Asfiled with the securities and Exchange Commission on January 21, 2000
Registration No. 333-89695
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment No. 1
to
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WORLDWIDE FIBER INC.
(Exact name of registrant as specified in its charter)
Canada 1731 Not Applicable
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
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)
--------------------------
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. |_| ___________________
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
jurisdiction
<PAGE>
PROSPECTUS
Subject to Completion, dated January 21, 2000
WORLDWIDE FIBER
[GRAPHIC OMITTED]
Worldwide Fiber Inc.
o 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 , 2000 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 11, 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 January , 2000.
<PAGE>
TABLE OF CONTENTS
Page
Available Information........................................................i
Prospectus Summary...........................................................1
Risk Factors................................................................11
Capitalization..............................................................30
Selected Financial Data.....................................................31
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations.................................................34
Business....................................................................40
Management..................................................................57
Transactions With Our Parent................................................59
Regulation..................................................................62
Description Of WFI-USA Agreements...........................................73
Description Of IC And CN Agreements.........................................75
Description Of Our Recently Completed Private Equity Placements.............77
The Exchange Offer..........................................................80
Description Of Notes........................................................88
Description Of Other Indebtedness..........................................127
Book-Entry, Delivery And Form..............................................130
Material United States And Canadian Income Tax Considerations..............133
Plan Of Distribution.......................................................135
Legal Matters..............................................................138
Experts....................................................................138
Enforceability Of Civil Liabilities Against Foreign Persons................139
Currency Translation.......................................................139
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 20F or
40F, as applicable (or any successor form), containing the required information,
or required in the 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 10Q
or (b) within 60 days after
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the end of each of the first three fiscal quarters of each fiscal year, reports
on Form 6K (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.
FOR PENNSYLVANIA RESIDENTS ONLY:
NEW NOTES OFFERED IN THIS EXCHANGE OFFER TO PENNSYLVANIA RESIDENTS MAY
ONLY BE EXCHANGED FOR ORIGINAL NOTES HELD BY PENNSYLVANIA RESIDENTS WHO ARE: (1)
"QUALIFIED INSTITUTIONAL BUYERS" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") ("QIBs")); (2) INSTITUTIONAL
"ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT); AND (3) INSTITUTIONAL INVESTORS AS DEFINED BY ss. 102(k) OF THE
PENNSYLVANIA SECURITIES ACT OF 1972 AND RULE 102.111 OF THE PENNSYLVANIA CODE,
AS AMENDED.
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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.
The Exchange Offer
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
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 , 2000,
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."
Procedures for Tendering Old If you wish to tender your old notes through the
Notes...................... 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
<PAGE>
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."
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
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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.
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.
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<PAGE>
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."
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
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subordinated to the new notes, including any old
notes not exchanged.
On September 30, 1999 the notes were effectively
subordinated to approximately $158.0 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."
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
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 and services in North America using our state-of-the-art fiber
optic network. We recently have begun providing bandwidth services.
Our current and targeted customers include new and incumbent
telecommunication providers, Internet service providers and large corporations
with enterprise network needs.
We believe that these customers have a limited choice of service providers
capable of offering high-capacity, reliable, secure and cost-effective services.
To meet our customers' demands, we offer a broad range of services on a scalable
basis, including:
o bandwidth services such as optical channels, private line
transmission, virtual voice trunking, Internet transport, Internet
protocol transport and packet-based data services, including IP
Transport and Asynchronous Transfer Mode,
o network infrastructure such as dark fiber and conduit for sale or
grant of IRU, and dark fiber and conduit for lease, and
o construction services supporting the development of our network.
We also intend to expand our business and network to include additional
facilities, including carrier hotels that will enable us to provide services
such as:
o applications hosting,
o electronic commerce services,
o web hosting services,
o video transport services,
o independent Internet access for transport and peering,
o management services that allow carriers to migrate from
circuit-switched technologies to packet-based technologies, and
o co-location services.
Business Strategy
To exploit the growing demand for bandwidth, we have developed a business
strategy to:
o provide connectivity to major global population centers,
o develop and operate a technologically advanced, high capacity, low
cost fiber network,
o utilize fiber swaps and strategic relationships to extend the reach of
our network,
o continue to expand our marketing capabilities,
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o increase the number of products and services that we offer to our
customers, and
o capitalize on management experience and relationships and pursue
additional strategic alliances.
Recent Developments
Management
o Appointment of Chief Executive Officer. Mr. Gregory Maffei joined
us as Chief Executive Officer in January 2000. He was previously employed by
Microsoft Corporation for seven years, most recently, as Chief Financial
Officer. Prior to joining us, Mr. Maffei purchased equity in Worldwide Fiber
Inc. equal to approximately 8% of our total equity outstanding after such
purchase on a fully diluted basis. Certain of Mr. Maffei's shares are subject to
repurchase by us in the event his employment ceases.
Network
o PSINet. In December 1999 we signed a contract with PSINetworks
Canada Limited and PSINetworks Co. for fiber optic capacity between Vancouver
and Chicago to be delivered by the end of March 2000. In addition, we will
provide PSINet with operation and maintenance services at set rates. Certain
terms of this agreement are subject to finalization.
o Europe. In December 1999 we signed contracts with Telia AB(publ),
Telewest Communications Group Limited and CARRIER1. We are swapping fiber on
part of our North American network for fiber on significant parts of Telia's
European network, which is expected to be complete in the fourth quarter of
2000. We will develop with Telewest a multi-conduit network from London to
Liverpool along diverse routes that pass through seven major population centers
in England. We expect this network to be complete by the fourth quarter of 2000.
CARRIER1 has agreed to provide us with wholesale capacity from London to 18
major European cities, and an option to swap for dark fiber strands in Germany
and/or wavelengths in France.
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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 September 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 nine months ended
September 30, 1999 are derived from the unaudited interim consolidated financial
statements for the nine month period ended September 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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<TABLE>
<CAPTION>
Summary Financial Data
(Dollars in thousands)
Predecessor Division Worldwide Fiber
-------------------- ---------------
Five Nine Pro Forma Nine Pro Forma
Year Months Year Months February 5, February 5, Year Ended Months Nine Months
Ended Ended Ended Ended 1998 to 1998 to December Ended Ended
March August August May 31, September December 31, 1998 September September
31, 1996 31, 1996 31, 1997 1998 30, 1998 31, 1998 (1)(3) 30, 1999 30, 1999(2)(3)(6)
Income Statement
Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........... $3,824 $7,373 $58,008 $54,634 $104,819 $164,319 $207,038 $235,138 $235,138
Operating
expenses:
Costs........... 3,440 5,739 48,474 44,919 90,909 147,621 182,518 165,263 165,263
General &
administrative. 57 91 863 710 1,318 2,274 8,140 17,263 18,138
Depreciation.... 24 15 112 317 260 464 639 871 871
Amortization of
goodwill...... -- -- -- -- -- -- 4,875 -- 3,656
Total operating
expenses.......... 3,521 5,845 49,449 45,946 92,487 150,359 196,172 183,397 187,928
Operating income.. 303 1,528 8,559 8,688 12,332 13,960 10,866 51,741 47,210
Interest expense, -- 15 600 86 -- 225 85,352 12,448 49,248
net...............
Equity income..... -- -- -- -- (48) 928 -- -- --
Earnings (loss)
before income
taxes........... 303 1,513 7,959 8,602 12,284 14,663 (74,486) 39,293 (2,038)
Income tax
expense 139 686 3,620 3,909 5,402 5,643 (26,710) 20,175 3,571
(recovery)......
164 827 4,339 4,693 6,882 9,020 (47,776) 19,118 (5,609)
Income
attributable
to minority -- -- -- -- -- -- 464 5,747 3,247
interest........
Net income (loss). $164 $827 $4,339 $4,693 6,882 $9,020 $(48,240) $13,371 $(8,856)
Other Financial
Data:
EBITDA (4)........ $327 $1,543 $8,671 $9,005 $12,544 $15,352 $16,380 $52,612 $51,737
Capital
expenditures...... $72 $ 181 $1,119 $6,828 -- $1,065 -- $61,214 --
Ratio of earnings
to fixed 24.3x 45.5x 10.3x 17.7x 374.7x 26.8x -- 2.0x --
charges (5).....
Statement of Cash
Flows Data:
Operating $666 $(3,078) $(3,921) $(2,502) 79 $(13,059) $ -- $(138,614) $ --
activities........
Investing (72) (181) (1,119) (6,828) -- 1,177 -- (129,740) --
activities........
Financing $(595) $3,259 $5,040 $9,330 -- $168,350 $ -- $787,000 $ --
activities........
===============================================================================================================
September 30, 1999
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Actual Pro Forma (6)
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Balance Sheet Data:
<S> <C> <C>
Cash and cash equivalents...................................................... $ 675,175 $ 675,175
Fixed assets, net.............................................................. 107,264 107,264
Total assets................................................................... 1,216,194 1,313,694
Total debt..................................................................... 675,000 675,000
Redeemable Convertible preferred stock........................................ 345,157 345,157
Shareholder's equity........................................................... $ 30,806 130,806
</TABLE>
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(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, (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, and (4) the amortization of goodwill arising on the
acquisition of the minority interest shares of WFI-CN Fiber Inc. and
Worldwide Fiber IC LLC.
(2) Gives pro forma effect to (1) the interest expense, including
amortization of deferred financing costs, on the $500,000,000 12%
senior notes issued July 28, 1999 and (2) the amortization of goodwill
arising on the acquisition of the minority interest shares of WFI-CN
Fiber Inc. and Worldwide Fiber IC LLC.
(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,
amortization of goodwill 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), amortization of goodwill, 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 $74,486,000 and
pro forma loss for the nine month period ended September 30, 1999 would
have been insufficient to cover fixed charges by $9,832,000.
(6) Gives pro forma effect to (1) the issuance of a note receivable in the
amount of $77,500,000 provided by the Company to an executive officer
of the Company and the issuance on December 22, 1999 of 26,080,000
Class A Non-Voting shares and 4,920,000 Class C Multiple Voting Shares
to the executive officer for consideration of $77,500,000 and (2) the
acquisition of the minority interest shares of WFI-CN Fiber Inc. and
Worldwide Fiber IC LLC in exchange for Class A Non-Voting Shares of the
Company.
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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,
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate, and
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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 $115 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 September 30, 1999
---------------------------
Actual Pro Forma (1)(2)
------ ----------------
Total indebtedness........................... $675,000,000 $675,000,000
Shareholder's equity......................... $30,806,000 $130,806,000
Debt to equity ratio......................... 21.9x 5.2x
(1) Gives pro forma effect to (1) the issuance of a note receivable in the
amount of $77,500,000 provided by the Company to an executive officer of
the Company and the issuance on December 22, 1999 of 26,080,000 Class A
Non-Voting Shares and 4,920,000 Class C Multiple Voting Shares for
consideration of $77,500,000 and (2) the acquisition of the minority
interest shares of WFI-CN Fiber Inc. and Worldwide Fiber IC LLC in exchange
for Class A Non-Voting Shares of the Company.
(2) Shareholders' equity does not include $345,157,000 in redeemable
convertible preferred shares.
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 $74,486,000 and pro forma loss for the
nine month period ended September 30, 1999 would have been insufficient to cover
fixed charges by $9,832,000.
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,
o conditions in the telecommunications industry,
o regulatory developments,
o investor confidence and credit availability from banks or other
lenders,
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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 $565,000,000 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.
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
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<PAGE>
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 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-
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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 continued access to capital markets,
o design and engineer fiber networks,
o install fiber optic facilities, transmission equipment and related
infrastructure,
o acquire additional rights-of-way,
o attract and retain high-quality operating personnel and management,
and
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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 expect to significantly expand the range of services that
we offer. This expansion includes providing various bandwidth services to
carriers and other service providers. We may enter 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 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.
In order to reach our operating and financial goals, we must substantially
increase the current volume of voice, data, Internet and video transmission on
our network. If we do not develop long-term commitments with new large-volume
customers as well as maintain our relationships with current customers, we will
be unable to increase traffic on our network, which would adversely affect our
profitability.
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 prescribe the terms
and conditions of 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-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
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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 Experience--We have little experience in the offering of bandwidth
services and this could increase our risk of failure.
We expect an increasing portion of our revenues to be derived through our
offering of bandwidth and other services. We have limited experience offering
these 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. 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
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.
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The sale or lease of bandwidth services 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. 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.
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 also recently announced the expansion of our Network into Europe.
We are still evaluating all of the risks associated with these new projects. 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,
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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 our international plans, including our
expansion into Europe, 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,
including optical equipment. Recently, some companies have experienced a
shortage of fiber optic cable. We cannot ensure you that we will not experience
such a shortage. We are also dependent on Nortel Networks, Newbridge Networks
and Marconi plc 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 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.
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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."
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.
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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 approximately 90% 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."
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
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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. The Federal Communications Commission has held that
telecommunications and common carrier services are essentially the same. 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. We cannot assure you 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
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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 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 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
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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. Bell Atlantic received such authorization for New York in
December 1999. It is anticipated that additional Regional Bell Operating
Companies may receive authorization in some states to provide inter-LATA
telecommunications during 2000. Such authority if granted 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 Commission 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
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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
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 telecommunications common
carrier in Canada 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.
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International Traffic
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.
Contribution
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. Although this public notice proceeding is not yet closed, some
parties in the proceeding have advocated that the current contribution regime be
converted into 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 Proceedings
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,
interim basis, until the Canadian Radio-television and Telecommunications
Com-
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mission has made a determination on the appropriate terms, conditions and
compensation that should be payable to the City for the use of municipal
property. In a ruling issued on October 27, 1999, the Canadian-Radio-television
and Telecommunications Commission granted the City's request for an interim
order directing each of the carriers that obtained indefeasible rights-of-use
from us to pay the City $1.00 for the right to access the City's municipal
property during the period of time before the Canadian-Radio-television and
Telecommunications Commission makes a determination for the appropriate terms,
conditions and compensation that should be payable to the City for the use of
municipal property. On December 3, 1999, the Canadian-Radio-television and
Telecommunications Commission issued a public notice which invited interested
parties to comment on what the terms and conditions of access by Canadian
carriers to municipal property in Vancouver should be for the purposes of
constructing, maintaining and operating transmission lines. We anticipate that
the Canadian-Radio-television and Telecommunications Commission will render a
decision on our March 19, 1999 application against the City at the same time
that it renders a decision on the matters raised by its public notice
proceeding. Failure to obtain the orders we have requested in our initial
application to that Canadian Radio-television and Telecommunications Commission
could have a material adverse effect on our business, financial condition and
results of operations.
We have operations based in Canada and anticipate operations in Ireland,
France and other foreign jurisdictions. We are exposed to risks inherent in
international operations, including the following:
o general economic, social and political conditions
o the difficulty of enforcing agreements and collecting receivables
through certain foreign legal systems
o tax rates in some foreign countries may exceed those in the United
States and foreign earnings may be subject to withholding requirements
or the imposition of tariffs, exchange controls or other restrictions
o required compliance with a variety of foreign laws and regulations
o changes in United States laws and regulations relating to foreign
trade and investment
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 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
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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 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:
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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-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 September 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.
As of September 30, 1999
------------------------
Actual Pro Forma(1)
------ ---------
(In thousands)
(unaudited)
Cash and cash equivalents.......................... $675,175 $675,175
Debt (including current portion):
12 1/2% senior notes due 2005...................... 175,000 175,000
12% senior notes due 2009.......................... 500,000 500,000
---------- ---------
675,000 675,000
Redeemable convertible preferred stock............. 345,157 345,157
Shareholders' equity:
Common stock ...................................... 46,528 224,028
Note receivable ................................... -- (77,500)
Other shareholders' equity......................... 7,742 7,742
Deficit............................................ (23,799) (23,799)
Accumulated other comprehensive income............. 335 335
---------- ---------
Total shareholders' equity......................... 30,806 130,806
---------- ---------
Total capitalization............................... $1,050,963 1,150,963
========== =========
- ---------------------
(1) Gives pro forma effect to (1) the issuance of a note receivable in the
amount of $77,500,000 provided by the Company to an executive officer of
the Company and the issuance on December 22, 1999 of 26,080,000 Class A
Non-Voting Shares and 4,920,000 Class C Multiple Voting Shares for
consideration of $77,500,000 and (2) the acquisition of the minority
interest shares of WFI-CN Fiber Inc. and Worldwide Fiber IC LLC in exchange
for Class A Non-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 September 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 nine months ended September 30,
1999 are derived from the unaudited interim consolidated financial statements
for the nine month period ended September 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.
-31-
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars in thousands)
Predecessor Division Worldwide Fiber
Pro Forma
Nine
Five Nine February February Pro Forma Nine Months
Year Months Year Months 5, 1998 5, Year Ended Months Ended
Ended Ended Ended Ended to 1998 to December Ended September
March August August May 31, September December 31, September 30,
31, 1996 31, 1996 31, 1997 1998 30, 1998 31, 1998(1)(3) 30, 1999 1999(2)(3)(6)
1998
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............ $3,824 $7,373 $58,008 $54,634 $104,819 $164,319 $207,038 $235,138 $235,138
Operating expenses:
Costs............ 3,440 5,739 48,474 44,919 90,909 147,621 182,518 165,263 165,263
General &
administrative.. 57 91 863 710 1,318 2,274 8,140 17,263 18,138
Depreciation..... 24 15 112 317 260 464 639 871 871
------- ------ ------- ------- -------- -------- -------- -------- ---------
Amortization of
goodwill......... -- -- -- -- -- -- 4,875 -- 3,656
------- ------ ------- ------- -------- -------- -------- -------- ---------
Total operating
expenses........... 3,521 5,845 49,449 45,946 92,487 150,359 196,172 176,269 187,926
------- ------ ------- ------- -------- -------- -------- -------- ---------
Operating income... 303 1,528 8,559 8,688 12,332 13,960 10,866 51,741 47,210
Interest expense, -- 15 600 86 -- 225 85,352 12,448 49,248
net................
Equity income...... -- -- -- -- (48) 928 -- -- --
------- ------ ------- ------- -------- -------- -------- -------- ---------
Earnings (loss)
before income 303 1,513 7,959 8,602 12,284 14,663 (74,486) 39,293 (2,038)
taxes............
Income tax expense
(recovery)....... 139 686 3,620 3,909 5,402 5,643 (26,710) 20,175 3,571
------- ------ ------- ------- -------- -------- -------- -------- ---------
164 827 4,339 4,693 6,882 9,020 (47,776) 19,118 (5,609)
Income attributable
to minority -- -- -- -- -- -- 464 5,747 3,247
interest.........
------- ------ ------- ------- -------- -------- -------- -------- ---------
Net income (loss).. $164 $827 $4,339 $4,693 6,882 $9,020 $(48,240) $13,371 (8,856)
======= ====== ======= ======= ======== ======== ======== ======== ========
Other Financial
Data:
EBITDA (4)......... $327 $1,543 $8,671 $9,005 $12,544 $15,352 $16,380 $52,612 $51,737
Capital $72 $181 $1,119 $6,828 -- $1,065 -- $61,214 --
expenditures.......
Ratio of earnings
to fixed 24.3x 45.5x 10.3x 17.7x 374.7x 26.8x -- 2.0x --
charges (5)......
Statement of Cash
Flows Data:
Operating $666 $(3,078) $(3,921) $(2,502) 79 $(13,059) $ -- $(138,614) $ --
activities.........
Investing (72) (181) (1,119) (6,828) -- 1,177 -- $(129,740) --
activities.........
Financing $(595) $3,259 $5,040 $9,330 -- $168,350 $ -- $787,000 $ --
activities.........
Balance Sheet Data:
Cash and cash
equivalents........ $ -- $-- $-- $ -- -- $156,366 $ -- $675,175 $675,175
Fixed assets, net.. -- 464 1,471 7,982 -- 15,475 -- 107,264 107,264
Total assets....... -- 6,476 32,268 39,549 -- 236,260 -- 1,216,194 1,313,694
Total debt......... -- 2,067 6,774 10,933 -- 175,000 -- 675,000 675,000
Redeemable
Convertible -- -- -- -- -- -- -- 345,157 345,157
Preferred Stock....
Shareholder's equity $ -- $1,473 $5,825 $8,870 -- $18,261 $ -- $130,806 $ 130,806
</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, (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, and (4) the
amortization of goodwill arising on the acquisition of the minority
interest shares of WFI-CN Fiber Inc. and Worldwide Fiber IC LLC.
(2) Gives pro forma effect to (1) the interest expense, including amortization
of deferred financing costs, on the $500,000,000 12% senior notes issued
July 28, 1999 and (2) the amortization of goodwill arising on the
acquisition of the minority interest shares of WFI-CN Fiber Inc. and
Worldwide Fiber IC LLC.
(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, amortization
of goodwill 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), amortization of goodwill, 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 $74,486,000 and pro forma loss
for the nine month period ended September 30, 1999 would have been
insufficient to cover fixed charges by $9,832,000.
(6) Gives pro forma effect to (1) the issuance of a note receivable in the
amount of $77,500,000 provided by the Company to an executive officer of
the Company and the issuance on December 22, 1999 of 26,080,000 Class A
Non-Voting shares and 4,920,000 Class C Multiple Voting Shares to the
executive officer for consideration of $77,500,000 and (2) the acquisition
of the minority interest shares of WFI-CN Fiber Inc. and Worldwide Fiber IC
LLC in exchange for Class A Non-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.
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"). On September 27, 1999, we acquired additional fiber
optic network assets from Ledcor. 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 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. Since January 1, 1999, the impact
of the Construction Services Agreement has not been significant on our
consolidated financial statements.
Since December 31, 1998 our revenues have been primarily generated from
the sale, lease or grant of IRU of network infrastructure. We anticipate a
significant amount of our future revenues will be derived from providing
bandwidth services, including optical channels, private line transmission,
virtual voice trunking, Internet transport, IP transport and packet based data
services, including IP transport and ATM. We anticipate that, as we proceed with
the development of our network, the percentage of revenues which we receive from
bandwidth services will increase as a percentage of our total revenue and that
by 2001 our bandwidth services will provide our largest percent of revenue on a
consolidated basis and be a significant source of income.
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.
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.
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<PAGE>
Joint Ventures
Our consolidated balance sheet at September 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 September 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 dark fiber 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 our network on both railroads' ROW in
Canada and the United States. See "Business--Description of IC and CN
Agreements."
We are currently in negotiations to acquire the minority interests in
WFI-USA and in two joint ventures related to the IC and CN ROW.
Results of Operations
Worldwide Fiber Inc.
Nine Months Ended September 30, 1999 and the period from February 5, 1998
to September 30, 1998 (operations commenced June 1, 1998)
Revenue for the nine month period ended September 30, 1999 was
$235,138,100, versus $104,819,000 for the four month period from June 1, 1998
(commencement of operations) to September 30, 1998. Revenue in the current
period was primarily derived from sales of conduit and fiber optic strands along
segments in the Pacific Northwest, northeast U.S. and eastern Canada.
Costs were $165,263,000 (69% of revenue) for the nine month period ended
September 30, 1999, versus $90,909,000 (87% of revenue) for the period from June
1, 1998 (commencement of operations) to September 30, 1998. These reflect the
costs incurred in development of our network which include costs related to
subcontractors, rights-of-way and equipment purchases.
Gross profit for the nine month period ended September 30, 1999 was
$69,875,000 (30% of revenue), versus $13,910,000 (13% of revenue) for the period
from June 1, 1998 (commencement of operations) to September 30, 1998. These
increases are due to the higher margins achieved in ownership and development of
dark fiber networks, compared to construction services.
General and administrative expenses were $17,263,000 (5% of revenue) for
the nine months ended September 30, 1999, versus $1,318,000 (1% of revenue) for
the period from June 1, 1998 (commencement of operations) to September 30, 1998.
We have completed a majority of the tasks necessary to perform the transition
from Ledcor's management information and accounting systems to our own. General
and administrative expenses are expected to continue to increase as we develop
our systems, hire additional personnel and implement our bandwidth services
strategy.
-35-
<PAGE>
Interest expense was $20,468,000 for the nine months ended September 30,
1999 and was principally due to the issue of senior notes in December 1998 and
July 1999. Interest income totaled $8,020,000 for this period and arose from the
investment of the proceeds of the senior notes in short-term, investment grade
securities.
Income taxes provided for the nine month period ended September 30, 1999
totaled $20,175,000, versus $5,402,000 for the period from June 1, 1998
(commencement of operations) to September 30, 1998. These consist primarily of
current taxes arising from our U.S. and Canadian operations.
Minority interest for the nine month period ended September 30, 1999
totaled $5,747,000 and represents 25% of WFI-USA's and CN/IC's net income.
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 dif-
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<PAGE>
erence 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.
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 September 30, 1999, we had working capital of $816 million, including
$675 million in cash or cash equivalents. Cash used in operations during the
nine months ended September 30, 1999 totaled $139 million.
We have an aggressive business plan to build out our network. Our
currently planned network will provide us with 37,800 total route miles and span
two continents, and we intend to further expand this network to provide global
connectivity. Building out the network 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 equipment to establish
transmission facilities. We anticipate that we will continue to experience
negative cash flow (after capital expenditures) as we build out the network
which is expected to be completed in the first quarter of 2001.
We estimate that the total cost of building and lighting our currently
planned network will be approximately $2.8 billion. Such costs are:
o We estimate that the total cost to build out and light our network in
North America will be approximately $1.6 billion.
o We estimate that the total cost to build out and light our network in
Europe will be $320 million. In addition to the sources of funds set
forth below, in order to expeditiously build out our network in
Europe, we recently signed an agreement with Telia under which we will
swap multiple fiber strands on part of our North American network in
exchange for an IRU for approximately 4,000 miles on Telia's European
network.
o We estimate the total cost of the Hibernia undersea cable project to
be approximately $865 million.
In order to finance our network development:
o We have issued $675 million of senior notes and plan to issue an
additional one billion dollars in the first half of 2000.
o We intend to make a public offering of our Class A Non-Voting Shares
in the first half of 2000.
o We intend to consummate the $565 million Hibernia credit facility. The
credit facility is being provided on a project finance basis to a
group of our subsidiaries and is non-recourse to us.
o We have issued $345 million of our Series A Non-Voting Preferred Stock
to a number of private equity investors. A significant portion of the
proceeds from this issuance will fund the equity portion of the
Hibernia project.
We anticipate that these funding sources will provide us with sufficient
capital to complete our terrestrial and undersea 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 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.
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 serv-
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<PAGE>
ces strategy, the Hibernia project or for other opportunities on a timely basis
or on terms that are acceptable to us, or at all.
Accounting Pronouncements
We adopted the American Institute of Certified Public Accountants'
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP
98-5) effective January 1, 1999. SOP 98-5 requires that all start-up costs be
expensed and that the effect of adopting SOP 98-5 be reported as the cumulative
effect of a change in accounting principle. The effect of adopting SOP 98-5 on
our results of operations was immaterial.
We adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. SFAS No. 131 established standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers.
In June 1999, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66." The interpretation is effective for sales of real estate with property
improvements or integral equipment entered into after June 30, 1999. Under this
interpretation, after June 30, 1999, title must transfer to a lessee in order
for a lease transaction to be accounted for as a sales-type lease. Transactions
will be accounted for as operating leases where title is not transferred to the
lessee or if the agreement was entered into after June 30, 1999.
Market Risk Disclosures
Interest Rate Risk
We have interest rate exposure related to our senior notes which have a
fixed interest rate. The senior notes will be subject to interest rate risk
resulting from a future decrease in interest rates on obligations with
comparable terms below the interest rate on the senior notes. We currently do
not mitigate the risk of interest rate covenants through the use of interest
rate swaps or other derivative instruments. However, we may choose to manage our
risk associated with interest rate movement through an appropriate balance of
fixed and variable rate obligations. To maintain an effective balance of fixed
and variable obligations, we may elect to enter into specific interest rate
swaps or other derivative instruments as we deem necessary.
The senior notes are comprised of $175,000,000 12.5% notes due December
15, 2005 with interest paid quarterly and $500,000,000 12.0% notes due August 1,
2009 with interest paid quarterly. These senior notes have provisions which may
permit or obligate the Company to redeem all or part of the notes before their
redemption dates.
Foreign Currency Risk
We presently do not utilize derivative or other financial instruments to
hedge the risk associated with the movement in foreign currencies. However,
management continually monitors fluctuations in these currencies and will
consider the use of derivative financial instruments or employment of other
investment alternatives if cash flows or investment returns so warrant.
-39-
<PAGE>
BUSINESS
General
We are a provider of technologically advanced fiber optic communications
infrastructure and services in North America using our state-of-the-art fiber
optic network. 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 currently planned network will provide us with 35,400 route miles and
span two continents and we intend to further expand this network to provide
global connectivity. Our network will consist of fiber optic strands installed
in protective conduit buried along diverse rights-of-way and strands acquired
from other developers and carriers through swaps, and related infrastructure
such as regeneration shelters. We plan to further develop and expand our network
to meet customer needs. Our network is expected to cover approximately 24,000
route miles in North America and encompass both long haul and intra-city route
miles (comprising in excess of 1,000,000 fiber miles) and provide connectivity
between approximately 50 major population centers. Our network in Europe is
currently expected to cover approximately 6,200 route miles (assuming the
exercise of our CARRIER1 option) on a long-haul basis between approximately 20
major population centers. We also intend to further develop and expand our
network in Europe. Our 7,600 mile Trans-Atlantic cable will utilize a
high-speed, high-capacity, self-healing ring that currently connects landing
sites in Boston, Halifax, Dublin and Liverpool to serve the continuing growth of
demand for bandwidth in the Trans-Atlantic market. In addition to continued
expansion to other North American and European cities, we are reviewing
opportunities to expand the geographic reach of our network to encompass Asia
and Latin America.
