computer related equipment and software.
This review encompassed all information and processing systems and related
equipment that were critical to the operations of our business. A list of
non-compliant equipment and software was developed and has resulted in the
replacement of certain equipment. This process was completed prior to the
commencement of our operations as Worldwide Fiber. The assets that were
transferred to us in the reorganization in May 1998 are, to the best of our
knowledge, Year 2000 compliant. Since we com-
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<PAGE>
menced operations in May 1998, we have required that all of our equipment
purchased be Year 2000 compliant. We are currently reviewing the work performed
by Ledcor and developing our own Year 2000 plan.
Our plan includes obtaining written confirmation from Ledcor concerning the
status of Year 2000 compliance of Ledcor systems that were transferred to us in
1998. We will also review and test all equipment that we currently use. This
project began in the first quarter of 1999 and is expected to be completed by
the end of November 1999. This review will not delay or eliminate any other
information technology or related programs that are performed in the normal
course of our business.
We will review and document the systems in use and determine the possible
affect on each system that would result from a systems failure due to the Year
2000 problem. The critical systems to be reviewed include, but are not limited
to: purchasing, payables, asset management, equipment management, payroll, sales
and receipts, management information systems, accounting and project management.
The review will include an inventory and testing of equipment that is critical
to the operations of our systems. Where testing is not possible, inquiry letters
will be sent to the suppliers in order to assess the Year 2000 status of their
systems. Significant suppliers will be contacted with a request for information
about their ability to provide services into the year 2000. The process is
expected to be complete by November 1999.
Any equipment or software that is determined to be non-compliant as a
result of this review will be replaced as it is identified. The projected cost
of the Year 2000 assessment project is not expected to be material because
substantially all of the systems we acquired since our commencement were Year
2000 compliant.
The extent to which our vendors, customers and service providers are Year
2000 compliant is not determinable at this time. We expect to receive
confirmations from these third parties before the end of September 1999 that
will allow us to determine the effect that any disruption of service will have
on our results of operations and financial position. We are developing a
contingency plan that will allow us to reduce or eliminate the disruption to our
business that a third party's noncompliance may cause.
State of Readiness
We are implementing the Year 2000 plan and we plan to achieve the following
goals:
Expected
Action Completion Date Status
- ----------------------------------------- -------------------- ----------------
Identification of critical systems July 1999 Complete
Inventory of equipment July 1999 Complete
Testing of equipment October 1999 In Progress
Request for confirmations November 1999 In Progress
Replacement or repair of equipment November 1999 Pending
Contingency Plans and Costs to Address Year 2000 Issues
We are currently developing plans, including a contingency plan, to assess
the likelihood of any Year 2000 issues and to address potential Year 2000
problems caused by a failure of our computer systems or the systems of Ledcor,
principal vendors, service providers and customers. These plans will include
increased staff awareness, advance preparation of invoices and payments and
backup of potential systems. Due to the relatively low number of transactions
processed by us, we will consider implementing a manual system for many
functions in the case of a failure of any of our systems.
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<PAGE>
We have expended $25,000 to date, and we expect to spend no more than an
additional $150,000 to complete our Year 2000 readiness efforts. We may,
however, have to bear costs and expenses relating to the failure of Ledcor,
principal vendors, service providers and customers to be Year 2000 compliant on
a timely basis. No material Year 2000 issues have been identified to date
relating to third parties. Therefore, we cannot reasonably estimate costs which
may be required for remediation or for implementation of our contingency plans.
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<PAGE>
BUSINESS
General
We are a provider of technologically advanced fiber optic communications
infrastructure in North America using our state-of-the-art fiber optic network.
We recently have begun marketing bandwidth services and intend to provide these
services by the end of the year. Our present and targeted customer group is
communications carriers, ISPs and large corporations with enterprise network
needs. In January 1999 we completed construction of the FOTS, a 5,068 route mile
fiber optic network development across Canada and the Northern United States.
Our interests include: (1) a 2,735 route mile segment (approximately 36,000
fiber miles) of the FOTS from Vancouver to Detroit, via Calgary, Winnipeg,
Minneapolis/St. Paul and Chicago and (2) an additional 2,333 route miles
(approximately 38,000 fiber miles) along the FOTS extending from Seattle to
Detroit and Edmonton to Toronto. In May 1999, we completed construction of the
segment of our network that extends from Seattle to Portland. Together this
fiber forms the initial backbone of our high-bandwidth fiber optic
communications network and related infrastructure in North America.
Our network is being developed to satisfy increasing demand for fiber optic
capacity for the transmission of data, voice and video generated by
high-bandwidth communications and the requirements of new entrants to the
telecommunications business. Our network consists of fiber optic strands
installed in protective conduit buried along diverse ROW and includes related
infrastructure such as regeneration shelters. In order to expedite completion of
our network, we install sufficient fiber along our builds to allow us to swap
fiber with other developers and carriers where we believe it is more economical
or time efficient to swap for, rather than construct, fiber assets. When
complete, our terrestrial network is expected to cover approximately 21,600
route miles in North America (comprising in excess of 1,000,000 fiber miles).
The anticipated terrestrial network footprint initially will include two primary
east-west routes and three primary north-south routes. In addition to our long
haul builds, we intend to build city rings to enhance the attractiveness of our
network. We are currently developing a 67-mile Seattle metropolitan network and
intend to build city rings in five additional cities: Toronto, Vancouver,
Montreal, Ottawa and Calgary. In addition, we are developing a 7,600 mile
transatlantic fiber optic system and have contracted with Tyco Submarine Systems
Ltd. for its construction.
We believe that our network's transmission capacity, route diversity,
national route design and connectivity, together with our status as an
independent developer and carrier's carrier, will enhance the marketability of
the network as a primary or redundant route. We believe the network will be
attractive to communications carriers, ISPs and large corporations with
enterprise network needs.
We plan to realize the value of the network through the sale, grant of
indefeasible rights-of-use ("IRU"), lease or swap of dark fiber strands and
conduit. The North American footprint of our network allows us to offer
customized products to our customers by providing fiber or conduit on a
segmented basis or throughout our entire network. We have commenced the process
of adding the necessary transmission equipment to enable us to provide bandwidth
services to carriers and other service providers along the route from Seattle to
Toronto via Vancouver, Calgary, Winnipeg, Minneapolis/St. Paul, Chicago and
Detroit. Beginning the first quarter 2000, we intend to install the necessary
transmission equipment to provide the services along multiple segments of our
network in North America. We have selected Nortel Networks, Newbridge Networks
and Fore Systems as major suppliers of transmission equipment. We may also swap
bandwidth, enter into joint ventures or purchase bandwidth to enhance the
connectivity of the network.
We generally reduce the capital risk necessary to build and develop the
network by pre-selling sufficient strands and conduit to cover approximately 50%
of our anticipated construction cost on a condominium or co-development basis.
We also exploit certain construction, technological and ROW expertise and
agreements. The "condominium" concept comes from the construction development
industry. Our condominium development strategy allows multiple participants to
purchase or lease fiber or conduit from an experienced developer
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<PAGE>
capable of delivering a pre-designed fiber optic system on schedule at a fixed
price. Generally, we install more fiber along any specific route than one
customer would typically install for its own use. Our condominium style of
development encourages participants to commit to purchasing or leasing fiber or
conduit during the initial stages of construction. If participants commit to a
build early enough, they may have more flexibility with regard to choice of
fiber and other infrastructure decisions. This development strategy reduces our
risk and may allow participants favorable pricing for fiber assets. To expedite
route development or decrease development risk, we may enter into co-development
or swap arrangements. Under a co-development arrangement, the co-developer funds
a portion of the project in exchange for receiving fiber or conduit assets or an
equity position in that segment.
We will continue to construct fiber optic networks for third parties on a
contract basis when a project will allow us to retain fiber or conduit assets,
including through IRUs. We plan to construct these networks only on routes that
complement and reduce the costs of completing our network or enhance our ability
to make a sale, grant of IRU, lease or swap of network capacity or the provision
of bandwidth services.
Network Construction Experience
We have been designing, engineering and constructing telecommunications
networks for 12 years, first as the telecommunications division of, and since
May 1998 as a separate subsidiary, of our parent, Ledcor. The FOTS was
originally engineered, designed and partly constructed by our predecessor. As
the successor to Ledcor's telecommunications division, we have acquired all of
its construction assets, certain fiber assets and construction contracts, its
management and personnel and the expertise gained from various
telecommunications network construction projects. In addition to the
construction and development of the FOTS, Ledcor, through its telecommunications
division, has a long history of successfully designing, engineering and
constructing networks for third parties. Ledcor's telecommunications division
has installed more than 10,000 route miles of telecommunications networks for
major telecommunications carriers. In the summer of 1996, Ledcor began its first
project as a developer of fiber optic networks by designing, engineering and
building a fiber optic network from Calgary to Edmonton. In addition to
retaining six fibers for its own account, Ledcor pre-sold the remaining fibers
on the project to Sprint Canada, AT&T Canada Corp. and fONOROLA, Inc.
Market Opportunity
The North American telecommunications industry has been characterized by
significant demand for high-bandwidth communications services. According to an
industry survey by The Yankee Group:
o voice and data telecommunications services revenue in the United
States is expected to grow at a compounded annual growth rate of
approximately 8%, from approximately $167 billion in 1997 to
approximately $241 billion in 2002,
o data telecommunications services revenue is expected to grow at a
compounded annual growth rate of approximately 26%, from approximately
$15 billion in 1997 to approximately $47 billion in 2002, and
o carriers' carrier telecommunications services revenue, which our
bandwidth services strategy is specifically intended to target, is
expected to grow at a compounded annual growth rate of approximately
60%, from approximately $1.2 billion in 1997 to approximately $12.3
billion in 2002.
Our network is designed to provide our customers with secure, independent
transmission facilities and sufficient capacity on a local, regional or national
basis to accommodate their increasing demand and plans for expansion. According
to The Yankee Group and other industry sources, growth in the high-bandwidth
telecommunications industry is expected to continue due to a number of factors,
which include:
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<PAGE>
o Innovations and advances in transmission technology. Technological
innovations are increasing both the supply of and demand for
high-bandwidth telecommunications transmission capacity while the
desire to obtain services from a reduced number of vendors and the
trend towards providing end-to-end digital services continue to drive
increased integration of voice, data and video services. Innovations
in optics technology have increased the capacity and speed of advanced
fiber optic networks while decreasing the cost of transmission,
allowing for continued growth in Internet usage and increases in the
number of network users. This increased capacity and speed has
resulted in the development of bandwidth-intensive applications. We
are developing our advanced fiber optic network to meet the increasing
demand for high-bandwidth capacity.
o Increasing demand for high-bandwidth applications, largely driven by
the increase in Internet traffic. There is and will continue to be a
significant growth in demand for Internet, long distance, local loop
data and video services. The increase in computer power and usage, as
well as the continued demand for and development of faster Internet
connection speeds, are driving significant increases in communications
use for Internet and data services. Prices for cellular services have
decreased, resulting in increased demand for these services. It is
expected that video conferencing, digital television and other
multimedia applications being developed will continue to increase
demand for bandwidth. We believe our high-bandwidth network is well
positioned to capture some of this growing demand.
o Deregulation of the telecommunications industry, which has resulted in
a proliferation of service providers. The telecommunications industry
continues to experience liberalization on a global basis. Although the
Federal Communications Commission ("FCC") has not granted any Regional
Bell Operating Companies ("RBOCs") the authority to provide in-region
inter-LATA telecommunications services and it is uncertain when it
will do so, the Telecommunications Act of 1996 has opened local
markets to competition and defined a path for the RBOCs to compete in
long distance markets. Our high-bandwidth platform allows both new
entrants to compete in this market and existing service providers to
expand into new markets. We believe our network will offer an
attractive alternative to network construction and ownership for these
carriers.
Business Strategy
Our strategy is to be a leading independent provider of technologically
advanced dark fiber and related infrastructure and high-bandwidth fiber optic
transmission capacity. The key elements of our business strategy include:
o Developing and building a technologically advanced fiber optic
network. The network is designed with the most advanced, commercially
available technology to provide the highest levels of reliability,
security and flexibility demanded by our customers. We intend to use
our fiber optic design, engineering and construction expertise to
enhance and broaden the desirability of our network.
o Maximizing route diversity and connectivity of the network. The
footprint of our network is designed with the input of our customers
and will connect many of the major population centers in North
America. We believe that route diversity and connectivity increase the
network's inherent value. We intend to participate in international
cable construction projects to expand the reach, connectivity and
attractiveness of our network. Further, our expanding footprint should
enhance the value of the network by enabling us to target a broad
range of customers by offering participation on a local, regional,
national or international basis.
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<PAGE>
o Reducing capital risks and creating low cost position. We generally
commence construction of a network segment when we have pre-sold
sufficient strands and conduit to cover approximately 50% of our
anticipated cost of that segment. In some segments, we may seek a
co-developer to fund a portion of the project in exchange for
receiving fiber or conduit assets or an equity position in that
segment. We believe that our network will have a low cost basis for
the following reasons:
-- as a result of our condominium development strategy, we generally
install 144 fibers (or a significantly higher number of fibers in
high demand areas), reducing the per fiber mile cost to construct
and operate our network,
-- we use a patented railplow to install fiber optic cable along
rail lines quickly and cost effectively,
-- we retain fiber assets for our own use along routes where we
complete third party construction, and
-- we believe that certain of our current ROW, licenses, permits and
franchises are, and others currently being negotiated will be,
valuable assets that would be costly and difficult for others to
procure or replicate in the future.
o Realizing value of the network. As an independent provider of fiber or
conduit, we believe that telecommunications carriers will be more
likely to purchase or lease facilities from us than from their
competitors that are telecommunications carriers or are affiliated
with one. We intend to realize the value of our network through:
-- sales, grants of IRU, leases on a short or long term basis, or
swaps of network assets, and
-- the provisioning of bandwidth services.
o Providing bandwidth capacity. We have commenced the process of adding
the necessary transmission equipment to provide bandwidth services to
carriers, ISPs and large corporations with enterprise network needs.
We also intend to offer our customers low cost bandwidth and the
flexibility to control their own service platforms so that they choose
to buy services from us rather than build these service capabilities
themselves or purchase them from another bandwidth provider.
o Allowing for technological upgrades and additional capacity. We
generally install at least one additional conduit along each segment
that we develop, allowing for network expansion and permitting
technological upgrades. Our network's optical design will enable us to
upgrade installed equipment or to add new technology to any segment of
the network.
o Capitalizing on management experience. We have assembled and will
continue to build a strong management team comprised of executives
with extensive experience in the design, engineering construction and
maintenance of fiber optic networks, general telecommunications
infrastructure and telecommunications bandwidth services. The
management team also has considerable experience in the development
and financing of growth stage international companies.
The Network
Our anticipated terrestrial network footprint includes: (1) a North
American long-haul fiber optic network and (2) city rings. Upon completion of
these builds, our network will cover approximately 21,600 route miles
(comprising in excess of 1,000,000 fiber miles). The footprint will consist of
the following:
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<PAGE>
o a North American long-haul fiber optic network including: (1) two
primary east-west routes, running from Vancouver to Halifax and
Sacramento to Boston, and (2) three primary north-south routes,
running along the West Coast, the Mississippi River valley and the
East Coast, and
o a series of city rings in Toronto, Vancouver, Montreal, Ottawa and
Calgary, in addition to the city ring currently under construction in
Seattle.
In addition, we plan to expand our network outside of North America and have
recently announced plans for our transatlantic fiber optic cable project.
We expect to complete the development of our network in 2001. Our policy on
major builds is to install an average of 144 fibers and three conduits. In high
demand areas, we may install 264 fibers or more and additional conduit in order
to meet projected demand. The additional fiber assets installed along our builds
enable us to swap fiber for fiber in other geographic areas both in the North
American market and internationally. Fiber swaps should allow us to complete the
network expeditiously and cost effectively by, among other things, reducing the
need and time required to obtain additional ROW.
Although the following table summarizes our current plans for completing
the terrestrial network, the segments, scheduled completion dates and proposed
participants/co-developers/swaps/joint ventures listed below may change due to
market and other circumstances, some of which may be beyond our control:
<TABLE>
<CAPTION>
Proposed Participant/
Estimated Co-developer/Swaps/Joint
Segment Route Miles Scheduled Completion Date Ventures
<S> <C> <C> <C>
Transcontinental FOTS:
Vancouver--Detroit 2,735 Complete fONOROLA
Edmonton-Toronto (Canadian 2,333 Complete fONOROLA
National Railway ROW)
Edmonton-Toronto (Canadian Pacific 2,050 Fourth Quarter 2000 Telus
Railway ROW)
West Coast Build:
Vancouver--Seattle 175 Third Quarter 2000 Telus
Call-Net
Qwest
Seattle--Portland 185 Complete Qwest
Call-Net
Metromedia
GST
Worldnet
Nextlink
Williams
Level 3
Edmonton--Vancouver 823 Fourth Quarter 2000 *
Portland--Sacramento 689 First Quarter 2000 GST
Metromedia
Level 3
FTV
Williams
Sacramento--Los Angeles 551 First Quarter 2000 GST
(to be acquired via swap)
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<PAGE>
Proposed Participant/
Estimated Co-developer/Swaps/Joint
Segment Route Miles Scheduled Completion Date Ventures
Los Angeles--San Diego 206 First Quarter 2000 GST
Level 3
Phoenix--San Antonio 1,084 Fourth Quarter 2000 *
Northeast Build:
Detroit--Toronto 273 Third Quarter 1999 Telus
AT&T Canada
CN
Toronto--Ottawa 364 First Quarter 2000 Telus
AT&T Canada
CN
Metronet
Ottawa--Montreal 119 Fourth Quarter 1999 Telus
AT&T Canada
CN
Montreal--Quebec City 153 Fourth Quarter 1999 Telus
AT&T Canada
CN
Montreal--Albany 245 Fourth Quarter 2000 *
Montreal--Toronto 404 Fourth Quarter 1999 Level 3
(redundant route)
Toronto--Buffalo 110 Fourth Quarter 1999 Level 3
Buffalo--Albany 200 Fourth Quarter 1999 Telus
Quebec City--Halifax 574 Fourth Quarter 2000 CN
Albany-Boston (to be acquired via 210 Second Quarter 2000 Williams
swap)
Albany--New York City (to be 290 Second Quarter 2000 Williams
acquired via swap)
East Coast Build:
New York--Washington DC 290 Fourth Quarter 1999 Metromedia
(to be acquired via swap)
Memphis--Atlanta 450 First Quarter 2001 *
Jacksonville--Miami (to be acquired 349 Second Quarter 2000 Qwest
via swap)
Miami-New Orleans (to be acquired 1,170 Second Quarter 2000 Qwest
via swap)
Central Build:
Chicago--New Orleans 1,120 Fourth Quarter 2000 IC
Mid-America Build:
Chicago--Omaha 549 Fourth Quarter 1999 Pathnet Inc.
Omaha--Denver 571 Fourth Quarter 2000 Pathnet Inc.
Denver--Sacramento 1,200 First Quarter 2001 *
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Proposed Participant/
Estimated Co-developer/Swaps/Joint
Segment Route Miles Scheduled Completion Date Ventures
Denver--New Orleans (to be acquired 1,300 Third Quarter 2000 *
via swap)
Intra-City Networks:
Seattle Ring 71 First Quarter 2000 Metromedia
Qwest
Level 3
GST
Toronto 100 Fourth Quarter 2000 *
Vancouver 100 Fourth Quarter 2000 *
Montreal 60 Fourth Quarter 2000 *
Ottawa 60 Fourth Quarter 2000 *
Calgary 60 Fourth Quarter 2000 *
----------
Total route miles 21,612
==========
</TABLE>
- ---------------------------------------------------
(1) * We have begun discussions with potential third parties, but have yet to
finalize an agreement.
Future Network Expansion and Infrastructure Development
We believe there may be opportunities in the future to continue the type of
network development we are currently deploying in North America. In addition to
further North American development and our announced transatlantic fiber optic
cable project, future network development locations could include areas of
Europe, South America and Asia. We have developed our marine capability through
our activities as contract manager on the NorthStar submarine cable build from
Anchorage, Alaska to Pacific City, Oregon. We believe that these further
developments will enhance the connectivity and value of our network.
We believe that Hibernia represents an opportunity to connect our existing
North American terrestrial network to future European customers because it will
allow us to provide an undersea cable system link between and among Halifax,
Canada; Boston, Massachusetts; Dublin, Ireland, and Liverpool, England. Hibernia
is expected to be completed by the first quarter of 2001. On June 18, 1999, we
entered into a supply agreement with Tyco Submarine Systems Ltd. ("Tyco")
whereby Tyco will serve as the primary contractor for Hibernia. The initial
contract price is approximately $607 million. The Company has paid $60.7 million
in advance payments to Tyco.
We also believe there is an opportunity to operate, for multiple network
participants, carrier hotel facilities and other network infrastructure near
points-of-presence ("POPs") that are presently at or near capacity. Our parent,
Ledcor, currently constructs network infrastructure for us, including
regeneration shelters and access boxes. We believe our and our parent's
collective operations and construction expertise will enable us to develop
carrier hotel facilities.
Network Design and Infrastructure
Network Technology
The network uses state-of-the-art fiber optic strands which allow for the
high speed, high quality transmission of data, video and voice communications.
Fiber optic systems use laser-generated light waves to trans-
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mit data, video and voice in digital formats through ultra-thin strands of
glass. Fiber optic systems are generally characterized by large circuit
capacity, good sound quality, resistance to external signal interference and
direct interface to digital switching equipment or digital microwave systems. We
plan to install an average of 144 fiber optic strands on major builds throughout
the network. In high demand areas, we may install 264 fibers or more in order to
meet anticipated demand.
Each fiber optic strand is capable of transmitting significantly greater
bandwidth than traditional copper cables or older fibers. The advanced technical
operating characteristics of the network will enable us to provide
technologically advanced dark fiber to our customers at low cost by permitting
higher capacity transmission over longer distances between regeneration and
amplifier facilities than can be provided by less advanced fiber systems. Using
current dense wave division multiplexing ("DWDM") fiber optic transmission
technology, a single pair of fiber optic strands used in the network can
transmit up to 320 gigabits of data per second ("gbps"), the equivalent of
approximately 4.2 million simultaneous voice conversations.
We anticipate that continuing developments in compression technology and
multiplexing equipment will increase the capacity of each fiber optic strand,
providing more bandwidth carrying capacity at relatively low incremental cost.
Our network is compatible with the highest commercially available transmission
capacity, i.e., OC-192, and can accommodate advanced capacity-intensive data
applications such as Frame Relay, ATM, multimedia and Internet-related
applications. Our network will allow us to offer end-to-end fiber optic capacity
compatible with SONET Ring architecture. This design routes customer traffic in
either direction around its ring design, assuring that fiber cuts do not
interrupt service to network customers. Our network is also capable of
supporting DWDM.
Bandwidth Services Technology
The provision of bandwidth services requires optical and ATM-packet
switching technology. A backbone of DWDM optical equipment provides optical
services as well as the transport for the lower speed services that are
delivered on an ATM-packet switching technology.
Optical Technology
Our network's optical design will enable us to upgrade installed equipment
or to add new technology to any segment of the network. Our initial optical
platform will have a capacity of 32 wavelengths at 2.5 gbps or 10 gbps
expandable to 160 wavelengths within twelve months. We intend to utilize optical
ring protection devices where a customer requires redundant services.
ATM-Packet Switching Technology
We believe that most of our bandwidth services customers will use our
state-of-the-art high availability ATM layered architecture. The initial layers
will consist of high capacity core switches and a number of multi-service
platform ("MSP") switches located at each POP along the network.
The initial core switches will have a throughput capacity of 40 gbps and
network link speed of 2.5 gbps. We anticipate these switches will be upgradeable
to 10 gbps network links and total throughput capacity of 480 gbps at major POP
locations.
The core switches will provide:
o ATM customer link connections at speeds of 155 megabits of data per
second ("mbps") to 2.5 gbps,
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o network to network interface ("NNI") links to the MSP switches, and
o high speed private line services at 155 mbps, 622 mbps and 2.5 gbps.
The MSP switches will be linked to the core switch via redundant 622 mbps
ATM NNI connections. The initial MSP switches will have a capacity of 12 gbps
and may be upgraded to 50 gbps to meet customer requirements. These switches
will allow us to provide a wide range of voice and data services. The inherent
capabilities of the MSP will support the following services:
o low speed ATM at DS-3,
o private line services at DS-3, OC-1 and OC-3 (155 mbps),
o IP Internet connectivity,
o video services,
o transparent switched voice (64 kilobits of data per second ("kbps")),
o compressed switched voice (8-16 kbps),
o LAN interconnect,
o high speed Internet delivery via xDSL, and
o digital wireless services such as local multipoint communication
services.
Network Operations Center
Our Network Operations Center ("NOC") will be the human service connection
between our customers and the technology that ultimately delivers their
services. We are currently designing and plan to construct our NOC in Vancouver.
We intend to enter into an agreement with Nortel to provide redundant network
management services on a transitional basis. The NOC will allow us to provide
the following services:
o directing the repair efforts of cable restoration, optical and ATM
system repairs and maintenance,
o providing network management for the optical and ATM elements,
o providing POP and customer record management, and
o providing circuitry for customer and internal circuits.
We are using a design based on IP technology that will integrate all of the
alarm and monitoring of the network elements into an adaptive fabric to satisfy
our service level agreements. With this technology, access to the network
management layer is not restricted to the physical NOC as full operations
capabilities may be located at multiple locations. This allows us to extend
certain management services to our customers in a secure and reliable way.
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Network Construction
The network is designed to access areas of significant end user
telecommunications traffic, as well as the POPs of most interexchange carriers
("IXCs") and the principal incumbent local exchange carrier ("ILEC") central
offices in each city on the network, in a cost-efficient manner.
Upon commencement of the development of a network segment, our development
staff is responsible for obtaining the necessary permits and ROW. In certain
jurisdictions, a construction permit is required. We strive to obtain ROW on
favorable terms that afford us the opportunity to expand the network as business
develops. ROW are typically leased or licensed under multi-year agreements with
renewal options and are generally non-exclusive. We obtain ROW from entities
such as railroads, pipeline owners, local government transit authorities,
municipalities, highway authorities, and other utilities.
We establish general requirements for the design of each segment of the
network. In-house or external engineers render drawings of the contemplated
segment and the required deployment. Construction and installation may be
completed by us or provided by independent subcontractors. Our personnel provide
project management services, including contract negotiation, construction, and
testing and certification of all facilities. The construction period for a
segment varies, depending upon the number of route miles to be installed.
Testing and delivery of a new segment typically takes place within 30 days of
the completion of construction.
Our network installation process along railroad ROW combines traditional
railroad activities and modern engineering and building techniques. We generally
install conduit and fiber on railroad ROW with the patented railplow. When the
railplow is in use, a plow car travels along the railroad track and
simultaneously plows a slot to bury multiple conduit with approximately 42
inches of cover, buries a warning tape approximately one foot from the surface,
and returns the land to its original contour. A railplow can cover between five
and ten miles a day, depending on the availability of track time and the
severity of the terrain. Other loaders on rail carry the conduit and other
construction materials needed to construct the fiber route and are designed to
continuously feed supplies to the railplow. Installation of conduit and fiber
utilizing a railplow is completed by an installation team. The team may consist
of numerous specialized crews, such as a pre-rip crew, a plow crew, a cable
jetting crew, and a splicing crew. These crews, in aggregate, may include 60 or
more persons.
Ledcor developed the railplow because traditional plow trains are both
expensive to purchase or lease and inefficient when attempting to install fiber
on busy railroad routes where available track time comes in small blocks and on
relatively short notice. The plow train and supply cars frequently must travel
several miles down the route into sidings to permit regular railway traffic to
pass, during which time the fiber optic cable must be unrolled and then
re-rolled to avoid a splice. The railplow allows us to move on and off the
tracks on short notice. Each of Ledcor and us currently owns 50% of the common
shares of a holding company that owns the patent to the railplow and we have
received a commitment that a royalty-free, exclusive worldwide license to use
the railplow will be granted to us. In certain circumstances, our ownership of
this company would be subject to change and our license would become
non-exclusive. See "Transactions with Our Parent--Description of Reorganization
and Related Agreements."
For routes not using railroad ROW, we use tractor plows. Tractor plows are
tractor pulled plow vehicles equipped to plow trenches and install conduit.
Tractor plows also may be used in certain places along railroad ROW, depending
on space, availability of track time and other factors. These tractor plows
generally perform the same functions as railplows. Many of the skills developed
in connection with the installation of fiber optic cable along railways are
transferable to non-rail installations.
If fiber or conduit must be laid across a bridge or through a tunnel, we
typically place the conduit in a galvanized steel pipe that is attached to the
side of the bridge or along the tunnel floor or wall. When necessary to install
fiber or conduit under rivers or other obstructions, we use directional boring
techniques to bore small
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tunnels underneath the river or obstruction and feed the conduit through the
tunnel. Through our relationship with Michels Pipeline Construction Inc., an
industry leader in directional drilling, we believe we have a competitive
advantage over other builders lacking a high degree of directional drilling
expertise.
After the conduit has been buried (or attached to a bridge or tunnel), and
as a segment nears completion, the fiber optic cable is installed or "jetted"
through the conduit. We accomplish this through the use of access boxes that are
installed along the network at approximately four to five mile intervals. The
access boxes also allow us to make repairs, replace fiber and install additional
fiber. The access boxes typically contain an additional loop of fiber optic
cable to provide slack in the system to accommodate displacement, disruption or
movement of the conduit as a result of digging or excavation activities, floods,
earthquakes or other events. The presence of additional fiber optic cable
reduces the risk that the cable will be cut or broken.
We design and manufacture regeneration shelters that are installed along
our network at 40-75 mile intervals. These shelters are secure, climate
controlled structures with an individual compartment for each participant to
install its optical transmission equipment and related electronics.
The optical system electronics are installed in the shelter compartments
described in the preceding paragraph. Each route includes several spans that use
Optical Terminals at each end of the span and Optical Line Amplifiers,
regeneration shelters, and Optical Add/Drop between Optical Terminals. The
current generation of equipment may be upgradeable to 160 separate OC-192 (10
gbps) transponder channels per fiber, or 1.6 terabits per second ("tbps") of
capacity per fiber pair. Each linear route includes a redundant system for
reliability and maintenance. In the case of diverse parallel routes, one of the
parallel routes will include a redundant system for additional reliability and
system maintenance.
The ATM-packet switching elements use multiple, diverse or redundant
optical channels to connect the core switches together. A hierarchical source
routing protocol called Private Network--Network Interface ("PNN") has been
adopted to provide the scalability and restoration capabilities required to
deliver the highest levels of reliability and availability. With this
implementation we are able to utilize the redundant path between the switches to
deliver a secondary set of services that do not require the high reliability, or
may be scaled down in the event of a link or nodal failure.
Rights-of-Way
To implement our business plan successfully, we must obtain licenses and
permits from third party landowners and governmental authorities and complete
certain regulatory filings to permit us to install conduit and fiber. ROW are
generally non-exclusive. Where possible, we lease them under multi-year
agreements with renewal options. We may lease underground conduit and other ROW
from entities such as utilities, railroads, highway authorities, local
governments and transit authorities. ROW agreements and permits provide us with
a contractual interest and do not create an interest in land. See "Risk
Factors--Need for ROW."
In the ordinary course of business each build requires us to either obtain,
lease, cure (or condemn) ROW or design re-routes, on a daily basis. For example,
to complete the Seattle-Portland segment of the West Coast Build we obtained ROW
agreements and permits from more than 700 individual landowners and local
authorities. Many ROW will be obtained just prior to the arrival of crews and
contractors. Alternative ROW for certain route miles must be identified,
negotiated and obtained in the event that the original route cannot be secured.
It is also possible to obtain ROW in bulk. The majority of the ROW for the
FOTS was obtained from two Canadian railways. In June 1999, we announced
agreements with IC and CN which provide access to over 950 track miles in the
United States and 2,900 track miles in Canada which we believe will
substantially satisfy the ROW and permit requirements for the Central and
Northeast Builds. See "Description of IC and CN Agree-
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ments." We believe these ROW will be valuable to us, particularly with the
advantages of the railplow and the ROW's geographic location. The ROW obtained
from IC and CN may be subject to legal challenge. See "Risk Factors -- Need for
ROW."
Products and Services
In connection with the development of our network, we offer customers a
range of products and services which enable us to provide customized solutions.
Our products and services include:
Dark fiber and conduit for sale or grant of IRU. During the pre-development
and development stages of the network, we generally enter into contracts with
participants for the sale, lease or grant of IRUs for dark fiber or conduit
along one or more segments of the network. A typical contract for sale currently
provides for a sale price of $1,500 to $2,000 per fiber mile (depending on
geography and number of strands bundled together in the sale) and requires a
deposit upon execution of the contract. See "Risk Factors-Pricing Pressures."
Upon completion of the build, the participant is usually entitled to a short
period of time to test the system specifications and inspect the shelters and
other facilities (generally 15 to 20 days) prior to paying the balance of the
purchase price. In the case of a sale, title to the fiber or conduit passes to
the participant. An IRU is a long-term lease, usually of 10 to 20 years, with an
option period for the lessee to renew at lower rates. The present value of the
initial contract term and extensions of an IRU usually equates to the comparable
sale price per fiber mile, which amount is generally paid in full at
commencement of the IRU.
Dark fiber and conduit for lease. We lease dark fiber or conduit for a term
less than the period for which IRUs are typically granted. Leases are normally
structured with monthly payments over the term of the lease. We generally
realize a premium in lease pricing for bearing the risk that the lease will not
be renewed for the balance of the life of the asset.
Dark fiber and conduit for swap. We swap some of our excess fiber or
conduit with other developers and carriers for fiber assets along routes where
excess fiber assets exist and where we believe it is more economical or time
efficient to swap for, rather than construct, fiber assets.
Construction services supporting the development of our network. We are
continuing to construct fiber optic networks for third parties on a contract
basis. We focus on projects where we can retain fiber or conduit assets on
routes that complement and reduce the costs of completing the network or where
our construction services are connected to a sale of network capacity.
Bandwidth services. We have commenced the process of adding the necessary
transmission equipment to enable us to utilize the fiber installed on the
existing installed fiber routes to provide bandwidth services to carriers, other
service providers and large corporations with enterprise network needs along the
FOTS. Beginning the first quarter 2000, we intend to install the necessary
transmission equipment to provide the services along multiple segments of our
network in North America.
The services we intend to offer through our sale of bandwidth capacity
include:
Optical Transmission Services. DWDM technology in our network will allow us
to sell a customer exclusive long term use of a portion of the transmission
capacity of a fiber optic strand rather than the entire strand. We expect to be
able to derive up to 160 individual wavelength channels at either OC-48 or
OC-192 per fiber pair. A purchaser of a wavelength will install their own
switching and routing equipment and will have the choice of installing their own
protection equipment or use optical protection supplied as part of our service.
The following are the service highlights:
o transparent OC-48 under IRU or lease,
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o transparent OC-192 under IRU or lease,
o optical ring protection,
o linear routes available, and
o add/drop along route.
Private line services. We intend to offer fixed amounts of point-to-point
capacity across the network. We believe our service will have an advantage due
to a low price point and flexible commitment levels with higher reliability than
is currently available on traditional multiplexed services. We will offer these
services through the grant of IRUs or leases and will provide transparent
connectivity up to OC-12.
Virtual switching solutions. We intend to provide customers with voice
trunking services that can be configured for sale as minutes of use. These
services will enable these customers to originate and terminate long distance
telephone calls connecting to ILECs or to competitive local exchange carriers
("CLECs") with switched transport through our ATM network. Because we will be
able to offer these connections on an as needed basis we are able to offer
extremely competitive and flexible pricing. In addition, we will be able to
provide a simple bill to our customers. The services we intend to offer include:
o DS-1 to OC-3 structured services,
o DS-0 switching and billing for usage,
o transparent local interface,
o SS7 signaling transport, and
o advanced services, including compression.
Packet-based data services (IP Transport and ATM). We intend to provide
customers with variable capacity across our network to connect multiple service
locations into a single "Virtual Network" specific for each customer. Specific
packet-based services include ATM and IP transport.
ATM service will include the following service attributes:
o DS-3 to OC-48 interface rates,
o all 5 classes of ATM service: UBR, ABR, VBRrt, VBRnrt and CBR, and
o switched virtual circuits available on customer premises equipment
edge.
IP transport will include the following service attributes:
o protocol supports including PNN, ATM and packet over SONET,
o nodes in all major Internet-network access points, and
o IP voice and modem transport and distribution, including virtual
switching and compression.
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Sales and Marketing
Network
Our approach is to market to customers on a local, regional and national
basis. We market participation in segments of our network through personal
contacts and relationships with prospective customers, who consist primarily of
large telecommunications companies. Our current targeted customer base is
comprised of approximately 200 companies. We believe that we are known to most
of our target customer group and that we have good relations with them. Our
relationships are cultivated and maintained by a marketing and sales staff based
in 15 offices across North America. Most of our marketing and sales team have
prior industry experience with telecommunications companies such as MCI
Worldcom, Sprint, AT&T, Qwest and US West. In addition, as a result of our more
than ten years of experience in constructing fiber optic networks, our
management also has long standing relationships in the telecommunications
industry. We believe that relationships established by our sales team and
management result in interactive exchanges that help us to design and market our
network in response to the needs of our potential customers. We are also able to
identify potential participant and co-development customers who initially
approach us because of our reputation and experience in the design, construction
and development of fiber optic facilities.
Bandwidth Services
We commenced marketing our bandwidth services in the second quarter of 1999
to targeted customers through a number of focused direct sales methods. Our
strategy is to target customers who have a need for bandwidth services in areas
covered by those portions of our network on which we initially will be
installing transmission equipment. As this equipment is deployed across our
network, we expect that the number of our target customers will become larger
than for our network services. We will be marketing a broad and technically
advanced range of bandwidth products and services. Consequently, we are
developing a dedicated sales and marketing team with the necessary distinct
expertise. This team is expected to grow to 15 members by the first quarter of
2000 and will be located in offices throughout North America.
In addition to our direct sales efforts, contacts made when marketing our
network services identify highly qualified prospective bandwidth customers. We
also receive referenced introductions from our suppliers when bandwidth
requirements are identified while they are making customer contacts in the
process of doing their business. Our experienced sales team will qualify
potential customers from their personal contacts and direct sales efforts.
Customers
We are focused on providing our broadband fiber optic network and bandwidth
services to communications carriers, ISPs and large corporations with enterprise
network needs. Our targeted customers include a broad range of companies, such
as:
o ILECs,
o CLECs,
o ISPs,
o long distance companies (North American and international),
o RBOCs,
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o IXCs,
o multi-service operators,
o local multipoint distribution service providers, and
o large corporations with enterprise network needs.
Customers typically buy or lease fiber optic capacity with which they
develop their own communications networks or satisfy a need for redundant
capacity. The network provides such customers with a low-cost alternative to
building their own infrastructure or purchasing metered services from
communications carriers. Our customers can buy or lease fiber optic capacity on
a segmented basis or along our entire network.
As of September 30, 1999, we had finalized, or were in the final stages of
negotiating, agreements for the sale, lease or IRU of dark fiber or conduit with
approximately 30 communications carriers and owners of corporate networks. In
addition, we are currently in various stages of negotiating similar agreements
with a number of other potential customers. Described below are a number of our
arrangements with communications carrier customers.
GST. In August 1998, we entered into agreements with GST
Telecommunications, Inc. relating to the construction and marketing of a
multiple conduit fiber optic system between Portland and Sacramento and the
installation of one fiber optic cable. We will have a reciprocal maintenance
arrangement with GST during the term of the agreement. GST will receive
approximately 50% of the total fibers and will be entitled to use 50% of the
capacity of the regeneration facilities. We have a reciprocal two-year option to
exchange fiber assets with GST along specified portions of the network for fiber
assets owned by GST located in California.
In April 1999, we entered into an additional agreement with GST for the
design, engineering, construction and installation by them of a multiple conduit
fiber optic system between Mira Mesa and San Diego. Upon completion of this
segment we will receive approximately 50% of the total fibers and conduits and
be entitled to use the associated regeneration facilities. In addition, we
agreed to exchange with GST conduit from our Seattle city ring for segments of
GST's network route in Southern California.
Williams. In December 1998, we, together with GST as co-developer, entered
into a development agreement with Williams Communications, Inc. for the design,
engineering, construction and installation of a multiple conduit fiber optic
system between Portland and Sacramento which is expected to be completed in the
fourth quarter of 1999. The parties expect to enter into a maintenance agreement
in which we, together with GST, will agree to maintain the multiple conduit
fiber optic system.
Level 3. In December 1998, we entered into a construction services
agreement with Level 3 Communications, Inc. relating to the construction of a
multiple conduit fiber optic system between Montreal and Buffalo. In connection
with this agreement, we will be paid a fee and retain dark fiber on this build
through an IRU.
In February 1999, we entered into an agreement with Level 3 for the
construction and installation of a multiple conduit fiber optic system in the
greater Seattle area. In connection with this build, we will be paid a fixed fee
for each route mile, plus amounts for additional services and materials. In May
1999, we also agreed with Level 3, under a co-development agreement to design,
engineer, install and construct a multiple conduit fiber optic system between
Springfield, Oregon and Anderson, California.
Qwest. In February 1998, we entered into a participation agreement with
Qwest Communications International Inc. relating to the design and construction,
by us, of a multiple conduit fiber optic system, approximately 199 miles long,
between Seattle and Portland. In February 1999, we amended the agreement to add
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ditional city ring segments in the greater Seattle area. Qwest will pay us a
fixed fee per route mile, plus amounts for additional services and materials,
including the installation of additional fiber optic network infrastructure.
AT&T Canada. We have agreed to sell to AT&T Canada dark fiber and related
regeneration shelters within five segments of the network to be designed and
constructed by us. The five segments comprise approximately 1,100 route miles
and will be installed between Calgary and Edmonton, Detroit and Toronto, Toronto
and Ottawa, Ottawa and Montreal, and Montreal and Quebec City. The expected
completion date of these segments is December 1999. We will be responsible for
the operation and maintenance of the fiber optic cable and regeneration shelters
following completion.
Telus. We have agreed to grant an IRU to BCT. Telus Communications Inc.,
now known as "Telus", for dark fiber and related regeneration facilities within
a multiple conduit fiber optic system to be designed and constructed by us. The
approximately 175 mile long project will run from Vancouver to Seattle. We will
lease the dark fibers for a fixed price per fiber mile for the shorter of 25
years or the useful life of the assets, subject to renewal, and Telus will pay
additional amounts for its pro rata share of services and maintenance costs. The
expected completion date for the project is the third quarter of 2000. We will
be responsible for the operation and maintenance of the fiber optic cable system
and regeneration shelters for the duration of the lease.
In the second quarter of 1999, we entered into agreements with Telus for
the design and construction of multiple conduit fiber optic systems and sale of
dark fiber on segments from Edmonton to Toronto, from Detroit to Halifax through
Toronto, Ottawa, Montreal and Quebec City, and connecting segments from Toronto
to Buffalo, Albany and Montreal. Construction of the segments is scheduled to be
completed by December 2000. Telus has an option to acquire additional dark fiber
on segments from Calgary to Edmonton and Albany to New York City. For the route
which connects Detroit to Halifax, we will be responsible for the maintenance
and for the Edmonton to Toronto route, the parties have agreed on principles to
be included in the maintenance agreement.
Metromedia. We entered into an IRU exchange agreement with Metromedia Fiber
Network, Inc. in which Metromedia agreed to grant a multi-year IRU for dark
fiber in a segment between New York and Washington, DC. In exchange, we have
agreed to grant a comparable IRU to Metromedia in relation to segments from
Seattle to Portland, Portland to Pacific City and Albany to Montreal. We will
have a reciprocal maintenance arrangement with Metromedia during the term of the
IRUs.
Call-Net. A subsidiary of Call-Net Enterprises Inc. has agreed to purchase
conduit and related infrastructure running between Seattle and Portland which we
are designing and constructing. We completed construction in May 1999. We will
maintain the conduit and related infrastructure following completion.
Pathnet. In March 1999, we entered into a co-development agreement with
Pathnet, Inc. for the design, engineering, construction and installation by us
of a multiple conduit system, approximately 1,100 miles long, between Denver and
Chicago. The first segment, Chicago to Omaha, is scheduled to be completed in
1999 with the second segment, Omaha to Denver, scheduled to be completed by the
end of 2000. The parties expect to enter into a maintenance agreement in which
we will agree to maintain the multiple conduit system, including the portion of
the system to be held by Pathnet.
Suppliers
The principal components of our network are fiber optic cable and conduit,
which are purchased from third party suppliers. Fiber optic cable suppliers
generally require three to six months lead time for large orders, while conduit
is generally available on a spot basis from numerous suppliers. Although in the
past we have purchased cable from a single supplier, there are a number of
alternative suppliers from whom we regularly obtain quotes which are competitive
on price, delivery, and specifications.
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We purchase optical components and ATM-packet switches from third party
suppliers. Manufacturers generally require two to three months lead time for
both new systems and specific transponder cards. ATM switches and expansion
cards are generally available in four to eight weeks.
We purchase the optical components from a single vendor. A number of
alternative suppliers have been identified from which it would be possible to
purchase the optics required to complete a new system with only minor changes to
the design of the NOC. With respect to the provision of ATM switches, we have
adopted a dual supplier approach.
Competition
Fiber optic systems are currently under construction or development
throughout North America. The construction of these networks enables their
owners to sell or lease access to their networks to other communications
entities or large corporate or government customers. In addition, various
communications carriers already own fiber optic cables as part of their
communications networks. Accordingly, each of these parties could, and some do,
compete directly with us in the market for selling and leasing fiber capacity.
There are currently at least four principal long distance fiber optic
networks in North America. We are aware that others are planning networks that,
if constructed, could employ advanced technology similar to that of the network.
These competitors may also sell fiber to other carriers and thus compete
directly with us for customers.
Bandwidth services is an area that has seen a number of new entrants who
initially focus on the provision of bandwidth and other services on a wholesale
basis, promising independence from traditional or incumbent suppliers that
compete directly in the market at the retail customer level. In the recent past,
carriers such as Williams, Qwest, Global Crossing and Level 3, who initially
focused on the wholesale market, have entered the retail segment of the market,
or closely aligned themselves with a major retail service provider. These
companies continue to market wholesale services to their current customers while
also pursuing new customer opportunities.
We anticipate that competition for our bandwidth services will come from
the above companies as well as IXC and DTI, which have not entered the retail
market. We believe our competitive advantage will be our ability to enable our
customers to establish and maintain a strong competitive position in providing
services to their end users. We believe independence, services designed for the
wholesale market and simple billing systems will enable us to gain a significant
position in this market niche.
In the future, we may be subject to additional competition due to the
development of new technologies and increased supply of domestic and
international transmission capacity. The telecommunications industry is in a
period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity for
services similar to those provided by us. For instance, recent technological
advances permit substantial increases in transmission capacity of both new and
existing fiber, and the introduction of new products or emergence of new
technologies may reduce the cost or increase the supply of certain services
similar to those provided by us. We cannot predict which of many possible future
products and service offerings will be important to maintain our competitive
position or what expenditures will be required to develop and provide such
products and services.
Employees
As of August 31, 1999, approximately 700 full-time and seasonal people were
engaged in building the network. Depending upon the level of development or
construction activity, we will increase or decrease our work force. Generally,
non-management employees from Canada are covered by a collective bargaining
agree-
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ment with the Christian Labor Association of Contractors which expires on
February 28, 2000 and is automatically renewable unless either party gives prior
notice. We believe that our work force is highly capable and motivated and that
our relations with our employees are good. In connection with the construction
and maintenance of our fiber optic networks, we may use third-party contractors
to meet excess demand and harness local construction knowledge, some of whose
employees may be represented by other unions or covered by collective bargaining
agreements.
The provision of bandwidth services will require a team of highly skilled
technical and sales personnel. Under our current plan we anticipate requiring a
total staff of 35 persons in network operations, billing and sales support by
the end of 1999. Most of this staff will be located in Vancouver, with
additional offices in Denver, Toronto and Washington, DC. New staff will be
added to existing Worldwide Fiber offices throughout Canada and the United
States as the network expands into new service areas.
Properties
Our executive and administrative offices are located in Vancouver, British
Columbia. Our principal sales, engineering and operations offices are located in
Toronto and Denver.
Ledcor leases the Vancouver office premises to us under agreements that
expire in 2002. Ledcor owns the facilities (approximately 40,600 square feet) in
Toronto and makes it available to us. An additional 24,130 square feet in the
building in Toronto is leased by Ledcor to a number of tenants and will become
available to us from time to time if it is required. WFNI leases the space
(approximately 4,200 square feet) in Denver under an agreement that expires on
October 31, 2001. We also currently lease offices or property in Blaine, WA,
Vancouver, WA, Snohomish, WA, Portland, OR, Anderson, CA, Ankeny, IA and
Ramoulaod, Que. We also intend to open other regional offices related to
development and supervision of the network as required on a short-term basis.
Legal Proceedings
From time to time, we may be a party to various legal proceedings arising
in the ordinary course of our business.
Patents
The patent for the railplow is owned by a company which is 50% owned by
Ledcor and 50% owned by us. We have a non-exclusive license in North America for
the use of the railplow. Ledcor has committed to cause a worldwide exclusive
license to be granted to a subsidiary of ours. This license would cease to be
exclusive after a change of control of Worldwide Fiber. See "Transactions with
Our Parent--Description of Reorganization and Related Agreements--Railplow."
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MANAGEMENT
Directors and Officers
Our directors and executive officers are listed below:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
David Lede........................ 52 Chairman of the Board and Chief Executive Officer
Clifford Lede..................... 44 Vice Chairman
Larry Olsen....................... 50 Vice Chairman and Chief Financial Officer
Ron Stevenson..................... 47 President and Director
Stephen Stow...................... 45 Executive Vice President and Director
Jim Voelker....................... 46 Director
Glenn Creamer..................... 37 Director
Neil Garvey....................... 44 Director
Robert Gheewalla.................. 32 Director
Andrew Rush....................... 41 Director
William Ramsey.................... 48 Director and Treasurer
Lionel Desmarais.................. 46 Senior Vice President
</TABLE>
David Lede has served as Chairman and Chief Executive Officer since our
inception and as Chairman of the Board and Chief Executive Officer of Ledcor
Inc. since 1983. Mr. Lede has been with Ledcor for 31 years and, before becoming
Chairman of the Board and Chief Executive Officer of Ledcor, he held positions
such as President, Vice President, Operations Manager and Superintendent.
Clifford Lede has served as Vice Chairman since our inception and as Vice
Chairman and President and Chief Operating Officer of Ledcor Inc. since 1983.
Mr. Lede has been with Ledcor for 24 years and, before becoming President and
Chief Operating Officer of Ledcor, he held positions such as Vice President,
Operations Manager and Superintendent. Clifford Lede and David Lede are
brothers.
Larry Olsen has served as Vice Chairman and Chief Financial Officer since
our inception. Mr. Olsen is also a member of the Board and Executive Committee
of First Heritage Savings, a Canadian financial institution. Mr. Olsen was
previously involved in several international business ventures throughout Asia,
Australia and the Middle East. He has held the position of Managing Director,
Chief Executive Officer and Executive Chairman of Crownhampton International
Limited and Promet Petroleum and various other public and private companies
involved in several different industries including offshore oil petroleum and
exploration, offshore work vessels, high technology manufacturing, construction
development and marketing for major technology companies.
Ron Stevenson has served as President and a Director since our inception
and is a director of Ledcor Inc. Before joining us, Mr. Stevenson spent 28 years
with Ledcor. From 1989 to 1998, Mr. Stevenson was Senior Vice President of
Operations for Ledcor's telecommunications and civil divisions and was
responsible for construction and project development.
Stephen Stow has served as Executive Vice President, Corporate Development
and a Director since our inception. Mr. Stow previously served as a principal in
various venture capital activities. From 1992 to 1995, Mr. Stow was co-head and
Director of Corporate Finance for National Westminster Bank's Asian investment
banking operations.
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Jim Voelker joined us as an independent director in July 1999. Mr.
Voelker's career in telecommunications spans almost 20 years and includes
experience in many different segments of the industry in a variety of executive
positions. Before joining us, Mr. Voelker was most recently President of
NEXTLINK Communications Inc. He has also been Vice Chairman and Chief Executive
Officer of US Signal Inc., a director of Phoenix Network Inc., and Vice Chairman
of ALTS, the industry Association of Local Telephone Service providers.
Glenn Creamer recently joined us as a director. Mr. Creamer is a managing
director of Providence Equity Partners Inc. where he has served in that capacity
since its inception in 1996. Mr. Creamer is also a general partner of Providence
Ventures L.P. and a Vice President of Narragansett Capital Inc. Mr. Creamer is a
director of American Cellular Corporation, Carrier 1 International S.A.,
Celpage, Inc., Epoch Networks Inc., and Wireless One Network L.P.
Neil Garvey recently joined us as a director. Mr. Garvey is President of
Tyco Submarine Systems Ltd.'s Telecommunications Group. This group includes Tyco
Submarine Systems Ltd., Simplex Technologies Inc., The Rochester Corporation,
Tyco Printed Circuit Group, Transoceanic Cable Ship Company and Temasa. Before
being named President of Tyco's Telecommunications Group, Mr. Garvey was
president of Simplex Technologies, a subsidiary of Tyco International. Mr.
Garvey has also held positions including Vice President in the areas of Finance
and Marketing.
Robert Gheewalla recently joined us as a director. Mr. Gheewalla is Vice
President, Principal Investment for Goldman Sachs & Co. Mr. Gheewalla is also a
director of Diginet Americas, Group Telecom, Tunes.com, and North American
Railnet.
Andrew Rush recently joined us as a director. Mr. Rush has been a Managing
Director of DLJ Merchant Banking Partners, L.P. since January 1997. From 1992 to
1997 Mr. Rush was an officer of DLJ Merchant Banking Partners, L.P. and its
predecessors. Mr. Rush currently serves as a member of the advisory board of
Triax Midwest Associates, L.P., and as a member of the board of directors of
Societe d'Ethanpol de Synthese, Nextel Partners, Inc., and American Tissue Inc.
Mr. Rush previously served as a director of Doane Products Company.
William Ramsey has been with us since September 1998 with responsibility
for treasury functions. He was previously Chief Financial Officer, for 13 years,
of WIC Western International Communications Ltd., a publicly traded Canadian
broadcasting company.
Lionel Desmarais has served as Senior Vice President since our inception.
Before joining us, Mr. Desmarais spent 12 years with Ledcor. From 1993 to 1998,
Mr. Desmarais was Vice President for Ledcor's telecommunications division and
has been responsible for overseeing the successful execution of numerous
long-distance fiber optic networks, including the FOTS and the Calgary-Edmonton
network.
Executive Compensation
The total remuneration received by our officers and directors for their
services to us and our predecessor for the period from January 1, 1998 through
December 31, 1998 was approximately $1.7 million. We do not currently, and have
not in the past, set aside any amounts for pension, retirement or other similar
benefits for our directors and officers.
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TRANSACTIONS WITH OUR PARENT
Description of Reorganization and Related Agreements
Effective May 31, 1998, we entered into a series of agreements with Ledcor
to purchase the equipment, fiber optic strands and certain other assets related
to the business of Ledcor's telecommunication division. As part of the
Reorganization, we also entered into the Construction Services Agreements to
complete the FOTS. Effective August 31, 1998, Ledcor transferred to us their 50%
interest in WFI-USA and, on December 31, 1998, we increased our interest in
WFI-USA to 75%.
The material agreements we entered into with Ledcor in connection with the
Reorganization are described below.
Railplow
Effective May 31, 1998, the patent for the railplow which we use in
connection with the construction of our network was transferred to a subsidiary
of Ledcor ("Patent Co.") and we were concurrently granted a non-exclusive
license for its use. Effective December 1, 1998, one of our subsidiaries
acquired 50% of the shares of Patent Co. Ledcor has agreed to cause Patent Co.
to grant to us a royalty-free worldwide exclusive license for the use and other
exploitation of the plow technology. The license will cease to be exclusive six
months after a change of control of Worldwide Fiber. The Shareholders Agreement
relating to Patent Co. provides that Ledcor and our subsidiary have the option
to acquire the other party's shares of Patent Co. if the other party becomes
insolvent, bankrupt or subject to a change of control.
Management Services Agreement; Employee Services Agreements
We have entered into a Management Services Agreement and two Employee
Services Agreements with Ledcor. Under the Management Services Agreement, Ledcor
provides us with management staff and administrative and other support services.
We reimburse Ledcor for certain costs and pay a monthly fee of Cdn. $200,000
under the agreement. Under the Employee Services Agreements, Ledcor provides us
with personnel for the design, engineering, construction and installation of the
network and we reimburse Ledcor for the direct costs of these personnel. These
agreements are terminable at any time by either party. On January 1, 1999, the
personnel covered by the Employee Services Agreements, together with the
officers involved in our day-to-day management, became our employees.
Construction Services Agreements
We entered into Construction Services Agreements with Ledcor under which we
agreed to provide fiber optic network construction services to Ledcor and
fulfill Ledcor's fiber optic network construction commitments for certain
builds. We also agreed to procure the requisite insurance necessary for these
builds and perform all work in strict compliance with the appropriate contract
and applicable laws. In addition, we agreed to indemnify Ledcor for certain
losses, liabilities, damages and claims that may arise under the agreement. In
return, Ledcor will pay us an amount equal to costs incurred plus 15% of our
total costs. Either party may terminate this agreement at any time. Our
obligations under these agreements were complete by the end of January 1999.
Non-compete Agreement
Ledcor has agreed not to compete with us in the business of developing or
constructing fiber optic communications infrastructure for a period ending on
the earlier of May 31, 2008 and six months after a change of control of
Worldwide Fiber.
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Sale and Transfer Agreements
We entered into a series of agreements that transferred equipment and other
assets of Ledcor's telecommunications division including a minimum of 12 strands
of dark fiber along the FOTS.
Effective August 31, 1998, each of Ledcor and Mi-Tech Communications LLC
transferred their 50% interest in WFNI to WFI-USA, a newly-incorporated Nevada
corporation. In exchange, each of Ledcor and Mi-Tech acquired 50% of the common
shares of WFI-USA. At the same time, Ledcor exchanged with WFI-USA a promissory
note in the amount of $3,915,000 payable by WFNI to Ledcor for a promissory note
of the same face value payable by WFI-USA to Ledcor. In addition, Mi-Tech
exchanged with WFI-USA a promissory note in the amount of $7,231,230 payable by
WFNI to Mi-Tech for a promissory note of the same face value payable by WFI-USA
to Mi-Tech.
In a subsequent series of transfers, also effective August 31, 1998, Ledcor
transferred to us their shares of WFI-USA and the $3,915,000 promissory note
payable by WFI-USA to Ledcor. In exchange, we issued additional shares and a
promissory note of the same face value to Ledcor.
Acquisition of Fiber Optic Network Assets
On September 27, 1999, we concluded a transaction with affiliates of Ledcor
whereby we acquired certain fiber optic network assets in consideration of the
issue of 4,500,000 of our Class C Multiple Voting shares. Each Class C Multiple
Voting share entitles the holder to 20 votes per share. In addition, we assumed
certain rights and obligations of the affiliates under their build agreements
with a third party including obligations relating to the completion of those
builds and certain support structure, maintenance, license and access and
underlying rights obligations.
Background of Ledcor
Ledcor, established in 1947, is among the largest diversified construction
companies in Canada and has substantial experience as a construction contractor
in the United States. Ledcor's core business activities, in addition to the
activities of the telecommunications division, are pipeline and civil
construction and diversified contracting, including major commercial and
industrial buildings and industrial and mining projects. Ledcor reported
revenues of more than Cdn. $700 million for the fiscal year ended August 31,
1998 from all activities, with significant contribution from the
telecommunications division.
Ledcor began designing, engineering and constructing buried long distance
power generation and fiber optic telecommunications systems more than ten years
ago and has installed fiber optic cable networks on a contract basis for
numerous telecommunications companies, including Bell Canada (532 miles), MTS
Netcom Inc. (45 miles), AT&T (50 miles), AT&T Canada (227 miles), Alaska Fiber
Star (410 miles), Call-Net (200 miles), Bell Canada, AT&T Canada and Call-Net
(5,200 miles), Mi-Link Communications, LLC and Champlain Telephone (245 miles)
and World Net Communications Inc. (2,400 miles).
In 1996, Ledcor installed its first fiber optic cable as a developer
between the cities of Edmonton and Calgary, Alberta. Ledcor sold fiber strands
of this cable, on a "condominium" basis prior to construction, to Call-Net,
Sprint Canada and AT&T. After the successful completion of this project, Ledcor
began, as a developer, the FOTS, the first trans-Canadian fiber optic cable
network. To date, approximately 50% of the capacity on the FOTS available for
sale to third parties has been sold for an aggregate price of approximately Cdn.
$400 million to Bell Canada and AT&T Canada. Call-Net received a portion of
these proceeds as an owner of certain of these strands.
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The foundation of Ledcor's success and growth over the last 50 years has
been built on the strength of its dedicated people, ability to control costs and
its conservative but entrepreneurial approach to business. Ledcor believes it
has maintained an excellent reputation for the quality of its products and
services in its markets and enjoys substantial repeat business from major
customers.
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REGULATION
We do not believe our dark fiber offering is currently subject to extensive
regulation that would have a material adverse effect on our business, financial
condition, or operations. See "Risks Factors--Extensive Regulation." However, we
are part of an industry that is highly regulated by federal, state and local
governments whose actions are often subject to regulatory, judicial, or
legislative modification. In addition, to the extent that any bandwidth capacity
and lit fiber offerings are treated as private carriage, telecommunications
services or CLEC offerings in the United States, additional federal and state
regulation would apply to those offerings. Accordingly, there can be no
assurance that regulations, current or future, will not have a material adverse
effect on us.
United States
Federal
U.S. Federal regulation has a significant impact on the telecommunications
industry. Federal regulations have undergone major changes in the last two years
as the result of the enactment of the Telecommunications Act of 1996 (the "1996
Act") on February 8, 1996. The 1996 Act is the most comprehensive reform of the
U.S. telecommunications law since the Communications Act was enacted in 1934.
For example, the 1996 Act imposes a number of interconnection and access
requirements on telecommunications carriers and on all local exchange carriers,
including ILECS and CLECs.
The different ways we intend to offer fiber-optic supported services could
trigger four alternative types of regulatory requirements: (1)
non-communications services, (2) private carrier services, (3)
telecommunications services or common carriage, and (4) CLEC offerings. The law
establishing these alternative regulatory requirements is often unclear, so it
is impossible to predict in many instances how the FCC will classify our
services. Regulations associated with each type of offering are described below.
Non-communications Services
The provision of dark fiber can be viewed as a non-communications service
in that it is not a service, but rather the provision of a physical facility
that is indistinguishable from other non-communications offerings such as
constructing an office building. Many providers of dark fiber are currently
operating on the assumption that they are providing unregulated facilities.
Although the FCC attempted to regulate dark fiber as a common carrier service,
this position was vacated by the U.S. Court of Appeals for the District of
Columbia Circuit in 1994. The FCC has not addressed the issue since that time
and, thus, we believe that dark fiber is not regulated as a common carrier
service at this time. However, there is no assurance that the FCC, on remand,
may not take the position again that dark fiber offerings are subject to common
carrier regulation.
Private Carrier Services
Even if some of our offerings are treated as a communications service, they
could be viewed as a private carrier offering. Private carrier offerings
typically entail the offering of telecommunications, but are provided to a
limited class of users on the basis of individually negotiated terms and
conditions that do not meet the definition of a telecommunications service under
the 1996 Act. If our services are treated as private carriage, they are
generally unregulated by the FCC, but would be subject to universal service
payments based on the gross revenues from end users. See "Regulation--United
States--Federal--Telecommunications Service--Universal Service." Private
carriers may also be subject to access charges if interconnected to local
exchange carriers.
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Telecommunications Services
Some of our services, such as the provision of bandwidth capacity and lit
fiber, may be treated as telecommunications services by the FCC. If some of our
services are treated as telecommunications services a significant number of
federal regulatory requirements will be applicable to those services.