We believe that these customers have a limited choice of service providers
capable of offering high-capacity, reliable, secure and cost-effective services.
To meet our customers' demands, we offer a broad range of services on a scalable
basis, including bandwidth services, such as optical channels, private line
transmission, virtual voice tracking, Internet transport, IP transport, packet
switch services, including MPLS, IP and ATM. We also offer network
infrastructure, such as dark fiber and conduit for sale, lease or IRU.
We also intend to expand our business to include carrier hotels that will
enable us to provide services such as:
o applications hosting,
o electronic commerce services,
o web hosting services,
o video transport services,
o independent Internet access for transport and peeving.
o management services that allow carriers to migrate from circuit-switched
technologies to packet-based technologies, and
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o co-location services.
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 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 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
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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:
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.
In addition to further North American development and our announced
transatlantic fiber optic cable project and European network assets, future
network development locations could include 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.
For Hibernia we have applied for licenses with the governing authorities
in each of Ireland, Canada, the United Kingdom and the United States. The
licenses have been granted in Ireland, the United Kingdom and the United States.
One license for which we applied in Canada has been approved and a second
license application in
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Canada is pending. We also applied for various permits and consents for Hibernia
in Ireland, Canada, the United Kingdom and the United States. Approximately 40%
of these permits and consents have been granted and the remaining 60% are
pending. While there can be no assurance that the remaining licenses, permits
and consents will be granted, we do not anticipate any problems at this time.
In June 1999, we entered into a turnkey supply agreement with Tyco
Submarine Systems Ltd. ("Tyco") whereby Tyco will serve as the primary
contractor for Hibernia. The contract price is approximately $634 million. The
Company has paid over $100 million in advance payments to Tyco. Tyco is required
to deliver Hibernia in the first quarter of 2001.
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.
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.
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:
o 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,
o we use a patented railplow to install fiber optic cable along
rail lines quickly and cost effectively,
o we retain fiber assets for our own use along routes where we
complete third party construction, and
o 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.
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<PAGE>
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:
o sales, grants of IRU, leases on a short or long term basis, or
swaps of network assets, and
o 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 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 currently planned network will cover approximately 37,800 route miles
and will encompass long-haul and intra-city routes and Trans-Atlantic fiber
optic cable. Our network will consist of fiber optic assets which we have
installed along diverse rights-of-way or acquired from other developers and
carriers through swaps. We plan to further develop and expand our network and
its reach in response to customer demand.
North America
Our North American network is expected to cover approximately 24,000 route
miles and encompass both long-haul and intra-city route miles (comprising in
excess of 1,000,000 fiber miles) by the first quarter of 2001. We intend to
further develop, swap or purchase additional long haul route miles and intra
city rings in North America. The footprint will consist of the following:
o a North American long-haul fiber optic network including: (1)
three primary east-west routes, 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 intra-city networks in Toronto, Vancouver, Montreal,
Ottawa and Calgary, in addition to the city ring currently under
construction in Seattle.
Undersea Cable
Our 7,600 route mile Trans-Atlantic cable project utilizes a high-speed,
high-capacity, self-healing ring design that will connect landing sites in
Boston, Halifax, Dublin and Liverpool to serve the continuing growth of demand
for bandwidth in the Trans-Atlantic market. In June, 1999, we entered into a
supply agreement with Tyco
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whereby Tyco will serve as the primary contractor for Hibernia, taking
responsibility for the design, construction, installation and testing of the
cable. Tyco is a leading supplier of undersea communications systems and
services to various projects around the world. Hibernia's self-healing ring
design will have a capacity of 1.92 Terabits per second on each segment using 4
fiber pair with state-of-the-art, 48-wave length technology on each fiber pair.
Tyco is required to complete the construction of Hibernia by the first quarter
of 2001.
Europe
Our network in Europe is currently expected to cover approximately 6,200
route miles (assuming the exercise of our CARRIER1 option) linking approximately
20 European cities by the first quarter of 2001.
The fiber we acquired via the Telewest, Telia and CARRIER1 transactions
places our assets in seven European countries. The current planned footprint
will consist of the following five rings:
o Liverpool, Manchester, Birmingham, Bristol, London, Cambridge,
Sheffield, Liverpool
o London, Paris, Strasbourg, Frankfurt, Dusseldorf, Hamburg,
Amsterdam, London
o Hamburg, Kolding, Copenhagen, Hamburg
o Copenhagen, Stockholm, Oslo, Copenhagen
o Frankfurt, Stuttgart, Munich, Dresden, Berlin, Hamburg, Cologne,
Frankfurt
These routes were acquired through the following agreements:
o Telewest. In December 1999, we signed a co-development agreement
with Telewest to purchase an IRU on Telewest's approximately
777-mile ring network which will connect Liverpool to London via
Manchester, Birmingham, Bristol and via Sheffield and Cambridge.
In addition, we have an option to require Telewest to provide
access to existing dark fiber on two diverse routes connecting
Liverpool to London on a backup network with common regeneration
sites if the co-development assets are not delivered on schedule.
o Telia. In December 1999, we signed a contract with Telia under
which we will swap for a twenty-year period an IRU for multiple
fiber strands on part of our North American network in exchange
for an IRU for approximately 4,000 route miles of multiple fiber
strands of Telia's European network covering Germany, France, the
United Kingdom, the Netherlands, Denmark, Sweden and Norway. We
will deliver fibers to Telia by the end of the first quarter of
2001 and Telia will deliver the fibers to us by the end of the
fourth quarter of 2000. In addition, Telia and we will provide
each other with co-location services, regeneration sites, points
of presence in main cities and operations and maintenance
activities.
o CARRIER1. In December 1999, we signed a contract with CARRIER1
under which we have the option to order wholesale capacity on
their network connecting London to 18 European cities. The option
provides us with wholesale capacity on CARRIER1's network
beginning March 1, 2001. In addition, the contract provides us
with the option to acquire multiple strands in Germany and
wavelength channels in France.
Future Network Development
We believe that there may be further opportunities in North America and
Europe to continue the type of network development we are currently deploying.
In addition to continued expansion to other North American
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and European cities, we are reviewing opportunities to expand the geographic
reach of our network to encompass Asia and Latin America. We believe that these
further developments will enhance the connectivity and value of our network.
Network Development Plan
We expect to complete the development of our Network in 2001. Although the
following tables summarize our current plans for completing the terrestrial
network in North America and Europe and Hibernia, 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>
North America
---------------------------------------------------------------------------------------------------------------------
Completed
Route Miles as Scheduled Proposed Participant/
Estimated of December Completion Major Population Co-developer/Swaps/Joint
Segment Route Miles 31, 1999 Date Centers Connected Ventures
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Transcontinental FOTS: 7,118 6,311 Fourth Vancouver, Edmonton, Call-Net, Bell Canada,
Quarter 2000 Calgary, Winnipeg, AT&T Canada and Telus
Minneapolis,
Chicago, Toronto and
Detroit
---------------------------------------------------------------------------------------------------------------------
West Coast Build: 4,102 1,286 Fourth Edmonton, Vancouver, Telus, Call-Net, FTV,
Quarter 2000 Seattle, Portland, GST, Level 3,
Sacramento, Los Metromedia, NEXTLINK,
Angeles, San Diego, Qwest and Williams
Phoenix and San
Antonio
---------------------------------------------------------------------------------------------------------------------
Northeast Build: 3,314 1,611 Fourth New York, Boston, AT&T Canada, BCT Telus,
Quarter 2000 Buffalo, Albany, CN, Level 3 and Williams
Detroit, Toronto,
Montreal, Quebec
City and Halifax
---------------------------------------------------------------------------------------------------------------------
East Coast Build: 3,616 2,601 First Quarter New York, Washington Metromedia and Qwest
2001 DC, Atlanta,
Jacksonville,
Memphis, Miami and
New Orleans
---------------------------------------------------------------------------------------------------------------------
Central Build: 1,120 - Fourth Chicago and New IC
Quarter 2000 Orleans
---------------------------------------------------------------------------------------------------------------------
Mid-America Build: 4,330 408 First Quarter Chicago, Denver, New Pathnet
2001 Orleans, Omaha and
Sacramento
---------------------------------------------------------------------------------------------------------------------
Intra-City Networks: 511 - Fourth Calgary, Montreal, GST, Level 3,
---
Quarter 2000 Ottawa, Seattle, Metromedia, Qwest and
Toronto, Vancouver NEXTLINK
and Edmonton
---------------------------------------------------------------------------------------------------------------------
Total Route Miles 24,111 12,217
====== ======
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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Hibernia and Europe
----------------------------------------------------------------------------
Scheduled Proposed
Estimated Completion Major Population Participant/
Segment Route Miles Date Centers Connected Co-developer/
Swaps/Joint
Ventures
-------------------------------------------------------------------------------
UK 796 Q3 2000 London, Telewest, Telia
Liverpool,
Manchester
-------------------------------------------------------------------------------
Germany 2,612 Q2 2001 Strasbourg, Telia, CARRIER1
Frankfurt,
Hamburg, Munich,
Dusseldorf
-------------------------------------------------------------------------------
Holland/France 1,053 Q4 2000 Amsterdam, Paris Telia
-------------------------------------------------------------------------------
Scandinavia 1,628 Q4 2000 Copenhagen, Telia
Stockholm, Oslo
-------------------------------------------------------------------------------
Hibernia 7,600 Q1 2001 Dublin,
(trans-Atlantic) Liverpool,
Boston, Halifax
------------------------------------------------------------------------------
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 transmit 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.
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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,
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") is the human service connection
between our customers and the technology that ultimately delivers their
services. We have completed construction of our NOC in Vancouver,
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which operates 24 hours a day, 365 days a year. We are in the process of
designing our NOC in Dublin. Our Dublin NOC will be primarily responsible for
European operations and is scheduled to be on line in October 2000. Each of the
NOCs will serve as a back up to the other. In addition, Nortel will continue to
provide redundant network services to us through June 2000.
In addition to the two main NOCs in Vancouver and Dublin, we are also
designing support centers in Denver to maintain cable operations and in Halifax
to maintain the Hibernia cable. The NOCs 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.
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.
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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 tunnels underneath the river or obstruction and feed
the conduit through the tunnel.
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.
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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 Agreements." 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
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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. The services we 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 its own
switching and routing equipment and will have the choice of installing its own
protection equipment or use optical protection supplied as part of our service.
We offer the following services:
o transparent OC-48 and OC-192 under IRU or lease,
o optical ring protection, and
o linear routes available, add/drop along route.
Private line transmission. We offer fixed amounts of point-to-point
connectivity. Our service has 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 sale
or lease of transparent connectivity up to OC-12.
Virtual voice trunking. We offer customers voice trunking services that
can be configured for sale as minutes of use. These services enable these
customers to originate and terminate long distance telephone calls connecting to
LECs with switched transport through our network. In addition, we will provide
our customers service on an as needed basis with simple billing. 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 offer customers
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 includes 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 includes the following service attributes:
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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.
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.
We are in the process of building our European and Hibernia sales teams.
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,
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o ISPs,
o long distance companies (North American and international),
o RBOCs,
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
more than 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.
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.
We currently 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 and Europe. 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 sup-
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pliers 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 in North America
and Europe will come from the above companies as well as other incumbents. 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.
Our undersea cable will compete with existing and announced trans-Atlantic
cable systems, including a global network recently announced by Tyco.
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 December 31, 1999, we employed approximately 1,000 full-time and
seasonal people. 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 agreement with the
Christian Labor Association of Contractors which expires on February 28, 2001
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.
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 our Vancouver offices to us under agreements that expire in
2002. Ledcor also leases our facilities in Toronto to us. We lease space in
Denver under a short term lease with a third party. The office of our Chief
Executive Officer is in Seattle, Washington. We also currently lease offices or
property in several other states or provinces.
Legal Proceedings
From time to time, we may be a party to various legal proceedings arising
in the ordinary course of our business.
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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:
Name Age Position
- ---- --- --------
David Lede................. 52 Chairman of the Board
Gregory Maffei............. 39 Chief Executive Officer
Clifford Lede.............. 44 Vice Chairman
Larry Olsen................ 50 Vice Chairman and Chief Financial Officer
Ron Stevenson.............. 48 President and Director
Stephen Stow............... 45 Executive Vice President and Director
William Ramsey............. 48 Director and Treasurer
Jim Voelker................ 46 Director
Glenn Creamer.............. 37 Director
Neil Garvey................ 44 Director
Robert Gheewalla........... 32 Director
Andrew Rush................ 41 Director
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.
Gregory Maffei has served as Chief Executive Officer since January 18, 2000
and will be elected to our Board later this month. Prior to joining us Mr.
Maffei served as the chief financial officer of Microsoft Corporation. Mr.
Maffei joined Microsoft in 1991 and, prior to becoming chief financial officer,
served as treasurer and vice president, Corporate Development. Mr. Maffei serves
as a director of Avenue A, Inc., CORT Business Services Corporation, Expedia,
Inc. , Ragen MacKenzie Group Incorporated and Starbucks Corporation.
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,
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Mr. Stow was co-head and Director of Corporate Finance for National Westminster
Bank's Asian investment banking operations.
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.
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 joined us as a director in September 1999. 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 joined us as a director in September 1999. 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 joined us as a director in September 1999. 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 joined us as a director in September 1999. 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.
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, through December 31, 1999, paid 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.
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
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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.
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.
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
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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.
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
sub-
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scriber'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 expected to further
challenge 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. 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 lo-
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cated 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.
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-
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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.
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
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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. Bell Atlantic in New York received
such approval in December 1999. 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. 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 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 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.
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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. At present, we, through various subsidiaries, have
tariffs on file with , and/or has obtained various certificates of operating
authority from, approximately 25 states that were necessary under state laws to
gain authorizations needed to operate as a carrier or to construct fiber
facilities in those states, even though a company does not operate as a common
carrier. Those tariffs provide that prices, terms and conditions of an offering
will be set based upon individual determinations for each customer. These
tariffs may be subject to challenge, but usually are not. None of our tariffs
has been changed to date. Various state regulators may attempt to regulate the
Company's rates or practices, but generally, state regulators do not actively
regulate the offerings of non-dominant carriers such as us.
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. 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. In providing dark or lit fiber on a leased basis, we are
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.
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 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.
Although, this public notice proceeding is not yet closed, some parties in the
proceeding have advocated that the current contribution regime be converted into
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.
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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.
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 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.
International Traffic
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 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.
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CRTC Proceedings
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,
interim 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. In a ruling issued on October 27, 1999, the Canadian-Radio-television
and Telecommunications Commission granted the City's request for an interim
order directing each of the carriers that obtained indefeasible rights-of-use
from us to pay the City $1.00 for the right to access the City's municipal
property during the period of time before the Canadian-Radio-television and
Telecommunications Commission makes a determination for the appropriate terms,
conditions and compensation that should be payable to the City for the use of
municipal property. On December 3, 1999, the Canadian-Radio-television and
Telecommunications Commission issued a public notice which invited interested
parties to comment on what the terms and conditions of access by Canadian
carriers to municipal property in Vancouver should be for the purposes of
constructing, maintaining and operating transmission lines. We anticipate that
the Canadian-Radio-television and Telecommunications Commission will render a
decision on our March 19, 1999 application against the City at the same time
that it renders a decision on the matters raised by its public notice
proceeding. Failure to obtain the orders we have requested in our initial
application to that Canadian Radio-television and Telecommunications Commission
could have a material adverse effect on our business, financial condition and
results of operations.
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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. We are currently in negotiations to acquire the minority interest in
WFI-USA in exchange for the issue of our Shares. We are currently in
negotiations to acquire the minority interests of CN and IC in exchange for the
issue of our Shares.
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. Further-
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more, 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
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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.
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). Specifically, in order for holders of the
Series A Non-Voting Preferred Shares to convert their shares into voting shares,
there must have been either a public offering of voting shares by us or our
shareholders having gross proceeds of at least $150 million, we must have issued
or distributed any additional voting shares (with certain exceptions) or there
must have been an elimination of the restrictions on ownership of voting shares
and on the control in fact of the Company by non-Canadians under the
Telecommunications Act (Canada) and the rules and regulations promulgated
thereunder. These actions are not in the control of the holders of the Series A
Non-Voting Preferred shares, nor do we contemplate or anticipate these actions
within the next 60 days. 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.
The Shareholders Agreement specifically restricts the ability of the
holders of the Series A Preferred Shares to convert their shares into voting
shares. See "--Attributes of the Series A Non-Voting Preferred Shares."
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 18 directors. Messrs. Creamer, Garvey,
Gheewalla and Rush were nominated pursuant to this provision.
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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 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.
Mr. Maffei
On December 22, 1999, Gregory Maffei purchased 26,080,000 of our Class A
Non-Voting Shares and 4,920,000 of our Class C Multiple-Voting Shares for $77.5
million. To facilitate the sale, we advanced an amount equal to the purchase
price to Mr. Maffei under a limited recourse note maturing on December 22, 2005.
The note will mature, in whole or in part, as a result of the sale of our shares
by Mr. Maffei or Mr. Maffei's ceasing to be employed by us.
We have the right to repurchase certain of Mr. Maffei's shares at the
original purchase price plus the pro rata amount of interest accrued on the note
in the event Mr. Maffei's employment with us is terminated before June 30, 2003.
In addition, Mr. Maffei has the right to require us to repurchase some or all of
his shares not subject to our repurchase right.
Mr. Maffei became our Chief Executive Officer effective January 18, 2000.
Mr. Maffei is entitled to nominate two Directors to our Board.
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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 , 2000; 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 , 2000, 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.
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.
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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 (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 instru-
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ment 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 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
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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.
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
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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.
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.
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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 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
deliv-
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ery 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.
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.
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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.
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
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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
(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"):
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(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
(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 unpur-
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chased 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:
(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
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(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 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:
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(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"),
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
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(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 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;
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(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 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
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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"):
(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, develop-
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ment, 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;
(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;
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(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 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.
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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;
(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;
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(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:
(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;
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(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
substantially 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
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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.
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 re-
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sulted 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.
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;
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(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;
(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.
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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 indenture 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:
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(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 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
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(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 obligation 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;
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(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;
(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.
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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.
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
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eral 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 the 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 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.
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"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
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.
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"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
(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.
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"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;
(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
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(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.
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
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(5) the cumulative effect of a change in accounting principles shall be
excluded.
"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).
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"Existing Indebtedness" means Indebtedness of Worldwide Fiber or any of its
Restricted Subsidiaries outstanding on the Issue Date (other than the Credit
Facilities).
"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:
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(1) borrowed money;
(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;
(2) any Investment in Cash Equivalents;
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(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 Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith);
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(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 Facilities" 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 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.
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"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
"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
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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
(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
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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,
o pay dividends on stock or repurchase stock,
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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. We expect the facility to close in the first
quarter of 2000.
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.
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
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definitive documentation, up to $565 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.
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.
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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.
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.
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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 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 re-
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lated 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 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."
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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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LEGAL MATTERS
Certain legal matters concerning the new notes will be passed upon for
Worldwide Fiber by Cahill Gordon & Reindel, 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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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,
Nine Months Ended
September 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 0.6912
Low...................... 0.7103 0.7023 0.7235 0.6945 0.6341 0.6477
Average (1).............. 0.7300 0.7305 0.7329 0.7198 0.6714 0.6714
Rate at period end....... 0.7128 0.7323 0.7301 0.6999 0.6504 0.6911
- --------------------
</TABLE>
(1) The average of the exchange rate on the last day of each month during the
applicable period.
On January 15, 2000, the inverse of the noon buying rate was Cdn. $1.00 =
$0.6669. There are currently no Canadian restrictions on currency exchanges or
the repatriation of dividends or capital gains.
-139-
<PAGE>
<TABLE>
<CAPTION>
GLOSSARY
<S> <C>
Asynchronous Transfer Mode
(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.
A-1
<PAGE>
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 DS3s (e.g., OC3 is equal to 3 DS3s (DS3
service has a bit rate of 45 megabits per second and typically transmits 672
simultaneous voice conversations) and OC48 is equal to 48 DS3s).
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 Network)
hierarchy. OC indicates an optical carrier
signal and x represents
A-2
<PAGE>
increments of
51.84Mb/s. OC-1, OC-3, and OC-12 represent
optical transmission 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.
Synchronous Optical Network
(SONET)....................... A Consultative Committee for International Telegraph and Telephony standard
for synchronous transmission up to multi-gigabit speeds.
A-3
<PAGE>
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>
A-4
<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 September 30, 1999.......... PF-4
Pro Forma Consolidated Income Statement for the nine month
period ended September 30, 1999...................................... PF-5
Pro Forma Consolidated Income Statement for the year ended
December 31, 1998.................................................... PF-6
Notes to Pro Forma Financial Information............................... PF-7
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 September 30, 1999 assumes the following transactions
occurred on September 30, 1999: (i) the issuance of a note receivable in the
amount of $77,500,000 provided by the Company to an executive officer of the
Company and the issuance on December 22, 1999 of 26,080,000 Class A Non-Voting
shares and 4,920,000 Class C Multiple Voting shares for consideration of
$77,500,000 and (ii) the Company's acquisition of CN's shares in WFI-CN Fiber
Inc. and IC's units in Worldwide Fiber IC LLC, (the "CN/IC minority interest
acquisition") in exchange for Class A Non-Voting shares of the Company.
The accompanying pro forma consolidated income statement of the Company for
the nine month period ended September 30, 1999 assumes that the following
transactions occurred on January 1, 1998: (i) the effect of the interest
expense, including amortization of deferred financing costs, relating to the
Notes and (ii) the amortization of goodwill arising from the CN/IC minority
interest acquisition.
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, (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"), and (iv) the amortization of goodwill
arising from the CN/IC minority interest acquisition.
The unaudited pro forma consolidated balance sheet and income statement as
of and for the nine month period ended September 30, 1999 is based on the
historical unaudited consolidated financial statements for the nine month period
ended September 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 statements should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial
PF-2
<PAGE>
Worldwide Fiber Inc.
Nature and Purpose of Pro-Forma Financial Information
(Unaudited)
statements of the Company, financial statements of the Division and consolidated
income statement of WFI USA, including the respective notes thereto, included
elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
Worldwide Fiber Inc.
Pro Forma Consolidated Balance Sheet
(Unaudited)
September 30, 1999
(tabular amounts expressed in thousands of U.S. Dollars)
Pro forma
Worldwide Pro forma Consolidated
Fiber Inc. Adjustments Balance Sheet
$ $ $
-------------- ---------------- ---------------
Assets
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents...................... 675,175 -- 675,175
Short term investments......................... 68,616 __ 68,616
Accounts receivable............................ 19,114 -- 19,114
Unbilled revenue............................... 83,973 -- 83,973
Inventory...................................... 121,758 -- 121,758
Other current assets........................... 5,524 -- 5,524
-------------- ---------------- ---------------
974,160 -- 974,160
Fixed Assets................................... 107,264 -- 107,264
Deposits on long-term construction contracts... 100,187 -- 100,187
Deferred income taxes.......................... 12,167 -- 12,167
Deferred financing costs....................... 22,416 -- 22,416
Goodwill....................................... -- 4(ii)97,500 97,500
-------------- ---------------- ---------------
1,216,194 97,500 1,313,694
============== ================ ===============
Liabilities
Current liabilities
Accounts payable and accrued liabilities....... 116,518 -- 116,518
Deferred Revenue............................... 25,000 -- 25,000
Income taxes payable........................... 15,262 -- 15,262
Other liabilities.............................. 1,261 -- 1,261
-------------- ---------------- ---------------
158,041 158,041
Senior Notes................................... 675,000 -- 675,000
-------------- ---------------- ---------------
833,041 833,041
Minority interest.............................. 7,190 4(ii)(2,500) 4,690
Redeemable Convertible Preferred Stock......... 345,157 -- 345,157
Shareholders' Equity
Common Stock................................... 46,528 4(i) 77,500 224,028
4(ii)100,000
Note receivable (note 4)....................... -- 4(i)(77,500) (77,500)
Other shareholders' equity..................... 7,742 -- 7,742
Deficit........................................ (23,799) -- (23,799)
Accumulated other comprehensive
income.................................... 335 -- 335
-------------- ---------------- ---------------
30,806 100,000 130,806
-------------- ---------------- ---------------
1,216,194 97,500 1,313,694
============== ================ ===============
</TABLE>
PF-4
<PAGE>
<TABLE>
<CAPTION>
Worldwide Fiber Inc.
Pro Forma Consolidated Income Statement
(Unaudited)
For the nine month period ended September 30, 1999
(tabular amounts expressed in thousands of U.S. Dollars)
Pro forma
Worldwide Pro forma Consolidated Income
Fiber Inc. Adjustments Statement
$ $ $
------------ ------------- -----------
<S> <C> <C> <C>
Revenue........................................ 235,138 -- 235,138
Costs.......................................... 165,263 -- 165,263
------- ------ -------
Gross Profit................................... 69,875 -- 69,875
------- ------ -------
Expenses
General and administrative..................... 17,263 5(iii)875 18,138
Depreciation................................... 871 -- 871
Amortization of goodwill....................... -- 5(iv)3,656 3,656
------- ---------- -------
18,134 4,531 22,665
------- ---------- -------
51,741 (4,531) 47,210
Interest expense............................... 20,468 5(i)36,800 57,268
Interest income................................ 8,020 -- 8,020
------- ---------- -------
Income (loss) before income taxes and
minority interest............................ 39,293 (41,331) (2,038)
Provision for income taxes..................... 20,175 5(iii)656
------- 5(iii)(17,260) 3,571
---------- -------
Income (loss) before minority
interest..................................... 19,118 (24,727) (5,609)
Income attributable to minority interest....... 5,747 5(iv)(2,500) 3,247
------- ---------- -------
Net income (loss) for the period 13,371 (22,227) (8,856)
======== ========== =======
</TABLE>
PF-5
<PAGE>
<TABLE>
<CAPTION>
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)
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
Amortization of goodwill.... -- -- -- -- (vii) 4,875 4,875
------- ------- ------- ------- ------- --------
2,738 1,464 1,683 5,885 7,769 13,654
-------- ------- ------- ------- ------- --------
13,960 7,675 2,855 24,490 (13,624) 10,866
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 (98,732) (74,486)
Equity income............... 928 -- -- 928 6(vi) (928) --
-------- ------- ------- ------- -------- -------
Income (loss) before income
taxes and minority
interest.................. 14,663 7,675 2,836 25,174 (99,660) (74,486)
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 (63,004) (47,776)
Income attributable to
minority interest......... -- -- -- -- 6(vi) 464 464
------- ------- ------- ------- ------- -------
Net income (loss) for the
year...................... 9,020 4,352 1,856 15,228 (63,468) (48,240)
======= ======= ======= ======= ======== ========
</TABLE>
PF-6
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the nine month period ended September 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;
These agreements are summarized in the consolidated financial statements of
the Company for the period ended December 31, 1998.
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.
The Company issued 26,080,000 Class A Non-voting shares and 4,920,000 Class
C multiple voting shares, to an executive officer of the Company, for
consideration of $77,500,000. In addition, the Company issued a note receivable
in the amount of $77,500,000 to the executive officer.
PF-7
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the nine month period ended September 30, 1999 and
the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
The Company entered into a commitment with CN and IC to acquire their
respective 25% interests in WFI-CN Fiber Inc. and Worldwide Fiber IC LLC
("CN/IC") in exchange for Class A Non-Voting shares of the Company.
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 nine month period ended September 30, 1999 are based on the
unaudited historical consolidated financial statements of the Company for the
nine month period ended September 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 financial statements of the Company.
PF-8
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the nine month period ended September 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
September 30, 1999
(i) Issuance of shares
In addition, this adjustment records the issuance of 26,080,000 Class A
Non-Voting shares and 4,920,000 Class C multiple voting shares, to the executive
officer. The issuance of shares will result in compensation expense in futures
periods. No adjustment for compensation expense has been recorded for these
proforma financial statements as the services to be provided will only be
received in the future and have no affect on operations presented for 1998 and
1999.
(ii) Acquisition of CN /IC Minority Interests
This adjustment records the Company's acquisition of the shares in WFI-CN
Fiber Inc. and units in Worldwide Fiber IC LLC in exchange for Class A
Non-Voting shares of the Company. This pro forma adjustment assumes a purchase
price of $100,000,000. The number of Class A Non-Voting shares issued may be
adjusted on an initial public offering in accordance with a formula specified in
the purchase agreement. The excess purchase price of $97,500,000 over the cost
of net assets has been allocated to goodwill. Goodwill will be amortized on a
straight-line basis over 20 years which is the estimated useful life of the
fiber optic network assets being constructed on the CN/IC routes.
5. Pro Forma Consolidated Income Statement assumptions and adjustments for the
nine month period ended September 30, 1999
(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 nine month period ended September 30, 1999, which
is not reflected in this pro forma statement.
(ii) Income taxes
This adjustment records income taxes of $3,571,000 for the nine month
period ended September 30, 1999 using an effective tax rate of 41.1%.
PF-9
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the nine month period ended September 30, 1999 and
the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
(iii) Capital taxes
This adjustment records estimated additional BC Corporation Capital taxes
of $875,000 and Federal Large Corporation taxes of $656,000 resulting from the
issuance of the Notes.
(iv) Amortization of Goodwill
This adjustment records amortization of goodwill of $3,656,000 arising from
the acquisition of the CN/IC minority interest.
6. Pro forma consolidated income statement assumptions and adjustments for the
year ended December 31, 1998
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, the effect of the additional interest expense,
including amortization of deferred financing costs, related to the Notes and
1998 Notes, and the amortization of goodwill arising from the acquisition of the
CN/IC minority interests.
(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.
PF-10
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the nine month period ended September 30, 1999 and
the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
(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 $26,710,000 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, 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-11
<PAGE>
Worldwide Fiber Inc.