The law essentially defines telecommunications carriers to include entities
offering telecommunications services for a fee directly to the public or to
classes of users so as to be effectively available directly to the public,
regardless of the facilities used. "Telecommunications" is defined as the
transmission, between or among points specified by the user, of information of
the user's choosing, without change in the form or content of the information as
sent and received. For the reasons stated above regarding our belief that we are
not a common carrier, we also believe that we are not a telecommunications
carrier concerning our dark fiber offerings. The FCC has ruled that the term
"telecommunications carrier" is the same as the definition of common carrier
and, therefore, a company providing fiber facilities on an individualized and
selective basis, as we propose, is probably not a telecommunications carrier. A
decision to this effect has been appealed to federal court. A decision on this
appeal reversing or remanding the FCC's conclusion could require that our
services be treated as common carriage. In addition, certain railroad, power and
telecommunications associations--none of which are affiliated with us--have
petitioned the FCC to clarify the status of fiber providers in this regard. The
FCC's pending court remand, described above, might also address the application
of these requirements to us. If the FCC decides that these companies are
telecommunications carriers, we would be subject to certain regulatory
requirements which may impose substantial administrative and other burdens on
us.
If the FCC finds some of our services to be a telecommunications service,
we may be regulated as a nondominant common carrier. The FCC imposes regulations
on common carriers such as the RBOCs that have some degree of market power
("dominant carriers"). The FCC imposes less regulation on common carriers
without market power ("nondominant carriers"). Under the FCC's rules, we would
be a nondominant carrier and as such do not need authorization to provide
domestic services and can file tariffs on one day's notice. The FCC requires
common carriers to obtain an authorization to construct and operate
telecommunication facilities, and to provide or resell telecommunications
services, between the United States and international points.
General Obligations of All Telecommunications Carriers. To the extent that
any of our offerings are treated as telecommunications services, we would be
subject to a number of general regulations at the federal level that apply to
all telecommunications carriers, including the obligation not to charge
unreasonable rates or engage in unreasonable practices, the obligation to not
unreasonably discriminate in our service offerings, the need to tariff our
services, the potential obligation to allow resale of our services in certain
circumstances, and the fact that third parties may file complaints against us at
the FCC for violations of the Communications Act of 1934 or the FCC's
regulations. Certain statistical reporting requirements may also apply. In
addition, FCC rules require that telecommunications carriers contribute to
universal service support mechanisms, the Telecommunications Relay Service fund,
the number portability fund, and the North American Number Plan Administrator
fund.
Interconnection Obligations of All Telecommunications Carriers. All
telecommunications carriers have the basic duty to interconnect, either directly
or indirectly, with the facilities of other telecommunications carriers. This is
the minimum level of interconnection required and is generally viewed to impose
only minimal requirements as compared with the interconnection obligations
imposed on ILECs and CLECs described in the next section. All telecommunications
carriers must also ensure that they do not install network features, functions
or capabilities that do not comply with guidelines and standards established by
the FCC to implement requirements to ensure accessibility for individuals with
disabilities and to regulations designed to promote interconnectivity of
networks. These regulations could be burdensome or expensive and could adversely
affect us. The FCC adopted regulations recently that clarify these statutory
requirements.
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If the FCC takes the position that some or all of our fiber offerings are
subject to common carrier regulation, we nonetheless believe that we could
provide facilities in the United States. To do so we would be obligated to
obtain Section 214 authorization to provide fiber between Canada and the United
States and to disclose, among other things, the extent to which we are owned or
controlled by non-U.S. entities. However, FCC policy permits 100 percent direct
or indirect non-U.S. investment in common carriers that do not hold radio
licenses. Thus, we believe that we could obtain Section 214 authority to provide
international common carrier services despite our foreign ownership.
Nevertheless, compliance with these regulatory requirements may impose
additional administrative and other burdens on us that could have a material
adverse effect on our business, financial condition or operations.
Tariffs and Pricing Requirements. In October 1996, the FCC adopted an order
in which it eliminated the requirements that nondominant interstate
interexchange carriers maintain tariffs on file with the FCC for domestic
interstate services. The order does not apply to the switched and special access
services of the RBOCs or other local exchange carriers. The FCC order was issued
pursuant to authority granted to the FCC in the 1996 Act to "forbear" from
regulating any telecommunications services provider under certain circumstances.
After a nine-month transition period, relationships between interstate carriers
and their customers would be set by contract. At that point, long distance
companies would be prohibited from filing tariffs with the FCC for interstate,
domestic, interexchange services. Carriers have the option to immediately cease
filing tariffs. Several parties filed notices for reconsideration of the FCC
order and other parties have appealed the decision. On February 13, 1997, the
United States Court of Appeals for the District of Columbia Circuit stayed the
implementation of the FCC order pending its review of the order on its merits.
Currently, that stay remains in effect and interstate long distance telephony
companies are therefore still required to file tariffs. A requirement to file
tariffs could lead to regulation of our offerings at the federal level, although
the FCC's regulation of nondominant carriers' tariff filings has been minimal to
date. Competitive access providers do not have to file tariffs for their
exchange access services, but may if they choose to do so.
If the stay is lifted and the FCC order becomes effective,
telecommunications carriers will no longer be able to rely on the filing of
tariffs with the FCC as a means of providing notice to customers of prices,
terms and conditions on which they offer their interstate services. The FCC has
required that nondominant interexchange carriers post their rates, terms and
conditions for all their interstate, domestic services on their Internet web
sites if they have one; this rule is effective once its mandatory detariffing
order takes effect. The obligation to provide non-discriminatory, just and
reasonable prices remains unchanged under the Communications Act of 1934.
Tariffs also allow a carrier to limit its liability to its customers, including
in connection with service interruptions. If tariffs are eliminated, we may
become subject to liability risks that we would have been able to limit through
tariff filings, and there can be no assurance that potential liabilities will
not have a material adverse effect on our results of operations and financial
condition and ability to meet our obligations under the notes. In addition, we
must obtain prior FCC authorization for installation and operation of
international facilities and the provision (including resale) of international
long distance services. We are considering whether to file tariffs for these
services and would have to file tariffs to the extent our international services
are treated as telecommunications services. There has been no proposal to
detariff international services.
With limited exceptions, the current policy of the FCC for most interstate
access services dictates that ILECs charge all customers the same price for the
same service. Thus, the ILECs generally cannot lower prices to some customers
without also lowering charges for the same service to all similarly situated
customers in the same geographic area, including those whose telecommunications
requirements would not justify the use of the lower prices. The FCC in 1999,
however, modified this constraint on the ILECs when they face specified levels
of competition, which permits them to offer special rate packages to certain
customers, as it has done in few cases, and other forms of rate flexibility. The
rules contemplate an increasing level of flexibility on a city-by-city basis as
competitors have facilities in place to compete for local exchange services in
those markets. Once such facilities attain 50% coverage the rules contemplate
only minimal regulation of carrier access offerings.
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Customer Proprietary Network Information. In February 1998, the FCC adopted
rules implementing Section 222 of the Communications Act of 1934, which governs
the use of customer proprietary network information by telecommunications
carriers. Customer proprietary network information generally includes any
information regarding a subscriber's use of a telecommunications service, where
it is obtained by a carrier solely by virtue of the carrier-customer
relationship. Customer proprietary network information does not include a
subscriber's name, telephone number, and address, if that information is
published or accepted for publication in any directory format. Under the FCC's
rules, a carrier may only use a customer's proprietary network information to
market a service that is "necessary to, or used in," the provision of a service
that the carrier already provides to the customer, unless it receives the
customer's prior oral or written consent to use that information to market other
services. The Court of Appeals for the Tenth Circuit recently invalidated the
FCC's rules with respect to how a carrier must obtain customer authorization for
the use of customer proprietary network information. The FCC is challenging this
court decision. In addition, the FCC recently relaxed a number of the
requirements it originally adopted, which gives some flexibility to carriers on
how to comply with these rules. These rules, either as adopted or as modified,
may impede our ability to effectively market integrated packages of services and
to expand existing customers' use of our services.
Universal Service. On May 8, 1997, the FCC released an order establishing a
significantly expanded federal universal service subsidy regime. For example,
the FCC established new subsidies for telecommunications and certain information
services provided to qualifying schools and libraries and for services provided
to rural health care providers. The FCC also expanded or revised the federal
subsidies for local exchange telephony services provided to low-income consumers
and consumers in high-cost areas. Providers of interstate telecommunications
services, as well as certain other entities, such as private carriers offering
excess capacity to end user customers, must pay for these programs. Our share of
these federal subsidy funds would be calculated based on end-user revenues. The
schools and libraries and rural health care support mechanisms are assessed
against interstate, international, and intrastate end-user revenues. Currently,
the FCC is calculating assessments based on the prior year's revenues and has
recently increased the size of the schools and libraries fund by 50 percent.
Assuming that the FCC continues to calculate contributions based on the prior
year's revenues, we believe that we will not be liable for subsidy payments in
any material amount during 1999 because we had no significant end user revenues
in 1998. With respect to subsequent years, however, we are currently unable to
quantify the amount of subsidy payments that we will be required to make or the
effect that these required payments will have on our financial condition. In the
May 8th order, the FCC also announced that it would revise its rules for
subsidizing service provided to consumers in high-cost areas. The FCC has
recently adopted the cost model which it will use to determine the subsidies
needed for high-cost areas. The FCC also established the mechanism which will be
used starting January 1, 2000 to determine the level of high cost support
non-rural carriers will receive. This decision is expected to increase the fund
by only a modest amount. In addition, the Court of Appeals for the Fifth Circuit
recently affirmed the FCC's universal service program in large part, except that
contributions must be based entirely on interstate and international services of
interstate carriers (except for carriers providing predominately international
services). This decision could substantially affect the level of contributions
depending on the jurisdictional nature of the services provided by a carrier.
Several petitions for administrative reconsideration of the original FCC order
are pending.
CALEA. We might incur significant expenses to assure that our networks
comply with the requirements of CALEA. Under CALEA, telecommunications carriers
are required to: (1) provide law enforcement officials with call content and
call identifying information pursuant to a valid electronic surveillance warrant
("assistance capability requirements"), and (2) reserve a sufficient number of
circuits for use by law enforcement officials in executing court authorized
electronic surveillance ("capability requirements"). To the extent that we
provide facilities-based services, we may incur costs in meeting both of these
requirements. In particular, regarding the assistance capability requirements,
the government is only required to compensate carriers for the costs of making
equipment installed or deployed before January 1, 1995 CALEA complaint. While
the telecommunications industry is attempting to negotiate legislative and
administrative changes to this reimbursement cut-off date, as it stands today,
we will be financially responsible for ensuring that our post-1995 equipment is
in compliance.
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Regarding the capacity requirements, the government will finance any necessary
increases in capacity for equipment installed or deployed prior to September 8,
1998, and we are responsible for paying for any necessary increases in capacity
for equipment installed or deployed after that date.
Wiring in Multi-tenant Buildings. The FCC recently instituted a proceeding
that could impose obligations on telecommunication carriers' obligation to
provide access to competitors or customers to their wiring located in
multi-tenant residential and business buildings. It is unknown at this time how
the FCC will rule in this proceeding so it is impossible to evaluate its impact
on our operations.
CLEC Offerings
It is unclear whether we would be viewed as a local exchange carrier with
respect to the provision of some of our services. A local exchange carrier is
defined as a provider of telephone exchange service, which is an interconnected
service of the character ordinarily furnished by a single exchange, covered by
the local exchange charge, or comparable service provided through a system of
switches, transmission equipment, or other facilities, or combination thereof,
by which a subscriber can originate and terminate a telecommunications service.
The full parameters of what carriers are classified as a CLEC have never been
fully defined by the FCC. We do not intend to operate as a CLEC. However, the
FCC may disagree with this position. If we are classified as a CLEC, obligations
described below that are applicable to CLECs would apply.
Interconnection Obligations. The 1996 Act is intended to increase
competition. The act opens the local services market by requiring ILECs and
CLECs, including us to the extent we are treated as a common carrier providing
local exchange service, to permit interconnection to their networks and
establishing obligations with respect to:
Reciprocal Compensation. Requires all ILECs and CLECs to complete
calls originated by competing carriers under reciprocal arrangements. The
prices charged by ILECs for terminating calls originated on a CLEC's
network must be based on a reasonable approximation of additional cost or
through mutual exchange of traffic without explicit payment.
Resale. Requires all ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or
conditions. In addition, ILECs are required to offer all retail
telecommunications services to other carriers for resale at discounted
rates, based on the costs avoided by the ILEC in the offering.
Interconnection. Requires all ILECs and CLECs to permit their
competitors to interconnect with their facilities. Requires all ILECs to
permit interconnection at any technically feasible point within their
networks, on nondiscriminatory terms, at prices based on cost (which may
include a reasonable profit). At the option of the carrier seeking
interconnection, collocation of the requesting carrier's equipment on the
ILEC's premises must be offered, except where an ILEC can demonstrate space
limitations or other technical impediments to collocation.
Unbundled Access. Requires all ILECs to provide nondiscriminatory
access to unbundled network elements (including network facilities,
features, functions, and capabilities) at any technically feasible point
within their networks, on nondiscriminatory terms, at prices based on cost
(which may include a reasonable profit). In response to the Supreme Court's
decision in AT&T v. Iowa Utilities Board that required the FCC to
reconsider which elements should be unbundled, the FCC has adopted an order
on remand that affirms its original decision in all significant respects.
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Number Portability. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
local exchange carrier to another.
Dialing Parity. Requires all ILECs and CLECs to provide
nondiscriminatory access to telephone numbers, operator services, directory
assistance, and directory listing with no unreasonable dialing delays. They
must also provide dialing parity for inter-LATA services and for intra-LATA
toll services. LECs are required to implement dialing parity for intra-LATA
toll services during 1999.
Access to Rights-of-Way. Requires all ILECs and CLECs to permit
competing carriers access to poles, ducts, conduits and ROW at reasonable
and nondiscriminatory rates, terms and conditions.
ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the state regulatory commission. Where an
agreement has not been reached, ILECs remain subject to interconnection
obligations established by the FCC and state telecommunication regulatory
commissions.
In August 1996, the FCC released a decision (the "Interconnection
Decision") establishing rules implementing the 1996 Act requirements that ILECs
negotiate interconnection agreements and providing guidelines for review of
these agreements by state public utilities commissions. On July 18, 1997, the
Eighth Circuit vacated certain portions of the Interconnection Decision,
including provisions establishing a pricing methodology and a procedure
permitting new entrants to "pick and choose" among various provisions of
existing interconnection agreements between ILECs and their competitors. On
October 14, 1997, the Eighth Circuit issued a decision vacating additional FCC
rules. The Supreme Court has reversed the Eighth Circuit's decision on the
pricing and "pick and choose" rules. The Eighth Circuit recently issued its
mandate to implement the Supreme Court's decision and established procedures for
deciding the remaining issues on appeal that were not addressed by the Eighth
Circuit or the Supreme Court. These regulations impose added obligations on
potential competitors of the company that we would not have to comply with if we
were not classified as a CLEC. To the extent that the FCC changes these
regulations to be less burdensome, we could face added competition from these
companies in the provision of our own services that could adversely affect us.
To the extent that carriers may obtain low-priced access to CLEC and ILEC
networks, this could reduce the demand for our fiber services. Changes to these
interconnection obligations that reduce the interconnection obligations of our
competitors could also adversely affect our business.
In addition, the FCC has the responsibility under the 1996 Act to determine
what elements of an ILEC's network must be provided to competitors on an
unbundled basis. In August 1999, the FCC required fiber to be offered as an
unbundled element. In addition, the FCC had previously allowed state commissions
to establish additional unbundling requirements, and some states have required
that ILECs unbundle fiber. These decisions to unbundle fiber may decrease the
demand for our offerings.
Other Federal Communications Requirements. CLECs are also subject to other
FCC filing requirements. Compliance with these obligations, individually and in
the aggregate, may cause us to incur substantial expenses. There can be no
assurance that these expenses will not have a material adverse effect upon our
results of operations and financial condition and our ability to meet our
obligations under the notes. CLECs may, but are not required to, file tariffs
for their interstate access services and these rates are regulated as previously
described for non-dominant carriers. See "Regulation--United
States-Federal-Telecommunications Services--Tariffs and Pricing Requirements".
However, the FCC recently issued a Notice of Proposed Rulemaking asking whether
it should regulate the terminating access changes of such providers.
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To the extent we provide interexchange telecommunications service, we are
required to pay access charges to ILECs when we use the facilities of those
companies to originate or terminate interexchange calls. The interstate access
charges of ILECs are subject to extensive regulation by the FCC, while those of
CLECs or non-CLECs are subject to a lesser degree of FCC regulation but remain
subject to the requirement that all charges be just, reasonable, and not
unreasonably discriminatory. With limited exceptions, the current policy of the
FCC for most interstate access services dictates that ILECs charge all customers
the same price for the same service. Thus, the ILECs generally cannot lower
prices to some customers without also lowering charges for the same service to
all similarly situated customers in the same geographic area. The FCC recently,
however, modified this constraint on the ILECs when specified levels of
competition from local exchange providers occur and permitted them to offer
special rate packages to certain customers, as it has done in a few cases,
permitted other forms of rate flexibility. The rules contemplate an increasing
level of flexibility on a city-by-city basis as competitors have facilities in
place to compete for local exchange services in those markets. Once such
facilities attain 50% coverage the rules contemplate only minimal regulation of
carrier access offerings. In two orders released on December 24, 1996, and May
16, 1997, the FCC made major changes in the interstate access charge structure.
The FCC removed restrictions on ILECs' ability to lower access charges and
relaxed the regulation of new switched access services in those markets where
there are other providers of access services. The May 16th order increased the
costs that price cap LECs recover through monthly, non-traffic sensitive access
charges and decreased reliance on traffic-sensitive charges. In the May 16th
order, the FCC also announced its plan to bring interstate access rate levels
more in line with cost. The plan will include rules that may grant price cap
LECs increased pricing flexibility if the ILEC demonstrates that it faces
increased competition (or potential competition) in relevant markets. The manner
in which the FCC implements this approach to lowering access charge levels could
have a material adverse effect on our ability to compete in providing interstate
access services. On appeal, the court upheld the FCC's May 16th order in a
decision issued on August 19, 1998.
Under the 1996 Act, RBOCs are currently prohibited from providing
inter-LATA telecommunication services until they can demonstrate that they have
opened their local markets to competition. To date, no RBOC has successfully
received FCC approval to provide inter-LATA telecommunication services. However,
certain RBOCs are reported to have made substantial progress in achieving
compliance with the requirements for such approvals and one or more RBOCs may
receive inter-LATA approval in some states within the next year. Bell Atlantic
in New York has filed for and may receive such approval by the end of 1999. In
anticipation of receiving inter-LATA approval, certain RBOCs have made
investment in fiber providers that compete with us, e.g., Qwest and Williams. If
regulators grant widespread inter-LATA approvals, we could be adversely affected
through added competition because of these regulatory approvals.
Reciprocal Compensation. All ILECs and CLECs must complete calls originated
by other carriers under reciprocal compensation arrangements. That is, the LEC
terminating a local call is entitled to payment from the LEC originating a call.
Charges assessed by the ILECs for terminating calls originated on a CLEC's
network must be based on a reasonable approximation of additional cost or
through mutual exchange of traffic without explicit payment. The FCC recently
determined that Internet traffic is interstate in nature, not local, and has
initiated a proceeding to determine appropriate carrier-to-carrier compensation.
At the same time, the FCC declined to overturn a multitude of state decisions
requiring ILECs to pay CLECs compensation for delivering Internet traffic to
ISPs. The FCC's decision is on appeal, and ILECs are expected to ask states or
federal courts to reverse the existing state determinations.
Regulation of Cable
The FCC has the responsibility under the Act Relating to the Landing and
Operation of Submarine Cables in the United States, 47 U.S.C. ss.ss. 34-39
("Cable Landing Act"), to issue licenses for the landing and operation of
submarine cables in the United States. The FCC routinely grants cable landing
licenses to applicants, similar to us, from WTO Member countries subject to U.S.
State Department approval. However, applicants must disclose the extent to which
they are owned or controlled by non-U.S. entities. Although the FCC retains
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the right to restrict foreign ownership of cable landing licenses that raise
national security concerns, it has not yet done so. We already hold one
submarine cable landing license and believe that the FCC is unlikely to restrict
our ownership of additional cable landing licenses despite our foreign
ownership. Nevertheless, there can be no assurance that the FCC would not deny,
or condition, any application by us to provide common carrier services. No later
than 90 days prior to construction of the cable, however, applicants for cable
landing licenses must also provide ownership information with respect to the
cable landing station. The FCC may restrict non-U.S. ownership of cable landing
stations to protect the national security of the United States. The construction
of new submarine cable systems is categorically excluded from environmental
processing rules.
State
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
entity from providing any interstate or intrastate telecommunications service.
In addition, under current FCC policies, any dedicated transmission service or
facility that is used more than 10% of the time for interstate or foreign
communication is generally subject to FCC jurisdiction rather than state
regulation.
Despite these prohibitions and limitations, telecommunications services are
subject to various state regulations. Among other things, the states may:
o require the certification of telecommunications service providers,
o regulate the rates of intrastate offerings and the terms and
conditions of both intrastate and certain interstate service
offerings, and
o adopt regulations necessary to preserve universal service, ensure the
continued quality of communications services, safeguard the rights of
consumers, and protect public safety and welfare. Accordingly, state
involvement in telecommunications services may be substantial.
In addition, state law may not recognize "private carriage" and, therefore,
even if certain of our offerings are treated as "private carriage" at the
federal level, they may be regulated as telecommunications or common carrier
services at the state level. The state regulatory environment varies
substantially from state to state. For example, our pricing flexibility for
products or services which are intrastate in nature may be limited by regulation
in some jurisdictions. In addition, in arbitrating interconnection agreements
under the 1996 Act between ILECs and their potential competitors, some state
commissions have considered whether fiber should be an unbundled network
element. The New York Public Service Commission determined that it would not
require NYNEX Corporation to provide fiber as an unbundled network element.
State commissions in Florida, Maryland, North Carolina, and Virginia have either
refused to require the ILECs to offer fiber to competitors or have stated that
the issue would be addressed at a later time. On the other hand, state
commissions in Illinois, Massachusetts, Arizona, Georgia, Minnesota, Ohio,
Oregon and Tennessee have found fiber to be a network element and required the
ILECs to offer it on an unbundled basis to CLECs. There can be no assurance that
these requirements, and the associated pricing methodologies, where applicable
will not reduce the demand for our offerings.
Local
In addition to federal and state laws, local governments exercise legal
authority that may affect our business. For example, some local governments
retain the ability to license public ROW, subject, however, to the federal
limitation that local authorities may not prohibit entities from entering the
telecommunications market. Compliance with local requirements may delay and
increase the costs of our use of public ROW. Accordingly, these requirements
could impose substantial burdens on us.
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Canada
Companies that own or operate transmission facilities in Canada used to
offer telecommunications services to the public for compensation, are classified
as "telecommunications common carriers" ("TCCs") under Canada's
Telecommunications Act and, with the exception of telecommunications carriers in
the Province of Saskatchewan, are subject to the regulatory authority of the
Canadian Radio-television and Telecommunications Commission ("CRTC"), Canada's
federal telecommunications regulator. Unlike the dual jurisdictional arrangement
in the United States, there is no equivalent in Canada to U.S. state regulation
of telecommunications services. Consequently, both the local and long distance
operations of Canadian facilities-based telecommunications service providers are
subject to exclusive CRTC regulatory jurisdiction.
Historically, the Canadian telecommunications industry has been
characterized by a number of regionally-based ILECs. These regional companies,
who later evolved into the Stentor alliance of telephone companies, were the
sole facilities-based providers of both local and long distance telephone
services in Canada. Each incumbent telephone company, with the exception of Bell
Canada, effectively operated in a province (with BC TEL serving most of British
Columbia, TELUS Communications Inc. ("Telus") serving Alberta, SaskTel serving
Saskatchewan, MTS Communications Inc. serving Manitoba, Bell Canada serving most
of Ontario and Quebec, Maritime Tel & Tel Limited serving Nova Scotia, The New
Brunswick Telephone Company, Limited serving New Brunswick, NewTel
Communications Inc. serving Newfoundland and The Island Telephone Company
Limited serving Prince Edward Island).
In a series of decisions beginning in 1979, the CRTC has gradually opened
each telecommunications services market in Canada to competition, including the
private line voice and data markets in 1979, the enhanced and cellular services
markets in 1984, the domestic long distance voice market in 1992, the local
telephony market in 1997, and the international long distance and local pay
telephone markets in 1998.
The CRTC has the power to forbear from regulating the services of Canadian
carriers where it finds that a telecommunications service or class of service is
or will be subject to competition sufficient to protect the interests of users.
Some Canadian carriers, such as the ILECs, are classified by the CRTC as
"dominant" because of their market power and control over the supply of local
services and certain long distance services. Carriers classified as
"non-dominant" by the CRTC are subject to less regulation than dominant carriers
and include facilities-based long distance providers such as AT&T Canada and
Call-Net Technology Services Inc. and CLECs, such as MetroNet Communications
Group Inc. (now AT&T Canada). The CRTC has forborne from regulating the long
distance services, private line services, dedicated access services and local
switched telephony services provided by carriers that are not affiliated with
the ILECs. In December 1997, the CRTC also forbore from regulating discount long
distance services and certain private line services offered by the ILECs finding
them to no longer possess significant market power in these market segments.
We intend to retain fiber assets in our network which will be available for
sale, IRU or lease. To the extent that we engage in these activities,
particularly the provision of dark or lit fiber on a leased basis, we will be
subject to the provisions of the Telecommunications Act and to regulation by the
CRTC. However, in a 1995 decision, the CRTC concluded that telecommunications
services provided by non-dominant carriers should not be subject to extensive
regulation. We believe that all of the telecommunications services that we will
provide qualify under this decision as non-dominant carrier services. As such,
we do not believe that our operations in Canada will be subject to extensive
regulation by the CRTC. However, the CRTC's view as to the need for and extent
of regulation over non-dominant carriers may change.
As a result of a September 17, 1998 application by four IXCs, the CRTC is
considering reform of the current contribution regime. The CRTC's contribution
regime was originally established in 1992 as a means of ensuring that rates for
local residential telephone service remain affordable. Under the regime,
providers of certain types of long distance voice and data services are required
to pay a subsidy or "contribution" on each
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minute of traffic that is originated or terminated on local switched telephone
networks or on cross-border or overseas access circuits. These contribution
payments are pooled within each ILEC territory and are paid out to ILECs and
CLECs serving residential local customers, based on the number of residential
network access services they serve and the level of the subsidy available in the
rate band being served. On March 1, 1999, the CRTC initiated a proceeding to
consider possible reforms to the current contribution mechanism. In the public
notice that initiated the proceeding, the CRTC invited interested parties to
submit proposals on other mechanisms which could be used to collect
contribution. If the CRTC decides to adopt the approach advocated in the
application filed by the four IXCs, the current contribution regime would be
converted to a revenue-based regime under which contribution would be paid on a
percentage of a telecommunications service provider's revenues (regardless of
the types of services offered by the service provider), rather than on certain
types of telecommunications traffic.
We do not believe that our activities in Canada would be subject to the
requirement to pay contribution under the current contribution regime, except
with the possible exception of fiber which we may lease on a "lit" basis.
However, given that the current contribution regime is under review by the CRTC,
there can be no assurance that we would be exempt from the requirement to pay
contribution in the future, particularly if the CRTC decides to adopt a
revenue-based regime.
Under the Canadian ownership provisions of the Telecommunications Act, a
"Canadian carrier" is not eligible to operate as a Canadian telecommunications
common carrier unless it is Canadian-owned and controlled. Furthermore, no more
than 20% of the members of the board of directors of a Canadian carrier may be
non-Canadians, and no more than 20% of the voting shares of a Canadian carrier
may be beneficially owned by non-Canadians. In addition, no more than 33 1/3% of
the voting shares of a non-operating parent corporation holding a Canadian
carrier may be beneficially owned or controlled by non-Canadians and neither the
Canadian carrier nor its parent may be otherwise controlled in fact by
non-Canadians.
To the extent that we make available the retained fiber in our network in
Canada on an IRU or lease basis, we will be subject to the Canadian ownership
provisions of the Telecommunications Act. Although we believe that we are in
compliance with the relevant legislation, there can be no assurance that a
future CRTC determination or events beyond our control will not result in us
ceasing to comply with the ownership provisions of the Telecommunications Act.
Should this occur, our ability to operate as a Canadian carrier under the
Telecommunications Act could be jeopardized and our business could be materially
adversely affected.
On October 1, 1998, the CRTC issued Telecom Decision CRTC 98-17 ("Decision
98-17") which established a framework for competition in Canada's international
telecommunications services market to coincide with the Government of Canada's
decision to terminate the monopoly of Teleglobe Canada Inc. over
telecommunications facilities linking Canada to overseas destinations. In that
decision, the CRTC determined that a party acquiring an IRU interest in an
international submarine cable would not necessarily fall within the definition
of a telecommunications common carrier. As a result, acquirors of IRUs in
international submarine cables need not be Canadian-owned and controlled. We
believe that this determination by the CRTC will create greater opportunities
for foreign owned telecommunications service providers to purchase IRUs and
other types of wholesale bandwidth capacity in the Canadian portion of our
network. However, given the fact that the CRTC's findings in Decision 98-17 were
limited to IRU interests held in international submarine cables, as well as the
fact that IRU arrangements can involve various degrees of ownership and control
over fiber facilities, there can be no assurance that holders of IRUs acquired
in domestic fiber facilities, including those constructed by us, would be exempt
from the Canadian ownership provisions contained in the Telecommunications Act.
In addition to determining the status of IRU under the Telecommunications
Act, the CRTC made a determination in Decision 98-17 to eliminate Canada's
"bypass" rules, which had prohibited the routing of Canada-Canada and
Canada-overseas traffic through the United States. Effective October 1, 1998,
telecommunications service providers and users in Canada may route basic
telecommunications traffic which either originates or
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terminates in Canada through the United States. Given the fact that a decision
to bypass Canadian network facilities may be based on a variety of factors,
including, but not limited to, cost, technology, traffic patterns, and the
availability of suitable facilities, there is a risk that prospective customers
for segments of the network in Canada may choose to purchase, lease or obtain
IRU in dark or lit fiber in the United States rather than in Canada. There can
be no assurance that we will be able to attract and retain a sufficient number
of customers for the Canadian portions of our network, which could have a
material adverse effect on our business, financial condition and results of
operations.
On September 18, 1998, the Stentor alliance announced that, while it will
continue to coordinate national network management for the regionally based
ILECs, it will cease other joint initiatives in national product development,
marketing and other areas. We believe that the restructuring of the Stentor
alliance, the launch by Bell Canada of its national telecommunications company,
the merger of BC TELECOM Inc. and TELUS to create BCT.Telus and the merger of
ILECs in Atlantic Canada, indicate an intention on the part of Canadian ILECs to
compete in each other's traditional serving territories, which will create
increased opportunities for us in the Canadian carrier market.
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DESCRIPTION OF WFI-USA AGREEMENTS
On December 31, 1998, we increased our percentage shareholding in WFI-USA
from 50% to 75% under the terms of an agreement between, among others, Ledcor,
Michels, Mi-Tech, WFI-USA and us. To facilitate the purchase of the additional
25% interest, we funded the reimbursement by WFI-USA to Mi-Tech of a note for
shareholder advances in the aggregate amount of $10,188,230. A note for similar
advances by us in the amount of $3,915,000 was surrendered in exchange for the
issuance of additional shares of WFI-USA to us. We, Ledcor, Ledcor Industries
Inc., WFI-USA, WFNI, Mi-Tech and Michels entered into a shareholders agreement
(the "Shareholders Agreement") in which WFNI hired all Mi-Tech employees and
assumed all leases for facilities, office equipment and vehicles and other
obligations and liabilities of Mi-Tech, in each case located in Denver and
associated with the operations of WFNI. WFI-USA agreed to indemnify, release and
hold Mi-Tech harmless for any costs or liabilities related to these obligations
and agreements concerning these transactions.
Commitments of Michels and Us
Each of Michels and us have committed to support and assist WFI-USA in its
strategy to become a developer of fiber optic systems in the continental United
States. We will act as prime project construction manager for all projects of
WFI-USA, except to the extent that WFI-USA identifies an alternative source of
appropriate services local to the particular ROW to be developed for that
project. Any construction services provided by Michels or us to WFI-USA shall be
provided at a cost to WFI-USA equal to the actual cost of providing these
services plus 25%. Despite this commitment to support and assist, neither
Michels nor us will be required (1) to provide any services until WFI-USA has
used its best efforts to exhaust any and all other alternatives or (2) to
suspend or otherwise delay any work on any other project for any customer in
order to provide these services. Furthermore, Michels' and our respective
obligations to provide these services will be subject to the availability of
necessary personnel, equipment and supplies.
Exclusivity; Non-Competition
The parties to the Shareholders Agreement agreed that for a period of four
years, neither they nor their affiliates would compete directly with WFI-USA in
the continental United States, except for any segment which may be constructed
on ROW currently owned by CN or its subsidiaries, including IC.
Transfer of Shares; Put Option of Mi-Tech
The Shareholders Agreement restricts both Michels and us from selling,
transferring, assigning or otherwise encumbering or divesting any interest in or
control of WFI-USA to a third party. In addition, the Shareholders Agreement
provides for "tag-along" rights to Michels in the event of a sale by us of our
shares of WFI-USA. The Shareholders Agreement further provides that (1) in the
event of certain proposed transfers which would result in a change of control of
WFI-USA or (2) after the ten-year anniversary of the Shareholders Agreement,
Michels has the option to require WFI-USA to purchase all of the shares of
WFI-USA stock owned by Mi-Tech or its affiliates at the fair market value of the
shares. If Michels exercises the option described in (2) above, we can elect to
sell all of the shares or assets of WFI-USA whereupon WFI-USA will not be
required to purchase the shares. If we decide to sell WFI-USA in these
circumstances, the Shareholders Agreement contains certain provisions relating
to the price at which shares or assets of WFI-USA may be sold.
Additional Fiber Options
The Shareholders Agreement grants WFI-USA an option to purchase from
Mi-Tech 24 strands of dark fiber along the existing Montreal to Albany fiber
optic route owned by Mi-Tech and its affiliates. The Shareholders Agreement also
grants WFI-USA an option to purchase from us 24 strands of dark fiber along the
IC fiber optic build.
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Other Provisions
If we commence a public offering of our common stock having an aggregate
value of at least $20 million, Mi-Tech has the option to convert all (but not
part) of its shares of WFI-USA stock into shares of our stock to be offered in
that public offering. The number of shares that Mi-Tech and its affiliates would
receive in a conversion would be the pre-offering fair market value of their
ownership interest in WFI-USA, divided by the offering price per share of stock
in that offering. The pre-offering fair market value would be determined by a
single appraiser selected by WFI-USA and Mi-Tech. If they could not agree on a
single appraiser, WFI-USA and Mi-Tech would each select an appraiser and the
pre-offering fair market value would be determined by averaging the fair market
values assigned by the two appraisers. In connection with this conversion,
Mi-Tech will be granted certain registration rights as provided in the
Shareholders Agreement.
The Shareholders Agreement provides that the Board of Directors of WFI-USA
will initially consist of up to 10 directors, three of whom will be appointed by
Mi-Tech and the balance of whom will be appointed by us.
Funding Commitments
The Shareholders Agreement provides that we, or our affiliates will provide
the capital to fund WFI-USA's operations. Mi-Tech has retained an option to
contribute additional capital to WFI-USA to fund projects outside its scope of
business.
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DESCRIPTION OF IC AND CN AGREEMENTS
As of May 28, 1999, we formed, jointly with IC and CN, several subsidiaries
in which IC or CN own 25% equity interests. These subsidiaries are parties to
licenses of the ROW over which IC and CN operate their rail transportation
system.
Scope and Duration of License
Beginning May 28, 1999, IC and CN have granted some of our subsidiaries the
right to construct and operate fiber optic cable telecommunications facilities
upon almost all of the railroads' ROW. The licenses terminate on the first to
occur of May 28, 2059, the discontinuance by our subsidiaries of the use of the
facilities or upon the parties' mutual agreement.
Exclusivity
Generally, these licenses are exclusive, subject to (1) legal requirements,
(2) the rights of parties having existing telecommunications systems on the ROW
and (3) construction delays not having occurred. In addition, in some cases, and
subject to our right of first refusal, if either IC or CN receive an offer from
third parties to construct fiber optic telecommunications facilities on
specified portions of the ROW, that have not been previously designated as
portions on which we intend to construct, the railroads may grant a license to
such third parties.
Consideration
As consideration for the license, our subsidiaries have agreed to pay a
license fee for each facility equal to a per mile or per kilometer rate, as
applicable, multiplied by the length of the ROW upon which such facility is
constructed. This fee is payable from the cash flow relating to each such
facility, net of marketing, operations, maintenance, financing and other costs.
As additional consideration for the grant of the license, IC and CN were granted
equity in our subsidiaries and the subsidiaries have agreed to grant (for
railroad purposes only), (1) two strands of fiber optic cable along the entire
length of the facilities to major traffic centers to IC and (2) four strands of
fiber optic cable between Quebec City and Halifax to CN. At the request and
expense of the railroads, our subsidiaries will be required to light these
fibers.
Security Interest
In order to secure the license fee for each facility, our subsidiaries will
grant to IC or CN, as applicable, a first priority lien upon and security
interest in such facility and related property. No lien on any one facility will
secure the license fee owed on another facility. Furthermore, these liens are
subordinated to any security granted for project financing if (1) the aggregate
amount of the financing does not exceed 65% of the approved budgeted cost of
constructing the facility and (2) the project financing is provided on a
stand-alone basis, is not cross-collateralized and can not accelerate other
obligations of the subsidiary by cross-default.
Sublicensing
Our subsidiaries generally have the right to sublicense, and permit its
sublicensees to sublicense, all or portions of the facilities on the ROW to
third parties for a term of up to 40 years.
Equity Interests
IC and CN, as long as they own 10% of the respective subsidiaries described
above, have the right to appoint 25% of the members of each Board of the company
in which they hold their respective interest. Fur-
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thermore, modifying the bylaws, settling litigation, granting of security
interests and entering into contracts not in the ordinary course for more than
$100,000 are examples of some activities which require unanimous consent of IC
or CN or their representatives. We have also agreed to provide financing for the
construction of fiber optic cable facilities along the ROW or guarantee, to the
extent necessary, any project financing with respect to such construction. These
agreements also include customary provisions regarding the termination and the
transfer of equity interests, as well as provisions which grant IC and CN the
right and obligation to exchange their interests for shares in WFI in the event
that we make an initial public offering of our common stock. The number of
shares that IC and CN would receive in a conversion would be the pre-offering
fair market value of their respective ownership interests in the subsidiaries
described above, divided by the offering price per share of stock in that
offering.
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DESCRIPTION OF OUR RECENTLY COMPLETED
PRIVATE EQUITY PLACEMENTS
On September 9, 1999, we completed a private placement of our convertible
preferred shares for $345 million to affiliates of Tyco International Ltd. and
to Providence Equity Partners Inc., DLJ Merchant Banking II Inc. and GS Capital
Partners III, LP (collectively, the "Private Investor Group"). We will use $300
million of the proceeds from the equity placements to provide funding for our
subsidiary which is undertaking our Hibernia project while the balance of $45
million was used to repurchase certain of our shares held by an affiliate of our
parent, Worldwide Fiber Holdings Ltd. Concurrent with the completion of the
equity placements, we also reorganized our share capital.
Share Capital Reorganization
Our share capital now consists of four classes of shares: Class A
Non-Voting Shares; Class B Subordinate Voting Shares; Class C Multiple Voting
Shares and Preferred Shares. The Preferred Shares have been further divided into
three separate series of Preferred Shares: Series A Non-Voting Preferred Shares;
Series B Subordinate Voting Preferred Shares; and Series C Redeemable Preferred
Shares. Only the Class B Subordinate Voting Preferred Shares, Class C Multiple
Voting Shares and Series B Subordinate Voting Preferred Shares carry rights to
vote in all circumstances. In addition, while the Class B Subordinate Voting
Shares and Series B Subordinate Voting Preferred Shares carry one vote per
share, the Class C Multiple Voting Shares carry voting rights of 20 votes per
share. On September 27, 1999, 4.5 million of our Class C Multiple Voting Shares
were issued to affiliates of our parent in connection with our acquisition of
certain fiber optic network assets. See "Transactions with our Parent -
Acquisition of Fiber Optic Network Assets".
The Private Investor Group purchased Series A Non-Voting Preferred Shares.
Our parent, through its affiliates, presently holds shares which provides it
with over 99% of the votes attached to our shares. However, the Private Investor
Group was provided with certain supermajority rights in the shareholders
agreement (the "Shareholders Agreement") entered into concurrently with the
closing of the private equity placements.
Attributes of the Series A Non-Voting Preferred Shares
The attributes of the Series A Non-Voting Preferred Shares purchased by the
Private Investor Group, which are found in the share rights of our Articles of
Incorporation, include:
o The Series A Non-Voting Preferred Shares are convertible at the option
of the holder into Class A Non-Voting Shares on a one-for-one basis
provided that the conversion ratio will be adjusted upward by 6% per
annum if, by September 9, 2000, we have not completed an initial
public offering of $150 million at a price of at least 300% of the
Private Investor Group purchase price (a "Qualified IPO").
o The Series A Non-Voting Preferred Shares are convertible at our option
into Class A Non-Voting Shares at the same conversion ratio if a
Qualified IPO has occurred and in certain other circumstances.
o The Series A Non-Voting Preferred Shares are also convertible on a
one-for-one basis into Series B Subordinate Voting Preferred Shares
which are, in turn, convertible into Class B Subordinate Voting Shares
on the same terms upon which our Series A Non-Voting Preferred Shares
are convertible into Class A Non-Voting Shares.
o The Series A Non-Voting Preferred Shares which have not previously
been surrendered for conversion must be redeemed by us on November 2,
2009. We must redeem the Series A Non-Voting Preferred Shares at their
market price paid in (1) cash up to a set liquidation value and (2)
Class A Non-Voting Shares for any excess of market price over
liquidation value.
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o The holders of our Preferred Shares have anti-dilution protection
which is customary for convertible securities.
o The holders of our Preferred Shares receive a preference over other
classes of shares upon our liquidation, dissolution or winding-up.
The ability of the Private Investor Group to convert their Preferred Shares
into our shares which vote in all circumstances is also limited by the
provisions of the Shareholders Agreement as well as the "constrained share
provisions" contained in our share rights which are designed to ensure that we
will continue to comply with the foreign ownership restrictions under the
Telecommunications Act (Canada). In addition, under the terms of the Purchase
Agreement for the Series A Non-Voting Preferred Shares, additional anti-dilution
protection was provided to the Private Investor Group which is triggered upon
the issue of options to purchase our shares as well as upon the issue of our
shares to Michels, CN or IC in exchange for the transfer of their interest in
our subsidiaries. The Series A Non-Voting Preferred Shares represent a minority
of our shares on a fully-diluted basis.
Shareholders Agreement
In connection with the private placement to the Private Investor Group, we
entered into a Shareholders Agreement with the Private Investor Group, our
parent and its affiliate and our directors. The Shareholders Agreement generally
provides for:
o prescribed board of directors composition.
o "supermajority" rights with respect to prescribed matters.
o restrictions on the issue and conversion of our shares.
o other matters including restrictions on transferability.
Board of Directors Composition
Under the Shareholders Agreement, each of the four members of the Private
Investor Group is entitled to name one person to our Board of Directors and our
Board must consist of not more than 12 directors.
Supermajority Rights of the Private Investor Group
Until we complete an initial public offering of at least $150 million, we
must not undertake certain major transactions if three of the four members of
the Private Investor Group provide us with a notice of their election to
disapprove of that major transaction. Major transactions subject to the
supermajority rights include: mergers or other similar business combinations;
acquisitions or investments having a value greater than $200 million, a
significant change in the nature of our business; a sale of our assets outside
the ordinary course of business with a value of $100 million or more;
declaration of dividends or redemption or repurchase of shares; issuing shares
with an aggregate value of greater than $100 million; certain non-arm's length
transactions; amending our corporate charter; incurring indebtedness of $100
million or more; approval of our annual financing and capital plans; issuing our
shares below a threshold price; and terminating our senior officers.
Obligations Relating to Share Issuances and Conversion
Under the Shareholder's Agreement, there are a number of provisions which
impact our ability to issue shares. We cannot issue shares on a private basis to
a person who would then own more than 1% of our shares
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without that person agreeing to be bound by the Shareholders Agreement. Except
for certain "grandfathered" share issuances, until the holders of the Series A
Non-Voting Preferred Shares convert their shares to a non-Preferred share class,
our share issuances are subject to pre-emptive rights in favour of the holders
of the Preferred Shares. In addition, until the Telecommunications Act (Canada)
foreign ownership restrictions are amended, we may not issue any shares which
carry a right to vote in all circumstances except for certain grandfathered
share issuances. However, the holders of the Series A Non-Voting Preferred
Shares cannot convert into our shares which carry a right to vote in all
circumstances unless the foreign ownership restrictions in the
Telecommunications Act (Canada) are eliminated or concurrently with or after an
initial public offering of shares with voting rights of at least $150 million.
Additional Provisions
The Shareholders Agreement contains a number of provisions which limit the
transfer of our shares by all shareholders. These include an absolute
prohibition, subject to certain exceptions, on the transfer of shares during a
one year lock-up period, rights of first offer, tag along rights and bring along
rights. Finally, if we have not completed a Qualified IPO by September 9, 2003,
certain of the Private Investor Group may demand an auction of the Company.
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THE EXCHANGE OFFER
Purpose and Effect of Exchange Offer
We sold the old notes on July 28, 1999 to the initial purchasers, who
placed the old notes with certain institutional investors. We and the initial
purchasers entered into the registration rights agreement, concerning the
placement of the old notes, under which we agreed, for the benefit of the
holders of the old notes, that we would, at our sole cost, (1) within 90 days
following the original issuance of the old notes, file with the Securities and
Exchange Commission the exchange offer registration statement under the
Securities Act concerning an issue of a series of new notes of Worldwide Fiber
identical in all material respects to the series of old notes and (2) use our
best efforts to cause the exchange offer registration statement to become
effective under the Securities Act within 180 days following the original
issuance of the old notes. Upon the effectiveness of the exchange offer
registration statement, we will offer to the holders of the old notes the
opportunity to exchange their old notes for an equal amount of new notes, to be
issued without a restrictive legend and which may be reoffered and resold by the
holder without restrictions or limitations under the Securities Act. The term
"holder" concerning any note means any person in whose name the note is
registered on our books or any other person who has obtained a properly
completed bond power from the registered holder.
Terms of the Exchange Offer
Upon the terms and subject to the conditions described in this prospectus
and in the accompanying letter of transmittal (which together constitute the
exchange offer), we will accept for exchange old notes that are properly
tendered on or before the expiration date and not withdrawn as permitted below.
The term expiration date means 5:00 p.m., New York City time, on , 1999; but if
we, in our sole discretion, extend the period of time during which the exchange
offer is open, the term expiration date means the latest time and date to which
the exchange offer is extended. We may choose to extend the period of time
during which the exchange offer is open if we do not receive substantially all
of the old notes in the exchange offer.
As of the date of this prospectus, $500,000,000 aggregate principal amount
of old notes is outstanding. This prospectus, along with the letter of
transmittal, is first being sent on or about , 1999, to all holders of old notes
known to us. Our obligation to accept old notes for exchange under the exchange
offer is subject to certain customary conditions as described below under
"--Certain Conditions to the Exchange Offer."
We expressly reserve the right, at any time and from time to time, to
extend the period of time during which the exchange offer is open, and
therefore, to delay acceptance for exchange of any old notes, by giving oral or
written notice of an extension to the holders of the old notes as described
below. During the extension, all old notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any old
notes not accepted for exchange for any reason will be returned without expense
to the tendering holders of old notes as promptly as practicable after the
expiration or termination of the exchange offer.
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Old notes tendered in the exchange offer must be in denominations of $1,000
or any integral multiple of $1,000.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified below under "--Certain Conditions to the Exchange Offer." We will give
oral or written notice of any extension, amendment, non-acceptance or
termination to the holder of the old notes as promptly as practicable, the
notice in the case of any extension to be issued by a press release or other
public announcement no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
Procedures for Tendering Old Notes
If you are a registered holder of old notes you may tender your old notes
in the exchange offer. If you tender old notes to Worldwide Fiber as described
below, our acceptance of your old notes will constitute a binding agreement
between you and Worldwide Fiber upon the terms and subject to the conditions
described in this prospectus and in the accompanying letter of transmittal.
Except as described below, if you wish to tender old notes for exchange through
the exchange offer, you must transmit either (1) a properly completed and duly
executed letter of transmittal, including all other documents required by the
letter of transmittal, to HSBC Bank USA, the exchange agent, at one of the
addresses listed below under "Exchange Agent" on or before the expiration date
or (2) if you tender your old notes under the procedures for book-entry transfer
described below, you may transmit an agent's message to the exchange agent
instead of the letter of transmittal, in either case on or prior to the
expiration date. In addition, either
o certificates for the old notes must be received by the exchange agent
along with the letter of transmittal, or
o a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the old notes, if this procedure is available, into
the exchange agent's account at the Depository Trust Company (the
"Book-Entry Transfer Facility") under the procedure for book-entry
transfer described below, along with the letter of transmittal or
agent's message, must be received by the exchange agent before the
expiration date, or
o the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to the Exchange
Agent, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from you that you have received and agree to be bound by
the letter of transmittal and that Worldwide Fiber may enforce the letter of
transmittal against you.
The method of delivery of old notes, letters of transmittal or the agent's
message and all other required documents is at your election and risk. If you
mail these documents, we recommend that you use registered mail, properly
insured, with return receipt requested. Always allow sufficient time to assure
timely delivery. Do not send letters of transmittal or old notes to the company.
You may request your respective brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for you.
If your old notes are registered in the name of a broker, dealer,
commercial bank, trust company, or other nominee and you wish to tender your old
notes in the exchange offer you should contact the registered holder promptly
and instruct the registered holder to tender on your behalf. If you with to
tender on your own behalf, you must, before completing and executing the letter
of transmittal and delivering the old notes, either make appropriate
arrangements to register ownership of the old notes in your name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders") must be guaranteed (see "--Guaranteed
Delivery Procedures") unless the old notes surrendered for exchange are tendered
(1) by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the letter of transmittal or (2) for the account of an Eligible Institution (as
defined below). If signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, these guarantees must be by a
financial institution (including most banks, savings and loan associations and
brokerage houses) that is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Program or the Stock
Exchange Medallion Program
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(collectively, "Eligible Institutions"). If old notes are registered in the name
of a person other than a signer of the letter of transmittal, the old notes
surrendered for exchange must be endorsed by or be accompanied by a written
instrument or instruments of transfer or exchange in satisfactory form as
determined by us in our sole discretion, duly executed by the registered holder
exactly as the name or names of the registered holder or holders appear on the
old notes with the signature on it guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of old notes tendered for exchange will be determined by
us in our discretion, which determination shall be final and binding. We reserve
the absolute right to reject any and all tenders of any particular old notes not
properly tendered or the acceptance of which might, in our judgment or in the
judgment of our counsel, be unlawful. We also reserve the absolute right to
waive any defects or irregularities or conditions of the exchange offer as to
any particular old notes either before or after the expiration date (including
the right to waiver the ineligibility of any holder who seeks to tender old
notes in the exchange offer). Our interpretation of the terms and conditions of
the exchange offer as to any particular old notes either before or after the
expiration date (including the letter of transmittal and its instructions) shall
be final and binding on all parties. Unless waivered, any defects or
irregularities in connection with tenders of old notes for exchange must be
cured within a reasonable period of time as we shall determine. None of
Worldwide Fiber, the exchange agent or any other person shall be under any duty
to notify of any defect or irregularity of any tender of old notes for exchange,
nor shall any of them have any liability for failure to notify.
By tendering old notes for exchange, you represent to us that, among other
things:
o the new notes acquired through the exchange offer are being acquired
in the ordinary course of business of the person receiving the new
notes, whether or not this person is the holder, and
o that neither the holder nor the other person has any arrangement or
understanding with any person to engage or participate in a
distribution of the new notes.
If any holder or an other person is an affiliate, as defined under Rule 405
of the Securities Act, of us or is engaged in or intends to engage in, or has an
arrangement or understanding with any person to participate in, a distribution
of the new notes to be acquired through the exchange offer, the holder or the
other person (1) may not rely on the applicable interpretation of the staff of
the Securities and Exchange Commission and (2) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives new notes for its own
account in exchange for old notes, where the old notes were acquired by the
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 the new notes. See "Plan of Distribution." The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not have admitted that it is an "underwriter" within the
meaning of the Securities Act.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we will be considered to have accepted properly tendered old
notes for exchange when we have given oral or written notice of it to the
exchange agent.
For each old note accepted for exchange you will receive a new note having
a principal amount equal to that of the surrendered old note. Accordingly,
registered holders of new notes on the relevant record date for the first
interest payment date following the consummation of the exchange offer will
receive interest accruing from the most recent date of which interest has been
paid on the old notes or, if no interest has been paid, from
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July 28, 1999. Old notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the exchange offer. Holders whose old
notes are accepted for exchange will not receive any payment of accrued interest
on these old notes otherwise payable on any interest payment date for which the
record date occurs on or after the completion of the exchange offer. Old notes
not tendered or not accepted for exchange will continue to accrue interest from
and after the date of the completion of the exchange offer.
In all cases, issuance of new notes for old notes that are accepted for
exchange through the exchange offer will be made only after timely receipt by
the exchange agent of certificates for these old notes or a timely Book-Entry
Confirmation of these old notes into the exchange agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed letter of
transmittal and all other required documents or, in the case of a Book-Entry
Confirmation, an agent's message. If any tendered old notes are not accepted for
any reason under the terms and conditions of the exchange offer or if old notes
are submitted for a greater amount than the holder desires to exchange, those
unaccepted or non-exchanged old notes will be returned without expense to the
tendering holder of the notes or, in the case of old notes tendered by
book-entry transfer into the exchange agent's account at the Book-Entry Transfer
Facility according to the book-entry procedures described below, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of old notes by causing the
Book-Entry Transfer Facility under the Book-Entry Transfer Facility's procedures
for transfer. However, although delivery of old notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the letter of
transmittal or facsimile of it, with any required signature guarantees or an
agent's message instead of a letter of transmittal, and any other required
documents, must be transmitted to and received by exchange agent at the
addresses described below under "--Exchange Agent" on or before the expiration
date or the guaranteed delivery procedures described below must be complied
with.
Guaranteed Delivery Procedures
If a registered holder of the old notes desires to tender their old notes
and the old notes are not immediately available, or time will not permit the
holder's old notes or other required documents to reach the exchange agent
before the expiration date, or the procedures for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
o the tender is made through an Eligible Institution,
o on or before 5:00 P.M., New York City time, on the expiration date,
the exchange agent receives from the Eligible Institution a properly
completed and duly executed letter of transmittal or a facsimile of
it, and Notice of Guaranteed Delivery, substantially in the form
provided by us, by telegram, telex, facsimile transmission, mail or
hand delivery, setting forth the name and address of the holder of the
old notes and the amount of old notes tendered, stating that the
tender is being made by the delivery of the letter of transmittal and
guaranteeing that within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered old notes, in proper form for
transfer, or a Book-Entry Confirmation and any other documents
required by the letter of transmittal will be deposited by the
Eligible Institution with the exchange agent, and
o the certificates for all physically tendered old notes, in paper form
for transfer, or a Book-Entry Confirmation, and any other documents
required by the letter of transmittal will be deposited by the
Eligible Institution within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery.
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Withdrawal of Tenders
Tenders of old notes may be withdrawn at any time before 5:00 P.M., New
York City time, on the expiration date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the exchange agent at one of
the addresses described below under "--Exchange Agent." This notice of
withdrawal must specify the name of the person having tendered the old notes to
be withdrawn, identify the old notes to be withdrawn, including the principal
amount of the old notes, and, where certificates for old notes have been
transmitted, specify the name in which the old notes are registered, if
different from that of the withdrawing holder. If certificates for old notes
have been delivered or otherwise identified to the exchange agent, then before
the release of these certificates the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless the holder is an Eligible Institution in which case the guarantee will
not be required. If old notes have been tendered under the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn old notes and otherwise comply with the procedures
of the facility. We will determine all questions concerning the validity, form
and eligibility, including time of receipt, of the notices. This determination
will be final and binding on all parties. Any old notes so withdrawn will be
considered not to have been validly tendered for exchange and will be returned
to the holder of the old notes without cost to the holder, or, in the case of
old notes tendered by book-entry transfer into the exchange agent's account at
the Book-Entry Transfer Facility maintained with the Book-Entry Transfer
Facility for the old notes, as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn old notes may
be retendered by following one of the procedures described under "--Procedures
for Tendering Old Notes" above at any time on or before the expiration date.
Material Conditions to the Exchange Offer
Despite any other provisions of the exchange offer, and subject to our
obligations under the registration rights agreement, we shall not be required to
accept for exchange, or to issue new notes in exchange for, any old notes, and
may terminate or amend the exchange offer, if, at any time before the acceptance
of the new notes for exchange, any of the following events shall occur:
(a) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer;
(b) any change, or any development involving a prospective change, in
our business or financial affairs or any or our subsidiaries has occurred
which, in our sole judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the contemplated benefits of
the exchange offer to us;
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in our sole judgment, might materially impair our ability
to proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to us;
(d) any governmental approval has not been obtained, which approval we
shall, in our sole discretion, consider necessary for the completion of the
exchange offer; or
(e) the exchange offer will violate any applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission.
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The above conditions are for our sole benefit and may be asserted by us in
whole or in part at any time and from time to time in our sole discretion. Our
failure at any time to exercise any of the above rights shall not be considered
a waiver of any of these rights and these rights shall be considered ongoing
rights which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any of these old notes, if at the time
any stop order is threatened by the Securities and Exchange Commission or in
effect concerning the registration statement of which this prospectus is a part
or the qualification of the indenture under the Trust Indenture Act of 1939, as
amended.
The exchange offer is not conditioned on any minimum principal amount of
old notes being tendered for exchange.
Exchange Agent
HSBC Bank USA 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 listed below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests or Notices of Guaranteed Delivery should be directed
to the exchange agent addressed as follows:
HSBC Bank USA,
Exchange Agent
By Registered or Certified Mail:
HSBC Bank USA
140 Broadway, 12th Floor
New York, New York 10005-1180
Attention: Corporate Trust Department
By Hand or Overnight Courier:
HSBC Bank USA
140 Broadway, 12th Floor
New York, New York 10005-1180
Attention: Corporate Trust Department
Confirm by Telephone:
(212) 658-6425
Delivery of the letter of transmittal to an address other than one listed
above or transmission of instructions via facsimile other than as listed above
does not constitute a valid delivery of the letter of transmittal.
Resales of the New Notes
Based on positions of the Securities and Exchange Commission described in
Morgan Stanley & Co. Incorporated (available June 5, 1991) and Exxon Capital
Holdings Corporation (available July 2, 1993) and K-III Communications
Corporation (available May 14, 1993), and similar no-action letters issued to
third parties, we believe that the new notes issued in the exchange offer to a
holder in exchange for old notes may be offered for resale, resold and otherwise
transferred by any holder of old notes, except for a holder which is an
affiliate of Worldwide Fiber within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery provisions
of the Securities Act, if the new notes are acquired in the ordinary
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course of the holder's business and the holder is not participating, does not
intend to participate and has no arrangement or understanding with any person to
participate in the distribution of the new notes. We have not requested or
obtained, and do not intend to seek, an interpretive letter from the staff of
the Securities and Exchange Commission concerning this exchange offer, and
neither we nor the holders of notes are entitled to rely on interpretive advice
provided by the staff of the Securities and Exchange Commission to other
persons, which advice was based on the facts and conditions represented in the
letters. Although there can be no assurance that the staff of the Securities and
Exchange Commission would make a similar determination relating to the exchange
offer, the exchange offer is being conducted in a manner intended to be
consistent with the facts and conditions represented in these letters. If any
holder acquires new notes in the exchange offer to distribute or participate in
a distribution of the new notes, the holder cannot rely on the position of the
staff of the Securities and Exchange Commission described in the above no-action
and interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act concerning a secondary resale
transaction, unless an exemption from registration is otherwise available.
Each broker-dealer that receives new notes for its own account through the
exchange offer must acknowledge that it will deliver a prospectus concerning any
resale of these new notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer concerning resales of new
notes received in exchange for old notes where the old notes were acquired by
the broker-dealer as a result of market-making activities or other trading
activities, except for old notes acquired directly from us. We have agreed that,
for a period of 180 days following the completion of the exchange offer, we will
make this prospectus available to any broker-dealer for use with any of these
resales. See "Plan of Distribution." Under the registration rights agreement, we
are required to allow the broker-dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this prospectus concerning the
resale of the new notes.
Fees and Expenses
We will pay the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telephone or in person by our officers and regular employees and our
affiliates.
We have not retained any dealer-manager relating to the exchange offer and
will not make any payments to brokers, dealers or others soliciting acceptances
of the exchange offer. However, we will pay the exchange agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses relating to these services.
We will pay the cash expense incurred for the exchange offer. These
expenses include fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes through the exchange offer. If, however, certificates representing new
notes or old notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the old notes tendered, or if tendered old notes
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 exchange of old notes under the exchange offer, then the amount of these
transfer taxes, whether imposed on the registered holder or any other person,
will be payable by the tendering holder. If satisfactory, evidence of payment of
these taxes or exemption from payment of these taxes is not submitted with the
letter of transmittal, the amount of the transfer taxes must accompany the
tender of old notes.
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Accounting Treatment
The new notes will be recorded at the same carrying value as the old notes,
which is the principal amount as reflected in our accounting records on the date
of the exchange. Accordingly, we will recognize no gain or loss for accounting
purposes. The expenses of the exchange offer and the unamortized expenses
related to the issuance of the old notes will be amortized over the term of the
new notes.
Regulatory Approvals
We do not believe that we need to obtain any material federal or state
regulatory approvals concerning the exchange offer.
Transfer Taxes
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes except that holders who instruct us to register new notes
in the name of, or request that old notes not tendered or not accepted in the
exchange offer be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer tax on the
old notes.
Other
Participation in the exchange offer is voluntary and you should carefully
consider whether to accept the terms and conditions of the exchange offer. You
are urged to consult your financial and tax advisors in making your decisions on
what action to take concerning to the exchange offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered old notes under the terms of the exchange offer, we will have
fulfilled a covenant contained in the terms of the old notes and the
registration rights agreement. If you do not tender your old notes in the
exchange offer you will continue to hold these old notes and will be entitled to
all the rights, and limitations applicable to it, under the indenture, except
for the rights under the registration rights agreement, including rights to
receive Additional Interest, which by their terms terminate or cease to have
further effect as a result of the making and completion of the exchange offer.
All untendered old notes will continue to be subject to the restrictions on
transfer contained in the indenture and we do not currently anticipate that we
will register the old notes under the Securities Act. If old notes are tendered
and accepted in the exchange offer, the trading market, if any, for any
remaining old notes could be adversely affected. See "Risk Factors--Failure to
Exchange or Comply with the Exchange Offer--This will result in continuing
transfer restrictions or result in the inability to exchange."
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description the words "we",
"us", "ours" and "Worldwide Fiber" refer only to Worldwide Fiber Inc. and not to
any of its subsidiaries.
The old notes were, and the new notes will be, issued under an indenture
between Worldwide Fiber and HSBC Bank USA, as trustee. The terms of the new
notes are identical in all material respects to the old notes, except that the
new notes have been registered under the Securities Act and, therefore, will not
bear legends restricting their transfer and will not contain certain provisions
providing for an increase in interest on them under certain circumstances
described in the registration rights agreement, the provisions of which will
terminate upon the completion of the exchange offer. The terms of the Notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939 or the TIA.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture and registration rights agreement because they, and not this
description, define your rights as holders of the notes. Copies of the indenture
and registration rights agreement are available as described below under
"Additional Information."
Brief Description of the Notes
The notes:
o are our general unsecured obligations;
o are effectively subordinated in right of payment to all our existing
and future secured Indebtedness to the extent of the value of the
assets securing such Indebtedness and to all liabilities, including
trade payables, of our subsidiaries;
o are equal in right of payment to all our existing and future
unsubordinated, unsecured Indebtedness; and
o will be senior in right of payment to any of our future subordinated
Indebtedness.
The indenture will permit us to assume additional Indebtedness, including
secured Indebtedness.
We conduct substantially all of our operations through our subsidiaries. As
a result, we depend upon the cash flow of our subsidiaries to meet our
obligations, including our obligations under the notes. As of the Issue Date,
all of our subsidiaries will be "Restricted Subsidiaries." However, under the
circumstances described below under the caption "Certain Covenants--Designation
of Restricted and Unrestricted Subsidiaries," we will be permitted to designate
certain of our subsidiaries as "Unrestricted Subsidiaries." Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants in the
indenture. None of our subsidiaries will guarantee the notes.
Principal, Maturity and Interest
We issued old notes with a principal amount of $500.0 million. The notes
are and will be in denominations of $1,000 and integral multiples of $1,000. The
notes will mature on August 1, 2009. Additional Senior Notes (as defined below)
may be issued from time to time, subject to the limitations described under
"Certain Incurrence of Indebtedness and Issuance of Preferred Stock."
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Interest on the notes will accrue at the rate of 12% per year and will be
payable semiannually in arrears on February 1 and August 1, beginning on
February 1, 2000. We will make each interest payment to the holders of record of
notes on the immediately preceding January 15 and July 15.
Interest on the notes will accrue from the date the notes were originally
issued, if interest has already been paid, from the date it was most recently
paid. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to us, we will make all
principal, premium, if any, and interest payments on those notes in accordance
with those instructions. All other payments on the notes will be made at the
office or agency of the Paying Agent and Registrar within the City and State of
New York unless we elect to make interest payments by check mailed to the
holders at their address described in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the holders of the notes,
and we or any of our Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
holder to pay any transfer taxes and similar fees required by law or permitted
by the indenture. We are not required to transfer or exchange any note selected
for redemption. Also, we are not required to transfer or exchange any note for a
period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes, other than concerning the payment of Additional Amounts (as defined
below).
Optional Redemption
Before August 1, 2002, we may on any one or more occasions redeem notes in
an amount equal up to 35% of the sum of (a) the aggregate principal amount of
notes originally issued under the indenture and (b) the total amount of
Additional Senior Notes issued under the indenture at a redemption price of 112%
of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the redemption date, with the net cash proceeds of one or more
Qualified Equity Offerings; provided that:
(1) at least 65% of the sum of (a) the aggregate principal amount of notes
originally issued under the indenture and (b) the total amount of
Additional Senior Notes issued under the indenture remains outstanding
immediately after the occurrence of the redemption, excluding notes held by
Worldwide Fiber and our Subsidiaries; and
(2) the redemption must occur within 90 days of the date of the closing of the
Qualified Equity Offering.
Except according to the preceding paragraph or as described below under the
caption "Redemption for Changes in Canadian Withholding Taxes," the notes will
not be redeemable at our option before August 1, 2004.
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On or after August 1, 2004 we may redeem all or a part of the notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices,
expressed as percentages of the principal amount, described below plus accrued
and unpaid interest, if any, on the notes to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 1 of the years
indicated below:
Date Percentage
---- ----------
2004.......................................... 106.000%
2005.......................................... 104.000%
2006.......................................... 102.000%
2007 and thereafter........................... 100.000%
Redemption for Changes in Canadian Withholding Taxes
The notes will be subject to redemption, at our option, in the event we
become obligated to pay any Additional Amounts as a result of a change in the
laws or regulations of Canada or any Canadian Taxing Authority, or a change in
any official position regarding the application or interpretation of those laws
and regulations, which is publicly announced or becomes effective on or after
the Issue Date. Upon the occurrence of this kind of change, Worldwide Fiber may,
at any time, redeem all, but not part, of the notes at a price equal to 100% of
the principal amount of the notes, plus accrued and unpaid interest, if any, to
the redemption date. Worldwide Fiber will give written notice of the redemption
not less than 30 nor more than 60 days before the redemption date.
Payment of Additional Amounts
All payments made by or on behalf of Worldwide Fiber on or with respect to
the notes will be made without withholding or deduction for any Taxes imposed by
any Canadian Taxing Authority, unless required by law or the interpretation or
administration of withholding or deduction of Taxes by the relevant Taxing
Authority. If Worldwide Fiber or any other payor is required to withhold or
deduct any amount on account of Taxes from any payment made with respect to the
notes, Worldwide Fiber will:
(1) make the withholding or deduction;
(2) remit the full amount deducted or withheld to the relevant government
authority in accordance with applicable law;
(3) pay such additional amounts ("Additional Amounts") as may be necessary so
that the net amount received by each holder, including Additional Amounts,
after the withholding or deduction will not be less than the amount the
holder would have received if the Taxes had not been withheld or deducted;
(4) furnish to the holders, within 30 days after the date the payment of any
Taxes is due, certified copies of tax receipts evidencing the payment by
Worldwide Fiber;
(5) indemnify and hold harmless each holder, other than an Excluded Holder, for
the amount of (a) any Taxes paid by the holder as a result of payments made
on or with respect to the notes, (b) any liability, including penalties,
interest and expenses, arising from the notes or with respect to the notes
and (c) any Taxes imposed with respect to any reimbursement under (a) or
(b), but excluding the Taxes on the holder's net income; and
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(6) at least 30 days before each date on which any Additional Amounts are
payable, deliver to the trustee an Officers' Certificate stating the
amounts so payable and any other information necessary to enable the
trustee to pay the Additional Amounts to holders on the payment date.
Despite the above, no Additional Amounts will be payable to a holder for a
beneficial owner of a note (an "Excluded Holder"):
(1) with which Worldwide Fiber does not deal at arm's length (within the
meaning of the Income Tax Act (Canada)) at the time of making the payment;
or
(2) which is subject to the Taxes because of its being connected with Canada or
any province or territory of Canada otherwise than by the mere acquisition,
holding or disposition of notes or the receipt of payments under the notes.
Whenever there is a reference in the indenture to, in any context, the
payment of principal, premium, if any, redemption price, Change of Control
Payment, offer price and interest, or any other amount payable under or
concerning any note, this reference shall be considered to include a reference
of the payment of Additional Amounts to the extent that, in this context,
Additional Amounts are, were or would be payable on the note. Our obligation to
make payments of Additional Amounts shall survive any termination of the
indenture or the defeasance of any rights under the notes. For a discussion of
the exemption from Canadian withholding taxes applicable to payments under or
concerning the notes, see "Material United States and Canadian Income Tax
Considerations--Canada."
Mandatory Redemption
Except as described below under "--Repurchase at the Option of Holders,"
Worldwide Fiber is not required to make mandatory redemption or sinking fund
payments concerning the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require Worldwide Fiber to repurchase all or any part, equal to $1,000 or an
integral multiple of $1,000, of that holder's notes through the Change of
Control Offer. In the Change of Control Offer, Worldwide Fiber will offer a
Change of Control Payment in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest, if any, on the
notes to the date of purchase. Within 30 days following any Change of Control,
Worldwide Fiber will mail a notice to each holder, with a copy to the trustee,
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase notes on the Change of Control Payment Date specified
in the notice, under the procedures required by the indenture and described in
the notice. Worldwide Fiber will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations under the
Exchange Act to the extent these laws and regulations are applicable to the
repurchase of the notes as a result of a Change of Control.
On the Change of Control Payment Date, Worldwide Fiber will, to the extent
lawful:
(1) accept for payment all notes or portions of the notes properly
tendered under the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment plus accrued and unpaid interest, if any, on the notes for all
notes or portions of notes so tendered; and
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(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions of the notes being purchased by Worldwide
Fiber.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment plus accrued and unpaid interest, if any, on the notes
for these notes, and the trustee will promptly authenticate and mail, or cause
to be transferred by book entry, to each holder a new note equal in principal
amount to any unpurchased portion of the notes surrendered, if any; provided
that each new note will be in a principal amount of $1,000 or an integral
multiple of $1,000. Worldwide Fiber 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 provisions described above that require Worldwide Fiber to make a
Change of Control Offer following a Change of Control will be applicable whether
or not any other provisions of the indenture are applicable. Except as described
above concerning a Change of Control, the indenture does not contain provisions
that permit the holders of the notes to require that Worldwide Fiber repurchase
or redeem the notes in the event of a takeover, recapitalization or similar
transaction.
Worldwide Fiber's ability to purchase notes through a Change of Control
Offer may be limited by a number of factors. If Worldwide Fiber enters into one
or more Credit Facilities, as currently anticipated, the Credit Facility is
expected to prohibit Worldwide Fiber from purchasing any notes and is expected
to provide that certain change of control events concerning Worldwide Fiber
would constitute a default under the notes. In the event a Change of Control
occurs at a time when Worldwide Fiber is prohibited from purchasing notes,
Worldwide Fiber could seek consent to the purchase of notes or could attempt to
refinance the borrowings that contain this prohibition. If Worldwide Fiber does
not obtain this consent or repay the borrowings, Worldwide Fiber will remain
prohibited from purchasing notes. In this case, Worldwide Fiber's failure to
purchase tendered notes would constitute an Event of Default under the indenture
which likely would, in turn, constitute a default under the Credit Facility and
under the terms of the 1998 Notes. In these circumstances, any security granted
for the Credit Facility could result in the holders of notes receiving less
ratably than the lenders under the Credit Facility.
Worldwide Fiber will not be required to make a Change of Control Offer upon
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 described
in the indenture applicable to a Change of Control Offer made by Worldwide Fiber
and purchases all notes validly tendered and not withdrawn under the Change of
Control Offer.
The definition of 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 Worldwide Fiber and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require Worldwide Fiber to
repurchase the notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of Worldwide Fiber and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
We will comply with the requirements of Rule 14e-1 of the Exchange Act and
any other securities laws and regulations under the Exchange Act, if applicable
to the repurchase of notes concerning a Change of Control Offer.
Asset Sales
Worldwide Fiber will not, and will not permit any of its Restricted
Subsidiaries to, complete an Asset Sale unless:
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(1) Worldwide Fiber, or the Restricted Subsidiary, receives consideration at
the time of the Asset Sale at least equal to the fair market value of the
assets or Equity Interests issued or sold or otherwise disposed of;
(2) the fair market value is determined by Worldwide Fiber's Board of Directors
and evidenced by a resolution of the Board of Directors described in an
Officers' Certificate delivered to the trustee; and
(3) at least 75% of the consideration for the Asset Sale received by Worldwide
Fiber or the Restricted Subsidiary is in the form of cash or
Telecommunications Assets. For purposes of this provision, each of the
following shall be considered to be cash:
(a) any liabilities, as shown on Worldwide Fiber's or the Restricted
Subsidiary's most recent balance sheet, of Worldwide Fiber or any
Restricted Subsidiary, other than contingent liabilities and
liabilities that are by their terms subordinated to the notes, that
are assumed by the transferee of these assets under a customary
novation agreement that releases Worldwide Fiber or the Restricted
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Worldwide Fiber
or the Restricted Subsidiary from the transferee that are within 180
days converted by Worldwide Fiber or the Restricted Subsidiary into
cash, to the extent of the cash received in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Worldwide Fiber or the Restricted Subsidiary, as applicable, may apply the Net
Proceeds at its option:
(1) to permanently repay or retire
(a) secured Indebtedness of Worldwide Fiber, including Indebtedness under
Credit Facilities,
(b) Indebtedness of Worldwide Fiber that ranks equally with the notes but
has a maturity date that is before the maturity date of the notes, or
(c) Indebtedness of any Restricted Subsidiary of Worldwide Fiber, in each
case other than any Indebtedness owed to Worldwide Fiber or any
Restricted Subsidiary; or
(2) to acquire Telecommunications Assets.
Pending the final application of the Net Proceeds, Worldwide Fiber may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, Worldwide Fiber will
make an Asset Sale Offer to all holders of notes and all holders of other
Indebtedness that is pari passu with the notes containing provisions similar to
those described in the indenture concerning offers to purchase or redeem with
the proceeds of sales of assets to purchase the maximum principal amount of
notes and the other pari passu Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount plus accrued and unpaid interest, if any, on the notes to
the date of purchase and will be payable in cash. If any Excess Proceeds remain
after completion of an Asset Sale Offer, Worldwide Fiber may use these Excess
Proceeds for any purpose not otherwise prohibited by the indenture. If the
aggregate principal amount of notes and other pari passu
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Indebtedness tendered into the Asset Sale Offer exceeds the amount of Excess
Proceeds, the trustee shall select the notes and the other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by the
method as the trustee shall deem fair and appropriate.
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 before
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 that note shall state the portion of the principal amount of the note
to be redeemed. A new note in principal amount equal to the unredeemed portion
of the original note will be issued in the name of the holder of the note upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
Material Covenants
Restricted Payments
Worldwide Fiber will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of Worldwide Fiber's or any of its Restricted Subsidiaries' Equity
Interests, including, without limitation, any payment in connection with
any merger or consolidation involving Worldwide Fiber or any of its
Restricted Subsidiaries, or to the direct or indirect holders of Worldwide
Fiber's or any of its Restricted Subsidiaries' Equity Interests in their
capacity, other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of Worldwide Fiber or to Worldwide Fiber or
a Restricted Subsidiary of Worldwide Fiber;
(2) purchase, redeem or otherwise acquire or retire for value, including,
without limitation, in connection with any merger or consolidation
involving Worldwide Fiber, any Equity Interests of Worldwide Fiber or any
direct or indirect parent of Worldwide Fiber or any Restricted Subsidiary
of Worldwide Fiber, other than the Equity Interests owned by Worldwide
Fiber or any Restricted Subsidiary of Worldwide Fiber;
(3) make any payment on or concerning, 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 the Stated
Maturity of the notes; or
(4) make any Restricted Investment (all of these payments and other actions
described in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),
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unless:
(1) at the time of and after giving effect to the Restricted Payment, no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence of the Restricted Payment; and
(2) Worldwide Fiber would, at the time of the Restricted Payment and after
giving pro forma effect to the Restricted Payment as if the 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 under clause (1) or (2) of the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Worldwide Fiber and its Restricted Subsidiaries
after the Issue Date, excluding Restricted Payments permitted by clauses
(2), (3), (4), (6), (7), (8)(a), (9), (10), (11), (12) and (13), is less
than the sum, without duplication, of
(a) 50% of the Consolidated Net Income of Worldwide Fiber for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the Issue Date to the end of Worldwide
Fiber's most recently ended fiscal quarter for which internal
financial statements are available at the time of the Restricted
Payment, or, if the Consolidated Net Income for the period is a
deficit, less 100% of the deficit, plus
(b) 100% of the aggregate net cash proceeds received by Worldwide Fiber
since the Issue Date as a contribution to its common equity capital or
from the issue or sale of Equity Interests of Worldwide Fiber, other
than Disqualified Stock, or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Worldwide Fiber that have been converted into or
exchanged for the Equity Interests, other than Equity Interests, or
Disqualified Stock or debt securities, sold to a Subsidiary of
Worldwide Fiber, plus the aggregate net cash proceeds received by
Worldwide Fiber upon the conversion or exchange, plus
(c) 100% of the net reduction in Investments on and after the Issue Date,
resulting from payments of interest on Indebtedness, dividends,
repayments of loan or advances, or other transfers of property, but
only to the extent the interest, dividends, repayments or other
transfers of property are not included in the calculation of
Consolidated Net Income, in each case to Worldwide Fiber or any of its
Restricted Subsidiaries from any Person, including, without
limitation, from Unrestricted Subsidiaries of Worldwide Fiber, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(in each case, valued as provided in the definition of "Investments"),
not to exceed in the case of any Person the amount of Restricted
Investments previously made by Worldwide Fiber or any of its
Restricted Subsidiaries in the Unrestricted Subsidiary (after the
Issue Date) and in each case which was treated as a Restricted Payment
(other than the Restricted Payment that was made under the provisions
of paragraphs (1) through (13) below).
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date it is declared,
if at the date of declaration the payment would have complied with the
provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition of
any subordinated Indebtedness of Worldwide Fiber or of any Equity Interests
of Worldwide Fiber or any Restricted
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Subsidiary in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of Worldwide
Fiber) of, Equity Interests of Worldwide Fiber (other than Disqualified
Stock); provided that the amount of the net cash proceeds that are utilized
for the redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness of Worldwide Fiber with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; provided that the amount
of the net cash proceeds that are so utilized shall be excluded from clause
(3)(b) of the preceding paragraph;
(4) Investments made out of the net cash proceeds of a substantially concurrent
issue and sale (other than to a Subsidiary of Worldwide Fiber) of Equity
Interests (other than Disqualified Stock) of Worldwide Fiber; provided that
the amount of the net cash proceeds that are utilized for the Investment
shall be excluded from clause (3)(b) of the preceding paragraph;
(5) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of Worldwide Fiber under any management equity
subscription agreement or stock option agreement and the repurchase of
Equity Interests of Worldwide Fiber from employees, officers or directors
of Worldwide Fiber or any of its Restricted Subsidiaries or their
authorized representatives upon the death, disability or termination of
employment of the officers, directors and employees in an aggregate amount
not to exceed $1.0 million in any calendar year plus (a) the aggregate cash
proceeds from any issuance during the calendar year of Equity Interests by
Worldwide Fiber to employees, officers or directors of Worldwide Fiber and
its Restricted Subsidiaries and (b) the aggregate cash proceeds received by
Worldwide Fiber or any of its Restricted Subsidiaries from any payments on
life insurance policies in which Worldwide Fiber or any of its Restricted
Subsidiaries is the beneficiary with respect to any employees, officers or
directors of Worldwide Fiber or its Restricted Subsidiaries which proceeds
are used to purchase Equity Interests of Worldwide Fiber held by the
employees, officers or directors;
(6) Investments in Telecommunications Assets, provided that the aggregate fair
market value of the Investment, when taken together with all other
Investments made under this clause (6) (measured on the date each
Investment was made), does not exceed $15.0 million, and provided further
however, that either Worldwide Fiber or any of its Restricted Subsidiaries,
after giving effect to the Investments will own at least 20% of the Voting
Stock of the Person;
(7) Permitted Fiber Investments in Telecommunications Assets;
(8) Investments in any Unrestricted Subsidiary of Worldwide Fiber, if either
(a) the Investment is a Permitted Project Financing Investment or (b) the
aggregate fair market value of the Investment, when taken together with all
other Investments made under this subclause 8(b) (measured on the date each
Investment was made), does not exceed $20.0 million;
(9) Investments the payment for which consists exclusively of Equity Interests
(other than Disqualified Stock) of Worldwide Fiber;
(10) pro rata dividends or other distributions made by a Restricted Subsidiary
of Worldwide Fiber to minority stockholders (or owners of an equivalent
interest in the case of a Restricted Subsidiary that is not a corporation);
(11) an Investment in any Person the primary business of which is
Telecommunication Business in an amount not to exceed at any one time
outstanding 10% of the Adjusted Consolidated Cash Flow, if
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positive, accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the first full fiscal
quarter immediately following the Issue Date and ending on the last day of
the last fiscal quarter preceding the date of such Investment;
(12) other Restricted Payments in an aggregate amount not to exceed $20.0
million; and
(13) the repurchase of Equity Interests of Worldwide Fiber considered to occur
upon the exercise of stock options if the Equity Interests represent a
portion of the exercise price of the Equity Interests;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (2), (3), (4), (5), (8)(b), (10),
(11) and (12) above, no Default in the payment of interest on the notes or Event
of Default exists or would occur as a consequence thereof.
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 Worldwide Fiber or the Restricted
Subsidiary under the Restricted Payment. The fair market value of any assets or
securities that are required to be valued by this covenant shall be determined
by the Board of Directors whose resolution concerning the fair market value of
any assets shall be delivered to the trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $15.0 million. No opinion or appraisal shall be
required for any Restricted Payment made under clause (7) above. In any year in
which Worldwide Fiber makes one or more Restricted Payments, Worldwide Fiber
shall include in its compliance certificate to the trustee a certification
stating that all of the Restricted Payments are, or were, permitted by the
indenture and shall set forth the basis upon which the calculations required by
this "Restricted Payments" covenant were computed, together with a copy of any
fairness opinion or appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
Worldwide Fiber 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 any Indebtedness (including Acquired Debt), and Worldwide Fiber
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
Worldwide Fiber may incur Indebtedness (including Acquired Debt) and issue
Disqualified Stock and any Restricted Subsidiary may incur Acquired Debt, if
either:
(1) the Consolidated Leverage Ratio at the end of Worldwide Fiber's most
recently ended full fiscal quarter (the "Reference Period") for which a
consolidated balance sheet of Worldwide Fiber is available immediately
preceding the date on which the additional Indebtedness is incurred or the
Disqualified Stock is issued would have been less than 5.5 to 1.0,
determined on a pro forma basis, including a pro forma application of the
net proceeds therefrom, as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued at the beginning of the
Reference Period; or
(2) the Consolidated Capital Ratio at the end of the Reference Period would
have been less than 2.0 to 1.0, determined after giving effect to the
incurrence or issuance of the Indebtedness or Disqualified Stock and, to
the extent described in the definitions used in this prospectus, on a pro
forma basis, including, to the extent described in the definitions used in
this prospectus, a pro forma application of the net proceeds therefrom.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
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(1) the incurrence by Worldwide Fiber or any of its Restricted Subsidiaries of
Indebtedness under Credit Facilities or Permitted Vendor Facilities;
provided that the aggregate principal amount of all Indebtedness of
Worldwide Fiber and its Restricted Subsidiaries outstanding under all
Credit Facilities or Permitted Vendor Facilities after giving effect to the
incurrence (with letters of credit being considered to have a principal
amount equal to the maximum potential liability of Worldwide Fiber
thereunder) does not exceed an amount equal to $200.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied by Worldwide
Fiber or any of its Restricted Subsidiaries since the Issue Date to
permanently repay Indebtedness under a Credit Facility under the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales";
(2) the incurrence by Worldwide Fiber and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by Worldwide Fiber of Indebtedness represented by the notes
and the Series B Notes;
(4) the incurrence by Worldwide Fiber or any of its Restricted Subsidiaries of
Purchase Money Indebtedness and Vendor Financing Indebtedness provided (A)
that the amount thereof does not exceed 100% of Worldwide Fiber's and its
Restricted Subsidiaries' aggregate cost, determined in accordance with GAAP
in good faith by the Board of Directors of Worldwide Fiber, of the
construction, acquisition, development, engineering, installation and
improvement of the applicable Telecommunications Assets and (B) in the case
of the incurrence of either Purchase Money Indebtedness or Vendor Financing
Indebtedness by a Restricted Subsidiary, such Indebtedness shall be
Qualified Subsidiary Indebtedness;
(5) the incurrence by Worldwide Fiber 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 under the first paragraph of this covenant or clauses (2), (3),
(4), (12), (14), (15) or (16) of this paragraph;
(6) the incurrence by Worldwide Fiber or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Worldwide Fiber and any of its
Restricted Subsidiaries and the issuance of preferred stock by a Restricted
Subsidiary to Worldwide Fiber or another Restricted Subsidiary of Worldwide
Fiber; provided, however, that:
(a) if Worldwide Fiber is the obligor on the Indebtedness, the
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in the Indebtedness or preferred stock being held by a Person
other than Worldwide Fiber or a Restricted Subsidiary of Worldwide
Fiber and (ii) any sale or other transfer of the Indebtedness or
preferred stock to a Person that is not either Worldwide Fiber or a
Restricted Subsidiary of Worldwide Fiber; shall be considered, in each
case, to constitute an incurrence of the Indebtedness by Worldwide
Fiber or the Restricted Subsidiary that was not permitted by this
clause (6);
(7) the incurrence by Worldwide Fiber or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for fixing or hedging interest or
foreign currency exchange rate risk with respect to any floating rate
Indebtedness or foreign currency based Indebtedness, respectively, that is
permitted by the terms of this indenture to be outstanding; provided that
the notional amount of the Hedging Obligation does not exceed the amount of
Indebtedness or other liability to which the Hedging Obligation relates;
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(8) the guarantee by Worldwide Fiber or any of its Restricted Subsidiaries of
Indebtedness of Worldwide Fiber or any Restricted Subsidiary of Worldwide
Fiber that was permitted to be incurred by another provision of this
covenant;
(9) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock, if, in each case, the amount of Disqualified Stock is
included in Fixed Charges of Worldwide Fiber as accrued;
(10) Worldwide Fiber and its Restricted Subsidiaries may incur Indebtedness
solely for bankers acceptances, letters of credit and performance bonds or
similar arrangements, all in the ordinary course of business (other than to
the extent not supporting Indebtedness); (11) the incurrence by Worldwide
Fiber or any of its Restricted Subsidiaries arising from agreements of
Worldwide Fiber or any of its Restricted Subsidiaries providing for
indemnification, adjustment of purchase price, earn out or other similar
obligation, in each case, incurred or assumed in connection with the
disposition of any business, assets or Restricted Subsidiary of Worldwide
Fiber or any of its Restricted Subsidiaries, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of the
business, assets or Restricted Subsidiary to finance the acquisition;
(12) the incurrence of Indebtedness by Foreign Subsidiaries not to exceed $10.0
million or the equivalent amount thereof, in other foreign currencies;
(13) Worldwide Fiber or any of its Restricted Subsidiaries may incur Permitted
ROW Indebtedness;
(14) the incurrence by Worldwide Fiber or any of its Restricted Subsidiaries of
Acquired Debt in an aggregate amount not to exceed $10.0 million at any
time outstanding;
(15) Indebtedness of Worldwide Fiber not to exceed, at any one time outstanding,
two times the net cash proceeds received by Worldwide Fiber after the Issue
Date from the issuance and sale of its Equity Interest (other than
Disqualified Stock) to a Person that is not a Subsidiary of Worldwide
Fiber, to the extent such net cash proceeds have not been used pursuant to
(A) clause 3(b) of the first paragraph of the "Restricted Payments"
covenant described above to or (B) clauses (2) or (4) of the second
paragraph of the "Restricted Payments" covenant described above to make a
Restricted Payment; and
(16) the incurrence by Worldwide Fiber or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed $15.0 million.
Indebtedness or preferred stock of any Person which is outstanding at the
time the Person becomes a Restricted Subsidiary of Worldwide Fiber (including
upon designation of any Subsidiary or other Person as a Restricted Subsidiary)
or is merged with or into or consolidated with Worldwide Fiber or a Restricted
Subsidiary of Worldwide Fiber shall be considered to have been incurred at the
time the Person becomes a Restricted Subsidiary of Worldwide Fiber or is merged
with or into or consolidated with Worldwide Fiber or a Restricted Subsidiary of
Worldwide Fiber, as applicable.
Worldwide Fiber will not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other Indebtedness
of Worldwide Fiber unless the Indebtedness is also contractually subordinated in
right of payment to the notes on substantially identical terms; provided,
however, that
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no Indebtedness of Worldwide Fiber shall be considered to be contractually
subordinated in right of payment to any other Indebtedness of Worldwide Fiber
solely by being unsecured.
Notwithstanding any other provisions of this covenant, the maximum amount
of Indebtedness that Worldwide Fiber or a Restricted Subsidiary may incur shall
not be considered to be exceeded solely as a result of fluctuations in the
exchange rates of currencies.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, if an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (16) above, or is entitled to be incurred
under the first paragraph of this covenant, Worldwide Fiber will be permitted to
classify the item of Indebtedness on the date of its incurrence in any manner
that complies with this covenant.
Liens
Worldwide Fiber will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind on any asset now owned or hereafter acquired, except
Permitted Liens, without providing that the notes shall be secured equally and
ratably with the Indebtedness so secured for so long as the obligations are so
secured.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
Worldwide Fiber will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Worldwide Fiber or any of Worldwide Fiber's Restricted Subsidiaries, or
with respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to Worldwide Fiber or any of
Worldwide Fiber's Restricted Subsidiaries;
(2) make loans or advances to Worldwide Fiber or any of Worldwide Fiber's
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to Worldwide Fiber or any of
Worldwide Fiber's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or because of:
(1) Existing Indebtedness as in effect on the Issue Date and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those
contained in the Existing Indebtedness, as in effect on the Issue Date;
(2) the Credit Facilities, the indenture, the notes and the Series B Notes,
Qualified Subsidiary Indebtedness and Indebtedness ranking pari passu with
the notes, provided that with respect to Indebtedness ranking pari passu
with the Notes such provisions are no more restrictive than those set forth
in the notes;
(3) applicable law;
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(4) any instrument governing Indebtedness or Capital Stock of a Person acquired
by Worldwide Fiber or any of its Restricted Subsidiaries as in effect at
the time of the acquisition (except to the extent the Indebtedness was
incurred in connection with or in contemplation of the 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, if, in the case of Indebtedness, the
Indebtedness was permitted by the terms of the indenture to be incurred;
(5) customary non-assignment provisions restricting subletting or assignment in
leases or other agreements entered into in the ordinary course of business
and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions on the property so acquired of the nature
described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted Subsidiary
that restricts distributions by the Restricted Subsidiary pending its sale
or other disposition, provided that the consummation of the transaction
would not result in a Default or an Event of Default, that the restriction
terminates if the transaction is not completed and that the completed or
abandonment of the transaction occurs within one year of the date the
agreement was entered into;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing the Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred under the
provisions of the covenant described above under the caption "--Liens" that
limit the right of Worldwide Fiber or any of its Restricted Subsidiaries to
dispose of the assets subject to the Lien;
(10) customary limitations on the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;
(12) encumbrances and restrictions in Indebtedness incurred by Foreign
Subsidiaries in accordance with the covenant described above under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(13) any Indebtedness or any agreement pursuant to which such Indebtedness was
issued if (A) the encumbrance or restriction applies only upon a payment or
financial covenant default or event of default contained in such
Indebtedness or agreement and (B) the encumbrance or restriction is not
materially more disadvantageous to the holders of the Notes than is
customary in comparable financings (as determined in good faith by the
Board of Directors of Worldwide Fiber).
Amalgamation, Merger, Consolidation, or Sale of Assets
Worldwide Fiber may not, directly or indirectly: (1) amalgamate or
consolidate or merge with or into another Person (whether or not Worldwide Fiber
is the surviving corporation); or (2) 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:
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(1) either: (a) Worldwide Fiber is the surviving corporation; or (b) the Person
formed by or surviving the amalgamation, consolidation or merger (if other
than Worldwide Fiber) or to which the sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of Canada or any province of Canada or
the United States, any state of the United States or the District of
Columbia;
(2) the Person formed by or surviving any the amalgamation, consolidation or
merger (if other than Worldwide Fiber) or the Person to which the sale,
assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of Worldwide Fiber under the notes, the Series
B Notes, the indenture and the registration rights agreement under
agreements reasonably satisfactory to the trustee;
(3) no Default or Event of Default (or an event that, with the passing of time
or giving of notice or both, would constitute an Event of Default) shall
exist or shall occur immediately after giving effect on a pro forma basis
to the transaction;
(4) the transaction will not result in Worldwide Fiber or the Person formed by
or surviving the amalgamation, consolidation or merger (if other than
Worldwide Fiber) being required to make any deduction or withholding on
account of Taxes as described under the caption "Redemption for Changes in
Canadian Withholding Taxes" and "Payment of Additional Amounts" from any
payment under or for the notes that Worldwide Fiber would not have been
required to make had the transaction or series of related transactions not
occurred;
(5) except in the case of the amalgamation, consolidation or merger of
Worldwide Fiber with or into a Wholly-Owned Restricted Subsidiary,
Worldwide Fiber or the Person formed by or surviving any amalgamation,
consolidation or merger (if other than Worldwide Fiber) will, on the date
of the transaction after giving pro forma effect to the transaction 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 under clause (1) or (2) of the first paragraph
of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(6) Worldwide Fiber shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel, each stating that the amalgamation,
consolidation, merger or transfer and the supplemental indenture, if any,
comply with the indenture.
In addition, Worldwide Fiber 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. This "Amalgamation, Merger, Consolidation, or
Sale of Assets" covenant will not apply to a sale, assignment, transfer,
conveyance or other disposition of assets between or among Worldwide Fiber and
any of its Wholly-Owned Restricted Subsidiaries.
Upon any amalgamation, consolidation or merger or any transfer of all or
substantially all of the assets of Worldwide Fiber in accordance with the above,
the successor corporation formed by the amalgamation or consolidation or into
which Worldwide Fiber is merged or to which the transfer is made shall succeed
to and (except in the case of a lease) be substituted for, and may exercise
every right and power of, Worldwide Fiber under the indenture with the same
effect as if the successor corporation had been named in the Indenture as
Worldwide Fiber, and (except in the case of a lease) Worldwide Fiber shall be
released from the obligations under the notes, and the indenture except with
respect to any obligations that arise from, or are related to, such transaction.
For purposes of the above, the transfer (by assignment, sale or otherwise)
of all or substantially all of the properties and assets of one or more
Subsidiaries, Worldwide Fiber's interest in which constitutes all or
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stantially all of the properties and assets of Worldwide Fiber, shall be
considered to be the transfer of all or substantially all of the properties and
assets of Worldwide Fiber.
Transactions with Affiliates
Worldwide Fiber 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, assets or securities 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, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
Worldwide Fiber or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Worldwide Fiber or such
Restricted Subsidiary with a Person that is not an Affiliate; and
(2) Worldwide Fiber delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors described in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors and is in the best interests of Worldwide Fiber or such
Restricted Subsidiary; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be considered to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) reasonable fees and compensation paid to, and indemnity provided on behalf
of, our officers, directors, employees, agents or consultants or any of our
Restricted Subsidiaries as determined in good faith by the Board of
Directors or senior management of Worldwide Fiber;
(2) transactions between or among us and any of our Restricted Subsidiaries;
(3) any sale or other issuance of our Equity Interests (other than Disqualified
Stock);
(4) Restricted Payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments" or by clauses
(1), (3), (6), (7) or (8) of the definition of "Permitted Investments"; and
(5) any agreement or arrangement as in effect on the Issue Date or any
amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement or
arrangement thereto so long as any such amendment or replacement agreement
or arrangement is not more disadvantageous to Worldwide Fiber or its
Restricted Subsidiaries, as the case may be, in any material respect than
the original agreement as in effect on the Issue Date.
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Issuances of Guarantees by Restricted Subsidiaries
Worldwide Fiber will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of Worldwide Fiber which is pari passu (other than
any Indebtedness incurred under a Credit Facility) with or subordinate in right
of payment to the notes ("Guaranteed Indebtedness), unless:
o the Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the indenture providing for a guarantee (a
"Subsidiary Guarantee") of payment of the notes by the Restricted
Subsidiary and
o the Restricted Subsidiary waives and will not in any manner whatsoever
claim, or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against
Worldwide Fiber or any other Restricted Subsidiary as a result of any
payment by the Restricted Subsidiary under its Subsidiary Guarantee;
provided that this paragraph shall not be applicable to any guarantee
of any Restricted Subsidiary that existed at the time the Person
became a Restricted Subsidiary and was not incurred in connection
with, or in contemplation of, the Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the
notes, then the guarantee of the Guaranteed Indebtedness shall be pari
passu with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the notes, then the guarantee of the Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated
to the notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (1) any sale, exchange or transfer,
to any Person that is not an Affiliate of Worldwide Fiber, of all of Worldwide
Fiber's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all of the assets of, the Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the indenture) or (2) the release or
discharge of the guarantee which resulted in the creation of the Subsidiary
Guarantee, except a discharge or release by or as a result of payment under the
guarantee.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Worldwide Fiber and its Restricted Subsidiaries
in the Subsidiary so designated will be considered 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 the covenant described above
under the caption "--Restricted Payments." All such outstanding Investments will
be valued at their fair market value at the time of such designation. That
designation will only be permitted if the Restricted Payment would be permitted
at that time and if the Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. The Board of Directors may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would
not cause a Default and such redesignation will increase the amount available
for Restricted Payments under the first paragraph of the covenant described
under the caption "--Restricted Payments" as provided in the covenant described
under the caption "--Restricted Payments" or Permitted Investments, as
applicable.
Business Activities
Worldwide Fiber will not, and will not permit any Restricted Subsidiary to,
engage to any material extent in any business other than the Telecommunications
Business.
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Payments for Consent
Worldwide Fiber will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of 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
the consideration is offered to be paid and is paid to all holders of the notes
that consent, waive or agree to amend in the time frame described in the
solicitation documents relating to the consent, waiver or agreement.
Reports
For so long as any notes remain outstanding, Worldwide Fiber will furnish
to the holders the information required to be delivered under Rule 144A(d)(4)
under the Securities Act. Whether or not Worldwide Fiber is subject to Section
13(a) or 15(d) of the Exchange Act, Worldwide Fiber shall file with the
Securities and Exchange Commission and furnish to the holders and the trustee
(1) within 140 days after the end of each fiscal year, annual reports on Form
20-F or 40-F, as applicable (or any successor form), containing the information
required to be contained in the annual reports (or required in such successor
form) and (2) (a) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q or (b) within 60 days after
the end of each of the first three fiscal quarters of each fiscal year, reports
on Form 6-K (or any successor form) which, regardless of applicable
requirements, shall, at a minimum, contain a "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Additional
Amounts, if any, concerning, the notes;
(2) default in payment when due of the principal of or premium, if any, on the
notes;
(3) failure by Worldwide Fiber or any of its Restricted Subsidiaries to comply
with the provisions described under the caption "--Amalgamation, Merger,
Consolidation, or Sale of Assets";
(4) failure by Worldwide Fiber or any of its Restricted Subsidiaries for 15
days after written notice thereof has been given to Worldwide Fiber by the
trustee or to Worldwide Fiber and the trustee by holders of at least 25% of
the aggregate principal amount of the notes outstanding to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control" or "--Asset Sales;"
(5) failure by Worldwide Fiber or any of its Restricted Subsidiaries for 60
days after written notice thereof has been given to Worldwide Fiber by the
trustee or to Worldwide Fiber and the trustee by holders of at least 25% of
the aggregate principal amount of the notes outstanding to comply with any
of the other agreements in the indenture or the notes;
(6) the voluntary relinquishment by Worldwide Fiber of any of its rights under
the Non-Competition Agreement or the failure by Worldwide Fiber for 30 days
after written notice has been given to Worldwide Fiber by the trustee or to
Worldwide Fiber and the trustee by holders of at least 25% of the aggregate
principal amount of the notes outstanding to enforce any of such rights, in
each case which is materially detrimental to the interests of Worldwide
Fiber or the holders;
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(7) 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 Worldwide Fiber or any of its Restricted Subsidiaries
(or the payment of which is guaranteed by Worldwide Fiber or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the Issue Date, if that default:
(a) is caused by a failure to pay principal of or premium, if any, on such
Indebtedness before the expiration of the grace period provided in
such Indebtedness on the date of the default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness before its express
maturity,
and, in each case, the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(8) failure by Worldwide Fiber or any of its Restricted Subsidiaries to pay
final judgments which are non-appealable aggregating in excess of $10.0
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
(9) certain events of bankruptcy or insolvency concerning Worldwide Fiber or
any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Worldwide Fiber, 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 immediately without further
action or notice. If any other Event of Default occurs and is continuing, the
trustee by notice to Worldwide Fiber or the holders of at least 25% in principal
amount of the then outstanding notes by notice to Worldwide Fiber and the
trustee may declare all the notes to be due and payable immediately.
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 or interest) if it
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding 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
premium, if any, or interest on, or the principal of, the notes.
Worldwide Fiber is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Worldwide Fiber is required to deliver to the trustee a
statement specifying the Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Worldwide
Fiber or any of its Subsidiaries shall have any liability for any obligations of
Worldwide Fiber or its Subsidiaries under the notes, the inden-
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ture or for any claim based on, for, or because of, such obligations or their
creation. Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
Legal Defeasance and Covenant Defeasance
Worldwide Fiber 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:
(1) the rights of holders of outstanding notes to receive payments for the
principal of, premium, if any, and interest on the notes when the payments
are due from the trust referred to below;
(2) Worldwide Fiber's obligations with respect to the notes concerning issuing
temporary notes, registration of 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;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Worldwide Fiber's obligations in connection the rights, powers, trusts,
duties and immunities of the trustee;
(4) the Legal Defeasance provisions of the indenture; and
(5) Worldwide Fiber's obligation to pay Additional Amounts.
In addition, Worldwide Fiber may, at its option and at any time, elect to
have the obligations of Worldwide Fiber released concerning certain covenants
that are described in the indenture ("Covenant Defeasance") and after the
election any omission to comply with those covenants shall not constitute a
Default or Event of Default concerning the notes. In the event Covenant
Defeasance occurs, certain events, not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events, described under "Events of
Default" will no longer constitute an Event of Default concerning the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Worldwide Fiber must irrevocably deposit 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 of cash and non-callable Government
Securities, 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 or on the applicable redemption date and Worldwide Fiber
must specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, Worldwide Fiber shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that (a) Worldwide Fiber has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) 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 on an IRS ruling or applicable
federal income tax law such opinion of counsel shall confirm that, the
holders of the outstanding notes will not recognize income, gain or loss
for United States federal income tax purposes as a result of the
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Legal Defeasance and will be subject to United States federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if the Legal Defeasance had not occurred and Worldwide Fiber
shall have delivered to the trustee an opinion of counsel in Canada
reasonably acceptable to the trustee confirming that the holders of the
outstanding notes will not recognize income, gain or loss for Canadian
federal income tax purposes as a result of the Legal Defeasance and will be
subject to Canadian federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Worldwide Fiber shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for United States federal income tax purposes as a
result of the Covenant Defeasance and will be subject to United States
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if the Covenant Defeasance had not
occurred and Worldwide Fiber shall have delivered to the trustee an opinion
of counsel in Canada reasonably acceptable to the trustee confirming that
the holders of the outstanding notes will not recognize income, gain or
loss for Canadian federal income tax purposes as a result of the Covenant
Defeasance and will be subject to Canadian federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if the Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of the deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to the
deposit); or (b) 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;
(5) the Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which Worldwide Fiber or any of
its Restricted Subsidiaries is a party or by which Worldwide Fiber or any
of its Restricted Subsidiaries is bound;
(6) Worldwide Fiber must have delivered to the trustee an opinion of counsel 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 generally;
(7) Worldwide Fiber must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by Worldwide Fiber with the intent of
preferring the holders of notes over the other creditors of Worldwide Fiber
with the intent of defeating, hindering, delaying or defrauding creditors
of Worldwide Fiber or others; and
(8) Worldwide Fiber must deliver to the trustee an Officers' Certificate and an
opinion of counsel, in the case of the Officers' Certificate, stating that
all conditions precedent relating to the Legal Defeasance or the Covenant
Defeasance have been complied with and, in the case of the opinion of
counsel, that the conditions precedent in clauses (1) (concerning the
validity and perfection of the security interest), (2), (3) and (5) have
been complied with.
Indemnification for Judgment Currency Fluctuations
The obligations of Worldwide Fiber to any holder of notes shall,
notwithstanding any judgment in a currency (the "Judgment Currency") other than
U.S. dollars (the "Agreement Currency"), be discharged only to the extent that
on the day following receipt by the holder of notes or the trustee of any amount
in the Judgment Currency, the holder of notes may in accordance with normal
banking procedures purchase the Agreement Currency with the Judgment Currency.
If the amount of the Agreement Currency so purchased is less than the amount
originally to be paid to the holder of notes or the trustee in the Agreement
Currency, Worldwide Fiber will pay the difference and if the amount of the
Agreement Currency so purchased exceeds the amount originally to be paid to the
holder of notes or the trustee the holder of notes or the trustee will pay to or
for the account of Worldwide Fiber the excess, provided that the holder of notes
or the trustee shall not have any obliga-
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tion to pay the excess as long as a Default by Worldwide Fiber in its
obligations under the notes or the indenture has occurred and is continuing, in
which case the excess may be applied by the holder of notes to such obligations.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when either (a) all such notes theretofore
authenticated and delivered (except lost, stolen or destroyed notes which have
been replaced or paid and notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to Worldwide Fiber) have been delivered
to the Trustee for cancellation; or (b)(i) all such Notes not theretofore
delivered to such trustee for cancellation have become due and payable by reason
of the making of a notice of redemption or otherwise or will become due and
payable within one year and we or a Subsidiary Guarantor, if any, has
irrevocably deposited or caused to be deposited with such Trustee as trust funds
in trust an amount of money sufficient to pay and discharge the entire
Indebtedness on such notes not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and accrued interest to the date of
maturity or redemption; (ii) no Default or Event of Default with respect to the
indenture or the notes shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will not
result in a breach or violation of, or constitute a default under, any other
instrument to which we or a Subsidiary Guarantor, if any, is a party or by which
we or a Subsidiary Guarantor, if any, is bound; (iii) we or a Subsidiary
Guarantor, if any, has paid or caused to be paid all sums payable by it under
the indenture; and (iv) we have delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward the payment of
such notes at maturity or the redemption date, as the case may be.
In addition, we must deliver an Officer's Certificate and an opinion of
counsel to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
Amendment, Supplement and Waiver
With the consent of holders of not less than a majority in aggregate
principal amount of the notes at the time outstanding, Worldwide Fiber and the
trustee are permitted to amend or supplement the indenture or any supplemental
indenture or modify the rights of the holders; provided that without the consent
of each holder affected, no amendment, supplement, modification or waiver may
(concerning any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or alter
the provisions concerning the redemption of the notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any note;
(4) waive a Default or Event of Default in the payment of principal of or
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 of the notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers of
past Defaults or the rights of holders of notes to receive payments of
principal of or premium, if any, or interest on the notes;
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(7) waive a redemption payment concerning any note (other than a payment
required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders");
(8) cause the notes to become subordinate in right of payment to any other
Indebtedness;
(9) make any change that would adversely affect the rights of the holders to
receive Additional Amounts;
(10) modify the obligation of Worldwide Fiber to make a Change of Control Offer
to purchase notes after the occurrence of an event which constitutes a
Change of Control; or
(11) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Worldwide Fiber and the trustee may amend or supplement the indenture or the
notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Worldwide Fiber's obligations to holders
of notes in the case of a merger or consolidation or sale of all or
substantially all of Worldwide Fiber's assets;
(4) 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
(5) to comply with requirements of the Securities and Exchange Commission to
effect or maintain the qualification of the indenture under the Trust
Indenture Act.
Concerning the Trustee
If the trustee becomes one of our creditors, the indenture limits its right
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 the conflict within 90 days, apply to the
Securities and Exchange 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. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his 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 the holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Worldwide Fiber Inc.,
#1510-1066 West Hastings Street, Vancouver, BC Canada V6E 3X1, Attention:
Stephen Stow.
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Governing Law
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of laws to the extent that the
application of the law of another jurisdiction would be required by principles
of conflicts of laws.
Enforceability of Judgments
Because all or a substantial portion of our assets and the assets of our
directors and officers are located outside of the United States, it may not be
possible for you to effect service of process within the United States upon us
or those persons. Furthermore it may not be possible for you to enforce against
us or them in the United States, judgments obtained in U.S. courts based upon
the civil liability provisions of the U.S. Federal securities laws or other laws
of the United States, including judgments concerning the payment of principal,
premium, interest, Additional Amounts, Change of Control Payment, offer price,
redemption price or other amounts payable under the notes.
Worldwide Fiber has been informed by its Canadian counsel, Farris, Vaughan,
Wills & Murphy, that the laws of the Province of British Columbia and the
federal laws of Canada applicable in the Province of British Columbia permit an
action to be brought in a court of competent jurisdiction in the Province of
British Columbia on any final and conclusive judgment in personam of any federal
or state court located in the Borough of Manhattan in The City of New York that
is not impeachable as void or voidable under the internal laws of the State of
New York for a sum certain for the enforcement of the indenture or the notes if:
o the court rendering the judgment had jurisdiction over the judgment
debtor, as recognized by the Canadian Court (and submission by
Worldwide Fiber in the indenture to the non-exclusive jurisdiction of
the New York court will be sufficient for that purpose),
o the judgment was not obtained by fraud or in a manner contrary to
natural justice and the enforcement of the judgment would not be
inconsistent with public policy, as that term is applied by a Canadian
Court, or contrary to any order made by the Attorney General of Canada
under the Foreign Extraterritorial Measures Act (Canada),
o the enforcement of the judgment does not constitute, directly or
indirectly, the enforcement of such foreign revenue, expropriatory or
penal laws, and
o the action to enforce the judgment is commenced within the applicable
limitation period. Worldwide Fiber has been advised by Farris,
Vaughan, Wills & Murphy that it knows of no reason, based upon public
policy under the laws of the Province of British Columbia and the
federal laws of Canada applicable in the Province of British Columbia
for avoiding recognition of a judgment of a New York court to enforce
the indenture or the notes.
We are a corporation organized under the laws of Canada. A majority of
our directors and officers, as well as certain experts named in this prospectus,
reside principally in Canada. Because all or a substantial portion of our assets
and the assets of these persons are located outside the United States, it may
not be possible for you to effect service of process within the United States
upon us or those persons. Furthermore it may not be possible for you to enforce
against us or them in the United States, judgments obtained in U.S. courts based
upon the civil liability provisions of the U.S. Federal securities laws or other
laws of the United States. We have been advised by Farris, Vaughan, Wills &
Murphy, our special Canadian counsel, that there is doubt as to the
enforceability, in original actions in Canadian courts, of liabilities based
upon the U.S. Federal securities laws and as to the enforceability in Canadian
courts of judgments of U.S. courts obtained in actions based upon the
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civil liability provisions of the U.S. Federal securities laws. Therefore, it
may not be possible to enforce those actions against us, our directors and
officers or the experts named in this prospectus.
Consent to Jurisdiction and Service
The indenture provides that Worldwide Fiber irrevocably appoints CT
Corporation System as its agent for service of process in any suit, action, or
proceeding concerning the indenture or the notes and for actions brought under
federal or state securities laws in any federal or state court located in the
Borough of Manhattan in The City of New York, and submits to the non-exclusive
jurisdiction.
Certain Definitions
Described below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all of these terms, as well as
any other capitalized terms used in this prospectus for which no definition is
provided.
"Acquired Debt" means, concerning any specified Person:
(1) 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,
whether or not the Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Additional Senior Notes" means any senior notes which have terms,
conditions and covenants substantially identical to the terms, conditions and
covenants of the notes and which are issued by Worldwide Fiber under the
indenture after the Issue Date.
"Adjusted Consolidated Cash Flow" means Consolidated Cash Flow minus all
non-cash items, increasing Consolidated Net Income for the applicable period to
the extent not previously deducted in computing Consolidated Cash Flow, whether
or not such non-cash items were accrued or incurred in the ordinary course of
the business or otherwise.
"Adjusted Fiber Value" means, at any time after certain Affiliates of
Ledcor Inc. have contributed 12 dark fiber strands to Worldwide Fiber under the
Undertaking Agreements, an amount equal to $72.5 million less one-twelfth (1/12)
of such amount for each of the dark fiber strands which has been sold, leased,
contributed or with respect to which an IRU has been granted to any Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
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 considered to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights
other than any sale, lease, transfer, conveyance or other disposition of
telecommunications capacity, transmission rights, or other
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telecommunications services provided over our network in the ordinary
course of business; provided that the sale, conveyance or other disposition
of all or substantially all of the assets of Worldwide Fiber and its
Restricted Subsidiaries taken as a whole will be governed by the provisions
of the indenture described above under the caption "--Change of Control"
and/or the provisions described above under the caption "--Merger,
Consolidation or Sale of Assets" and not by the provisions of the "Asset
Sale" covenant; and
(2) the issuance of Equity Interests by any of Worldwide Fiber's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries,
Notwithstanding the preceding, the following items shall be considered not to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a) involves
assets having a fair market value of less than $1.0 million; or (b) results
in net proceeds to Worldwide Fiber and its Restricted Subsidiaries of less
than $1.0 million;
(2) a transfer of assets between or among Worldwide Fiber and its Restricted
Subsidiaries or between Restricted Subsidiaries,
(3) Permitted Telecommunication Asset Dispositions;
(4) an issuance of Equity Interests by a Restricted Subsidiary to Worldwide
Fiber or to a Wholly-Owned Restricted Subsidiary; and
(5) a Permitted Investment or a Restricted Payment that is permitted by the
covenant described above under the caption "--Restricted Payments."
"Beneficial Owner" has the meaning assigned to the term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as the term is used in Section 13(d)(3) of
the Exchange Act), the "person" shall be considered to have beneficial ownership
of all securities that such "person" has the right to acquire, whether the right
is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Canadian Taxing Authority" shall mean any federal, provincial, territorial
or other Canadian government or any authority or agency therein or thereof
having power to tax.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability for a capital lease that would at that
time be required to be capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and
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(4) 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 any of the following:
(1) any investment in direct obligations of the United States of America or any
agency thereof or of Canada or any province or agency thereof of
obligations guaranteed by the United States of America or any agency
thereof or Canada or any province or agency thereof, in each case with a
term of not more than one year, provided that any province of Canada must
be rated at least "R-1" by the Dominion Bond Rating Service Limited;
(2) investments in time deposit accounts, term deposit accounts, certificates
of deposit, money-market deposits, bankers acceptances and obligations
maturing within one year of the date of acquisition of the obligation
issued by a bank or trust company which is organized under the laws of the
United States of America, any state of the United States, Canada or any
province of Canada, and which bank or trust company has, or the obligations
of which bank or trust company is guaranteed by a bank or trust company
which has, capital, surplus and undivided profits aggregating in excess of
$150.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A", or the similar equivalent rating, or
higher by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act) or by
Dominion Bond Rating Service Limited or Canadian Bond Rating Service, Inc.
or any money-market fund sponsored by a registered broker dealer or mutual
fund distributor;
(3) repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (1) above entered into with a
bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days after the
date of acquisition, issued by a corporation (other than Worldwide Fiber or
an Affiliate of Worldwide Fiber) organized and in existence under the laws
of the United States of America or Canada with a rating at the time as of
which any investment the United States of American or Canada is made of
"P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard & Poor's or at least "R-1" by Dominion Bond
Rating Service Limited or Canadian Bond Rating Service (in the case of a
Canadian issuer);
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth,
territory or province of the United States of America or Canada, or by any
political subdivision or taxing authority of the United States of America
or Canada, and rated at least "R-1" by the Dominion Bond Rating Service
Limited (in the case of a Canadian issuer);
(6) investments in money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1) through
(5) of this definition.
"Change of Control" means the occurrence of any of the following:
(1) 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 Worldwide Fiber and its
Subsidiaries taken as a whole to any "person" (as the term is used in
Section 13(d)(3) of the Exchange Act) other than a Permitted Holder;
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(2) the adoption of a plan relating to the liquidation or dissolution of
Worldwide Fiber;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than a Permitted Holder, becomes the Beneficial
Owner, directly or indirectly, of more than 50% of the Voting Stock of
Worldwide Fiber, measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of Directors
of Worldwide Fiber are not Continuing Directors; or
(5) Worldwide Fiber consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, Worldwide Fiber, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of Worldwide Fiber is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
Voting Stock of Worldwide Fiber outstanding immediately before such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving
or transferee Person immediately after giving effect to such issuance.
"Consolidated Capital Ratio" means, with respect to Worldwide Fiber as of
any date, the ratio of (1) the aggregate consolidated principal amount of
Indebtedness of Worldwide Fiber and its Restricted Subsidiaries then outstanding
to (2) the Consolidated Net Worth of Worldwide Fiber and its Restricted
Subsidiaries as of such date, in each case as shown on the consolidated balance
sheet of Worldwide Fiber in accordance with GAAP.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing the Consolidated Net Income; plus
(2) Fixed Charges of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred for letter of credit or bankers' acceptance
financings, and net payments, if any, under Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; plus
(3) depreciation, amortization (including amortization of goodwill and other
intangibles 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 such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; minus
(4) non-cash items increasing the Consolidated Net Income for such period,
other than items that were accrued in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with GAAP.
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Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of Worldwide Fiber shall be added to Consolidated
Net Income to compute Consolidated Cash Flow of Worldwide Fiber only to the
extent that a corresponding amount would be permitted at the date of
determination to be dividended to Worldwide Fiber by the Restricted Subsidiary
without prior approval (that has not been obtained), under the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Subsidiary or its
stockholders.
"Consolidated Leverage Ratio" means, concerning Worldwide Fiber, as of any
date, the ratio of (1) the aggregate amount of Indebtedness of Worldwide Fiber
and its Restricted Subsidiaries then outstanding (other than intercompany debt)
to (2) the Consolidated Cash Flow of Worldwide Fiber and its Restricted
Subsidiaries on a consolidated basis for the most recently ended four fiscal
quarters immediately preceding the date of determination for which consolidated
financial statements of Worldwide Fiber are available (the "Reference Period").
In addition to the foregoing, for purposes of this definition,
"Consolidated Cash Flow" shall be calculated on a pro forma basis after giving
effect to the issuance of the notes and the incurrence of the Indebtedness (and
the application of the proceeds therefrom) giving rise to the need to make such
calculation and any incurrence (and the application of the proceeds therefrom)
or repayment of Indebtedness, other than the incurrence or repayment of
Indebtedness for ordinary working capital purposes, at any time subsequent to
the beginning of the Reference Period and on or prior to the date of
determination, as if such incurrence (and the application of the proceeds
thereof), or the repayment, as the case may be, occurred on the first day of the
Reference Period.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or 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 specified Person or a Restricted
Subsidiary thereof;
(2) 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, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders, it being understood that the Net Income of such
Restricted Subsidiary for such period shall be included in Consolidated Net
Income up to the aggregate amount of cash that such Restricted Subsidiary
could have paid under the dividends or similar distributions during the
period to Worldwide Fiber or any of its Restricted Subsidiaries;
(3) the Net Income of any Person acquired in a pooling of interests transaction
for any period before the date of such acquisition shall be excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the specified Person or one of its
Subsidiaries, except for purposes of the covenant described under the
caption "--Certain Covenants--Restricted Payments" and "--Incurrence of
Indebtedness and Issuance of Preferred Stock," in which case the Net Income
of any Unrestricted Subsidiary will be included to the extent it would
otherwise be included under clause (1) of this definition above; and
(5) the cumulative effect of a change in accounting principles shall be
excluded.
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"Consolidated Net Worth" means, with respect to Worldwide Fiber as of any
date, the sum of (1) the consolidated equity of the common stockholders of
Worldwide Fiber and its Restricted Subsidiaries that are Restricted Subsidiaries
as of such date plus (2) the respective amounts reported on Worldwide Fiber's
balance sheet as of such date with respect to any series of Preferred Stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings for the year of such declaration and payment, but only to the extent of
any cash received by Worldwide Fiber upon issuance of such Preferred Stock plus
(3) the Adjusted Fiber Value, 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) after the Issue Date in the book value of any asset owned by Worldwide
Fiber or a Restricted Subsidiary of Worldwide Fiber, (y) all outstanding net
Investments as of such date in unconsolidated Restricted Subsidiaries and in
Persons that are not Restricted Subsidiaries, and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all of
the above determined in accordance with GAAP.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of Worldwide Fiber who:
(1) was a member of the Board of Directors on the Issue Date; or
(2) was nominated for election or elected to the Board of Directors with the
approval of a majority of the Continuing Directors who were members of the
Board at the time of such nomination or election.
"Credit Facilities" means, with respect to Worldwide Fiber or any if its
Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
loans or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"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.
"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, under a sinking
fund obligation or otherwise, or redeemable at the option of the holder thereof,
in whole or in part, on or before the date that is 91 days after the date on
which the notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require Worldwide Fiber to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
Worldwide Fiber may not repurchase or redeem any such Capital Stock under such
provisions unless the repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Eligible Investments" means cash or Cash Equivalents or such other
investment grade debt securities as the Board of Directors shall approve from
time to time; provided, however, that in no event shall any funds required to be
held as Eligible Investments be used, directly or indirectly, to repurchase any
notes, except as specifically provided in the Unrestricted Offer.
"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).
"Existing Indebtedness" means Indebtedness of Worldwide Fiber or any of its
Restricted Subsidiaries outstanding on the Issue Date (other than the Credit
Facilities).
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"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments, if any, under Hedging Obligations;
plus
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien
on assets of such Person or one of its Restricted Subsidiaries, whether or
not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividend payments, whether or not in cash, on any
series of preferred stock (including, without limitation, Disqualified
Stock) of such Person or any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests of
Worldwide Fiber (other than Disqualified Stock) or to Worldwide Fiber or a
Restricted Subsidiary of Worldwide Fiber, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Foreign Subsidiary" means any Restricted Subsidiary of Worldwide Fiber
which (1) is not organized under the laws of (x) the United States or any state
of the United States, (y) the District of Columbia or (z) Canada or any province
of Canada and (2) conducts substantially all of its business operations outside
the United States of America and Canada.
"GAAP" means generally accepted accounting principles in the United States
as described 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 from time to time.
"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:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
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(2) evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except such balance that constitutes an accrued expense or trade payable;
or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person, which shall be considered the lesser of the full amount of
such Indebtedness and the fair market value of the property or asset so secured)
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:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other Indebtedness.
"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 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 Worldwide Fiber or any Restricted Subsidiary of Worldwide Fiber sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of Worldwide Fiber so that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of Worldwide
Fiber, Worldwide Fiber shall be considered 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 Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Restricted Payments."
"Issue Date" means the first date on which any notes were issued under the
indenture.
"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.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with GAAP
and before any reduction for preferred stock dividends, excluding, however:
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(1) any gain or loss, together with any related provision for taxes on the gain
or loss, realized in connection with: (a) any Asset Sale; or (b) the
disposition of any securities by the Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of the Person or any
of its Restricted Subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision for
taxes on the extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by Worldwide
Fiber 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, in each case after taking into account any available tax credits
or deductions and any tax sharing arrangements and amounts required to be
applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that were the subject of such Asset Sale.
"Network" means the fiber optic telecommunications network constructed or
owned from time to time by Worldwide Fiber and its Restricted Subsidiaries.
"Non-Competition Agreement" means that certain Letter to Worldwide Fiber
from Ledcor Inc., dated as of May 31, 1998, regarding Ledcor Inc.'s agreement
not to compete with Worldwide Fiber in the business of developing or
constructing fiber optic communications infrastructure.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Worldwide Fiber nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender; and
(2) 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 (other than the notes, the 1998 Notes or the Credit
Facilities) of Worldwide Fiber or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof
to be accelerated or payable before its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Parent Companies" means Ledcor Inc., an Alberta corporation, Worldwide
Fiber Holdings Ltd., an Alberta corporation, Ledcor Industries Limited, an
Alberta corporation, and Ledcom Holdings Ltd., an Alberta corporation.
"Permitted Fiber Investment" means any Investment of up to 12 fibers on any
Segment of the Network.
"Permitted Holder" means any Parent Company and its Affiliates.
"Permitted Investments" means:
(1) any Investment in Worldwide Fiber or in any Restricted Subsidiary of
Worldwide Fiber;
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(2) any Investment in Cash Equivalents;
(3) any Investment by Worldwide Fiber or any Restricted Subsidiary of Worldwide
Fiber in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Worldwide Fiber; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Worldwide Fiber or a Restricted Subsidiary of
Worldwide Fiber;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made under and in compliance with the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales";
(5) advances and loans to officers and employees of Worldwide Fiber or any
Restricted Subsidiary in an amount not exceeding $5.0 million any one time
outstanding;
(6) Investments in the form of intercompany Indebtedness to the extent
permitted under clause (6) of the second paragraph under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(7) Hedging Obligations, provided that such Hedging Obligations constitute
Permitted Indebtedness permitted by clause (7) of the second paragraph
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock";
(8) Investments of Worldwide Fiber or any Restricted Subsidiary existing on the
Issue Date; and
(9) Investments in securities of trade creditors or customers received under
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers.