Notes to Pro Forma Financial Information
(Unaudited)
For the nine month period ended September 30, 1999 and
the year ended December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
(vii) Amortization of Goodwill
This adjustment records amortization of goodwill of $4,875,000 arising from
the acquisition of the CN/IC minority interest.
PF-12
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
WORLDWIDE FIBER INC. UNAUDITED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
<S> <C>
Unaudited Consolidated Balance Sheets............................................................ F-2
Unaudited Consolidated Income Statements......................................................... F-4
Unaudited Consolidated Statement of Changes in Shareholders' 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-19
Consolidated Balance Sheet....................................................................... F-20
Consolidated Income Statement.................................................................... F-22
Consolidated Statement of Changes in Shareholders' Equity........................................ F-23
Consolidated Statement of Cash Flows............................................................. F-24
Notes to Consolidated Financial Statements....................................................... F-25
WORLDWIDE FIBER (USA), INC. AUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1998
Report of Independent Accountants................................................................ F-42
Consolidated Income Statement.................................................................... F-43
Consolidated Statement of Changes in Shareholders' Equity........................................ F-44
Consolidated Statement of Cash Flows............................................................. F-45
Notes to Consolidated Financial Statements....................................................... F-46
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Auditors' Report................................................................................. F-52
Divisional Balance Sheets........................................................................ F-53
Divisional Statements of Operations and Retained Earnings........................................ F-54
Divisional Statements of Cash Flows.............................................................. F-55
Notes to the Divisional Financial Statements..................................................... F-56
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE FIBER INC.
Consolidated Balance Sheets
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
September 30, 1999 December 31, 1998
--------------------- ----------------------
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 675,175 $ 156,366
Short term investments 68,616 -
Accounts receivable 19,114 3,272
Unbilled revenue (note 3) 83,973 10,582
Inventory (note 3) 121,758 25,300
Other current assets 5,524 17,342
--------------------- ---------------------
974,160 212,862
Fixed Assets (note 3) 107,264 15,475
Deposits on long-term construction
contracts (note 8) 100,187 -
Deferred income taxes (note 4) 12,167 1,273
Deferred financing costs 22,416 6,650
--------------------- ---------------------
$ $1,216,194 $ 236,260
===================== =====================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE FIBER INC.
Consolidated Balance Sheets
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
September 30, 1999 December 31, 1998
------------------ --------------------
Liabilities
Current liabilities
<S> <C> <C>
Accounts payable and accrued liabilities (note 3) $ 116,518 $ 20,296
Deferred revenue (note 1) 25,000 --
Advances on contracts -- 13,651
Income taxes payable 15,262 7,609
Other liabilities 1,261 --
------------- -------------
158,041 41,556
Senior Notes (note 9) 675,000 175,000
------------- -------------
833,041 216,556
Minority interest 7,190 1,443
Redeemable Convertible Preferred Stock
Authorized:
100,000,000,000 Series A Non-Voting Convertible Preferred Shares
100,000,000,000 Series B Subordinate Voting Convertible
Preferred Shares
45,000,000 Series C Redeemable Preferred Shares, no par value
Issued and outstanding:
70,934,464 Series A Non-Voting Preferred Shares (including
accretion of discount from redemption value of $1,190 and net of
issuance costs of $1,033) (note 6) 345,157 --
Shareholders' equity
Common stock
Authorized:
Unlimited number of Class A Non-Voting, Class B Subordinate Voting and Class
C Multiple Voting shares, no par value
Issued and outstanding:
191,948,000 (1998 - 40,002,400) Class B Subordinate Voting 35,419 7,400
Shares (note 7)
36,000,000 Class C Multiple Voting Shares (note 7) 11,109 --
Other shareholders' equity 7,742 2,242
(Deficit) retained earnings (23,799) 9,020
Accumulated other comprehensive income 335 (401)
------------- -------------
30,806 18,261
------------- -------------
$ 1,216,194 $ 236,260
============= =============
Commitments (Note 8)
Subsequent events (Note 10)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE FIBER INC.
Consolidated Income Statements
For the periods ended September 30, 1999 and 1998
(tabular amounts expressed in thousands of U.S. dollars)
(unaudited)
For the period from February 5,
1998 (date of incorporation)
Nine months ended to September 30, 1998
September 30, 1999 (operations commenced
June 1, 1998)
------------------ -------------------------------
<S> <C> <C>
Revenue $ 235,138 $ 104,819
Costs 165,263 90,909
------------- -------------
Gross profit $ 69,875 $ 13,910
Expenses:
General and administrative 17,263 1,318
Depreciation 871 260
------------- -------------
18,134 1,578
------------- -------------
51,741 12,332
Interest expense 20,468 --
Interest income 8,020 --
------------- -------------
Income before income taxes, equity loss and
minority interest 39,293 12,332
Equity loss -- (48)
------------- -------------
Income before income taxes and minority
interest 39,293 12,284
Provision for income taxes 20,175 5,402
Income before minority interest 19,118 6,882
Minority interest 5,747 --
------------- -------------
Net income for the period $ 13,371 $ 6,882
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE FIBER INC.
Consolidated Statement of Changes in Shareholders' Equity
For the nine month period ended September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(unaudited)
Class B Subordinated
Voting Shares Class C
(formerly Class A Common) Multiple Voting Shares Other Shareholders' Equity
Additional Unearned
Contributed Paid in Compen-
Shares Amount Shares Amount Surplus Capital sation
----------- ---------- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance-beginning of period 40,002,400 $ 7,400 - $ - $ 2,242 $ - $ -
Issuance of shares for
certain Ledcor assets 159,997,600 25,019
with deferred tax asset
Repurchase of Class B
Subordinate Voting Shares
in exchange for Class B
Subordinate Voting Shares
and Series C Redeemable
Preferred (200,000,000) (32,419)
Shares (note 1) 190,748,000 32,419
Issuance of Class B
Subordinate Voting Shares
for cash (note 1) 1,200,000 3,000
Stock dividend of Series C
Redeemable Preferred
Shares (note 1)
Redemption of Series C
Redeemable Preferred
Shares (note 1)
Issuance of Class C
Multiple Voting
Shares for certain
Ledcor assets with
deferred tax asset
(note 1) 36,000,000 11,109
Accretion of Preferred
Stock to redemption
value
Unearned compensation 16,447 (16,447)
Amortization of compensation
expense 5,500
Comprehensive income
Net income for the
period
Accumulated other
comprehensive
income-foreign
currency translation
------------------------------------------------------------------------------------------
Total comprehensive
income - - - - - - -
------------------------------------------------------------------------------------------
Balance-end of period 191,948,000 $35,419 36,000,000 $11,109 $2,242 $16,447 $(10,947)
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
WORLDWIDE FIBER INC.
Consolidated Statement of Changes in Shareholders' Equity
For the nine month period ended September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(unaudited)
Accumulated
Other Total
Compre- Share-
Retained hensive holders'
Earnings Income equity
-------- ------------ --------
Balance-beginning of period $ 9,020 $ (401) $ 18,261
Issuance of shares for
certain
Ledcor assets with
deferred tax asset 25,019
Repurchase of Class B
Subordinate
Voting Shares in
exchange for Class B
Subordinate Voting Shares
and Series C Redeemable
Preferred Shares (note 1)
Issuance of Class B
Subordinate Voting Shares for
cash ( note 1) 3,000
Stock dividend of Series C
Redeemable Preferred
Shares (note 1) (5,000) (5,000)
Redemption of Series C
Redeemable Preferred
Shares (note 1) (40,000) (40,000)
Issuance of Class C
Multiple Voting
Shares for certain
Ledcor assets with deferred
tax asset (note 1) 11,109
Accretion of Preferred
Stock to redemption value (1,190) (1,190)
Unearned compensation
Amortization of compensation
expense 5,500
Comprehensive income
Net income for the period 13,371 13,371
period
Accumulated other
comprehensive income-foreign
currency translation 736 736
---------------------------------------------
Total comprehensive income 13,371 736 14,107
---------------------------------------------
Balance-end of period $ (23,799) $ 335 $ 30,806
=============================================
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE FIBER INC.
Consolidated Statements of Cash Flows
For the periods ended September 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 September 30, 1998
Nine months ended (operations commenced
September 30, 1999 June 1, 1998)
------------------ -------------------------------
<S> <C> <C>
Cash flows (used in) provided from operating
activities $ (138,614) $ 79
------------- -------------
Cash flows used in investing activities
Fixed asset additions (61,124) --
Purchase of short term investments (68,616) --
------------- -------------
Cash flows provided from financing activities (129,740) --
Issuance of 12% Senior Notes 500,000 --
Issuance of Series A Non-Voting Convertible Preferred 345,000 --
Shares for cash
Issuance of Class B Subordinate Voting Shares for cash 3,000 --
Repurchase of Series C Redeemable Preferred Shares for (45,000) --
cash
Deferred financing costs (16,000) --
------------- -------------
787,000 --
Effect of exchange rate changes on cash 163 --
------------- -------------
Net increase in cash and cash
equivalents 518,809 79
Cash and cash equivalents, beginning
of period 156,366 20
------------- -------------
Cash and cash equivalents, end of period $ 675,175 $ 99
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
1. The Company
Worldwide Fiber Inc. (the "Company") is indirectly a 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. All share amounts have been presented on a post stock split basis
(note 10).
Significant Transactions
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 159,997,600 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.
On September 9, 1999, the Company amended its share capital by
re-designating 200,000,000 Class A Voting Shares to Class B Subordinate Voting
Shares, cancelling its remaining classes of shares and creating Class A
Non-Voting Shares, Class C Multiple Voting shares, Series A and B Convertible
Preferred Shares and Series C Redeemable Preferred Shares. Subsequently, the
Company declared a stock dividend of 5,000,000 (pre-split) Series C Redeemable
Preferred Shares for $5,000,000. Concurrently, the Company repurchased the
200,000,000 outstanding Class B Subordinate Voting Shares from its parent in
exchange for the issuance of 190,748,000 Class B Subordinate Voting Shares and
40,000,000 (pre-split) Series C Redeemable Preferred Shares. The Company then
redeemed the 45,000,000 (pre-split) outstanding Series C redeemable preferred
shares for $45,000,000 cash resulting in a charge to retained earnings of
$40,000,000.
On August 31, 1999 the Company issued 1,200,000 Class B Subordinate Voting
Shares (re-designated from Class A Voting Shares) for $3,000,000 cash and on
September 9, 1999, the Company issued 70,934,464 Series A Non-Voting Convertible
Preferred Shares for $345,000,000 cash (Note 6).
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, the Company issued
36,000,000 Class C Multiple Voting shares to affiliates of Ledcor. In addition,
the Company assumed certain rights and obligations under 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. The cost of the fixed assets acquired amounted to
F-7
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
$26,349,800, the cost of the assets in the accounts of Ledcor. The Company also
received a deferred tax benefit of $7,759,000, as a result of a higher tax cost
versus accounting cost of fixed assets. The Company also recorded deferred
revenue of $25,000,000 relating to a build commitment assumed from Ledcor.
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. Certain comparative figures have been
restated to conform with the current period presentation.
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.
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.
Short term investments
Short term investments consist of highly liquid short term interest bearing
securities with maturities at the date of purchase greater than three months.
Interest earned is recognized immediately in the income statement.
F-8
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
2. Supplemental cash flow information
Nine months ended September 30,
1999 1998
---------------------------------
<S> <C>
Cash paid for income taxes $ 12,778 -
Cash paid for interest 10,451 -
Issuance of common shares for certain Ledcor assets 75,726 8,488
Series C redeemable preferred share stock dividend 5,000 -
Accretion of preferred stock to redemption value 1,190 -
Stock based compensation 5,500 -
3. Balance Sheet components
September 30, 1999 December 31, 1998
------------------ -------------------
Unbilled revenue
Revenue earned on uncompleted contracts $ 235,138 22,236
Less: Billings to date 151,165 11,654
-------------- ----------
$ 83,973 10,582
============== ==========
Inventory
Fiber optic network assets $ 121,209 24,155
Construction supplies and small tools 549 1,145
-------------- ----------
$ 121,758 25,300
============== ==========
F-9
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
September 30, 1999 December 31, 1998
------------------ -----------------
Fixed assets
Fiber optic network assets $ 98,773 11,461
Construction equipment 9,222 4,249
Other 622 229
------------- ------------
108,617 15,939
Less: Accumulated depreciation (1,353) (464)
------------- ------------
Fixed assets - net $ 107,264 15,475
============= ============
The Company has not provided for any depreciation on fiber optic network
assets for the period ended September 30, 1999 as these assets were under
construction.
September 30, 1999 December 31, 1998
------------------ -----------------
Accounts payable and accrued liabilities
Subcontractor and supplier costs $ 75,261 14,961
Subcontractor holdbacks payable 23,800 4,843
Interest payable 17,457 492
-------------- ------------
$ 116,518 20,296
============== ============
4. Income taxes
Income before income taxes and minority interest
The components of income before income taxes and minority interest are as
follows:
F-10
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
Nine months ended
September 30,
1999 1998
------------- --------
Canadian $ 13,839 7,838
U.S. 25,454 4,494
------------- -------
$ 39,293 $12,332
============= =======
Current income taxes
The provision for income taxes attributable to net earnings consists of the
following:
Nine months ended
September 30,
1999 1998
------------- ----------
Canadian $ 9,130 3,605
U.S. federal $ 8,946 1,438
U.S. state and local 2,099 359
------------- ---------
$ 20,175 $ 5,402
============= =========
Deferred income taxes
Significant components of the Company's deferred tax assets are as follows:
F-11
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
September 30, 1999 December 31, 1998
------------------ -----------------
Fixed assets $ 12,167 1,088
Other -- 185
Valuation allowance -- --
--------------- ---------------
Net deferred tax assets $ 12,167 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, 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:
Nine months ended
September 30, 1999 September 30, 1999
Deposits on Deferred
long-term financing
Revenues Fixed assets construction costs
contracts
Canada $ 102,873 $ 27,302 $ -- $ 22,416
U.S. 132,265 79,962 -- --
Barbados -- -- 100,187 --
------------- ------------- ------------- -------------
$ 235,138 $ 107,264 $ 100,187 $ 22,416
============= ============= ============= =============
The revenues are based on the location of the construction activities.
</TABLE>
F-12
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
6. Redeemable Convertible Preferred Stock
On September 9, 1999 the Company authorized the following series of
preferred shares (note 1):
100,000,000,000 Series A Non-Voting Convertible Preferred Shares
100,000,000,000 Series B Subordinate Voting Convertible Preferred Shares
45,000,000 Series C Redeemable Preferred Shares
Series A Non-Voting Convertible Preferred Shares
On September 9, 1999 the Company issued 70,934,464 Series A Non-Voting
Convertible Preferred Shares ("Series A Preferred Shares") for $345,000,000 in
cash.
The Series A Preferred Shares are entitled to dividends on an equivalent
basis to the Class A Non-Voting Shares into which the Series A Preferred Shares
can be converted. The Series A Preferred Shares rank senior to all classes of
common stock upon liquidation, dissolution and wind-up and are junior in right
of payment of all indebtedness of the Company and its subsidiaries.
The Series A Preferred Shares have a mandatory redemption on November 2,
2009 at a liquidation value consisting of the original purchase price of $38.909
per share plus an adjustment equal to 6% per annum of the purchase price, plus
declared and unpaid dividends and the excess of the market value of the Class A
Non-Voting Shares over the liquidation value.
Upon a qualified underwritten public offering of at least $150,000,000 with
a share price of at least 300% of the purchase price of the Series A Preferred
Shares, each Series A Preferred Share may, at the option of the Company, be
converted into Class A Non-Voting Shares at a ratio equal to one plus 6% per
annum. If a qualified underwritten public offering occurs by September 9, 2000
the conversion will be on a one for one basis.
The Series A Preferred Shares may be converted by the holders into Class A
Non-Voting Shares, at any time, on the same basis as the Company's conversion
right and may be converted into Series B Non-Voting Convertible Preferred Shares
on a one for one basis. In addition, the holders of the Series A Preferred
Shares have anti-dilution protection.
F-13
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
Series B Subordinate Voting Convertible Preferred Shares
As at September 30, 1999, there are no Series B Subordinate Voting
Convertible Preferred Shares ("Series B Preferred Shares") outstanding.
The Series B Preferred Shares are entitled to dividends on an equivalent
basis to any dividends declared or paid on Class B Subordinate Voting Shares
into which the Series B Preferred Shares can be converted. The Series B
Preferred Shares rank senior to all classes of common stock upon liquidation,
dissolution and wind-up and are junior in right of payment of all indebtedness
of the Company and its subsidiaries.
The Series B Preferred Shares are entitled to one vote per share.
The Series B Preferred Shares are mandatorily redeemable on November 2,
2009 at a liquidation value of $38.909 per share plus an adjustment equal to 6%
per annum of the purchase price, plus declared and unpaid dividends and the
excess of the market value of the Class B Subordinate Voting Shares over the
liquidation value.
Upon a qualified underwritten public offering of at least $150,000,000 with
a share price of at least 300% of the purchase price of the Series B Preferred
Shares, each Series B Preferred Share, may at the option of the Company, be
converted into Class B Subordinate Voting Shares at a ratio equal to one plus 6%
per annum. If a qualified underwritten public offering occurs by September 9,
2000 the conversion will be on a one for one basis.
The Series B Preferred Shares may be converted into Class B Subordinate
Voting Shares, at any time on the same basis as the Company's conversion right
and may be converted into Series A Preferred Shares on a one for one basis. In
addition, the holders of the Series B Preferred Shares have anti-dilution
protection
Series C Redeemable Preferred Shares
On September 9, 1999 5,000,000 Series C Redeemable Preferred Shares
("Series C Preferred Shares") were issued pursuant to a stock dividend and
40,000,000 Series C Preferred Shares were issued pursuant to a share
re-organization. Subsequently, the Company repurchased the 45,000,000 issued
Series C Preferred Shares for $45,000,000 (note 1). As at September 30, 1999, no
Series C Preferred Shares are outstanding.
F-14
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
The holders of Series C Preferred Shares are not entitled to dividends or
voting rights and may redeem the Series C Preferred Shares at $1 per share after
November 2, 2009.
7. Common stock
On September 9, 1999 the Company authorized the following series of common
stock (note 1):
Unlimited number of Class A Non-Voting Shares
Unlimited number of Class B Subordinate Voting Shares
Unlimited number of Class C Multiple Voting Shares
As at September 30, 1999 the following shares are issued and outstanding:
Class A Non-Voting Shares -
Class B Subordinate Voting Shares 191,948,000
Class C Multiple Voting Shares 36,000,000
The holders of the Class A Non-Voting Shares, Class B Subordinate Voting
Shares, and Class C Multiple Voting Shares participate equally on dividends
declared subject to any preference priority on other classes of shares.
The holders of the Class A Non-Voting Shares are not entitled to voting
rights. The holders of Class B Subordinate Voting Shares are entitled to one
vote per share, and the holders Class C Multiple Voting Shares are entitled to
20 votes per share.
In the event of liquidation, dissolution, or wind-up of the Company, any
payment or distribution of assets will be paid or distributed equally share for
share to the holders of the three classes of common stock.
The holders of Class A Non-Voting Shares are entitled to convert their
shares to Class B Subordinate Voting Shares on a one for one basis. The holders
of Class B Subordinate Voting Shares are entitled to convert their shares to
Class A Non-Voting Shares on a one for one basis and at any time prior to
September 9, 2000 and into Series A Preferred Shares on a one for one basis. The
holders of Class C Multiple Voting Shares are entitled to convert their shares
into Class A Non-Voting Shares or Class B Subordinate Voting Shares on a one for
one basis.
F-15
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
During the nine months ended September 30, 1999, the Company granted stock
options to employees and officers to purchase an aggregate 21.6 million shares
of Class A Non-Voting Shares of the Company at exercise prices between $1.25 and
$2.50 per share. The stock options have terms expiring on or before September
30, 2009.
8. 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
deposits of $101 million in the nine month period ended September 30, 1999.
The Company has placed purchase orders of approximately $47,600,000 with
Nortel Networks.
CN/IC 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. (See Note 10)
9. 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, 2004 at certain
specified redemption prices ranging up to 106.00%. Up to 35% of the Notes may be
redeemed by the Company prior to August 1, 2002 at a redemption price of 112% of
the principal amount with the net proceeds from certain sales of the Company's
common stock. If a change in control occurs, as defined in the Notes indentures,
the holders of the notes can require the company to repurchase all or part of
the notes at 101% of the principal amount. Where excess proceeds from certain
asset sales,
F-16
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
as defined in the Notes indentures, exceeds $10,000,000 the Company is required
to make an offer to repurchase the maximum amount of Notes that can be
repurchased with such excess proceeds at an offer price equal to 100% of the
principal amount.
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.
10. Subsequent events
Conversion of Class B Subordinate Voting Shares
On November 18, 1999, the Company's parent exercised its conversion rights
and converted 150,636,000 Class B Subordinate Voting Shares into 150,636,000
Class A Non-Voting Shares.
Stock Split
On November 24, 1999, all classes of the Company's issued and outstanding
shares were split on the basis of eight new shares for each one share previously
held. The number of issued and outstanding shares at September 30, 1999 and
December 31, 1998 are presented on a post-split basis.
Senior Credit Facility
The Company has entered into a commitment letter with certain lenders
pursuant to which the lenders would provide a three-year secured revolving
credit facility totaling US$115,000,000. The execution and delivery of the
definitive documentation is in progress.
Hibernia Credit Facility
The Company has entered into a commitment letter with certain lenders
pursuant to which the lenders would provide a credit facility totaling
US$565,000,000. The execution and delivery of definitive documentation is in
progress.
F-17
<PAGE>
WORLDWIDE FIBER INC.
Notes to Consolidated Financial Statements
September 30, 1999
(tabular amounts expressed in thousands of U.S. dollars)
(Unaudited)
CN/IC
The Company entered into a commitment with CN and IC to acquire their
respective 25% interests in WFI-CN Fiber Inc. and Worldwide Fiber IC LLC in
exchange for Class A non-voting shares of the Company. The number of Class A
non-voting shares to be issued by the Company may be adjusted on an initial
public offering in accordance with a formula specified in the agreement.
Issuance of shares
The Company entered into an agreement with an executive officer of the
Company to issue 26,080,000 Class A Non-Voting shares and 4,920,000 Class C
Multiple Voting shares for consideration of $77,5000,000. In addition, as the
Company issued a note receivable in the amount of $77,500,000 to the executive
officer.
F-18
<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 in Canada. 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 Note 14
which is as of January 20, 2000
F-19
<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-20
<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
40,002,400 Class A shares (note 9) (note 14)........... 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-21
<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-22
<PAGE>
<TABLE>
<CAPTION>
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)
Common stock
Class A
Accumulated
other Total
Contributed Retained income shareholder's
Shares Amount surplus earnings comprehensive equity
--------- -------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--beginning of period
Incorporation shares issued,
February 5, 1998............ 800 $ -- $ -- $ -- $ -- $ --
Issuance of shares for certain
Ledcor assets with deferred
tax asset (note 5).......... 1,600 7,400 1,088 -- -- 8,488
Issuance of shares for
investments (note 5)........ 40,000,000 -- -- -- -- --
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..... -- -- -- 9,020 (401) 8,619
-------- ----- ----- ----- ------ -------
Balance--end of period.......... 40,002,400 $7,400 $2,242 $9,020 $(401) $18,261
========== ====== ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-23
<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-24
<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 159,997,600 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-25
<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.
All share amounts have been retroactively adjusted for the eight-for-one
stock split on November 18, 1999 (note 14).
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.
F-26
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
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.
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.
F-27
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Unbilled revenue
Revenue recognized using the percentage-of-completion basis (see "Revenue
recognition") less billings to date is recorded as unbilled revenue.
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.
F-28
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
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
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
============
F-29
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
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
=======
The cost of right of way accesses is included in the cost of fiber optic
network assets when construction commences.
Inventory
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 con-
F-30
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
struction 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 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
F-31
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
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.
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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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
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-38
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
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.
Common stock
Subsequent to year end, the Company granted stock options to employees and
officers to purchase an aggregate of 21.6 million shares of Class A Non-Voting
Shares of the Company at prices between $1.25 and $2.50 per share. The stock
options have terms expiring on or before September 30, 2009.
CN/IC 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.
The Company entered into a commitment with CN and IC to acquire their
respective 25% interests in WFI-CN Fiber Inc. and Worldwide Fiber IC LLC in
exchange for Class A Non-Voting Shares of the Company. The number of Class A
non-voting shares to be issued by the Company may be adjusted on an initial
public offering in accordance with a formula specified in the agreement.
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 36,000,000 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. The cost of
the fixed assets acquired amounted to $26,349,800, the cost of the assets in the
accounts of Ledcor. The Company also received a deferred tax benefit of
$7,759,000, as a result of a higher tax cost versus ac-
F-39
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
counting cost of fixed assets. The Company also recorded deferred revenue of
$25,000,000 relating to a build commitment assumed from Ledcor.
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 (pre-split) Series C Redeemable Preferred Shares. Concurrently, the
Company repurchased the 200,000,000 outstanding Class B Subordinate Voting
Shares from its parent in exchange for the issuance of 190,748,000 Class B
Subordinate Voting Shares and 40,000,000 (pre-split) Series C Redeemable
Preferred Shares. The Company then redeemed the 45,000,000 (pre-split)
outstanding Series C Redeemable Preferred Shares for $45,000,000 of cash.
Issuance of Shares
On August 31, 1999 the Company issued 1,200,000 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 70,934,464 Series A Non-Voting Preferred
Shares for $345,000,000 of cash.
The Company entered into an agreement with an executive officer of the
Company to sell 26,080,000 Class A Non-Voting shares and 4,920,000 Class C
Multiple Voting shares for consideration of $77,500,000. In addition, the
Company issued a note receivable in the amount of $77,500,000 to the executive
officer.
Senior Credit Facility
The Company has entered into a commitment letter with certain lenders
pursuant to which the lenders would provide a three-year secured revolving
credit facility totaling US$115,000,000. The execution and delivery of the
definitive documentation is in progress.
Hibernia Credit Facility
The Company has entered into a commitment letter with certain lenders
pursuant to which the lenders would provide a credit facility totaling
US$565,000,000. The execution and delivery of definitive documentation is in
progress.
F-40
<PAGE>
Worldwide Fiber Inc.
Notes to Consolidated Financial Statements (continued)
December 31, 1998
(tabular amounts expressed in thousands of U.S. dollars)
Conversion of Class B Subordinate Voting Shares
On November 18, 1999, the Company's parent exercised its conversion rights
and converted 18,829,150 Class B Subordinate Voting Shares into 18,829,150 Class
A Non-Voting Shares.
Stock Split
On November 24, 1999, all classes of the Company's issued and outstanding
shares were split on the basis of eight shares for each one share previously
held.
F-41
<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-42
<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-43
<PAGE>
<TABLE>
<CAPTION>
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)
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-44
<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-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)
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-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)
(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-47
<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)
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-48
<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-49
<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-50
<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-51
<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-52
<PAGE>
<TABLE>
<CAPTION>
LEDCOR INDUSTRIES LIMITED--
TELECOMMUNICATIONS DIVISION
Divisional Balance Sheets
(All figures are in U.S. dollars)
August 31, August 31,
May 31, 1998 1997 1996
------------ ------------ ------------
ASSETS
CURRENT
<S> <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-53
<PAGE>
<TABLE>
<CAPTION>
LEDCOR INDUSTRIES LIMITED
TELECOMMUNICATIONS DIVISION
Divisional Statements of
Operations and Retained Earnings
(All figures are in U.S. dollars)
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-54
<PAGE>
<TABLE>
<CAPTION>
LEDCOR INDUSTRIES LIMITED--TELECOMMUNICATIONS DIVISION
Divisional Statements of Cash Flow
(All figures are in U.S. dollars)
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-55
<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-56
<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-57
<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-58
<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-59
<PAGE>
<TABLE>
<CAPTION>
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:
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-60
<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-61
<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% -
</TABLE>
The Division also had significant accounts receivable from fONOROLA which
accounted for the following percentages of trade accounts receivable:
<TABLE>
<CAPTION>
May 31, 1998 August 31, 1997 August 31, 1996
------------ --------------- ---------------
<S> <C> <C> <C>
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-62
<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-63
<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-64
<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.
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-2
<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-3
<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-4
<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
10.31 Stock Purchase Agreement by and between Worldwide Fiber Inc.
and Gregory B. Maffei, dated December 22, 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.
II-5
<PAGE>
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).
** Previously filed.
# 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 information
called for by the applicable registration form with respect to reofferings by
persons who may
II-7
<PAGE>
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 Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Vancouver BC, Canada on January 21, 2000.
WORLDWIDE FIBER INC.
By: /s/ DAVID LEDE
------------------
Name: David Lede
Title: Chairman of the Board
II-9
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
* Chairman of the January 21, 2000
- ----------------------------- Board
David Lede
/s/ GREGORY MAFFEI Principal January 21, 2000
- ----------------------------- Executive Officer
Gregory Maffei
* Vice Chairman January 21, 2000
- -----------------------------
Clifford Lede
- ----------------------------- Vice Chairman January 21, 2000
* (Principal
- ----------------------------- Financial and
Larry Olsen Accounting
Officer)
* Director January 21, 2000
- -----------------------------
Ron Stevenson
* Director January 21, 2000
- -----------------------------
Stephen Stow
* Director January 21, 2000
- -----------------------------
Jim Voelker
* Director January 21, 2000
- -----------------------------
William Ramsey
* Director January 21, 2000
- -----------------------------
Andrew Rush
* Director January 21, 2000
- -----------------------------
Robert Gheewalla
II-10
<PAGE>
* Director January 21, 2000
- -----------------------------
Glenn Creamer
* Director January 21, 2000
- -----------------------------
Neil Garvey
Worldwide Fiber (USA), Inc. Worldwide Fiber January 21, 2000
(USA), Inc.