"Permitted Liens" means:
(1) Liens on the assets of Worldwide Fiber and any Restricted Subsidiary of
Worldwide Fiber securing Indebtedness and other Obligations under Credit
Facilities that are permitted by the terms of the indenture to be incurred;
(2) Liens in favor of Worldwide Fiber or its Restricted Subsidiaries;
(3) Liens on property of a Person existing at the time such Person becomes a
Restricted Subsidiary of Worldwide Fiber or is merged with or into or
consolidated with Worldwide Fiber or any Restricted Subsidiary of Worldwide
Fiber; provided that such Liens were in existence before the contemplation
of such Person becoming a Restricted Subsidiary of Worldwide Fiber or
merger or consolidation and do not extend to any assets other than those of
such person or the Person merged into or consolidated with Worldwide Fiber
or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by Worldwide
Fiber or any Restricted Subsidiary of Worldwide Fiber, provided that such
Liens were in existence before the contemplation of such acquisition;
(5) 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;
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(6) Liens to secure Purchase Money Indebtedness and Vendor Financing
Indebtedness permitted by clause (4) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets, or portion of the assets, acquired with
such Indebtedness;
(7) Liens existing on the Issue Date;
(8) 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 for the Liens;
(9) Liens created for the benefit of the notes;
(10) Liens imposed by law or arising by operation of law, including, without
limitation, landlords', mechanics', carriers', warehousemen's,
materialmen's, suppliers', and vendors' Liens, Liens for master's and
crew's wages and other similar maritime Liens and mechanics' Liens, in each
case which are incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have
been made with respect thereto;
(11) zoning restrictions, easements, license, covenants, reservations,
restrictions on the use of real property and defects, irregularities and
deficiencies in title to real property that do not, individually or in the
aggregate, materially affect the ability of Worldwide Fiber or any
Restricted Subsidiary to conduct its business and are incurred in the
ordinary course of business;
(12) Liens incurred or pledges and deposits made in the ordinary course of
business in connection with workers' compensation and unemployment
insurance and other types of social security;
(13) Liens to secure any extension, renewal, refinancing or refunding (or
successive extensions, renewals, refinancings or refundings), in whole or
in part, of any Indebtedness secured by Liens referred to in the above
clauses (3), (4), (6), and (7) of this definition, provided that such Liens
do not extend to any other property of Worldwide Fiber or any Restricted
Subsidiary and the principal amount of the Indebtedness secured by such
Lien is not increased;
(14) judgment Liens not giving rise to an Event of Default so long as such Lien
is adequately bonded and any appropriate legal proceedings that may have
been initiated for the review of such judgment, decree or order shall not
have been finally terminated or the period within which such proceedings
may be initiated shall not have expired;
(15) Liens securing obligations of Worldwide Fiber under Hedging Obligations
permitted to be incurred under clause (7) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock" or any collateral for the Indebtedness to which such Hedging
Obligations relate;
(16) Liens upon specific items of inventory or other goods and proceeds of any
Person securing such Person's obligations in respect of banker's
acceptances issued or credited for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(17) Liens securing reimbursement obligations with respect to commercial letters
of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
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(18) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Worldwide
Fiber or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(19) Liens arising out of consignment or similar arrangements for the sale of
goods in the ordinary course of business;
(20) any interest or title of a lessor in the Property subject to any lease
other than a Capital Lease;
(21) leases or subleases granted to others that do not materially interfere with
the ordinary course of business of Worldwide Fiber and its Restricted
Subsidiaries;
(22) Liens encumbering Property or other assets under construction arising from
progress or partial payments by a customer or us or our Restricted
Subsidiaries relating to such Property or other assets;
(23) Liens arising from filing Uniform Commercial Code financing statements
regarding leases, provided that such Liens do not extend to any property or
assets which are not leased property subject to such leases or subleases;
(24) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation
of goods;
(25) Liens securing Permitted ROW Indebtedness;
(26) Liens securing other Indebtedness not exceeding $5.0 million at any time
outstanding;
(27) Liens incurred in the ordinary course of business of Worldwide Fiber or any
Restricted Subsidiary of Worldwide Fiber 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 Worldwide Fiber or such Restricted Subsidiary; and
(28) Liens securing Qualified Subsidiary Indebtedness to the extent permitted to
be incurred under the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant.
"Permitted Project Financing Investment" means an Investment by Worldwide
Fiber or any Restricted Subsidiary in any Unrestricted Subsidiary for the
purpose of facilitating the incurrence by such Unrestricted Subsidiary of
Non-Recourse Debt for the purpose of financing a portion of the cost of
construction, engineering, acquisition, installation, development or improvement
by such Unrestricted Subsidiary of any Segment of the Network; provided,
however, that the amount of any such Investment shall not exceed 55% of the
total initial capitalization of any such Unrestricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of Worldwide
Fiber 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 Worldwide Fiber or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that:
(1) 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
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Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date equal to
or 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;
(3) 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 equal to or
later than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the holders of
notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Worldwide Fiber or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Vendor Facilites" shall mean Vendor Financing Indebtedness that
is permitted to include working capital facilities.
"Permitted ROW Indebtedness" means Indebtedness evidencing the deferred
obligation to the seller of any ROW on which any Segment of our Network is being
constructed to pay the purchase price for such ROW; provided, however, that in
no event shall the aggregate principal amount of such Indebtedness exceed, with
respect to any Segment of the Network, more than 50% of the total anticipated
construction cost of such Segment, as determined by the Board of Directors in
good faith.
"Permitted Stockholder" means Worldwide Fiber Holdings Ltd., an Alberta
corporation, and its Affiliates.
"Permitted Telecommunications Asset Disposition" means the transfer,
conveyance, sale, lease, grant of an IRU or other disposition (each, a
"Disposition") in the ordinary course of business of dark fiber, conduit or
associated infrastructure of the Network, (1) the proceeds of which are treated
as revenues by Worldwide Fiber in accordance with GAAP and (2) that, in the case
of the sale of dark fiber, would not result in Worldwide Fiber retaining less
than (x) 24 fibers per route mile or (y) 12 fibers and one empty conduit per
route mile, in each case, on every Segment of the Network constructed or
developed by Worldwide Fiber (other than the FOTS in which Worldwide Fiber shall
only be required to retain six fibers per route mile on each Segment), provided,
however, that any Permitted Fiber Investment that results in Worldwide Fiber
retaining a minimum of 12 fibers per route mile (in the case of clause (x)
above) or one empty conduit (in the case of clause (y) above) shall be
considered to be a Permitted Telecommunications Asset Disposition; provided
further that any subsequent Disposition of the Permitted Fiber Investment shall
be considered to be an Asset Sale.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person.
"Purchase Money Indebtedness" means Indebtedness of Worldwide Fiber
(including Acquired Indebtedness and Capital Lease Obligations, mortgage
financings and purchase money obligations) incurred for the
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purpose of financing all or any part of the cost of construction, engineering,
acquisition, installation, development or improvement by Worldwide Fiber or any
Restricted Subsidiary of any Telecommunications Assets of Worldwide Fiber or any
Restricted Subsidiary and 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 Equity Offerings" means (A) any underwritten public offering
(other than on Form S-4 or S-8 or any successor forms thereto) of common stock
of Worldwide Fiber in which the gross proceeds to us are at least $100.0 million
or (B) the sale by Worldwide Fiber of its Equity Interests to any Strategic
Equity Investor, the net proceeds of which are at least $25.0 million.
"Qualified Subsidiary Indebtedness" means Indebtedness of any Restricted
Subsidiary under one or more senior credit agreements, senior secured loan
agreements or similar senior secured facilities (including any supply or similar
agreement under which the goods to be financed were obtained) entered into from
time to time, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Segment" means (x) with respect to the intercity portions of the Network,
the through-portion of the network between two local networks and (y) with
respect to a local portion of the Network, the entire through- portion of the
Network, excluding the spurs which branch off the through-portion.
"Series A Notes" means Worldwide Fiber's U.S. $500,000,000 12% Senior Notes
due 2009.
"Series B Notes" means Worldwide Fiber's U.S. $500,000,000 12% Senior Notes
due 2009 to be issued pursuant to the Exchange Offer.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Act, as such Regulation is in effect on the date of this Prospectus.
"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 before the date
originally scheduled for the payment thereof.
"Strategic Equity Investor" means a corporation, partnership or other
entity engaged in one or more Telecommunications Businesses that has 80% or more
of the voting power of its Capital Stock owned by a Person or Persons that has
or have, as the case may be, at the time of the initial investment in Worldwide
Fiber, an equity market capitalization in excess of $1.0 billion; provided that
in no event shall any Affiliate of Worldwide Fiber (immediately prior to the
time of such investment) be eligible to be a Strategic Equity Investor.
"Subsidiary" means, with respect to any Person:
(1) any corporation a majority of whose Capital Stock with voting power, under
ordinary circumstances, to elect directors is, at the date of
determination, directly or indirectly, owned by such Person (a
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"subsidiary"), by one or more subsidiaries of such Person or by such Person
and one or more subsidiaries of such Person;
(2) a partnership in which such Person or a subsidiary of such Person is, at
the date of determination, a general partner of such partnership; or
(3) any partnership, limited liability company or other Person in which such
Person, a subsidiary of such Person or such Person and one or more
subsidiaries of such Person, directly or indirectly, at the date of
determination, has (x) at least a majority ownership interest or (y) the
power to elect or appoint or direct the election or appointment of the
managing partner or member of such Person or, if applicable, a majority of
the directors or other governing body of such Person.
"Tax" shall mean any tax, duty, levy, impost, assessment or other
governmental charge, including penalties, interest and any other liabilities
related thereto.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business and the Equity Interests of
a Person engaged entirely or substantially entirely in a Telecommunications
Business.
"Telecommunications Business" means the business of (1) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased terrestrial or submarine transmission facilities and (2)
constructing, installing, maintaining, creating, developing or marketing
terrestrial or submarine communications related network infrastructure,
components, equipment, software and other devices for use in a
telecommunications business and any other business or opportunity that is
reasonably related or complementary the telecommunication business; provided
that the determination of what constitutes a Telecommunications Business shall
be made in good faith by the Board of Directors of Worldwide Fiber.
"Undertaking Agreements" means that certain Undertaking Agreement dated as
of May 31, 1998 between Worldwide Fiber (formerly known as Starfiber Inc.) and
786522 Alberta Ltd. pursuant to which 786522 Alberta Ltd. agreed to contribute
12 fiber strands on the FOTS to Worldwide Fiber in exchange for the issuance of
certain Capital Stock and the Agreement, dated May 28, 1999, as amended, between
Worldwide Fiber and certain affiliates of Ledcor whereby Worldwide Fiber agreed
to acquire certain fiber optic assets.
"Unrestricted Subsidiary" means any Subsidiary of Worldwide Fiber 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:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding with
Worldwide Fiber or any Restricted Subsidiary of Worldwide Fiber unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to Worldwide Fiber or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of
Worldwide Fiber;
(3) is a Person with respect to which neither Worldwide Fiber nor any of its
Restricted Subsidiaries has any direct or indirect obligation to maintain
or preserve the Person's financial condition or to cause the Person to
achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Worldwide Fiber or any of its Restricted
Subsidiaries; and
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(5) has at least one director on its board of directors that is not a director
or executive officer of Worldwide Fiber or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of Worldwide Fiber or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Worldwide Fiber as an Unrestricted
Subsidiary shall be evidenced to the trustee 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
preceding 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 preceding 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 considered to be incurred by a Restricted Subsidiary of Worldwide Fiber
as of such date and, if the Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "Incurrence of
Indebtedness and Issuance of Preferred Stock," Worldwide Fiber shall be in
default of such covenant. The Board of Directors of Worldwide Fiber may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that the designation shall be considered to be an incurrence of
Indebtedness by a Restricted Subsidiary of Worldwide Fiber of any outstanding
Indebtedness of such Unrestricted Subsidiary and the designation shall only be
permitted if (1) 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 the designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
"Vendor Financing Indebtedness" means Indebtedness of Worldwide Fiber
incurred under any agreements between Worldwide Fiber and one or more vendors or
lessors (or any Affiliate of any such vendor or lessor) of Telecommunications
Assets used or intended for use in a Telecommunications Business by Worldwide
Fiber providing financing for all or any part of the cost of construction,
engineering, acquisition, installation, development or improvement by Worldwide
Fiber or any Restricted Subsidiary of any Telecommunications Assets from the
vendor or lessor (or any Affiliate of such vendor or lessor) and 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. Vendor Financing Indebtedness shall not
include any working capital facility or Indebtedness to fund interest or other
similar expenses made available by any vendor or lessor.
"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:
(1) the sum of the products obtained by multiplying (a) the amount of each then
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 the date and the making of such payment; by
(2) 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 the Person and/or by one or more Wholly-Owned Restricted
Subsidiaries of such Person.
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DESCRIPTION OF OTHER INDEBTEDNESS
1998 Notes
General. The 1998 Notes are senior obligations of ours, limited to $175
million in principal amount, and mature on December 15, 2005. The 1998 Notes,
which were issued pursuant to the 1998 indenture, accrue interest at a rate of
12 1/2% per annum. Interest is payable each June 15 and December 15, commencing
on June 15, 1999.
Ranking. The 1998 Notes rank senior in right of payment to any of our
future subordinated indebtedness, and pari passu in right of payment with all of
our senior indebtedness, including the Notes.
Optional Redemption. The 1998 Notes are not redeemable prior to December
31, 2003. Thereafter, the 1998 Notes will be redeemable, in whole or in part, at
our option, at the redemption prices set forth in the 1998 Indenture, plus
accrued and unpaid interest to the applicable redemption date. Specifically, if
redeemed during the 12-month period beginning on December 31 of the years set
forth below, the redemption price will be that amount, expressed as a percentage
of the principal amount of the 1998 Notes, listed below:
Year Redemption Price
2003.................................................. 106.250%
2004.................................................. 100.000%
Despite the foregoing, however, we shall not be permitted to make an optional
redemption until we consummate an offer with respect to the amount of cash
generated by us which is not used for the provision of taxes, fixed charges,
extraordinary losses or to repay secured indebtedness (the "Accumulated Excess
Cash Flow Amount") existing at December 31, 2003 as described in "Excess Cash
Flow Offer" below.
In addition, (1) prior to December 15, 2001, we may redeem up to 35% of the
originally issued principal amount of the 1998 Notes at 112.5% of their
principal amount, plus accrued and unpaid interest through the redemption date,
with the net cash proceeds of one or more public equity offerings; provided,
however, that at least 65% of the originally issued principal amount of the 1998
Notes remains outstanding after the occurrence of the redemption and (2) we may
redeem the 1998 Notes at their face value if we become obligated to pay any
additional amounts as a result of change in the laws or regulations of Canada or
any Canadian taxing authority, or a change in any official position regarding
their application or interpretation.
Change of Control. Upon the occurrence of a change of control, each holder
of 1998 Notes will have the right to require us to repurchase all or any part of
that holder's 1998 Notes at a purchase price in cash equal to 101% of their
principal amount, plus accrued and unpaid interest to the date of purchase.
Excess Cash Flow Offer. If at the end of our fiscal quarter ended December
31, 2000 or any fiscal quarter ending on June 30 or December 31 thereafter, our
Accumulated Excess Cash Flow Amount exceeds $10.0 million, we will be required
to make an offer to all holders of 1998 Notes to purchase the maximum principal
amount of 1998 Notes that may be purchased using that Accumulated Excess Cash
Flow Amount at an offer price equal to 110% of the principal amount of the 1998
Notes, plus accrued and unpaid interest to the date of purchase, subject to a
limitation that we are not obliged to repurchase more than 25% of the original
principal amount of the 1998 Notes before December 31, 2003.
Covenants. The 1998 indenture contains certain covenants that, among other
things, limit the ability of Worldwide Fiber and its restricted subsidiaries to:
o borrow money,
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o pay dividends on stock or repurchase stock,
o make investments,
o use assets as security in other transactions, and
o sell certain assets or merge with or into other companies.
Events of Default. The 1998 indenture contains customary events of default,
including:
o defaults in the payment of principal, premium or interest,
o defaults in the compliance with covenants contained in the 1998
indenture,
o cross defaults on more than $10 million of other indebtedness,
o failure to pay more than $10 million of judgments that have not been
stayed by appeal or otherwise, and
o the bankruptcy of Worldwide Fiber or certain of its subsidiaries.
Proposed Worldwide Fiber Inc. Credit Facility
We have accepted a commitment letter from an affiliate of Salomon Smith
Barney Inc., one of the initial purchasers of the notes, to arrange, subject to
credit approval and final documentation, a senior secured revolving credit
facility of up to $115 million with additional senior secured revolving purchase
money facilities of $35 million. We expect the facility to close in the fourth
quarter of 1999.
The indebtedness outstanding under the proposed credit facility would be
guaranteed by some of our subsidiaries and would be secured by all property and
assets owned by and all capital stock and intercompany indebtedness of us and
some of our subsidiaries.
The proposed credit facility would contain various covenants which would
restrict us and our subsidiaries with respect to, among other things, incurring
indebtedness, entering into merger or consolidation transactions, disposing of
our assets, acquiring assets, making certain restricted payments, repaying the
notes, creating any liens on our assets, making investments, and entering into
sale and leaseback transactions and transactions with affiliates. The proposed
credit facility would also require that we comply with various financial
covenants, including a fixed charge coverage ratio, maximum leverage ratios and
a limit on capital expenditures. The proposed credit facility would also contain
certain events of default, including default upon the nonpayment of principal,
interest, fees or other amounts, a cross-default with respect to other
obligations of ours and our subsidiaries, failure to comply with certain
covenants, conditions or provisions under the credit facility, the existence of
certain unstayed or undischarged judgments, the occurrence of any default under
material agreements that could result in a material adverse effect on us, the
making of materially false or misleading representations or warranties, or the
commencement of reorganization, bankruptcy, insolvency or similar proceedings or
the occurrence of certain ERISA events or a change of control. Upon occurrence
and during the continuance of an event of default under the credit facility, all
obligations under the credit facility could be declared to be immediately due
and payable.
We are likely from time to time, prior to the maturity date of the notes,
to refinance, replace, restructure, substitute for, amend or supplement the
credit facility. The actual terms of any credit facility could differ
substantially from the proposed facility outlined above.
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Proposed Hibernia Credit Facility
We have accepted a commitment letter from Goldman Sachs Credit Partners LP,
DLJ Capital Funding, Inc. and Credit Suisse First Boston, to arrange, subject to
certain standard conditions, including completion of definitive documentation,
up to $600 million in senior secured credit facilities consisting of two term
loan facilities aggregating $575 million and a $25 million working capital
revolving credit facility. DLJ Capital Funding, Inc. is an affiliate to
Donaldson Lufkin & Jenrette Securities Corporation, one of the initial
purchasers of the notes.
The indebtedness outstanding under the proposed credit facility would be
borrowed by one of our subsidiaries and would be secured by all property and
assets owned by that subsidiary and relating to Hibernia. The proposed facility
would be non-recourse to Worldwide Fiber Inc. The proposed credit facility would
contain various covenants which would restrict the subsidiary to the
development, design, engineering, construction and installation of Hibernia. The
actual terms of the definitive credit facility could differ substantially from
the proposed facility outlined above.
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BOOK-ENTRY, DELIVERY AND FORM
The old notes were offered and sold to qualified institutional buyers (as
defined in Rule 144A under the Securities Act) ("QIBs") in reliance of Rule 144A
under the Securities Act or Rule 144A notes). Rule 144A notes were initially
represented by one or more notes in registered, global form without interest
coupons. The global old notes were deposited upon issuance with the trustee, as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee for credit to the accounts of DTC's
Direct and Indirect Participants (as defined below). Except for new notes issued
in certificated form, the new notes will be represented by one or more notes in
registered, global form without interest coupons. The global new note will be
deposited upon issuance with the trustee as custodian for DTC and registered in
the name of DTC or its nominee, in each case for credit to an account of direct
or indirect participant.
Except as described below, the global new note may be transferred, in whole
but not in part, only to another nominee of DTC or to successor of DTC or its
nominee. Beneficial interests in the global new note may not be exchanged for
new notes in certificated form except in the limited circumstances described
below. See "--Exchange of the Global New Note for Certificated New Notes."
The new notes may be presented for registration of transfer and exchange at
the offices of the Registrar (as defined in the indenture).
Depositary Procedures
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "Direct
Participants") and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
changes in accounts of Participants. The Direct Participants include securities
brokers and dealers (including the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system is
also available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"Indirect Participants").
DTC has also advised us that, under DTC's procedures, (1) upon deposit of
the global new note, DTC will credit the accounts of the exchanging Direct
Participants with portions of the global new note and (2) DTC will maintain
records of the ownership interests of the Direct Participants in the global new
note and the transfer of ownership interests by and between Direct Participants.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the global notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the global new note.
Investors in the global new note may hold their interests in the global new
note directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
global new note to the persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a global new note to
pledge the interest to persons or entities that are not Direct Participants in
DTC, or to otherwise take actions for the interests, may be affected by the lack
of physical certificates evidencing the interests. For certain other
restrictions on the transferability of the new notes see "--Exchange of the
Global New Note for Certificated New Notes."
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Except as described in this prospectus, owners of beneficial interests in
the global new note will not have new notes registered in their names, will not
receive physical delivery of new notes in certificated form and will not be
considered the registered owners or holders of new notes under the indenture for
any purpose.
Under the terms of the indenture, we and the trustee will treat the persons
in whose names the new notes are registered (including the global new note) as
the owners of the new notes for the purpose of receiving payments and for any
and all other purposes whatsoever. Payments for the principal, premium, and
interest on the global new note registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee as the registered holder
under the indenture. Consequently, neither we, the initial purchasers, the
trustee nor any agent of ours or the trustee has or will have any responsibility
or liability for (1) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the global new note or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any global new note or (2) any other matter relating to the actions and
practices of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised us that its current payment practice (for payments of
principal, interest and the like) concerning securities the as the new notes is
to credit the accounts of the relevant Direct Participants with the payment on
the payment date in amounts proportionate to the Direct Participant's respective
ownership interests in the relevant security as shown on DTC's records. Payments
by Direct Participants and Indirect Participants to the beneficial owners of the
new notes will be governed by standing instructions and customary practices
between them and will not be our responsibility or the responsibility of DTC or
the trustee. Neither we nor the trustee will be liable for any delay by DTC or
its Direct Participants or Indirect Participants in identifying the beneficial
owners of the new notes, and we and the trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its nominee as the
registered owner of the global new note for all purposes.
The global new note will trade in DTC's Same-Day Funds Settlement System
and, therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of the
Direct Participant but generally will settle in immediately available funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of new notes only at the direction of one or more Direct Participants to
whose account interests in the global new note are credited and only for the
portion of the aggregate principal amount of the new notes to which the Direct
Participant or Direct Participants has or have given direction. However, if
there is an Event of Default under the new notes, DTC reserves the right to
exchange the global new note (without the direction of one or more of its Direct
Participants) for new notes in certificated form, and to distribute the new
notes to its Direct Participants. See "--Exchange of the Global New Note for
Certificated New Notes."
Although DTC agreed to the above procedures to facilitate transfers of
interests in the global new note among accountholders in DTC, it is under no
obligation to perform or to continue to perform the procedures, and the
procedures may be discontinued at any time. Neither we, the trustee nor any of
our or the trustee's agents will have any responsibility for the performance by
DTC or its respective participants, indirect participants or accountholders of
their respective obligations under the rules and procedures governing any of
their operations.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that we believe to be reliable, but we take no
responsibility for its accuracy.
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Exchange of the Global New Note for Certificated New Notes
New notes issued or transferred to institutional "accredited investors"
within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
Securities Act who are not QIBs will be issued in registered certificated form.
In addition, the global new note is exchangeable for definitive new notes in
registered certificated form if (1) DTC (x) notifies us that it is unwilling or
unable to continue as depository for the global new note and we thereupon fail
to appoint a successor depository or (y) has ceased to be a clearing agency
registered under the Exchange Act, (2) we, as our option, notify the trustee in
writing that we elect to cause the issuance of the new notes in certificated
form or (3) there shall have occurred and be continuing a Default or an Event of
Default concerning the notes. In all cases, certificated new notes delivered in
exchange for the global new note or beneficial interests in the global new note
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of DTC (in accordance with its customary procedures).
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MATERIAL UNITED STATES AND CANADIAN INCOME TAX CONSIDERATIONS
The discussion below is a general description of the material United States
and Canadian income tax consequences to beneficial owners of notes. This
discussion does not take into account the individual circumstances of any
particular investor and does not purport to discuss all of the possible tax
consequences of the purchase, ownership and disposition of the notes. Therefore,
prospective investors are urged to consult their own tax advisors concerning the
tax consequences of purchasing, holding and disposing of the notes, including
the application of state, provincial, local, foreign and other tax laws.
United States
The following is a general discussion of the material U.S. federal income
tax consequences of the exchange of old notes for new notes under the exchange
offer and the ownership and disposition of the new notes to investors who are
U.S. Holders. As used in this prospectus, "U.S. Holder" means a beneficial owner
of a note that is
o an individual who is a citizen or resident of the United States,
o a corporation or other entity taxable as a corporation, created or
organized in or under the laws of the United States or of any state of
the United States (including the District of Columbia),
o an estate the income of which is includable in gross income for U.S.
federal income tax purposes regardless of its source or
o a trust if a U.S. court is able to exercise primary supervision over
the trust's administration and one or more U.S. persons have authority
to control all substantial decisions of the trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
or the Code, Treasury regulations promulgated under the Code, and administrative
and judicial interpretations of the Code, all as in effect or proposed on the
date of this prospectus and all of which are subject to change, possibly with
retroactive effect. This discussion is limited to U.S. Holders that purchase
notes at the issue price and hold notes as capital assets within the meaning of
Section 1221 of the Code. This discussion does not address federal alternative
minimum tax consequences or all aspects of U.S. federal income taxation that may
be relevant to particular purchasers in light of their personal circumstances or
to purchasers subject to special treatment under U.S. federal income tax law
(including, without limitation, dealers in securities or foreign currency,
tax-exempt entities, banks, insurance companies or other financial institutions,
persons that hold notes as part of a "straddle," "hedge" or "conversion
transaction," persons that have a "functional currency" other than the U.S.
dollar and persons that own notes through partnerships or other pass-through
entities). This discussion also does not address any tax consequences arising
out of the tax laws of any state, local or foreign jurisdiction.
Prospective purchasers are urged to consult their own tax advisors as to
the particular tax consequences to them of the exchange of old notes for new
notes and the ownership and disposition of new notes, including the
applicability of any state, local or foreign tax laws, and any changes (or
proposed changes) in applicable tax laws or their interpretations.
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Federal Income Tax Consequences of Tendering Old Notes for New Notes
Exchange Offer
A U.S. Holder will not recognize taxable gain or loss on the exchange of
old notes for new notes under the exchange offer, and a U.S. Holder's tax basis
and holding period for the new notes will be the same as for the old notes
immediately before the exchange.
Federal Income Tax Consequences of Owning and Disposing of New Notes
Interest on Notes
Interest paid on a note will be taxable to a U.S. Holder as ordinary
interest income, generally at the time it is received or accrued, in accordance
with the holder's regular method of accounting for United States federal income
tax purposes. If Canadian withholding taxes are imposed on the interest
payments, Worldwide Fiber will be required to pay Additional Amounts to holders
of notes (see "Description of Notes--Payment of Additional Amounts"). Worldwide
Fiber believes that the imposition of Canadian withholding taxes concerning
interest on the notes as a result of a change in Canadian tax law is a remote
and incidental contingency. Accordingly, Worldwide Fiber does not intend to
treat the notes as contingent payment debt instruments. Similarly, Worldwide
Fiber believes that the likelihood of a redemption or a repurchase as a result
of a "Change of Control" is remote and Worldwide Fiber does not intend to treat
that possibility as affecting the yield to maturity of the notes for U.S.
federal income tax purposes.
Sale, Redemption or Retirement of Notes
Upon the sale, redemption, retirement at maturity or other taxable
disposition of a note, a U.S. Holder generally will recognize gain or loss equal
to the difference between the sum of cash plus the fair market value of all
other property received on that sale, redemption, retirement or disposition
(except to the extent the cash or property is attributable to accrued but unpaid
interest that has not previously been included in the holder's income) and the
U.S. Holder's tax basis in the note (generally, its cost).
Gain or loss recognized on the sale or other taxable disposition of a note
generally will be capital gain or loss and will be long-term capital gain or
loss if, at the time of the disposition, the note has been held for more than
one year. In the case of a U.S. Holder who is an individual, long term capital
gains generally are subject to a maximum capital gains rate of 20%.
Foreign Tax Credit Considerations
Interest on the notes will constitute income from sources without the
United States for United States foreign tax credit purposes. Payment of interest
on the notes will not be subject to Canadian withholding tax. See "--Canada."
If, however, the interest payments on the notes become subject to Canadian
withholding taxes as the result of a change in Canadian tax law, U.S. Holders
will be treated for U.S. federal income tax purposes as having actually received
the amount of the taxes withheld and as having paid that amount to the Canadian
taxing authorities. As a result, the amount of interest income included in gross
income by a U.S. Holder generally will be greater than the amount of cash
actually received by the U.S. Holder from Worldwide Fiber for the interest
income. A U.S. Holder may be able, subject to generally applicable limitations,
to claim a foreign tax credit or take a deduction for Canadian withholding taxes
imposed on interest payments (including withholding taxes imposed on Additional
Amounts).
Gain or loss on the sale, redemption, retirement at maturity or other
taxable disposition of a note generally will constitute U.S. source gain or loss
for U.S. foreign tax credit purposes.
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Backup Withholding
Backup withholding may apply to certain payments of principal, premium, if
any, and interest on a note and to proceeds of the sale or other disposition of
a note before maturity. Worldwide Fiber, or its U.S. agent or broker, will be
required to withhold from any payment that is subject to backup withholding a
tax equal to 31% of the payment, unless the U.S. Holder furnishes its taxpayer
identification number (social security or employer identification number),
certifies that the number is correct, certifies as to no loss of exemption from
backup withholding and otherwise complies with the applicable requirements of
the backup withholding rules. Certain U.S. Holders, including corporations, are
not subject to backup withholding. Any amounts withheld under the backup
withholding rules from a payment to a U.S. Holder generally will be allowed as a
credit against the U.S. Holder's U.S. federal income tax liability and may
entitle the U.S. Holder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
Canada
The following summarizes the material Canadian federal income tax
considerations as of the date of this prospectus under the Income Tax Act
(Canada) (the "Canadian Tax Act") and the published administrative practice of
Revenue Canada generally applicable to a holder of notes who acquires notes
under this prospectus.
This summary is based upon the provisions of the Canadian Tax Act and the
regulations adopted under the Canadian Tax Act (the "Regulations") in force on
the date of this prospectus, proposed amendments to the Canadian Tax Act and the
Regulations publicly announced prior to the date of this prospectus by or on
behalf of the Minister of Finance (Canada) and current published administrative
practices and assessing policies of Revenue Canada. This summary does not
otherwise take into account or anticipate any changes in law or administrative
practice, whether by legislative, governmental or judicial action, nor does it
take into account provincial or foreign income tax considerations. This summary
of Canadian federal income tax considerations does not take into account the
individual circumstances of any particular investor and does not purport to
discuss all of the possible tax consequences of an investment in the notes.
Prospective holders should consult their tax advisors for advice regarding the
income tax considerations applicable to them.
The following discussion is applicable to a holder (other than an initial
purchaser) who, for purposes of the Canadian Tax Act and any relevant tax
treaty, deals at arm's length with Worldwide Fiber, is not and is not deemed to
be a resident of Canada, does not use or hold, and is not deemed to use or hold,
the notes in the course of carrying on a business in Canada and, in the case of
a person who carries on an insurance business in Canada and elsewhere,
establishes the notes are not effectively connected with the insurance business
carried on in Canada and are not "designated insurance property" for purposes of
the Canadian Tax Act (a "Non-Resident Holder"). For purposes of the Canadian Tax
Act, related persons (as defined in the Canadian Tax Act) are deemed not to deal
at arm's length, and it is a question of fact whether persons not related to
each other deal at arm's length.
The payment by Worldwide Fiber of interest, principal or premium on the
notes to a Non-Resident Holder will be exempt from Canadian withholding tax.
No other tax on income (including taxable capital gains) will be payable by
a Non-Resident Holder under the Canadian Tax Act as a result of the acquisition,
holding, sale, redemption or other disposition of the notes, including the
receipt of interest or premium thereon.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account through the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. This prospectus, as it
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<PAGE>
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of new notes received in exchange for old notes where
the old notes were acquired by the broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, starting on the
expiration date and ending on the close of business on the 180th day following
the expiration date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with a resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
through 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 new notes or a combination of these methods of
resale, at market prices prevailing at the time of resale, at prices related to
prevailing market prices or at negotiated prices. The 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 the broker-dealer
and/or the purchasers of the new notes. Any broker-dealer that resells new notes
that were received by it for its own account under the exchange offer and any
broker or dealer that participates in a distribution of new notes may be
considered to be an "underwriter" within the meaning of the Act and any profit
of resale of new notes and any commissions or concessions received by any person
may be considered to be underwriting compensation under the Securities Act. The
letter of transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not have admitted that it is an
"underwriter" within the meaning of the Securities Act. By acceptance of the
exchange offer, each broker-dealer that receives new notes under the exchange
offer agrees to notify us before using this prospectus in connection with the
sale or transfer of new notes, and acknowledges and agrees that, upon receipt of
notice from us of the happening of any event which makes any statement in this
prospectus untrue in any material respect or which requires the making of any
changes in this prospectus to make the statements in this prospectus not
misleading, which notice we agree to deliver promptly to the broker-dealer, the
broker-dealer will suspend use of this prospectus until we have amended or
supplemented the prospectus to correct the misstatement or omission and have
furnished copies of the amended or supplemented prospectus to the broker-dealer.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these documents in the letter of
transmittal. We have agreed to pay all expenses for the exchange offer
(including the expenses of any one special counsel for the holders of the notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the notes participating in the exchange offer
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The holder of each old note accepted for exchange will receive a new note
in an amount equal to the surrendered old note. Old notes accepted for exchange
will not accrue interest from the date the exchange offer is completed. Holders
of old notes accepted for exchange will not receive any payment of accrued
interest on those old notes. Old notes which are not tendered or not accepted
for exchange will continue to accrue interest.
The old notes were issued on July 28, 1999 in a transaction exempt from the
registration requirements of the Securities Act. They may not be offered or sold
in the United States unless registered or under an applicable exemption under
the Securities Act. We are offering the new notes under this prospectus to
satisfy certain of our obligations contained in the registration rights
agreement we entered into concerning the offering. Based on interpretations by
the staff of the Securities and Exchange Commission as described in no-action
letters issued to others, we believe that new notes issued through the exchange
offer in exchange for old notes may be offered for resale, resold and otherwise
transferred by any holder of notes, except a holder that is an affiliate of ours
within the meaning of Rule 405 under the Securities Act, without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that these new notes are acquired in the ordinary course of the
holder's business and the holder has no arrangement or understanding with any
person to participate in a distribution of these new notes. However, we have not
sought a no-action letter concerning the exchange offer and we cannot assure you
that the staff of the Securities and Exchange Commission would make a
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<PAGE>
similar determination about the exchange offer. Each holder of old notes, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage or participate in, a distribution of new notes and has no
arrangement or understanding to participate in a distribution of new notes. Each
broker-dealer that receives new notes for its own account through the exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of new notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not have admitted that it
is an "underwriter" within the meaning of the Securities Act. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer with resales of new notes received in exchange for old notes
acquired by that broker-dealer as a result of market-making activities or other
trading activities. We have agreed that, for a period ending at the close of
business on the 180th day following the expiration date, we will make this
prospectus available to any broker-dealer to use with resales. See "Plan of
Distribution."
We will not receive any proceeds from the exchange offer. We will pay all
the expenses of the exchange offer. In the event we terminate the exchange offer
and do not accept any old notes for exchange we will promptly return the old
notes to the holders of the notes. See "The Exchange Offer."
There has previously been only a limited secondary market, and no public
market, for the old notes. The old notes are eligible for trading in The Portal
Market. We have been advised by the initial purchasers that they intend to make
a market for the new notes; however, the initial purchasers are not obligated to
do so. We do not currently intend to list the new notes on any securities
exchange. Any market-making may be discontinued at any time, and there is no
assurance that an active public market for the new notes will develop or, if it
does develop, that it will continue. This prospectus may be used by the initial
purchasers in connection with offers and sales of the new notes which may be
made by them from time to time in market-making transactions at negotiated
prices relating to prevailing market prices at the time of sale. The initial
purchasers may act as principal or agent in this transaction.
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of it would not comply with the securities or blue sky
laws of that jurisdiction.
You should rely only on the information contained in this document or what
we have referred you to. We have not authorized anyone to provide you with
information that is different.
The market data included in this prospectus, including information relating
to our relative position in the industry, are based on independent industry
publications, other publicly available information or our management's good
faith beliefs. Although we believe that these independent sources are reliable,
the accuracy and completeness of these independent sources has not been
independently verified.
Old notes in the aggregate principal amount of $500 million were issued
originally in global form. The global old note was deposited with The Depository
Trust Company, as initial depository. The global old note is registered in the
name of Cede & Co., as nominee of the depository. Beneficial interests in the
global old note are shown on, and transfers of the global old note are effected
only through, records maintained by the depository and its participants. The use
of the global old note to represent certain of the old notes permits the
depository's participants, and anyone holding a beneficial interest in an old
note registered in the name of that a participant, to transfer interests in the
old notes electronically in accordance with the depository's established
procedures without the need to transfer a physical certificate. The new notes
will also be issued initially as a note in global form and deposited with the
depository.
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<PAGE>
LEGAL MATTERS
Certain legal matters concerning the new notes will be passed upon for
Worldwide Fiber by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York (concerning matters of U.S. law)
and Farris, Vaughan, Wills & Murphy, Vancouver, British Columbia (concerning
matters of Canadian law).
EXPERTS
The divisional financial statements of the predecessor division as of May
31, 1998, August 31, 1997 and August 31, 1996 and for each of the periods then
ended and the divisional statements of operations and retained earnings and cash
flows for the year ended March 31, 1996, included in this prospectus, have been
audited by Deloitte & Touche LLP, Edmonton, Alberta, as stated in their report
contained in this prospectus. Deloitte & Touche LLP have been auditors of Ledcor
for 51 years.
Our consolidated financial statements dated December 31, 1998, included in
this prospectus, have been audited by PricewaterhouseCoopers LLP, Vancouver,
British Columbia, as stated in their report contained in this prospectus.
PricewaterhouseCoopers LLP are Worldwide Fiber's auditors.
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<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
We are a corporation organized under the laws of Canada. A majority of our
directors and officers, as well as certain experts named in this prospectus,
reside principally in Canada. Because all or a substantial portion of our assets
and the assets of these persons are located outside the United States, it may
not be possible for you to effect service of process within the United States
upon us or those persons. Furthermore it may not be possible for you to enforce
against us or them in the United States, judgments obtained in U.S. courts based
upon the civil liability provisions of the U.S. Federal securities laws or other
laws of the United States. We have been advised by Farris, Vaughan, Wills &
Murphy, our Canadian counsel, that there is doubt as to the enforceability, in
original actions in Canadian courts, of liabilities based upon the U.S. Federal
securities laws and as to the enforceability in Canadian courts of judgments of
U.S. courts obtained in actions based upon the civil liability provisions of the
U.S. Federal securities laws. Therefore, it may not be possible to enforce those
actions against us, our directors and officers or the experts named in this
prospectus.
CURRENCY TRANSLATION
We report our financial statements in U.S. dollars, while the currency of
measurement for our operations varies depending upon location. Unless otherwise
indicated, references to "dollars" or "$" are to U.S. dollars and references to
"Cdn. $" are to Canadian dollars.
The following table lists, for each period indicated, the high and low
exchange rates for Canadian dollars expressed in U.S. dollars, based on the
inverse of the noon buying rate in New York City for cable transfers in foreign
currencies, as certified for customs purposes by the Federal Reserve Bank of New
York, the average of these exchange rates on the last day of each month during
this period, and the exchange rate at the end of this period:
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended
June 30,
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
High..................... 0.7632 0.7527 0.7513 0.7487 0.7105 0.6894
Low...................... 0.7103 0.7023 0.7235 0.6945 0.6341 0.6537
Average (1).............. 0.7300 0.7305 0.7329 0.7198 0.6714 0.6725
Rate at period end....... 0.7128 0.7323 0.7301 0.6999 0.6504 0.6835
</TABLE>
- --------------------
(1) The average of the exchange rate on the last day of each month during the
applicable period.
On October 18, 1999, the inverse of the noon buying rate was Cdn. $1.00 =
$0.6689. There are currently no Canadian restrictions on currency exchanges or
the repatriation of dividends or capital gains.
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<PAGE>
<TABLE>
<CAPTION>
GLOSSARY
Asynchronous Transfer Mode
<S> <C>
(ATM)......................... A cell-based connection-oriented technology that provides a protocol for
transmitting multiple traffic types over high-speed networks.
Available Bit Rate (ABR)...... A class of service in which the ATM Network makes its "best effort" to meet
traffic bit rate requirements.
Band.......................... A range of frequencies between two defined limits
bandwidth..................... The relative range of analog frequencies or digital signals that can be
passed through a transmission medium, such as glass fibers, without
distortion. The greater the bandwidth, the greater the information carrying
capacity. Bandwidth is measured in hertz (analog) or bits per second
(digital).
Bit........................... A binary unit of information that can have either of two values, 0 or 1.
carrier....................... A provider of communications transmission services by fiber, wire or radio.
carrier's carrier............. A provider of communications transmission services that specializes in the
wholesale provision of telecommunications bandwidth and services to other
carriers and service providers.
Cell.......................... For ATM, an information package consisting of 53 bytes, or octets, of data.
Of these, the first 5 constitute the header: 48 carry the payload.
Cell Relay.................... Network transmission format that uses small packets of the same size, called
cells. The cells are fixed-length and can be transmitted and processed by
hardware at very high rates. Cell relay acts as a basis for ATM.
Cell Relay Service............ A carrier service that supports the receipt and transmission of ATM cells
between end users in compliance with ATM standards and implementation
specifications.
Circuit Emulation Service
(CES)......................... ATM Forum-defined service that provides a virtual circuit connection that
emulates the characteristics of a real, constant-bit-rate,
dedicated-bandwidth circuit.
city ring..................... A facility of conduit and fiber optic cable encircling a metropolitan area.
CLEC.......................... Competitive local exchange carrier. A company that competes with LECs in
the local services market.
Constant Bite Rate (CBR)...... Delay intensive applications such as video and voice that must be digitized
and represented by a continuous bit stream. CBR traffic requires guaranteed
levels of service and throughput.
CRTC.......................... Canadian Radio-television and Telecommunications Commission.
customer premises equipment
edge.......................... ATM access equipment located on a customer site.
dark fiber.................... Fiber that lacks the requisite optical transmission equipment necessary to
use the fiber for transmission.
digital....................... Describes a 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/switching technologies employ a
sequence of discrete, distinct pulses to represent information, as opposed
to the continuously variable analog signal. This gives operators
significant capacity increases over analog.
DWDM.......................... Dense Wavelength Division Multiplexing. High speed version of WDM, which is
a means of increasing the capacity of SONET fiber-optic transmission systems
through the multiplexing of multiple wavelengths of light. A technique for
transmitting more than one light wave frequency on a single fiber to
increase the information carrying capacity.
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FCC........................... Federal Communications Commission.
fiber miles................... The number of route miles installed along a telecommunications path
multiplied by the number of fibers along the path. See the definition of
"route miles" below.
fiber optics.................. Fiber optic technology involves sending laser light pulses across glass
strands in order to transmit digital information. Fiber optic cable is the
medium of choice for the telecommunications and cable industries.
frame relay................... A high-speed, data-packet switching service used to transmit data between
computers. Frame Relay supports data units of variable lengths at access
speeds ranging from 56 kilobits per second to 1.5 megabits per seconds.
This service is well-suited for connecting local area networks, but is not
presently well suited for voice and video applications due to the variable
delays which can occur. Frame Relay was designed to operate at high speeds
on modern fiber optic networks.
ILEC.......................... Incumbent local exchange carrier.
IP............................ Internet protocol.
ISP........................... Internet service provider. A company that provides businesses and consumers
with access to the Internet.
IRU........................... Indefeasible right of use. A long-term lease of approximately 10 or 20
years with option periods thereafter to renew at lower rates, at the option
of the lessee.
IXC........................... Interexchange carrier. In the United States, a company providing inter-LATA
or long distance services between LATAs on an intrastate or interstate
basis. In Canada, a company that provides long distance services between
local telephone exchanges on an intraprovincial or interprovincial basis.
jetting....................... The process of blowing fiber through a conduit.
LAN........................... Local area network.
LATA.......................... Local access and transport area. The approximately 200 geographic areas in
the United States that define the areas between which the RBOCs currently
are prohibited from providing long distance services.
LEC........................... Local exchange carrier.
lit fiber..................... Fiber activated or equipped with the requisite optical transmission
equipment necessary to use the fiber for transmission.
MSP........................... Multi service platform.
multiplexing.................. An electronic or optical process that combines a large number of lower speed
transmission lines into one high speed line by splitting the total available
bandwidth into narrower bands (frequency division), or by allotting a common
channel to several different transmitting devices, one at a time in sequence
(time division).
Multiprotocol Encapsulation
over ATM...................... The process for enabling an ATM device or application to add a standard
protocol identifier to the LAN data which allows higher-layer protocols,
such as IP, to be routed over ATM.
NNI links..................... Network to network interface links.
NOC........................... Network Operations Center.
OC-192........................ OC is a measure of SONET transmission optical carrier level, which is equal
to the corresponding number of DS-3s (e.g., OC-3 is equal to 3 DS-3s (DS-3
service has a bit rate of 45 megabits per second and typically transmits 672
simultaneous voice conversations) and OC-48 is equal to 48 DS-3s).
Optical Add/Drop.............. Optical equipment where an individual wavelength is added or dropped.
Optical Carrier (OCx)......... Fundamental unit of measurement used in SONET (Synchronous Optical
A-2
<PAGE>
Network) hierarchy. OC indicates an optical carrier signal and x represents
increments of 51.84Mb/s. OC-1, OC-3, and OC-12 represent rates of 51, 155,
622Mb/s.
Optical Line Amplifier........ A device used to boost the strength of an optical signal, which is weakened
(attenuated) as it passes through the transport network.
Optical Terminal.............. A group of optoelectric circuits that converts an electrical signal to an
optical signal and an optical signal to an electrical signal.
Permanent Virtual Circuit
(PVC)......................... A defined virtual link with fixed end-points that are set-up by the network
manager. A single virtual path may support multiple PVC's.
POP........................... Points-of-presence. Locations where a carrier has installed transmission
equipment in a service area that serves as, or relays calls to, a network
switching center of the carrier, or locations in customer buildings where a
carrier has installed electronics and/or facilities.
PNN........................... Private Network--Network Interface.
Protocol...................... A formal description of a set of rules and conventions that govern how
devices on a network exchange information. These rules consist of syntax
(header structure), semantics (actions and reactions that are supposed to
occur), and timing (relative ordering and direction of states and events).
Quality of Service (QoS)...... The set of parameters and their values that quantify the performance of a
given virtual circuit.
RBOC.......................... Regional Bell Operating Companies. The seven local telephone companies
established as a result of the court-ordered breakup in 1984 of AT&T.
Regeneration Shelter.......... A self-contained, pre-constructed building that houses environmental and
electrical support for optoelectric circuitry.
reseller...................... A carrier that does not own transmission facilities, but obtains
communications services from another carrier on a wholesale basis for resale
to the public.
route miles................... The number of miles of the telecommunications path in which fiber optic
cables are installed.
ROW........................... Rights-of-way, licenses and permits (creating a contractual interest and not
an interest in land) from third party landowners and governmental
authorities which permit the holder to install conduit and fiber.
SONET Ring.................... Synchronous Optical Network Technology Ring. An electronics and network
architecture for variable-bandwidth products which enables transmission of
voice, data and video (multimedia) at very high speeds in the event of a
fiber cut by automatically rerouting traffic in the opposite direction
around the ring.
switch........................ A sophisticated computer that accepts instructions from a caller in the form
of a telephone number. Like an address on an envelope, the numbers tell the
switch where to route the call. The switch opens or closes circuits or
selects the paths or circuits to be used for transmission of information.
Switching is a process of interconnecting circuits to form a transmission
path between users. Switches allow local telecommunications service
providers to connect calls directly to their destination, while providing
advanced features and recording connection information for future billing.
Switched Virtual Circuit
(SVC)......................... A virtual link, with variable end-points, established through an ATM network. With an
SVC, the user defines the end-points when the call is initiated that are subsequently
terminated at the end of the call.
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Synchronous Optical Network
(SONET)....................... A Consultative Committee for International Telegraph and Telephony standard
for synchronous transmission up to multi-gigabit speeds.
Unspecified Bit Rate (UBR).... An ATM service type in which the ATM network makes a "best effort" to meet the
transmitter's bandwidth requirements; essentially a "send and pray" service like
that available from today's networks.
User Network Interface (UNI).. The protocol to define connections between ATM end-stations and the ATM switch
including signaling, cell structure, addressing, traffic management, and
adaptation layers.
Variable Bit Rate (VBR)....... Applications, which produce traffic of varying bit rates, like common LAN
applications, that produce varying throughput rates.
Variable Bit Rate/non-real
time (VBR/nrt)................ One of five ATM Forum-defined service types. Supports variable bit rate
traffic which requires strict timing control, such as packetized voice or
video, with average, and peak traffic parameters.
Variable Bit Rate/real time
(VBR/rt)...................... One of five ATM Forum-defined service types. Supports variable bit rate
traffic which requires strict timing control, such as packetized voice or
video, with average, and peak traffic parameters.
Virtual Channel Connection
(VCC)......................... Virtual channels in two or more sequential physical circuits can be
concatenated to create an end-to-end connection called a VCC. A VCC is a
specific instance of a SVC or PVC. A VCC may traverse one end-to-end VPC or
several sequential VPCs.
Virtual Circuit (VC).......... Logical channel established as a result of the call initiation procedure to
a network address that exists for a period of time.
Virtual Path.................. A group of virtual channels, which can support multiple virtual circuits.
Virtual Path
Identifier/Virtual Channel
Identifier (VPI/VCI).......... Combined, these fields identify a connection in the ATM network.
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>
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<PAGE>
================================================================================
, 1999
WORLDWIDE FIBER
[OBJECT OMITTED]
Worldwide Fiber Inc.
$500,000,000
12% senior notes due 2009
--------------
PROSPECTUS
-------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this Prospectus or to make representations as to
matters not stated in this Prospectus. You must not rely on unauthorized
information. This Prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this Prospectus nor any
sales made hereunder after the date of this Prospectus shall create an
implication that the information contained herein or the affairs of the Company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
Worldwide Fiber Inc.
Index to Pro Forma Financial Information
Page
----
Nature and Purpose of Pro Forma Financial Information.................... PF-2
Pro Forma Consolidated Balance Sheet as at June 30, 1999................. PF-3
Pro Forma Consolidated Income Statement for the six month
period ended June 30, 1999............................................. PF-4
Pro Forma Consolidated Income Statement for the year ended
December 31, 1998...................................................... PF-5
Notes to Pro Forma Financial Information................................. PF-6
PF-1
<PAGE>
Worldwide Fiber Inc.
Nature and Purpose of Pro Forma Financial Information
(Unaudited)
The accompanying pro forma consolidated balance sheet of Worldwide
Fiber Inc. (the "Company") as at June 30, 1999 assumes the following
transactions occurred on June 30, 1999: (i) the issuance on July 28, 1999 of the
$500,000,000 12% senior notes ("the Notes"), (ii) the issuance on August 31,
1999 of 150,000 Class B Subordinate Voting Shares for $3,000,000 of cash, (iii)
the reorganization of share capital of the Company on September 9, 1999
including stock dividend of 5,000,000 Series C Redeemable Preferred Shares and
redemption of 45,000,000 Series C Redeemable Preferred Shares for $45,000,000 of
cash (iv) the issuance on September 9, 1999 of 8,866,808 Series A Non-Voting
Preferred Shares for $345,000,000 of cash and (v) the acquisition on September
27, 1999 from affiliates of Ledcor Inc. ("Ledcor") of certain fiber optic
network assets in exchange for 4,500,000 Class C Multiple Voting Shares of the
Company.
The accompanying pro forma consolidated income statement of the Company
for the six month period ended June 30, 1999 gives effect to the interest
expense, including amortization of deferred financing costs, relating to the
Notes assuming the Notes were issued on January 1, 1998.
The accompanying pro forma consolidated income statement of the Company
for the year ended December 31, 1998 assumes that the following transactions
occurred on January 1, 1998: (i) the transfer on May 31, 1998 of certain of the
operations of the Telecommunications Division ("Division") of Ledcor, the
Construction Services, Management Services and Employee Services Agreements
between the Company and affiliates of Ledcor, (ii) the consolidation of
Worldwide Fiber (USA), Inc. ("WFI USA"), (formerly Pacific Fiber Link, Inc.) as
a result of the Company's agreement to increase its interest in WFI USA from 50%
to 75% on December 31, 1998, and (iii) the effect of the interest expense,
including amortization of deferred financing costs, relating to the Notes and
$175,000,000 12 1/2% senior notes (the "1998 Notes").
The unaudited pro forma consolidated balance sheet and income statement
as of and for the six month period ended June 30, 1999 is based on the
historical unaudited consolidated financial statements for the six month period
ended June 30, 1999.
The unaudited pro forma consolidated income statement for the year
ended December 31, 1998 is presented on the basis of the fiscal year end of
December 31, 1998 adopted by the Company and is based on the historical
consolidated income statement of the Company for the seven-month period ended
December 31, 1998, and the operations of the Division for the five months ended
May 31, 1998 derived from the historical statement of operations for the
Division for the nine months ended May 31, 1998.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results that actually would have been achieved if
the transactions reflected therein had been completed on the dates indicated or
the results which may be obtained in the future. The unaudited pro forma
consolidated financial state-
PF-2
<PAGE>
Worldwide Fiber Inc.
Nature and Purpose of Pro-Forma Financial Information
(Unaudited)
ments should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the consolidated financial
statements of the Company, financial statements of the Division and consolidated
income statement of WFI USA, including the respective notes thereto, included
elsewhere herein.
PF-3
<PAGE>
Worldwide Fiber Inc.
Pro Forma Consolidated Balance Sheet
(Unaudited)
Worldwide Fiber Inc.
June 30, 1999
(tabular amounts expressed in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Pro forma
Worldwide Pro forma Consolidated
Fiber Inc. Adjustments Balance Sheet
$ $ $
---------- ----------- -------------
Assets
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents...................... 86,812 4(i) 484,000 873,812
4(iii) (45,000)
4(v) 345,000
4(v) 3,000
Accounts receivable............................ 19,656 -- 19,656
Unbilled revenue............................... 72,534 -- 72,534
Inventory...................................... 86,502 -- 86,502
Other current assets........................... 30,814 -- 30,814
---------------- ------------------ ---------------
296,318 787,000 1,083,318
Fixed Assets................................... 57,790 4(ii) 26,000 83,790
Deferred income taxes.......................... 4,408 4(ii) 12,000 16,408
Deferred financing costs....................... 6,509 4(i) 16,000 22,509
---------------- ------------------ ---------------
365,025 841,000 1,206,025
================ ================== ===============
Liabilities
Current liabilities
Accounts payable and accrued liabilities....... 81,551 4(ii) 30,000 113,751
4(vi) 2,200
Advances on contracts.......................... 26,470 -- 26,470
Income taxes payable........................... 16,733 -- 16,733
Other liabilities.............................. 5,323 -- 5,323
---------------- ------------------ ---------------
130,077 32,200 162,277
Senior Notes................................... 175,000 4(i) 500,000 675,000
---------------- ------------------ ---------------
305,077 532,200 837,277
Minority interest.............................. 4,438 -- 4,438
Redeemable Preferred Stock..................... -- 4(iv) 345,000 345,000
4(iii) 5,000
4(iii) (5,000)
Shareholder's Equity
Common Stock................................... 32,419 4(ii) 8,000 43,419
4(v) 3,000
Contributed surplus............................ 2,242 -- 2,242
Retained earnings (deficit).................... 21,413 (iii) (5,000) (25,787)
4(iii) (40,000)
4(vi) (2,200)
Accumulated other comprehensive
income.................................... (564) -- (564)
55,510 (36,200) 19,310
---------------- ------------------ ---------------
365,025 841,000 1,206,025
================ ================== ===============
</TABLE>
PF-4
<PAGE>
Worldwide Fiber Inc.
Pro Forma Consolidated Income Statement
(Unaudited)
For the six month period ended June 30, 1999
(tabular amounts expressed in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Pro forma
Worldwide Pro forma Consolidated Income
Fiber Inc. Adjustments Statement
$ $ $
---------- ----------- ---------
<S> <C> <C> <C>
Revenue........................................ 123,884 -- 123,884
Costs.......................................... 85,614 -- 85,614
------- ------ -------
Gross Profit................................... 38,270 -- 38,270
------- ------ -------
Expenses
General and administrative..................... 5,837 5(iii) 1,250 7,087
Depreciation................................... 453 -- 453
------- ------ -------
6,290 1,250 7,540
------- ----- -------
31,980 1,250 30,730
Interest expense............................... 7,970 5(i) 31,200 39,170
Interest Income................................ 2,299 -- 2,299
------- ------ -------
Income (loss) before income taxes and
minority interest............................ 26,309 (32,450) (6,141)
Provision for (recovery of) income taxes....... 10,921 5(iii) 950 (1,574)
5(iii) (13,445)
Income (loss) before minority interest......... 15,388 (19,955) (4,567)
Income attributable to minority
interest..................................... 2,995 -- 2,995
------- ------ -------
Net income (loss) for the period 12,393 (19,955) (7,562)
======== ========= ========
</TABLE>
PF-5
<PAGE>
Worldwide Fiber Inc.
Pro Forma Consolidated Income Statement
(Unaudited)
For the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Ledcor
Industries Worldwide
Worldwide Limited Fiber
Fiber Inc. Tele-communications (USA), Inc. Pro forma
(June 1 to Division (formerly Consolidated
December 31, (January 1 to Pacific Fiber Pro forma Income
1998) May 31, 1998) Link, Inc.) Subtotal Adjustments Statement
$ $ $ $ $ $
----- ------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... 164,319 20,537 21,071 205,927 6(i) 1,111 207,038
Costs....................... 147,621 11,398 16,533 175,552 6(i) 6,966 182,518
-------- ------- ------- ------- ------- --------
Gross profit................ 16,698 9,139 4,538 30,375 (5,855) 24,520
-------- ------- ------- ------- -------- --------
Expenses
General and administrative.. 2,274 1,289 1,683 5,246 6(ii) 394 8,140
6(v) 2,500
Depreciation................ 464 175 -- 639 -- 639
-------- ------- ------- ------- ------- --------
2,738 1,464 1,683 5,885 2,894 8,779
-------- ------- ------- ------- ------- -----
13,960 7,675 2,855 24,490 (8,749) 15,741
Interest expense............ 492 -- 72 564 6(vi) (72) 85,600
6(iii) 85,108
Interest income............. 267 -- 53 320 6(vi) (72) 248
-------- ------- ------- ------- -------- -------
Income (loss) before equity
income, income taxes and
minority interest......... 13,735 7,675 2,836 24,246 (93,857) (69,611)
Equity income............... 928 -- -- 928 6(vi) (928) --
-------- ------- ------- ------- -------- -------
Income (loss) before income
taxes and minority
interest.................. 14,663 7,675 2,836 25,174 (94,785) (69,611)
Provision for (recovery of) 6(v) 1,900
income taxes.............. -----
5,643 3,323 980 9,946 6(iv) (38,556) (26,710)
------- ------- ------- ------- -------- --------
Income (loss) before
minority interest........... 9,020 4,352 1,856 15,228 (58,129) (42,901)
Income attributable to
minority interest......... -- -- -- -- 6(vi) 464 464
------- ------- ------- ------- ------- -------
Net income (loss) for the
year...................... 9,020 4,352 1,856 15,228 (58,593) (43,365)
======= ======= ======= ======= ======== ========
</TABLE>
PF-6
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the six month period ended June 30, 1999
and the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
1. Pro forma transactions
The unaudited pro forma consolidated balance sheet and income statements of
the Company have been prepared to reflect the effects of the following completed
or proposed transactions.
Effective May 31, 1998, the operations of the Telecommunications Division
("Division") of Ledcor Industries Ltd. ("Ledcor") were transferred to the
Company. The transfer was pursuant to a series of agreements as follows:
o The Company obtained certain equipment, fiber optic network assets and
other assets;
o Ledcor retained all construction contracts entered into prior to the
transfer of the business and entered into two Construction Services
Agreements whereby the Company would provide services to Ledcor to
complete the contracts in exchange for a fee;
o The Company and Ledcor entered into a Management Services Agreement
whereby Ledcor would provide the Company with management staff,
administrative and other support services. The Company reimburses
Ledcor for direct costs paid on the Company's behalf and pays Cdn.
$200,000 per month for the Company's share of corporate overhead;
o The Company and Ledcor entered into Employee Services Agreements
whereby Ledcor provides personnel for designing, engineering,
construction and installation services on a cost reimbursement basis
to the Company;
o The Company and Ledcor entered into an undertaking whereby the Company
would provide services to complete the Canadian Fiber Optic
Transmission System and, upon completion, a portion of the network
would be transferred from Ledcor to the Company in exchange for a
fixed number of common shares of the Company as described in the
following point;
o As described in Note 1 to the consolidated financial statements of the
Company, on March 31, 1999, the Company issued 19,999,700 Class A
common shares to its parent Ledcor in exchange for certain fiber optic
assets. A pro forma balance sheet has not been presented to reflect
the effect of this transaction on the historical consolidated balance
sheet of the Company as of December 31, 1998. The transaction was
accounted for as a transaction between a parent and a wholly owned
subsidiary and accordingly, fixed assets acquired by the Company were
recorded at the carrying amount of the assets in the accounts of
Ledcor. If this transaction had occurred at December 31, 1998,
PF-7
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the six month period ended June 30, 1999
and the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
o the fixed assets would have increased by $21,883,000, the cost of the
assets in the accounts of Ledcor as at December 31, 1998, deferred
income taxes would have increased by $3,136,000 as a result of a
higher tax cost versus accounting cost of fixed assets and the stated
amount of the Company's common stock would have increased by
$25,019,000;
These agreements are summarized in the consolidated financial statements of
the Company for the period ended December 31, 1998.
As described in the notes to the unaudited interim consolidated financial
statements for the six month period ended June 30, 1999 and audited consolidated
financial statements for the period ended December 31, 1998, the Company entered
into a series of agreements with affiliates of Ledcor whereby the Company
acquired certain fiber optic network assets. Closing occurred on September 27,
1999. As consideration, upon closing, the Company issued to affiliates of Ledcor
4,500,000 Class C Multiple Voting Shares. In addition, the Company has assumed
certain rights and obligations of the affiliates under their build agreements
with a third party including obligations relating to the completion of those
builds and certain support structure, maintenance, license and access, and
underlying rights obligations.
On December 23, 1998, the Company issued $175,000,000 12-1/2% Senior notes
due 2005 (the "1998 Notes") and on July 28, 1999, the Company issued
$500,000,000 12% Senior notes due 2009 (the "Notes").
On December 31, 1998, the Company increased its interest in Worldwide Fiber
(USA), Inc. ("WFI USA") (formerly Pacific Fiber Link, Inc.) from 50% to 75% in
exchange for the conversion of a note amounting to $3,915,000.
Pursuant to a reorganization of the Company's share capital, on September
9, 1999, the Company amended its share capital by redesignating all Class A
Voting Shares to Class B Subordinate Voting Shares, cancelling the remaining
classes of shares and creating Class A Non-Voting shares, Class C Multiple
Voting shares, Series A and B Preferred Shares, and Series C Redeemable
Preferred Shares.
On August 31, 1999, the Company issued 150,000 Class B Subordinate Voting
Shares (redesignated from Class A Voting Shares) for $3,000,000 of cash.
Subsequently, the Company declared a stock dividend of 5,000,000 Series C
Redeemable Preferred Shares. Concurrently, the Company repurchased the
25,000,000 outstanding Class B Subordinate Voting Shares from its parent in
exchange for the issuance of 23,043,500 Class
PF-8
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the six month period ended June 30, 1999
and the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
B Subordinate Voting Shares and 40,000,000 Series C Redeemable Preferred Shares.
The Company then redeemed the 45,000,000 outstanding Series C Redeemable
Preferred Shares for $45,000,000 of cash.
On September 9, 1999, the Company issued 8,866,808 Series A Non-Voting
Preferred Shares for $345,000,000 of cash.
2. Basis of presentation
The unaudited pro forma balance sheet and consolidated income statements
have been prepared by management in accordance with generally accepted
accounting principles in the United States and the pro forma assumptions and
adjustments described in notes 1, 4, 5 and 6.
The unaudited pro forma consolidated balance sheet and income statement as
of and for the six month period ended June 30, 1999 is based on the unaudited
historical consolidated financial statements of the Company for the six month
period ended June 30, 1999.
The unaudited pro forma consolidated income statement for the year ended
December 31, 1998 is presented on the basis of the fiscal year end of December
31 adopted by the Company. The pro forma consolidated income statement for the
year ended December 31, 1998 is based on the historical consolidated income
statement of the Company for the seven-month period ended December 31, 1998, and
the operations of the Division for the five months ended May 31, 1998 derived
from the historical statement of operations for the Division for the nine months
ended May 31, 1998.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results that actually would have resulted if the
transactions reflected herein had been completed on the dates indicated or the
results which may be obtained in the future. The unaudited pro forma
consolidated financial statements should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements of the Company, financial
statements of the Division, and consolidated income statement of WFI USA,
including the respective notes thereto, included elsewhere herein.
3. Significant accounting policies
The significant accounting policies used in the preparation of the pro
forma consolidated balance sheet and income statements include those disclosed
in the audited financial statements of the Company.
PF-9
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the six month period ended June 30, 1999
and the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
4. Pro forma consolidated balance sheet assumptions and adjustments as at
June 30, 1999
The following assumptions and adjustments have been made in the pro forma
consolidated balance sheet as at June 30, 1999.
(i) Notes
This adjustment records the Notes assuming they had been issued on June
30, 1999.
(ii) Acquisition of fiber optic network assets
This adjustment records the acquisition by the Company of certain fiber
optic network assets from Ledcor in exchange for 4,500,000 Class C Multiple
Voting shares in accordance with the May 28, 1999 and September 27, 1999 share
purchase agreements. This transaction closed on September 27, 1999. If this
transaction had occurred at June 30, 1999 management estimates that fixed assets
would have increased by approximately $26,000,000, the cost of the assets in the
accounts of Ledcor, deferred income taxes would have increased by approximately
$12,000,000, as a result of a higher tax cost versus accounting cost of fixed
assets, accounts payable would have increased by approximately $30,000,000, the
liability recorded in the accounts of Ledcor, and the stated amount of the
Company's common stock would have increased by approximately $8,000,000.
(iii) Share reorganization
This adjustment records the stock dividend of 5,000,000 Series C
Redeemable Preferred Shares with an estimated fair value of $5,000,000 and
subsequent redemption of 45,000,000 Series C Redeemable Preferred Shares for
$45,000,000 of cash.
(iv) Issuance of Series A Non-Voting Preferred Shares
This adjustment records the issuance of 8,866,808 Series A Non-Voting
Preferred Shares for $345,000,000 of cash.
(v) Issuance of Class B subordinate voting shares
This adjustment records the issuance of 150,000 Class B Subordinate
Voting Shares (redesignated from Class A Voting Shares) for $3,000,000 of cash.
(vi) Capital taxes
PF-10
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the six month period ended June 30, 1999
and the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
This adjustment records estimated additional BC Corporation Capital and
Federal Large Corporation taxes payable of $2,200,000 for the six month period
ended June 30, 1999 resulting from the issuance of the Notes and Series A
Non-Voting preferred shares.
5. Pro Forma Consolidated Income Statement assumptions and adjustments for the
six month period ended June 30, 1999
The following assumptions and adjustments have been made in the pro forma
consolidated income statement to reflect the effect of the additional interest
expense, including amortization of deferred financing costs, related to the
Notes.
(i) Interest expense
This adjustment records the interest expense, including amortization of
deferred financing costs, related to the Notes assuming the Notes were issued on
January 1, 1998. Amortization of the deferred financing costs was computed based
on the effective interest method. The Company would have capitalized a portion
of interest expense related to the Notes to the cost of the fiber optic network
assets constructed during the six month period ended June 30, 1999, which is not
reflected in this pro forma statement.
(ii) Income taxes
This adjustment records an income tax recovery of $2,524,000 for the six
month period ended June 30, 1999 using an effective tax rate of 41.1%.
(iii) Capital taxes
This adjustment records estimated additional BC Corporation Capital taxes
of $1,250,000 and Federal Large Corporation taxes of $950,000 for the six month
period ended June 30, 1999 resulting from the issuance of the Notes and Series A
Non-Voting Preferred Shares.
6. Pro forma consolidated income statement assumptions and adjustments for the
year ended December 31, 1998
Pursuant to the transactions with Ledcor, the Company has not assumed
certain construction contracts that are the responsibility of Ledcor. The
Company provides construction services to Ledcor for such contracts in
accordance with the Construction Services Agreements. In addition, the Company
reimburses Ledcor for general and administrative, and other costs, paid by
Ledcor on the Company's behalf, in accordance with the Management and Employee
Services Agreements.
PF-11
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the six month period ended June 30, 1999
and the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
The following assumptions and adjustments have been made in the pro forma
consolidated income statement for the year ended December 31, 1998 to reflect
the retention of various contracts by Ledcor, the provision of general and
administrative services, the consolidation of WFI USA in respect of the
acquisition of an additional interest in WFI USA bringing the Company's interest
to 75% on December 31, 1998, and the effect of the additional interest expense,
including amortization of deferred financing costs, related to the Notes and
1998 Notes.
(i) Revenue and costs
Under the Construction Services Agreements with Ledcor, the Company is
reimbursed for all costs incurred plus a fee of 15%. Contract costs have been
adjusted to reflect costs incurred by the Division that are included in
inventory which would have been reimbursed if the Construction Services
Agreements had been in place. Revenues have been adjusted to reflect the costs
incurred plus the 15% fee for the five-month period ended May 31, 1998.
(ii) General and administrative costs
In accordance with the Management Services Agreement, Ledcor provides the
Company with management staff, administrative and other support services. The
Company reimburses Ledcor for direct costs and pays Cdn. $200,000 per month for
the Company's share of corporate overheads.
This adjustment eliminates the general corporate overhead costs allocated
to the Division of $299,546 and records $693,575 in accordance with the
Management Services Agreement for the five-month period ended May 31, 1998.
(iii) Interest expense
This adjustment records the interest expense, including amortization of
deferred financing costs, related to the Notes and the 1998 Notes assuming the
Notes and the 1998 Notes were issued on January 1, 1998. Amortization of the
deferred financing costs was computed based on the effective interest rate
method. The Company would have capitalized a portion of the interest expense
related to the Notes and 1998 Notes to the cost of the fiber optic network
assets constructed during the year ended December 31, 1998, which is not
reflected in this pro forma income statement.
(iv) Income taxes
This adjustment records an income tax recovery of $27,593,000 for the year
ended December 31, 1998 using an effective tax rate of 41.1% related to the
recognition of a deferred tax asset from the tax loss carryforward created for
the year ended December 31, 1998. Management believes that,
PF-12
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the six month period ended June 30, 1999
and the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
based on a number of factors, it is more likely than not that the deferred tax
asset will be fully realized, such that no valuation allowance would be
recorded.
(v) Capital taxes
This adjustment records estimated additional BC Corporation Capital taxes
of $2,500,000 and Federal Large Corporation tax of $1,900,000 for the year ended
December 31, 1998 resulting from the issuance of the Notes and Series A
Non-Voting preferred shares.
(vi) Acquisition of additional interest in WFI USA
It has been assumed that the Company's acquisition of the additional 25%
interest in WFI USA occurred on February 11, 1998, the date WFI USA commenced
operations.
Depreciation expense has not been adjusted for the acquisition of the
additional interest in WFI USA as the fiber optic network assets of WFI USA were
under construction at the date of acquisition and are not yet available for use.
Accordingly, if the acquisition had occurred on February 11, 1998, the
transaction would have been reflected as an issuance of shares for cash. No
interest income has been recognized on this transaction.
This adjustment eliminates the Company's equity in the earnings of WFI USA,
records the net income attributed to the minority interest as a result of the
consolidation of the net income of WFI USA, and eliminates intercompany interest
charged.
PF-13
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
WORLDWIDE FIBER INC. UNAUDITED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
Unaudited Consolidated Balance Sheets..................................... F-2
Unaudited Consolidated Income Statements.................................. F-4
Unaudited Consolidated Statement of Changes in Shareholder's Equity....... F-5
Unaudited Consolidated Statements of Cash Flows........................... F-6
Notes to Unaudited Consolidated Financial Statements...................... F-7
WORLDWIDE FIBER INC. AUDITED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED DECEMBER 31, 1998
Auditors' Report.......................................................... F-13
Consolidated Balance Sheet................................................ F-14
Consolidated Income Statement............................................. F-16
Consolidated Statement of Changes in Shareholder's Equity................. F-17
Consolidated Statement of Cash Flows...................................... F-18
Notes to Consolidated Financial Statements................................ F-19
WORLDWIDE FIBER (USA), INC. AUDITED FINANCIAL STATEMENTS FOR
THE PERIOD ENDED DECEMBER 31, 1998
Report of Independent Accountants......................................... F-34
Consolidated Income Statement............................................. F-35
Consolidated Statement of Changes in Shareholders' Equity................. F-36
Consolidated Statement of Cash Flows...................................... F-37
Notes to Consolidated Financial Statements................................ F-38
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Auditors' Report.......................................................... F-44
Divisional Balance Sheets................................................. F-45
Divisional Statements of Operations and Retained Earnings................. F-46
Divisional Statements of Cash Flows....................................... F-47
Notes to the Divisional Financial Statements.............................. F-48
F-1
<PAGE>
WORLDWIDE FIBER INC.
Consolidated Balance Sheets
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
June 30, 1999 December 31, 1998
------------- -----------------
Assets
Current Assets
Cash and cash equivalents $ 86,812 $ 156,366
Accounts receivable 19,656 3,272
Unbilled revenue 72,534 10,582
Inventory 86,502 25,300
Other current assets 30,814 17,342
------------ ------------
296,318 212,862
Fixed Assets 57,790 15,475
Deferred income taxes 4,408 1,273
Deferred financing costs 6,509 6,650
------------ ------------
$ 365,025 $ 236,260
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
WORLDWIDE FIBER INC.
Consolidated Balance Sheets
(tabular amounts expressed in thousands of U.S. dollars)
(unaudited)
June 30, 1999 December 31, 1998
------------- -----------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 81,551 $ 20,296
Advances on contracts 26,470 13,651
Income taxes payable 16,733 7,609
Other liabilities 5,323 --
------------ -----------
130,077 41,556
Senior Notes 175,000 175,000
------------ -----------
305,077 216,556
Minority interest 4,438 1,443
Shareholder's equity
Common stock
Authorized:
Unlimited number of Class A voting,
Class B voting and Class C non-voting
shares, no par value
Issued and outstanding:
25,000,000 Class A shares
(December 31, 1998-- 5,000,300) 32,419 7,400
Contributed surplus 2,242 2,242
Retained earnings 21,413 9,020
Accumulated other comprehensive income (564) (401)
------------ -----------
55,510 18,261
------------ -----------
$ 365,025 $ 236,260
============ ===========
Subsequent Events (Note 8)
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
WORLDWIDE FIBER INC.
Consolidated Income Statements
For the periods ended June 30, 1999 and 1998
(tabular amounts expressed in thousands of U.S. dollars)
(unaudited)
For the period from February 5,
1998 (date of incorporation)
to June 30, 1998
Six months ended (operations commenced
June 30, 1999 June 1, 1998)
------------- -------------
Revenue $ 123,884 $ 12,280
Costs 85,614 10,621
Gross profit ---------- ---------
$ 38,270 $ 1,659
Expenses:
General & administrative 5,837 403
Depreciation 453 49
---------- ---------
6,290 452
---------- ---------
31,980 1,207
Interest expense 7,970 --
Interest income 2,299 --
---------- ---------
Income before income taxes,
equity income &minority 26,309 1,207
interest
Equity income -- 2
---------- ---------
Income before income taxes
& minority interest 26,309 1,209
Provision for income taxes
Current 10,088 526
Deferred 833 --
---------- ---------
10,921 526
---------- ---------
Income before minority 15,388 683
interest
Minority interest 2,995 --
---------- ---------
Net income for the period ========== =========
$ 12,393 $ 683
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
WORLDWIDE FIBER INC.
Consolidated Statement of Changes in Shareholder's Equity
For the six month period ended June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Common stock other Total
Class A Contributed Retained comprehensive Shareholder's
Shares Amount surplus earnings income equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance -- beginning of
period 5,000,300 $ 7,400 $ 2,242 $ 9,020 $ (401) $ 18,261
Issuance of shares for certain
Ledcor assets with deferred
tax assets 19,999,700 25,019 25,019
Comprehensive income
Net income for the period -- -- -- 12,393 -- 12,393
Accumulated other
comprehensive income --
foreign currency translation -- -- -- -- (163) (163)
---------- ----------- ----------- ----------- ------------ ------------
Total comprehensive income -- -- -- -- -- --
---------- ----------- ----------- ----------- ------------ ------------
Balance-- end of period 25,000,000 $ 32,419 $ 2,242 $ 21,413 $ (564) $ 55,510
========== =========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
WORLDWIDE FIBER INC.
Consolidated Statements of Cash Flows
For the periods ended June 30, 1999 and 1998
(tabular amounts expressed in thousands of U.S. dollars)
(unaudited)
<TABLE>
<CAPTION>
For the period from February 5,
1998 (date of incorporation)
to June 30, 1998
Six months ended (operations commenced
June 30, 1999 June 1, 1998)
<S> <C> <C>
Cash flows (used in) provided from operating
activities $ (49,824) $ 681
----------- --------
Cash flows used in investing activities
Fixed asset additions (19,215) --
----------- --------
Cash flows used in financing activities (352) (681)
----------- --------
Effect of exchange rate changes on cash (163) --
----------- --------
Net (decrease) increase in cash and cash
equivalents (69,554) --
----------- --------
Cash and cash equivalents, beginning
of period 156,366 20
----------- --------
Cash and cash equivalents, end of period $ 86,812 $ 20
=========== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
1. The Company
Worldwide Fiber Inc. (the "Company") is indirectly a wholly-owned
subsidiary of Ledcor Inc. (Ledcor). The Company's operations consist of
designing, engineering, constructing and installing terrestrial and marine fiber
optic systems for sale or lease to third parties or for its own use.
These financial statements should be read in conjunction with the
consolidated financial statements of the Company for the period ended December
31, 1998.
Transactions with Ledcor
On March 31, 1999 the Company completed a series of transactions whereby
certain fiber optic network assets were transferred to the Company by Ledcor in
exchange for 19,999,700 Class A common shares. The cost of the assets acquired
at March 31, 1999 amounted to $21,884,000. As a result of the transaction, the
Company also received a deferred tax benefit of $3,136,000 which is reflected as
a deferred tax asset.
Basis of Presentation
These unaudited interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented and include all
adjustments of a normal recurring nature.
Significant accounting policies
Revenue recognition
Revenue for services provided to Ledcor for construction projects is
recognized in the period the construction services are performed based on the
costs incurred.
Revenue and income from construction contracts to develop fiber optic
network assets are determined on the percentage-of-completion basis using the
cost-to-cost method. Provision is made for all anticipated losses as soon as
they become evident. Claims for additional contract compensation are not
recognized until resolved.
F-7
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
Revenue from agreements to construct fiber optic network assets in
connection with sales-type leases are recognized on the percentage-of-completion
basis when the risk of construction is transferred to the lessee.
Stock Option Plan
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and, accordingly, recognizes compensation expense for stock option
grants to the extent that the estimated fair value of the stock exceeds the
exercise price of the option at the measurement date. The compensation expense
is charged against operations ratably over the vesting period of the options.
2. Supplemental cash flow information
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash paid for income taxes $ 1,130 $ --
Cash paid for interest 10,451 --
Issuance of common shares for certain Ledcor assets
with deferred tax asset of $3,136,000 25,019 --
3. Balance Sheet components
June 30, 1999 December 31, 1998
------------- -----------------
Unbilled revenue
Revenue earned on uncompleted contracts $ 149,334 $ 22,236
Less: Billings to date 76,800 11,654
---------- -----------
$ 72,534 $ 10,582
========== ===========
</TABLE>
F-8
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Inventory
Fiber optic network assets $ 85,948 $ 24,155
Construction supplies and small tools 554 1,145
---------- -----------
$ 86,502 $ 25,300
========== ===========
Other current assets
Deposits on future contracts (note 7) $ 30,000 $ --
Prepaid expenses and other 814 3,930
Due from Parent -- 13,412
---------- -----------
$ 30,814 $ 17,342
========== ===========
Fixed assets
Fiber optic network assets $ 51,361 $ 11,461
Construction equipment 7,331 4,249
Other 27 229
---------- -----------
58,719 15,939
Less: Accumulated depreciation 929 464
---------- -----------
Fixed assets - net $ 57,790 $ 15,475
========== ===========
</TABLE>
The Company has not provided for any depreciation on fiber optic network
assets for the period ended June 30, 1999 as these assets were under
construction.
F-9
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Accounts payable and accrued liabilities
Subcontractor and supplier costs $ 70,423 $ 13,468
Subcontractor holdbacks payable 10,083 4,843
Other 12 1,493
Interest payable 1,033 492
----------- -----------
$ 81,551 $ 20,296
=========== ===========
</TABLE>
4. Income taxes
Income before income taxes and minority interest
The components of income before income taxes and minority interest are as
follows:
Six months ended Period ended
June 30, 1999 June 30, 1998
------------- -------------
Canadian $ 5,774 $ 721
U.S. 20,535 488
----------- -------
$ 26,309 $ 1,209
=========== =======
F-10
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
Current income taxes
The provision for current income taxes attributable to net earnings
consists of the following:
Six months ended Period ended
June 30, 1999 June 30, 1998
------------- -------------
Canadian $ 2,126 $ 331
U.S. federal 6,450 146
U.S. state and local 1,512 49
---------- ------
$ 10,088 $ 526
========== ======
Deferred income taxes
The provision for deferred income taxes attributable to net earnings
consists of the following:
Six months ended Period ended
June 30, 1999 June 30, 1998
------------- -------------
Canadian $ 2,626 $ --
U.S. federal (1,793) --
U.S. state and local -- --
---------- -----
$ 833 $ --
========== =====
F-11
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
Significant components of the Company's deferred tax assets are as follows:
June 30, 1999 December 31, 1998
------------- -----------------
Fixed assets $ 4,224 $ 1,088
Other 184 185
Valuation allowance -- --
--------- ---------
Net deferred tax assets $ 4,408 $ 1,273
========= =========
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will be fully utilized, therefore, no
valuation allowance has been recorded.
5. Segmented information
The Company operates within a single operating segment being the
construction and installation of fiber optic network assets. These fiber optic
network assets are being constructed in Canada and the United States.
Revenues, fixed assets, and deferred financing costs are located as follows:
<TABLE>
<CAPTION>
Revenues Fixed Assets Deferred Financing Costs
-------- ------------ ------------------------
Six months ended Period ended June 30, December 31, June 30, December 31,
June 30, 1999 June 30, 1998 1999 1998 1999 1998
------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Canada $30,423 $8,085 $28,810 $8,218 $6,509 --
U.S. 93,461 4,195 28,980 7,257 -- --
------- ------ ------- ------ ----- --------
$123,884 $12,280 $57,790 $15,475 $6,509 $ --
======== ======= ======= ======= ====== =======
</TABLE>
The revenues are based on the location of the construction activities.
F-12
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
6. Common stock
During the six months ended June 30, 1999, the Company granted stock
options to employees and officers to purchase an aggregate of 2,578,060 shares
of class A common stock of the Company at exercise prices between $10 and $20
per share. The stock options have terms expiring on or before June 30, 2009. See
Note 8.
7. Commitments
Supply Agreements
On June 18, 1999, a subsidiary of the Company entered into a supply
agreement with Tyco Submarine Systems Ltd. ("Tyco") whereby Tyco will serve as
the primary contractor for the Company's transatlantic cable project. The
initial contract price is approximately $607 million. The company has paid $30
million in advance payments during the six month period ended June 30, 1999, and
has made an additional payment of $30.7 million in August 1999.
The Company has placed purchase orders of approximately $47,600,000 with
Nortel Networks.
IC/CN Agreements
On May 28, 1999, the Company entered into agreements with Canadian National
Railway Company ("CN") and Illinois Central Railroad Company ("IC") to license
rights-of-way ("ROW") along certain of their respective rail transportation
systems (the "Routes"). The Company will pay a license fee, based on the length
of the ROWs, and payable pursuant to a formula based on cash flow generated from
projects developed on the Routes. The Company will also provide a certain number
of fibers as consideration for the license of the ROWs. In connection with these
license agreements, the Company has formed subsidiary companies with CN and IC
(the Company having a 75% interest and CN or IC having the remaining 25%
interest) for the purpose of licensing the ROWs from CN and IC and developing
the projects along the Routes.
8. Subsequent events
Senior Notes
On July 28, 1999 the Company issued Senior notes (the "Notes") with a face
value of $500,000,000. The Notes are unsecured obligations of the Company
bearing interest at 12% payable semi-annually. The Notes are due August 1, 2009
and may be redeemed by the Company on or after August 1, 2000 at certain
specified redemption prices. Up to 35% of the Notes may be redeemed by the
F-13
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
Company prior to August 1, 2002 with the net proceeds from certain sales of the
Company's common stock.
The Notes contain certain covenants that restrict the ability of the
Company and its subsidiaries to incur additional indebtedness, issue certain
preferred stock, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company or its subsidiaries, issue or sell equity
interests of the Company's subsidiaries or enter into certain mergers and
consolidations.
The interest rate on the Notes is subject to increase if the Company does
not file a registration statement with the Securities and Exchange Commission
within certain time periods specified in the Notes Indenture.
Agreement with Ledcor
On May 28, 1999, the Company entered into an agreement with affiliates of
Ledcor, whereby the Company would acquire certain fiber optic network assets.
Closing occurred on September 27, 1999. As consideration, upon closing, the
Company issued to affiliates of Ledcor 4,500,000 Class C Multiple Voting shares.
In addition, the Company assumed certain rights and obligations of the
affiliates under their build agreements with a third party including obligations
relating to the completion of those builds and certain support structure,
maintenance, license and access and underlying rights obligations. Management
estimates that based on information available to date, fixed assets will
increase by approximately $26,000,000, the cost of the assets in the accounts of
Ledcor, deferred income taxes will increase by approximately $12,000,000, as a
result of a higher tax cost versus accounting cost of fixed assets, accounts
payable will increase by approximately $30,000,000, the liability recorded in
the accounts of Ledcor, and the stated amount of the Company's common stock will
increase by approximately $8,000,000.
Share Reorganization
Pursuant to a reorganization of the Company's share capital, on September
9, 1999, the Company amended its share capital by redesignating all Class A
Voting Shares to Class B Subordinate Voting Shares, cancelling the remaining
classes of shares and creating Class A Non-Voting Shares, Class C Multiple
Voting Shares, Series A and B Preferred Shares, and Series C Redeemable
Preferred Shares. Subsequently, the Company declared a stock dividend of
5,000,000 Series C Redeemable Preferred Shares. Concurrently, the Company
repurchased the 25,000,000 outstanding Class B Subordinate Voting Shares from
its parent in exchange for the issuance of 23,043,500 Class B Subordinate Voting
Shares and 40,000,000 Series C Redeemable Preferred Shares. The Company then
redeemed the 45,000,000 outstanding Series C Redeemable Preferred Shares for
$45,000,000 of cash.
F-14
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements (Continued)
June 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)1999
(unaudited)
Issuance of Shares
On August 31, 1999 the Company issued 150,000 Class B Subordinate Voting
Shares (redesignated from Class A Voting Shares) for $3,000,000 of cash and on
September 9, 1999, the Company issued 8,866,808 Series A Non-Voting Preferred
Shares for $345,000,000 of cash.
Credit Facility
On July 6, 1999, the Company entered into a commitment letter with certain
lenders pursuant to which the lenders would provide a three-year secured
revolving credit facility totalling US$150,000,000. The execution and delivery
of the definitive documentation is in progress.
F-15
<PAGE>
AUDITORS' REPORT
To the Directors and Shareholder of
Worldwide Fiber Inc.
We have audited the consolidated balance sheet of Worldwide Fiber Inc.
as at December 31, 1998 and the consolidated income statement and statements of
changes in shareholder's equity and cash flows for the period from February 5,
1998 (date of incorporation) to December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December
31, 1998 and the results of its operations and its cash flows for the period
from February 5, 1998 (date of incorporation) to December 31, 1998 in accordance
with generally accepted accounting principles in the United States.
PricewaterhouseCoopers LLP
Vancouver, Canada
March 12, 1999, except for notes 1(i) and 14
which are as of September 27, 1999
F-16
<PAGE>
Worldwide Fiber Inc.
Consolidated Balance Sheet
As at December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Assets
Current assets
Cash and cash equivalents.................................... $156,366
Accounts receivable (note 4)................................. 3,272
Unbilled revenue (note 4).................................... 10,582
Deposit (note 4)............................................. 3,930
Inventory (note 4)........................................... 25,300
Due from parent/net (note 6)................................. 13,412
--------
212,862
Fixed assets (note 4)........................................ 15,475
Deferred income taxes (note 10).............................. 1,273
Deferred financing costs..................................... 6,650
--------
$236,260
========
The accompanying notes are an integral part of these
consolidated financial statements.
F-17
<PAGE>
Worldwide Fiber Inc.
Consolidated Balance Sheet
As at December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Liabilities
Current liabilities
Accounts payable (note 4)....................................... $ 20,296
Advances on contracts........................................... 13,651
Income taxes payable............................................ 7,609
--------
41,556
Senior notes (note 7)........................................... 175,000
-------
216,556
Minority interest............................................... 1,443
Shareholder's Equity
Common stock
Authorized
Unlimited number of Class A voting, Class B voting and Class C non-
voting shares, no par value................................
Issued and outstanding
5,000,300 Class A shares (note 9)..................... 7,400
Contributed surplus (notes 1 and 5)............................ 2,242
Retained earnings.............................................. 9,020
Accumulated other comprehensive income......................... (401)
-------
18,261
--------
$236,260
========
Commitments (notes 1 and 13)
Subsequent events (note 14)
The accompanying notes are an integral part of these
consolidated financial statements.
F-18
<PAGE>
Worldwide Fiber Inc.
Consolidated Income Statement
For the period from February 5, 1998 (date of incorporation)
to December 31, 1998.
(The Company's operations commenced on June 1, 1998)
(tabular amounts expressed in thousands of U.S. dollars)
Revenue............................................................ $164,319
Costs.............................................................. 147,621
--------
Gross profit....................................................... 16,698
--------
Expenses
General and administrative...................................... 2,274
Depreciation.................................................... 464
-------
2,738
-------
13,960
Interest expense................................................... 492
Interest income.................................................... 267
-------
Income before equity income and income taxes....................... 13,735
Equity income (note 5)............................................. 928
-------
Income before income taxes......................................... 14,663
Provision for income taxes (note 10)............................... 5,643
-------
Net income for the period.......................................... $ 9,020
=======
The accompanying notes are an integral part of these
consolidated financial statements.
F-19
<PAGE>
Worldwide Fiber Inc.
Consolidated Statement of Changes in Shareholder's Equity
For the period from February 5, 1998 (date of incorporation)
to December 31, 1998.
(The Company's operations commenced on June 1, 1998)
(tabular amounts expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Common stock
Class A
-------
Accumulated
other Total
Contributed Retained comprehensive shareholder's
Shares Amount surplus earnings income equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance--beginning of period
Incorporation shares issued,
February 5, 1998............ 100 $ -- $ -- $ -- $ -- $ --
Issuance of shares for certain
Ledcor assets with deferred
tax asset (note 5).......... 200 7,400 1,088 -- -- 8,488
Issuance of shares for
investments (note 5)........ 5,000,000 -- -- -- -- --
Excess of proceeds over cost on
fiber optic strands to be
reacquired from parent company
(note 1).................... -- -- 1,154 -- -- 1,154
Comprehensive income
Net income for the period.. -- -- -- 9,020 -- 9,020
Accumulated other
comprehensive
income-foreign currency -- -- -- -- (401) (401)
--------- ------ ------ ------ ------ -------
translation.............
Total comprehensive income..... -- -- -- -- -- 8,619
--------- ------ ------ ------ ----- -------
Balance--end of period.......... 5,000,300 $7,400 $2,242 $9,020 $(401) $18,261
========= ====== ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
<PAGE>
Worldwide Fiber Inc.
Consolidated Statement of Cash Flows
For the period from February 5, 1998 (date of incorporation)
to December 31, 1998.
(The Company's operations commenced on June 1, 1998)
(tabular amounts expressed in thousands of U.S. dollars)
Cash flows used in operating activities
Net income for the period............................................... $9,020
Adjustments to reconcile net income to net cash used for operating
activities
Depreciation.......................................................... 464
Equity income......................................................... (928)
Changes in non-cash working capital items
Accounts receivable............................................... (196)
Unbilled revenue.................................................. (992)
Deposit........................................................... (3,949)
Inventory......................................................... (1,568)
Due from parent................................................... 16,230)
Accounts payable.................................................. 2,904
Advances on contracts............................................. 13,708
Income taxes payable.............................................. 6,491
Advances to WFI USA...............................................(21,783)
-------
(13,059)
Cash flows from (used in) investing activities
Fixed asset additions.................................................. (1,065)
Cash acquired on acquisition of WFI USA................................ 2,242
-------
1,177
-------
Cash flows from (used in) financing activities
Proceeds from issuance of common stock.......................... ..... --
Senior notes..................................................... ..... 175,000
Deferred financing costs.......................................... ... (6,650)
--------
168,350
Effect of exchange rate changes on cash................................ (102)
--------
Net increase in cash and cash equivalents, being cash and
cash equivalents at end of period....................................$156,366
========
The accompanying notes are an integral part of these
consolidated financial statements.
F-21
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
1. The Company
Worldwide Fiber Inc. (the "Company") was incorporated on February 5, 1998
and is indirectly a wholly-owned subsidiary of Ledcor Inc. On May 31, 1998 the
Company began its operations after certain assets of the Telecommunications
Division ("Division") of Ledcor Industries Limited ("Ledcor"), a Ledcor Inc.
subsidiary were transferred to the Company. Prior to June 1, 1998, the
operations were carried out by the Division.
The Company's operations consist of designing, engineering, constructing
and installing terrestrial and marine fiber optic systems for sale or lease to
third parties or for its own use. For the period to December 31, 1998,
$162,455,000 of the Company's revenues related to Construction Services
Agreements with Ledcor (see Note 1(ii)).
Transactions with Ledcor
On May 31, 1998, the Company entered into several agreements with Ledcor as
follows:
(i) Undertaking agreement whereby certain fiber optic network assets,
located in Canada and the U.S. would be transferred to the Company by
Ledcor in exchange for 19,999,700 Class A common shares. The Company
constructed these assets for Ledcor under the Construction Services
Agreements noted below. Construction of the assets was substantially
complete at December 31, 1998 and the Company completed the exchange on
March 31, 1999. This transaction will be accounted for using the carrying
values reported in the accounts of Ledcor as a transaction between a parent
and a wholly owned subsidiary and accordingly, the fixed assets acquired by
the Company will be recorded at the carrying amount of the assets in the
accounts of Ledcor. The cost of fixed assets acquired at March 31, 1999
amounted to $21,883,000. As a result of the transaction, the Company also
received a deferred tax benefit of $3,136,000 which will be reflected as a
deferred tax asset.
(ii) Construction Services Agreements to provide construction services
to Ledcor to complete various projects including completion of the fiber
optic network assets to be transferred to the Company. As the Company is
required to obtain the fiber optic network assets from Ledcor, the revenues
and costs associated with this portion of the agreement have not been
reflected in these consolidated financial statements. The costs to
construct the network will be reflected when the construction is completed
and the shares have been issued. As at December 31, 1998, the Company has
billed Ledcor $18,138,000 for the services related to construction of the
fiber optic network assets which exceeds their costs by $2,099,000. This
excess, net of income taxes of
F-22
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
$945,000, has been excluded from the consolidated income statement and has
been reported as contributed surplus.
(iii) Management Services Agreement whereby Ledcor provides the
Company with management staff, administrative and other support services.
The Company reimburses Ledcor for direct costs and pays Cdn. $200,000 per
month for the Company's share of corporate overheads. In accordance with
this agreement, substantially all costs and expenses incurred by the
Company were paid by Ledcor and charged to the Company through an
intercompany account.
(iv) Employee Services Agreements whereby the Company obtains the
services of certain employees from Ledcor on a cost reimbursement basis.
2. Summary of significant accounting policies
Basis of presentation
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States and include
the accounts of the Company, its wholly owned subsidiaries and its 75% interest
in Worldwide Fiber (USA), Inc. ("WFI USA"). All significant intercompany
transactions and balances have been eliminated on consolidation. For investments
where the Company exercises significant influence, the investment is accounted
for using the equity method.
On December 31, 1998, the Company increased its interest in WFI USA from
50% to 75% (note 5). The consolidated income statement and statement of cash
flows account for the Company's initial 50% interest in WFI USA using the equity
method for the period May 31, 1998 to December 31, 1998. The Company's
consolidated balance sheet includes WFI USA's assets and liabilities, and
minority interest therein, as at December 31, 1998.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses for the period reported. Actual results
could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consists of cash on deposit and highly liquid
short-term interest bearing securities with maturity at the date of purchase of
three months or less.
F-23
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Fixed assets
Fiber optic network assets constructed for the Company's own use are
recorded as fixed assets. Fiber optic network assets, construction equipment and
other assets are recorded at cost. Fixed assets are depreciated using the
following rates and methods:
o Fiber optic network assets--straight-line method over the estimated
useful lives of the assets.
o Construction equipment--hourly usage rates, estimated to depreciate
the equipment over the estimated useful lives of the equipment.
o Other assets--straight-line method, over the estimated useful lives of
the assets.
Inventory
Inventory consists of fiber optic network assets to be sold or leased under
sales-type leases, construction supplies and small tools.
Fiber optic network assets are recorded at the lower of cost and market.
Cost includes direct materials and subcontractor charges, labour, and interest
(see "capitalization of interest").
Construction supplies and small tools inventory are recorded at the lower
of cost and replacement value.
Revenue recognition
Revenue for services provided to Ledcor for construction projects is
recognized in the period the construction services are performed based on the
costs incurred.
Revenue and income from construction contracts to develop fiber optic
network assets are determined on the percentage-of-completion basis using the
cost-to-cost method. Provision is made for all anticipated losses as soon as
they become evident. Claims for additional contract compensation are not
recognized until resolved.
Unbilled revenue
Revenue recognized using the percentage-of-completion basis (see "Revenue
recognition") less billings to date is recorded as unbilled revenue.
F-24
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Capitalization of interest
Interest is capitalized as part of the cost of constructing fiber optic
network assets. Interest capitalized during the construction period is computed
by determining the average accumulated expenditures for each interim
capitalization period and applying the interest rate related to the specific
borrowings associated with each construction project. The total interest
capitalized for the period ended December 31, 1998 was $nil.
Deferred financing costs
Costs incurred in connection with obtaining the Senior notes financing are
deferred and amortized, using the effective interest method, to interest expense
over the term of the Senior notes.
Advances on contracts
Cash received from customers pursuant to contracts where construction has
not commenced is recorded as advances on contracts.
Foreign currency transactions
The Company's functional currency is the Canadian dollar. The consolidated
financial statements are translated to United States dollars using the
period-end exchange rate for assets and liabilities and weighted-average
exchange rates for the period for revenues and expenses. Translation losses are
deferred and accumulated as a component of other comprehensive income in
shareholder's equity. Net gains and losses resulting from foreign exchange
transactions are included in the consolidated income statement.
Income taxes
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current period
and deferred tax liabilities and assets for future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of enacted tax laws; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance, where, based on available evidence, the
probability of realization of the deferred tax asset does not meet a more likely
than not criteria.
Fair value of financial instruments
The fair value of the Company's financial instruments, consisting of cash
and cash equivalents, accounts receivable, unbilled revenue, deposit, due from
parent, accounts payable, advances on contracts, and income taxes payable
approximate their carrying values due to their short-term nature. The Senior
F-25
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
notes were issued at period end and accordingly fair value does not vary
significantly from carrying value at December 31, 1998.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. The Company does not expect the adoption of SFAS No. 133 to
have a material impact on its consolidated financial statements.
<TABLE>
<CAPTION>
3. Supplemental cash flow information
<S> <C>
Cash paid for income taxes......................................................... $--
Cash paid for interest............................................................. --
Supplemental non-cash investing and financing activities Issuance of
common shares for:
Certain Ledcor assets with deferred tax asset of $1,088,000.................. 8,488
Investment in Ledcom Holdings Ltd. .......................................... --
Initial 50% investment in WFI USA............................................ --
Additional 25% investment in WFI USA in exchange for surrender of note
receivable................................................................ 3,915
4. Balance Sheet components
Accounts receivable
Trade accounts receivable................................................... $3,107
Interest receivable......................................................... 165
=========
$3,272
=========
Unbilled revenue
Revenue earned on uncompleted contracts..................................... $22,236
Less: Billings to date..................................................... $11,654
=========
$10,582
=========
Unbilled revenue relates primarily to WFI USA contracts. Each contract
specifies individual billing arrangements as specified in the contract.
Deposit
Deposit for right of way access.............................................. $ 3,930
=======
</TABLE>
F-26
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
The cost of right of way accesses is included in the cost of fiber
optic network assets when construction commences.
<TABLE>
<CAPTION>
Inventory
<S> <C>
Fiber optic network assets.................................................... $24,155
Construction supplies and small tools......................................... 1,145
-------
$25,300
Fixed assets
Fiber optic network assets.................................................... $11,461
Construction equipment........................................................ 4,249
Other......................................................................... 229
-------
15,939
Less: Accumulated depreciation............................................... (464)
--------
Fixed asset/net.................................................................... $15,475
=======
The Company has not provided for any depreciation on fiber optic
network assets for the period ended December 31, 1998 as these assets were under
construction.
Accounts payable
Subcontractor and supplier costs............................................ $13,468
Subcontractor holdbacks payable............................................. 4,843
Other....................................................................... 1,493
Interest payable............................................................ 492
-------
$20,296
</TABLE>
5. Acquisitions
Telecommunications Division assets
Effective May 31, 1998, the Company entered into a series of agreements
whereby equipment, fiber optic network assets and other assets related to the
business of the Telecommunications Division of Ledcor were transferred to the
Company. In addition, the Company was granted a license to use Ledcor's patented
rail plow technology. This license agreement was for an initial term of ten
years, renewable annually upon completion of the initial term. As part of this
transaction, Ledcor retained all existing construction contracts related to the
business. This transaction was between entities under common control and has
been accounted for using the carrying amounts recorded in Ledcor's accounts. The
tax basis of substantially all the Canadian assets transferred to the Company
were Ledcor's carrying values whereas the tax basis of the U.S. assets
transferred was their fair value. The deferred tax balances were adjusted for
the
F-27
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
change in the tax basis of the U.S. assets with the adjustment being
reflected as contributed surplus. As consideration for the transaction, the
Company issued 200 Class A shares to Ledcor.
The assets transferred and consideration given, in connection with this
transaction, were as follows:
Assets
Construction equipment..................................... $2,830
Fiber optic network assets................................. 4,424
Deferred income taxes...................................... 1,088
Other...................................................... 146
------
$8,488
======
Consideration given
Class A common shares and contributed surplus.............. $8,488
======
Ledcom Holdings Ltd.
On December 1, 1998 the Company acquired 50 Class A common shares
representing a 50% interest of Ledcom Holdings Ltd. ("Ledcom") from Worldwide
Fiber Holdings Ltd. ("WFHL"), the Company's parent. As consideration, the
Company issued 2,000,000 Class A common shares. Ledcom holds the patent to
Ledcor's rail plow technology, and in conjunction with this acquisition Ledcor
has committed to grant to the Company a worldwide exclusive license for the use
of the rail plow technology. The license will become non-exclusive six months
after a change of control of the Company. This transaction was between entities
under common control and has been accounted for using the carrying value of the
investment recorded in WFHL's accounts which was $nil.
Investment in WFI USA
On August 31, 1998, the Company purchased Ledcor's 50% interest in, and a
promissory note of $3,915,000 from WFI USA, in exchange for 3,000,000 Class A
common shares of the Company and the issuance of a promissory note by the
Company. WFI USA was a joint venture with Mi-Tech Communications LLC ("Mi-Tech")
which held the remaining 50% interest in WFI USA. WFI USA's operations consist
primarily of developing fiber optic network assets in the United States.
As this transaction was between entities under common control, it was
accounted for in a manner similar to a pooling of interests. These financial
statements reflect the equity interest in the income of WFI USA from May 31,
1998 to December 31, 1998 in the amount of $928,000. Prior to May 31, 1998, the
equity interest was reported as part of the Division of Ledcor.
F-28
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
On December 31, 1998 the Company increased its interest in WFI USA to 75%
by surrendering its note receivable from WFI USA of $3,915,000 for 100
non-voting common shares and 100 Class A voting preferred shares of WFI USA. The
acquisition has been accounted for using the purchase method effective December
31, 1998. The purchase price of the additional 25% has been allocated to assets
and liabilities based on their fair values. As a result, the net assets acquired
were as follows:
Current assets........................................... $3,742
Inventory................................................ 6,048
Fixed assets............................................. 1,795
Current liabilities...................................... 10,052
On December 31, 1998, the Company entered into a Shareholders' Agreement
("Agreement") with Ledcor, Mi-Tech and Michels Pipeline Construction, Inc.
("Michels") (an affiliate of Mi-Tech). Pursuant to this agreement, Mi-Tech will
have the option to convert all of its 25% interest in WFI USA into shares of the
Company should the Company complete a public offering of shares with an
aggregate value of at least $20,000,000 or there is a change of control of WFI
USA. In connection with the conversion, Mi-Tech will be granted certain
registration rights in accordance with the Agreement. In addition, after the
tenth anniversary of this agreement, Mi-Tech has the option to require WFI USA
to purchase all of the shares owned by Mi-Tech and its affiliates at fair market
value. If Mi-Tech exercises this option, the Company can elect to sell all the
shares or assets of WFI USA in which case it will not be required to purchase
Mi-Tech's shares in WFI USA. In the event of a proposed sale of the shares of
WFI USA held by the Company, Mi-Tech will have certain tag-along rights.
Also as part of the Agreement the Company:
o Agreed not to participate in any projects or business nor provide
advice or assistance to any business which undertakes projects within
WFI USA's scope of business, as defined in the Agreement, for a period
of four years from the date of the Agreement.
o Is restricted from selling, transferring, encumbering or divesting its
ownership or control of WFI USA.
o WFI USA has an option to purchase from Mi-Tech 24 fiber optic strands
along certain existing routes owned by Mi-Tech and its affiliates at
fair market value.
F-29
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
6. Due from parent
The components of the amount due from parent consist of the following:
Contract amounts billed to parent....................... $180,593
Costs charged by parent
Material........................................... 91,937
Subcontracts....................................... 33,613
Labor.............................................. 27,435
Other.............................................. 10,729
General and administrative......................... 2,816
Deferred financing costs........................... 268
-------
166,798
-------
13,795
Net advance received............................... (383)
--------
$ 13,412
========
The amounts due from Ledcor and advances received from Ledcor are
non-interest bearing, have no stated terms of repayment and are due on demand.
Contract amounts billed to parent and costs charged by parent exceed revenues
and costs as reported in the income statement due to fiber optic network assets
to be transferred to the Company as described in note 1(ii).
7. Senior notes
The Senior notes (the "Notes") are unsecured obligations of the Company
bearing interest at 12.5% payable semi-annually. The Notes are due December 15,
2005 and may be redeemed by the Company on or after December 31, 2003 at certain
specified redemption prices ranging up to 106.25% of the principal amount. Up to
35% of the Notes may be redeemed by the Company prior to December 15, 2001, at a
redemption price of 112.5% of the principal amount with the net proceeds from
certain sales of the company's common equity to the public. If a change of
control occurs, as defined in the Notes Indenture, the holders of the Notes can
require the Company to repurchase all or part of the Notes at 101% of the
principal amount. If at the end of December 31, 2000 and semi-annually
thereafter, the Company's Accumulated Excess Cash Flow, as defined in the Notes
Indenture, exceeds $10,000,000, the Company is required to make an offer to
repurchase the maximum principal amounts of Notes that may be purchased by such
Accumulated Excess Cash Flow Amount at an offer price equal to 110% of the
principal amount of the Notes. Under this Excess Cash Flow provision, the
Company is not required to repurchase more than 25% of the original principal
amount of the Notes prior to December 31, 2003.
The Notes contain certain covenants that restrict the ability of the
Company and its subsidiaries to incur additional indebtedness and issue certain
preferred stock, pay dividends or make other distributions,
F-30
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
repurchase equity interests or subordinated indebtedness, engage in sale and
leaseback transactions, create certain liens, enter into certain transactions
with affiliates, sell assets of the Company or its subsidiaries, issue or sell
equity interests of the Company's subsidiaries or enter into certain mergers and
consolidations.
The interest rate on the Notes is subject to increase if the Company does
not file a registration statement with the Securities and Exchange Commission
within certain time periods specified in the Notes Indenture.
8. Preferred stock
Authorized
The Company is authorized to issue an unlimited number of Class I, II and
III preferred shares (collectively "preferred shares"). As at December 31, 1998,
there were no issued and outstanding preferred shares.
Voting
The holders of Class I preferred shares are entitled to attend shareholder
meetings and to one vote for each share held. The holders of Class II and III
preferred shares are not entitled to vote or attend shareholder meetings.
Dividends
The holders of preferred shares are entitled to receive a dividend when
declared by the Board of Directors. The holders of preferred shares have no
preference or priority as to the declaration of dividends, and dividends may be
declared and paid on any other class of shares of the Company to the exclusion
of a dividend being declared and paid on the preferred shares. Dividends may be
declared and paid on the preferred shares individually to the exclusion of a
dividend being declared and paid on another class of preferred shares. No
dividends can be declared on such other shares if it impairs the ability of the
Company to redeem the outstanding preferred shares.
Return of capital
In the event the Company is liquidated, dissolved or wound up, the holders
of preferred shares have priority as to payment of the redemption price and for
all declared and unpaid dividends over all other shares.
F-31
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Redemption and retraction
The Company may redeem or purchase preferred shares together with all
declared and unpaid dividends. In addition, the holders of preferred shares are
entitled to have the Company redeem or purchase all or any part of the preferred
shares held by a shareholder.
9. Common stock
Authorized
The Company is authorized to issue an unlimited number of Class A, B and C
common shares (collectively "common shares").
Voting
The holders of Class A and B common shares are entitled to one vote for
each share held. The holders of Class C common shares are not entitled to vote.
Dividends
The holders of common shares are entitled to receive a dividend when
declared by the directors of the Company. Dividends may be declared and paid on
the common shares without declaring dividends on any other class or classes of
shares of the Company. However, no dividends can be declared on the common
shares if to do so would impair the ability of the Company to redeem any
outstanding preferred shares.
Return of capital
In the event the Company is liquidated, dissolved or wound up or the
Company distributes the assets of the Company among shareholders for the purpose
of winding up its affairs, the holders of common shares rank equally with one
another to receive any remaining balance of the assets of the Company after
payment for a return of capital and any declared but unpaid dividends to the
holders of preferred shares.
F-32
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
10. Income taxes
Income before equity income and income taxes.
The components of income before equity income and income taxes are as
follows:
Canadian.................................................... $5,683
U.S......................................................... 8,052
=========
$13,735
=========
Current income taxes
The provision for current income taxes consists of the following:
Canadian.................................................... $2,599
U.S. federal................................................ 2,563
U.S. state and local........................................ 481
---------
$5,643
=========
The Company's statutory rate of 45.6% varies from its effective rate of
41.1% due primarily to federal and state taxes on U.S. income at a rate of 38%.
Deferred income taxes
Significant components of the Company's deferred tax assets and liabilities
are as follows:
Fixed assets (note 5)...................................... $1,088
Other...................................................... 185
Valuation allowance........................................ --
Net deferred tax assets.................................... $1,273
======
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will be fully utilized, such that no
valuation allowance has been recorded.
F-33
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
11. Concentration of credit risk
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist primarily of cash and cash equivalents,
accounts receivable, unbilled revenue and due from parent which are not
collateralized. The Company limits its exposure to credit loss by placing its
cash and cash equivalents with high credit quality financial institutions.
Concentrations of credit risk with respect to accounts receivable and unbilled
revenue are considered to be limited due to the credit quality of the customers
comprising the Company's customer base.
The Company performs ongoing credit evaluations of its customers' financial
condition to determine the need for an allowance for doubtful accounts. The
Company has not experienced significant credit losses to date. At December 31,
1998 twelve customers accounted for the entire accounts receivable and unbilled
revenue balances.
The concentration of credit risk relating to the amount due from the parent
is considered limited due to the credit quality of the Company's parent. As
described in Note 1, substantially all of the Company's revenues during the
period ended December 31, 1998 were earned from construction services provided
to Ledcor.
12. Segmented information
The Company operates within a single operating segment being the
construction and installation of fiber optic network assets. These fiber optic
network assets are being constructed in Canada and the United States.
Revenues, fixed assets, and deferred financing costs are located as follows:
<TABLE>
<CAPTION>
Deferred
financing
Revenues Fixed assets costs
-------- ------------ -----
<S> <C> <C> <C>
Canada.............................................. $84,534 $ 8,218 $6,650
U.S................................................. 79,785 7,257 --
-------- ------- -----
$164,319 $15,475 $6,650
======== ======= ======
</TABLE>
The revenues are based on the location of the construction activities.
13. Commitments
Network developments
The Company has, in the normal course of business, entered into agreements
to provide construction services and fiber optic network assets to third parties
in Canada and the United States.
F-34
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Right of way access agreements
The Company has entered into various agreements during the year to secure
the rights of ways along its network routes. In general, most agreements have an
option renewal clause stating that grantors cannot unjustly withhold their
acceptance of a renewal.
Operating leases
The Company leases certain facilities and equipment used in its operations
under operating leases. Future minimum lease payments under these lease
agreements at December 31, 1998 are as follows:
1999............................................................... $339
2000............................................................... $288
2001............................................................... $240
2002............................................................... $188
2003 and thereafter................................................ $ 46
14. Subsequent events
(i) Senior Notes
On July 28, 1999 the Company issued Senior notes (the "12% Notes") with a
face value of $500,000,000. The 12% Notes are unsecured obligations of the
Company bearing interest at 12% payable semi-annually. The 12% Notes are due
August 1, 2009 and may be redeemed by the Company on or after August 1, 2000 at
certain specified redemption prices. Up to 35% of the 12% Notes may be redeemed
by the Company prior to August 1, 2002 with the net proceeds from certain sales
of the Company's common stock.
The 12% Notes contain certain covenants that restrict the ability of the
Company and its subsidiaries to incur additional indebtedness, issue certain
preferred stock, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company or its subsidiaries, issue or sell equity
interests of the Company's subsidiaries or enter into certain mergers and
consolidations.
The interest rate on the 12% Notes is subject to increase if the Company
does not file a registration statement with the Securities and Exchange
Commission within certain time periods specified in the 12% Notes Indenture.
F-35
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
(ii) Agreement with Tyco Submarine Systems Ltd.
On June 18, 1999, a subsidiary of the Company entered into a supply
agreement, with Tyco Submarine Systems Ltd. ("Tyco") whereby Tyco will serve as
the primary contractor for the Company's transatlantic cable project called
"Hibernia". The initial contract price is approximately $607 million. The
Company has paid $60.7 million in advance payments to Tyco.
(iii) Common stock
In April 1999, the Company granted stock options to employees and officers
to purchase an aggregate of 2,045,160 shares of class A common stock of the
Company at a price of $10 per share. The stock options have terms expiring on
or before June 30, 2009.
(iv) IC/CN Agreements
On May 28, 1999, the Company entered into agreements with Canadian National
Railway Company ("CN") and Illinois Central Railroad Company ("IC") to license
rights-of-way ("ROW") along certain of their respective rail transportation
systems (the "Routes"). The Company will pay a license fee, based on the length
of the ROWs, and payable pursuant to a formula based on cash flow generated from
projects developed on the Routes. The Company will also provide a certain number
of fibers as consideration for the license of the ROWs. In connection with these
license agreements, the Company has formed subsidiary companies with CN and IC
(the Company having a 75% interest and CN or IC having the remaining 25%
interest) for the purpose of licensing the ROWs from CN and IC and developing
the projects along the Routes.
(v) Agreement with Ledcor (unaudited)
On May 28, 1999, the Company entered into an agreement with affiliates of
Ledcor, whereby the Company would acquire certain fiber optic network assets.
Closing occurred on September 27, 1999. As consideration, upon closing, the
Company issued to affiliates of Ledcor 4,500,000 Class C Multiple Voting shares.
In addition, the Company assumed certain rights and obligations of the
affiliates under their build agreements with a third party including obligations
relating to the completion of those builds and certain support structure,
maintenance, license and access, and underlying rights obligations. Management
estimates that based on information available to date, fixed assets will
increase by approximately $26,000,000, the cost of the assets in the accounts of
Ledcor, deferred income taxes will increase by approximately $12,000,000, as a
result of a higher tax cost versus accounting cost of fixed assets, accounts
payable will increase by approximately $30,000,000, the liability recorded in
the accounts of Ledcor, and the stated amount of the Company's common stock will
increase by approximately $8,000,000.
F-36
<PAGE>
(vi) Share Reorganization
Pursuant to a reorganization of the Company's share capital, on September
9, 1999, the Company amended its share capital by redesignating all Class A
Voting Shares to Class B Subordinate Voting Shares, cancelling the remaining
classes of shares and creating Class A Non-Voting Shares, Class C Multiple
Voting Shares, and Series A and B Preferred Shares and Series C Redeemable
Preferred Shares. Subsequently, the Company declared a stock dividend of
5,000,000 Series C Redeemable Preferred Shares. Concurrently, the Company
repurchased the 25,000,000 outstanding Class B Subordinate Voting Shares from
its parent in exchange for the issuance of 23,043,500 Class B Subordinate Voting
Shares and 40,000,000 Series C Redeemable Preferred Shares. The Company then
redeemed the 45,000,000 outstanding Series C Redeemable Preferred Shares for
$45,000,000 of cash.
(vii) Issuance of Shares
On August 31, 1999 the Company issued 150,000 Class B Subordinate Voting
Shares (redesignated from Class A Voting Shares) for $3,000,000 of cash and on
September 9, 1999, the Company issued 8,866,808 Series A Non-Voting Preferred
Shares for $345,000,000 of cash.
(viii) Credit Facility
On July 6, 1999, the Company entered into a commitment letter with certain
lenders pursuant to which the lenders would provide a three-year secured
revolving credit facility totalling US$150,000,000. The execution and delivery
of the definitive documentation is in progress.
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Worldwide Fiber (USA), Inc.
(formerly, Pacific Fiber Link, Inc.)
In our opinion, the accompanying consolidated income statement and
statements of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the results of operations of Worldwide Fiber (USA),
Inc. (formerly Pacific Fiber Link, Inc.) and its subsidiaries and their cash
flows for the period from February 11, 1998 to December 31, 1998, in conformity
with generally accepted accounting principles in the United States. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Vancouver, Canada
March 12, 1999
F-38
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Consolidated Income Statement
For the period from February 11, 1998 to December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Revenue.................................................... $21,071
Costs...................................................... 16,533
-------
Gross profit............................................... 4,538
Expenses
General and administrative............................ 1,683
-------
2,855
Interest expense........................................... 72
Interest income............................................ 53
-------
Income before income taxes................................. 2,836
Provision for income taxes................................. 980
-------
Net income for the period.................................. $ 1,856
=======
Commitments (note 10)
The accompanying notes are an integral part of these consolidated
financial statements.
F-39
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Consolidated Statement of Changes in Shareholders' Equity
For the period from February 11, 1998 to December 31, 1998.
(tabular amounts expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Class A
voting Nonvoting
preferred common
shares shares Retained
Number Number Amount earnings Total
------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C>
Balance--beginning of period........................
Issuance of shares to acquire Worldwide
Fiber Networks, Inc. (note 1)................... 100 100 -- -- --
Issuance of shares for extinguishment of note
payable (note 1)................................ 100 100 3,915 -- 3,915
Net income for the period.......................... -- -- -- 1,856 1,856
--- --- ------ ------ ------
Balance--end of period.............................. 200 200 $3,915 $1,856 $5,771
=== === ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-40
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Consolidated Statement of Cash Flows
For the period from February 11, 1998 to December 31, 1998.
(tabular amounts expressed in thousands of U.S. dollars)
Cash flows from operating activities
Net income for the period............................................. $1,856
Changes in non-cash working capital items
Accounts receivable.............................................. (3,090)
Unbilled revenue................................................. (9,634)
Inventory........................................................ (23,835)
Accounts payable................................................. 17,445
Income taxes payable............................................. 980
Due to parent.................................................... 21,783
-------
5,505
Cash flows used in investing activities
Fixed asset additions................................................. (7,178)
--------
Cash flows from financing activities
Due to parent......................................................... 3,915
-------
Net increase in cash and cash equivalents, being cash and cash
equivalents at end of period.......................................... $ 2,242
=======
The accompanying notes are an integral part of these
consolidated financial statements.
F-41
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
1. The Company
Worldwide Fiber (USA), Inc. (the "Company"), formerly known as Pacific
Fiber Link, Inc., was incorporated on August 7, 1998. The Company was inactive
until August 31, 1998. On August 31, 1998, the Company acquired 100% of the
ownership interest of Worldwide Fiber Networks, Inc. ("WFNI") (formerly Pacific
Fiber Link, LLC) from its two members, Ledcor Industries Limited ("Ledcor") and
Mi-Tech Communications, LLC ("Mi-Tech"), in exchange for 100 non-voting common
shares and 100 Class A voting preferred shares of the Company. The acquisition
was accounted for in a manner similar to a pooling of interests on the basis
that the ownership interests before and after the acquisition remained the same.
Accordingly, the financial statements presented include the results of
operations of the Company and WFNI from February 11, 1998, the date that WFNI
was organized.
On December 31, 1998, the Company issued 100 shares of non-voting common
shares and 100 Class A voting preferred shares as consideration for the
settlement of indebtedness owed to Worldwide Fiber Inc. ("WFI" or "parent") of
$3,915,000 increasing WFI's interest from 50% to 75%.
The Company has entered into a shareholders' agreement among WFI, Ledcor,
Mi-Tech and Michels Pipeline Construction Inc. (an affiliate of Mi-Tech)
whereby:
(i) Any sale, transfer, assignment or encumbrance or divestment of any
interest in or control of the Company to a third party is restricted.
In the event of a proposed sale of the shares of the Company held by
WFI, Mi-Tech will have certain tag-along rights. If there is a change
of control of the Company, Mi-Tech has the option to require the
Company to purchase all of the shares owned by Mi-Tech or its
affiliates at the fair market value of such shares. In addition, after
the tenth anniversary of this agreement Mi-Tech has the option to
require the Company to purchase all of the shares owned by Mi-Tech and
its affiliates at fair market value. If Mi-Tech exercises this option,
WFI can elect to sell all of the shares or assets of the Company to a
third party in which case WFI will not be required to purchase
Mi-Tech's shares.
(ii) The Company has an option to purchase from Mi-Tech, 24 fiber optic
strands along certain existing routes owned by Mi-Tech and its
affiliates at fair value. The Company also has an option to purchase
from WFI and its affiliates indefeasible rights of use for 24 fiber
optic strands from its Chicago-New Orleans route if and when built, at
fair value. These options expire one year after the strands are
available.
F-42
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
(iii) If WFI were to issue shares in a public offering having an aggregate
value of at least $20,000,000, Mi-Tech has the option to convert all
of the shares of the Company held by Mi-Tech and its affiliates into
the class and series of shares being offered to the public.
The Company's operations consist of developing, engineering, constructing,
installing and maintaining fiber optic network assets. The Company's primary
customers are telecommunications carriers and fiber optic systems developers
located in the U.S.
2. Summary of significant accounting policies
Basis of presentation
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States and include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated on consolidation.
The Company's financial statements have been prepared for inclusion within
the Offering Memorandum prepared by WFI for the offer of Senior Notes in the
amount of $250,000,000. The consolidated balance sheet of the Company as at
December 31, 1998 has been excluded as WFI's most recent audited consolidated
balance sheet includes the assets and liabilities of the Company.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses for the period reported. Actual results
could differ from those estimates.
Income taxes
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current period
and deferred tax liabilities and assets for future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of enacted tax laws; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance, where, based on available evidence, the
probability of realization of the deferred tax asset, does not meet a more
likely than not criteria.
F-43
<PAGE>
Revenue recognition
Revenue and income from construction contracts to develop fiber optic
network assets, are determined on the percentage-of-completion basis using the
cost-to-cost method. Provision is made for all anticipated losses as soon as
they become evident. Claims for additional contract compensation are not
recognized until resolved.
Foreign currency transactions
The Company uses the U.S. dollar as its functional currency. Gains or
losses from foreign currency transactions are included in the consolidated
income statement.
3. Supplemental cash flow information
Cash paid for income taxes........................................ $--
Cash paid for interest............................................ --
Supplemental noncash investing and financing activities
Issuance of shares:
To acquire Worldwide Fiber Networks Inc...................... --
In exchange for surrender of note payable to WFI............. 3,915
4. Share capital
a) Preferred shares Authorized
The Company is authorized to issue 125,000 preferred shares without par
value; 25,000 Class A voting preferred shares, and 100,000 Class B non-voting
preferred shares. As of December 31, 1998 there were 200 Class A voting
preferred shares issued.
Voting
The holders of Class A preferred shares are entitled to attend shareholder
meetings and to one vote for each share held. The holders of Class A preferred
shares have no other rights, preferences or privileges. The holders of Class B
preferred shares are not entitled to vote or attend shareholder meetings.
Dividends
The holders of Class B preferred shares are entitled to receive a dividend
when declared by the Board of Directors, payable in preference to the dividends
payable on any other class of shares.
F-44
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Return of capital
In the event the Company is liquidated, dissolved or wound up, the holders
of Class B preferred shares shall be entitled to such rights as expressed in the
resolution for the issue of such Class B shares, adopted by the Board of
Directors.
Redemption and retraction
The Company may redeem or purchase Class B preferred shares at such time
and such price, as expressed in the resolution for the issue of Class B
preferred shares adopted by the Board of Directors.
b) Common shares
The Company is authorized to issue 25,000 non-voting common shares, without
par value. As at December 31, 1998, there were 200 non-voting common shares
issued.
5. Provision for income taxes
The provision for current income taxes attributable to net income consists
of the following:
U.S. federal................................................. $953
U.S. state and local......................................... 27
======
$980
======
The Company's statutory rate of 34% is not materially different to its
effective rate of 34.6%.
6. Concentration of credit risk
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist primarily of cash and cash equivalents,
accounts receivable and unbilled revenue. Accounts receivable are not
collateralized. The Company limits its exposure to credit loss by placing its
cash and cash equivalents with high credit quality financial institutions.
Concentrations of credit risk with respect to accounts receivable and unbilled
revenue are considered to be limited due to the credit quality of the customers
comprising the Company's customer base.
The Company performs ongoing credit evaluations of its customers' financial
condition to determine the need for an allowance for doubtful accounts. The
Company has not experienced significant credit losses to date. At December 31,
1998 seven customers accounted for the entire accounts receivable and unbilled
revenue balances.
F-45
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
7. Revenue and significant customers
During the period ended December 31, 1998, the Company's revenue from its
three largest customers represented individually 35%, 30% and 13% of total
revenue.
8. Related party transactions
The Company reimburses Ledcor and Mi-Tech for expenses incurred on the
Company's behalf. For the period ended December 31, 1998 the amount of these
transactions with Ledcor and Mi-Tech was $1,469,000 and $1,401,000 respectively.
As at December 31, 1998 accounts payable includes $478,000 owed to Ledcor and
$524,000 owed to Mi-Tech.
9. Segmented information
The Company operates within a single operating segment being the
construction and installation of fiber optic network assets in the United
States. All revenues are earned from U.S. sources and all long-lived assets are
located in the U.S.
10. Commitments
Network developments
The Company has, in the normal course of business, entered into agreements
to provide construction services and fiber optic network assets to third parties
in Canada and the United States.
Right of way access agreements
The Company has entered into various agreements during the year to secure
the rights of ways along its network routes. In general, most agreements have an
option renewal clause stating that grantors cannot unjustly withhold their
acceptance of a renewal.
F-46
<PAGE>
Worldwide Fiber (USA), Inc.
(formerly Pacific Fiber Link, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Operating leases
The Company leases certain facilities and equipment used in its operations
under operating leases. Future minimum lease payments under these lease
agreements at December 31, 1998 are as follows:
1999......................................................... $205
2000......................................................... 83
2001......................................................... 50
2002......................................................... 34
2003 and thereafter.......................................... -
F-47
<PAGE>
AUDITORS' REPORT
To the Directors of
Ledcor Industries Limited
We have audited the divisional balance sheets of Ledcor Industries
Limited--Telecommunications Division as at May 31, 1998, August 31, 1997 and
August 31, 1996 and the divisional statements of operations and retained
earnings and cash flows for the nine months ended May 31, 1998, year ended
August 31, 1997, five months ended August 31, 1996 and year ended March 31,
1996. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these divisional financial statements present fairly,
in all material respects, the financial position of the Division as at May 31,
1998, August 31, 1997 and August 31, 1996 and the results of its operations and
cash flows for the periods ended May 31, 1998, August 31, 1997, August 31, 1996
and March 31, 1996 in accordance with generally accepted accounting principles
in the United States.