(Authorized U.S.
By: * Representative)
------------------
Larry Olsen, Authorized
Signatory
*By: /s/ DAVID LEDE
------------------
David Lede
Attorney-in-fact
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
10.31 Stock Purchase Agreement by and between Worldwide Fiber
Inc. and
Gregory B. Maffei, dated December 22, 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.
II-15
<PAGE>
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).
** Previously filed.
# 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
<PAGE>
================================================================================
January , 2000
WORLDWIDE FIBER
[OBJECT OMITTED]
WORLDWIDE FIBER'S LOGO
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.
- --------------------------------------------------------------------------------
================================================================================
[LETTERHEAD OF FARRIS, VAUGHAN, WILLS & MURPHY]
January 20, 2000
Worldwide Fiber Inc.
1510 - 1066 West Hastings Street
Vancouver, B.C.
V6E 3X1
Dear Sirs/Mesdames:
Re: WORLDWIDE FIBER INC. --
FORM-4 REGISTRATION STATEMENT
We are Canadian counsel for Worldwide Fiber Inc. (the "Company"). In this regard
we have been requested to provide an opinion in connection with the
US$500,000,000 aggregate principal amount of the Company's 12% Senior Notes due
2009 (the "Exchange Notes") which are appended as Exhibit A to the Indenture
(defined below), to be registered pursuant to a Form F-4 Registration Statement
(the "Registration Statement"), filed with the United States Securities and
Exchange Commission. We have been advised by representatives of the Company that
the Exchange Notes will be issued pursuant to an indenture dated as of July 28,
1999 (the "Indenture"), between the Company and HSBC Bank USA, as Trustee, in
connection with the exchange offer pursuant to which the Exchange Notes will be
issued for a like principal amount of the Company's outstanding US$500,000,000
12% Senior Notes due 2009.
For the purposes of our opinion, we have examined the following:
(a) an executed copy of the Indenture; (b) an executed copy of the Registration
Statement; and (c) the Articles and by-laws of the Company.
For the purposes of this opinion, we have also examined originals, facsimiles or
copies certified or otherwise identified to our satisfaction, of comments and
instruments, such statutes, such records of corporate proceedings, certificates
of corporate officers, certificates of governmental offices and such other
documents and materials as we have considered necessary or appropriate. In such
examination we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the completeness and conformity
to the originals of all documents submitted to us as facsimiles or copies, and
the authenticity of the originals of such facsimiles or copies.
We are qualified to express opinions only with respect of the laws of the
Province of British Columbia and the laws of Canada applicable therein. The
opinions expressed herein are made as of the date hereof.
We are of the opinion that:
1. The Company is a corporation incorporated under the laws of Canada and has
the corporate power and capacity to own and lease its property and assets
and to carry on its business as described in the Registration Statement.
2. The Company has the corporate power and capacity to execute and deliver the
Exchange Notes and to consummate the transactions contemplated thereby.
3. The execution by the Company of, and the performance by the Company of, its
obligations under the Exchange Notes and the consummation by the Company of
the transactions contemplated thereby have been duly authorized by the
necessary corporate action on the part of the Company.
Consent is hereby given to the use of our name under the captions "Description
of Notes--Enforceability of Judgments," "Legal Matters" and "Enforceability of
Civil Liabilities Against Foreign Persons" in the Prospectus included in the
Registration Statement and to the filing, as an exhibit to the Registration
Statement, of this letter. In giving such consent we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
United States Securities Act of 1933.
Cahill Gordon & Reindel in its opinion filed as Exhibit 5.2 to the Registration
Statement, is entitled to rely on this opinion.
Yours truly,
/s/ FARRIS, VAUGHAN, WILLS & MURPHY
(LETTERHEAD OF CAHILL GORDON & REINDEL)
January 19, 1999
(212) 701-3000
Re: Worldwide Fiber, Inc.
Registration Statement on
Form F-4 (No. 333-89695)
Dear Ladies and Gentlemen:
We have acted as special counsel for Worldwide Fiber Inc. (the
"Company") in connection with the Registration Statement on Form F-4 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") for registration under the Securities Act of 1933,
as amended (the "Act"), of $500,000,000 principal amount of 12% Senior Notes due
2009 of the Company (the "Exchange Notes"). The Exchange Notes will be issued
pursuant to an indenture dated as of July 28, 1999 (the "Indenture") between the
Company and HSBC Bank USA, as Trustee. The Registration Statement was filed in
connection with the exchange offer (the "Exchange Offer") pursuant to which the
Exchange Notes will be issued for a like principal amount of the Company's
outstanding 12% Senior Notes due 2009 (the "Old Notes").
In connection therewith, we have examined, among other things,
originals or copies, certified or otherwise identified to our satisfaction, of
the Certificate of Incorporation of the Company, resolutions of the Board of
Directors of the Company with respect to the filing of the Registration
Statement and such other documents as we have deemed necessary or appropriate
for the purpose of rendering this opinion.
In our examination of documents, instruments and other papers, we
have assumed the genuineness of all signatures on original and certified
documents and the conformity to original and certified documents of all copies
submitted to us as conformed, photostatic or other copies. As to matters of
fact, we have relied upon representations of officers of the Company.
Based upon the foregoing, and subject to the qualifications stated
herein, it is our opinion that, assuming due authorization of the Exchange Notes
by the Company, the Exchange Notes, when duly executed and delivered in exchange
for the Old Notes in accordance with the terms of the Exchange Offer and the
Indenture as contemplated by the Registration Statement, will constitute valid
and legally binding obligations of the Company, entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their terms
except that the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity and the discretion of the court before which any
proceeding therefor may be brought.
We are attorneys admitted to practice in the State of New York. We
express no opinion concerning the laws of any jurisdiction other than the laws
of the United States of America and the State of New York.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and related Prospectus. Our consent to
such reference does not constitute a consent under Section 7 of the Act as, in
consenting to such reference, we have not certified any part of the Registration
Statement and do not otherwise come within the categories or persons whose
consent is required under said Section 7 or under the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ CAHILL GORDON & REINDEL
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
<PAGE>
Table of Contents
Page
SECTION 1. Issuance and Sale of Preferred Shares.....................1
1.1. The Purchase..............................................1
1.2. The Closing...............................................1
1.3. Deliveries at the Closing.................................2
1.4. Purchase Price Adjustment.................................2
SECTION 2. Representations and Warranties of the Corporation.........5
2.1. Organization and Good Standing; Power and Authority;
Qualifications..........................................5
2.2. Authorization of the Documents............................6
2.3. Capitalization............................................6
2.4. Authorization and Issuance of Share Capital...............8
2.5. Reservation of Shares.....................................8
2.6. Financial Statements......................................9
2.7. Absence of Undisclosed Liabilities........................9
2.8. Absence of Changes.......................................10
2.9. No Conflict..............................................11
2.10. Agreements...............................................11
2.11. Intellectual Property Rights.............................12
2.12. Equity Investments; Subsidiaries.........................14
2.13. Corporate Minute Books...................................14
2.14. Suitability..............................................14
2.15. Assets...................................................15
2.16. Employee Benefit Plans...................................15
2.17. Labor Relations; Employees...............................17
2.18. Litigation; Orders.......................................18
2.19. Compliance with Laws.....................................18
2.20. Compliance with Telecommunications Laws..................19
2.21. Telecommunications Licenses..............................21
2.22. Licenses, Permits and Rights-of-Way......................21
2.23. Offering Exemption.......................................22
2.24. Related Transactions.....................................22
2.25. Boycott..................................................23
2.26. Taxes....................................................23
2.27. Environmental Protection.................................26
2.28. Consents.................................................27
2.29. Insurance................................................27
2.30. Brokers..................................................28
2.31. Suppliers and Customers..................................28
2.32. Real Property............................................28
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<PAGE>
Page
2.33. Investment Banking Services..............................28
2.35. Previous Issuances Exempt................................29
2.36. Investment Company Act...................................29
2.37. Disclosure...............................................29
SECTION 3. Representations, Warranties and Acknowledgments of
the Investors..........................................29
SECTION 4. Covenants Prior to Closing...............................32
4.1. Cooperation by Parties; Satisfaction of Closing
Conditions.............................................32
4.2. Conduct of Business......................................32
4.3. Required Notices.........................................33
4.4. No Shop..................................................33
SECTION 5. Other Covenants..........................................34
5.1. Use of Proceeds..........................................34
5.2. Shareholders Agreement...................................34
5.3. HSR Filing...............................................34
5.4. Tax Indemnity............................................34
5.5. Roll-Up Transactions.....................................36
SECTION 6. Conditions to the Purchase...............................36
6.1. Conditions to Obligations of Each Party..................36
6.2. Conditions to Obligations of the Investors...............36
6.3. Conditions to the Obligations of the Corporation.........38
6.4. Default by an Investor...................................39
SECTION 7. Termination..............................................39
SECTION 8. Transfer Taxes...........................................39
SECTION 10. Expenses.................................................39
SECTION 11. Indemnification..........................................40
11.1. General Indemnification..................................40
11.2. Indemnification Principles...............................41
11.3. Claim Notice.............................................42
11.4. Claim Procedure..........................................42
SECTION 12. Remedies.................................................43
SECTION 13. Further Assurances.......................................44
SECTION 14. Successors and Assigns...................................44
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Page
SECTION 15. Entire Agreement.........................................44
SECTION 16. Notices..................................................44
SECTION 17. Amendments...............................................47
SECTION 18. Counterparts.............................................47
SECTION 19. Headings.................................................48
SECTION 20. Nouns and Pronouns.......................................48
SECTION 21. Governing Law; Waiver of Jury Trial......................48
SECTION 22. Severability.............................................48
SECTION 23. Currency.................................................48
SECTION 24. No Partnership...........................................48
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<PAGE>
Schedules
Schedule A Articles of Amendment
Schedule 1.1 List of Investors
Schedule 2.1(a) WFI Entities, Organization and Good Standing
Schedule 2.3(a) Capitalization
Schedule 2.3(b)(i) List of Shareholders
Schedule 2.3(b)(ii) Common Share Equivalents
Schedule 2.3(b)(iv) WFI Share Encumbrances or Restrictions
Schedule 2.3(b)(v) Nomination or Election of Director Rights
Schedule 2.7 Undisclosed Liabilities
Schedule 2.8 Changes
Schedule 2.10(a) Agreements
Schedule 2.10(c) Fiber Sales Agreements
Schedule 2.10(d) Changes in Network Description
Schedule 2.11(d) Trademarks
Schedule 2.11(e)(f) Third Party Intellectual Property
Schedule 2.15(a) Encumbrances
Schedule 2.15(c) Condemnation Proceedings
Schedule 2.16 Employee Benefit Plans
Schedule 2.17 Labor Relations; Employees
Schedule 2.18 Litigation; Orders
Schedule 2.19 Non-Compliance with Laws; Licenses
Schedule 2.20(a) Compliance with Telecommunications Laws
Schedule 2.20(e) Compliance with Communications Act
Schedule 2.21(a) Telecommunications Licenses
Schedule 2.22 Local Licenses, Permits and Rights-of-Way
Schedule 2.24(a) Related Transactions
Schedule 2.26 Taxes
Schedule 2.29 Insurance
Schedule 2.32 Real Property
Schedule 3 U.S. Representations and Warranties
Schedule 4.2 Conduct of Business
Schedule 5.1 Use of Proceeds
Schedule 5.2 Form of Shareholders Agreement
Schedule 6.2(f) Form of Registration Rights Agreement
Schedule 6.2(i) Form of Opinions
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<PAGE>
Index of Defined Terms
1933 Act. Section 2.6(b)
Access Rights. Section 2.22(b)
Additional Issuance Ratio. Section 1.4(b)
Affiliate. Section 1.4(b)
Agreement. recitals
Arrangement. Section 2.27
Articles of Amendment. recitals
Balance Sheet. Section 2.6(a)
Benefit Plan. Section 2.16(a)
Board of Directors. Section 6.2(d)
Business Day. Section 1.2
Canadian Securities Laws. Section 3(i)
CFC. Section 2.26(d)
Claim Notice. Section 11.3
Closing. Section 1.2
Closing Date. Section 1.2
Code. Section 2.16(a)
Common Share Equivalents. Section 2.3(b)(ii)
Common Shares. Section 2.3(a)(ii)
Communications Act. Section 2.20(e)
Communications statutes. Section 2.20(a)
Competition Act. Section 2.18
Contract. Section 2.10
Conversion Shares. Section 2.5
Corporation. recitals
CRTC. Section 2.18
Deductible. Section 11.1
Deemed Outstanding Shares. Section 1.4(b)
Defaulted Shares. Section 6.4
Defined Benefit Plan. Section 2.16(a)
DLJ. recitals
Documents. Section 6.2(d)
Employee. Section 2.16(a)
Employee Agreement. Section 2.16(a)
Employee Shares. Section 1.4(b)
Encumbrances. Section 2.15(a)
Environmental Laws. Section 2.27
ERISA. Section 2.16(a)
ERISA Affiliate. Section 11.1
FCC. Section 2.18
FPHC. Section 2.26(d)
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<PAGE>
GAAP. Section 2.6(a)
Governmental Authority. Section 2.26(n)
GSCP Parties. recitals
Hazardous Substances. Section 2.27
Hibernia Commitment. Section 6.2(l)
Hibernia Project. Section 2.10(e)
Hibernia Supply Contract. Section 2.10(e)
HSR. Section 5.3
Industry Canada. Section 2.18
Intellectual Property. Section 2.11
Investor. recitals
Investor Entity. Section 11.1
Lapsed Options. Section 2.3(c)
Leased Real Properties. Section 2.32
Ledcor Roll-Up Agreement. Section 2.3(c)
Licenses. Section 2.19(a)
Limit. Section 11.1
Litigation. Section 21
Losses. Section 11.2
Material Adverse Effect. Section 2.1
Minority Roll-Up Agreement. Section 1.4(b)
Minority Roll-Up Shares. Section 1.4(b)
Minority Roll-Up Transaction. Section 1.4(b)
Multiemployer Plans. Section 2.16(a)
Network. Section 2.10(d)
Offering Memorandum. Section 2.10(d)
Other Shareholders. Section 1.4(b)
Owned Real Properties. Section 2.32
Ownership Regulations. Section 2.20(b)
Permits. Section 2.22
Permitted Assigns. Section 14
Permitted Encumbrances. Section 1.4(e)
Permitted Lapsed Option Reissuance. Section 1.4(b)
Person. Section 2.26(n)
PFIC. Section 2.26(d)
PFIC Annual Information Statement. Section 2.26(e)
PHC. Section 2.26(d)
Preferred Shares. Section 2.3(a)(i)
Prohibited Transaction. Section 4.4
Project Subsidiary. Section 4.2(b
Providence. recitals
Purchase. Section 1.1
Purchase Price. Section 1.1
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<PAGE>
Purchase Price Adjustment. Section 1.4(a)
Real Properties. Section 2.32
Registration Rights Agreement. Section 6.2(f)
Release. Section 2.27
Retired Welfare Plan. Section 2.16(a)
Securities Act. Section 2.6(b)
Securities Laws. Section 2.35
Series A Non-Voting Preferred Shares. recitals
Shareholders Agreement. Section 5.2
Subsidiary. Section 2.12
Tax Return. Section 2.26
Taxes. Section 2.26
Telecommunications Licenses. Section 2.21(a)
Transaction Securities. Section 2.5
Transfer Taxes. Section 8
Tyco. recitals
WFI Entities. Section 2.1
WFI Subsidiary. Section 2.12
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<PAGE>
WORLDWIDE FIBER INC.
PREFERRED SHARE PURCHASE AGREEMENT
AGREEMENT, dated as of September 7, 1999 (as amended from time to time,
this "Agreement"), by and among WORLDWIDE FIBER INC., a Canadian corporation
(the "Corporation"), DWF SRL a Barbados company ("DLJ"), GSCP3 WWF (BARBADOS)
SRL, a Barbados company, WWF (BARBADOS) SRL, a Barbados company (collectively,
the "GSCP Parties"), PROVIDENCE EQUITY FIBER L.P., a Delaware limited
partnership ("Providence"), and TYCO GROUP S.A.R.L., a Luxembourg corporation
("Tyco") (each individually an "Investor" and collectively with DLJ, the GS
Parties, and Providence, the "Investors").
W I T N E S S E T H :
WHEREAS, the Corporation wishes to sell to the Investors, and the Investors
wish to purchase from the Corporation, shares of a newly created series of
Preferred Shares, the Series A Non-Voting Preferred Shares (the "Series A
Non-Voting Preferred Shares") with the terms set forth in the Articles of
Amendment of the Corporation in the form included in Schedule A hereto (the
"Articles of Amendment").
ACCORDINGLY, the parties hereto hereby agree as follows:
SECTION 1 Issuance and Sale of Preferred Shares.
1.1. The Purchase. (a) Subject to the terms and conditions set forth in
this Agreement, at the Closing, each Investor shall, severally and not jointly,
purchase from the Corporation and the Corporation shall issue to each Investor,
the number of Series A Non-Voting Preferred Shares set forth opposite such
Investor's name on Schedule 1.1 (the "Purchase"), subject to adjustment as set
forth in Section 1.4, at the purchase price set forth opposite such Investor's
name on Schedule 1.1. The aggregate purchase price to be paid by the Investors
to the Corporation for the Series A Non-Voting Preferred Shares purchased by
them hereunder is U.S. $345,000,000 (the "Purchase Price").
1.2. The Closing. (a) Subject to the terms and conditions set forth in this
Agreement, the closing of the Purchase (the "Closing") shall take place at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, NY 10004 on the first Business Day after the day on which the last of the
conditions set forth in Section 6 hereof shall have been fulfilled or waived
(or, if contemplated to be satisfied simultaneously with the Closing, are
capable of being satisfied) or such other date as may be agreed to in writing by
each of the parties hereto (the "Closing Date"). For purposes of this
<PAGE>
Agreement, "Business Day" means any day other than a Saturday, a Sunday or a day
when commercial banks in New York City or Barbados are required to be closed.
1.3. Deliveries at the Closing. (a) At the Closing, the Corporation shall
deliver to each Investor a certificate or certificates representing the Series A
Non-Voting Preferred Shares purchased by such Investor, registered in the name
of such Investor or its nominee. Delivery of such certificates to an Investor
shall be made against receipt at the Closing by the Corporation from such
Investor of the Purchase Price, which shall be paid by wire transfer to an
account designated at least one Business Day prior to the Closing by the
Corporation.
(b) At the Closing, the Corporation will deliver to the Investors, and
the Investors will deliver to the Corporation, the various certificates,
instruments and documents referred to in Section 6 below.
1.4. Purchase Price Adjustment. (a) In addition to, and without limitation
of all other indemnities in this Agreement, as a protection to the Investors
against the existence of issued shares or other securities of the Corporation
not disclosed in Section 2.3, in the event that, at any time, the representation
and warranty set forth in Section 2.3(c) is determined to have been incorrect as
of the Closing, the Corporation shall issue to the Investors (on a pro rata
basis, based upon the amount of each Investor's original investment), at no
additional cost to the Investors, and as an adjustment to the purchase price
(whether under this paragraph (a) or paragraphs (b) or (c) of this Section 1.4,
a "Purchase Price Adjustment") paid by the Investors per Series A Non-Voting
Preferred Share, an additional amount of Series A Non-Voting Preferred Shares
such that, if such issuance of additional Series A Non-Voting Preferred Shares
had been made at Closing, such representation and warranty would have been true
and accurate in all respects.
(b) If at any time after the Closing, the Corporation shall either:
(i) subject to paragraph (f) of this Section 1.4, issue any Employee Shares
(other than (x) Common Shares issued upon the exercise of stock options listed
as Common Share Equivalents on Schedule 2.3(b)(ii) (i.e., [ ]* options granted
pursuant to the Worldwide Fiber Inc. 1998 Long Term Incentive and Share Award
Plan (Amended) (the "1998 Plan") (the "Existing 10% Option Pool")) or (y) Common
Shares issued upon the exercise of stock options granted under the New 5% Option
Pool (as defined below) to the extent the grant of such stock options as
Employee Shares previously resulted in an adjustment under this Section 1.4(b)),
Deemed Outstanding Shares, Permitted Reissued Options or Common Shares issued
upon the exercise of Permitted Reissued Options) or (ii) issue any Minority
Roll-Up Shares (except Minority Roll-Up shares issued after September 7, 2000),
then the Corporation shall (in the case of clause (i), at the end of each
calendar quarter (unless otherwise requested by any Investor), and in the case
of clause (ii) immediately) issue to the Investors (on a pro rata basis, based
upon the amount of each Investor's original investment), at no additional cost
to the Investors, and as a Purchase Price Adjustment, a number of Series A
Non-Voting Preferred Shares per each Series A Non-Voting Preferred Share equal
to
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 406.
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<PAGE>
[
]*
For purposes of this Agreement:
"Affiliate" means any partnership, corporation, trust, or other
organization which is controlled by or under common control of the Corporation
or its Subsidiaries.
"Deemed Outstanding Shares" means (i) any Common Shares or Common Share
Equivalents issuable pursuant to any Contract (as defined in Section 2.10)
entered into by the Corporation prior to the date hereof, or any preemptive
right granted by the Corporation prior to the date hereof, and (ii) 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 entered into on September 7, 1999 between Ledcor
Industries Limited, Ledcor Industries Inc. and the Corporation (the "Ledcor
Roll-Up Agreement"). For greater certainty, Deemed Outstanding Shares do not
include Common Shares issuable pursuant to the Minority Roll-Up Transactions.
"Employee Shares" means any Common Shares (as defined in Section 2.3(a)) or
Common Share Equivalents (as defined in Section 2.3(b)) issued to directors,
officers, employees or consultants of the Corporation, its Subsidiaries or the
entities permitted under the terms of the 1998 Plan.
"Lapsed Options" means any stock options listed as Common Share Equivalents
on Schedule 2.3(b)(ii) (options granted pursuant to the Existing Option Pool) or
up to [ ]* options issued by the Corporation pursuant to the 1998 Plan after the
date hereof (the "New 5% Option Pool"), in either case which after the Closing
Date lapses or terminates without being converted or exercised.
"Minority Roll-Up Shares" means any Common Shares or Common Share
Equivalents issued pursuant to any Minority Roll-Up Transaction.
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 406.
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<PAGE>
"Minority Roll-Up Transaction" means the issuance by the Corporation of
Common Shares or Common Share Equivalents pursuant to any of the Minority
Roll-Up Agreements (or any transactions or series of related transactions with
similar effect).
"Minority Roll-Up Agreement" means (a) the unanimous shareholder agreement
dated as of May 28, 1999 between Worldwide Fiber Networks Ltd., Canadian
National Railway Company and WFI-CN Fibre Inc., (b) the limited liability
company agreement of Worldwide Fiber IC LLC effective as of May 28, 1999 between
Worldwide Fiber IC Holdings, Inc. and IC Fiber Holdings Inc., and (c) the
shareholders agreement dated December 31, 1998 between the Corporation,
Worldwide Fiber Networks Ltd., Ledcor Industries Inc., Worldwide Fiber (USA),
Inc. (formerly known as Pacific Fiber Link, Inc.), Mi-Tech Communications, LLC,
Ledcor and Michels Pipeline Construction, Inc.
"Permitted Reissued Option" means any Common Share Equivalent issued in
accordance with the Corporation's stock option plan then in effect to replace
any Lapsed Option with a conversion or exercise price equal to or greater than
the conversion or exercise price of the Lapsed Option (as adjusted to reflect
any stock split, stock dividend, combination, reorganization, reclassification
or other similar event involving Common Shares) and a term no longer than the
original term of the Lapsed Option.
(c) If, at the time of any Purchase Price Adjustment pursuant to Section
1.4(a) or (b), all Series A Non-Voting Preferred Shares have been converted into
Common Shares, in lieu of issuing Series A Non-Voting Preferred Shares pursuant
to Section 1.4(a) or Section 1.4(b), the Corporation shall promptly issue to the
Investors (on a pro rata basis), at no additional cost to the Investors and as a
Purchase Price Adjustment, an additional amount and kind of Common Shares equal
to the amount and kind of Common Shares issuable upon the conversion (based on
the conversion ratio that would have been in effect if the Series A Non-Voting
Preferred Shares were outstanding and had not been converted into Common Shares)
of the amount of Series A Non-Voting Preferred Shares which would have been
issued with respect to such Purchase Price Adjustment pursuant to Section 1.4(a)
or Section 1.4(b) treating for purposes of such Purchase Price Adjustment the
Series A Non-Voting Preferred Shares as not having been converted into Common
Shares.
(d) Any additional Series A Non-Voting Preferred Shares and Common Shares
issued to the Investors pursuant to this Section 1.4 shall be treated as if they
were issued on the date hereof and shall reflect any dividends or other
distributions which would have accrued or have been payable with respect to and
the application of any anti-dilution, ratable treatment or similar provisions as
set forth in the Articles of Amendment, applicable law or otherwise which would
have been applicable to such Series A Non-Voting Preferred Shares and Common
Shares had they been issued on the date hereof.
(e) In connection with any issuance of Series A Non-Voting Preferred Shares
pursuant to this Section 1.4, the Corporation shall reserve a sufficient number
of shares of Class A Non-Voting Common Shares for issuance to the Investors upon
the conversion of
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<PAGE>
the Series A Non-Voting Preferred Shares so issued. Any Series A Non-Voting
Preferred Shares or Common Shares issued to the Investors pursuant to this
Section 1.4 shall, when issued, be validly issued and fully paid and
nonassessable with no personal liability attaching to the ownership thereof
(other than any Encumbrances, as defined in Section 2.15, that exist as a result
of any act, or failure to act, by any current or former holder, whether
beneficial or of record, of such shares, referred to as "Permitted
Encumbrances").
(f) Section 1.4(b) shall not apply to the issuance of Employee Shares after
the sum of all Employee Shares issued for which adjustment has been made in
accordance with Section 1.4(b)(i) equals 1,982,653 Common Shares or Common Share
Equivalents on an as converted basis (as equitably adjusted to reflect any stock
split, stock dividend, combination, reorganization, reclassification or other
similar event involving Common Shares).
SECTION 2. Representations and Warranties of the Corporation. The
Corporation hereby represents and warrants to the Investors as of the date
hereof and as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date hereof throughout this Agreement) as follows:
2.1. Organization and Good Standing; Power and Authority; Qualifications.
The Corporation and each of its subsidiaries (all of which are set forth in
Schedule 2.1(a)) (collectively with the Corporation, the "WFI Entities") (a) is
a corporation, limited liability company, general or limited partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, organization, amalgamation or continuance, (b)
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted and as proposed
to be conducted, and (c) has all requisite corporate power and authority to
enter into and carry out the transactions contemplated by each of the Documents
(as defined in Section 6.2(d)) to which it is a party. Each WFI Entity is
qualified to transact business as an extra-provincial corporation or foreign
corporation in, and is in good standing under the laws of, those jurisdictions
listed on Schedule 2.1(a) in square brackets opposite its name, which
jurisdictions constitute all of the jurisdictions wherein the character of the
property owned or leased or the nature of the activities conducted by it makes
such qualification necessary except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, condition
(financial or otherwise), operations, properties, assets or liabilities of the
WFI Entities taken as a whole (a "Material Adverse Effect"). For all purposes of
this Agreement, the business, prospects, conditions (financial or otherwise),
operations, properties, assets or liabilities of the WFI Entities shall be
deemed to include the business, prospects, condition (financial or otherwise),
operations, properties, assets and liabilities associated with the Fiber Assets
(and the rights, liabilities and obligations associated with the Fiber Assets)
as defined in the Ledcor Roll-Up Agreement.
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<PAGE>
2.2. Authorization of the Documents. The execution and delivery by the
Corporation of each of the Documents and the performance by the Corporation of
its obligations thereunder has been duly authorized by all requisite corporate
action on the part of the Corporation. As of the date hereof, this Agreement
constitutes, and as of the Closing Date, each of the Documents will constitute,
a legal, valid and binding obligation of the Corporation, enforceable against
the Corporation in accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and by equitable principles generally,
whether enforced in a court of law or at equity.
2.3. Capitalization. (a) The authorized capital of the Corporation
immediately following the Closing will consist of:
(i) Preferred Shares. An unlimited number of Preferred Shares (the
"Preferred Shares") of which 8,866,808 Series A Non-Voting Preferred Shares are
issued and outstanding, no Series B Subordinate Voting Preferred Shares (the
"Series B Voting Preferred Shares") are issued and outstanding and no Series C
Redeemable Preferred Shares are issued and outstanding, and all such shares are
validly issued, fully paid and nonassessable with no personal liability
attaching to the ownership thereof when so issued and delivered and free and
clear of all Encumbrances other than Permitted Encumbrances; and
(ii) Common Shares. An unlimited number of Class A Non-Voting Shares, an
unlimited number of Class B Subordinate Voting Shares and an unlimited number of
Class C Multiple Voting Shares (together with any common shares of the
Corporation of any other class or series hereafter authorized, the "Common
Shares"), of which no Class A Non-Voting Shares are issued and outstanding,
23,843,500 of Class B Subordinate Voting Shares are issued and outstanding, and
no Class C Multiple Voting Shares are issued and outstanding. All such
outstanding shares are validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and free and clear of all
Encumbrances other than Permitted Encumbrances.
(b) Except as set forth in clause (a) above, there will be no share capital
of the Corporation outstanding immediately following the Closing.
(i) Schedule 2.3(b)(i) Part I hereto contains a complete and correct list
of each holder of record of share capital of each WFI Entity immediately
preceding the Closing, including (A) whether, for purposes of the foreign
ownership and control requirements under the Telecommunications Act and the
rules and regulations promulgated thereunder, such holder is a "Canadian" or a
"non-Canadian," and (B) the number of shares of capital held by each such holder
and the percentage represented by such shares of (1) the outstanding Common
Shares, on a fully diluted basis (assuming the conversion, exchange or exercise
of all outstanding Common Share Equivalents), and (2) the total number of votes
able to be cast on any matter by all voting securities of the Corporation.
Schedule 2.3(b)(i) Part II hereto
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contains a complete and correct list of each holder of record of share capital
of the Corporation immediately following the Closing.
(ii) Schedule 2.3(b)(ii) hereto contains a complete and correct list of all
outstanding warrants, options, agreements, convertible securities or other
commitments or outstanding securities convertible into, or exchangeable or
exercisable for, Common Shares (collectively, "Common Share Equivalents"), or
pursuant to which any WFI Entity is or may become obligated to issue any shares
of its capital or other securities, which (A) names the holder of record of such
Common Share Equivalents, (B) and specifies which of the Common Share
Equivalents are, to the knowledge of the Corporation, "Canadian" for purposes of
the foreign ownership and control requirements under the Telecommunications Act
and the rules and regulations promulgated thereunder, and (C) the shares of
capital or other securities required to be issued thereunder as of the date
hereof and as of the Closing Date and the price per share, if any, payable with
respect to the issuance of any share of capital issuable thereunder. Schedule
2.3(b)(ii) also sets forth a true and accurate calculation of the number of the
Deemed Outstanding Shares (as defined in Section 1.4(b)). For greater certainty,
Common Share Equivalents do not include the agreements and commitments related
to the Minority Roll-Up Transactions or the Ledcor Roll-Up Agreement (as defined
in Section 1.4(b)).
(iii) Except as set forth on Schedule 2.3(b)(i), the Corporation has no
knowledge of the names of any beneficial owners of shares of capital of any WFI
Entity who are not otherwise holders of record. Except as set forth on Schedule
2.3(b)(ii) or as contemplated by the Documents there are, and immediately after
the Closing, there will be, no Common Share Equivalents and no rights, including
preemptive or similar rights, to purchase or otherwise acquire shares or sell or
otherwise transfer shares in the capital (or in the case of non-corporate
entities, other ownership interests) of any WFI Entity pursuant to any provision
of law, the articles of incorporation or the by-laws or similar constituent
documents of such WFI Entity, any agreement to which such WFI Entity is a party
or otherwise.
(iv) Except as set forth on Schedule 2.3(b)(iv) or as contemplated by the
Documents, none of the WFI Entities is a party to, and, to the Corporation's
knowledge, there are, and immediately after the Closing, there will be, no
agreement, restriction or encumbrance (such as a preemptive or similar right of
first refusal, right of first offer, proxy, voting agreement, voting trust,
registration rights agreement, shareholders' agreement, etc., whether or not the
Corporation is a party thereto) with respect to the purchase, sale or voting of
any shares of capital of any WFI Entities (whether outstanding or issuable upon
conversion, exchange or exercise of outstanding securities) or other securities
of any WFI Entities pursuant to any provision of law, the Articles of
Incorporation or By-Laws, any agreement or otherwise.
(v) Except (i) as set forth on Schedule 2.3(b)(v), (ii) as contemplated by
the Documents and (iii) for each shareholder's right to vote its Common Shares
for the election of directors, no person has the right to nominate or elect one
or more directors of any WFI Entities.
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<PAGE>
(c) The Series A Non-Voting Preferred Shares issued to the Investors on the
Closing Date under this Agreement would, if converted into Common Shares, as of
the Closing Date represent, in the aggregate, [ ]* of the outstanding Common
Shares of the Corporation (treating for purposes of these calculations (i) all
Common Shares outstanding on the Closing Date as outstanding, (ii) all Deemed
Outstanding Shares (and any Common Shares or Common Share Equivalents issuable
pursuant to Deemed Outstanding Shares) as outstanding, (iii) all Common Shares
Equivalents outstanding on the Closing Date (or issuable pursuant to Deemed
Outstanding Shares) as having been converted, exchanged, exercised, issued,
and/or outstanding, as the case may be, and the resulting Common Shares as
outstanding, and (iv) all Series A Non-Voting Preferred Shares as having been
converted into outstanding Common Shares).
2.4. Authorization and Issuance of Share Capital. (a) The authorization,
issuance, sale and delivery of the Series A Non-Voting Preferred Shares pursuant
to this Agreement, and (b) the authorization, reservation, issuance, sale and
delivery of the Conversion Shares, in each case, have been duly authorized by
all requisite corporate action on the part of the Corporation, and when issued,
sold and delivered in accordance with this Agreement, the Transaction Securities
will be validly issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof, free and clear of any
Encumbrances (other than any Permitted Encumbrances) and not subject to
preemptive or similar rights of the shareholders of the Corporation or others.
The terms, designations, powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of any series of Common Shares, or any series of Preferred Shares
of the Corporation are as stated in the Articles of Amendment and the By-Laws.
2.5. Reservation of Shares. The Corporation has reserved a sufficient
number of shares of (a) Class A Non-Voting Shares and Series B Voting Preferred
Shares for issuance to the Investors upon the conversion of any Series A
Non-Voting Preferred Shares issued to the Investors in accordance with this
Agreement (including pursuant to the provisions of Sections 1.4(a) and (b)), (b)
Series A Non-Voting Preferred Shares for issuance to the Investors pursuant to
the provisions of Sections 1.4(a) and 1.4(b), (c) Series A Non-Voting Preferred
Shares and Class B Subordinate Voting Shares for issuance to the Investors upon
conversion of the Series B Voting Preferred Shares, and (d) Common Shares for
issuance upon the exercise of all other Common Share Equivalents outstanding on
the date hereof. The Common Shares, Series B Voting Preferred Shares and Series
A Non-Voting Preferred Shares issuable upon conversion of the Series A
Non-Voting Preferred Shares or the Series B Voting Preferred Shares, as the case
may be, shall be referred to collectively as the "Conversion Shares," and the
Conversion Shares, together with the Series A Non-Voting Preferred Shares issued
pursuant to Sections 1.1 and 1.4, shall be referred to collectively as the
"Transaction Securities."
2.6. Financial Statements. (a) The Corporation has made available to the
Investors the audited divisional statements of operations
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 406.
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<PAGE>
and retained earnings and cash flows of the predecessor of the Corporation for
the fiscal years ended March 31, 1996 and August 31, 1997 and the nine months
ended May 31, 1998 and the audited divisional balance sheets of the predecessor
of the Corporation as of August 31, 1996, August 31, 1997 and May 31, 1998. The
Corporation has made available to the Investors the audited consolidated
statements of income, changes in shareholders' equity and cash flows of the
Corporation and its subsidiaries for the period ended December 31, 1998 and the
audited balance sheet of the Corporation and its subsidiaries as of December 31,
1998, and the unaudited consolidated balance sheet of the Corporation and its
subsidiaries as of June 30, 1999 (the "Balance Sheet") and the related unaudited
consolidated statements of income, changes in shareholders' equity and cash
flows of the Corporation and its subsidiaries for the six months ended June 30,
1999. All such financial statements (i) are in accordance with the books and
records of the predecessor of the Corporation, the Corporation and its
subsidiaries, (ii) have been prepared in accordance with generally accepted
accounting principles in the United States ("GAAP") consistently applied (except
that such unaudited financial statements do not contain all of the footnotes
required under GAAP) and (iii) fairly present the financial position of the
predecessor of the Corporation, or the Corporation and its subsidiaries as of
August 31, 1996, August 31, 1997, May 31, 1998, December 31, 1998 and June 30,
1999, respectively, and the results of their operations and cash flows for the
fiscal years ended March 31, 1996 and August 31, 1997 and the nine months ended
May 31, 1998, the fiscal year ended December 31, 1998 and the six months ended
June 30, 1999, respectively.
(b) The Corporation has made available to the Investors the pro forma
consolidated statements of income of the Corporation and its subsidiaries for
the fiscal year ended December 31, 1998. All such pro forma financial data was
prepared on a basis consistent with the historical financial statements of the
Corporation and its subsidiaries and the predecessor of the Corporation and its
subsidiaries, and give effect to the assumptions used in the preparation thereof
on a reasonable basis in accordance with Regulation S-X under the United States
Securities Act of 1933, as amended (the "1933 Act" or the "Securities Act") and
present fairly the data for the periods presented.
2.7. Absence of Undisclosed Liabilities. Except as disclosed on Schedule
2.7, no WFI Entity has any liabilities or obligations (whether known or unknown,
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due) other than (a) liabilities or obligations reserved against or
otherwise disclosed in the Balance Sheet or the footnotes thereto, (b) other
liabilities or obligations which were incurred after June 30, 1999 in the
ordinary course of business consistent (in amount and kind) with past practice
(none of which is a liability resulting from breach of contract, breach of
warranty, tort, infringement, claim or lawsuit) and which, individually or in
the aggregate, do not exceed US$10,000,000 and (c) liabilities or obligations
under Contracts (but not liabilities for breaches thereof) (x) identified in
Schedule 2.10 or (y) that are not required to be identified on Schedule 2.10
which arise in the ordinary course of business.
2.8. Absence of Changes. Except as set forth on Schedule 2.8, since
December 31, 1998, each WFI Entity has conducted its business
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<PAGE>
in the ordinary course, consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
operations, properties, prospects, results of operations, business, assets, or
liabilities of any WFI Entity or any event or condition which could reasonably
be expected to, individually or in the aggregate, have such a material adverse
change, (b) any waiver or cancellation of any material right of any WFI Entity,
or the cancellation of any material debt or claim held by any WFI Entity, (c)
any payment, discharge or satisfaction of any claim, liability or obligation of
any WFI Entity other than in the ordinary course of business, (d) any
Encumbrance upon the assets of any WFI Entity other than an Encumbrance which
arises in the ordinary course of business and which does not materially impair
such WFI Entity's ownership, or use of such asset or ability to obtain financing
by using such asset as collateral, (e) any declaration or payment of dividends
on, or other distribution with respect to, or any direct or indirect redemption
or acquisition of, any securities of any WFI Entity other than as specifically
contemplated in this Agreement, (f) any issuance of any shares, bonds or other
securities of any WFI Entity, (g) any sale, assignment or transfer of any
tangible or intangible assets of any WFI Entity except in the ordinary course of
business, (h) any loan by any WFI Entity to any officer, director, employee,
consultant or shareholder of such WFI Entity (other than advances to such
persons in the ordinary course of business in connection with travel and travel
related expenses), (i) any damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the assets, property, financial
condition or results of operations of any WFI Entity, (j) other than salary
increases in the ordinary course of business which would not constitute a Major
Transaction (as defined in the Shareholders Agreement) if the Shareholders
Agreement had been in effect, any increase, direct or indirect, in the
compensation (including bonuses and other benefits) paid or payable to any
officer or director of any WFI Entity or, other than in the ordinary course of
business, to any other employee, consultant or agent of any WFI Entity, (k) any
change in the accounting or tax methods, practices or policies, or any material
tax election, of any WFI Entity, (l) any indebtedness incurred for borrowed
money by any WFI Entity other than (1) in the ordinary course of business or (2)
pursuant to the Hibernia Commitment (as defined in Section 6.2(l)), (m) any
amendment to or termination of any material Contract to which any WFI Entity is
a party, (n) to the best knowledge of the Corporation, any material adverse
change with respect to the regulation of the Corporation and the WFI Entities
taken as a whole or its activities by any administrative agency or governmental
body, (o) any material change in the manner of business or operations of the
Corporation and the WFI Entities taken as a whole (including, without
limitation, any accelerations or deferral of the payment of accounts payable or
other current liabilities or deferral of the collection of accounts or notes
receivable), (p) any capital expenditures with respect to tangible assets or
commitments therefor by any WFI Entity that aggregate (with respect to all WFI
Entities) in excess of US$10,000,000, (q) any amendment of the articles of
incorporation, by-laws or other organizational documents of any WFI Entity other
than as specifically contemplated by this Agreement, (r) any transaction entered
into by a WFI Entity other than in the ordinary course of business or any other
transaction entered into by a WFI Entity material to the Corporation and the WFI
Entities taken as a whole whether or not in the ordinary course of business
other than as specifically contemplated by this Agree-
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<PAGE>
ment, or (s) any agreement or commitment (contingent or otherwise) by any WFI
Entity to do any of the foregoing.
2.9. No Conflict. The execution, delivery and performance by the
Corporation of the Documents and the consummation by the Corporation of the
transactions contemplated hereby and thereby and the compliance by each WFI
Entity with the provisions hereof and thereof (including, without limitation,
the issuance, sale and delivery by the Corporation of the Transaction
Securities) will not (a) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body applicable to any WFI
Entity, or any of their respective properties or assets, (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, or result in
the creation of any Encumbrance upon any of its properties or assets under, any
Contract, license or permit to which any WFI Entity is a party or (c) violate
the Articles of Continuance, as amended or By-Laws of the Corporation or the
Articles of Incorporation or By-Laws or other organizational documents of any
other WFI Entity.
2.10. Agreements. (a) Except as set forth on Schedule 2.10(a), no WFI
Entity is a party to any indenture, mortgage, guaranty, lease, license or other
contract, agreement or understanding, written or oral (a "Contract"), including
all construction agreements, asset swap agreements, co-development agreements,
right of way agreements and joint ventures, other than any Contract which (i)
pursuant to its terms, has expired, been terminated or fully performed by the
parties, and in each case, under which no WFI Entity has any liability,
contingent or otherwise, or (ii) involves payments to or from such WFI Entity
(as opposed to an indemnity agreement or similar contract under which a WFI
Entity has any contingent liability) which payments do not aggregate
US$10,000,000, and in each case, is not material to the business or financial
condition of the Corporation and the WFI Entities taken as a whole.
(b) Complete copies (or, if oral, full and accurate written descriptions)
of all Contracts required to be listed on Schedule 2.10(a), including all
amendments thereto, have been made available to the Investors. Each such
Contract is, as of the date hereof, and will continue to be after the Closing, a
legal, valid and binding obligation, enforceable against, and in full force and
effect against, all the parties thereto on identical terms following the
Closing. There is no breach, violation or default by any WFI Entity and no event
(including, without limitation, the consummation of the transactions
contemplated by the Documents or any pending or threatened (in writing)
termination, cancellation or material modification) which, with notice or lapse
of time or both, would (A) constitute a breach, violation or default by such WFI
Entity under any such Contract or (B) give rise to any lien or right of (or
result in any) termination, modification, cancellation, prepayment, suspension,
limitation, revocation or acceleration against such WFI Entity under, any such
Contract except where such breach, violation or default would not have a
Material Adverse Effect. To the knowledge of the Corporation, no other party to
any of such Contracts is in arrears in respect of the performance or
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<PAGE>
satisfaction of the terms and conditions on its part to be performed or
satisfied under any of such Contracts, no waiver or indulgence has been granted
by any of the parties thereto and no party to any of such Contracts has
repudiated any provision thereof.
(c) Schedule 2.10(c) is a materially accurate and complete list of fiber
sales agreements, including the parties thereto, and the total revenue and the
booked portions thereof as of June 30, 1999.
(d) The disclosure contained in the Corporation's final offering memorandum
for $US500,000,000 of 12% Senior Notes due 2009 dated July 23, 1999 (the
"Offering Memorandum"), under the caption "Business--The Network" is accurate
and complete as at the date thereof and there has been no material change in the
facts disclosed therein since July 23, 1999, except as set forth on Schedule
2.10(d) (such disclosure amended as described in Schedule 2.10(d) referred to
herein as the "Network".
(e) The agreement dated June 18, 1999 with Tyco Submarine Systems Ltd. (the
"Hibernia Supply Contract") (a copy of which agreement has been previously
provided to the Investors and is described in Schedule 2.10(a)) contains an
accurate and complete summary of the current proposed completion schedule for
the Hibernia Project. "Hibernia Project" means the installation of a submarine
cable system connecting cable landing stations located in Lynn, Massachusetts to
Halifax, Nova Scotia to Dublin, Ireland to Southport (Liverpool), U.K. connected
to London, U.K. (vicinity) and connecting to Lynn, Massachusetts, with four
repeated segments of 4 fiber pairs capable of carrying thirty-two 10Gb/s
channels, including the cable landing stations.
2.11. Intellectual Property Rights. (a) Each WFI Entity owns or has the
right to use pursuant to license, sublicense, agreement or permission all
Intellectual Property (as defined below), individually or in the aggregate,
material to the operation of its business as currently conducted. Each item of
Intellectual Property owned or used by such WFI Entity immediately prior to the
Closing will be owned or available for use by such WFI Entity on identical terms
and conditions immediately subsequent to the Closing. Each WFI Entity has taken
all necessary action, and continues to do so, to maintain and protect their
interest in each item of Intellectual Property that is material to the conduct
of its business.
(b) To the knowledge of the Corporation, no WFI Entity has interfered with,
infringed upon or misappropriated any Intellectual Property rights of third
parties, and no WFI Entity has received any charge, complaint, claim, demand or
notice alleging any such interference, infringement or misappropriation
(including any claim that it must license or refrain from using any Intellectual
Property rights of any third party). To the knowledge of the Corporation, no
third party has interfered with, infringed upon or misappropriated any
Intellectual Property rights of any WFI Entity.
(c) No WFI Entity owns any patent or has any pending patent application.
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<PAGE>
(d) Schedule 2.11(d) identifies all registered or unregistered trademarks
of each WFI Entity. No WFI Entity has granted any license or other permission to
any third party with respect to any of its Intellectual Property with a value of
US$100,000 or greater.
(e) The Corporation has made available to the Investors a correct and
complete copy of all licenses held by the Corporation and material to the
conduct of its business as presently conducted with respect to its Intellectual
Property, which licenses are identified in Schedule 2.11(e). With respect to
each item of Intellectual Property required to be identified in Schedule 2.11(d)
and Schedule 2.11(e) and except as set forth in Schedule 2.11(e):
(i) the relevant WFI Entity possesses all right, title and interest in and
to the item, free and clear of any encumbrance, license or other restriction;
(ii) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge; and
(iii) such WFI Entity has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation or other conflict with
respect to the item.
(f) Schedule 2.11(f) identifies each item of Intellectual Property that is
material to the conduct of its business as presently conducted. No WFI Entity
has granted any sublicense or similar right with respect to any such agreements
or Intellectual Property, and, to the knowledge of the Corporation, (i) each
such item of Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree, ruling or change and (ii) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand is pending or to the
knowledge of the Corporation is threatened which challenges the legality,
validity, or enforceability of any such item of Intellectual Property.
(g) To the knowledge of the Corporation, neither it nor any other WFI
Entity interferes with, infringes upon or misappropriates any Intellectual
Property rights of third parties as a result of the operation of its business
except which interference, infringement or misappropriation would not have a
Material Adverse Effect.
For purposes of this Agreement, "Intellectual Property" means all worldwide (a)
inventions and discoveries (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereto, and all patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and reexaminations
thereof, (b) trademarks, service marks, trade dress, logos, trade names and
corporate names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith, (c)
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith, (d) mask works and all applications,
registrations and renewals in connection therewith, (e) know-how, trade secrets
and confidential business in-
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formation, whether patentable or unpatentable and whether or not reduced to
practice (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production process and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals), (f)
computer software (including data and related documentation), (g) other
proprietary rights, (h) copies and tangible embodiments thereof (in whatever
form or medium) and (i) licenses and agreements in connection therewith.
2.12. Equity Investments; Subsidiaries. (a) Schedule 2.1(a) sets forth a
complete and accurate list of each Subsidiary of the Corporation (each a "WFI
Subsidiary"). Except as set forth on Schedule 2.1(a), the Corporation has never
had, nor does it presently have, any Subsidiaries, nor has it owned, nor does it
presently own, whether directly or indirectly owned, any share capital or other
proprietary interest, directly or indirectly, in any corporation, association,
trust, partnership, joint venture or other entity. For purposes of this
Agreement, the term "Subsidiary" means, with respect to any person, any company,
limited liability company, general or limited partnership or other entity (i) of
which at least a majority of the shares of capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other similar managing body of such company, partnership or other
entity are at the time owned or controlled, directly or indirectly, by such
person or (ii) the management of which is otherwise controlled, directly or
indirectly, through one or more intermediaries by such person.
(b) The capital stock of each WFI Subsidiary held by a WFI Entity is
validly issued and outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof, and is free of any Encumbrances,
except as set forth on Schedule 2.15(a).
2.13. Corporate Minute Books. The corporate, partnership or limited
liability company records of each WFI Entity are correct and complete in all
material respects. True and complete copies of all minutes of meetings or other
actions by the directors, members, partners, shareholders or incorporators of
each WFI Entity since their respective inceptions to the Closing Date have been
made available to the Investors.
2.14. Suitability. (a) To the knowledge of the Corporation, none of the
following events has occurred during the last five years with respect to any
director or officer of the Corporation: (i) a petition under Canadian federal
bankruptcy or insolvency laws was filed by or against, or a receiver, fiscal
agent or similar officer was appointed for the business or property of such
person; (ii) such person was convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding; (iii) such person is subject to an
order, judgment or decree enjoining him from engaging in any kind of business
practice or any other activity in connection with the purchase or sale of
securities, or to be associated with persons engaging in such activities; (iv)
such person was found by a court of competent jurisdiction in a civil action or
by a government agency to have violated any secu-
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<PAGE>
rities laws, regulation or policy; or (v) such person has been the subject of
any investigation in respect of the breach or contravention of any securities
law, regulation or policy whether in Canada or any other jurisdiction.
(b) To the knowledge of the Corporation, none of the events described in
Item 401(f) of Regulation S-K under the 1933 Act, has occurred during the last
five years with respect to any director or officer of the Corporation.
2.15. Assets. (a) Each WFI Entity has good and marketable title to, or a
valid leasehold interest in or contractual right to use, all of its assets and
properties, free and clear of any mortgages, judgments, claims, liens, security
interests, pledges, escrows, charges or other encumbrances of any kind or
character whatsoever ("Encumbrances") except (i) as disclosed in Schedule
2.15(a), (ii) Encumbrances for taxes not yet due and payable, or (iii)
Encumbrances set forth on Schedule 2.15(a) for taxes and charges and other
claims, the validity of which it is contesting in good faith. The assets and
property owned by, or leased to, any WFI Entity are sufficient for the conduct
of the business and operation of such WFI Entity as presently conducted.
(b) All buildings, facilities, machinery, equipment, furniture, leasehold
and other improvements, fixtures, vehicles, structures, any related capitalized
items and other tangible property owned by, or leased to any WFI Entity, as of
the date hereof, (i) are in good operating condition and repair (normal wear and
tear excepted), free (in the case of buildings or structures located on the Real
Properties) of any material structural or engineering defects, (ii) are subject
to continued repair and replacement in accordance with past practice and all
material applicable regulations, and (iii) are suitable for their current use in
all material respects.
(c) Except as set forth on Schedule 2.15(c), no WFI Entity has received
written notice of, or has knowledge of, any pending, threatened or contemplated
condemnation proceeding or similar taking affecting the assets (including,
without limitation, any assets comprising or relating to the Corporation's fiber
optic network of such WFI Entity (including the Real Properties, as defined in
Section 2.32) which, if condemned or taken, would constitute a Material Adverse
Effect.
2.16. Employee Benefit Plans. (a) Schedule 2.16 hereto sets forth all
Benefit Plans and Employee Agreements. For purposes of this Agreement (i)
"Benefit Plan" means each plan, program, policy, payroll practice, contract,
agreement or other arrangement, or commitment therefor, providing for
compensation, severance, termination pay, pension, retirement or any other
post-termination benefit, performance awards, share or share-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded, written or oral, which is now or previously has
been sponsored, maintained, contributed to or required to be contributed to by
any WFI Entity or pursuant to which any WFI Entity has any liability, contingent
or otherwise; (ii) "Employee Agreement" means each management, employment,
bonus, option, equity (or equity related), severance, consulting, noncompete,
confidentiality or similar agreement or con-
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tract between any WFI Entity and any current, former or retired employee,
officer, consultant, independent contractor, agent or director of such WFI
Entity (an "Employee") who receives or received annual salary from such WFI
Entity in excess of US$150,000 (excluding written offers of employment at will
that do not include any severance benefits other than those to which the
Employee may be entitled under applicable law); and (iii) "Defined Benefit Plan"
means any "registered pension plans" (as defined in the Income Tax Act (Canada))
or any "defined benefit plan" (as defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") Section 3(35)); (iv) "Multiemployer
Plans" means any "multiemployer plan" (as defined in ERISA Section 3(37)) as to
which any WFI Entity or ERISA Affiliates (as defined below) is required to
contribute; and (v) "Retired Welfare Plan" means any Benefit Plan which
provides, or has any liability to provide, life insurance or medical, severance
or other employee welfare benefits to any Employee beyond his or her retirement
or termination of employment, except as required by Section 4980B of the
Internal Revenue Code of 1986, as amended (the "Code"). No WFI Entity or ERISA
Affiliate currently sponsors, maintains, contributes to, or is required to
contribute to, and no WFI Entity or ERISA Affiliate has any material liability
contingent or otherwise with respect to any Defined Benefit Plan, Retired
Welfare Plan or Multiemployer Plan.
(b) The Corporation has made available to the Investors current, accurate
and complete copies of all documents embodying or relating to each Benefit Plan
and each Employee Agreement, including all amendments thereto, trust or funding
agreements relating thereto (if any), the most recent annual report (Series 5500
and related schedules) required under ERISA (if any), summary annual reports,
the most recent determination letter (if any) received from Revenue Canada or
the IRS, the most recent summary plan description (with all material
modifications) (if any), if the Benefit Plan is funded, the most recent annual
and periodic accounting of Benefit Plan assets, the most recent actuarial
report, if any, prepared for each Benefit Plan, and all material communications
to any Employee or Employees relating to any Benefit Plan or Employee Agreement
which could materially increase the liability under any such plan or agreement.
(c) To the knowledge of the Corporation, no Employee has been hired in
violation of any restrictive covenant or any non-compete agreement with any
other person or entity.
(d) With respect to each Benefit Plan and/or Employee Agreement, as the
case may be, (i) each WFI Entity has performed all obligations (including
contribution obligations) required to be performed by it under or in respect of
each Benefit Plan and Employee Agreement and no WFI Entity is in default under
or in violation of, any Benefit Plan or Employee Agreement except where such
default or violation would not have a Material Adverse Effect, (ii) each Benefit
Plan has been established and maintained in accordance with its terms and in
material compliance with all applicable Canadian and non-Canadian laws,
statutes, orders, rules and regulations, including without limiting the
foregoing, the timely filing of all required reports, documents and notices,
where applicable, with any governmental agency (Canadian or non-Canadian), (iii)
each WFI Entity has complied with all of its obligations un-
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der each Employee Agreement and each Employee Agreement is presently, and has at
all times in the past been, in compliance with all statutes, orders, rules and
regulations applicable to it, (iv) to the knowledge of the Corporation, each
Employee Agreement that is a confidentiality or other similar agreement is fully
enforceable in accordance with its terms and, to the knowledge of the
Corporation, no person or entity is presently, or has at any time in the past
been, in violation of any of the terms of any such Employee Agreement, (v) each
Benefit Plan intended to qualify under Section 401 of the Code has received or
has timely applied for a determination letter by the IRS to the effect that each
such Benefit Plan is so qualified and that each trust forming a part of any such
Benefit Plan is exempt from tax pursuant to Section 501(a) of the Code and, to
the knowledge of the Corporation, no circumstances exist which could adversely
affect this qualification or exemption; (vi) no material "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Benefit Plan; (vii) no action or failure
to act and no transaction or holding of any asset by, or with respect to, any
Benefit Plan has or may subject any WFI Entity or any fiduciary to any material
tax, penalty or other liability, whether by way of indemnity or otherwise,
(viii) there are no actions, proceedings, arbitrations, suits, claims or other
similar proceedings pending, or to the knowledge of the WFI Entities, threatened
or anticipated (other than routine claims for benefits) against any WFI Entity
or any administrator, trustee or other fiduciary of any Benefit Plan with
respect to any Benefit Plan or Employee Agreement, or against any Benefit Plan
or against the assets of any Benefit Plan, and (ix) no Benefit Plan is under
audit or investigation by any governmental agency (Canadian or non-Canadian),
and to the knowledge of the WFI Entities, no such audit or investigation is
pending or threatened.
(e) The execution of, and performance of the transactions contemplated in,
this Agreement or the other Documents will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event under
any Benefit Plan or Employee Agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to fund
benefits with respect to any Employee or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of any WFI Entity to
amend or terminate any Benefit Plan or (iii) result in any payment made or to be
made by any WFI Entity constituting an "excess parachute payment" within the
meaning of Section 280G of the Code.