Deloitte & Touche LLP
Edmonton, Canada
November 30, 1998
F-48
<PAGE>
LEDCOR INDUSTRIES LIMITED--
TELECOMMUNICATIONS DIVISION
Divisional Balance Sheets
(All figures are in U.S. dollars)
<TABLE>
<CAPTION>
August 31, August 31,
May 31, 1998 1997 1996
------------ ------------ ------------
ASSETS
CURRENT
<S> <C> <C> <C> <C>
Trade accounts receivable (Note 4)................... $5,538,543 $18,501,710 $845,173
Accounts receivable holdbacks (Note 4)............... 4,474,731 3,446,571 153,652
Unbilled revenue (Note 5)............................ 5,842,845 3,608,010 5,013,428
Inventory............................................ 15,710,561 5,240,252 --
----------- ----------- --------
31,566,680 30,796,543 6,012,253
FIXED ASSETS (Note 6).................................... 7,982,103 1,471,043 463,651
----------- ----------- ----------
$39,548,783 $32,267,586 $6,475,904
=========== =========== ==========
LIABILITIES
CURRENT
Trade accounts payable............................... $3,148,456 $12,855,863 $1,719,591
Accrued payroll...................................... 3,431,709 1,008,791 --
Accrued liabilities.................................. 587,750 954,362 --
Accounts payable holdbacks........................... 4,412,221 86,262 --
Income taxes payable................................. 5,509,000 338,000 5,000
----------- ---------- ---------
17,089,136 15,243,278 1,724,591
DEFERRED TAX LIABILITIES (Note 7)........................ 2,657,000 4,426,000 1,212,000
INTER-DIVISIONAL ACCOUNT (Note 8)........................ 10,932,703 6,773,709 2,066,663
----------- ---------- ---------
30,678,839 26,442,987 5,003,254
----------- ---------- ---------
COMMITMENTS (Note 9)
DIVISIONAL EQUITY
Cumulative foreign exchange (loss) gain.............. (1,641,049) 6,688 (5,967)
Divisional retained earnings......................... 10,510,993 5,817,911 1,478,617
----------- ----------- ----------
8,869,944 5,824,599 1,472,650
----------- ----------- ----------
$39,548,783 $32,267,586 $6,475,904
=========== =========== ==========
</TABLE>
See accompanying notes to the divisional financial statements.
F-49
<PAGE>
LEDCOR INDUSTRIES LIMITED
TELECOMMUNICATIONS DIVISION
Divisional Statements of
Operations and Retained Earnings
(All figures are in U.S. dollars)
<TABLE>
<CAPTION>
Nine Months Five Months
ended Year ended ended Year ended
May 31, August 31, August 31, March 31,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue generated from contracts............ $54,633,888 $58,007,652 $7,372,942 $3,823,790
Contract costs.............................. 45,321,566 49,184,985 5,768,543 3,463,514
----------- ---------- ---------- ----------
Gross margin................................ 9,312,322 8,822,667 1,604,399 360,276
General and administrative expenses......... 710,240 863,373 90,993 57,357
----------- ---------- ---------- ----------
Net divisional income for the period,
before taxes............................. 8,602,082 7,959,294 1,513,406 302,919
Income tax expense (recovery)
Current..................................... 5,509,000 338,000 5,000 3,000
Deferred.................................... (1,600,000) 3,282,000 681,000 136,000
------------ ----------- ---------- ----------
Net divisional income for the period........ 4,693,082 4,339,294 827,406 163,919
DIVISIONAL RETAINED EARNINGS, BEGINNING OF
PERIOD................................... 5,817,911 1,478,617 651,211 487,292
DIVISIONAL RETAINED EARNINGS, END OF PERIOD.
$10,510,993 $5,817,911 $1,478,617 $ 651,211
=========== ========== ========== ==========
</TABLE>
See accompanying notes to the divisional financial statements.
F-50
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Divisional Statements of Cash Flow
(All figures are in U.S. dollars)
<TABLE>
<CAPTION>
Five months
Nine months Year ended ended Year ended
ended May 31, August 31, August 31, March 31,
1998 1997 1997 1996
---- ---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net divisional income for the period........... $4,693,082 $4,339,294 $827,406 $163,919
Adjustments to reconcile net divisional income
to net cash provided by operating
activities
Depreciation and amortization.............. 316,597 111,791 15,376 23,754
Deferred taxes............................. (1,600,000) 3,282,000 681,000 136,000
Foreign exchange (gain) loss............... (169,000) (68,000) (5,000) 9,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable. 12,963,167 (17,656,537) (467,268) (331,199)
Increase in accounts receivable holdbacks.. (1,028,160) (3,292,919) (77,684) (75,969)
Decrease (increase) in unbilled revenue.... (2,234,835) 1,405,418 (5,599,836) 590,114
Increase in inventory...................... (10,470,309) (5,240,252) - -
Increase (decrease) in accounts payable.... (9,707,407) 11,136,272 1,551,305 142,886
Increase in accrued payroll................ 2,422,918 1,008,791 - -
(Decrease) increase in accrued liabilities. (366,612) 954,362 - -
Increase in accounts payable holdbacks..... 4,325,959 86,262 - -
Change in cumulative foreign exchange (loss) (1,647,737) 12,655 (3,205) 7,926
gain........................................... ------------ ------------ ----------- ---------
Net cash provided (used) by operating (2,502,337) (3,920,863) (3,077,906) 666,431
activities................................. ------------ ------------ ----------- ---------
INVESTING ACTIVITIES
Purchase of construction equipment and other... (2,403,827) (1,119,183) (180,923) (71,706)
Fiber optic strands under construction......... (4,423,830) -- -- --
------------ ---------- ---------- --------
Net cash used by investing activities.......... (6,827,657) (1,119,183) (180,923) (71,706)
------------ ------------ ------------ ---------
FINANCING ACTIVITIES
Increase in income taxes payable............... 5,171,000 333,000 5,000 -
Net advances to (from) the division............ 4,158,994 4,707,046 3,253,829 (594,725)
----------- ---------- ----------- -----------
Net cash provided (used) by financing 9,329,994 5,040,046 3,258,829 (594,725)
activities.................................. ----------- ---------- ----------- -----------
NET CHANGE IN CASH, END OF PERIOD.............. $ -- $ -- $ -- $ --
=========== ========== ========== =========
Additional amounts paid by the Company and
allocated to the Division
Interest....................................... $ 115,311 $ 677,715 $ 14,496 $ --
Rent........................................... 1,198,360 497,265 55,953 38,670
Income taxes................................... 338,000 5,000 3,000 --
---------- ----------- ---------- ---------
$ 1,651,671 $1,179,980 $ 73,449 $ 38,670
=========== ========== ========== =========
</TABLE>
See accompanying notes to the divisional financial statements.
F-51
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
1. DESCRIPTION OF BUSINESS
The Telecommunications Division (the "Division") is a division of Ledcor
Industries Limited ("LIL") which, in turn, is a wholly-owned subsidiary of
Ledcor Inc. The Division is in the business of providing long-haul fiber optic
systems, including planning, design, construction and maintenance to
telecommunications clients. The Division headquarters are in Vancouver, Canada
and its principal geographic areas of operation for these fiber optic systems
are Canada and the United States.
The accompanying divisional financial statements include the assets,
liabilities, revenues and expenses of the Division. Since the Division has been
operating as a fully integrated part of the Company, all construction equipment
owned by LIL, but used in the Division's operations, was identified by LIL's
management and allocated to the Division. In addition, certain assets,
liabilities, revenues and expenses have been recorded by the Division using
management's best estimates (Note 3).
The divisional financial statements have been prepared from the divisional
records maintained by LIL and may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Division
had been operated as a stand-alone company.
The Division does not hold any cash or cash equivalents. LIL uses central
bank accounts to deposit receipts and make payments on behalf of the Division.
These transactions are reflected in the inter-divisional account (Note 8).
On May 31, 1998, LIL transferred the net assets (at book value) and the
operations of the Division to Worldwide Fiber Inc. (indirectly a wholly-owned
subsidiary of Ledcor Inc.).
2. ACCOUNTING POLICIES
a) Basis of accounting
These divisional financial statements have been prepared in accordance
with accounting principles generally accepted in the United States,
which differ in some respects from those in Canada. The impact of any
differences in accounting policies on the financial statements is not
significant and therefore has not been discussed.
b) Accounting for contracts
Revenue and income from construction contracts to develop fiber optic
systems are determined on the percentage of completion basis using the
cost-to-cost method. Due to the risks inherent in these contracts,
management makes a provision for risk using their best estimate. This
method is used because management considers costs incurred to be the
best available measure of progress on
F-52
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
these contracts. Provision is made for all anticipated losses as soon
as they become evident. Claims for additional contract compensation
are not recognized until resolved.
c) Unbilled revenue
Unbilled revenue comprises costs incurred and margin in excess of
billings and advance deposits, representing unperformed work, on
uncompleted contracts.
d) Inventory
Inventory consists of fiber optic strands under construction and is
valued at the lower of cost or market. Cost is determined using the
full absorption method whereby the fiber optic strands have been
allocated their proportionate share of materials, labour and overhead
incurred.
e) Fixed assets
Construction equipment, fiber optic strands and other assets are
recorded at cost. Fixed assets are depreciated using the following
rates and methods:
o Construction equipment--hourly usage rates, estimated to
depreciate the equipment, over estimated useful lives, ranging
from three to five years.
o Fiber optic strands, under construction--depreciation, at
appropriate rates, will be provided for when the related fiber
optic systems are in use.
o Other assets-straight--line method over the estimated useful
lives of the assets, ranging from three to five years.
f) Income taxes
These are the financial statements of a Division, and not of a taxable
legal entity. However, these financial statements present income taxes
as if the Division was a stand-alone taxable legal entity. Current and
deferred income taxes have been determined by applying the asset and
liability method.
The asset and liability method of accounting for income taxes
recognizes deferred tax assets and liabilities for the future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled.
F-53
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
g) Translation of foreign currency
The functional currency of the Division is the Canadian dollar. The
financial statements are translated into United States dollars using
the period end exchange rate for assets and liabilities and weighted
average exchange rates for the period for revenues and expenses.
Translation gains and losses are deferred and included in divisional
equity. Net gains and losses resulting from foreign exchange
transactions are included in the statement of operations.
3. USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
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 at the
dates of the divisional financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Unbilled revenue, inventory, fiber optic strands capitalized, and revenue
have all been calculated using management's best estimates. Total estimated
costs is a component of the percentage of completion calculation which
determines revenue recognized, unbilled revenue, inventory and fiber optic
strands capitalized. However, there may be unforeseen conditions which could
include weather patterns, the continuing deterioration of the Canadian dollar,
and the outcome of ongoing negotiations. Such conditions could substantially
change the values of the above mentioned items reflected in these financial
statements. The impact of these unforeseen conditions cannot be estimated by
management as at May 31, 1998.
Corporate expenses are allocated from LIL to the Division based on a
percentage of the Division's revenue. Management is of the opinion that this
allocation percentage is reasonable since all divisions fully absorb LIL's
corporate expenses. Management regularly reviews this allocation basis and
considers the amounts allocated to fairly represent actual corporate expenses
incurred, on behalf of the Division, for the periods reported on. Because the
Division is fully integrated, management is unable to estimate the actual
corporate expenses that would have been incurred if the Division had operated on
a stand-alone basis.
Interest is allocated from LIL by charging a floating rate of prime plus 1%
on the net cash position of the Division's projects at the end of each month.
Statement of Financial Accounting Standards No. 34, "Capitalization of Interest
Cost", requires that interest be capitalized as part of the historical cost of
constructing assets held for sale or lease. Management has capitalized interest
by capitalizing the portion of interest costs incurred to date which relates to
inventory and capital assets.
The Division has no additional debt accruing interest which should be
capitalized. In addition, LIL has no additional debt which would result in
significant interest being allocated and capitalized.
F-54
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
4. TRADE ACCOUNTS RECEIVABLE AND ACCOUNTS RECEIVABLE HOLDBACKS
Trade accounts receivable are presented net of the allowance for doubtful
accounts (which was nil for all years reported on since the Division has not
experienced any bad debts).
Accounts receivable holdbacks represent amounts billed but not yet paid
under retainage provisions in the project contracts. These provisions state that
holdbacks will be collected upon substantial completion of the projects.
5. UNBILLED REVENUE
Costs and billings on uncompleted contracts included in the divisional
financial statements are as follows:
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Costs incurred on uncompleted contracts..................... $45,321,566 $49,184,985 $5,768,543
Margin...................................................... 9,312,322 8,822,667 1,604,399
Customer advance deposits applied against contracts......... (25,259,100) (7,646,685) --
Less billings to date....................................... (23,531,943) (46,752,957) (2,359,514)
------------- ------------ -----------
$ 5,842,845 $ 3,608,010 $5,013,428
------------ ----------- ----------
6. FIXED ASSETS
May 31, August 31,
1998 1997 1996
---- ---- ----
Construction equipment...................................... $3,796,102 $1,869,048 $802,548
Fiber optic strands, under construction..................... 4,423,830 -- --
Other....................................................... 529,456 52,683 --
---------- ---------- --------
............................................................ 8,749,388 1,921,731 802,548
Less accumulated depreciation............................... 767,285 450,688 338,897
---------- ---------- --------
............................................................ $7,982,103 $1,471,043 $463,651
========== ========== ========
</TABLE>
F-55
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
7. DEFERRED TAX LIABILITIES
The components of the deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997 1996
---- ---- ----
Deferred tax assets
<S> <C> <C> <C>
Accounts payable holdback................................ $ 1,986,000 $ 39,000 $ --
Loss carryforward........................................ $ -- $ -- 1,113,000
---------- -------- ----------
Gross deferred tax assets................................ 1,986,000 39,000 1,113,000
----------- --------- ----------
Deferred tax liabilities
Accounts receivable holdback............................. 2,014,000 1,551,000 69,000
Unbilled revenue......................................... 2,629,000 1,623,000 2,256,000
Inter-divisional account loss carryforward............... -- 1,291,000 --
--------- ---------- ---------
Gross deferred tax liabilities........................... 4,643,000 4,465,000 2,325,000
---------- ---------- ----------
............................................................ $2,657,000 $4,426,000 $1,212,000
========== ========== ==========
Reconciliation of deferred tax liabilities:
May 31, August 31,
1998 1997 1996
---- ---- ----
Deferred tax liabilities, beginning of period............... $4,426,000 $1,212,000 $ 536,000
Deferred tax (recovery) expense............................. (1,600,000) 3,282,000 681,000
Foreign exchange gain....................................... (169,000) (68,000) (5,000)
----------- ----------- -----------
Deferred tax liabilities, end of period..................... $2,657,000 $4,426,000 $1,212,000
---------- ---------- ----------
</TABLE>
The Division's provision for deferred taxes approximates the amounts
computed by applying the Canadian and United States statutory rates to income
before taxes. There are no permanent differences or other reconciling items that
would result in an effective tax rate which is different from the statutory
rates applied.
F-56
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
8. INTERDIVISIONAL ACCOUNT
This account comprises the balance due to other divisions in connection
with working capital advances. The balance due has no repayment terms and
interest is allocated, from LIL, on the basis as described in Note 3.
9. COMMITMENTS
a) Fiber Optic Construction Project
In 1996, the Division commenced construction of a Canadian-U.S. fiber
optic telecommunications system (the Canadian FOTS) that is scheduled
for completion in early 1999.
b) fONOROLA Contract
In a variety of contracts, commencing in April, 1997, the Division
sold fiber optic strands of the Canadian FOTS. The Division has a
commitment to complete construction of the fiber optic strands.
c) Bell Canada Contract
In February, 1998, the Division sold fiber optic strands of the
Canadian FOTS. The Division has a commitment to complete construction
of the fiber optic strands.
d) MetroNet Contract
Subsequent to period end (September, 1998), the Division sold fiber
optic strands of the Canadian FOTS. The Division has a commitment to
complete construction of the fiber optic strands.
e) Lease Commitments
The Division is committed under non-cancellable leases for equipment
for the period ending April, 1999 in the amount of $826,271. The
Division has an option to withdraw from all leases in April, 1999 and
therefore has no commitments beyond that date. Lease expenses were the
following:
Nine months ending May 31, 1998 $1,198,360
Year ended August 31, 1997 497,265
Five months ended August 31, 1996 55,953
Year ended March 31, 1996 38,670
F-57
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
10. SIGNIFICANT CONCENTRATION OF CREDIT AND SUPPLY RISK
The following customers/supplier have accounted individually for 10% or
more of the Division's total revenues/contract costs in one or more periods, as
follows:
<TABLE>
<CAPTION>
Nine months ended Year ended Five months ended Year ended
May 31, 1998 August 31 1997 August 31, 1996 March 31, 1996
------------ -------------- --------------- --------------
Customers
<S> <C> <C> <C> <C>
fONOROLA................... 62% 64% 51% 91%
Bell Canada................ 28% - - -
Alaska Filter Star......... - 25% - -
Sprint Canada.............. - - 24% -
AT&T Canada................ - - 24% -
Supplier
Pirelli Cables............. 13% 27% 79% -
The Division also had significant accounts receivable from fONOROLA which
accounted for the following percentages of trade accounts receivable:
May 31, 1998 August 31, 1997 August 31, 1996
------------ --------------- ---------------
fONOROLA.............................................. 39% 52% 94%
</TABLE>
The Division is receiving cash from this customer on a consistent basis and
management expects to collect on all other accounts receivables. Therefore no
provision for bad debts has been recorded for the reported periods. Based on
this significant customer's creditworthiness, the Division has not required it
to provide collateral against these receivables.
There were no significant accounts payable to significant suppliers at the
balance sheet dates. However, since significant purchases are made from Pirelli
Cables, should this supplier fail to honor its contract and the Division was not
able to find a substitute supplier, the Division would not be able to meet its
commitments to complete the construction of the Canadian FOTS, as noted in 9(a).
11. FINANCIAL INSTRUMENTS
Financial instruments consist of recorded accounts receivables (and other
like accounts) which will result in future cash receipts, as well as accounts
payables, (and other like accounts) that will result in future cash outlays.
F-58
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
The carrying values of the financial instruments of the Division as at May
31, 1998, August 31, 1997 and August 31, 1996 were approximately equal to their
estimated fair market values at these dates, due to the short-term nature of
these instruments. Subjective judgment and uncertainties arise in the
determination of estimated fair market values. Accordingly, the aggregate fair
value should not be interpreted as being realizable in an immediate settlement
of the instruments.
12. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Division currently operates in one industry segment (fiber optic
installations) and in two geographic segments (the Canadian FOTS is being
constructed in Canada and the U.S.). Revenue and total identifiable assets for
these geographic segments is as follows:
<TABLE>
<CAPTION>
Canada U.S.
------ ----
Revenue Amount Percentage of Total Amount Percentage of Total
<S> <C> <C> <C> <C> <C> <C>
May 31, 1998.................... $ 35,826,795 66% $ 18,807,093 34%
August 31, 1997................. $ 42,611,672 73% $ 15,395,980 27%
August 31, 1996................. $ 7,372,942 100% $ -- --
March 31, 1996.................. $ 3,823,790 100% $ -- --
Canada U.S.
------ ----
Total Identifiable
Assets Amount Percentage of Total Amount Percentage of Total
May 31, 1998..................... $ 29,204,452 71% $ 11,928,580 29%
August 31, 1997.................. $ 25,464,071 79% $ 6,803,515 21%
August 31, 1996.................. $ 6,475,904 100% $ -- --
</TABLE>
13. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after, January 1, 2000 and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect the Division's ability to conduct normal business operations.
It is not possible to be certain
F-59
<PAGE>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Notes to the Divisional Financial Statements
(All figures are in U.S. dollars)
that all aspects of the Year 2000 Issue affecting the Division, including those
related to the efforts of customers, suppliers, or other third parties, will be
fully resolved.
14. SUBSEQUENT EVENTS
a) Agreements with WFI
Effective May 31 1998, LIL entered into a series of agreements to sell
the equipment, fiber optic strands and certain other assets related to
the business of Worldwide Fiber Inc. (an indirect wholly-owned
subsidiary of Ledcor Inc.) ("WFI"). In addition, WFI was granted a
licence by LIL to use certain processes related to the business. This
licence agreement is for an initial term of ten years and will be
renewable annually upon completion of the initial term. As part of
this transaction, LIL retained all existing construction contracts
related to the business. This transaction was between entities under
common control and has been accounted for using the carrying amounts
recorded in LIL's accounts. As consideration for the transaction, LIL
was issued 200 Class A shares by WFI.
b) Disposition of fiber assets
As part of these agreements WFI undertook to purchase from LIL certain
fiber optic system assets, located in both Canada and the U.S., which
were not completed at May 31, 1998. These assets will be purchased by
WFI upon their completion, which is estimated to be late 1998 or early
1999. As consideration, WFI will issue a total of 19,999,700 Class A
common shares to LIL. These transactions are between entities under
common control and, will be accounted for at their original
construction costs.
c) Construction services
WFI has agreed to provide construction services to LIL to complete
certain construction contracts for fiber optic strands and related
facilities to third party customers.
F-60
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the By-laws of the Company, as amended, subject to Section 124
of the Canada Business Corporations Act (the "Act"), a director or officer of
the Company, a former director or officer of the Company or a person who acts or
acted at the Company's request as a director or officer of a body corporate of
which the Company is or was a shareholder or creditor, and his or her heirs and
legal representatives:
1. may be indemnified by the Company against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is made a party by
reason of being or having been a director or officer of such Company or
body corporate.
2. may be indemnified by the Company, with the approval of a court, against
all costs, charges and expenses reasonably incurred by him or her in
connection with an action by or on behalf of the Company or body corporate
to procure a judgment in its favor, to which he or she is made a party by
reason of being or having been a director or an officer of the Company or
body corporate; and
3. is entitled to indemnity from the Company in respect of all costs, charges
and expenses reasonably incurred by him or her in connection with the
defense of any civil, criminal or administrative action or proceeding to
which he or she is made a party by reason of being or having been a
director or officer of the Company or body corporate, if the person seeking
indemnity was substantially successful on the merits in his or her defense
of the actions or proceeding:
provided, in all cases, such person fulfills the conditions that (a) he or she
acted honestly and in good faith with a view to the best interests of the
Company, and (b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful.
As contemplated by Section 124 of the Canada Business Corporations Act, the
Company has purchased insurance against potential claims against the directors
and officers of the registrant and against loss for which the registrant may be
required or permitted by law to indemnify such directors and officers.
<PAGE>
Item 21. EXHIBITS.
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
1 Purchase Agreement between Worldwide Fiber Inc. and the Initial
Purchasers dated July 23, 1999.
3.1 Articles of Continuance of Worldwide Fiber Inc.
3.2 Articles of Amendment of Worldwide Fiber Inc.
3.3 By-Laws of Worldwide Fiber Inc., as Amended
4.1* Indenture between Worldwide Fiber Inc. and HSBC Bank USA (formerly
Marine Midland Bank) dated December 23, 1998
4.2* Form of 12 1/2% Series A Senior Notes due 2005
4.3* Form of 12 1/2% Series B Senior Notes due 2005
4.4* Registration Rights Agreement between Worldwide Fiber Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc.
dated December 23, 1998
4.5 Indenture between Worldwide Fiber Inc. and HSBC Bank USA (formerly
Marine Midland Bank) dated July 28, 1999.
4.6 Form of 12% Series A Senior Notes due 2009 (included in exhibit 4.5
hereto).
4.7 Form of 12% Series B Senior Notes due 2009 (included in exhibit 4.5
hereto).
4.8 Registration Rights Agreement between Worldwide Fiber Inc. and the
Initial Purchasers dated July 28, 1999.
5.1** Opinion of Farris, Vaughan, Wills & Murphy regarding the legality of
the securities being registered.
5.2** Opinion of Cahill Gordon & Reindel regarding the legality of the
securities being registered.
II-2
<PAGE>
10.1* Shareholders Agreement between Worldwide Fiber Inc., Worldwide Fiber
Networks Ltd., Ledcor Communications Ltd., Ledcor Industries, Inc.,
Worldwide Fiber (USA), Inc. (formerly Pacific Fiber Link, Inc.),
MI-Tech Communications, LLC, Ledcor Inc., and Michels Pipeline
Construction, Inc.
10.2* Railplow License Agreement between Ledcor Industries Limited and
Worldwide Fiber Communications Ltd. (formerly 786520 Alberta Ltd.)
dated May 31, 1998.
10.3* Non-exclusive Railplow License Agreement between Ledcor Industries
Limited and Ledcom Holdings Ltd. (formerly Starfiber Communications
Ltd.) dated May 31, 1998.
10.4* Letter from Ledcor, Inc. committing Ledcom Holdings Ltd. to grant an
exclusive Railplow license to Worldwide Fiber Communications Ltd.
dated December 1, 1998.
10.5* Management Services Agreement between Ledcor Industries Limited and
Worldwide Fiber Inc. (formerly Worldwide Fiberlink Ltd.) dated May 31,
1998.
10.6* Employment Agreement between Ledcor Industries Limited and Ledcor
Communications Ltd., a wholly-owned subsidiary of the Worldwide Fiber
Inc. dated May 31, 1998.
10.7* Employment Agreement between Ledcor Industries Inc. and Ledcor
Communications Inc., a subsidiary of Worldwide Fiber Inc. dated May
31, 1998.
10.8* Construction Services Agreement between Ledcor Industries Limited and
Ledcor Communications Ltd., a wholly-owned subsidiary of the Worldwide
Fiber Inc. dated May 31, 1998.
10.9* Construction Services Agreement between Ledcor Industries Inc. and
Ledcor Communications Ltd. (formerly Ledcor Communications Inc.) dated
May 31, 1998.
10.10* Non-Competition Agreement between Worldwide Fiber Inc. (formerly
Starfiber Inc.) and Ledcor, Inc., dated May 31, 1998.
10.11* Roll-over Agreement between Ledcor Industries Limited and Ledcom
Holdings Ltd. (formerly Starfiber Communications Ltd.) dated May 31,
1998 transferring certain technology of Ledcor Industries Limited.
10.12* Roll-over Agreement between Ledcor Industries Limited, Worldwide Fiber
(USA), Inc. (formerly Pacific Fiber Link, Inc.) and Ledcor Industries
Inc. dated August 31, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
II-3
<PAGE>
10.13* Roll-over Agreement between Mi-Tech Communications, LLC, Worldwide
Fiber (USA), Inc. (formerly Pacific Fiber Link, Inc.) dated August 31,
1998 transferring assets of Ledcor Inc.'s telecommunications division.
10.14* Roll-over Agreement between Ledcor Industries Limited and Worldwide
Fiber Holdings Ltd. (formerly Worldwide Fiberlink Holdings Ltd.) dated
August 31, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
10.15* Roll-over Agreement between Worldwide Fiber Holdings Ltd. (formerly
Worldwide Fiberlink Holdings Ltd.) and Worldwide Fiber Inc. (formerly
Worldwide Fiberlink Ltd.) dated August 31, 1998 transferring assets of
Ledcor Inc.'s telecommunications division.
10.16* Roll-over Agreement between Worldwide Fiber Inc. (formerly Worldwide
Fiberlink Ltd.) and Worldwide Fiber Networks Ltd. (formerly Worldwide
Fiber Ltd.) dated August 31, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
10.17* Roll-over Agreement between Ledcor Inc. and Worldwide Fiber Holdings
Ltd. dated December 1, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
10.18* Roll-over Agreement between Worldwide Fiber Holdings Ltd. and
Worldwide Fiber Inc. dated December 1, 1998 transferring assets of
Ledcor Inc.'s telecommunications division.
10.19* Roll-over Agreement between Worldwide Fiber Inc. and Worldwide Fiber
Communications Ltd. dated December 1, 1998 transferring assets of
Ledcor Inc.'s telecommunications division.
10.20* License Agreement among WFI-CN Fiber Inc., Worldwide Fiber Inc. and
Canadian National Railway Company, dated May 28, 1999.
10.21* Unanimous Shareholders Agreement among Worldwide Fiber Networks Ltd.,
Canadian National Railway Company and WFI-CN Fiber Inc. dated May 28,
1999.
10.22* Limited Liability Company Agreement of Worldwide Fiber IC LLC between
Worldwide Fiber IC Holdings, Inc., and IC Fiber Holding Inc., dated
May 28, 1999.
10.23* Form of License Agreement among Worldwide Fiber Inc., Illinois Central
Railroad Company and each of IC Fiber Alabama LLC, IC Fiber Illinois
LLC, IC Fiber Iowa LLC, IC Fiber Kentucky LLC, IC Fiber Louisiana LLC,
IC Fiber Mississippi LLC and IC Fiber Tennessee LLC, dated as of May
28, 1999.
II-4
<PAGE>
10.24* Amended and Restated Share Purchase Agreement by and between Ledcor
Industries Limited, Ledcor Industries Inc. and Worldwide Fiber Inc.
dated May 28, 1999.
10.25* Supply contract for Hibernia Undersea Cable System between Worldwide
Telecom (Bermuda) Ltd. and Tyco Submarine Systems Ltd. dated June 18,
1999.
10.26# Preferred Share Purchase Agreement by and among Worldwide Fiber Inc.,
DWF SRL, GSCP3 WWF (Barbados) SRL, WWF (Barbados) SRL, Providence
Equity Fiber L.P., and Tyco Group S.A.R.L. dated as of September 7,
1999.
10.27# Shareholders Agreement by and among Worldwide Fiber Inc., DWF SRL, GS
Capital Partners III, L.P., GSCP3 WWF (Barbados) SRL, Providence
Equity Fiber, L.P., Tyco Group S.a.r.l., Worldwide Fiber Holdings
Ltd., Ledcor Inc. and the Several Shareholders named in Schedule 1.15
thereto dated as of September 9, 1999
10.28 Registration Rights Agreement by and among Worldwide Fiber Inc., DWF
SRL, GSCP3 WWF (Barbados) SRL, WWF (Barbados) SRL, Providence Equity
Fiber, L.P., and Tyco Group S.a.r.l. dated as of September 9, 1999
10.29 Amended and Restated Share Purchase Agreement between Ledcor
Industries Limited, Ledcor Industries Inc. and Worldwide Fiber Inc.
dated September 7, 1999
10.30 Letter Agreement between Ledcor Industries Limited, Ledcor Industries
Inc., Worldwide Fiber Inc. and Worldwide Fiber (F.O.T.S.) No. 3, Ltd.
dated September 27, 1999
21 Subsidiaries of Worldwide Fiber Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
23.3** Consent of Cahill Gordon & Reindel (included in Exhibit 5.2).
23.4** Consent of Farris, Vaughan, Wills & Murphy (included in Exhibit 5.1).
24.1 Powers of Attorney authorizing execution of Registration Statement on
Form F-4 on behalf of certain directors of Registrant (included on
signature pages to this Registration Statement).
24.2 Power of Attorney authorizing execution of Registration Statement on
Form F-4 on behalf of Worldwide Fiber (USA), Inc.
II-5
<PAGE>
25 Statement of eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
- ----------
* Previously filed with the Company's Registration Statement on Form F-4
which was declared effective on July 21, 1999 (Registration No. 333-10254).
** To be filed by amendment.
# Confidential treatment requested as to certain portions which have been
omitted from this filing and filed separately with the Securities and
Exchange Commission pursuant to Rule 406.
II-6
<PAGE>
Item 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(2) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933; (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% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; (iii) to include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(3) That, for the purpose 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.
(4) 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.
(5) To file a post-effective amendment to the registration statement to
include any financial statements required by ss.210.3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering.
(6) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the infor-
II-7
<PAGE>
mation 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.
(7) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 (ss.230.415 of this chapter), 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.
(8) The undersigned registrant hereby undertakes: (i) to respond to
requests for information that is incorporated by reference into this prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form F-4, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means; and (ii) to arrange or provide for a
facility in the U.S. for the purpose of responding to such requests. The
undertaking in subparagraph (i) above includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(9) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(10) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, the undersigned
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Vancouver BC, Canada on
October 26, 1999.
WORLDWIDE FIBER INC.
By: /s/ DAVID LEDE
----------------------------------------
Name: David Lede
Title: Chairman of the Board and
Chief Executive Officer
II-9
<PAGE>
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints David Lede and
Larry Olsen and each of them (with full power to each of them to act alone) his
true and lawful attorney-in-fact, with power of substitution and resubstitution,
in his name, place and stand, in any and all capacities, to sign any and all
amendments (including post-effective amendments) and supplements to this
Registration Statement and to file the same, with exhibits thereto and other
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DAVID LEDE Chairman of the Board October 26, 1999
- ------------------------------------------ (Principal Executive
David Lede Officer)
/s/ CLIFFORD LEDE Vice Chairman October 26, 1999
- ------------------------------------------
Clifford Lede
- ------------------------------------------ Vice Chairman October 26, 1999
/s/ LARRY OLSEN (Principal Financial and
- ------------------------------------------ Accounting
Larry Olsen Officer)
/s/ RON STEVENSON Director October 26, 1999
- ------------------------------------------
Ron Stevenson
/s/ STEPHEN STOW Director October 26, 1999
- ------------------------------------------
Stephen Stow
/s/ JIM VOELKER Director October 26, 1999
- ------------------------------------------
Jim Voelker
II-10
<PAGE>
/s/ WILLIAM RAMSEY Director October 26, 1999
- ------------------------------------------
William Ramsey
/s/ ANDREW RUSH Director October 26, 1999
- ------------------------------------------
Andrew Rush
/s/ ROBERT GHEEWALLA Director October 26, 1999
- ------------------------------------------
Robert Gheewalla
/s/ GLENN CREAMER Director October 26, 1999
- ------------------------------------------
Glenn Creamer
/s/ NEIL GARVEY Director October 26, 1999
- ------------------------------------------
Neil Garvey
Worldwide Fiber (USA), Inc. Worldwide Fiber (USA), October 26, 1999
Inc.
(Authorized U.S.
By: /s/ LARRY OLSEN Representative)
-------------------------------------
Larry Olsen, Authorized Signatory
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
1 Purchase Agreement between Worldwide Fiber Inc. and the Initial
Purchasers dated July 23, 1999.
3.1 Articles of Continuance of Worldwide Fiber Inc.
3.2 Articles of Amendment of Worldwide Fiber Inc.
3.3 By-Laws of Worldwide Fiber Inc., as Amended
4.1* Indenture between Worldwide Fiber Inc. and HSBC Bank USA (formerly
Marine Midland Bank) dated December 23, 1998
4.2* Form of 12 1/2% Series A Senior Notes due 2005
4.3* Form of 12 1/2% Series B Senior Notes due 2005
4.4* Registration Rights Agreement between Worldwide Fiber Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc.
dated December 23, 1998
4.5 Indenture between Worldwide Fiber Inc. and HSBC Bank USA (formerly
Marine Midland Bank) dated July 28, 1999.
4.6 Form of 12% Series A Senior Notes due 2009 (included in exhibit 4.5
hereto).
4.7 Form of 12% Series B Senior Notes due 2009 (included in exhibit 4.5
hereto).
4.8 Registration Rights Agreement between Worldwide Fiber Inc. and the
Initial Purchasers dated July 28, 1999.
5.1** Opinion of Farris, Vaughan, Wills & Murphy regarding the legality of
the securities being registered.
5.2** Opinion of Cahill Gordon & Reindel regarding the legality of the
securities being registered.
10.1* Shareholders Agreement between Worldwide Fiber Inc., Worldwide Fiber
Networks Ltd., Ledcor Communications Ltd., Ledcor Industries, Inc.,
Worldwide Fiber (USA), Inc. (formerly Pacific Fiber Link, Inc.),
MI-Tech Communications, LLC, Ledcor Inc., and Michels Pipeline
Construction, Inc.
II-12
<PAGE>
10.2* Railplow License Agreement between Ledcor Industries Limited and
Worldwide Fiber Communications Ltd. (formerly 786520 Alberta Ltd.)
dated May 31, 1998.
10.3* Non-exclusive Railplow License Agreement between Ledcor Industries
Limited and Ledcom Holdings Ltd. (formerly Starfiber Communications
Ltd.) dated May 31, 1998.
10.4* Letter from Ledcor, Inc. committing Ledcom Holdings Ltd. to grant an
exclusive Railplow license to Worldwide Fiber Communications Ltd.
dated December 1, 1998.
10.5* Management Services Agreement between Ledcor Industries Limited and
Worldwide Fiber Inc. (formerly Worldwide Fiberlink Ltd.) dated May 31,
1998.
10.6* Employment Agreement between Ledcor Industries Limited and Ledcor
Communications Ltd., a wholly-owned subsidiary of the Worldwide Fiber
Inc. dated May 31, 1998.
10.7* Employment Agreement between Ledcor Industries Inc. and Ledcor
Communications Inc., a subsidiary of Worldwide Fiber Inc. dated May
31, 1998.
10.8* Construction Services Agreement between Ledcor Industries Limited and
Ledcor Communications Ltd., a wholly-owned subsidiary of the Worldwide
Fiber Inc. dated May 31, 1998.
10.9* Construction Services Agreement between Ledcor Industries Inc. and
Ledcor Communications Ltd. (formerly Ledcor Communications Inc.) dated
May 31, 1998.
10.10* Non-Competition Agreement between Worldwide Fiber Inc. (formerly
Starfiber Inc.) and Ledcor, Inc., dated May 31, 1998.
10.11* Roll-over Agreement between Ledcor Industries Limited and Ledcom
Holdings Ltd. (formerly Starfiber Communications Ltd.) dated May 31,
1998 transferring certain technology of Ledcor Industries Limited.
10.12* Roll-over Agreement between Ledcor Industries Limited, Worldwide Fiber
(USA), Inc. (formerly Pacific Fiber Link, Inc.) and Ledcor Industries
Inc. dated August 31, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
10.13* Roll-over Agreement between Mi-Tech Communications, LLC, Worldwide
Fiber (USA), Inc. (formerly Pacific Fiber Link, Inc.) dated August 31,
1998 transferring assets of Ledcor Inc.'s telecommunications division.
II-13
<PAGE>
10.14* Roll-over Agreement between Ledcor Industries Limited and Worldwide
Fiber Holdings Ltd. (formerly Worldwide Fiberlink Holdings Ltd.) dated
August 31, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
10.15* Roll-over Agreement between Worldwide Fiber Holdings Ltd. (formerly
Worldwide Fiberlink Holdings Ltd.) and Worldwide Fiber Inc. (formerly
Worldwide Fiberlink Ltd.) dated August 31, 1998 transferring assets of
Ledcor Inc.'s telecommunications division.
10.16* Roll-over Agreement between Worldwide Fiber Inc. (formerly Worldwide
Fiberlink Ltd.) and Worldwide Fiber Networks Ltd. (formerly Worldwide
Fiber Ltd.) dated August 31, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
10.17* Roll-over Agreement between Ledcor Inc. and Worldwide Fiber Holdings
Ltd. dated December 1, 1998 transferring assets of Ledcor Inc.'s
telecommunications division.
10.18* Roll-over Agreement between Worldwide Fiber Holdings Ltd. and
Worldwide Fiber Inc. dated December 1, 1998 transferring assets of
Ledcor Inc.'s telecommunications division.
10.19* Roll-over Agreement between Worldwide Fiber Inc. and Worldwide Fiber
Communications Ltd. dated December 1, 1998 transferring assets of
Ledcor Inc.'s telecommunications division.
10.20* License Agreement among WFI-CN Fiber Inc., Worldwide Fiber Inc. and
Canadian National Railway Company, dated May 28, 1999.
10.21* Unanimous Shareholders Agreement among Worldwide Fiber Networks Ltd.,
Canadian National Railway Company and WFI-CN Fiber Inc. dated May 28,
1999.
10.22* Limited Liability Company Agreement of Worldwide Fiber IC LLC between
Worldwide Fiber IC Holdings, Inc., and IC Fiber Holding Inc., dated
May 28, 1999.
10.23* Form of License Agreement among Worldwide Fiber Inc., Illinois Central
Railroad Company and each of IC Fiber Alabama LLC, IC Fiber Illinois
LLC, IC Fiber Iowa LLC, IC Fiber Kentucky LLC, IC Fiber Louisiana LLC,
IC Fiber Mississippi LLC and IC Fiber Tennessee LLC, dated as of May
28, 1999.
10.24* Amended and Restated Share Purchase Agreement by and between Ledcor
Industries Limited, Ledcor Industries Inc. and Worldwide Fiber Inc.
dated May 28, 1999.
II-14
<PAGE>
10.25* Supply contract for Hibernia Undersea Cable System between Worldwide
Telecom (Bermuda) Ltd. and Tyco Submarine Systems Ltd. dated June 18,
1999.
10.26# Preferred Share Purchase Agreement by and among Worldwide Fiber Inc.,
DWF SRL, GSCP3 WWF (Barbados) SRL, WWF (Barbados) SRL, Providence
Equity Fiber L.P., and Tyco Group S.A.R.L. dated as of September 7,
1999.
10.27# Shareholders Agreement by and among Worldwide Fiber Inc., DWF SRL, GS
Capital Partners III, L.P., GSCP3 WWF (Barbados) SRL, Providence
Equity Fiber, L.P., Tyco Group S.a.r.l., Worldwide Fiber Holdings
Ltd., Ledcor Inc. and the Several Shareholders named in Schedule 1.15
thereto dated as of September 9, 1999
10.28 Registration Rights Agreement by and among Worldwide Fiber Inc., DWF
SRL, GSCP3 WWF (Barbados) SRL, WWF (Barbados) SRL, Providence Equity
Fiber, L.P., and Tyco Group S.a.r.l. dated as of September 9, 1999
10.29 Amended and Restated Share Purchase Agreement between Ledcor
Industries Limited, Ledcor Industries Inc. and Worldwide Fiber Inc.
dated September 7, 1999
10.30 Letter Agreement between Ledcor Industries Limited, Ledcor Industries
Inc., Worldwide Fiber Inc. and Worldwide Fiber (F.O.T.S.) No. 3, Ltd.
dated September 27, 1999
21 Subsidiaries of Worldwide Fiber Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
23.3** Consent of Cahill Gordon & Reindel (included in Exhibit 5.2).
23.4** Consent of Farris, Vaughan, Wills & Murphy (included in Exhibit 5.1).
24.1 Powers of Attorney authorizing execution of Registration Statement on
Form F-4 on behalf of certain directors of Registrant (included on
signature pages to this Registration Statement).
24.2 Power of Attorney authorizing execution of Registration Statement on
Form F-4 on behalf of Worldwide Fiber (USA), Inc.
25 Statement of eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
II-15
<PAGE>
99.2 Form of Notice of Guaranteed Delivery.
- ----------
* Previously filed with the Company's Registration Statement on Form F-4
which was declared effective on July 21, 1999 (Registration No. 333-10254).
** To be filed by amendment.
# Confidential treatment requested as to certain portions which have been
omitted from this filing and filed separately with the Securities and
Exchange Commission pursuant to Rule 406.
II-16
Worldwide Fiber Inc.
U.S. $500,000,000
12% Series A Senior Notes due 2009
Purchase Agreement
July 23, 1999
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
TD Securities (USA) Inc.
<PAGE>
U.S. $500,000,000
12% Series A Senior Notes due 2009
of WORLDWIDE FIBER INC.
PURCHASE AGREEMENT
July 23, 1999
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
TD Securities (USA) Inc.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Worldwide Fiber Inc., a corporation incorporated under the laws of Alberta
(the "Company"), proposes to issue and sell to Donaldson, Lufkin & Jenrette
Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney
Inc. and TD Securities (USA) Inc. (each, an "Initial Purchaser" and, together,
the "Initial Purchasers") an aggregate of U.S. $500,000,000 in principal amount
of its 12% Series A Senior Notes due 2009 (the "Series A Notes"), subject to the
terms and conditions set forth herein. The Series A Notes are to be issued
pursuant to the provisions of an indenture (the "Indenture"), to be dated as of
the Closing Date (as defined below), between the Company and HSBC Bank USA, as
trustee (the "Trustee"). The Series A Notes and the Series B Notes (as defined
below) issuable in exchange therefor are collectively referred to herein as the
"Notes." Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Indenture.
1. Offering Memorandum. The Series A Notes will be offered and sold to the
Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "Act"). The
Company has prepared a preliminary offering memorandum, dated July 1, 1999 (the
"Preliminary Offering Memorandum"), a preliminary Canadian addendum, dated July
1, 1999 (the "Preliminary Wrap"), a final offering memorandum, dated July 23,
1999 (the "Offering Memorandum"), and a final Canadian addendum, dated July 23,
1999 (the "Final Wrap"), in each case, relating to the Series A Notes. The
Issuer hereby confirms that it has authorized the use of the Preliminary
Offering Memorandum, the Preliminary Wrap, the Offering Memorandum and the Final
<PAGE>
-2-
Wrap, and any amendment or supplement thereto, in connection with the offer and
sale of the Series A Notes by the Initial Purchasers. Unless stated to the
contrary, all references herein (i) to the "Preliminary Canadian Memorandum" are
to the Preliminary Offering Memorandum as supplemented by the Preliminary Wrap;
and (ii) to the "Final Canadian Memorandum" are to the Offering Memorandum as
supplemented by the Final Wrap.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE ACT)(A "QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (C) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),(2),(3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES
THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE
COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904
OF THE ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION
<PAGE>
-3-
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED, A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER
THE ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE
TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
2. Agreements to Sell and Purchase. On the basis of the representations,
warranties and covenants contained in this Agreement, and subject to the terms
and conditions contained herein, the Company agrees to issue and sell to the
Initial Purchasers, and each Initial Purchaser agrees, severally and not
jointly, to purchase from the Company, the principal amounts of Series A Notes
set forth opposite the name of such Initial Purchaser on Schedule A hereto at a
purchase price equal to 97.0% of the principal amount thereof (the "Purchase
Price").
3. Terms of Offering. The Initial Purchasers have advised the Company that
the Initial Purchasers will make offers (the "Exempt Resales") of the Series A
Notes purchased hereunder on the terms set forth in the Offering Memorandum, as
amended or supplemented, solely to (i) persons whom the Initial Purchasers
reasonably believe to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBs"), and (ii) persons permitted to purchase the Series A
Notes in offshore transactions in reliance upon Regulation S under the Act
(each, a "Regulation S Purchaser") (such persons specified in clauses (i) and
(ii) being referred to herein as the "Eligible Purchasers"). The Initial
Purchasers will offer the Series A Notes to Eligible Purchasers initially at a
price equal to 100% of the principal amount thereof. Such price may be changed
at any time without notice.
Holders (including subsequent transferees) of the Series A Notes will have
the registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as such Series A Notes constitute
"Transfer Restricted Securities" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company will
agree to file with the Securities and Exchange Commission (the "Commission")
under the circumstances set forth therein, (i) a registration statement under
the Act (the
<PAGE>
-4-
"Exchange Offer Registration Statement") relating to the Company's 12% Series B
Senior Notes due 2009 (the "Series B Notes"), to be offered in exchange for the
Series A Notes (such offer to exchange being referred to as the "Exchange
Offer") and (ii) a shelf registration statement pursuant to Rule 415 under the
Act (the "Shelf Registration Statement" and, together with the Exchange Offer
Registration Statement, the "Registration Statements") relating to the resale by
certain holders of the Series A Notes and to use its reasonable best efforts to
cause such Registration Statements to be declared and remain effective and
usable for the periods specified in the Registration Rights Agreement and to
consummate the Exchange Offer. This Agreement, the Indenture, the Notes, and the
Registration Rights Agreement are hereinafter sometimes referred to collectively
as the "Operative Documents."
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the Series A Notes
shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New
York, New York 10005, or such other location as may be mutually acceptable. Such
delivery and payment shall be made at 9:00 a.m. New York City time, on July 28,
1999 or at such other time on the same date or such other date as shall be
agreed upon by the Initial Purchasers and the Company. The time and date of such
delivery and the payment for the Series A Notes are herein called the "Closing
Date."
(b) One or more of the Series A Notes in definitive global form, registered
in the name of Cede & Co., as nominee of the Depository Trust Company ("DTC"),
having an aggregate principal amount corresponding to the aggregate principal
amount of the Series A Notes (collectively, the "Global Note"), shall be
delivered by the Company to the Initial Purchasers (or as the Initial Purchasers
direct) in each case with any transfer taxes thereon duly paid by the Company
against payment by the Initial Purchasers of the Purchase Price thereof by wire
transfer in same day funds to the order of the Company. The Global Note shall be
made available to the Initial Purchasers for inspection not later than 10:00
a.m., New York City time, on the business day immediately preceding the Closing
Date.
5. Agreements of the Company. The Company hereby agrees with the Initial
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if requested by the
Initial Purchasers, confirm such advice in writing, (i) of the issuance by any
state securities commission or any securities commission of a Relevant Province
(as defined below) of any stop order suspending the qualification or exemption
from qualification of any Series A Notes for offering or sale in any
jurisdiction designated by the Initial Purchasers pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities commission
or any other federal, state or provincial regulatory authority for such purpose
and (ii) of the happening of any
<PAGE>
-5-
event during the period referred to in Section 5(c) below that makes any
statement of a material fact made in the Preliminary Offering Memorandum,
Preliminary Canadian Memorandum, the Offering Memorandum, or the Final Canadian
Memorandum untrue or that requires any additions to or changes in the
Preliminary Offering Memorandum, the Preliminary Canadian Memorandum, the
Offering Memorandum, or the Final Canadian Memorandum in order to make the
statements therein not misleading. The Company shall use its best efforts to
prevent the issuance of any stop order or order suspending the qualification or
exemption of any Series A Notes under any state securities or Blue Sky laws or
Canadian Securities Laws (as defined below) and, if at any time any state
securities commission or other federal or state regulatory authority shall issue
an order suspending the qualification or exemption of any Series A Notes under
any state securities or Blue Sky laws or Canadian Securities Laws (as defined
below), the Company shall use its best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons identified by the
Initial Purchasers to the Company as many copies of the Preliminary Offering
Memorandum, the Preliminary Canadian Memorandum, the Offering Memorandum and the
Final Canadian Memorandum, and any amendments or supplements thereto, as the
Initial Purchasers may reasonably request for the time period specified in
Section 5(c). Subject to the Initial Purchasers' compliance with its
representations and warranties and agreements set forth in Section 7 hereof, the
Company consents to the use of the Preliminary Offering Memorandum, the
Preliminary Canadian Memorandum, the Offering Memorandum and the Final Canadian
Memorandum, and any amendments and supplements thereto required pursuant hereto,
by the Initial Purchasers in connection with Exempt Resales.
(c) During such period as in the opinion of counsel for the Initial
Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers, (i) not to make any
amendment or supplement to the Offering Memorandum or the Final Canadian
Memorandum of which the Initial Purchasers shall not previously have been
advised or to which the Initial Purchasers shall reasonably object after being
so advised and (ii) to prepare promptly upon the Initial Purchasers' reasonable
request, any amendment or supplement to the Offering Memorandum or the Final
Canadian Memorandum which may be necessary or advisable in connection with such
Exempt Resales.
(d) If, during the period referred to in Section 5(c) above, any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel to the Initial Purchasers, it becomes necessary to amend or supplement
the Offering Memorandum or the Final Canadian Memorandum in order to make the
statements therein, in the light of the circumstances when such Offering
Memorandum or the Final Canadian Memorandum is delivered to an Eligible
Purchaser, not misleading, or if, in the opinion of counsel to the Initial
Purchasers, it is necessary to amend or supplement the Offering Memorandum or
the Final Canadian
<PAGE>
-6-
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum or Final
Canadian Memorandum so that the statements therein, as so amended or
supplemented, will not, in the light of the circumstances when it is so
delivered, be misleading, or so that such Offering Memorandum or Final Canadian
Memorandum will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate such
number of copies thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Series A Notes pursuant to Exempt Resales as
contemplated hereby, to cooperate with the Initial Purchasers and counsel to the
Initial Purchasers in connection with the registration or qualification of the
Series A Notes for offer and sale to the Initial Purchasers and pursuant to
Exempt Resales under the securities or Blue Sky laws of such jurisdictions or
the Canadian Securities Laws as the Initial Purchasers may request and to
continue such registration or qualification in effect so long as required for
Exempt Resales and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification; provided, however, that the Company shall not be required in
connection therewith to qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters and
transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction in which it is not now so
subject.
(f) So long as the Notes are outstanding, whether or not the Company is
subject to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company shall file with the Commission and
furnish to the holders of the Notes and the Trustee (i) within 140 days after
the end of each fiscal year, annual reports on Form 20-F or 40-F, as applicable
(or any successor form), containing the information required to be contained
therein (or required in such successor form) and (ii) (x) within 45 days after
the end of each of the first three fiscal quarters of each fiscal year, reports
on Form 10-Q or (y) within 60 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 6-K (or any successor form)
which, regardless of applicable requirements, shall, at a minimum, contain a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(g) So long as the Notes are outstanding, to furnish to the Initial
Purchasers as soon as available copies of all reports or other communications
furnished by the Company to its security holders or furnished to or filed with
the Commission, any securities commission of a Relevant Province or any national
securities exchange on which any class of securities of the Company is listed
and such other publicly available information concerning the Company and/or its
subsidiaries as the Initial Purchasers may reasonably request.
<PAGE>
-7-
(h) So long as the Notes are outstanding, the Company will furnish to the
holders of Notes the information ("Rule 144A Information") required to be
delivered pursuant to Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the obligations of the Company under
this Agreement, including: (i) the fees, disbursements and expenses of counsel
to the Company and accountants of the Company in connection with the sale and
delivery of the Series A Notes to the Initial Purchasers and pursuant to Exempt
Resales, and all other fees and expenses in connection with the preparation,
printing, filing and distribution of the Preliminary Offering Memorandum, the
Preliminary Canadian Memorandum, the Offering Memorandum, the Final Canadian
Memorandum, and all amendments and supplements to any of the foregoing
(including financial statements), including the mailing and delivering of copies
thereof to the Initial Purchasers and persons designated by them in the
quantities specified herein, (ii) all costs and expenses related to the transfer
and delivery of the Series A Notes to the Initial Purchasers and pursuant to
Exempt Resales, including any transfer or other taxes payable thereon, (iii) all
expenses in connection with the registration or qualification of the Series A
Notes for offer and sale under the securities or Blue Sky laws of the several
states and the Canadian Securities Laws (as defined below) and all costs of
printing or producing any preliminary and supplemental Blue Sky memoranda in
connection therewith (including the filing fees and fees and disbursements of
counsel for the Initial Purchasers in connection with such registration or
qualification and memoranda relating thereto), (iv) the cost of printing
certificates representing the Series A Notes, (v) all expenses and listing fees
in connection with the application for quotation of the Series A Notes in the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System PORTAL ("PORTAL"), (vi) the fees and expenses of the Trustee and the
Trustee's counsel in connection with the Indenture, and the Notes, (vii) the
costs and charges of any transfer agent, registrar and/or depository (including
DTC), (viii) any fees charged by rating agencies for the rating of the Notes,
(ix) all costs and expenses of the Exchange Offer and any Registration
Statement, as set forth in the Registration Rights Agreement, and (x) and all
other costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this Section.
(j) To use its reasonable best efforts to effect the inclusion of the
Series A Notes in PORTAL and to maintain the listing of the Series A Notes on
PORTAL for so long as the Series A Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer of the Notes,
and to comply with all of its agreements set forth in the representation letters
of the Company to DTC relating to the approval of the Notes by DTC for
"book-entry" transfer.
<PAGE>
-8-
(l) During the period beginning on the date hereof and continuing to and
including the Closing Date, not to offer, sell, contract to sell or otherwise
transfer or dispose of any debt securities of the Company or any subsidiary of
the Company or any warrants, rights or options to purchase or otherwise acquire
debt securities of the Company or any subsidiary of the Company substantially
similar to the Notes (other than (i) the Notes and (ii) commercial paper issued
in the ordinary course of business), without the prior written consent of the
Initial Purchasers.
(m) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Series A Notes to the Initial Purchasers or
pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Series A Notes under the Act.
(n) Not to voluntarily claim, and to actively resist any attempts to claim,
the benefit of any usury laws against the holders of any Notes.
(o) To cause the Exchange Offer to be made in the appropriate form to
permit Series B Notes to be offered in exchange for the Series A Notes and to
comply with all applicable federal, state, and provincial securities laws in
connection with the Exchange Offer.
(p) To comply with all of its agreements set forth in the Registration
Rights Agreement.
(q) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Series A Notes.
6. Representations, Warranties and Agreements of the Company. As of the
date hereof, the Company represents and warrants to, and agrees with, the
Initial Purchasers that:
(a) The Preliminary Offering Memorandum, the Preliminary Canadian
Memorandum, the Offering Memorandum and the Final Canadian Memorandum, do not,
and any supplement or amendment to them will not, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum, the
Preliminary Canadian Memorandum, the Offering Memorandum and the Final Canadian
Memorandum (or any supplement or amendment thereto) based upon information
relating to the Initial Purchasers furnished to the Company in writing by the
Initial Purchasers expressly for use therein. No stop order preventing the use
of the Preliminary Offering Memorandum, the Pre-
<PAGE>
-9-
liminary Canadian Memorandum, the Offering Memorandum or the Final Canadian
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Each of the Company and its subsidiaries has been duly organized, is
validly existing as a corporation or limited liability company, as applicable,
in good standing under the laws of its jurisdiction of incorporation,
organization, amalgamation or continuance and has the requisite, corporate or
other, power and authority to carry on its business as described in the
Preliminary Offering Memorandum, the Preliminary Canadian Memorandum, the
Offering Memorandum and the Final Canadian Memorandum, and to own, lease and
operate its properties, and each is duly qualified and is in good standing as a
foreign corporation or limited liability company, as applicable, authorized to
do business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole (a "Material Adverse Effect").
(c) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights, and are owned by Ledcor Inc., an Alberta
corporation ("Ledcor"), directly or indirectly through two wholly-owned
subsidiaries, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature (each, a "Lien"), except for security
interests and pledges in favor of The Toronto-Dominion Bank granted pursuant to
the Fiber Optic Network Financing Credit Agreement, dated as of October 14, 1998
(the "Fiber Optic Network Financing Credit Agreement"), by and between Ledcor
Industries Limited and The Toronto-Dominion Bank.
(d) The entities listed on Schedule B hereto are the only subsidiaries,
direct or indirect, of the Company (collectively, the "Subsidiaries"). The only
Subsidiaries that are material for purposes of this Agreement (the "Material
Subsidiaries") are listed on Schedule C attached hereto. Each of Ledcor
Engineering Inc., Pacific Fiber Link SEA-POR, Inc. and Pacific Fiber Link
MON-ALB, Inc. carries on no active business. All of the outstanding shares of
capital stock of each of the Company's Material Subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and, except
for Worldwide Fiber (USA), Inc., WFI-CN Fiber Inc., Worldwide Fiber IC LLC,
Worldwide Fiber Networks, Inc., IC Fiber Alabama LLC, IC Fiber Illinois LLC, IC
Fiber Iowa LLC, IC Fiber Kentucky LLC, IC Fiber Louisiana LLC, IC Fiber
Mississippi LLC, IC Fiber Tennessee LLC, and Ledcom Holdings Ltd., are owned by
the Company, directly or indirectly through one or more subsidiaries, free and
clear of any Lien. Worldwide Fiber (USA), Inc. is owned 75% by the Company and
25% by Michels Pipeline Construction Inc., in each case, directly or indi-
<PAGE>
-10-
rectly through one or more subsidiaries, free and clear of any Lien. Worldwide
Fiber Networks, Inc. is a wholly-owned subsidiary of Worldwide Fiber (USA), Inc.
Ledcom Holdings Ltd. is owned 50% by the Company and 50% by Ledcor Inc., in the
case of the Company, directly or indirectly, through one or more subsidiaries,
free and clear of any Lien except for the security interest granted to Ledcor
Inc. pursuant to the Unanimous Shareholders Agreement, dated as of December 1,
1998, by and among Worldwide Fiber Communications Ltd. Ledcor Inc., Ledcor
Industries Limited and Ledcor Holdings Ltd. WFI-CN Inc. is owned 75% by the
Company and 25% by the Canadian National Railway Company ("CN"), in the case of
the Company, directly or indirectly through one or more subsidiaries, free and
clear of any Lien. Worldwide Fiber IC LLC is owned 75% by the Company and 25% by
IC Fiber Holdings Inc., a subsidiary of the Illinois Central Railroad Company
("IC"), in the case of the Company, directly or indirectly through one or more
subsidiaries, free and clear of any Lien. Each of IC Fiber Alabama LLC, IC Fiber
Illinois LLC, IC Fiber Iowa LLC, IC Fiber Kentucky LLC, IC Fiber Louisiana LLC,
IC Fiber Mississippi LLC and IC Fiber Tennessee LLC are owned by Worldwide Fiber
IC LLC, free and clear of any Lien.
(e) There are no restrictions on the corporate power and capacity of the
Company to enter into this Agreement or any other Operative Document, to execute
and sell the Series A Notes or to carry out its obligations hereunder and
thereunder, in each case, except as would not have a Material Adverse Effect.
(f) This Agreement has been duly authorized, executed and delivered by the
Company.
(g) The Indenture has been duly authorized by the Company and, on the
Closing Date, will have been validly executed and delivered by the Company. When
the Indenture has been duly executed and delivered by the Company, the Indenture
will be a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms except as the enforceability thereof may be
limited by (i) bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law). On the Closing Date, the Indenture will conform in all material respects
to the requirements of the Trust Indenture Act of 1939, as amended (the "TIA" or
"Trust Indenture Act"), the rules and regulations of the Commission applicable
to an indenture which is qualified thereunder.
(h) The Series A Notes have been duly authorized and, on the Closing Date,
will have been validly executed and delivered by the Company. When the Series A
Notes have been issued, executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Series A Notes
will be entitled to the benefits of the Indenture and will
<PAGE>
-11-
be valid and binding obligations of the Company, enforceable in accordance with
their terms except as the enforceability thereof may be limited by (i)
bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditors' rights generally and (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law). On the
Closing Date, the Series A Notes will conform as to legal matters to the
description thereof contained in the Offering Memorandum.
(i) On the Closing Date, the Series B Notes will have been duly authorized
by the Company. When the Series B Notes are issued, executed and authenticated
in accordance with the terms of the Exchange Offer and the Indenture, the Series
B Notes will be entitled to the benefits of the Indenture and will be the valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforceability thereof may be limited
by (i) bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditors' rights generally and (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(j) The Registration Rights Agreement has been duly authorized by the
Company and, on the Closing Date, will have been duly executed and delivered by
the Company. When the Registration Rights Agreement has been duly executed and
delivered, the Registration Rights Agreement will be a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms except as the enforceability thereof may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting creditors' rights
generally, (ii) general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law) and (iii) the enforcement of
indemnification and contribution provisions thereof may be limited by federal
and state securities laws and public policy considerations underlying such laws.
On the Closing Date, the Registration Rights Agreement will conform as to legal
matters to the description thereof in the Offering Memorandum.
(k) Neither the Company nor any of its Material Subsidiaries is in
violation of its respective articles or by-laws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound.
(l) The execution, delivery and performance of this Agreement and the other
Operative Documents by the Company, compliance by the Company with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required or previously
ob-
<PAGE>
-12-
tained under the securities or Blue Sky laws of the various states or the
Canadian Securities Laws), (ii) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the articles or by-laws of the
Company or any of its Material Subsidiaries or any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the Company
and its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound, (iii) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any court
or any governmental body or agency having jurisdiction over the Company, any of
its Material Subsidiaries or their respective property, (iv) result in the
imposition or creation of (or the obligation to create or impose) a Lien under,
any agreement or instrument to which the Company or any of its Material
Subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound except as would not have a Material Adverse
Effect, or (v) result in the termination, suspension or revocation of any
Authorization (as defined below) of the Company or any of its Material
Subsidiaries or result in any other impairment of the rights of the holder of
any such Authorization except such terminations, suspensions, revocations or
impairments as would not have a Material Adverse Effect.
(m) There are no legal or governmental proceedings pending or, to the best
of the Company's knowledge, threatened to which the Company or any of its
Material Subsidiaries is or could be a party or to which any of their respective
property is or could be subject, which might result, singly or in the aggregate,
in a Material Adverse Effect or materially and adversely affect the ability of
the Company, or any of its subsidiaries to perform its obligations under this
Agreement or any of the other Operative Documents, or to consummate the
transactions contemplated hereby or thereby.
(n) Except as disclosed in the Offering Memorandum and the Final Canadian
Memorandum, neither the Company nor any of its subsidiaries is a party or
subject to the provision of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body except
as would not have a Material Adverse Effect.
(o) The Company and each of its Material Subsidiaries is in compliance with
all applicable statutes, laws, ordinances, administrative or governmental rules
and regulations of the jurisdictions in which it is conducting its business
except where a failure to be in such compliance would not have a Material
Adverse Effect.
(p) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state, provincial or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), any
provisions of the Employee Retirement Income
<PAGE>
-13-
Security Act of 1974, as amended ("ERISA") and provisions of any federal or
provincial pension standards legislation (or rules, regulations and
administration policies thereunder) in Canada, or any provisions of the Foreign
Corrupt Practices Act or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not have a
Material Adverse Effect.
(q) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up (including, without limitation, to remediate any substance which
exceeds decommissioning, remediation or similar guidelines, standards or
criteria under Environmental Laws or applied by governmental authorities acting
under Environmental Laws), closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties or as a result of
government action) which would, singly or in the aggregate, have a Material
Adverse Effect.
(r) Except as disclosed in the Offering Memorandum and the Final Canadian
Memorandum, each of the Company and its Material Subsidiaries has all permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Except as disclosed
in the Offering Memorandum and the Final Canadian Memorandum, each such
Authorization is valid and in full force and effect and each of the Company and
its Material Subsidiaries is in compliance with all the terms and conditions
thereof and with the rules and regulations of the authorities and governing
bodies having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any authority or
governing body) which allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such Authorization or
results or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such Authorization; and such
Authorizations contain no restrictions that are burdensome to the Company or any
of its Material Subsidiaries except as would not, singly or in the aggregate,
have a Material Adverse Effect.
(s) The accountants, PriceWaterhouseCoopers and Deloitte & Touche, that
have certified the financial statements and supporting schedules included in the
Preliminary Offering Memorandum, the Preliminary Canadian Memorandum, the
Offering Memorandum and the Final Canadian Memorandum are independent public
accountants with respect to the Company, as required by the Act and the Exchange
Act. To the best knowledge of the Com-
<PAGE>
-14-
pany, the historical financial statements, together with related schedules and
notes, set forth in the Preliminary Offering Memorandum, the Preliminary
Canadian Memorandum, the Offering Memorandum and the Final Canadian Memorandum
comply as to form in all material respects with the requirements applicable to
registration statements on Form F-4 under the Act.
(t) The historical financial statements, together with related schedules
and notes forming part of the Offering Memorandum and the Final Canadian
Memorandum (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries and the former telecommunications
division of Ledcor on the basis stated in the Offering Memorandum and the Final
Canadian Memorandum at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles in the
United States consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information and data
set forth in the Offering Memorandum and the Final Canadian Memorandum (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company and its subsidiaries.
(u) The pro forma financial statements and statistical data included in the
Preliminary Offering Memorandum, the Preliminary Canadian Memorandum, the
Offering Memorandum and the Final Canadian Memorandum have been prepared on a
basis consistent with the historical financial statements and statistical data
of the Company and its subsidiaries and give effect to assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Preliminary
Offering Memorandum, the Preliminary Canadian Memorandum, the Offering
Memorandum and the Final Canadian Memorandum. The other pro forma financial and
statistical information and data included in the Offering Memorandum and the
Final Canadian Memorandum are, in all material respects, accurately presented
and prepared on a basis consistent with the pro forma financial statements.
(v) The Company is not and, after giving effect to the offering and sale of
the Series A Notes and the application of the net proceeds thereof as described
in the Offering Memorandum, will not be, an "investment company," as such term
is defined in the Investment Company Act of 1940, as amended.
(w) Except as disclosed in the Offering Memorandum and the Final Canadian
Memorandum, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the
<PAGE>
-15-
Company to include such securities with the Notes registered pursuant to any
Registration Statement.
(x) Neither the Company nor any of its subsidiaries nor any agent thereof
acting on the behalf of them has taken, and none of them will take, any action
that might cause this Agreement or the issuance or sale of the Series A Notes to
violate Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(y) No "nationally recognized statistical rating organization" as such term
is defined for purposes of Rule 436(g)(2) under the Act (i) has imposed (or has
informed the Company that it is considering imposing) any condition (financial
or otherwise) on the Company's retaining any rating assigned to the Company, any
securities of the Company or (ii) has indicated to the Company that it is
considering (a) the downgrading, suspension, or withdrawal of, or any review for
a possible change that does not indicate the direction of the possible change
in, any rating so assigned or (b) any change in the outlook for any rating of
the Company, or any securities of the Company.
(z) Since the respective dates as of which information is given in the
Offering Memorandum and the Final Canadian Memorandum other than as set forth in
the Offering Memorandum and the Final Canadian Memorandum, respectively,
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and its subsidiaries, taken as a whole, (ii) there has not been any
material adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the Company or
any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries has incurred any material liability or obligation, direct or
contingent.
(aa) Each of the Offering Memorandum and the Final Canadian Memorandum, as
of its date, contains all the information specified in, and meeting the
requirements of, Rule 144A(d)(4) under the Act.
(bb) When the Series A Notes are issued and delivered pursuant to this
Agreement, the Series A Notes will not be of the same class (within the meaning
of Rule 144A under the Act) as any security of the Company that is listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated inter-dealer quotation system.
(cc) No form of general solicitation or general advertising (as defined in
Regulation D under the Act) was used by the Company, or any of their respective
representa-
<PAGE>
-16-
tives (other than the Initial Purchasers, as to whom the Company makes no
representation) in connection with the offer and sale of the Series A Notes
contemplated hereby, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising. No
securities of the same class as the Series A Notes have been issued and sold by
the Company within the six-month period immediately prior to the date hereof.
(dd) Neither the Company, nor any person acting on its behalf, has,
directly or indirectly, (i) made offers or sales of any security, or solicited
offers to buy any security, under circumstances that would require the
distribution of the Series A Notes in the Provinces of Ontario and British
Columbia (the "Relevant Provinces") to be qualified by a prospectus filed in
accordance with the securities laws, and the regulations thereunder, of, and the
applicable published rules, policy statements, blanket orders and notices of the
securities regulatory authorities in, the Relevant Provinces (the "Canadian
Securities Laws") or (ii) has engaged in any advertisement of the Series A Notes
in any printed media of general and regular paid circulation, radio or
television or any other form of advertising in connection with the offer and
sale of the Series A Notes in the Relevant Provinces; provided that no
representation is made as to the Initial Purchasers or any person acting on
their behalf.
(ee) Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the TIA, and except for such
determinations and approvals which have already been obtained, no filing with or
authorization, approval, consent, license, order, registration, qualification or
decree of any court or governmental authority or agency in Canada (including any
provincial securities commission or securities regulatory authority) is
necessary to permit the issue, sale and delivery of the Series A Notes by the
Company or the consummation on the Closing Date by the Company of its
obligations under this Agreement, the other Operative Documents, the Offering
Memorandum and the Final Canadian Memorandum.
(ff) None of the Company or any of its affiliates, nor any person acting on
its or their behalf (other than the Initial Purchasers, as to whom the Company
makes no representation) has engaged or will engage in any directed selling
efforts within the meaning of Regulation S under the Act ("Regulation S") with
respect to the Series A Notes.
(gg) The Series A Notes offered and sold in reliance on Regulation S have
been and will be offered and sold only in offshore transactions.
(hh) The sale of the Series A Notes pursuant to Regulation S is not part of
a plan or scheme to evade the registration provisions of the Act.
<PAGE>
-17-
(ii) Except for the Company's 12 1/2% Senior Notes due December 15, 2005,
there is no substantial U.S. market interest (as defined in Rule 902(n) under
the Act) in any debt security of the Company.
(jj) The Company is a "foreign issuer" as defined in Rule 902 under the
Act.
(kk) No registration under the Act of the Series A Notes is required for
the sale of the Series A Notes to the Initial Purchasers as contemplated hereby
or for the Exempt Resales assuming the accuracy of the Initial Purchasers'
representations and warranties and agreements set forth in Section 7 hereof.
(ll) Assuming (i) that the representations and warranties of the Initial
Purchasers in Section 7 hereof are true and (ii) compliance by the Initial
Purchasers with the covenants set forth in Section 7 hereof, it is not necessary
in connection with the offer, sale and delivery of the Series A Notes in the
manner contemplated by this Agreement, the other Operative Documents and the
Final Canadian Memorandum to file a prospectus in accordance with the Canadian
Securities Laws to qualify the distribution of the Series A Notes in the
Relevant Provinces.
(mm) Each certificate signed by any officer of the Company and delivered to
the Initial Purchasers or counsel for the Initial Purchasers shall be deemed to
be a representation and warranty by the Company to the Initial Purchasers as to
the matters covered thereby.
(nn) The Company and its Material Subsidiaries have good and marketable
title to all real property and good title to all personal property owned by them
which is material to the business of the Company and its Material Subsidiaries,
in each case free and clear of all Liens and defects, except such as are
described in the Offering Memorandum and the Final Canadian Memorandum or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
Material Subsidiaries; and any real property and buildings held under lease by
the Company and its Material Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, in each case except as described
in the Offering Memorandum and the Final Canadian Memorandum.
(oo) The Company and each of its Canadian affiliates as set forth in
Schedule D (collectively, the "Canadian Companies") and Ledcor Industries
Limited hold all Canadian Radio-television and Telecommunications Commission
("CRTC") and Industry Canada licenses or authorizations and possess adequate
certificates, authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now oper-
<PAGE>
-18-
ated by them, other than those the absence of which could not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect
and have not received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if determined
adversely, could reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect.
(pp) (i) Each of Ledcor Industries Limited and Worldwide Fiber (F.O.T.S.)
Ltd. is eligible to operate as a telecommunications common carrier in Canada, as
defined under and in accordance with the Telecommunications Act (Canada) (the
"Telecommunications Act") and the Canadian Telecommunications Common Carrier
Ownership and Control Regulations (the "Ownership Regulations"); (ii) neither
Ledcor Industries Limited nor Worldwide Fiber (F.O.T.S.) Ltd. violates the
prohibition contained in subsection 16(4) of the Telecommunications Act against
operating in Canada as a telecommunications common carrier when ineligible to do
so; (iii) control of each of Ledcor Industries Limited and Worldwide Fiber
(F.O.T.S.) Ltd. is not exercised by any person(s) that is (are) not Canadian, in
accordance with the meanings ascribed to the term "control" under the
Telecommunications Act and the term "Canadian" under the Ownership Regulations;
and (iv) the Canadian Companies are not in violation of any judgment, decree,
order, writ, law, statute, rule or regulation rendered or enacted in Canada
respecting telecommunications and the regulation within Canada of
telecommunications common carriers, as defined in the Telecommunications Act,
applicable to the Canadian Companies, or any interpretation or policy relating
thereto known to be applicable by and to them.
(qq) (i) Not less than eighty percent of the members of the board of
directors of each of Ledcor Industries Limited and Worldwide Fiber (F.O.T.S.)
Ltd. are individual Canadians, as defined under the Ownership Regulations; (ii)
Canadians, as defined under the Ownership Regulations, beneficially own,
directly or indirectly, in the aggregate and otherwise than by way of security
only, not less than eighty percent of the issued and outstanding voting shares,
as defined under the Ownership Regulations, of each of Ledcor Industries Limited
and Worldwide Fiber (F.O.T.S.) Ltd.; (iii) Ledcor Inc., in respect of its
ownership of and control over Ledcor Industries Limited, and Worldwide Fiber
Networks Ltd., in respect of its ownership and control over Worldwide Fiber
(F.O.T.S.) Ltd., is a carrier holding corporation, as defined under the
Ownership Regulations; and (iv) each of Ledcor Inc. and Worldwide Fiber Networks
Ltd. is a carrier holding corporation that is a qualified corporation, as
defined under the Ownership Regulations.
(rr) With the exception of Ledcor Industries Limited and Worldwide Fiber
(F.O.T.S.) Ltd., no other Canadian Company or subsidiary of Ledcor Inc. operates
in Canada as a telecommunications common carrier as that term is defined in the
Telecommunications Act.
<PAGE>
-19-
(ss) Except as disclosed in the Offering Memorandum and the Final Canadian
Memorandum, neither the Company nor its subsidiaries is currently, nor will the
conduct of its business as described in the Offering Memorandum cause it to be
in the future, subject to the provisions of the Communications Act of 1934, as
amended by the Telecommunications Act of 1996 (the "Communications Act") or to
any rules, regulations and policies of the Federal Communications Commission
(the "FCC") related hereto.
(tt) The Company and its subsidiaries are in compliance with all federal,
state and local telecommunications laws, rules, regulations and policies in the
United States to which they are subject, including the Communications Act and
the related rules, regulations and policies of the FCC except as would not have
a Material Adverse Effect.
(uu) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("intellectual property") currently employed by
them in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of such intellectual property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(vv) Except as disclosed in the Offering Memorandum and the Final Canadian
Memorandum, no relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries or affiliates on the one hand, and the
directors, officers, stockholders, customers or suppliers of the Company or any
of its subsidiaries or affiliates on the other hand, which would be required by
the Act to be described in the Offering Memorandum if the Offering Memorandum
were a prospectus included in a registration statement on Form F-4 filed with
the Commission.
(ww) There is no (i) significant unfair labor practice complaint, grievance
or arbitration proceeding pending or threatened against the Company or any of
its subsidiaries before the National Labor Relations Board, Canada Labor
Relations Board or any state, provincial, or local labor relations board, (ii)
strike, labor dispute, slowdown or stoppage pending or threatened against the
Company or any of its subsidiaries or (iii) union representation question
existing with respect to the employees of the Company or any of its
subsidiaries, except in the case of clauses (i), (ii) and (iii) for such actions
which, singly or in the aggregate, would not have a Material Adverse Effect. To
the best knowledge of the Company, no col-
<PAGE>
-20-
lective bargaining organizing activities are taking place with respect to the
Company or any of its subsidiaries.
(xx) The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with the United States
generally accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(yy) All material tax returns required to be filed by the Company and each
of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or otherwise or pursuant to any assessment received
by the Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(zz) The indebtedness represented by the Series A Notes is being incurred
for proper purposes and in good faith and the Company will be on the Closing
Date (after giving effect to the application of the proceeds from the issuance
of the Series A Notes) solvent, and will have on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Notes) sufficient capital for carrying on its respective business and will be on
the Closing Date (after giving effect to the application of the proceeds from
the issuance of the Series A Notes) able to pay its debts as they mature.
(aaa) No action has been taken and no law, statute, rule or regulation or
order has been enacted, adopted or issued by any governmental agency or body
which prevents the execution, delivery and performance of any of the Operative
Documents or, the issuance of the Series A Notes, or suspends the sale of the
Series A Notes in any jurisdiction referred to in Section 5(e); and no
injunction, restraining order or other order or relief of any nature by a
federal or state court or other tribunal of competent jurisdiction has been
issued with respect to the Company or any of its subsidiaries which would
prevent or suspend the issuance or sale of the Series A Notes in any
jurisdiction referred to in Section 5(e), including the Relevant Provinces.
(bbb) Except as set forth in the Offering Memorandum and the Final Canadian
Memorandum, there have been no transactions, agreements, arrangements or
understandings between the Company or any of its Subsidiaries that would be
required to be disclosed under Item 404 of Regulation S-K under the Securities
Act, if the Offering Memoran-
<PAGE>
-21-
dum were a prospectus included in a registration statement on Form F-4 filed
with the Commission.
(ccc) The Company has delivered to the Initial Purchasers true and complete
copies of all agreements between the Company or any of its directors, officers
or employees on one hand and Ledcor, CN, IC or Michels Pipeline Construction
Inc. or any of their respective directors, officers or employees on the other
hand.
(ddd) Neither the Company nor any of its subsidiaries has, nor is any of
its or their respective property or assets subject to, any obligation
(including, without limitation, any mortgage, assignment, pledge, charge or
other security interest) under the Fiber Optic Network Financing Credit
Agreement.
The Company acknowledges that the Initial Purchasers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers will rely
upon the accuracy and truth of the foregoing representations and hereby consents
to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the Initial
Purchasers, severally and not jointly, represents and warrants to the Company,
and agrees that:
(a) Such Initial Purchaser is either a QIB or an Accredited Institution, in
either case, with such knowledge and experience in financial and business
matters as is necessary in order to evaluate the merits and risks of an
investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A Notes with a
view to any distribution thereof or with any present intention of offering or
selling any of the Series A Notes in a transaction that would violate the Act or
the securities laws of any state of the United States or any other applicable
jurisdiction and (B) will be reoffering and reselling the Series A Notes only to
(x) QIBs in reliance on the exemption from the registration requirements of the
Act provided by Rule 144A and (y) in offshore transactions in reliance upon
Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of general solicitation or
general advertising (within the meaning of Regulation D under the Act) has been
or will be used by such Initial Purchaser or any of its representatives in
connection with the offer and sale of the Series A Notes pursuant hereto,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising.
<PAGE>
-22-
(d) Such Initial Purchaser agrees that, in connection with Exempt Resales,
such Initial Purchaser will solicit offers to buy the Series A Notes only from,
and will offer to sell the Series A Notes only to, Eligible Purchasers. Each
Initial Purchaser further agrees that it will offer to sell the Series A Notes
only to, and will solicit offers to buy the Series A Notes only from (A)
Eligible Purchasers that the Initial Purchaser reasonably believes are QIBs, (B)
Regulation S Purchasers, in each case, that agree that (x) the Series A Notes
purchased by them may be resold, pledged or otherwise transferred within the
time period referred to under Rule 144(k) (taking into account the provisions of
Rule 144(d) under the Act, if applicable) under the Act, as in effect on the
date of the transfer of such Series A Notes, only (I) to the Company or any of
its subsidiaries, (II) to a person whom the seller reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in a transaction
meeting the requirements of Rule 144A under the Act, (III) in an offshore
transaction (as defined in Rule 902 under the Act) meeting the requirements of
Rule 904 of the Act, (IV) in a transaction meeting the requirements of Rule 144
under the Act, (V) in accordance with another exemption from the registration
requirements of the Act (and based upon an opinion of counsel acceptable to the
Company) or (VI) pursuant to an effective registration statement and, in each
case, in accordance with the applicable securities laws of any state of the
United States or any other applicable jurisdiction and (y) they will deliver to
each person to whom such Series A Notes or an interest therein is transferred a
notice substantially to the effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or any person acting on its
or their behalf have not engaged or will not engage in any directed selling
efforts within the meaning of Regulation S with respect to the Series A Notes.
(f) The Series A Notes offered and sold by such Initial Purchaser pursuant
hereto in reliance on Regulation S have been and will be offered and sold only
in offshore transactions.
(g) The sale of the Series A Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or
scheme to evade the registration provisions of the Act.
(h) Neither such Initial Purchaser nor its affiliates or any person acting
on its or its affiliates' behalf has made or will make offers or sales of the
Series A Notes in the Relevant Provinces by means of any printed media of
general and regular paid circulation, radio or television or any other forms of
advertising.
(i) The Series A Notes have only been offered and will only be sold in
Canada to purchasers resident in the Relevant Provinces.
(j) Such Initial Purchaser acknowledges that no prospectus has been filed
in accordance with the Canadian Securities Laws qualifying the distribution of
the Series A
<PAGE>
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Notes in the Relevant Provinces and that the Series A Notes may not be offered
or sold in the Relevant Provinces except pursuant to an applicable exemption
from the prospectus requirements of the applicable Canadian Securities Laws and
from a dealer appropriately registered under the applicable Canadian Securities
Laws or, other than in Ontario, in accordance with an exemption from the
registration requirements of such laws.
(k) Assuming the purchasers' representations, covenants and resale
restrictions set forth in the Final Canadian Memorandum are true as to each
purchaser of Series A Notes in Canada, such Initial Purchaser will not offer,
sell or deliver any of the Series A Notes, directly or indirectly, in Canada or
to or for the benefit of any person who such Initial Purchaser knows is a
resident thereof in violation of the Canadian Securities Laws.
(l) Such Initial Purchaser will provide the Company with information
regarding the sale of the Series A Notes to purchasers in the Relevant Provinces
required to be disclosed under applicable Canadian Securities Laws and will
cooperate with the Company in ensuring that such disclosures are made within the
time periods specified under such laws.
Such Initial Purchaser acknowledges that the Company and, for purposes of
the opinions to be delivered to each Initial Purchaser pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers will rely
upon the accuracy and truth of the foregoing representations and each such
Initial Purchaser hereby consents to such reliance.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, their respective directors and officers and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto), the Final Canadian Memorandum (or any
amendment or supplement thereto), the Preliminary Offering Memorandum, the
Preliminary Canadian Memorandum or any Rule 144A Information provided by the
Company to any holder or prospective purchaser of Series A Notes pursuant to
Section 5(h) or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished in writing to the Company
by such Initial Purchasers expressly for use in the Preliminary Offering
Memorandum, the Preliminary Canadian Memorandum, the Offering Memo-
<PAGE>
-24-
randum or the Final Canadian Memorandum; provided, however, that the foregoing
indemnity agreement with respect to any Preliminary Offering Memorandum or
Preliminary Canadian Memorandum, as the case may be, shall not inure to the
benefit of any Initial Purchaser who failed to deliver an Offering Memorandum or
Final Canadian Memorandum, as then amended or supplemented, (so long as the
Offering Memorandum or Final Canadian Memorandum and any amendment or supplement
thereto was provided by the Company to the Initial Purchasers in the requisite
quantity and on a timely basis to permit proper delivery on or prior to the
Closing Date) to the person asserting any losses, claims, damages, liabilities
or judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum or Preliminary
Canadian Memorandum, as the case may be, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such material
misstatement or omission or alleged material misstatement or omission was cured
in the Offering Memorandum or the Final Canadian Memorandum, as so amended or
supplemented.
(b) The Initial Purchasers agree severally, not jointly, to indemnify and
hold harmless the Company, its directors and officers and each person, if any,
who controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, to the same extent as the foregoing indemnity from
the Company to the Initial Purchasers but only with reference to information
furnished in writing to the Company by the Initial Purchaser expressly for use
in the Preliminary Offering Memorandum, the Preliminary Canadian Memorandum, the
Offering Memorandum or the Final Canadian Memorandum, as applicable.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Initial Purchasers shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Initial Purchasers). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the
<PAGE>
-25-
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys with respect to matters of
U.S. law and one separate firm of attorneys with respect to matters of Canadian
law (in each case, in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firms shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation, in the case of the parties indemnified pursuant to Section 8(a),
and by the Company, in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action (i) effected with its written consent
or (ii) effected without its written consent if the settlement is entered into
more than twenty business days after the indemnifying party shall have received
a request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Initial Purchasers on the other hand from the
offering of the Series A Notes or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company, on the one hand, and
the Initial Purchasers, on the other hand, in connection with the statements or
omissions which resulted in
<PAGE>
-26-
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand and the Initial Purchasers, on the other hand, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Series A Notes (after underwriting discounts and commissions, but before
deducting expenses) received by the Company, and the total discounts and
commissions received by the Initial Purchasers bear to the total price to
investors of the Series A Notes, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Company, on the
one hand, and the Initial Purchasers, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or the Initial
Purchasers, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, the Initial
Purchasers shall not be required to contribute any amount in excess of the
amount by which the total discounts and commissions received by such Initial
Purchasers exceeds the amount of any damages which the Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligation to contribute pursuant to
this Section 8(d) are several and in proportion to the respective principal
amount of Series A Notes purchased by each of the Initial Purchasers hereunder
and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) For purposes of this Section 8, the Company and the Initial Purchasers
agree that the only information furnished in writing to the Company by the
Initial Purchasers expressly for use in the Preliminary Offering Memorandum, the
Preliminary Canadian Memo-
<PAGE>
-27-
randum, the Offering Memorandum or the Final Canadian Memorandum is set forth in
the third, fourth, fifth, sixth (excluding the first three sentences), seventh,
eighth and ninth paragraphs under the heading "Plan of Distribution."
9. Conditions of Initial Purchasers' Obligations. The obligations of the
Initial Purchasers to purchase the Series A Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in this
Agreement that are qualified as to materiality shall be true and correct on the
Closing Date and all the representations and warranties of the Company contained
in this Agreement that are not qualified as to materiality shall be true and
correct in all material respects on the Closing Date, in each case with the same
force and effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been given
of any potential or intended downgrading, suspension or withdrawal of, or of any
review (or of any potential or intended review) for a possible change that does
not indicate the direction of the possible change in, any rating of the Company
or any securities of the Company (including, without limitation, the placing of
any of the foregoing ratings on credit watch with negative or developing
implications or under review with an uncertain direction) by any "nationally
recognized statistical rating organization" as such term is defined for purposes
of Rule 436(g)(2) under the Act, (ii) there shall not have occurred any change,
nor shall any notice have been given of any potential or intended change, in the
outlook for any rating of the Company or any securities of the Company by any
such rating organization and (iii) no such rating organization shall have given
notice that it has assigned (or is considering assigning) a lower rating to the
Notes than that on which the Notes were marketed.
(c) Since the respective dates as of which information is given in the
Offering Memorandum and the Final Canadian Memorandum other than as set forth in
the Offering Memorandum and the Final Canadian Memorandum (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(c)(i),
9(c)(ii) or 9(c)(iii), in your judgment, is material and adverse and,
<PAGE>
-28-
in your judgment, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum and the Final
Canadian Memorandum.
(d) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by the President and the Chief Financial Officer of the
Company, confirming the matters set forth in Sections 6(z), 9(a) and 9(b) and
stating that the Company has complied with all the agreements and satisfied all
of the conditions herein contained and required to be complied with or satisfied
on or prior to the Closing Date.
(e) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Initial Purchasers), dated the Closing Date, of Cahill
Gordon and Reindel, special U.S. counsel for the Company, to the effect that:
(i) assuming due authorization of the Series A Notes by the Company,
the Series A Notes, when executed and delivered in accordance with the
provisions of the Indenture (assuming the due authorization, execution and
delivery of the Indenture by the Trustee and the due authentication and
delivery of the Series A Notes by the Trustee in accordance with the
Indenture) and paid for by the Initial Purchasers in accordance with the
terms of this Agreement, will be entitled to the benefits of the Indenture
and will be valid and binding obligations of the Company enforceable
against the Company in accordance with their terms (A) except as the
enforceability thereof may be limited (i) by (x) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors' rights
generally and (y) general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity) and (ii) with
respect to Section 6.12 of the Indenture to the extent it provides for the
Company's indemnity against loss in connection with a court judgment in
another currency and (B) that such firm need express no opinion as to the
enforceability of the waiver of rights or defenses contained in Section
4.06 of the Indenture;
(ii) assuming the due authorization of the Indenture by the Company,
the Indenture has been duly executed and delivered by the Company, to the
extent execution and delivery are governed by New York laws, and, assuming
the due authorization, execution and delivery thereof by the Trustee,
constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms (A) except as the
enforceability thereof may be limited (i) by (x) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors' rights
generally and (y) general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity) and (ii) with
respect to Section 6.12 of the Indenture to the extent it provides for the
Company's indemnity against loss in connection with a court
<PAGE>
-29-
judgment in another currency and (B) that such firm need express no opinion
as to the enforceability of the waiver of rights or defenses contained in
Section 4.06 of the Indenture;
(iii) assuming due authorization by the Company, this Agreement has
been duly executed and delivered by the Company, to the extent that
execution and delivery are governed by New York law;
(iv) assuming the due authorization of the Registration Rights
Agreement by the Company and the due authorization, execution and delivery
thereof by the Initial Purchasers, the Registration Rights Agreement has
been duly executed and delivered by the Company, to the extent that
execution and delivery are governed by New York laws, and constitutes a
valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except as the enforceability thereof may be
limited by (x) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally, (y) general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) and (z) any rights to indemnity or
contribution thereunder may be limited by federal and state securities laws
and public policy considerations;
(v) the statements under the captions "Description of Notes,"
"Description of Other Indebtedness -- 1998 Notes," "Description of IC and
CN Agreements" and "Description of WFI-USA Agreements" in the Offering
Memorandum, insofar as such statements constitute a summary of the
documents referred to therein, fairly summarize in all material respects
such documents;
(vi) the statements in the Offering Memorandum under the caption
"Certain United States and Canadian Income Tax Considerations," to the
extent they constitute matters of United States law or legal conclusions
with respect thereto, have been prepared or reviewed by us and are correct
in all material respects and fairly summarize the matters set forth
therein;
(vii) the execution, delivery and performance by the Company of this
Agreement, the Indenture, the Series A Notes and the Registration Rights
Agreement, the compliance by the Company with all provisions hereof and
thereof and the consummation of the transactions contemplated hereby and
thereby: (i) do not conflict with or violate any federal statute of the
United States of America or any statute of the State of New York or any
rule or regulation thereunder (provided that no opinion is expressed in
this paragraph as to compliance with the Act, any state securities or blue
sky laws or the Telecommunications Act of 1996, as amended, and the rules
and regulations thereunder); or (ii) conflict with or constitute a breach
of any of the terms
<PAGE>
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or provisions of, or a default under the Governing Agreement, dated as of
August 31, 1998, by and among Worldwide Fiber Ltd., Mi-Tech Communications,
LLC, Ledcor Inc., Michels Pipeline Construction, Inc., Ledcor Industries
Inc. and Worldwide Fiber (USA), Inc. or the limited liability company
agreement of Worldwide Fiber IC LLC, dated as of May 28, 1999, between
Worldwide Fiber IC Holdings Inc. and IC Fiber Holdings Inc.;
(viii) the Company is not and, after giving effect to the offering and
sale of the Series A Notes and the application of the net proceeds thereof
as described in the Offering Memorandum, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended;
(ix) the Indenture complies as to form in all material respects with
the requirements of the TIA, as amended, and as in effect on the date
hereof, and the rules and regulations of the Commission applicable to an
indenture which is qualified thereunder;
(x) assuming that (i) each Initial Purchaser is a QIB or a Regulation
S Purchaser, (ii) the accuracy of, and compliance with, the Initial
Purchasers' representations and agreements contained in Section 7 of this
Agreement and (iii) the accuracy of the representations of the Company set
forth in Sections 6(bb), (cc), (ff), (gg),(hh), (ii) and (jj) of this
Agreement, (A) no registration under the Act of the Series A Notes is
required for the sale of the Series A Notes to the Initial Purchasers as
contemplated by this Agreement or for the Exempt Resales, (B) it is not
necessary in connection with the offer, sale and delivery of the Series A
Notes to the Initial Purchasers in the manner contemplated by this
Agreement or in connection with the Exempt Resales to qualify the Indenture
under the TIA, and (C) no consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency (except
such as may be required under the securities or Blue Sky laws of the
various states) is required for the valid authorization, issuance, sale and
delivery of the Series A Notes;
(xi) assuming the due authorization, execution and delivery of this
Agreement, the Indenture and the Registration Rights Agreement by each
party thereto, the Company has validly and irrevocably submitted to the
jurisdiction of any United States or state court in the State of New York,
County of New York, has expressly accepted the non-exclusive jurisdiction
of any such court and has validly and irrevocably appointed CT Corporation
System as its authorized agent in any suit or proceeding against them
instituted by the Initial Purchasers based on or arising under the
Indenture, the Purchase Agreement or the Registration Rights Agreement;
(xii) each of Worldwide Fiber IC LLC, IC Fiber Alabama LLC, IC Fiber
Illinois LLC, IC Fiber Iowa LLC, IC Fiber Kentucky LLC, IC Fiber Louisiana
LLC, IC
<PAGE>
-31-
Fiber Mississippi LLC and IC Fiber Tennessee LLC (collectively, the
"Delaware Companies") has been duly organized as a Delaware limited
liability company, and is validly existing and in good standing under the
laws of Delaware; there are no restrictions on the power and capacity of
each of the Delaware Companies to own and lease property and assets and to
carry on business.
The opinion of Cahill Gordon and Reindel described in Section 9(e) above
shall be rendered to you at the request of the Company and shall so state
therein. In addition, such counsel shall state that it has participated in
conferences, by person or by telephone, with officers and other representatives
of the Company, with representatives of the chartered accountants for the
Company and with representatives of the Initial Purchasers and their counsel. At
such meetings the contents of the Offering Memorandum and related matters were
discussed among the parties present at such meetings. Although such counsel will
not be passing upon and will not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Offering Memorandum
except as set forth in paragraphs (v) and (vi) above, such counsel shall advise
the Initial Purchasers that on the basis of the foregoing (relying as to
materiality to a the extent we deem appropriate upon the opinions of officers
and other authorized representatives of the Company) no facts have come to its
attention which lead it to believe that the Offering Memorandum, as of its date
or on the date of such opinion, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel has not been asked to, and will not, comment on the financial
statements, including the notes thereto, or any other financial or statistical
data contained in or omitted from the Offering Memorandum).
(f) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Initial Purchasers), dated the Closing Date, of Farris,
Vaughan, Wills & Murphy, Canadian counsel for the Company, to the effect that:
(i) each of the Canadian Companies is a corporation duly incorporated
and validly existing under the laws of its jurisdiction of incorporation;
each of the Canadian Companies has the corporate power and capacity to own
and lease property and assets and to carry on business;
(ii) each of the Canadian Companies is qualified or registered to
carry on business as an extra-provincial corporation in each jurisdiction
in which it carries on business;
(iii) the outstanding shares of capital stock of each of the Canadian
Companies have been duly authorized and validly issued and are outstanding
as fully paid and non-assessable;
<PAGE>
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(iv) all of the outstanding shares of capital stock of the Company are
registered in the name of Worldwide Fiber Holdings Ltd. All of the
outstanding shares of capital stock of Worldwide Fiber Communications Ltd.
and Worldwide Fiber Networks Ltd. are registered in the name of the
Company. All of the outstanding shares of capital stock of Ledcor
Communications Ltd. are registered in the name of Worldwide Fiber
Communications Ltd. All of the shares of capital stock of Worldwide Fiber
(F.O.T.S.) Ltd. are registered in the name of Worldwide Fiber Networks
Ltd.;
(v) the execution, issuance and sale of the Series A Notes and the
Series B Notes have been duly authorized by all necessary corporate action
on the part of the Company;
(vi) the execution, delivery and performance of the Operative
Documents, and the execution, issuance and sale of the Series A Notes, by
the Company, will not result in any violation, contravention or breach of
the articles or by-laws of the Company;
(vii) the execution, delivery and performance of the amended and
restated share purchase agreement dated as of the 28th day of June, 1999
between Ledcor Industries Limited and Ledcor Industries Inc. and the
Company (the "Additional Fiber Agreement"), the Non-Competition Agreement
and the Rail Plough License Agreement, dated as of May 31, 1998, by and
between Ledcor Industries Limited and Worldwide Fiber Communications Ltd.,
as assigned by Ledcor Industries Limited to Ledcom Holdings Ltd. and then
assigned by Worldwide Fiber Communications Ltd. to Ledcor Communications
Ltd. (collectively, the "Ledcor Agreements") will not result in any
violation, contravention or breach of the articles or by-laws of Ledcor
Industries Limited, Ledcor Inc. or Worldwide Fiber Holdings Ltd.
(collectively, the "Ledcor Companies") or any one or more of the Canadian
Companies which are parties to the Ledcor Agreements;
(viii) each of the Operative Documents and the Series A Notes has been
duly authorized, executed and delivered by the Company;
(ix) the Company has the corporate power and capacity to enter into
each of the Operative Documents and to carry out its obligations under each
of the Operative Documents; the execution and delivery of each of the
Operative Documents and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action on the part of the Company;
(x) each of the Ledcor Companies and the Canadian Companies has the
corporate power and capacity to enter into each of the Ledcor Agreements to
which it is a party and to carry out its obligations thereunder; the
execution and delivery of each
<PAGE>
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of the Ledcor Agreements and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate
action on the part of each of the Ledcor Companies and the Canadian
Companies which is a party to the Ledcor Agreements;
(xi) each of the Company and WFI-CN Fiber Inc. has the corporate power
and capacity to enter into the License Agreement dated May 28, 1999 among
CN, the Company and WFI-CN Fiber Inc. (the "CN License"); the execution and
delivery of the CN License and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate
action on the part of each of the Company and WFI-CN Fiber Inc.;
(xii) the Company has the corporate power and capacity to enter into
the License Agreements dated May 28, 1999 among IC, the Company and each of
the Delaware Companies (the "IC Licenses"); the execution and delivery of
the IC Licenses and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary corporate action on the
part of the Company;
(xiii) each of the Ledcor Agreements, the CN License and IC Licenses
has been duly executed and delivered by each of the Ledcor Companies and
the Canadian Companies which are parties to such agreements, and the
Additional Fiber Agreement constitutes a legal, valid and binding
obligation of the parties thereto, enforceable against each party thereto
in accordance with its terms, subject, however, to limitations with respect
to enforcement imposed by law in connection with bankruptcy or similar
proceedings and to the extent that equitable remedies such as specific
performance and injunction are in the discretion of the court from which
they are sought;
(xiv) the form of certificate for the Series A Notes has been duly
approved and adopted by the Company and complies with the provisions of the
Business Corporations Act (Alberta);
(xv) the statements contained in the Offering Memorandum under the
caption "Material United States and Canadian Income Tax
Considerations--Canada" and in the Final Wrap under the caption "Certain
Canadian Federal Income Tax Considerations" fairly and accurately describe
the principal Canadian federal income tax consequences under the Income Tax
Act (Canada) to a purchaser described therein;
(xvi) the disclosure contained in the Offering Memorandum under the
captions "Transactions With Our Parent--Description of Reorganization and
Related Agreements" and "--Other Agreements with Ledcor,"
"Regulation--Canada" and "Risk Factors--Extensive Regulation--Canada" in
each case, insofar as such disclo-
<PAGE>
-34-
sure describes or summarizes matters of Canadian law or constitutes
conclusions of Canadian law, fairly summarizes such matters of law or
conclusions of law;
(xvii) no filing, license, consent, permission, approval,
authorization, or order of any court or governmental agency or body in
Canada is required to be obtained by the Canadian Companies under the laws
of the Provinces of British Columbia and Alberta, or the federal laws of
Canada applicable therein, to permit the issue, delivery and sale by the
Company of the Notes, except such filings, licenses, consents, permissions,
approvals, authorizations or orders that have been obtained;
(xviii) the Alberta Securities Commission has determined that the
issue of the Notes is not a distribution to the public pursuant to the
Business Corporations Act (Alberta). As a consequence of the foregoing
determination by the Alberta Securities Commission, the Indenture is not
subject to the provisions of Part 7, Division 1, of the Business
Corporations Act (Alberta);
(xix) none of the issue and sale of the Series A Notes to the Initial
Purchasers, the execution and delivery by the Company of this Agreement,
the Indenture and the Registration Rights Agreement or the consummation of
the transactions herein or therein contemplated, will conflict with, result
in a material breach or violation of, or constitute a material default
under any material indenture or other material agreement or instrument
known to such counsel and to which the Canadian Companies are a party or
bound;
(xx) the offering, sale and delivery of the Series A Notes pursuant to
the Final Canadian Memorandum are exempt from the prospectus requirements
of the securities laws of the Relevant Provinces in which sales of Series A
Notes have been effected by the Initial Purchasers and no prospectus is
required nor are there any documents required to be filed, proceedings
taken or approvals, permits, consents, or authorizations obtained under the
securities laws of such provinces in respect of the offering, sale and
delivery of the Series A Notes to the Purchasers in such Relevant
Provinces, except for such proceedings which have been taken and approvals,
permits, consents or authorizations which have been obtained and except for
the filing, together with the appropriate fee, within prescribed time
periods after the Closing Date, of a report of the trade and, if
applicable, copies of the offering document, with the securities
commissions of the Relevant Provinces;
(xxi) the statements in the Final Canadian Memorandum under the
heading "Rights of Action" are correct insofar as such statements are, or
refer to, statements of law or legal conclusions relating to the laws of
the Relevant Provinces;
<PAGE>
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(xxii) except for filings, registrations and recordings which have
been made, no registration, filing or recording of the Indenture under the
laws of Canada or the Provinces of Alberta and British Columbia is
necessary in order to preserve or protect the validity or enforceability of
the Indenture or the Notes issued thereunder;
(xxiii) to the knowledge of such counsel, there is no pending or
threatened action or suit or judicial, arbitral or other administrative
proceeding to which the Canadian Companies are subject that, singly or in
the aggregate, (A) questions the validity of any of the Operative Documents
or any action taken or to be taken pursuant thereto, or (B) if determined
adversely to the Canadian Companies, is reasonably likely to have a
Material Adverse Effect;
(xxiv) the choice of law provisions set forth in Section 11 hereof, in
the Indenture, the Registration Rights Agreement and the Notes are legal,
valid and binding under the laws of the Province of British Columbia and
the federal laws of Canada applicable therein, provided that such choice of
law is bona fide (in the sense that it was not made with a view to avoiding
the consequences of the laws of any other jurisdiction) and provided that
such choice of law is not contrary to public policy, as that term is
applied by the courts in the Province of British Columbia ("Public
Policy"); such counsel knows of no Public Policy reason why the courts in
the Province of British Columbia (a "Canadian Court") would not give effect
to the choice of New York law as the proper law of this Agreement, the
Indenture, the Registration Rights Agreement and the Notes and if the
Indenture, this Agreement, the Registration Rights Agreement or the Notes
are sought to be enforced in the Province of British Columbia in accordance
with the laws applicable thereto as chosen by the parties, namely New York
law, a Canadian Court would, subject to the foregoing, recognize the choice
of New York law, and, upon appropriate evidence as to such law being
adduced, apply such law; provided that none of the provisions of this
Agreement, the Indenture, the Notes or the Registration Rights Agreement,
or of applicable New York law, are contrary to Public Policy or foreign
revenue, expropriation or penal laws; provided, however, that, in matters
of procedure, the laws of the Province of British Columbia will be applied
and a Canadian Court will retain discretion to decline to hear such action
if it is contrary to Public Policy for it to do so, or if it is not the
proper forum to hear such an action, or if concurrent proceedings are being
brought elsewhere;
(xxv) there are no reasons, to such counsel's knowledge, under the
laws of the Province of British Columbia or the federal laws of Canada
applicable therein or with respect to the application of New York law by a
Canadian Court, why enforcement of the Indenture or the Notes would be
avoided on the grounds of Public Policy;
<PAGE>
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(xxvi) The Company has the legal capacity to sue and be sued in its
own name under the laws of the Province of British Columbia and the federal
laws of Canada applicable therein; the Company has the power to submit, and
has irrevocably submitted, to the non-exclusive jurisdiction of the federal
or state courts located in the Borough of Manhattan in The City of New York
(a "New York Court") and has validly and irrevocably appointed CT
Corporation System as its authorized agent for the purpose described in
Section 11 hereof; the Company has the power to submit, and has irrevocably
submitted, to the non-exclusive jurisdiction of the New York Court and has
validly and irrevocably appointed CT Corporation System as its authorized
agent for the purpose described in the Indenture, the Notes and the
Registration Rights Agreement under the laws of the Province of British
Columbia and the federal laws of Canada applicable therein; the irrevocable
submission of the Company to the non-exclusive jurisdiction of the New York
Court and the waivers by it of any immunity and any objection to the venue
of the proceeding in a New York Court herein is legal, valid and binding
under the laws of the Province of British Columbia and the federal laws of
Canada applicable therein, and such counsel knows of no reason why a
Canadian Court would not give effect to such submission and waivers; the
irrevocable submission of the Company to the non-exclusive jurisdiction of
the New York Court and the waivers by the Company of any immunity and any
objection to the venue of the proceeding in a New York Court in the
Indenture, the Notes and the Registration Rights Agreement is legal, valid
and binding under the laws of the Province of British Columbia and the
federal laws of Canada applicable therein, and such counsel knows of no
reason why a Canadian Court would not give effect to such submission and
waivers;
(xxvii) service of process in the manner set forth in Section 11
hereof will be effective to confer valid personal jurisdiction over the
Company under the laws of the Province of British Columbia and the federal
laws of Canada applicable therein; service of process in the manner set
forth in the Indenture, the Notes and the Registration Rights Agreement
will be effective to confer valid personal jurisdiction over the Company
under the laws of the Province of British Columbia and the federal laws of
Canada applicable therein;
(xxviii) a Canadian Court will recognize as valid and final, and will
enforce, any final and conclusive judgment in personam, of any New York
Court that is not impeachable as void or voidable under the internal laws
of the State of New York for a sum certain in respect of the enforcement of
the obligations of the Company under this Agreement, the Indenture, the
Notes and the Registration Rights Agreement, if (i) the court rendering
such judgment had jurisdiction over the judgment debtor, as recognized by
the Canadian Court (and submission by the Company in this Agreement, the
Indenture, the Notes and the Registration Rights Agreement to the
jurisdiction of the
<PAGE>
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New York Court, will be sufficient for this purpose), (ii) such judgment
was not obtained by fraud or in a manner contrary to natural justice and
the enforcement thereof would not be inconsistent with Public Policy, or
contrary to any order made by the Attorney General of Canada under the
Foreign Extraterritorial Measures Act (Canada), (iii) the enforcement of
such judgment does not constitute, directly or indirectly, the enforcement
of foreign revenue, expropriatory or penal laws, (iv) the action to enforce
such judgment is commenced within the applicable limitation period and (v)
such counsel knows of no Public Policy reason for avoiding the recognition
of judgments of a New York Court under this Agreement, the Indenture, the
Notes and the Registration Rights Agreement under the laws of the Province
of British Columbia and the federal laws of Canada applicable therein;
(xxix) no withholding tax imposed under the federal laws of Canada or
the laws of the Province of British Columbia will be payable in respect of
the payment or crediting of any discount, commission or fee as contemplated
by this Agreement to an Initial Purchaser that is not resident in Canada,
but resident in the United States or if a partnership, all the members of
which are not resident in Canada but resident in the United States, in each
case, for purposes of the Income Tax Act (Canada) and the Canada-U.S.
Income Tax Convention, 1980 (a "U.S. Initial Purchaser") or on any interest
or deemed interest on the resale of Series A Notes by a U.S. Initial
Purchaser to U.S. residents, provided that such U.S. Initial Purchaser
deals at arm's length with the Company and that any such discount,
commission or fee is payable in respect of services rendered by such U.S.
Initial Purchaser outside of Canada that are performed by such U.S. Initial
Purchaser in the ordinary course of business carried on by it that includes
the performance of such services for a fee and any such amount is
reasonable in the circumstances.
(xxx) no goods and services tax imposed under the federal laws of
Canada will be collectible by a U.S. Initial Purchaser in respect of the
payment or crediting of any discount, commission or fee as contemplated by
this Agreement to any U.S. Initial Purchaser, provided that any such
discount, commission or fee is payable in respect of services performed by
such Initial Purchaser wholly outside of Canada.
(xxxi) no stamp duty, registration or documentary taxes, duties or
similar charges are payable under the federal laws of Canada or the laws of
the Province of British Columbia in connection with the creation, issuance,
sale and delivery to a U.S. Initial Purchaser of the Series A Notes or the
authorization, execution and delivery and performance of this Agreement,
any pricing agreement, or the Indenture or the resale of Series A Notes by
a U.S. Initial Purchaser to U.S. residents.
<PAGE>
-38-
(xxxii) after giving effect to the performance by the Company of its
obligations under this Agreement on the Closing Date; (a) each of Ledcor
Industries Limited and Worldwide Fiber (F.O.T.S.) Ltd. is eligible to
operate as a telecommunications common carrier in Canada, as defined under
and in accordance with the Telecommunications Act (Canada) (the
"Telecommunications Act") and the Canadian Telecommunications Common
Carrier Ownership and Control Regulations (the "Ownership Regulations");
(b) neither Ledcor Industries Limited nor Worldwide Fiber (F.O.T.S.) Ltd.
violates the prohibition contained in subsection 16(4) of the
Telecommunications Act against operating in Canada as a telecommunications
common carrier when ineligible to do so; (c) control of each of Ledcor
Industries Limited and Worldwide Fiber (F.O.T.S.) Ltd. is not exercised by
any person(s) that is (are) not Canadian, in accordance with the meanings
ascribed to the term "control" under the Telecommunications Act and the
term "Canadian" under the Ownership Regulations; and (d) none of the
Canadian Companies is in violation of any judgment, decree, order, writ,
law, statute, rule or regulation rendered or enacted in Canada respecting
telecommunications and the regulation within Canada of telecommunications
common carriers, as defined in the Telecommunications Act, applicable to
any of the Canadian Companies or the Ledcor Companies, or any
interpretation or policy relating thereto known to such counsel to be
applicable to them;
(xxxiii) after giving effect to the performance by the Company of its
obligations under this Agreement on the Closing Date:
(xxxiv) not less than eighty percent of the members of the board of
directors of each of Ledcor Industries Limited and Worldwide Fiber
(F.O.T.S.) Ltd. are individual Canadians, as defined under the Ownership
Regulations;
(xxxv) Canadians, as defined under the Ownership Regulations
beneficially own, directly or indirectly, in the aggregate and otherwise
than by way of security only, all of the issued and outstanding voting
shares, as defined under the Ownership Regulations of each of the Canadian
Companies and Ledcor Industries Limited;
(xxxvi) each of Ledcor Inc., in respect of its ownership of and
control over Ledcor Industries Limited, and Worldwide Fiber Networks Ltd.,
in respect of its ownership and control over Worldwide Fiber (F.O.T.S.)
Ltd., is a carrier holding corporation, as defined under the Ownership
Regulations;
(xxxvii) each of Ledcor Inc. and Worldwide Fiber Networks Ltd. is a
carrier holding corporation that is a qualified corporation, as defined
under the Ownership Regulations;
<PAGE>
-39-
(xxxviii) no notices, reports or other filings are required to be made
by any of the Canadian Companies or the Ledcor Companies, either prior to
or immediately after giving effect to the performance by the Company of its
obligations under this Agreement on the Closing Date, with, nor are any
consents, registrations, applications, approvals, permits, licenses or
authorizations required to be obtained by any of the Canadian Companies or
the Ledcor Companies, from any court or governmental agency or other
regulatory body or tribunal or similar entity pursuant to Canadian
telecommunications law in connection with the performance by the Company of
its obligations under this Agreement on the Closing Date;
(xxxix) to the knowledge of such counsel, and except as described in
the Offering Memorandum, no litigation, regulatory proceeding or
investigation is pending against the Canadian Companies or the Ledcor
Companies in connection with the requirements of Canadian
telecommunications law existing on the Closing Date; and
(xl) with the exception of Ledcor Industries Limited and Worldwide
Fiber (F.O.T.S.) Ltd., no other Canadian Company or Ledcor Company operates
in Canada as a telecommunications common carrier as that term is defined in
the Telecommunications Act.
Such counsel shall also confirm that at the date of the Offering Memorandum
and on the Closing Date that no facts have come to their attention in the course
of their review that lead them to believe that the Offering Memorandum contained
or contains any untrue statement of a material fact, or omitted or omits to
state a material fact necessary to make a statement therein not misleading in
light of the circumstances under which it was made, within the meaning of the
Securities Act (British Columbia).
The opinion of Farris, Vaughan, Wills & Murphy described in Section 9(f)
above (i) shall be rendered to you at the request of the Company and shall so
state therein, (ii) as to matters of Alberta law, will rely upon the opinion of
the Company's Alberta Counsel, McLennan Ross, and (iii) as to matters of law in
the Relevant Provinces, other than British Columbia, will rely upon counsel
acceptable to you.
(g) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Initial Purchasers), dated the Closing Date, of Beckley,
Singleton, Jemison, Cobeaga & List, Chtd., special Nevada counsel for the
Company, to the effect that:
(i) each of PFL Holdings, Inc., Worldwide Fiber (USA), Inc., Ledcor
Communications, Inc., Worldwide Fiber IC Holdings, Inc. (fka Worldwide
Fiberlink, Inc.), Worldwide Fiber Networks, Inc. (fka Pacific Fiber Link
POR-SAC, Inc.) and Worldwide Fiber (FOTS), Inc. (collectively, the "Nevada
Subsidiaries") has been duly incorporated, is validly existing as a
corporation in good standing under the laws
<PAGE>
-40-
of the State of Nevada and has the corporate power and authority to carry
on its business as described in the Offering Memorandum and to own, lease
and operate its properties;
(ii) each of the Nevada Subsidiaries is duly qualified and is in good
standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a Material Adverse Effect;
(iii) all of the outstanding shares of capital stock of each of the
Nevada Subsidiaries has been duly authorized and validly issued and is
fully paid and non-assessable, and are owned by the Company, free and clear
of any Lien;
(iv) the execution, delivery, and performance of this agreement and
the other Operative Documents will not conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the Articles or
Bylaws of each of the Nevada Subsidiaries, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Nevada Subsidiaries, taken as a whole, to which any of the
Nevada Subsidiaries is a party or by which any of the Nevada Subsidiaries
is bound; violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body
or agency having jurisdiction over any of the Nevada Subsidiaries or their
respective property; result in the imposition or creation of (or the
obligation to create or impose) a Lien under, any agreement or instrument
to which any of the Nevada Subsidiaries or their respective property is
bound; or result in the termination, suspension or revocation of any
Authorization of any of the Nevada Subsidiaries or result in any other
impairment of the rights of the holder of such Authorization; and
(v) there are no known legal or governmental proceedings pending or
threatened to which any of the Nevada Subsidiaries is or could be a party
or to which any of their property is or could be subject, which might
result, singly or in the aggregate, in a Material Adverse Effect.
The opinion of Beckley, Singleton, Jemison, Cobeaga & List, Chtd. described
in Section 9(g) above shall be rendered to you at the request of the Company and
shall so state therein.
(h) You shall have received on the Closing Date an opinion (satisfactory to
you and counsel for the Initial Purchasers), dated the Closing Date, of Wiley
Rein & Fielding, special regulatory counsel for the Company, to the effect that
the statements, with respect to federal communications law, under the captions
"Regulation--United States," and "Risk
<PAGE>
-41-
Factors--Extensive Regulation--United States" in the Offering Memorandum,
insofar as such statements as a whole constitute a summary of the legal matters,
documents and proceedings referred to therein, fairly present in all material
respects such legal matters, documents and proceedings. The opinion of Wiley
Rein & Fielding described in this Section 9(h) shall be rendered to you at the
request of the Company and shall so state therein.
(i) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of each of Latham & Watkins and Osler, Hoskin &
Harcourt, counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(j) The Initial Purchasers shall have received, at the time this Agreement
is executed and at the Closing Date, letters dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to the
Initial Purchasers from PricewaterhouseCoopers and Deloitte & Touche independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to the Initial Purchasers
with respect to the financial statements and certain financial information
contained in the Offering Memorandum.
(k) The Series A Notes shall have been approved by the NASD for trading and
duly listed in PORTAL.
(l) The Initial Purchasers shall have received a counterpart, conformed as
executed, of the Indenture which shall have been entered into by the Company,
and the Trustee.
(m) The Company shall have executed the Registration Rights Agreement and
the Initial Purchasers shall have received an original copy thereof, duly
executed by the Company.
(n) The Company shall not have failed at or prior to the Closing Date to
perform or comply in any material respect with any of the agreements herein
contained and required to be performed or complied with by the Company, as the
case may be, at or prior to the Closing Date.
10. Effectiveness of Agreement and Termination. This Agreement shall become
effective upon the execution and delivery of this Agreement by the parties
hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by the Initial Purchasers by written notice to the Company if any of the
following has occurred: (i) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or
<PAGE>
-42-
elsewhere that, in the Initial Purchasers' judgment, is material and adverse
and, in the Initial Purchasers' judgment, makes it impracticable to market the
Series A Notes on the terms and in the manner contemplated in the Offering
Memorandum, (ii) the suspension or material limitation of trading in securities
or other instruments on the New York Stock Exchange, the Toronto Stock Exchange,
the American Stock Exchange or the Nasdaq National Market or limitation on
prices for securities or other instruments on any such exchange or the Nasdaq
National Market, (iii) the suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal, state, provincial or
municipal statute, regulation, rule or order of any court or other governmental
authority which in your opinion materially and adversely affects, or will
materially and adversely affect, the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole, (v)
the declaration of a banking moratorium by either federal or New York State
authorities or authorities in Canada or any province thereof, (vi) the taking of
any action by any federal, state, provincial, municipal or local government or
agency in respect of its monetary or fiscal affairs which in your opinion has a
material adverse effect on the financial markets in the United States or Canada.
If on the Closing Date any one or more of the Initial Purchasers shall fail
or refuse to purchase the Series A Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the Series
A Notes which such defaulting Initial Purchaser or Initial Purchasers, as the
case may be, agreed but failed or refused to purchase is not more than one-tenth
of the aggregate principal amount of the Series A Notes to be purchased on such
date by all Initial Purchasers, each non-defaulting Initial Purchaser shall be
obligated severally, in the proportion which the principal amount of the Series
A Notes set forth opposite its name in Schedule A bears to the aggregate
principal amount of the Series A Notes which all the non-defaulting Initial
Purchasers, as the case may be, have agreed to purchase, or in such other
proportion as you may specify, to purchase the Series A Notes which such
defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed
but failed or refused to purchase on such date; provided that in no event shall
the aggregate principal amount of the Series A Notes which any Initial Purchaser
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount of
the Series A Notes without the written consent of such Initial Purchaser. If on
the Closing Date any Initial Purchaser or Initial Purchasers shall fail or
refuse to purchase the Series A Notes and the aggregate principal amount of the
Series A Notes with respect to which such default occurs is more than one-tenth
of the aggregate principal amount of the Series A Notes to be purchased by all
Initial Purchasers and arrangements satisfactory to the Initial Purchasers and
the Company for purchase of such the Series A Notes are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Initial Purchaser and the Company. In any such case which
does not result in termination of this Agreement, either you or the Company
shall have the right to
<PAGE>
-43-
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Offering Memorandum or any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Initial Purchaser from liability in respect of
any default of any such Initial Purchaser under this Agreement.
11. Jurisdiction. The Company and its subsidiaries agree that any suit,
action or proceeding against them brought by any Initial Purchaser, the
directors, officers, employees and agents of any Initial Purchaser, or by any
person who controls any Initial Purchaser, arising out of or based upon this
Agreement or the transactions contemplated hereby, may be instituted in any
State or Federal court in The City of New York, and waive any objection which
they may now or hereafter have to the laying of venue of any such proceeding,
and irrevocably submit to the non-exclusive jurisdiction of such courts in any
suit, action or proceeding. The Company has appointed CT Corporation System as
its authorized agent (the "Authorized Agent") upon whom process may be served in
any suit, action or proceeding arising out of or based upon this Agreement or
the transactions contemplated herein that may be instituted in any State or
Federal court in The City of New York, by any Initial Purchaser, the directors,
officers, employees and agents of any Initial Purchaser, or by any person, if
any, who controls any Initial Purchaser, and expressly accept the non-exclusive
jurisdiction of any such court in respect of any such suit, action or
proceeding. The Company hereby represents and warrants that the Authorized Agent
has accepted such appointment and has agreed to act as said agent for service of
process, and the Company agrees to take any and all action, including the filing
of any and all documents that may be necessary to continue such appointment in
full force and effect as aforesaid. Service of process upon the Authorized Agent
shall be deemed, in every respect, effective service of process upon the
Company. Notwithstanding the foregoing, any action arising out of or based upon
this Agreement may be instituted by any Initial Purchaser, the directors,
officers, employees and agents of any Initial Purchaser, or by any person who
controls any Initial Purchaser, in any court of competent jurisdiction in
Canada.
12. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to Worldwide
Fiber Inc., attention: Stephen Stow, 1510, 1066 West Hastings Street, Vancouver,
British Columbia, Canada V6E 3X1 and (ii) if to the Initial Purchasers,
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, and the Initial Purchasers set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive
<PAGE>
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delivery of and payment for the Series A Notes, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
the Initial Purchasers, the officers or directors of the Initial Purchasers, any
person controlling the Initial Purchasers, the Company, the officers or
directors of the Company, or any person controlling the Company and (ii)
acceptance of the Series A Notes and payment for them hereunder. The respective
agreements, covenants and indemnities set forth in Sections 5(i) and 8 hereof
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
If for any reason the Series A Notes are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company agrees to reimburse the
Initial Purchasers for all reasonable out-of-pocket expenses (including the fees
and disbursements of counsel) incurred by them. Notwithstanding any termination
of this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(i) hereof. The Company also agrees to
reimburse the Initial Purchasers and its officers, directors and each person, if
any, who controls such Initial Purchaser within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act for any and all fees and expenses
(including without limitation the fees and expenses of counsel) incurred by them
in connection with enforcing their rights under this Agreement (including
without limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Initial
Purchasers, the Initial Purchasers' directors and officers, any controlling
persons referred to herein, the directors of the Company and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Series A Notes from the Initial Purchasers merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
<PAGE>
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Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Initial Purchasers.
Very truly yours,
Worldwide Fiber Inc.
By:
----------------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
By:______________________________
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By:______________________________
Name:
Title:
SALOMON SMITH BARNEY INC.
By:______________________________
Name:
Title:
TD SECURITIES (USA) INC.
By:______________________________
Name:
Title:
<PAGE>
SCHEDULE A
Principal Amount
Initial Purchasers of Notes
Donaldson, Lufkin & Jenrette Securities Corporation..... $272,500,000
Morgan Stanley & Co. Incorporated....................... 91,000,000
Salomon Smith Barney Inc................................ 91,000,000
45,500,000
------------
TD Securities (USA) Inc.................................
Total.............................................. $500,000,000
============
<PAGE>
SCHEDULE B
Subsidiaries
Worldwide Fiber Communications Ltd.
Ledcor Communications Ltd.
Ledcor Cayer Inc.
Worldwide Fiber Networks Ltd.
Worldwide Fiber (F.O.T.S.) Ltd.
Worldwide Fiber (F.O.T.S.) Inc.
Worldwide Fiber F.O.T.S. No. 2, Inc.
PFL Holdings, Inc.
Worldwide Fiber (USA), Inc.
Pacific Fiber Link SEA-POR, Inc.
Pacific Fiber Link MON-ALB, Inc.
Ledcor Communications, Inc.
Ledcom Holdings Ltd.
WFI-CN Fiber Inc.
Worldwide Fiber IC Holdings, Inc.
Worldwide Fiber IC LLC
IC Fiber Alabama LLC
IC Fiber Illinois LLC
IC Fiber Iowa LLC
IC Fiber Kentucky LLC
IC Fiber Louisiana LLC
IC Fiber Mississippi LLC
IC Fiber Tennessee LLC
Worldwide Fiber Finance Ltd.
Worldwide Fiber Networks, Inc.
WFI Liquidity Management Hungary Limited
<PAGE>
SCHEDULE C
Material Subsidiaries
Worldwide Fiber Communications Ltd.
Ledcor Communications Ltd.
Ledcor Cayer Inc.
Worldwide Fiber Networks Ltd.
Worldwide Fiber (F.O.T.S.) Ltd.
Worldwide Fiber (F.O.T.S.) Inc.
Worldwide Fiber F.O.T.S. No. 2, Inc.
Worldwide Fiber (USA), Inc.
Ledcor Communications, Inc.
Ledcom Holdings Ltd.
WFI-CN Fiber Inc.
Worldwide Fiber IC Holdings, Inc.
Worldwide Fiber IC LLC
IC Fiber Alabama LLC
IC Fiber Illinois LLC
IC Fiber Iowa LLC
IC Fiber Kentucky LLC
IC Fiber Louisiana LLC
IC Fiber Mississippi LLC
IC Fiber Tennessee LLC
Worldwide Fiber Finance Ltd.
Worldwide Fiber Networks, Inc.
WFI Liquidity Management Hungary Limited
<PAGE>
SCHEDULE D
Canadian Affiliates
Worldwide Fiber Communications Ltd.
Worldwide Fiber Networks Ltd.
Ledcor Communications Ltd.
Worldwide Fiber (F.O.T.S.) Ltd.
Ledcor Cayer Inc.
Ledcom Holdings Ltd.
WFI-CN Fiber Inc.
Worldwide Fiber (FOTS) No. 2, Inc.
Worldwide Fiber Finance Ltd.
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
CANADA BUSINESS CORPORATIONS ACT
FORM 11
(Section 187)
ARTICLES OF CONTINUANCE
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1.
Name of Corporation:
WORLDWIDE FIBER INC.
- --------------------------------------------------------------------------------
2.
The place in Canada where the registered office is to be situated:
Vancouver, British Columbia
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3.
The classes and any maximum number of shares that the corporation is
authorized to issue:
The annexed Schedule I is incorporated in this form.
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4.
Restrictions, if any, on share transfers:
There are no restrictions on the transfer of shares.
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5.
Number (or minimum and maximum number) of directors:
minimum 3 - maximum 15
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6.