2.17. Labor Relations; Employees. Schedule 2.17 hereto lists all employees
of any WFI Entity with either (i) an annual base salary in excess of US$150,000
or (ii) employed under terms of written employment agreements that are not
terminable upon giving reasonable notice in accordance with applicable law that
provide for severance, change of control or other similar compensation
materially in excess of the amounts that would otherwise be payable to such
employee under applicable statutes or at common law. Except as listed on
Schedule 2.17, no WFI Entity is bound by a change of control provision or change
of control agreement in respect of any employee of a WFI Entity. Except as set
forth on Schedule 2.17 hereto, (a) no WFI Entity is delinquent in payments to
any of its employees, for any wages, salaries, commissions, bonuses or other
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compensation for any services performed through the date hereof or amounts
required to be reimbursed by them through the date hereof, (b) each WFI Entity
is in material compliance with all applicable Canadian and non-Canadian federal,
provincial, state and local laws, rules and regulations respecting employment,
employment practices, occupational health and safety, workers' compensation, pay
equity, labor, terms and conditions of employment and wages and hours, (c)
except as listed on Schedule 2.17, no WFI Entity is bound by or subject to (and
none of its assets or properties is bound by or subject to) any written or oral,
express or implied, commitment or arrangement with any labor union, and no labor
union has requested or, to the knowledge of the WFI Entities, has sought to
represent any of the employees, representatives or agents of any WFI Entity, or
has bargaining rights in respect of any of the employees, representatives or
agents of the WFI Entities, (d) there is no labor strike, dispute, slowdown or
stoppage actually pending, or, to the knowledge of the WFI Entities, threatened
against or involving any WFI Entity, and (e) other than as set forth on Schedule
2.17, to the knowledge of the Corporation, no salaried key employee has any
plans to terminate his or her employment with any WFI Entity.
2.18. Litigation; Orders. Except as set forth on Schedule 2.18, there is no
civil, criminal or administrative action, suit, claim, notice, hearing, inquiry,
proceeding or investigation at law or in equity by or before any court,
arbitrator or similar panel, governmental instrumentality or other agency
Canadian or non-Canadian (including, without limitation, proceedings, inquiries
or investigations of the Canadian Federal Department of Industry ("Industry
Canada"), the Canadian Radio-television and Telecommunications Commission (the
"CRTC"), the U.S. Federal Communication Commission (the "FCC") or arising under
the Competition Act (Canada) (the "Competition Act")) now pending or, to the
knowledge of the Corporation, threatened in writing against any WFI Entity or
the assets or the business of any WFI Entity. No WFI Entity is subject to any
order, writ, injunction or decree of any court of any Canadian or non-Canadian
federal, provincial, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality which could reasonably be
expected to have a Material Adverse Effect.
2.19. Compliance with Laws. (a) Except as provided in Schedule 2.19, each
WFI Entity (i) has complied in all material respects with all Canadian and
non-Canadian federal, provincial, state, local and foreign laws, rules,
ordinances, codes, consents, authorizations, registrations, regulations,
decrees, directives, judgments and orders materially applicable to it and its
business, and (ii) has all Canadian and non-Canadian federal, provincial, state,
local and foreign governmental licenses, permits, authorizations, consents,
waivers, franchises, certificates and approvals material to and necessary in the
conduct of its business as currently conducted (collectively, "Licenses"), such
Licenses are in full force and effect, and no violations have been recorded in
respect of any such Licenses and no proceeding is pending or, to the best
knowledge of the Corporation, threatened to revoke or limit any such License,
except violations or proceedings which, if determined adversely to the WFI
Entity holding such License, would not have a Material Adverse Effect. The
provisions of this Section 2.19 shall not apply to the matters covered by
Section 2.22 (Licenses, Permits and Rights of Way).
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<PAGE>
(b) To the Corporation's knowledge, each WFI Entity is in compliance with
the U.S. Foreign Corrupt Practices Act of 1977, as amended, and no present or
former stockholder, officer, director, employee or agent of the Corporation or
any WFI Entity, as the case may be, has in order to assist the Corporation or
any WFI Entity in obtaining or retaining any Telecommunications License (as
defined in Section 2.21) or any business for or with, authorized the payment of
any money, or offered, given, or promised to pay or authorized the payment of
any money, or offered, given, promised to give, or authorized the giving of
anything of value to (i) any officer or employee or any government or any
department, agency, instrumentality thereof, or any person acting in an official
capacity for or on behalf of any such government or department, agency or
instrumentality, any foreign political party or any official thereof or any
candidate for foreign political office, or (ii) any person, while knowing that
all or a portion of such money or thing of value will be offered, given, or
promised, directly or indirectly, to any foreign official, to any foreign
political party or official thereof, or to any candidate for political office,
in each case, for purposes of the following:
(A) (x) illegally or corruptly influencing any act or decision of any
foreign official, political party or official thereof, or candidate in such
person's official capacity, or (y) inducing such foreign official, political
party or official thereof, or candidate to do or omit to do any act in violation
of the lawful duty of such person; or
(B) illegally or corruptly inducing such foreign official, political party
or official thereof, or candidate to use such person's influence with a foreign
government or instrumentality thereof to affect or influence any act or decision
of such government or instrumentality.
2.20. Compliance with Telecommunications Laws. (a) No WFI Entity is in
violation of any judgment, decree, order, writ, law, statute, rule or regulation
rendered or enacted in Canada or any non-Canadian jurisdiction respecting
telecommunications and the regulation within Canada of "telecommunications
common carriers" (as defined in the Telecommunications Act) or in any
non-Canadian jurisdiction respecting telecommunications applicable to any of the
WFI Entities, or, to the knowledge of the Corporation, any published
interpretation or policy relating thereto applicable to any WFI Entity. Except
as set forth on Schedule 2.20(a), no notices, reports or other filings are
required to be made by any WFI Entity, either prior to or immediately after the
consummation of the transactions contemplated hereby, with, nor are any
consents, registrations, applications and Permits required to be obtained by any
WFI Entity from, any court or governmental agency or other regulatory body or
tribunal or similar entity pursuant to Canadian or non-Canadian
telecommunications and radio communication regulatory law in connection with the
consummation of the transactions contemplated hereby. The current development,
implementation, construction and operation of the Corporation's
telecommunications networks do not and, to the knowledge of the Corporation, the
proposed conduct of the foregoing, will not conflict with or result in a breach
or violation of any of the Communications statutes or existing regulations
thereunder except breaches or violations which may be remedied by the
Corporation at immaterial expense and which would not otherwise have a
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Material Adverse Effect. For the purposes of this Agreement, "Communications
statutes" means the Telecommunications Act, the Canadian Radio-television and
Telecommunications Commission Act, or other statutes of Canada or any
non-Canadian jurisdiction specifically relating to the regulation of the
telecommunications industry within Canada or any non-Canadian jurisdiction
(including for this purpose the orders, rules, regulations, directives,
decisions, notices and policies promulgated pursuant to such statutes, and
applicable statutes or regulations, if any, of any province of Canada or State
of the U.S. specifically relating to the regulation of the Canadian or U.S.
telecommunications industry and the orders, rules, regulations, directives,
decisions, notices and policies promulgated thereunder).
(b) Both prior to and immediately after the Closing, (i) Worldwide Fiber
(F.O.T.S.) Ltd. is and will be eligible to operate as a telecommunications
common carrier in Canada, as defined under and in accordance with the
Telecommunications Act and the Canadian Telecommunications Common Carrier
Ownership and Control Regulations (the "Ownership Regulations"); (ii) Worldwide
Fiber (F.O.T.S.) Ltd. does not and will not violate 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) the
Corporation has taken all reasonable steps such that control of Worldwide Fiber
(F.O.T.S.) Ltd. is not and will not be exercised by any person(s) that is (are)
not or will not be Canadian, in accordance with the meanings ascribed to the
term "control" under the Telecommunications Act and the term "Canadian" under
the Ownership Regulations.
(c) Both prior to and immediately after the Closing, (i) not less than
eighty percent of the members of the board of directors of Worldwide Fiber
(F.O.T.S.) Ltd. are or will be individual Canadians, as defined under the
Ownership Regulations; (ii) Canadians, as defined under the Ownership
Regulations, beneficially own, and will 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 Worldwide Fiber (F.O.T.S.) Ltd.; (iii) 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; (iv) Worldwide Fiber Networks Ltd. is and will be a
carrier holding corporation that is a qualified corporation, as defined under
the Ownership Regulations; and (v) the Corporation has taken all reasonable
steps such that Worldwide Fiber (F.O.T.S.) Ltd. is not and will not be
controlled in fact by non-Canadians.
(d) With the exception of Worldwide Fiber (F.O.T.S.) Ltd., no other
subsidiary of the Corporation operates in Canada as a telecommunications common
carrier as that term is defined in the Telecommunications Act.
(e) Except as disclosed in Schedule 2.20(e), no WFI Entity is currently,
nor will the conduct of its business as presently proposed to be conducted 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 FCC related hereto. All
WFI Entities are in compliance with all federal, state
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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 where failure to
comply would not have a Material Adverse Effect.
2.21. Telecommunications Licenses. (a) Except as set forth on Schedule
2.20(a), the Corporation holds all licenses, permits, certificates, waivers,
consents, franchises, orders, approvals and authorizations issuable under the
Telecommunications Act or other similar Canadian or U.S. statutes which are
required for the development, implementation and operation of the Corporation's
business as it is currently being conducted (collectively, the
"Telecommunications Licenses"). The WFI Entities are in material compliance with
each Telecommunications License held by them. The Telecommunications Licenses
held by each WFI Entity contain no restrictions or conditions attaching to the
Telecommunications Licenses that are (or would be) materially burdensome to the
WFI Entities.
(b) All of the WFI Entities have timely filed all renewal applications with
respect to all Telecommunications Licenses held by any of them and no protests
or competing applications have been filed that are either available to the
Corporation or of which the Corporation has knowledge with respect to such
renewal applications and nothing has come to the Corporation's attention that
would lead it to conclude that such renewal applications will not be granted by
the appropriate regulatory agency or body in the ordinary course and the WFI
Entities are authorized under the Communications statutes and the rules and
regulations promulgated thereunder to continue to provide the services which are
the subject of such renewal applications during the pendency thereof.
(c) The business of the WFI Entities as it is presently being conducted and
proposed to be conducted in Canada is not regulated by any federal, state or
provincial utility or rate-regulating commission, other than the CRTC and
Industry Canada, in the areas in which any WFI Entity conducts or proposes to
conduct such business, and the WFI Entities are not, and based on existing
regulations will not be, required to obtain any Telecommunications License from
any such utility or rate-regulating commission, other than the CRTC and Industry
Canada, in any such state or province.
2.22. Licenses, Permits and Rights-of-Way. (a) The WFI Entities
currently hold, have the right to or enjoy the use of all licenses, permits,
authorizations, consents, and franchises (the "Permits) as are required for the
construction, installation, maintenance and continued operation of the business
of the WFI Entities as it is presently conducted (including the Network and the
Hibernia Project). The WFI Entities have filed or intend to timely file for all
licenses, permits, authorizations, consents and franchises as are required to
operate the business as presently proposed to be conducted (including the
Network and the Hibernia Project), except where the failure to have such Permits
would not have a Material Adverse Effect. Each respective WFI Entity (or other
contractor acting on its behalf) maintains adequate and accurate records with
respect to
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the timely renewal or application for renewal of any such Permits. The Permits
described in Part 1 of Schedule 2.22(a) are currently held by or on behalf of
the appropriate WFI Entity or its contractor(s) and are all the Permits
necessary to operate the Network as it presently is operated except where the
failure to have such Permits would not have a Material Adverse Effect. The
Permits identified in Schedule 2.20(a) and Part 1 and Part 2 of Schedule 2.22(a)
together with licenses and permits which will be required in connection with the
Corporation's business plan to sell telecommunications services are all of the
material Permits that must be obtained by or on behalf of any WFI Entity or its
contractor(s) to operate the business of the WFI Entities as presently proposed
to be conducted (including the Network and the Hibernia Project) but are not
presently required. To the knowledge of the Corporation, no other party to any
Permit has repudiated any Permit or any provision thereof, and the Corporation
has no knowledge of any termination, cancellation or threatened termination or
cancellation or limitation of, or any material modification or change in, any
Permit.
(b) Except as set forth in Schedule 2.22(b), the WFI Entities currently
hold, have the right to use or enjoy the use of all access rights, rights of way
and leases (the "Access Rights") as are required for the construction,
installation, maintenance and operation of the business of the WFI Entities with
respect to the Network except where the failure to have such Access Rights would
not have a Material Adverse Effect. With respect to (i) the matters set forth on
Schedule 2.22(b) and (ii) the Hibernia Project, the WFI Entities have obtained
or intend to timely file for or obtain the right to use or to enjoy the use of
all Access Rights as may be required for the construction, installation,
maintenance and operation of the Network as presently proposed to be conducted.
To the knowledge of the Corporation, no other party to any Access Right has
repudiated any Access Right or any provision thereof, and the Corporation has no
knowledge of any termination, cancellation or threatened termination or
cancellation or limitation of, or any material modification or change in any
Access Right.
2.23. Offering Exemption. Assuming the accuracy of the representations and
warranties contained in Section 3 hereof, the offer, sale and/or the issuance
and delivery of the Transaction Securities are each exempt from the prospectus
and registration requirements under applicable Canadian and U.S. securities
laws.
2.24. Related Transactions. (a) Except as set forth in the Offering
Memorandum or Schedule 2.24(a), there have been no transactions, agreements,
arrangements or understandings between the Corporation or any of its
Subsidiaries that would be required to be disclosed under Item 404 of Regulation
S-K under the 1933 Act, if the Offering Memorandum were a prospectus included in
a registration statement on Form S-1 filed with the Commission. For the
avoidance of doubt, Schedule 2.24(a) also lists and describes any assets,
licenses, etc. the use of which are shared between any WFI Entity on the one
hand, and Ledcor or its Subsidiaries (other than the WFI Entities), on the other
hand.
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(b) Each ongoing intercorporation transaction set forth on Schedule 2.24(a)
is on terms that are no less favorable to the WFI Entities than those that would
have been obtained in a comparable transaction by the WFI Entities with a person
that is not an affiliate.
2.25. Boycott. Neither the Corporation nor any WFI Entity has at any time
participated in, and is not currently participating in, an anti-Israel boycott
within the scope of Chapter 7 of Part 2 of Division 4 of Title 2 of the
California Government Code.
2.26. Taxes.
(a) Except as set forth on Schedule 2.26, each of the WFI Entities has duly
and timely filed its Tax Returns with the appropriate Governmental Authority and
has duly, completely and correctly reported all income and all other amounts and
information required to be reported thereon except where any such failure would
not have a Material Adverse Effect. Except as set forth in Schedule 2.26,
complete copies of Tax Returns of each of the WFI Entities that have been filed
through the date hereof have been made available to the Investors prior to the
date hereof. Prior to the date hereof, copies of all revenue agents' reports and
other written assertions of deficiencies or other liabilities for Taxes of any
of the WFI Entities with respect to past periods for which the limitations
period has not run have been made available to the Investors.
(b) Except as disclosed in Schedule 2.26, each of the WFI Entities has duly
and timely paid all Taxes except where any such failure would not have a
Material Adverse Effect, including all installments on account of Taxes for the
year, that are due and payable by it that relate to periods ending on or prior
to the Closing Date, whether or not assessed by the appropriate Governmental
Authority. The WFI Entities have established reserves that are reflected on the
Balance Sheet that are at least equal to the amount of all Taxes payable by the
WFI Entities as disclosed in Schedule 2.26 and all Taxes that are not yet due
and payable and related to periods ending on or prior to the Closing Date.
(c) Except as set forth on Schedule 2.26, none of the WFI Entities has
requested, or entered into any agreement or other arrangement or executed any
waiver providing for, any extension of time within which (i) to file any Tax
Return covering any Taxes for which such WFI Entity is or may be liable; (ii) to
file any elections, designations or similar filings relating to Taxes for which
such WFI Entity is or may be liable; (iii) such WFI Entity is required to pay or
remit any Taxes or amounts on account of Taxes; or (iv) any Governmental
Authority may assess or collect Taxes for which such WFI Entity is or may be
liable.
(d) Except as set forth on Schedule 2.26, (i) there are no actions, suits,
proceedings, investigations, audits or claims now pending or, to the knowledge
of the WFI Entities, threatened, against any one of the WFI Entities in respect
of any Taxes, (ii) there are no matters under discussion, audit or appeal with
any Governmental Authority relating to Taxes, (iii) there are no Tax rulings,
requests for rulings or closing agreements relating to any of the
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WFI Entities which could affect their liability for Taxes for any period after
the Closing, (iv) none of the WFI Entities is a party to, nor is it bound by,
any Tax allocation or Tax sharing agreement or arrangement and have no current
contractual obligation to indemnify any other person or entity with respect to
Taxes, (v) to the knowledge of the WFI Entities no taxing authority in a
jurisdiction where any of the WFI Entities does not file Returns has made a
claim, assertion or threat that any of the WFI Entities is or may be subject to
taxation by such jurisdiction, (vi) none of the WFI Entities has agreed in
writing to, nor is it required to include in income, any adjustment by reason of
a change in accounting method or otherwise, nor do any of the WFI Entities have
any knowledge that any taxing authority has proposed, or is considering, any
such change in accounting method, (vii) none of the WFI Entities is a passive
foreign investment corporation ("PFIC") within the meaning of Section 1297 of
the Code, (viii) none of the WFI Entities is a controlled foreign corporation
("CFC") within the meaning of Section 957 of the Code, and (ix) none of the WFI
Entities is a (A) personal holding corporation ("PHC") within the meaning of
Section 542 of the Code or (B) foreign personal holding corporation ("FPHC")
within the meaning of Section 552 of the Code. None of the WFI Entities will
become PFIC, CFC, PHC or FPHC as a result of the transactions contemplated by
the Agreement.
(e) The Corporation agrees to make reasonably available to the Investors
books and records and personnel of the Corporation, and to provide information
to the Investors, as may be reasonably requested by the Investors with respect
to matters relating to its status as a PFIC, CFC or FPHC. The Corporation will
provide each Investor with all information reasonably available to the
Corporation or any of its subsidiaries as is reasonably requested by such
Investor to enable the Investor to determine whether the Corporation or any of
its subsidiaries are, have been, or are likely to become a PFIC, a CFC or a FPHC
during the period (or any portion thereof) in which the Investors own Series A
Non-Voting Preferred Shares or Common Shares. The Corporation will provide, or
make available to, each Investor information reasonably available to the
Corporation or any of its subsidiaries as is reasonably requested by such
Investor to (i) prepare accurately all Returns and comply with any reporting
requirement imposed as a result of its investment in the Corporation, including
as a result of the Investor determining, in its reasonable discretion, that the
Corporation or any of its subsidiaries is a PFIC, FPHC or CFC or (ii) make any
election (including, without limitation, a Qualified Electing Fund election
under Section 1295 of the Code), with respect to the Corporation or any of its
subsidiaries, and comply with any reporting or other requirements incident to
such election. In the event that, on the basis of such information, any Investor
determines that the Corporation is a PFIC for a particular year, then for such
year and for each year thereafter the Corporation shall also provide such
Investor a completed "PFIC Annual Information Statement" as required by U.S.
Treasury Regulation section 1.1295.IT(g). As further required by such Treasury
Regulation, the Corporation shall permit each Investor or its representative to
inspect and copy the Corporation's permanent books of account, records, and such
other documents as may be maintained by the Corporation that are necessary to
establish that the financial information included on such PFIC Annual
Information Statement is computed in accordance with U.S. income tax principles.
In addition, the Corporation shall promptly no-
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tify the Investors of any written assertion by the U.S. Internal Revenue Service
that the Corporation or any of its subsidiaries is or is likely to be a PFIC,
FPHC or CFC.
(f) The Canadian federal and provincial income and capital tax liabilities
of the WFI Entities have not been assessed by the relevant taxing authorities.
(g) For purposes of the Income Tax Act (Canada) or any applicable
provincial or municipal taxing statute, no Person or group of Persons has ever
acquired or had the right to acquire control of any of the WFI Entities. (h)
There are no circumstances existing which could result in the application of any
of Sections 78 or 80 to 80.4 of the Income Tax Act (Canada) or any equivalent
provision under provincial tax legislation in relation to the WFI Entities.
(i) None of the WFI Entities has acquired property from a non-arm's length
person, within the meaning of the Income Tax Act (Canada), for consideration the
value of which is less than the fair market value of the property acquired in
circumstances which could subject it to a liability under Section 160 of the
Income Tax Act (Canada).
(j) Schedule 2.26 discloses each of the WFI Entities which are duly
registered under subdivision (d) of Division V of Part IX of the Excise Tax Act
(Canada) with respect to the goods and services tax and harmonized sales tax and
under Division I of Chapter VIII of the Title I of the Quebec Sales Tax Act with
respect to the Quebec sales tax. The Corporation's registration number under the
Excise Tax Act (Canada) is 983197424 RT0001.
(k) Each of the WFI Entities has duly and timely withheld from any
amount paid or credited by it to or for the account or benefit of any Person,
including, without limitation, any of its employees, officers and directors and
any non-resident Person, the amount of all Taxes and other deductions required
by any applicable law, rule or regulation to be withheld from any such amount
and has duly and timely remitted the same to the appropriate Governmental
Authority.
(l) None of the WFI Entities has filed any elections or designations which
will be applicable for any period ending after the Closing Date.
(m) For all transactions between any WFI Entity and any non-resident person
with whom the WFI Entity was not dealing at arm's length during a taxation year
commencing after 1998 and ending on or before the Closing Date, the WFI Entity
has made or obtained records or documents that meet the requirements of
paragraphs 247(4)(a) to (c) of the Income Tax Act (Canada).
(n) For purposes of this Agreement:
"Governmental Authority" means any government, regulatory authority,
governmental department, agency, commission, board, tribunal, crown corporation,
or court or
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other law, rule or regulating-making entity having or purporting to have
jurisdiction on behalf of any nation, or province or state or other subdivision
thereof or any municipality, district or other subdivision thereof;
"Person" means any individual, sole proprietorship, general, limited or any
other partnership, limited liability company, unincorporated association,
unincorporated syndicate, unincorporated organization, trust, body corporate, or
other entity, Governmental Authority, and a natural person in such person's
capacity as trustee, executor, administrator or other legal representative;
"Taxes" includes all taxes, duties, fees, assessments, imposts, levies and
other charges of any kind whatsoever imposed by any Governmental Authority,
together with all interest, penalties, fines, additions to tax or other
additional amounts imposed in respect thereof, including those levied on, or
measured by, or referred to as income, gross receipts, profits, capital,
transfer, land transfer, sales, goods and services, use value-added, excise,
stamp, withholding, business, franchising, property, payroll, employment,
health, social services, education and social security taxes, all surtaxes, all
customs duties and import and export taxes, all license, franchise and
registration fees and all employment insurance, health insurance and Canada,
Quebec and other governmental pension plan premiums or contributions; and
"Tax Return" includes all returns, reports, declarations, elections,
notices, filings, information returns and statements filed or required to be
filed with any Governmental Authority in respect of Taxes.
2.27. Environmental Protection. The WFI Entities are conducting, and have
conducted their business in compliance with all applicable Environmental Laws,
except for such noncompliance which would not be reasonably expected to have a
Material Adverse Effect. No WFI Entity has caused, arranged or allowed, or
contracted with any party for, the transportation, treatment, storage or
disposal of any Hazardous Substance in connection with the operation of its
business or otherwise (collectively, an "Arrangement"), except for such
Arrangements which would not be reasonably expected to have a Material Adverse
Effect. To the knowledge of the Corporation, no Hazardous Substance has been
Released into the environment on or from the Real Properties or, to the
knowledge of the Corporation, any other property now or formerly owned, leased,
or controlled by the WFI Entities which Release is required or may be required
under applicable Environmental Laws to be abated or remediated by the
Corporation, except for such Releases which would not be reasonably expected to
have a Material Adverse Effect. Except as would not reasonably be expected to
have a Material Adverse Effect, there are no past or present Releases,
conditions, events, circumstances, facts, activities, practices, incidents,
actions, omissions, or plans that would reasonably be expected to form the basis
of any claim, action, suit, proceeding, order, administrative sanction, or
inquiry against or involving any WFI Entity allegedly or actually based on or
related to any violation of any Environmental Law or that is reasonably likely
to require such WFI Entity to incur any Losses in connection therewith.
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For purposes of this Agreement, the term "Environmental Laws" shall mean all
laws, rules, regulations, orders, ordinances, codes and judgments of any
Governmental Authority having jurisdiction relating in full or in part to the
protection of the environment, and employee and public health and safety, and
includes those relating to the storage, generation, use, handling, manufacture,
processing, labeling, transportation, treatment and Release of Hazardous
Substances in effect and as amended as of the date of this Agreement. For
purposes of this Agreement, the term "Hazardous Substances" shall mean any
pollutant, contaminant, waste of any nature, hazardous substance, hazardous
material or toxic substance as defined, judicially interpreted or identified in
any Environmental Law including any asbestos, asbestos containing materials,
petroleum and/or other hydrocarbons or petroleum by-products. For the purposes
of this Agreement, the term "Release" shall have the meaning prescribed in any
Environmental Law and includes any release, spill, leak, pumping, pouring,
emission, emptying, discharge, injection, escape, leaching, disposal, dumping,
deposit, spraying, burial, abandonment, incineration, seepage, or placement.
2.28. Consents. No permit, authorization, consent or approval of or by, or
any notification of or filing with, any Person (governmental or private) is
required in connection with the execution, delivery and performance by the
Corporation of the Documents, the consummation by the Corporation of the
transactions contemplated thereby, or the issuance, sale or delivery of the
Transaction Securities (other than such notifications or filings required under
applicable provincial securities laws, if any, which shall be made by the
Corporation on a timely basis).
2.29. Insurance. All of the material assets of each WFI Entity that is of
insurable character (including all material assets of such WFI Entity that are
of insurable character) are covered by insurance with reputable insurers against
risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage which are consistent with prudent industry practice. Schedule 2.29
sets forth a list of all insurance coverage carried by the WFI Entities, the
carrier and the terms and amount of coverage. No WFI Entity is in default with
respect to its obligations under any material insurance policy maintained by it.
All such policies are in full force and effect and all premiums due with respect
thereto have been paid. No WFI Entity has failed to give any notice or present
any material claim under any such insurance policy in due and timely fashion or
as required by any of such insurance policies or has not otherwise, through any
act, omission or non-disclosure, jeopardized or impaired full recovery of any
material claim under such policies, and there are no material claims by any WFI
Entity under any of such policies to which any insurance corporation is denying
liability or defending under a reservation of rights or similar clause. No WFI
Entity has received written notice of any pending or threatened termination of
any of such policies or any premium increases for the current policy period with
respect to any of such policies and the consummation of the transactions
contemplated by this Agreement will not result in any such termination or
premium increase.
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2.30. Brokers. Neither the Corporation nor any of its officers, directors,
employees or shareholders has employed any broker, finder or placement agent in
connection with the transactions contemplated by this Agreement.
2.31. Suppliers and Customers. No supplier or proposed supplier of
materials or services (including, but not limited to, telecommunications
equipment, fiber, conduit and related electronics used to build the network) to
any WFI Entity in an amount in excess of US$10,000,000 per year has during the
last twelve months on such supplier's initiative decreased materially or, to the
best knowledge of the Corporation, threatened to decrease or limit materially
its provision of services or supplies to such WFI Entity, nor expressed material
dissatisfaction with the business relationship between such WFI Entity and the
supplier.
2.32. Real Property. Schedule 2.32 lists all real property owned or leased
by each WFI Entity. Each WFI Entity has unencumbered title to its owned real
properties (collectively, the "Owned Real Properties") and unencumbered
leasehold title to its leased real properties (the "Leased Real Properties,"
together with the Owned Real Properties, the "Real Properties"), in each case,
free and clear of all imperfections of title and all Encumbrances, except for
(a) those consisting of zoning or planning restrictions, easements, permits and
other restrictions or limitations on the use of such property or irregularities
in title thereto which, individually and in the aggregate, do not materially
impair the use of such property, (b) warehousemen's, mechanics', carriers',
landlords', repairmen's or other similar Encumbrances arising in the ordinary
course of business and securing obligations not yet due and payable, (c) other
Encumbrances which individually and in the aggregate do not materially impair
its use of such property or its ability to obtain financing by using such assets
as collateral, and (d) Encumbrances listed on Schedule 2.32. To the knowledge of
the Corporation, there are no intended public improvements which will result in
any material charge being levied against, or in the creation of any Encumbrances
upon, the Real Properties or any portion thereof. There are no options, rights
of first refusal, rights of first offer or other similar rights with respect to
any of the Real Properties that is material to the business of the WFI Entities
as currently conducted or proposed to be conducted. With respect to each lease
of Real Property to which any WFI Entity is a party, so long as the applicable
WFI Entity performs all of its obligations under such lease for Real Property
within applicable notice and grace periods, (a) the rights of such WFI Entity
under such lease shall not be terminated and (b) such WFI Entity's possession of
such Real Property and the use and enjoyment thereof shall not be disturbed by
any landlord, overlandlord, mortgagee or other superior party. No WFI Entity is
obligated to purchase any Leased Real Property and no Leased Real Property is
required to be accounted for under GAAP as a capitalized lease. No WFI Entity is
a real property holding company.
2.33. Investment Banking Services. The Corporation is not a party to any
Contract which grants rights to any third party with respect to the performance
of investment banking services for it, including, without
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limitation, with respect to its sale or a public offering, including an initial
public offering, of its securities.
2.34. Year 2000 Compliant. The disclosure contained in the Offering
Memorandum under the captions "Management's Discussion and Analysis of Financial
Condition and Results of Operations, -- Impact of Year 2000, -- Risks of Year
2000 Issues, -- Description of Our Year 2000 Program, -- State of Readiness, and
- -- Contingency Plans and Costs to Address Year 2000 Issues" is accurate and
complete as at the date thereof and there has been no adverse change in the
facts disclosed therein since July 23, 1999.
2.35. Previous Issuances Exempt. All shares and other securities issued by
the Corporation prior to the date hereof have been issued in transactions exempt
from the prospectus requirements or registration, as the case may be, under
applicable Canadian securities laws and the 1933 Act, and all applicable
provincial and state securities or "blue sky" laws or have been distributed or
registered, as the case may be, in compliance with all such laws (collectively,
"Securities Laws"). The Corporation has not violated the Securities Laws in
connection with the issuance of any shares or other securities prior to the date
hereof. The Corporation has not offered any of its shares, or any other
securities, for sale to, or solicited any offers to buy any of the foregoing
from the Corporation, or otherwise approached or negotiated with any other
person in respect thereof, in such a manner as to require distribution by
prospectus or registration under applicable Securities Laws.