Restrictions, if any, on business the corporation may carry on:
None
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<PAGE>
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7. (1) If change of name effected, previous name:
N/A
(2) Details of Incorporation:
The Corporation was incorporated in the Province of Alberta on
February 5, 1998 under the name Ledcom Inc. On April 20, 1998 its
name was changed to Starfiber Inc. and on July 27, 1998 it changed
its name to Worldwide Fiberlink Ltd. On August 15, 1998 it changed
its name to Worldwide Fiber Inc.
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8. Other provisions, if any:
The annexed Schedule II is incorporated in this form.
- --------------------------------------------------------------------------------
Date: Signature: Description of Office:
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FOR DEPARTMENTAL USE ONLY
Filed
Corporation No.
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<PAGE>
SCHEDULE I
AUTHORIZED CAPITAL
3. The Corporation is authorized to issue:
(a) an unlimited number of Class "A" Common Voting Shares;
(b) an unlimited number of Class "B" Common Voting Shares;
(c) an unlimited number of Class "C" Common Non-Voting Shares;
(d) an unlimited number of Class "I" Preferred Voting Shares;
(e) an unlimited number of Class "II" Preferred Non-Voting Shares;
(f) an unlimited number of Class "III" Preferred Non-Voting Shares; and
all with the rights, restrictions, conditions and limitations set out as
follows:
THE CLASS "A" COMMON SHARES, THE CLASS "B" COMMON SHARES AND CLASS "C" COMMON
SHARES SHALL CARRY AND BE SUBJECT TO THE FOLLOWING RIGHTS, RESTRICTIONS,
CONDITIONS AND LIMITATIONS:
1. VOTING
1.1. The holders of the Class "A" Common Shares and Class "B" Common Shares in
the Corporation shall be entitled to notice of and to attend at meetings of
the Shareholders of the Corporation, and shall be entitled to one (1) vote
in respect of each such share so held and the holder shall also be entitled
to consent to and sign a resolution in writing to be signed by the
Shareholders of the Corporation.
1.2. Except as provided in the Canada Business Corporations Act (the "CBCA"), as
amended from time to time, the holders of the Class "C" Common Shares shall
not, as such, be entitled to vote at, nor to receive notice of or attend
Shareholders meetings nor shall the holders be entitled to consent to or
sign a resolution in writing to be signed by the Shareholders of the
Corporation.
2. DIVIDENDS
2.1. The holders of the Class "A" Common Shares, the Class "B" Common Shares or
Class "C" Common Shares shall be entitled to receive a dividend when, as,
and if declared
<PAGE>
by the Directors of the Corporation on the Class "A" Common Shares, the
Class "B" Common Shares or Class "C" Common Shares, as the case may be.
Dividends may be declared and paid on the Class "A" Common Shares, the
Class "B" Common Shares or the Class "C" Common Shares to the complete
exclusion of dividends being declared and paid on any other class or
classes of shares of the Corporation. Provided however, no dividends shall
be declared and such shares if to do so would impair the ability of the
Corporation to redeem the then outstanding Preferred Shares in the capital
stock of the Corporation.
3. RETURN OF CAPITAL
3.1. In the event of liquidation, dissolution or winding up of the Corporation
or other distribution of the assets of the Corporation among Shareholders
for the purpose of winding up its affairs, the holders of the Class "A"
Common Shares, the Class "B" Common Shares and Class "C" Common Shares
shall rank pari passu with one another to receive any remaining balance of
the assets and properties of the Corporation after payment of return of
capital on any declared but unpaid dividends to the holders of the
Preferred Shares herein referred to.
THE CLASS "I" PREFERRED SHARES, THE CLASS "II" PREFERRED SHARES AND THE CLASS
"III" PREFERRED SHARES SHALL CARRY AND BE SUBJECT TO THE FOLLOWING RIGHTS,
RESTRICTIONS, CONDITIONS AND LIMITATIONS:
1. VOTING
1.1. The holders of the Class "I" Preferred Shares in the Corporation shall be
entitled to notice of and to attend at meetings of the Shareholders of the
Corporation, and shall be entitled to one (1) vote in respect of each such
share so held and the holder shall also be entitled to consent to and sign
a resolution in writing to be signed by the Shareholders of the
Corporation.
1.2. Except as provided in the CBCA, as amended from time to time, the holders
of the Class "II" Preferred Shares and Class "III" Preferred Shares shall
not, as such, be entitled to vote at, nor to receive notice of or attend
Shareholders' meetings nor shall the holders be entitled to consent to or
sign a resolution in writing to be signed by the Shareholders of the
Corporation.
2. DIVIDENDS
2.1. The holders of the Class "I" Preferred Shares, the Class "II" Preferred
Shares or Class "III" Preferred Shares shall be entitled to receive, when,.
as and if declared by
<PAGE>
the Board of Directors of the Corporation. out of the net profits and
surplus of the Corporation properly applicable to the payment of dividends,
a dividend at the rate or rates as the Directors of the Corporation may
from time to time determine on the redemption price thereof (as hereinafter
provided); the Directors of the Corporation shall further determine the
amount or method or methods of calculation of dividends on the Class "I"
Preferred Shares, the Class "II" Preferred Shares and Class "III" Preferred
Shares, the time and place of payment of dividends, whether cumulative or
non-cumulative or partially cumulative and whether such rate, amount or
method of calculation shall be subject to change or adjustment in the
future. For greater certainty, the holders of the Class "I" Preferred
Shares, the Class "II" Preferred Shares and Class "III" Preferred Shares
shall have no preference or priority as to the declaration of dividends,
and dividends may be declared and paid on any other class of shares of the
Corporation to the exclusion of a dividend being declared and paid on the
Class "I" Preferred Shares, the Class "II" Preferred Shares or Class "III"
Preferred Shares, Dividends may be declared and paid on the Class "I"
Preferred Shares, the Class "II" Preferred Shares or the Class "III"
Preferred Shares to the exclusion of a dividend being declared and paid on
the other of them. Provided however, no dividends shall be declared on such
other shares if to do so would impair the ability of the Corporation to
redeem the then outstanding Class "I" Preferred Shares, Class "II"
Preferred Shares and Class "III" Preferred Shares in the capital stock of
the Corporation.
3. RETURN OF CAPITAL
3.1. In the event of liquidation, dissolution or winding-up of the Corporation,
the holders of the Class "I" Preferred Shares the Class "II" Preferred
Shares and Class "III" Preferred Shares shall rank pari passu with one
another and shall have priority as to payment of the redemption price, as
hereinafter provided, and priority for all declared and unpaid dividends up
to the commencement of the winding-up, over all other shares in the capital
for the time being of the Corporation; but shall not have any right to
participate in the assets of the Corporation beyond the redemption price as
hereinafter provided, and all declared and unpaid dividends whether in a
winding-up or on the reduction, redemption or purchase by the Corporation
of the capital stock.
4. REDEMPTION AT CORPORATION'S OPTION
4.1. The Corporation may by resolution of the Directors, and upon giving notice
as hereinafter provided, from time to time redeem or purchase the whole or
any part of the Class "I" Preferred Shares, the Class "II" Preferred Shares
or Class "III" Preferred Shares on payment for each share to be redeemed or
purchased of the redemption price as hereinafter provided together with all
declared and unpaid dividends. In case a part only of the then outstanding
Class "I" Preferred Shares, Class "II" Preferred Shares and Class "III"
Preferred Shares is at any time to be redeemed or purchased the redemption
or purchase shall be pro rata disregarding fractions amongst all the
holders of the then outstanding Class "I"
<PAGE>
Preferred Shares, Class "II" Preferred Shares and Class "III" Preferred
Shares, unless the Corporation and all of the holders of the then
outstanding Class "I" Preferred Shares, Class "II" Preferred Shares and
Class "III" Preferred Shares otherwise agree in writing. Unless the holders
of the Class "I" Preferred Shares, Class "II" Preferred Shares and Class
"III" Preferred Shares otherwise agree in writing, not less than ten days'
notice in writing of such redemption or purchase shall be given by mailing
to the registered holder of the shares to be redeemed or purchased a notice
specifying the date and place of redemption or purchase, which may be a
chartered bank.
4.2. If notice of any such redemption or purchase be given by the Corporation in
the manner aforesaid and an amount sufficient to redeem or purchase the
shares to be redeemed or purchased be deposited with the chartered bank
specified in the notice on or before the date fixed for redemption or
purchase, dividends on the Class "I" Preferred Shares, Class "II" Preferred
Shares and Class "III" Preferred Shares to be redeemed or purchased shall
cease to accrue after the date so fixed for the redemption or purchase and
the holders thereof shall thereafter have no rights against the Corporation
in respect thereof except upon surrender of certificates for such shares to
receive payment thereof of the redemption price.
5. RETRACTION AT SHAREHOLDER'S OPTION
5.1. Every holder of record of Class "I" Preferred Shares, Class "II" Preferred
Shares and Class "III" Preferred Shares shall, subject as hereinafter
provided, be entitled to require the Corporation to redeem or to purchase
all or any part of the Class "I" Preferred Shares, the Class "II" Preferred
Shares or Class "III" Preferred Shares held by such holder by surrendering
on a business day the certificate or certificates representing such Class
"I" Preferred Shares, Class "II" Preferred Shares and Class "III" Preferred
Shares, properly endorsed in blank for transfer or accompanied by an
appropriate form of transfer properly executed in blank, at the registered
office of the Corporation or at the office of any transfer agent of the
Corporation or at such other place or places as the Directors of the
Corporation may from time to time designate, such certificate or
certificates so surrendered to be accompanied by a notice in writing
(hereinafter called a "redemption notice") signed by such holder or by his
duly authorized attorney requiring the Corporation to redeem or to purchase
all or a specified number of the Class "I" Preferred Shares, Class "II"
Preferred Shares and Class "III" Preferred Shares represented thereby. If
the redemption notice is signed by an attorney, it shall be accompanied by
evidence of the authority of such attorney satisfactory to the Corporation
or a transfer agent of the Corporation.
5.2. A redemption notice shall be deemed to have been given when actually
received at the registered office of the Corporation or at the office of
any transfer agent of the Corporation or at such other place or places as
the Directors of the Corporation may from
<PAGE>
time to time designate and when so given shall, subject as herein after
provided in 5.5, be irrevocable.
5.3. Payment of the redemption price for the Class "I" Preferred Shares, Class
"II" Preferred Shares or Class "III" Preferred Shares surrendered for
redemption or for sale shall be made by or on behalf of the Corporation to
the holders of record thereof not later than the seventh day following the
date upon which the redemption notice is given as aforesaid.
5.4. Payment for Class "I" Preferred Shares, Class "II" Preferred Shares or
Class "III" Preferred Shares surrendered for redemption or for sale shall
be made in such manner as may be agreed between the Corporation and the
holder(s) thereof or by cheque payable at par in Canadian funds at any
branch of the Corporation's bankers and delivered to the holders of record
of Class "I" Preferred Shares, Class "II" Preferred Shares Class "III"
Preferred Shares so surrendered or at the option of the Corporation such
cheque shall be forwarded by registered mail, postage prepaid, to the
holders of record of the Class "I" Preferred Shares, Class "II" Preferred
Shares or Class "III" Preferred Shares so surrendered at their addresses as
the same appear in the records of the Corporation. In the case of each
cheque so mailed, delivery thereof shall be deemed to have been made to the
registered holder concerned as soon as the letter containing the same has
been mailed.
5.5. In the event that the redemption or purchase of all those outstanding Class
"I" Preferred Shares, Class "II" Preferred Shares or Class "III" Preferred
Shares in respect of which the Corporation has received redemption notices
at any given time would cause the Corporation to be in contravention of the
provisions of the CBCA, the Corporation shall at that time redeem or
purchase, on a pro rata basis, disregarding fractions, only such number of
Class "I" Preferred Shares, Class "II" Preferred Shares or Class "III"
Preferred Shares as can be redeemed or purchased without causing such
contravention and the Corporation shall redeem or purchase the balance of
the outstanding Class "I" Preferred Shares, Class "II" Preferred Shares or
Class "III" Preferred Shares in respect of which the Corporation has
received redemption notices on a pro rata basis, disregarding fractions, at
such time or times as such redemption or purchase can be made without
causing the Corporation to be in contravention of the provisions of the
CBCA.
6. REDEMPTION OR PURCHASE PRICE
Class "I" Preferred Shares
6.1. The redemption price or the purchase price for the Class "I" Preferred
Share surrendered for redemption or for sale shall be such amount as may be
determined by the Directors of the Corporation at the time such Class "I"
Preferred Share is issued together with any declared and unpaid dividends
thereon.
<PAGE>
Class "II" Preferred Shares
6.2. The redemption price or the purchase price for the Class "II" Preferred
Shares, surrendered for redemption or for sale shall be such amount as may
be determined by the Directors of the Corporation at the time such Class
"II" Preferred Share is issued together with any declared and unpaid
dividends thereon.
Class "III" Preferred Shares
6.3. The price or consideration payable entirely in lawful money of Canada at
which the Class "III" Preferred Shares shall be redeemed (the "Class "III"
Redemption Amount") shall be the amount of consideration received therefor
as determined by the Directors of the Corporation and adjusted by the
Directors at any time or time so as to ensure that the Class "III"
Redemption Amount of such Class "III" Preferred Shares issued as partial or
total consideration for the purchase by the Corporation of any assets or
the conversion or exchange of any shares (the Class "III" Purchased
Assets") shall equal the difference between the fair market value of the
Class "III" Purchased Assets as at the date of purchase, conversion or
exchange by the Corporation and the aggregate value of non-share
consideration, if any, issued by the Corporation as partial or total
consideration for the Class "III" Purchased Assets.
For greater certainty, such fair market value shall be determined by the
Directors of the Corporation upon such expert advice as they deem
necessary. Should, however, any competent taxing authority at any time
issue or propose to issue any assessment or assessments that impose or
would impose any liability for tax on the basis that the fair market value
of the Class "III" Purchased Assets is other than the amount approved by
the Directors and if the Directors or a competent Court or tribunal agree
with such revaluation and all appeal rights have been exhausted or all
times for appeal have expired without appeals having been taken or should
the Directors of the Corporation otherwise determine that the fair market
value of the Class "III" Purchased Assets is other than the amount
previously approved by the Directors, then the Class "III" Redemption
Amount of the Class "III" Purchased Shares shall be adjusted nunc pro tunc
pursuant to the provisions of this paragraph to reflect the agreed upon
fair market value and all necessary adjustments, payments and repayments as
may be required shall forthwith be made between the proper parties.
7. LIQUIDITY
7.1. Notwithstanding anything to the contrary herein contained, no dividends or
other payment or distribution shall be made to the holders, as such, of
shares in the capital stock of the Corporation other than Class "I"
Preferred Shares, Class "II" Preferred Shares and Class "III" Preferred
Shares if the payment thereof would result in the fair market value of the
Corporation's assets, net of liabilities owed by the Corporation, being
less than the aggregate of the redemption or purchase price of all Class
"I" Preferred Shares, Class "II" Preferred Shares and Class "III" Preferred
Shares then outstanding.
<PAGE>
SCHEDULE II
1. The Corporation may invite the public to subscribe for its securities
subject to the rules and regulations of the Securities Act (British
Columbia) or any other applicable Securities Act.
2. Without in any way limiting the powers conferred upon the Corporation and
its directors by the Canada Business Corporations Act, the directors may,
from time to time, in such amounts and on such terms as they deem
expedient, charge, mortgage, hypothecate, pledge, or grant any form of
security interest in, all or any of the currently owned or subsequently
acquired property of the Corporation, real or personal, moveable or
immovable, including its undertaking, book debts, rights, powers and
franchises, to secure any debt obligation or any money borrowed or other
debt or liability of the Corporation.
3. The Articles of the Corporation may be amended by special resolution
pursuant to Section 173 of the Canada Business Corporations Act (the "Act")
to:
(i) increase or decrease any maximum number of authorized shares of any
class, or increase any maximum number of authorized shares of a class
having rights or privileges equal or superior to the shares of another
class;
(ii) effect an exchange, reclassification or cancellation of all or any
part of the shares of any class; or
(iii) create a new class of shares equal or superior to the shares of
another class;
and no separate class or series vote shall be required under Section 176 of the
Act in respect to the amendment except that the holders of any class of
preferred shares shall be entitled to vote separately as a class or series on
such amendment to the extent provided in the Act and in the Articles.
4. The directors may, within the maximum number permitted by the Articles,
appoint one or more directors, who shall hold office for a term expiring
not later than the close of the next annual meeting of the shareholders,
but the total number of directors so appointed may not exceed one-third of
the number of directors elected at the previous annual meeting of
shareholders.
<PAGE>
WORLDWIDE FIBER INC.
LIST OF PROVINCES IN WHICH THE COMPANY IS REGISTERED
British Columbia
Ontario
Saskatchewan
CANADA BUSINESS COPORATIONS ACT
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
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1. Name of corporation: WORLDWIDE FIBER INC.
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2. Corporation No.: 365115-1
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3. The Articles of the above-named Corporation are amended as follows:
I. Article 3. To change the authorized capital by:
a. changing the designation of the existing Class "A" Common Voting Shares
in the capital of the Corporation both issued and unissued to Class B
Subordinate Voting Shares;
b. cancelling:
i.the Class "B" Common Voting Shares, none of which are issued;
ii. "C" Common Non-Voting Shares, none of which are issued;
iii. Class "I" Preferred Voting Shares, none of which are issued;
iv. Class "II" Preferred Non-Voting Shares, none of which are issued; and
v. Class "III" Preferred Non-Voting Shares, none of which are issued;
<PAGE>
c. deleting in their entirety the rights, privileges, restrictions and
conditions attaching to the Class "A" Common Voting Shares (redesignated the
Class B Subordinate Voting Shares), the Class "B" Common Voting Shares, the
Class "C" Common Non-Voting Shares, the Class "I" Preferred Voting Shares, the
Class "II" Preferred Non-Voting Shares and the Class "III" Preferred Non-Voting
Shares;
d. creating:
i. an unlimited number of Class A Non-Voting Shares;
ii. an unlimited number of Class C Multiple Voting Shares;
iii. an unlimited number of Preferred Shares, issuable in not more than
three series;
e. attaching to the Class A Non-Voting Shares, the Class B Subordinate
Voting Shares, the Class C Multiple Voting Shares and the Preferred Shares the
rights, privileges, restrictions and conditions set forth in Schedule I hereto.
IA. Article 4. To attach a restriction on the transfer of shares, Article 4
to read as follows:
The annexed Schedule II is incorporated herein.
II. Immediately upon the filing of these Articles of Amendment, the
Articles of the Corporation be amended, pursuant to section 27 of the Canada
Business Corporations act by designating:
i. 100,000,000,000 of the Preferred Shares as Series A Non-Voting Preferred
Shares;
ii. 100,000,000,000 of the Preferred Shares as Series B Subordinate Voting
Preferred Shares; and
iii. 45,000,000 of the Preferred Shares as Series C Redeemable Preferred
Shares;
having attached thereto the rights, privileges, restrictions and
conditions set forth in Schedule I attached hereto.
-2-
<PAGE>
III. After giving effect to the foregoing, Article 3 shall read as follows:
Article 3. - The classes and any maximum number of shares that the
corporation is authorized to issue:
an unlimited number of Class A Non-Voting Shares,
an unlimited number of Class B Subordinate Voting Shares,
an unlimited number of Class C Multiple Voting Shares,
an unlimited number of Preferred Shares, of which the first series shall
consist of 100,000,000,000 Series A Non-Voting Preferred Shares, the second
series shall consist of 100,000,000,000 Series B Subordinate Voting
Preferred Shares and the third series shall consist of 45,000,000 Series C
Redeemable Preferred Shares.
The shares shall have attached thereto the rights, privileges, restrictions
and conditions set forth in Schedule I attached hereto.
IV. Article 5. To change the minimum and maximum number of directors,
Article 5 therefore to read follows:
Number (or minimum and maximum number) of directors: Minimum 4 -
Maximum 12
V. Article 8. To delete the wording in the existing Schedule II attached
to and forming part of the Articles of Continuance and substituting
therefore the wording set out in the annexed Schedule II, Article 8
therefore to read as follows:
Other provisions, if any: The annexed Schedule II is incorporated
herein.
Date Signature Title
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FOR DEPARTMENTAL USE ONLY
Filed:
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-3-
<PAGE>
SCHEDULE I
The rights, privileges, restrictions and conditions attaching to each class
of shares and each existing series of shares of the Corporation are as follows:
D. CLASS A NON-VOTING SHARES, CLASS B SUBORDINATE VOTING SHARES AND CLASS C
MULTIPLE VOTING SHARES
The Class A Non-Voting Shares, Class B Subordinate Voting Shares and Class
C Multiple Voting Shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
1. DIVIDENDS
4.1 Subject to any preference or priority as to the payment of dividends
upon shares of any class or series ranking in priority to the Class A Non-Voting
Shares, Class B Subordinate Voting Shares or Class C Multiple Voting Shares in
respect of the payment of dividends, the holders of Class A Non-Voting Shares,
Class B Subordinate Voting Shares and Class C Multiple Voting Shares shall,
except as otherwise hereinafter provided, be entitled to participate equally
with each other, share for share, as to dividends and the Corporation shall pay
dividends thereon, as and when declared by the Board of Directors of the
Corporation out of moneys properly applicable to the payment of dividends, in
equal amounts per share and at the same time on each Class A Non-Voting Share,
Class B Subordinate Voting Share and Class C Multiple Voting Share outstanding
as at the respective record dates for the payment of such dividends.
2. DISSOLUTION
2.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation among
shareholders for the purpose of winding up its affairs, all of the property and
assets of the Corporation which remain, after payment of all amounts attributed
and properly payable to the holders of any shares ranking in priority to the
Class A Non-Voting Shares, Class B Subordinate Voting Shares and Class C
Multiple Voting Shares in respect of payment upon liquidation, dissolution or
winding-up of the Corporation or other distribution of assets of the Corporation
among shareholders for the purpose of winding up its affairs, shall be paid or
distributed equally, share for share, to the holders of the Class A Non-Voting
Shares, Class B Subordinate Voting Shares and Class C Multiple Voting Shares,
without preference or distinction outstanding as at the respective record dates
for such payment.
<PAGE>
3. SUBDIVISION OR CONSOLIDATION
3.1 None of the Class A Non-Voting Shares, Class B Subordinate Voting
Shares or Class C Multiple Voting Shares shall be subdivided, consolidated,
reclassified or otherwise changed unless contemporaneously therewith the shares
of each other such class is subdivided, consolidated, reclassified or otherwise
changed equally, share for share, in the same proportion and in the same manner.
4. VOTING RIGHTS
4.1 Except as provided in the Canada Business Corporations Act, the holders
of the Class A Non-Voting Shares shall not be entitled to vote at any meeting of
the shareholders of the Corporation. The holders of the Class A Non-Voting
Shares shall be entitled to receive notice of and to attend (in person or by
proxy) and be heard at all meetings of the shareholders of the Corporation
(other than separate meetings of the holders of the shares of any other class of
shares of the Corporation or of the shares of any series of shares of any other
class of shares of the Corporation).
4.2 The holders of the Class B Subordinate Voting Shares shall be entitled,
as such, to receive notice of and to attend (in person or by proxy) and be heard
at all meetings of the shareholders of the Corporation (other than separate
meetings of the holders of shares of any other class of shares of the
Corporation or of shares of any series of shares of any other class of shares of
the Corporation) and to vote at all such meetings and each holder of Class B
Subordinate Voting Shares shall be entitled at any such meeting to one vote per
Class B Subordinate Voting Share held by such holder as at the record date for
such meeting, provided that if the Corporation proposes to (i) sell, lease or
exchange all or substantially all of its property and assets to or with a person
or persons other than one or more wholly owned subsidiaries of the Corporation,
or (ii) liquidate, dissolve, wind up or distribute its assets among the
shareholders of the Corporation for the purpose of winding up its affairs, each
holder of Class B Subordinate Voting Shares shall be entitled to twenty votes
per Class B Subordinate Voting Share held in respect of any such matter.
4.3 The holders of the Class C Multiple Voting Shares shall be entitled, as
such, to receive notice of and attend (in person or by proxy) and be heard at
all meetings of the shareholders of the Corporation (other than separate
meetings of the holders of shares of any other class of shares of the
Corporation or any series of shares of such other class of shares of the
Corporation) and to vote at all such meetings and each holder of Class C
Multiple Voting Shares shall be entitled at any such meeting to twenty votes per
Class C Multiple Voting Share held by such holder as at the record date for such
meeting.
-2-
<PAGE>
5. CONVERSION OF CLASS A NON-VOTING SHARES INTO CLASS B SUBORDINATE
VOTING SHARES
5.1 Subject to compliance with the provisions of Section 5.2 of this
Article A, each holder of Class A Non-Voting Shares shall be entitled at any
time and from time to time to have all or any part of the Class A Non-Voting
Shares held by such holder converted into fully paid and non-assessable Class B
Subordinate Voting Shares upon the basis of one Class B Subordinate Voting Share
for each Class A Non-Voting Share in respect of which the conversion right is
exercised.
5.2 Before any holder of Class A Non-Voting Shares shall be entitled to
convert the same into Class B Subordinate Voting Shares, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Class A Non-Voting Shares,
together with a written notice to the Corporation stating therein: the name or
names in which the certificate or certificates for Class B Subordinate Voting
Shares are to be issued; the number of Class A Non-Voting Shares to be
converted; and notice of such holder's election to convert such Class A
Non-Voting Shares. After giving such notice in writing, the election of the
holder of Class A Non-Voting Shares shall be irrevocable. The Corporation shall,
within three (3) days of such written notice, issue and deliver at such office
to such holder of Class A Non-Voting Shares, or to the nominee or nominees of
such holder, a certificate or certificates for the number of Class B Subordinate
Voting Shares to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Class A Non-Voting
Shares to be converted, and the person or persons entitled to receive the shares
of Class B Subordinate Voting Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Class B
Subordinate Voting Shares as of such date. The issuance of certificates for
Class B Subordinate Voting Shares, upon conversion of the Class A Non-Voting
Shares, shall be made without charge to the holder but the holder shall pay any
stamp, documentary or similar tax imposed on or in respect of such conversion.
If less than all of the Class A Non-Voting Shares represented by any certificate
are to be converted, the holder shall be entitled to receive a new certificate
representing the number of Class A Non-Voting Shares represented by the original
certificate which are not to be converted.
5.3 The Corporation shall at no time close its transfer books against the
transfer of any Class A Non-Voting Shares, or of any Class B Subordinate Voting
Shares issuable upon the conversion of any Class A Non-Voting Shares, in any
manner which interferes with the timely conversion of such Class A Non-Voting
Shares, except as may be otherwise be required to comply with applicable laws or
the provisions of Schedule II to these Articles.
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6. CONVERSION OF CLASS B SUBORDINATE VOTING SHARES INTO CLASS A
NON-VOTING SHARES
6.1 Subject to compliance with the provisions of Section 6.2 of this
Article A, each holder of Class B Subordinate Voting Shares shall be entitled at
any time and from time to time to have all or any part of the Class B
Subordinate Voting Shares held by such holder converted into fully paid and
non-assessable Class A Non-Voting Shares upon the basis of one Class A
Non-Voting Share for each Class B Subordinate Voting Share in respect of which
the conversion right is exercised.
6.2 Before any holder of Class B Subordinate Voting Shares shall be
entitled to convert the same into Class A Non-Voting Shares, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Class B Subordinate Voting
Shares, together with a written notice to the Corporation stating therein: the
name or names in which the certificate or certificates for Class A Non-Voting
Shares are to be issued; the number of Class B Subordinate Voting Shares to be
converted; and notice of such holder's election to convert such Class B
Subordinate Voting Shares. After giving such notice in writing, the election of
the holder of Class B Subordinate Voting Shares shall be irrevocable. The
Corporation shall, within three (3) days of such written notice, issue and
deliver at such office to such holder of Class B Subordinate Voting Shares, or
to the nominee or nominees of such holder, a certificate or certificates for the
number of Class A Non-Voting Shares to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Class B
Subordinate Voting Shares to be converted, and the person or persons entitled to
receive the shares of Class A Non-Voting Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such Class
A Non-Voting Shares as of such date. The issuance of certificates for Class A
Non-Voting Shares, upon conversion of the Class B Subordinate Voting Shares,
shall be made without charge to the holder but the holder shall pay any stamp,
documentary or similar tax imposed on or in respect of such conversion. If less
than all of the Class B Subordinate Voting Shares represented by any certificate
are to be converted, the holder shall be entitled to receive a new certificate
representing the number of Class B Subordinate Voting Shares represented by the
original certificate which are not to be converted.
6.3 The Corporation shall at no time close its transfer books against the
transfer of any Class B Subordinate Voting Shares, or of any Class A Non-Voting
Shares issuable upon the conversion of any Class B Subordinate Voting Shares, in
any manner which interferes with the timely conversion of such Class B
Subordinate Voting Shares, except as may be otherwise be required to comply with
applicable laws or the provisions of Schedule II to these Articles.
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7. CONVERSION OF CLASS B SUBORDINATE VOTING SHARES INTO SERIES A
NON-VOTING PREFERRED SHARES
7.1 Subject to compliance with the provisions of Section 7.2 of this
Article A, at any time prior to September 9, 2000, each holder of Class B
Subordinate Voting Shares shall be entitled at any time and from time to time to
have all or any part of the Class B Subordinate Voting Shares held by such
holder converted into fully paid and non-assessable Series A Non-Voting
Preferred Shares. Upon conversion, each Class B Subordinate Voting Share in
respect of which the conversion right is exercised pursuant to this Section 7.1
will be converted into a number of Series A Preferred Shares equal to the Class
B Conversion Ratio. For the purposes of this Section 7.1, "Class B Conversion
Ratio" shall initially equal one and shall automatically adjust so that it is
always equal to the inverse of the Conversion Ratio as defined in Section 1.13
of Article C.
7.2 Before any holder of Class B Subordinate Voting Shares shall be
entitled to convert the same into Series A Non-Voting Preferred Shares, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Class B
Subordinate Voting Shares, together with a written notice to the Corporation
stating therein: the name or names in which the certificate or certificates for
Series A Non-Voting Preferred Shares are to be issued; the number of Class B
Subordinate Voting Shares to be converted; and notice of such holder's election
to convert such Class B Subordinate Voting Shares. After giving such notice in
writing, the election of the holder of Class B Subordinate Voting Shares shall
be irrevocable. The Corporation shall, within three (3) days of such written
notice, issue and deliver at such office to such holder of Class B Subordinate
Voting Shares, or to the nominee or nominees of such holder, a certificate or
certificates for the number of Series A Non-Voting Preferred Shares to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Class B Subordinate Voting Shares to be converted,
and the person or persons entitled to receive the shares of Series A Non-Voting
Preferred Shares issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such Series A Non-Voting Preferred Shares as
of such date. The issuance of certificates for Series A Non-Voting Preferred
Shares, upon conversion of the Class B Subordinate Voting Shares, shall be made
without charge to the holder but the holder shall pay any stamp, documentary or
similar tax imposed on or in respect of such conversion. If less than all of the
Class B Subordinate Voting Shares represented by any certificate are to be
converted, the holder shall be entitled to receive a new certificate
representing the number of Class B Subordinate Voting Shares represented by the
original certificate which are not to be converted.
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7.3 The Corporation will at no time close its transfer books against the
transfer of any Class B Subordinate Voting Shares, or of any Series A Non-Voting
Preferred Shares issued or issuable upon the conversion of any Class B
Subordinate Voting Shares, in any manner which interferes with the timely
conversion of such Class B Subordinate Voting Shares, except as may otherwise be
required to comply with applicable laws or the provisions of Schedule II to
these Articles.
7.4 No fractional shares shall be issued upon the conversion of the Class B
Subordinate Voting Shares and the number of Series A Non-Voting Preferred Shares
to be issued shall be rounded down to the nearest whole share. No payment shall
be made in respect of any unissued or rounded fraction. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Class B Subordinate Voting Shares the
holder is at the time converting into Series A Non-Voting Preferred Shares and
the number of Series A Non-Voting Preferred Shares issuable upon such aggregate
conversion.
8. CONVERSION OF CLASS C MULTIPLE VOTING SHARES INTO CLASS A NON-VOTING
SHARES AND/OR CLASS B SUBORDINATE VOTING SHARES
8.1 Subject to compliance with the provisions of Section 8.2 of this
Article A, each holder of Class C Multiple Voting Shares shall be entitled at
any time and from time to time to have all or any part of the Class C Multiple
Voting Shares held by such holder converted into fully paid and non-assessable
Class A Non-Voting Shares or Class B Subordinate Voting Shares upon the basis of
one Class A Non-Voting Share or one Class B Subordinate Voting Share for each
Class C Multiple Voting Share for which the conversion right provided for in
this Section 8.1 is exercised, as specified by the holder of the Class C
Multiple Voting Shares in the notice in writing given to the Corporation or any
transfer agent in exercise of such conversion right.
8.2 Before any holder of Class C Multiple Voting Shares shall be entitled
to convert the same into Class A Non-Voting Shares and/or Class B Subordinate
Voting Shares, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Class C Multiple Voting Shares, together with a written notice to
the Corporation stating therein: the name or names in which the certificate or
certificates for Class A Non-Voting Shares and/or Class B Subordinate Voting
Shares are to be issued; the number of Class C Multiple Voting Shares to be
converted; notice of such holder's election to convert such Class C Multiple
Voting Shares; and the number of Class A Non-Voting Shares and/or Subordinate
Voting Shares into which the Class C Multiple Voting Shares are to be converted.
After giving such notice in writing, the election of the
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holder of Class C Multiple Voting Shares shall be irrevocable. The Corporation
shall, within three (3) days of such written notice, issue and deliver at such
office to such holder of Class C Multiple Voting Shares, or to the nominee or
nominees of such holder, a certificate or certificates for the number of Class A
Non-Voting Shares and/or Class B Subordinate Voting Shares, as the case may be,
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Class C Multiple Voting Shares, to be
converted, and the person or persons entitled to receive the shares of Class A
Non-Voting Shares and/or Class B Subordinate Voting Shares issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Class A Non-Voting Shares and/or Class B Subordinate Voting Shares, as the
case may be, as of such date. The issuance of certificates for Class A
Non-Voting Shares and/or Class B Subordinate Voting Shares, upon conversion of
the Class C Multiple Voting Shares shall be made without charge to the holder
but the holder shall pay any stamp, documentary or similar tax imposed on or in
respect of such conversion. If less than all of the Class C Multiple Voting
Shares represented by any certificate are to be converted, the holder shall be
entitled to receive a new certificate representing the number of Class C
Multiple Voting Shares represented by the original certificate which are not to
be converted.
8.3 The Corporation will at no time close its transfer books against the
transfer of any Class C Multiple Voting Shares, or of any Class B Subordinate
Voting Shares or Class A Non-Voting Shares issuable upon the conversion of any
Class C Multiple Voting Shares, in any manner which interferes with the timely
conversion of such Class C Multiple Voting Shares, except as may otherwise be
required to comply with applicable laws.
E. PREFERRED SHARES
The rights, privileges, restrictions and conditions attaching to the
Preferred Shares, as a class, are as follows:
1. DIRECTORS' AUTHORITY TO ISSUE ONE OR MORE SERIES
1.1 The Board of Directors of the Corporation may issue the Preferred
Shares at any time and from time to time in not more than three series. Before
the first shares of a particular series are issued, the Board of Directors of
the Corporation shall fix the number of shares in such series and shall
determine, subject to the limitations set out in the Articles, the designation,
rights, privileges, restrictions and conditions to attach to the shares of such
series including, without limiting the generality of the foregoing, the rate or
rates, amount or method or methods of calculation of preferential dividends,
whether cumulative or
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non-cumulative or partially cumulative, and whether such rate(s), amount or
method(s) of calculation shall be subject to change or adjustment in the future,
the currency or currencies of payment, the date or dates and place or places of
payment thereof and the date or dates from which such preferential dividends
shall accrue, the redemption price and terms and conditions of redemption (if
any), the rights of retraction (if any), and the prices and other terms and
conditions of any rights of retraction and whether any additional rights of
retraction may be vested in such holders in the future, voting rights and
conversion or exchange rights (if any) and any sinking fund, purchase fund or
other provisions attaching thereto. Before the issue of the first shares of a
series, the Board of Directors of the Corporation shall send to the Director (as
defined in the Canada Business Corporations Act) articles of amendment in the
prescribed form containing a description of such series including the
designation, rights, privileges, restrictions and conditions determined by the
directors.
2. RANKING OF PREFERRED SHARES
2.1 No rights, privileges, restrictions or conditions attaching to a series
of Preferred Shares shall confer upon a series a priority in respect of
dividends or return of capital over any other series of Preferred Shares then
outstanding. The Preferred Shares of each series shall rank on a parity with the
Preferred Shares of every other series with respect to priority in the payment
of dividends and the return of capital and the distribution of assets of the
Corporation in the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other distribution of the
assets of the Corporation among its shareholders for the purpose of winding up
its affairs.
2.2 The Preferred Shares shall be entitled to priority over the Common
Shares (as defined in Article C) of the Corporation and over any other shares of
any other class of the Corporation ranking junior to the Preferred Shares with
respect to priority in the payment of dividends and the return of capital and
the distribution of assets in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs.
2.3 The Preferred Shares of any series may also be given such other
preferences, not inconsistent with the provisions hereof, over the Common Shares
and over any other shares ranking junior to the Preferred Shares as may be
determined in the case of such series of Preferred Shares.
3. VOTING RIGHTS
3.1 Except as otherwise provided by law or in accordance with any voting
rights which may from time to time be attached to any series of Preferred
Shares, the holders
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of the Preferred Shares as a class shall not be entitled as such to receive
notice of, to attend or to vote at any meeting of the shareholders of the
Corporation.
F. SERIES A NON-VOTING PREFERRED SHARES
1. SERIES RIGHTS
1.1 Designation and Number
The first series of Preferred Shares shall consist of 100,000,000,000
Preferred Shares, which shares shall be designated as Series A Non-Voting
Preferred Shares (the "Series A Non-Voting Preferred Shares") and which, in
addition to the rights, privileges, restrictions and conditions attached to the
Preferred Shares as a class, shall have attached thereto the rights, privileges,
restrictions and conditions as set forth herein. The Corporation shall only
issue Series A Non-Voting Preferred Shares pursuant to the Purchase Agreement or
upon the conversion of Series B Subordinate Voting Preferred Shares or upon the
conversion of the Class B Subordinate Voting Shares in compliance with the terms
of the Shareholders Agreement.
1.2 Dividends
The holders of Series A Non-Voting Preferred Shares shall be entitled to
receive dividends equivalent on a per share basis to any dividends declared,
paid, issued or distributed with respect to shares of Common Shares into which
such share of Series A Non-Voting Preferred Shares could be converted pursuant
to the provisions of Section 1.6 of this Article C, on the record date for the
determination of holders of Common Shares entitled to such dividends. The Board
of Directors may not declare, and the Corporation shall not pay, issue or
distribute, any dividend on any Common Shares unless simultaneously the Board of
Directors declares, and the Corporation pays, issues or distributes the dividend
on the Series A Non-Voting Preferred Shares specified in the first sentence of
this Section 1.2. The holders of Series A Non-Voting Preferred Shares shall not
be entitled to any dividend other than, or in excess of, the dividends as
hereinbefore provided.
1.3 Voting Rights
Except as required by law or otherwise provided for in this Article C, the
holders of the Series A Non-Voting Preferred Shares shall not be entitled to
vote at any meeting of the shareholders of the Corporation. The holders of the
Series A Non-Voting Preferred Shares shall be entitled to receive notice of and
to attend (in person or by proxy) and be heard at all
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meetings of the shareholders of the Corporation (other than separate meetings of
the holders of the shares of any other class of shares of the Corporation or of
the shares of any series of shares of any other class of shares of the
Corporation).
1.4 Retired Shares
Any Series A Non-Voting Preferred Shares converted, purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. None of such Series A
Non-Voting Preferred Shares shall be reissued by the Corporation.
1.5 Liquidation, Dissolution or Winding Up
(1) Upon (i) any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, (ii) a sale of all or substantially all of the
assets of the Corporation or (iii) a reorganization of the Corporation required
by any court or administrative body in order to comply with any provision of law
(each of the events referred to in clauses (i), (ii) and (iii) being referred to
as a "Liquidation"), the holders of Series A Non-Voting Preferred Shares shall
be entitled to receive and to be paid out of assets of the Corporation available
for distribution to its shareholders, before any payment or distribution shall
be made on any Junior Shares, the greater of (i) the Series A Non-Voting
Liquidation Value with respect to each such outstanding Series A Non-Voting
Preferred Share, and (ii) the amount which would have been paid in such
Liquidation, based upon the number of Class A Non-Voting Shares into which a
Series A Non-Voting Preferred Share could be converted pursuant to the
provisions of Section 1.6 of this Article C. If, upon any Liquidation of the
Corporation, the assets of the Corporation available for distribution shall be
insufficient to pay in full the Series A Non-Voting Liquidation Value with
respect to each outstanding Series A Non-Voting Preferred Share, then such
assets shall be distributed among the holders of Series A Non-Voting Preferred
Shares ratably in accordance with the respective amounts that would be payable
on such Series A Non-Voting Preferred Shares if such assets were sufficient to
permit payment in full of all amounts payable thereon.
(2) After the payment to the holders of Series A Non-Voting Preferred
Shares of the full amount of the liquidating distribution to which they are
entitled under this Section 1.5, the holders of the Series A Non-Voting
Preferred Shares as such shall have no right or claim to any of the remaining
assets of the Corporation and shall not be entitled to share in any further
distribution of assets of the Corporation.
(3) Any consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined in Section 1.13 of this
Article C) or Persons shall be deemed to be a Liquidation for purposes of this
Section 1.5, except for any
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such merger, consolidation or other business combination where, after the
completion of such transaction, the holders of voting shares in the capital of
the Corporation immediately prior to such merger, consolidation or other
business combination will beneficially own a majority of the voting shares in
the capital of the surviving or acquiring entity. Notwithstanding the foregoing,
no consolidation, merger or other business combination of the Corporation with
or into any other Person shall be deemed to be a Liquidation for the purposes of
this Section 1.5 if the holders of not less than 85% of the issued and
outstanding Series A Non-Voting Preferred Shares waive in writing the provisions
of this Section 1.5 with respect to such event.
(4) "Series A Non-Voting Liquidation Value" determined as of any date shall
mean, in respect of each Series A Non-Voting Preferred Share, the sum of (A) an
amount equal to the Initial Purchase Price plus an amount equal to six percent
(6%) of the Initial Purchase Price, compounded annually on each anniversary of
the Initial Issue Date prior to the date of determination and (B) all declared
but unpaid dividends per Series A Non-Voting Preferred Shares, if any. The
Series A Non-Voting Liquidation Value shall also be subject to adjustment as
provided in Section 1.5(6) of this Article C.
(5) Notwithstanding the foregoing, (i) the rate of six percent (6%)
referred to in Clause (A) of Section 1.5(4) of this Article C shall be read as
eight percent (8%) from such time and as long as an Event of Default shall have
occurred and be continuing and (ii) no amount shall be added to the Initial
Purchase Price pursuant to clause (A) of Section 1.5(4) of this Article C if the
Corporation shall consummate a Qualified IPO prior to the first anniversary of
the Initial Issue Date.
(6) The Series A Non-Voting Liquidation Value shall be multiplied by a
factor equal to the sum of (x) 1.00 and (y) the Additional Issuance Ratio if and
for so long as the Corporation is in default in the performance of or compliance
with Section 1.4(a), 1.4(b) or 1.4(c) of the Purchase Agreement.
1.6 Conversion
(1) If a Conversion Event occurs, each Series A Non-Voting Preferred Share
may, at the option of the Corporation, and in compliance with the provisions of
Section 1.6(4) of this Article C, be converted into a number of Class A
Non-Voting Shares equal to the Conversion Ratio. In addition, at the option of
the holder of any Series A Non-Voting Preferred Shares, such holder shall have
the right, at any time and from time to time, by written notice to the
Corporation, to convert each Series A Non-Voting Preferred Share owned by such
holder into (a) a number of Class A Non-Voting Shares equal in the aggregate to
the Conversion Ratio or (b) Series B Subordinate Voting Preferred Shares on a
one for one basis, in each case without payment of any additional consideration.
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(2) The Conversion Ratio, determined at any time, shall equal one (1.00)
plus an adjustment equal to six percent (6%) of the Conversion Ratio, compounded
annually on each anniversary of the Initial Issue Date prior to the date of
determination but, from such time and as long as an Event of Default shall have
occurred and be continuing, the rate of six percent (6%) referred to above in
this Section 1.6(2) shall be read as eight percent (8%); provided, however, that
if the Corporation consummates a Qualified IPO prior to the first anniversary of
the Initial Issue Date then no adjustment shall be made pursuant to this
sentence. The Conversion Ratio shall also be adjusted as provided below in this
Section 1.6(2). The Conversion Ratio shall be multiplied by a factor equal to
the sum of (x) 1.00 and (y) the Additional Issuance Ratio if and for so long as
the Corporation is in default in the performance of or compliance with Section
1.4(a), 1.4(b) or 1.4(c) of the Purchase Agreement. The Conversion Ratio shall
also be subject to adjustment from time to time as follows:
(a) If the Corporation at any time or from time to time after the Initial
Issue Date (A) pays any dividend or makes any distribution in additional Common
Shares of the Corporation or of securities convertible into, or exchangeable or
exercisable for, shares of Common Shares of the Corporation, (B) subdivides the
outstanding Common Shares, (C) combines the outstanding Common Shares into a
smaller number of shares or (D) issues by reclassification of the Common Shares
any shares in the capital of the Corporation, then, and in each such case, the
Conversion Ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of Series A
Non-Voting Preferred Shares thereafter convertible into Class A Non-Voting
Shares pursuant to this Section 1.6 of this Article C shall be entitled to
receive the number and type of Class A Non-Voting Shares or other securities of
the Corporation which such holder would have owned or have been entitled to
receive after the happening of any of the events described above had such Series
A Non-Voting Preferred Shares been converted into Class A Non-Voting Shares
immediately prior to the happening of such event or the record date therefore,
whichever is earlier. An adjustment made pursuant to this clause (a) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of Common Shares entitled to receive such dividend or distribution,
or (y) in the case of such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action becomes effective.
(b) If the Corporation issues to all (or substantially all) holders of
Common Shares any rights or subscriptions to purchase Common Shares or Common
Share Equivalents after the Initial Issue Date at a price per Common Share (or
having a conversion or exercise price per share in the case of Common Share
Equivalents) of less than either (i) the Series A Non-Voting Liquidation Value
or (ii) the Market Price of the Common Shares on the earlier
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of the date of such issuance or the record date therefor (the "Applicable Date")
then, in each such case the Conversion Ratio shall be adjusted by multiplying
(A) the Conversion Ratio in effect at the close of business on the day
immediately prior to the Applicable Date by (B) a fraction, the numerator of
which shall be the sum of (1) the number of Common Shares outstanding at the
close of business on the date immediately prior to the Applicable Date and (2)
the number of additional Common Shares issued or issuable upon acceptance,
conversion, exchange or exercise of such rights or subscriptions (or upon
conversion, exchange or exercise of Common Share Equivalents issued or issuable
pursuant to such rights or subscriptions), and the denominator of which shall be
the sum of (x) the number of Common Shares outstanding at the close of business
on the date immediately prior to the Applicable Date and (y) the number of
Common Shares which would be purchasable for the aggregate consideration
received by the Corporation upon issuance of such Common Shares or Common Share
Equivalents or receivable by the Corporation for the total number of Common
Shares issuable upon acceptance, conversion, exchange or exercise of such rights
or subscriptions (or upon conversion, exchange or exercise of Common Share
Equivalents issued or issuable pursuant to such rights or subscriptions) if the
price per share for such purchase, conversion, exchange or exercise was equal to
the greater of (i) the Series A Non-Voting Liquidation Value or (ii) the Market
Price of the Common Shares as of the Applicable Date. An adjustment made
pursuant to this clause (b) shall become effective immediately after the close
of business on the Applicable Date.
(c) Except with respect to Deemed Outstanding Securities (as defined
below), if the Corporation issues any Common Shares (or Common Share
Equivalents) after the Initial Issue Date at a price per Common Share (or having
a conversion or exercise price per share in the case of Common Share
Equivalents) of less than either (i) the Series A Non-Voting Liquidation Value
or (ii) the Market Price of the Common Shares on the date of issuance of such
Common Shares (or Common Share Equivalents), then, in each such case, the
Conversion Ratio shall be adjusted by multiplying (A) the Conversion Ratio in
effect at the close of business on the day immediately prior to the date of
issuance of such Common Shares (or Common Share Equivalents) by (B) a fraction,
the numerator of which shall be the sum of (l) the number of Common Shares
outstanding at the close of business on the date immediately prior to the date
of issuance of such Common Shares (or Common Share Equivalents) and (2) the
number of such additional Common Shares and the number of Common Shares issued
or issuable upon conversion,
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exchange or exercise of such Common Share Equivalents, and the denominator of
which shall be the sum of (x) the number of Common Shares outstanding on the
date immediately prior to the date of issuance of such Common Shares (or Common
Share Equivalents) and (y) the number of Common Shares which would be
purchasable for the aggregate consideration received by the Corporation upon
issuance of such Common Shares or Common Share Equivalents or receivable by the
Corporation for the total number of Common Shares issuable or issuable upon
conversion, exchange or exercise of Common Share Equivalents if the price per
share for such purchase, conversion, exchange or exercise was equal to the
greater of (i) the Series A Non-Voting Liquidation Value or (ii) the Market
Price of the Common Shares as of the date of issuance of such Common Shares (or
Common Share Equivalents). An adjustment made pursuant to this clause (c) shall
be made on the next Business Day following the date on which any such issuance
is made and shall be effective retroactively to the close of business on the
date of such issuance. "Deemed Outstanding Securities" shall mean (i) the stock
options and Class A Non-Voting Shares to be issued upon the exercise of such
stock options, initially issued or issuable, or Permitted Reissued Options (as
defined in the Purchase Agreement) pursuant to the 1998 Long Term Incentive and
Share Award Plan (Amended) of the Corporation exercisable for a maximum of
4,445,813 Class A Non-Voting Shares; (ii) any Series A Non-Voting Preferred
Shares issued pursuant to the Purchase Agreement or any Class A Non-Voting
Shares or Series B Subordinate Voting Preferred Shares issued on the conversion
of the Series A Non-Voting Preferred Shares; (iii) 4,500,000 Common Shares
issued, or to be issued, in consideration for the acquisition by the Corporation
of fiber assets and related rights and obligations from Ledcor Industries
Limited or Ledcor Industries Inc. under the amended and restated Share Purchase
Agreement dated September 7, 1999 between Ledcor Industries Limited, Ledcor
Industries Inc. and the Corporation; (iv) any Class A Non-Voting Shares issued
on conversion of the Series B Subordinate Voting Shares; (v) any Common Shares
or Common Share Equivalent issued pursuant to any Minority Roll-Up Transaction;
or (vi) any Common Shares, or Common Share Equivalents issued pursuant to an
event described in clauses (a) or (b) of this Section 1.6(2).
(d) For purposes of this Section 1.6(2) the aggregate consideration
receivable by the Corporation in connection with the issuance of Common Shares
and/or Common Share Equivalents shall be deemed to be equal to the sum of the
aggregate offering price (before deduction of underwriting discounts or
commissions and expenses payable to third parties, if any) of all such Common
Shares and/or Common Share Equivalents plus the minimum aggregate amount, if
any, payable upon conversion, exchange or exercise of any such Common Share
Equivalents. Upon the expiration or termination of any unconverted, unexchanged
or unexercised Common Share Equivalents for which an adjustment has been made
pursuant to clause (b) or clause (c) of this Section 1.6(2), the adjustments
shall forthwith be reversed to effect such Conversion Ratio as would have been
in effect at the time of such expiration or termination had such Common Share
Equivalents, to the extent outstanding immediately prior to such expiration or
termination, never been issued. The consideration received by the Corporation in
connection with the sale or issuance of Common Shares (or Common Share
Equivalents) shall be computed as follows:
(A) insofar as such consideration consists of cash, such consideration
shall equal the aggregate amount of cash received by the Corporation prior to
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amounts paid or payable for accrued interest or accrued dividends and prior to
any commissions or expenses paid by the Corporation;
(B) insofar as such consideration consists of property other than cash,
such consideration shall be calculated at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors, which shall
be based upon a written opinion of an investment banking or appraisal firm of
national standing in the United States if such consideration is given a value
exceeding $10 million; and
(C) in the event Common Shares or Common Share Equivalents are issued
together with other securities or other assets of the Corporation for
consideration that is allocable to both such Common Shares and Common Share
Equivalents, and to such other securities and assets, the portion of such
consideration allocable to such Common Shares or Common Share Equivalents shall
be that set forth in the instruments and agreements issued or entered into in
connection with such transaction, and if no such allocation is so set forth,
then the portion of such consideration allocable to such Common Shares or Common
Share Equivalents, calculated as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(e) For purposes of this Section 1.6(2) the number of Common Shares at any
time outstanding shall mean the aggregate of all Common Shares then outstanding
(other than any Common Shares then owned or held by or for the account of the
Corporation).
(f) If the Corporation shall take a record of the holders of its Common
Shares for the purpose of entitling them to receive a dividend or other
distribution and shall thereafter, and before such dividend or distribution is
paid or delivered to shareholders entitled thereto, legally abandon its plan to
pay or deliver such dividend or distribution, then no adjustment in the
Conversion Ratio then in effect shall be made by reason of the taking of such
record, and any such adjustment previously made as a result of the taking of
such record shall be reversed.
(3) Subject to compliance with the provisions of Section 1.6(5) of this
Article C, each holder of Series A Non-Voting Preferred Shares shall be entitled
at any time and from time to time to have all or any part of the Series A
Non-Voting Preferred Shares held by such holder converted into validly issued,
fully paid and non-assessable Series B Subordinate Voting Preferred Shares upon
the basis of one Series B Subordinate Voting Preferred Share for each Series A
Non-Voting Preferred Share in respect of which the conversion right is
exercised.
(4) (a) Before the Corporation shall be entitled to convert Series A
Non-Voting Preferred Shares into Class A Non-Voting Shares pursuant to Section
1.6(1) of
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this Article C, the Corporation shall not less than 10 days and not more than 20
days before the date specified for conversion (the "Conversion Date") send by
prepaid first class mail or deliver to the registered address of each person who
at the date not more than 7 days prior to the date of mailing or delivery is a
registered holder of Series A Non-Voting Preferred Shares to be converted a
notice in writing of the intention of the Corporation to convert the Series A
Non-Voting Preferred Shares registered in the name of such holder. Accidental
failure or omission to give such notice to one (1) or more holders shall not
affect the validity of such conversion, but upon such failure or omission being
discovered notice shall be given forthwith to such holder or holders and such
notice shall have the same force and effect as if given in due time. Such notice
shall set out the number of Series A Non-Voting Preferred Shares held by the
person to whom it is addressed which are to be converted, the Conversion Ratio,
the Conversion Date and the place or places at which holders of Series A
Non-Voting Preferred Shares may present and surrender such shares for
conversion. After the giving of such notice in writing, the election of the
Corporation shall be irrevocable.
(b) Within three (3) days following the Conversion Date, the Corporation
shall, on presentation and surrender of the certificate or certificates
representing the Series A Non-Voting Preferred Shares called for conversion at
the place or places specified in the notice of conversion, issue and deliver to
such holder of Series A Non-Voting Preferred Shares, or to the nominee or
nominees of such holder, a certificate or certificates for the number of Class A
Non-Voting Shares entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the Conversion Date, and
the person or persons entitled to receive the Class A Non-Voting Shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such Class A Non-Voting Shares as of such date. The issuance of
certificates for Class A Non-Voting Shares, upon conversion of the Series A
Non-Voting Preferred Shares, shall be made without charge to the holder but the
holder shall pay any governmental or other tax imposed on or in respect of such
conversion. If less than all of the Series A Non-Voting Preferred Shares
represented by any certificate are to be converted, the holder shall be entitled
to receive a new certificate representing the number of Series A Non-Voting
Preferred Shares represented by the original certificate which are not to be
converted.
(c) The Corporation shall have the right at any time on or after the
Conversion Date to deposit the certificate or certificates representing Class A
Non-Voting Shares into trust for holders of the Series A Non-Voting Preferred
Shares called for conversion, which have not at the date of such deposit been
surrendered in connection with such conversion. Certificates deposited into
trust shall be held by the Corporation or other designated person named in the
notice of conversion or in a subsequent notice to the registered holders of the
Series A Non-Voting Preferred Shares in respect of which the deposit was made.
Upon such deposit being made, the Series A Non-Voting Preferred Shares in
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respect of which such deposit shall have been made shall be deemed to have been
converted and the rights of the holders thereof after such deposit or such
Conversion Date, as the case may be shall be, limited to receiving the
certificate or certificates representing the Class A Non-Voting Shares to which
they are entitled upon presentation and surrender of the certificate or
certificates representing the Series A Non-Voting Preferred Shares being
converted.
(5) Before any holder of Series A Non-Voting Preferred Shares shall be
entitled to convert the same into Class A Non-Voting Shares or Series B
Subordinate Voting Preferred Shares such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series A Non-Voting Preferred Shares, together with a
written notice to the Corporation stating therein: the name or names in which
the certificate or certificates for Common Shares or Preferred Shares are to be
issued; the number of Series A Non-Voting Preferred Shares to be converted; and
notice of such holder's election to convert such Series A Non-Voting Preferred
Shares. After giving such notice in writing, the election of the holder of
Series A Non-Voting Preferred Shares shall be irrevocable although may be
subject to the condition described below when the conversion is in connection
with an underwritten public offering. The Corporation shall, within three (3)
days of such written notice, issue and deliver at such office to such holder of
Series A Non-Voting Preferred Shares, or to the nominee or nominees of such
holder, a certificate or certificates for the number of Class A Non-Voting
Shares or Series B Subordinate Voting Preferred Shares, as the case may be, to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the Series A Non-Voting Preferred Shares to be converted,
and the person or persons entitled to receive the shares of Class A Non-Voting
Shares or Series B Subordinate Voting Preferred Shares, as the case may be,
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Class A Non-Voting Shares or Series B Subordinate
Voting Preferred Shares, as the case may be, as of such date. If the conversion
is in connection with an underwritten public offering of securities (other than
a Qualified IPO), the conversion into Common Shares may, at the option of any
holder tendering Series A Non-Voting Preferred Shares for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Shares upon conversion of the Series A Non-Voting Preferred Shares shall
not be deemed to have converted such Series A Non-Voting Preferred Shares until
immediately prior to the closing of such sale of securities. The issuance of
certificates for Class A Non-Voting Shares or Series B Subordinate Voting
Preferred Shares, as the case may be, upon conversion of the Series A Non-Voting
Preferred Shares shall be made without charge to the holder but the holder shall
pay any stamp, documentary or similar tax imposed on or in respect of such
conversion. If less than all of the Series A Non-Voting Preferred Shares
represented by any certificate are to be
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converted, the holder shall be entitled to receive a new certificate
representing the number of Series A Non-Voting Preferred Shares which are not to
be converted.
(6) The Corporation shall at no time close its transfer books against the
transfer of any Series A Non-Voting Preferred Shares, or of any Class A
Non-Voting Shares or Series B Subordinate Voting Preferred Shares issuable upon
the conversion of any Series A Non-Voting Preferred Shares, in any manner which
interferes with the timely conversion of such Series A Non-Voting Preferred
Shares, except as may otherwise be required to comply with applicable laws or
the provisions of Schedule II to these Articles.
(7) As used in this Section 1.6 the term "Class A Non-Voting Shares" shall
mean and include the Corporation's Class A Non-Voting Shares as constituted on
the Initial Issue Date, and shall also include any shares of any class of the
capital of the Corporation thereafter authorized which shall neither be limited
to a fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends nor be entitled to a preference in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation provided that the Class A Non-Voting Shares receivable upon
conversion of Series A Non-Voting Preferred Shares shall include only shares
designated as Class A Non-Voting Shares of the Corporation on the Initial Issue
Date, or in case of any reorganization or reclassification of the outstanding
shares thereof, the shares, securities or assets to be issued in exchange for
such Class A Non-Voting Shares pursuant thereto.
(8) If the Corporation shall be a party to any transaction including
without limitation, an amalgamation, arrangement, consolidation, sale of all or
substantially all of the Corporation's assets or a reorganization,
reclassification or recapitalization of the capital of the Corporation but
excluding any transaction for which provision for adjustment is otherwise made
in this Section 1.6 (each of the foregoing being referred to as a
"Transaction"), in each case, as a result of which Class A Non-Voting Shares are
converted into the right to receive shares, securities or other property
(including, without limitation, cash or any combination thereof), each Series A
Non-Voting Preferred Share shall thereafter be convertible into the number of
shares or other securities or property to which a holder of the number of Class
A Non-Voting Shares of the Corporation deliverable upon conversion of such
Series A Non-Voting Preferred Shares would have been entitled upon such
Transaction; and, in any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 1.6 with respect to the rights and interest thereafter of the
holders of the Series A Non-Voting Preferred Shares, to the end that the
provisions set forth in this Section 1.6 shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the conversion of the Series A Non-Voting Preferred
Shares. The Corporation shall not effect any Transaction unless prior to or
simultaneously with the consummation thereof the Corporation
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or purchaser, as the case may be, shall provide in its charter document that
each Series A Non-Voting Preferred Share shall be converted into such shares,
securities or property as, in accordance with the foregoing provisions, each
such holder is entitled to receive. The provisions of this Section 1.6(8) shall
similarly apply to successive Transactions.
(9) No fractional shares shall be issued upon the conversion of any share
or shares of the Series A Non-Voting Preferred Shares, and the number of Common
Shares to be issued shall be rounded down to the nearest whole share. Whether or
not fractional shares are issuable upon such conversion shall be determined on
the basis of the total number of shares of Series A Non-Voting Preferred Shares
the holder is at the time converting into Common Shares or Series B Subordinate
Voting Preferred Shares and the number of Common Shares or Series B Subordinate
Voting Preferred Shares issuable upon such aggregate conversion.
(10) If an event not specified in this Section 1.6 occurs that has
substantially the same economic effect on the Series A Non-Voting Preferred
Shares as those specifically enumerated above in this Section 1.6, then this
Section 1.6 shall be construed liberally, mutatis mutandis, in order to give the
holders of Series A Non-Voting Preferred Shares the intended benefit of the
protections provided under this Section 1.6. In such event, the Corporation's
Board of Directors shall make an appropriate adjustment in the Conversion Ratio
so as to protect the rights of the holders of Series A Non-Voting Preferred
Shares; provided that no such adjustment shall increase or decrease the
Conversion Ratio as otherwise determined pursuant to this Section 1.6 or
decrease the number of Class A Non-Voting Shares issuable upon conversion of
each Series A Non-Voting Preferred Share.
(11) The Corporation will not, by amendment of its Articles or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, and will at all times in good faith assist in the
carrying out of all the provisions of this Section 1.6 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Non-Voting Preferred Shares
against impairment.
(12) All calculations under this Section 1.6 shall be made to (a) the
nearest cent or (b) the nearest one hundredth of a share or (c) the nearest one
percent, as the case may be.
1.7 Notice of Certain Events
In case, at any time while any Series A Non-Voting Preferred Shares are
outstanding,
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(1) the Corporation shall declare a dividend (or any other distribution) on
its Common Shares;
(2) the Corporation shall authorize the issuance to the holders of its
Common Shares, of Common Share Equivalents, or rights or warrants to subscribe
for or purchase Common Shares or of any other subscriptions rights or warrants;
(3) the Corporation shall authorize any reorganization, reclassification or
recapitalization of its Common Shares;
(4) the Corporation shall authorize the consolidation or merger of the
Corporation into or with any other person, the sale or transfer of all or
substantially all of its business or assets to another person, or any other
similar business combination or transaction; or
(5) the Corporation shall authorize the voluntary or involuntary
dissolution, liquidation or winding up on the Corporation,
then the Corporation shall promptly deliver to the transfer agent of the Series
A Non-Voting Preferred Shares, if any, and to each of the holders of Series A
Non-Voting Preferred Shares at their last addresses as they shall appear on the
register for the Series A Non-Voting Preferred Shares, at least 15 days before
the date hereafter specified (or the earlier of the dates hereinafter specified,
in the event that more than one date is specified), a notice describing such
event and stating (A) the date on which a record is to be taken for the purpose
of such dividend, distribution, rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Shares of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined, or (B) the date on which any such reclassification, reorganization,
recapitalization, consolidation,