2.36. Investment Company Act. Neither the Corporation nor any WFI Entity is
a "holding company", or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company", as such terms are defined in the United
States Public Utility Holding Company Act of 1935, as amended; nor is the
Corporation or any WFI Entity an "investment company", or an "affiliated person"
or a "principal underwriter" of an "investment company", as such terms are
defined in the United States Investment Company Act of 1940, as amended. Neither
the Corporation nor any WFI Entity is now, nor has it been within the past five
years, a "United States real property holding corporation" as defined in Section
897 of the Code.
2.37. Disclosure. Neither this Agreement nor any certificate, or written
statement made to the Investors by or on behalf of the Corporation delivered at
the Closing, together with the Offering Memorandum, taken as a whole, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading.
SECTION 3. Representations, Warranties and Acknowledgments of the
Investors. Each of the Investors represents, warrants and acknowledges to the
Corporation as of the date hereof as follows:
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(a) Such Investor is acquiring Series A Non-Voting Preferred Shares as
principal with an aggregate acquisition cost to the Investor of not less than
the amount set forth opposite such Investor's name on Schedule 1.1 and:
(i) if a corporation, it was not incorporated solely, nor is it used
primarily, to permit the purchase without a prospectus of the Series A
Non-Voting Preferred Shares, or, if the corporation was incorporated solely for
such purpose, each shareholder of the corporation has contributed at least
C$97,000 to the corporation for the purpose of investment by the corporation in
the Series A Non-Voting Preferred Shares; or
(ii) if not a corporation, is a partnership, trust, fund, syndicate,
association or other form of unincorporated organization, such partnership,
trust, fund, syndicate, association or other form of unincorporated organization
was not formed or established solely, nor is used primarily, to permit the
purchase of the Series A Non-Voting Preferred Shares without a prospectus, or if
formed or established or used primarily for such purpose, each member of such
partnership, trust, fund, syndicate, association or other form of unincorporated
organization, would have an aggregate acquisition cost of not less than C$97,000
for the Series A Non-Voting Preferred Shares if the participant were acquiring
its proportionate interest in the Series A Non-Voting Preferred Shares; and
(iii) is purchasing the Series A Non-Voting Preferred Shares for investment
only and not with a view to resale or distribution in violation of applicable
securities laws.
(b) Such Investor, if a "U.S. Person" (as defined in Regulation S under the
1933 Act), is an "Accredited Investor" (as defined in Rule 501(a)(1), (2), (3)
(7) or (8) under the 1933 Act), and such Investor makes the additional
representations and warranties contained in Schedule 3 of this Agreement.
(c) Such Investor acknowledges that no offering memorandum, prospectus
or registration statement has been prepared or filed by the Corporation with any
securities commission or similar authority in any jurisdiction in connection
with the Purchase and the issue and sale of Series A Non-Voting Preferred Shares
to such Investor is subject to such sale being exempt from the requirements of
applicable securities laws as to the filing of an offering memorandum,
prospectus or registration statement.
(d) Such Investor has not received or been provided with a prospectus,
offering memorandum or other similar document, nor has it requested, nor does it
have any need to receive, a prospectus, offering memorandum (other than the
Offering Memorandum (as defined in Section 2.10(d)) or any other similar
document describing the business and affairs of the Corporation.
(e) To such Investor's knowledge, the Series A Non-Voting Preferred Shares
were not advertised in printed media of general and regular paid circulation,
radio or
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television and such Investor has not purchased the Series A Non-Voting Preferred
Shares as a result of any form of general solicitation or general advertising,
including advertisements, articles, notices or other communications published in
any newspaper, magazine or similar media or broadcast over radio, or television,
or any seminar or meeting whose attendees have been invited by general
solicitation or general advertising.
(f) Such Investor has such knowledge and experience in financial and
business affairs as to be capable of evaluating the merits and risks of the
investment hereunder and is able to bear the economic risk of loss of such
investment.
(g) Such Investor understands that the Series A Non-Voting Preferred Shares
have not been and will not be registered under the 1933 Act, as amended, or the
securities laws of any state of the United States and that the sale contemplated
hereby is being made in reliance on an exemption from such registration
requirements and such Investor understands and agrees that the Series A
Non-Voting Preferred Shares may not be traded in the United States or by or on
behalf of a U.S. Person or a person in the United States unless permitted by the
terms of the Shareholders Agreement and either (x) registered under the 1933 Act
and any applicable state securities laws or (y) an exemption from such
registration requirements is available and that certificates representing the
Series A Non-Voting Preferred Shares will bear a legend to such effect.
(h) Such Investor understands that no prospectus has been or will be 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 provinces and territories of Canada
(the "Canadian Securities Laws") qualifying the distribution of the Series A
Non-Voting Preferred Shares in any province or territory of Canada and that the
Series A Non-Voting Preferred Shares may not be offered or sold by such Investor
in any province or territory of Canada 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.
(i) Such Investor has not employed any broker or finder in connection with
the transactions contemplated by this Agreement.
(j) Such Investor is duly organized and validly existing under the laws of
the jurisdiction of its organization and has all partnership, corporate or
company power, as applicable, and authority to enter into and perform the
Documents. Each of the Documents to which such Investor is a party has been duly
authorized by all necessary action on the part of such Investor. Each of the
Documents to which such Investor is a party constitutes a valid and binding
agreement of such Investor enforceable against such Investor in accordance with
its terms except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally.
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(k) The execution, delivery and performance by such Investor of each of the
Documents to which such Investor is a party and the consummation by such
Investor of the transactions contemplated thereby will not (i) violate any
provision of law, statute, rule or regulation, or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or other
governmental body applicable to it, or any of its properties or assets; (ii)
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under any contract which such Investor is a party that would materially
adversely affect the Investor's ability to consummate the transactions
contemplated by this Agreement or perform its obligations under the Shareholders
Agreement; or (iii) violate its organizational documents (if any).
(l) No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery and performance by such Investor of
the Documents to which it is a party or any documentation relating thereto, or
the consummation by such Investor of the transactions contemplated thereby
(other than such notifications or filings required under applicable Canadian
Securities Laws, if any, which shall be made on a timely basis).
(m) Each Investor acknowledges and agrees that the foregoing
representations, warranties and covenants set out herein are made by such
Investor with the intent that they be relied upon in determining its suitability
as a purchaser of Series A Non-Voting Preferred Shares. Each Investor further
agrees that by accepting the Series A Non-Voting Preferred Shares, such Investor
shall be representing and warranting that the foregoing representations and
warranties are true as at the Closing Date with the same force and effect as if
they had been made by such Investor at the Closing Date and shall continue in
full force and effect notwithstanding any subsequent disposition by it of the
Series A Non-Voting Preferred Shares. Each Investor undertakes to notify the
Corporation in writing of any change in any representation, warranty or other
information relating to such Investor set forth herein which takes place prior
to the Closing Date.
SECTION 4 Covenants Prior to Closing.
4.1. Cooperation by Parties; Satisfaction of Closing Conditions. From the
date hereof and prior to the Closing, (i) each party shall use its commercially
reasonable efforts, and will cooperate with each other, to secure as promptly as
practicable all necessary consents, approvals, authorizations, exemptions and
waivers from third parties as shall be required in order to enable the parties
hereto to effect the transactions contemplated hereby, and (ii) the Corporation
shall use its commercially reasonable efforts to cause (but not waive) any
Closing Condition in Section 6.2 to be satisfied.
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4.2. Conduct of Business. (a) Except as may be otherwise contemplated by
the Documents or as described in Schedule 4.2, or except as the Investors may
otherwise consent to in writing (which consent shall not be unreasonably
withheld or delayed), from the date hereof and prior to the Closing, the
Corporation shall not, and shall cause each WFI Subsidiary not to, do any thing
or take any action or omit to do anything or to take any action which (i) would
cause any representation or warranty of the Corporation in this Agreement to be
untrue as of the Closing Date or (ii) would be a Major Transaction under the
Shareholders Agreement if the Shareholders Agreement were in effect.
(b) From the date hereof to the Closing Date, the Corporation shall cause
Worldwide Telecom (Bermuda) Limited (the "Project Subsidiary") to engage solely
in activities related or incidental to the Hibernia Project. Unless the Hibernia
Supply Contract (as defined in Section 2.10(e)) otherwise requires, the
Corporation shall cause the Project Subsidiary to diligently enforce all of its
rights under the Hibernia Supply Contract.
4.3. Required Notices. At all times prior to the Closing Date, the
Corporation shall promptly give written notice to the Investors of (a) any facts
or circumstances or the occurrence of any event or the failure of any event to
occur, which has or is reasonably likely to have, (i) a Material Adverse Effect
on the Corporation and/or any WFI Entity or (ii) a Material Adverse Effect on
the ability of the Corporation to consummate the transactions contemplated
hereby or to satisfy its obligations hereunder, (b) any complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) of any authority with respect to the Corporation and/or any WFI
Entity or the transactions contemplated hereby, (c) the institution or the
threat of institution of any litigation or similar action with respect to the
Corporation and/or any WFI Entity or the consummation of the transactions
contemplated hereby and (d) the occurrence of any event, or the discovery of any
facts or circumstances which will or is reasonably likely to result in the
failure (x) of any representation or warranty set forth herein to continue being
true or (y) to satisfy any condition set forth in Section 6. The Corporation
shall keep the Investors apprised of material changes with respect to such
events promptly upon the occurrence of such events.
4.4. No Shop. For the period between the date hereof and the earlier of the
Closing Date and October 4, 1999, the Corporation will not, and will not
authorize any of its officers or directors or any other person on its behalf,
to, solicit, encourage, negotiate or accept any offer from any party concerning
(i) the sale or disposition of all or any portion of the Corporation's business,
assets (other than in the ordinary course of business), subsidiaries or share
capital by merger, amalgamation, share issuance, sale or any other means, or
(ii) any other agreement or arrangement that would be inconsistent with the
consummation of the transactions contemplated hereby (clauses (i) and (ii)
together, each a "Prohibited Transaction"), nor will they participate in any
discussions or negotiations regarding, or furnish any information with respect
to, or facilitate in any other manner, any Prohibited Transaction. On or before
the date hereof, the Corporation will immediately terminate any existing
discussion with a third party regarding a possible Prohibited Transaction. The
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Corporation will promptly notify the Investors in writing of any inquiries or
proposals from any third party regarding a possible Prohibited Transaction.
SECTION 5 Other Covenants.
5.1. Use of Proceeds. The Corporation shall use the proceeds from the sale
of Series A Non-Voting Preferred Shares hereunder as set forth on Schedule 5.1.
5.2. Shareholders Agreement. The Corporation shall use its best efforts to
cause each shareholder of the Corporation holding Common Shares or Common Share
Equivalents and listed on Schedule I to the shareholders agreement in the form
annexed hereto as Schedule 5.2 (the "Shareholders Agreement") to execute and
deliver the Shareholders Agreement on the Closing Date.
5.3. HSR Filing. The Corporation shall file its notification of the
transactions contemplated by this Agreement under the United States
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"),
promptly upon request by any of the Investors and shall pay all costs and
expenses, including filing fees of the Investors, in connection therewith.
5.4. Tax Indemnity. (a) The Corporation shall indemnify and hold each
Investor, or the partners of the Investor where the Investor is a partnership,
(each referred to in this Section 5.4(a) as an "Investor") harmless from and
against any Canadian federal or provincial withholding tax liability (including
any such withholding tax liability on any payment made under this Section 5.4)
arising from or as a result of the holding, receipt of distributions on,
conversion, sale, redemption or other disposition of, the Preferred Shares or
the Common Shares (other than the receipt of any distributions of cash dividends
on the Common Shares), provided that the maximum withholding tax liability in
respect of which the Corporation shall indemnify and hold each Investor harmless
shall not exceed the amount of withholding tax payable under paragraph 2(b) of
Article X of the Canada-US Tax Convention (the "Convention") if the Investor
were a resident of the United States for purposes of the Convention. In the case
of a distribution, redemption or any similar payment by the Corporation with
respect to any Preferred Shares or Common Shares (other than a distribution of
cash dividends on Common Shares), if any Canadian federal or provincial
withholding tax is imposed on such distribution, redemption or other payment,
the indemnity provided for in the preceding sentence shall be satisfied by the
payment by the Corporation, at the same time as the making of such distribution,
redemption or other payment, of additional amounts as necessary so that the net
amount received by each Investor is the same as it would have received had no
such withholding tax been imposed. In any other case, the indemnity shall be
satisfied by payment in cash no later than three business days following demand
therefor (which demand shall be accompanied by a statement setting forth the
basis for indemnification). The Corporation shall not be obligated to indemnify
and hold an Investor harmless pursuant to this Section 5.4 in respect of (i) any
deemed dividend arising by virtue of
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the application of subsection 212.1(1) of the Income Tax Act (Canada), (ii) any
deemed dividend arising solely by virtue of the application of 84(3) of the
Income Tax Act (Canada) in respect of a sale to or a redemption by the
Corporation of Common Shares pursuant to an offer made by the Corporation to
purchase through the facilities of The Toronto Stock Exchange in a particular
twelve-month period not more than 5% of a particular class of Common Shares
issued and outstanding at the commencement of such twelve-month period, which
offer is completed in compliance with applicable Canadian Securities Laws and
the rules of The Toronto Stock Exchange, (iii) any income tax liability arising
from a capital gain; or (iv) any tax arising if any Investor holds or is deemed
to hold the Preferred Shares or Common Shares in carrying on a business in
Canada. The Corporation shall indemnify and hold each Investor harmless from and
against any income tax liability imposed by the jurisdiction in which such
Investor is organized or otherwise resident, which income tax liability is
imposed on or in respect of any payment made under this Section 5.4.
(b) In the event that any Investor shall be entitled to receive a refund of
tax or a credit against or relief or remission for, or repayment of, any tax
paid or payable by it (collectively, a "Tax Credit") in respect of or calculated
with reference to the withholding tax liability giving rise to the requirement
of the Corporation to make an indemnity payment under this Section 5.4, such
Investor shall use reasonable efforts to obtain the Tax Credit, and upon receipt
of such Tax Credit, to the extent that it can do so without prejudice to the
retention of the amount of such Tax Credit, pay or cause to be paid to the
Company such amount as such Investor shall have concluded, acting reasonably, to
be the after-tax value to it of the Tax Credit which is attributable to the
relevant withholding tax liability. Nothing herein contained shall interfere
with the right of each Investor to arrange its tax affairs in whatever manner it
thinks fit or require any Investor to disclose to the Company any information
regarding its tax affairs or tax calculations. Such payments shall be made
promptly upon the relevant Investor certifying that the amount of such credit,
relief, remission or repayment has been received by it and each Investor
undertake so to certify or cause to be certified promptly upon such receipt.
Notwithstanding anything to the contrary in this Agreement, the term "Investor"
as used in this Section 5.4(b) shall refer only to the direct holder of the
shares or other property in respect of which the indemnity payment was made and
not to any holder of an interest in such direct holder or any other Person.
(c) Notwithstanding anything to the contrary in Section 5.4(a), the
Corporation shall indemnify and hold each Investor harmless from and against all
loss incurred or suffered, directly or indirectly, by an Investor in respect of
or otherwise attributable to any additional liability for Taxes arising to the
Corporation or to an Investor as a result of the reorganization of capital
undertaken by the Corporation prior to or at Closing (the "Reorganization"). For
greater certainty, the Reorganization includes the following transactions
contemplated by the Corporation: the issuance of Series C Redeemable Preferred
Shares by the Corporation to Worldwide Fiber Holdings Ltd. ("WFH") as a stock
dividend, the disposition by WFH of all of its common shares to the Corporation
for additional Series C Redeemable Preferred Shares and for Class B Subordinate
Voting Shares, the joint election to be made by the Corporation and WFH pursuant
to subsection 85(1) of the Income Tax Act
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(Canada) in respect of such disposition, and the redemption by the Corporation
of the Series C Redeemable Preferred Shares held by WFH.
5.5. Roll-Up Transactions. The Corporation agrees that each of the Minority
Roll-Up Transactions (as defined in Section 1.4(b)) shall be consummated in
consideration solely for the issuance of Common Shares (and not cash or any
other assets or obligations of the Corporation or any of its Subsidiaries or
affiliates). The Corporation also agrees that the Ledcor Roll-Up Agreement (as
defined in Section 1.4(b)) shall be consummated in consideration solely for the
issuance of 4,500,000 Common Shares (and not cash or any other assets or
obligations of the Corporation or any of its Subsidiaries or affiliates) and in
accordance with the terms of the Ledcor Roll-Up Agreement in effect on the date
hereof.
SECTION 6 Conditions to the Purchase.
6.1. Conditions to Obligations of Each Party. The respective obligations of
each party hereto to consummate the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions, any or all of which may be waived in writing, in whole or in part,
by the Corporation or all the Investors, to the extent permitted by applicable
law:
(a) No federal, state or provincial governmental or regulatory body or
court of competent jurisdiction shall have enacted, issued, promulgated or
enforced any statute, rule, regulation, executive order, decree, judgment,
preliminary or permanent injunction or other order which is in effect and which
prohibits, enjoins or otherwise restrains the consummation of the transactions
contemplated hereby; provided, that the parties shall use commercially
reasonable efforts to cause any such decree, judgment, injunction or order to be
vacated or lifted.
(b) Each governmental or third party consent, approval or filing required
to be obtained or made and any waiting period required to have expired in order
to consummate the transactions contemplated by this Agreement at the Closing
shall have been obtained, or made, as the case may be, and any such waiting
period shall have expired.
6.2. Conditions to Obligations of the Investors. The obligations of each
Investor to consummate the Purchase shall be subject to the satisfaction (or
waiver, which shall not be effective against any Investor who does not consent
in writing thereto), on or prior to the Closing Date, of the following
conditions:
(a) Each representation and warranty made by the Corporation herein shall
be true and correct, in all material respects (except for such representations
and warranties that are qualified by their terms by reference to Material
Adverse Effect or materiality, which representations and warranties as so
qualified shall be true in all respects), on and as of the Clos-
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ing Date, with the same force and effect as though such representation and
warranty had been made on and as of the Closing Date, except for changes
permitted or contemplated by this Agreement and except for each representation
and warranty that is made as of a specific date or time, which shall be true and
correct in all material respects, only as of such specific date or time.
(b) The Corporation shall have complied in all material respects with all
its agreements and covenants contained herein or the Shareholders Agreement
required to be performed at or prior to the Closing to the extent such
agreements and covenants relate to the Closing.
(c) The Corporation shall have delivered to the Investors a certificate
executed by a senior executive officer of the Corporation, which shall be
satisfactory in form and substance to the Investors, certifying that the
conditions set forth in paragraphs (a) and (b) have been met.
(d) The Corporation shall have delivered to the Investors a certificate of
the Corporate Secretary of the Corporation, in form and substance satisfactory
to the Investors, certifying (i) a copy of the Articles of Continuance of the
Corporation and all amendments thereto, certified by the Director under the
Canada Business Corporations Act, (ii) the By-Laws of the Corporation, (iii) a
Certificate of Status for the Corporation issued by the Director under the
Canada Business Corporations Act and similar certificates for other WFI Entities
issued by the relevant Governmental Authority, (iv) resolutions of the board of
directors of the Corporation (the "Board of Directors") authorizing the
execution, delivery and performance by the Corporation of this Agreement, the
Shareholders Agreement, the Registration Rights Agreements, the Articles of
Incorporation, any other agreement entered into or instrument delivered by the
Corporation in connection herewith, and any letters entered into simultaneously
with this Agreement (collectively, the "Documents") and the transactions
contemplated thereby, (v) copies of each governmental or third party consent,
approval or filing required to be obtained or made in order to consummate the
transactions contemplated by this Agreement at the Closing, and (vi) incumbency
matters.
(e) The Shareholders Agreement shall be executed and delivered by the
Corporation and each of the shareholders listed on Schedule I thereto.
(f) A registration rights agreement (the "Registration Rights Agreement")
among the Corporation and the Investors in the form annexed hereto as Schedule
6.2(f) shall be duly executed and delivered by the Corporation.
(g) The Articles of Amendment shall be in the form annexed hereto as
Schedule A.
(h) No Material Adverse Effect shall have occurred in respect of the
Corporation or any of the other WFI Entities, and no event or change shall have
occurred which,
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individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on the Corporation or any of the other WFI Entities.
(i) The Investors shall receive from each of McLennan Ross; Farris,
Vaughan, Wills & Murphy; and Cahill Gordon & Reindel, counsel for the
Corporation, an opinion addressed to the Investors, dated as of the Closing, in
the forms annexed hereto as Schedule 6.2(i).
(j) The composition of the Board of Directors shall be as provided in
Section 8.1 of the Shareholders Agreement.
(k) The Corporation shall have obtained, with financially sound and
reputable insurers, directors' and officers' liability insurance in the amount
of at least US$5,000,000, or a binder with respect to such insurance in form and
substance satisfactory to each Investor.
(l) The Corporation shall have obtained signed commitment letters for a
$550 million credit facility the proceeds of which will be used to finance the
Hibernia Project, in form and substance satisfactory to each Investor (the
"Hibernia Commitment").
(m) Each other Investor shall concurrently purchase and pay for the
number of Class A Preferred Shares set forth opposite its name in Schedule 1.1.
(n) There shall not have occurred any disruption or material adverse change
or development affecting financial, banking, currency or capital markets in
general in the United States in the reasonable opinion of the Investors.
(o) With the proceeds of the Purchase Price, at Closing the
Corporation shall concurrently repurchase from WFH 45,000,000 Series C
Redeemable Preferred Shares for an aggregate amount of US$45,000,000 in cash.
6.3. Conditions to the Obligations of the Corporation. The obligations of
the Corporation to consummate the Purchase shall be subject to the satisfaction
(or waiver), on or before the Closing Date, of the following conditions:
(a) Each representation and warranty made by the Investors herein shall be
true and correct in all material respects, with the same force and effect as
though such representation and warranty had been made on and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and except
for each representation and warranty that is made as of a specific date or time,
which shall be true and correct, in all material respects, only as of such
specific date or time.
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(b)The Investors shall have complied in all material respects with all
their agreements and covenants contained herein required to be performed at or
prior to the Closing to the extent such agreements and covenants relate to the
Closing.
(c) Each Investor shall concurrently purchase and pay for the number of
Series A Non-Voting Preferred Shares set forth opposite such Investor's name on
Schedule 1.1.
(d) The Shareholders Agreement shall be executed and delivered by each of
the Investors.
6.4. Default by an Investor. If one or more of the Investors shall fail at
the Closing to purchase the Series A Non-Voting Preferred Shares set forth
opposite its name on Schedule 1.1 (the "Defaulted Shares"), each of the other
Investors shall have the right, but not any obligation, exercisable within 15
Business Days thereafter, to purchase its ratable share of the Defaulted Shares
and any additional Defaulted Shares that any other non-defaulting Investor shall
elect not to purchase pursuant to this Section 6.4.
SECTION 7. Termination. The obligation of the parties to effect the
Purchase may be terminated (i) by the mutual written consent of the Corporation
and each of the Investors or (ii) by any party in writing, without liability to
such party on account of such termination (provided the terminating party is not
otherwise in material breach and/or default of this Agreement), if the Closing
shall not have occurred on or before October 4, 1999.
SECTION 8. Transfer Taxes. The Corporation agrees that it will pay, and
will hold each Investor harmless from any and all liability with respect to, any
transfer, documentary or stamp taxes ("Transfer Taxes") which may be determined
to be payable in connection with the execution and delivery of this Agreement or
any modification, amendment or alteration of the terms or provisions of this
Agreement, and that it will similarly pay and hold each Investor harmless from
all such Transfer Taxes in respect of the issuance of any of the Transaction
Securities to such Investor.
SECTION 9. Survival of Representations, Warranties, Agreements and
Covenants, etc. All representations and warranties in the Documents shall
survive the Closing until the second anniversary of the date hereof and shall in
no way be affected by any investigation of the subject matter thereof made by or
on behalf of any Investor; provided, however, (x) the representations and
warranties set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.11, 2.15, 2.19,
2.20, 2.21, 2.22, and 2.36 shall survive the Closing indefinitely and (y) the
representations and warranties set forth in Sections 2.9(a), 2.23, 2.26 and 2.27
shall survive the Closing until the expiration of all applicable statutes of
limitations. All statements contained in any certificate or other instrument
delivered by the Corporation pursuant to this Agreement shall constitute
representations and warranties by the Corporation under this Agreement. All
agreements and
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covenants contained herein or any other Document shall survive indefinitely
until, by their respective terms, they are no longer operative.
SECTION 10. Expenses. (a) Except as set forth in Section 10(b) and (c), the
Corporation and each Investor shall pay all the costs and expenses incurred by
it or on its behalf in connection with this Agreement and the consummation of
the transactions contemplated hereby.
(b) The Corporation shall promptly pay or reimburse the Investors for (and,
to the extent requested by the Investors, for expenses incurred prior to the
Closing, pay at the Closing): (i) the Investors' reasonable out-of-pocket
expenses (including, without limitation, all reasonable fees and expenses of
counsel of each of the Investors) arising in connection with the preparation,
negotiation and execution of the Documents and the other agreements or
instruments contemplated thereby, and the consummation of the transactions
contemplated thereby, (ii) the reasonable fees and expenses incurred by each
such Investor with respect to any amendments or waivers (whether or not the same
become effective) under or in respect of the Documents and the agreements
contemplated thereby (including, without limitation, in connection with any
proposed merger, sale or recapitalization of the Corporation), and (iii) the
fees and expenses incurred by the Investors in any filing with any governmental
agency with respect to its investment in the Corporation or in any other filing
with any governmental agency with respect to the Corporation that mentions any
Investor.
(c) Notwithstanding anything herein to the contrary, no Investor will
receive or is entitled to receive any broker's fee, finder's fee, placement fee
or other similar fee or commission in connection with the Purchase or the
consummation of the transactions contemplated by this Agreement and the
Documents.
SECTION 11. Indemnification.
11.1. General Indemnification. The Corporation shall indemnify, defend and
hold each Investor, its affiliates, and each of their respective officers,
directors, partners, managing directors, affiliates, employees, agents,
consultants, representatives, successors and assigns (each an "Investor Entity")
harmless from and against all Losses (as defined below) incurred or suffered by
an Investor Entity (whether incurred or suffered directly or indirectly through
ownership of Series A Non-Voting Preferred Shares or Conversion Shares) arising
out of, relating to, or resulting from (a) any breach of any of the
representations, warranties, covenants or agreements made by it in this
Agreement or in any agreement, certificate or other instrument delivered
pursuant hereto including, without limitation, the Documents, and (b) any third
party claim made against an Investor Entity relating to any transaction by the
Corporation financed in whole or in part, directly or indirectly, with proceeds
from the sale of any of the Series A Non-Voting Preferred Shares or Common
Shares hereunder. Each Investor, severally and not jointly, shall indemnify,
defend and hold the Corporation, its affiliates, and each of their respective
officers, directors, employees, agents, consultants, representatives, successors
and assigns harmless against all
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Losses arising from the breach of any of its representations, warranties,
covenants or agreements in this Agreement or in any certificate or other
instrument delivered pursuant hereto, including, without limitation, the
Documents. Notwithstanding anything to the contrary in this Agreement, no
indemnification payment by the Corporation pursuant to this Section 11 with
respect to any Losses otherwise payable hereunder as a result of a breach of its
representations and warranties (other than any Losses resulting from breaches of
the representations and warranties in Section 2.7, as they relate to Taxes,
Sections 2.26 and 2.27, to any covenants contained in this Agreement or any
other Document and to willful misrepresentation, fraud or deceit, which shall
not be subject to the Deductible or Limit) shall be payable (a) until the time
as such Losses shall aggregate (on a cumulative basis and not on a per item
basis) for all Investor Entities more than US$5,000,000 (the "Deductible"), and
then only to the extent that such Losses, in the aggregate for all Investors,
exceed the Deductible; or (b) with respect to the Investor Entities associated
with each Investor, in an aggregate amount in excess of the Purchase Price of
the shares issued to such Investor or its predecessors in interest as shown on
Schedule 1.1 hereto (as increased by the amounts by which the Series A
Non-Voting Liquidation Value, as defined in the Terms of the Series A Non-Voting
Preferred Shares, Series A in the Articles of Amendment, would increase from the
Closing Date to the date of determination) (the "Limit"). The Corporation shall
also indemnify, defend and hold harmless each Investor Entity against any and
all Losses (as defined in Section 11.2 and not subject to any Deductible or
Limit) arising under Title IV of ERISA, Section 302 of ERISA and Sections 412
and 4971 of the Code which may be incurred by any of them arising out of or
relating to any WFI Entity being or having been an ERISA Affiliate with any
other Person (other than another WFI Entity), whether such Losses arise out of
or relate to any event or state of facts occurring or existing before, on or
after the Closing Date.
An "ERISA Affiliate" is defined as any entity that is (i) a member of a
"controlled group of corporations," under "common control" or a member of an
"affiliated service group" within the meaning of Section 414(b), (c) or (m) of
the Code, (ii) required to be aggregated under Section 414(o) of the Code, or
(iii) under "common control," within the meaning of Section 4001(a)(14) of
ERISA, or any regulations promulgated or proposed under any of the foregoing
Sections, in each case with any WFI Entity.
11.2. Indemnification Principles. For purposes of this Section 11, "Losses"
shall mean each and all of the following items: claims, losses (including,
without limitation, losses of earnings), liabilities, obligations, payments,
damages (actual, punitive or consequential), charges, judgments, fines,
penalties, amounts paid in settlement, costs and expenses (including, without
limitation, interest which may be imposed in connection therewith), costs and
expenses of investigation, actions, suits, proceedings, demands, assessments and
fees, expenses and disbursements of counsel, consultants and other experts. For
purposes of Section 11.1(a) the Corporation shall not be obligated to indemnify,
defend or hold harmless any Investor Entity for any (i) punitive damages or (ii)
damages arising out of such Investor Entity's lost use of such Investor Entity's
share of the Purchase Price (as shown on Schedule 1.1 hereto) for an alternative
investment, except in any case where such damages are the result of the willful
misrepresentation, fraud or deceit of the
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Corporation. Any indemnification payment by the Corporation to any Investor
pursuant to this Section 11 shall include an additional amount so that the
Investor does not, directly or indirectly, bear any portion of such payment made
by the Corporation with respect to such payment on account of the Investor's
direct or indirect investment in the Corporation as contemplated by the
Purchase. Any payment by the Corporation to an Investor pursuant to this Section
11, shall be treated for federal income tax purposes as a Purchase Price
Adjustment.
11.3. Claim Notice. A party seeking indemnification under this Section 11
shall, promptly upon becoming aware of the facts indicating that a claim for
indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each Claim
Notice shall specify the nature of the claim, the applicable provision(s) of
this Agreement or other instrument under which the claim for indemnity arises,
and, if possible, the amount or the estimated amount thereof. No failure or
delay in giving a Claim Notice (so long as the same is given prior to expiration
of the representation or warranty upon which the claim is based) and no failure
to include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement or
other instrument under which the claim arises shall affect the obligation of the
party from whom indemnity is sought except to the extent such party is
materially prejudiced thereby.
11.4. Claim Procedure.
(a) Procedure for Indemnification with Respect to Third-Party Claims. If
any indemnified party hereunder determines to seek indemnification under this
Section 11 with respect to Losses resulting from the assertion of liability by
third parties, such indemnified party shall give notice to the indemnifying
party hereunder within 30 days of such indemnified party becoming aware of any
such Losses or of facts upon which any claim for such Losses will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to such indemnified party. In case any such liability is
asserted against such indemnified party, and such indemnified party notifies the
indemnifying party thereof, the indemnifying party will be entitled, if it so
elects by written notice delivered to such indemnified party within 10 days
after receiving such indemnified party's notice, to assume the defense thereof
with counsel satisfactory to such indemnified party, in which case, the
indemnifying party will not be liable to the indemnified party under this
Section 11.4 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
following sentence or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party. Notwithstanding the foregoing, (i) such indemnified party
shall also have the right to employ its own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless such indemnified party shall reasonably determine that there is a
conflict of interest between or among such indemnified party and the
indemnifying party with re-
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spect to such claim, in which case the fees and expenses of such counsel will be
borne by the indemnifying party, (ii) such indemnified party shall not have any
obligation to give any notice of any assertion of liability by a third party
unless such assertion is in writing, (iii) the rights of such indemnified party
to be indemnified hereunder in respect of any Losses that may or do result from
the assertion of liability by third parties shall not be adversely affected by
its failure to give notice pursuant to the foregoing unless, and, if so, only to
the extent that, the indemnifying party is materially prejudiced thereby, and
(iv) the indemnifying party's obligations to such indemnified party under this
Section 11 shall not terminate until such indemnified party's claims have been
finally satisfied to such indemnified party's sole satisfaction. In the event
that the indemnifying party, within 10 days after receipt of the aforesaid
notice of a claim hereunder, fails to assume the defense of such indemnified
party against such claim, such indemnified party shall have the right to
undertake the defense, compromise, or settlement of such action on behalf of and
for the account, expense, and risk of the indemnifying party.
Notwithstanding anything in this Section 11 to the contrary, (i) if there
is a reasonable probability that a claim may materially adversely affect such
indemnified party, such indemnified party shall have the right to participate in
such defense, compromise, or settlement and the indemnifying party shall not,
without such indemnified party's written consent (which consent shall not be
unreasonably withheld), settle or compromise any of such claims, or consent to
entry of any judgment in respect thereof unless such settlement, compromise, or
consent includes as an unconditional term thereof the giving by the claimant or
the plaintiff to such indemnified party a release from all liability in respect
of such claim. With respect to any assertion of liability by a third party that
results in any claim for indemnification hereunder, the parties hereto shall
make available to each other all relevant information in their possession
material to any such assertion.
(b) Procedure For Indemnification with Respect to Non-Third Party Claims.
In the event that an indemnified party asserts the existence of a claim with
respect to Losses (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the indemnifying
party. Such written notice shall state that it is being given pursuant to this
Section 11.4(b), specify the nature and amount of the claim asserted, and
indicate the date on which such assertion shall be deemed accepted and the
amount of the claim deemed a valid claim (such date to be established in
accordance with the next sentence). If the indemnifying party, within 30 days
after the mailing of notice by such indemnified party, shall not give written
notice to such indemnified party announcing its intent to contest such assertion
of such indemnified party, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim. In the event, however, that the
indemnifying party contests the assertion of a claim by giving such written
notice to such indemnified party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. In the event that
litigation shall arise with respect to any such claim, the prevailing party
shall be entitled to reimbursement of costs and expenses incurred in connection
with such litigation including attorney fees, if the parties hereto, acting in
good faith, cannot reach agreement with respect to such claim within ten days
after such notice.
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SECTION 12. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the
Corporation, each Investor may proceed to protect and enforce its rights either
by suit in equity and/or by action at law, including, but not limited to, an
action for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Agreement, and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that each party may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement.
SECTION 13. Further Assurances. At any time or from time to time after the
Closing, the Corporation, on the one hand, and each Investor, on the other hand,
agree to cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby relating to
the Purchase and to otherwise carry out the intent of the parties hereunder.
SECTION 14. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the Corporation and the Investors and the respective successors,
Permitted Assigns, heirs and personal representatives of the Corporation and the
Investors. In addition, and whether or not any express assignment has been made,
except as otherwise expressly stated in this Agreement, the provisions of this
Agreement which are for each of the Investor's benefit as a purchaser or holder
of Transaction Securities are also for the benefit of, and enforceable by, any
permitted subsequent holder of such Transaction Securities. The parties
acknowledge that, subject to compliance with applicable securities laws, each
Investor may transfer and assign all or a part of its rights and obligations
under this Agreement to one or more other partnerships, corporations, trusts or
other organizations which have been created by, or are controlled by, control or
are under common control with such Investor or one or more of the current
partners, members or other equity holders of such Investor, without the consent
of the Corporation (collectively, "Permitted Assigns"). This Agreement shall not
be assignable by the Corporation, without the consent of each of the Investors.
SECTION 15. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto including, but not limited to, that certain letter of intent,
dated August 5, 1999, between the Corporation and the Investors.
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SECTION 16. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by fax, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
(i) if to the Corporation, to:
Worldwide Fiber Inc.
#1510-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-6822
Attention: Stephen Stow
with a copy to:
Farris, Vaughan, Wills & Murphy
2600-700 West Georgia Street
Vancouver, British Columbia V7Y 1B3
Fax: (604) 661-9349
Attention: Cameron G. Belsher
with a copy to:
Cahill Gordon & Reindel
Eighty Pine Street
New York, New York 10005
Fax: (212) 269-5420
Attention: Roger Andrus
(ii) if to DLJ, to:
DWF SRL
Chancery House
High Street
Bridgetown
Barbados, West Indies
Fax: (246) 431-0076
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and
DWF SRL
c/o DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
Fax: (212) 892-7272
Attention: Andrew Rush
with a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Fax: (212) 751-4864
Attention: Steven Della Rocca
(iii) if to any of the GSCP Parties, to:
c/o Ernst & Young Services, Ltd.
P.O. Box 261
Bay Street
Bridgetown, Barbados
Fax: (246) 426-9551
Attention: Carol-Ann Smith
and
c/o GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Fax: (212) 902-3000
Attention: Robert Gheewalla
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Fax: (212) 859-4000
Attention: Stuart Z. Katz
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and
GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Fax: (212) 357-5505
Attention: Ben Adler
(iv) if to Providence, to:
Providence Equity Fiber, L.P.
50 Kennedy Plaza
Providence, Rhode Island 02903
Fax: (401) 751-1790
Attention: Glenn M. Creamer
with a copy to:
Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, Rhode Island 02903
Fax: (401) 276-6602
Attention: David K. Duffell
(v) if to Tyco, to:
c/o Tyco Group s.a.r.l.
2nd Floor
6, Avenue Emile Reuter
L-2420 Luxembourg
Fax: (352) 464-350
Attention: Managing Director
with a copy to:
Tyco Submarine System Ltd.
250 Industrial Way West
Eatontown, New Jersey 07724
Fax: (732) 578-7803
Attention: General Counsel
All such notices, requests, consents and other communications shall be
deemed to have been given when received.
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SECTION 17. Amendments. The terms and provisions of this Agreement may be
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Corporation and each of the
Investors.
SECTION 18. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 19. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 20. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
SECTION 21. Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of law. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of New York and of the United
States of America, in each case located in the County of New York, for any
action, proceeding or investigation in any court or before any governmental
authority ("Litigation") arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any Litigation
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by registered mail to its respective
address set forth in this Agreement shall be effective service of process for
any Litigation brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any Litigation arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of New York or the United States
of America, in each case located in the County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such Litigation brought in any such court has been brought
in an inconvenient forum. Each of the parties irrevocably and unconditionally
waives, to the fullest extent permitted by applicable law, any and all rights to
trial by jury in connection with any Litigation arising out of or relating to
this Agreement or the transactions contemplated hereby.
SECTION 22. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be
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effective and valid, but if any provision of this Agreement is held to be
invalid or unenforceable in any respect, such invalidity or unenforceability
shall not render invalid or unenforceable any other provision of this Agreement.
SECTION 23. Currency. Unless otherwise indicated, references to "dollars",
"$" or U.S. dollars and references to "C$" are to Canadian dollars.
SECTION 24. No Partnership. The obligations of each of the parties to this
Agreement are several and not joint. Nothing in this Agreement shall imply or be
deemed to imply a partnership, joint venture or other relationship between the
parties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as
of the date first above written.
CORPORATION:
WORLDWIDE FIBER INC.
By:
-------------------------------------------
Name:
Title:
DWF SRL
By:
-------------------------------------------
Name:
Title:
GSCP3 WWF (BARBADOS) SRL
By:
-------------------------------------------
Name:
Title:
(Signature Page to Preferred
Share Purchase Agreement)
-50-
<PAGE>
WWF (BARBADOS) SRL
By:
-------------------------------------------
Name:
Title:
PROVIDENCE EQUITY FIBER L.P.
by its General Partner,
Providence Equity Partners III L.P.
by its General Partner,
Providence Equity Partners III L.L.C.
By:
----------------------------------------
Name: Glenn M. Creamer
Title: Member and Managing Director
TYCO GROUP S.A.R.L.
By:
-------------------------------------------
Name:
Title:
(Signature Page to Preferred
Share Purchase Agreement)
-51-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.1
Number of Series A Non-Voting Total
Investor Preferred Shares Purchase Price*
-------- ---------------- --------------
<S> <C> <C>
[ ]** [ ]** $[ ]**
[ ]** [ ]** $[ ]**
[ ]** [ ]** $[ ]**
[ ]** [ ]** $[ ]**
[ ]** [ ]** $[ ]**
------------------ -------------------------
TOTAL 8,866,808 $ 345,000,000.00
=========================
* Per Share Price equal to $38.909.
</TABLE>
- ----------
** Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2.1(a)
WFI Entities and Jurisdictions
Jurisdiction of Incorporation/
[ ] brackets Denote Foreign
Name Registrations
- ---- -------------
Registrations
- -------------
<S> <C> <C>
1. Worldwide Fiber Communications Ltd. Alberta
2. Ledcom Holdings Ltd. Alberta
3. Ledcor Communications Ltd. Alberta [British Columbia],
Ontario, Saskatchewan,
New Brunswick*, Nova Scotia*
4. Ledcor Cayer Inc. Quebec
5. Ledcor Engineering Inc. Ontario
6. Worldwide Fiber Finance Ltd. Alberta
7. Worldwide Fiber Networks Ltd. Alberta [British Columbia]
8. Worldwide Fiber (F.O.T.S.) Ltd. Alberta
9. Worldwide Fiber (F.O.T.S.) No. 2, Inc. Alberta
10. WFI-CN Fibre Inc. Canada [British Columbia]
11. Ledcor Communications, Inc. Nevada
12. Worldwide Fiber (USA), Inc. Nevada (See Note 1)
13. Worldwide Fiber Networks, Inc. Nevada (See Note 1)
14. Worldwide Fiber (F.O.T.S.), Inc. Nevada
15. Worldwide Fiber IC Holdings, Inc. Nevada
16. Worldwide Fiber IC LLC Delaware
17. IC Fiber Alabama LLC Delaware
18. IC Fiber Illinois LLC Delaware
19. IC Fiber Iowa LLC Delaware
20. IC Fiber Kentucky LLC Delaware
21. IC Fiber Louisiana LLC Delaware
22. IC Fiber Mississippi LLC Delaware
23. IC Fiber Tennessee LLC Delaware
24. PFL Holdings, Inc. Nevada
25. Pacific Fiber Link SEA-POR, Inc. (not active) Nevada
26. Pacific Fiber Link MON-ALB, Inc. (not active) Nevada
<PAGE>
Jurisdiction of Incorporation/
[ ] brackets Denote Foreign
Name Registrations
- ---- -------------
27. WFI Liquidity Management Hungary Limited Liability Company Hungary
28. Worldwide Telecom (Canada) Inc. Alberta
29. Worldwide Telecom (USA) Inc. Nevada
30. Worldwide Telecom (Barbados) Inc. Barbados
31. WTI Telecom (UK) Limited United Kingdom
32. WTI Telecom (Ireland) Limited Ireland
33. Worldwide Telecom (Denmark) ApS Denmark
34. Worldwide Telecom Limited Bermuda
35. Worldwide Telecom (Bermuda) Holdings Ltd. Bermuda
36. Worldwide Telecom (Bermuda) Ltd. Bermuda
</TABLE>
Notes:
1. Worldwide Fiber (USA) Inc. is the holding company parent for the operating
company Worldwide Fiber Networks, Inc. which carries on business in the
following states: California, Colorado, Illinois, Iowa, Oregon, Virginia,
Washington, New York.
2. * denotes extra-provincial registration in process.
-2-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2.3(b)(i) - Part 1
Shareholders of WFI Entities
% of
Total
% of Votes
Total of
Canadian No. and Class Common Voting
Name of Entity Shareholders of Record 1(yes/no) of Shares Held Shares Shares
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Worldwide Fiber Inc. Worldwide Fiber Holdings Ltd. Yes 25,000,000 Class A Common .9940 .9940
(See Schedule 2.3(b)(i) Part II Mackenzie Partners, LLC No 150,000 Class A Common .0060 .0060
for post-closing shareholdings)
Ledcom Holdings Ltd. Worldwide Fiber Communications Ltd. Yes 50 Class A Common 50% 50%
Ledcor Inc. Yes 50 Class A Common 50% 50%
Ledcor Industries Limited Yes 1,000,000 Class II Preferred n/a n/a
Ledcor Communications Ltd. Worldwide Fiber Communications Ltd. Yes 200 Class A Common 100% 100%
Ledcor Cayer Inc. Ledcor Communications Ltd. Yes 20,000 Common 100% 100%
Ledcor Engineering Inc. Ledcor Communications Ltd. Yes 1 Common 100% 100%
Worldwide Fiber Finance Ltd. Ledcor Communications Ltd. Yes 1 Class A Common 100% 100%
Worldwide Fiber Networks Ltd. Worldwide Fiber Inc. Yes 3,001,001 Class A Common 100% 100%
Worldwide Fiber (F.O.T.S.) Ltd. Worldwide Fiber Networks Ltd. Yes 5,000,000 Class A Common 100% 100%
Worldwide Fiber (F.O.T.S.) No. 2, Worldwide Fiber Networks Ltd. Yes 1,000 Class A Common 100% 100%
Inc.
WFI-CN Fibre Inc. Worldwide Fiber Networks Ltd. Yes 75 Class A Common 75% 75%
Canadian National Railway Company Yes 25 Class A Common 25% 25%
- ----------
1 "Canadian" for purposes of thresholds in Telecommunications Act (Canada).
<PAGE>
% of
Total
% of Votes
Total of
Canadian No. and Class Common Voting
Name of Entity Shareholders of Record 1(yes/no) of Shares Held Shares Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Fiber Worldwide Fiber Inc. Yes 1,000,100 Class A Common 100% 100%
Communications Ltd.
Ledcor Communications, Inc. Worldwide Fiber Communications Ltd. Yes 100 Common 100% 100%
Worldwide Fiber (USA), Inc. Worldwide Fiber Networks Ltd. Yes 130 Class A Voting Preferred 75% 65%
Mi-Tech Communications LLC No 150 Non-Voting Common 25% 25%
Ledcor Communications Ltd. 50 Class A Voting Preferred [n/a] 10%
50 Non-Voting Common
20 Class A Voting Preferred
Worldwide Fiber Networks, Inc. Worldwide Fiber (USA), Inc. No 100% 100%
Worldwide Fiber (F.O.T.S.), Inc. Worldwide Fiber Networks Ltd. Yes 200 Common 100% 100%
Worldwide Fiber IC Holdings, Inc. Worldwide Fiber Networks Ltd. Yes 1 Common 100% 100%
Worldwide Fiber IC LLC Worldwide Fiber IC Holdings, Inc. No 75 Units 75% 75%
IC Fiber Holding Inc. No 25 Units 25% 25%
IC Fiber Alabama LLC Worldwide Fiber IC LLC No 100% 100%
IC Fiber Illinois LLC Worldwide Fiber IC LLC No 100% 100%
IC Fiber Iowa LLC Worldwide Fiber IC LLC No 100% 100%
IC Fiber Kentucky LLC Worldwide Fiber IC LLC No 100% 100%
IC Fiber Louisiana LLC Worldwide Fiber IC LLC No 100% 100%
IC Fiber Mississippi LLC Worldwide Fiber IC LLC No 100% 100%
IC Fiber Tennessee LLC Worldwide Fiber IC LLC No 100% 100%
PFL Holdings, Inc. Worldwide Fiber Networks Ltd. No 100% 100%
-2-
<PAGE>
% of
Total
% of Votes
Total of
Canadian No. and Class Common Voting
Name of Entity Shareholders of Record 1(yes/no) of Shares Held Shares Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Pacific Fiber Link SEA-POR, Inc. Worldwide Fiber Networks Ltd. No 1 Common Share 100% 100%
Pacific Fiber Link MON-ALB, Inc. Worldwide Fiber Networks Ltd. No 1 Common Share 100% 100%
WFI Liquidity Management Hungary Worldwide Fiber Finance Ltd. No 100% 100%
Limited Liability Company
Worldwide Telecom (Bermuda) Ltd. Worldwide Telecom Ltd. No 12,000 Shares 100% 100%
Worldwide Telecom (Bermuda) Worldwide Fiber Networks Ltd. No 100% 100%
Holdings Ltd. [to be verified]
Worldwide Telecom Limited Worldwide Telecom (Bermuda) Holdings No 12,000 Shares 100% 100%
Ltd.
Worldwide Telecom (Denmark) ApS Worldwide Telecom (Bermuda) Ltd. No 100% 100%
WTI Telecom (Ireland) Limited Worldwide Telecom (Denmark) ApS No 1 Ordinary Share 100% 100%
WTI Telecom (UK) Limited Worldwide Telecom (Denmark) ApS No 100% 100%
Worldwide Telecom (Barbados) Inc. Worldwide Telecom (Bermuda) Ltd. No 12,000 Shares 100% 100%
Worldwide Telecom (USA) Inc. Worldwide Telecom (Denmark) ApS No 100 Common Shares 100% 100%
Worldwide Telecom (Canada) Inc. Worldwide Telecom (Denmark) ApS No 100 Class A Common Voting 100% 100%
Shares
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2.3(b)(i)-Part II
Shareholders of WFI Entities Immediately Following Closing
% of
Total
% of Votes
Total of
Canadian No. and Class Common Voting
Name of Entity Shareholders of Record 2(yes/no) of Shares Held Shares Shares
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Worldwide Fiber Inc. Worldwide Fiber Holdings Ltd. Yes 23,843,500 Class B 99.375% 99.375%
Subordinate Voting Shares
Mackenzie Partners, LLC No 150,000 Class B Subordinate .625% .625%
Voting Shares
Tyco Group S.a.r.l. No 3,212,600 Series A Preferred
Non-Voting Shares
Providence Equity Fiber, L.P. No 1,884,736 Series A Preferred
Non-Voting Shares
DWF SRL No 1,884,736 Series A Preferred
Non-Voting Shares
GSCP3 WWF (Barbados) SRL No 1,387,757 Series A Preferred
Non-Voting Shares
WWF (Barbados) SRL No 496,979 Series A Preferred
Non-Voting Shares
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Following Closing, the shareholdings of all other WFI Entities remain
unchanged from those described in Schedule 2.3(b)(i) - Part I.
- ----------
2 "Canadian" for purposes of thresholds in Telecommunications Act (Canada).
<PAGE>
SCHEDULE 2.3(b)(ii)
WFI Common Share Equivalents
1. The rights of each of Worldwide Fiber Communications Ltd. and Ledcor Inc.
to acquire the shares of the other in the capital of Ledcom Holdings Ltd.
pursuant to the unanimous shareholders agreement of Ledcom Holdings Ltd.
dated December 1, 1998. Both Worldwide Fiber Communications Ltd. and Ledcor
Inc. are "Canadian."
2. The right of Ramsey-Beirne Investment Partners, LLC to acquire up to
$[ ]*(US) of shares in the capital of Worldwide Fiber Inc. pursuant
to Terms of Agreement dated July 7, 1999.
3. Any statutory pre-emptive or similar rights applicable in the jurisdictions
of incorporation of the WFI Subsidiaries.
4. Options granted to WFI and Affiliated companies pursuant to the 1998
Employee Long Term Incentive and Share Award Plan (ESOP) as follows:
<TABLE>
<CAPTION>
Option Shares
First Vesting Date No. of Shares Exercise Price Held by Canadians
------------------ ------------- -------------- -----------------
<S> <C> <C> <C>
[ ]* [ ]* [ }* [ ]*
[ ]* [ ]* [ ]* [ ]*
[ ]* [ ]* [ ]* [ ]*
[ ]* [ ]* [ ]* [ ]*
[ ]* [ ]* [ ]*
------------------ ------------------
</TABLE>
Note:
4.1 Further particulars of the options described above have been provided
to the Investors by separate certificate.
4.2 The options provide for exercise of 25% of total options granted to
the holder each year, with the exercise date for the first 25% tranche
being the first anniversary of the grant date.
4.3 The ESOP options permit purchase of common stock of Worldwide Fiber
Inc. and lapse approximately ten years following grant.
4.4 "Canadian" has the meaning set forth in Telecommunications Act
(Canada) Regulations. Status of all option holders is being verified,
but is believed to be 90% accurate based on current information.
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
<PAGE>
5. The issuance of shares pursuant to the Minority Roll-Up Agreements
described as (a), (b) and (c) in the definition of that term.
6. An Irrevocable Right to Purchase dated March 6, 1998 between Larry
Olsen, Stephen Stow, David Lede and Clifford Lede on behalf of the
Ledcor group, particulars of which have been provided to the
Investors. Larry Olsen is "Canadian."
7. The 4,500,000 Class C Multiple Voting Shares to be issued pursuant to
the Ledcor Roll-Up.
-2-
<PAGE>
SCHEDULE 2.3(b)(iv)
WFI Share Encumbrances or Restrictions
1. The pledge of shares to be granted by all of the Subsidiaries pursuant to
the security to be granted and agreements to be executed as contemplated in
the commitment letter entered into by Worldwide Fiber Inc. with Citibank
Canada in connection with a senior secured revolving credit facility and
purchase money facility for Worldwide Fiber Inc. of up to $150 million.
2. Those agreements and rights described in items 1, 2, 3, 5, 6 and 7 of
Schedule 2.3 (b) (ii).
3. The first rights to purchase granted to WFI by Mackenzie Partners, LLC and
Jim Voelker in a Subscription Agreement dated August 11, 1999, as amended
by Amendment No. 1 dated August 31, 1999.
4. The security interests described as items 3, 5 and 6 in Schedule 2.15(a).
<PAGE>
SCHEDULE 2.3(b)(v)
Rights to Nominate or Elect Directors
1. The rights held by Canadian National Railway Company pursuant to the
unanimous shareholders agreement of WFI-CN Fibre Inc. dated May 28, 1999.
2. The rights held by IC Fiber Holding Inc. (Illinois Central Railroad
Company) pursuant to the limited liability company agreement of Worldwide
Fiber IC LLC dated May 28, 1999.
3. The rights held by Mi-Tech Communications LLC pursuant to the unanimous
shareholders agreement of Worldwide Fiber (USA) Inc. dated December 31,
1998.
<PAGE>
SCHEDULE 2.7
Undisclosed Liabilities
1. Claims which may arise in the ordinary course of business related to:
restoration, maintenance or similar contractual obligations in connection
with construction contract obligations, none of which claims of any
material nature are known to the Corporation at this time.
2. Liabilities related to construction deficiencies, and the Corporation has
no knowledge to date of any material deficiencies of this nature.
3. Purchase orders related to the acquisition of telecommunications equipment
from Nortel Networks in the approximate amount of $47,600,000 (US).
4. Joint Build and Swap Agreement with Enron Communications Ltd. from Denver,
Colorado to Texas to New Orleans route, for fiber strands having a value of
approximately $60 million.
5. Obligations to be assumed by the WFI Entity acquiring fiber assets pursuant
to the terms of the Ledcor Roll-Up Agreement.
<PAGE>
SCHEDULE 2.8
Changes
1. The amended and restated share purchase agreement entered into between
Worldwide Fiber Inc., Ledcor Industries Limited and Ledcor Industries, Inc.
dated September 7, 1999 and the obligations to be assumed on completion of
that transaction.
2. The commitment to arrange a senior secured revolving credit facility and
purchase money facility for the Corporation up to $150 million in aggregate
with Citibank Canada.
3. The obligations incurred, transactions entered into and companies
incorporated in connection with the Hibernia Project.
4. The decision of Worldwide Fiber Inc. to add optronics and electrical
equipment to market its bandwidth technology as described in the Offering
Memorandum of the Corporation dated July 23, 1999.
5. The agreements entered into whereby the Corporation issued Series B 12 1/2%
Senior Notes due 2005 and Series A 12% Senior Notes due 2009.
6. The continuance of the jurisdiction of incorporation of Worldwide Fiber
Inc. from Alberta to Canada.
7. Employee housing loans not exceeding $500,000 (US) in aggregate.
8. Options granted to directors of the Corporation and to employees pursuant
to the 1998 Employee Long Term Incentive and Share Award Plan.
9. The expenses, capital expenditures and other items reflected in the June
30, 1999 financial statements of the Corporation.
10. Those items listed in any Schedules to this Agreement, which by their
description indicate they have occurred or will occur subsequent to
December 31, 1998.
11. The issue of 150,000 Class A Common shares of the Corporation to Mackenzie
Partners, LLC.
12. Proceedings before the Canadian Radio-television and Telecommunications
Commission under Part VII of the Telecommunications Act, respecting the
terms of Worldwide Fiber (F.O.T.S.) Ltd.'s access to City of Vancouver
streets to install fiber optic cable and related equipment.
<PAGE>
13. California Public Utilities Commission stop work order pending
environmental report and review for Portland to Los Angeles segment of
build in California.
14. Contractor claim for construction extras on Seattle-Portland route of
approximately $500,000 (no proceedings instituted).
15. The issue of 5,000,000 Series C Redeemable Preferred Shares as a stock
dividend to Worldwide Fiber Holdings Ltd.
16. The issuance of 23,843,500 Class B Subordinate Voting Shares and 40,000,000
Series C Redeemable Preferred Shares to Worldwide Fiber Holdings Ltd. as
consideration for the acquisition of 25,000,000 outstanding Class B
Subordinate Voting Shares from Worldwide Fiber Holdings Ltd. concurrent
with closing.
17. The repurchase of the 45,000,000 Series C Redeemable Preferred Shares from
Worldwide Fiber Holdings Ltd. concurrent with Closing.
18. Section 85 elections under the Income Tax Act (Canada) in connection with
the transfer of certain fiber assets from Ledcor Industries Limited to the
Corporation or its subsidiaries.
-2-
<PAGE>
SCHEDULE 2.10(a)
Agreements
1. The Supply Contract between Worldwide Telecom (Bermuda) Ltd. (now Worldwide
Telecom (Barbados) Inc.) and Tyco Submarine Systems Ltd. dated June 18,
1999.
2. Construction Services Agreement dated March 2, 1999 issued to C & S Network
Construction (Butte County Line to Round Mountain, California).
3. Fiber Optic Agreement (Edmonton-Toronto CPR Build) made between Canadian
Pacific Railway Company and BCT.Telus Communications Inc. and Worldwide
Fiber Inc. dated June 15, 1999.
4. Agreement for the Purchase and Sale of Strands and Facilities for Fiber
Optic Network (Future Build) made between BCT.Telus Communications Inc. and
Worldwide Fiber Inc. dated April 30, 1999.
5. Agreement for the Purchase and Sale of Strands and Facilities for Fibre
Optic Network (Canadian Future Build) made between Worldwide Fiber Inc. and
MetroNet Fibre Canada Inc. dated October 30, 1998.
6. Build Agreement made between GST Telecom Inc. and Pacific Fiber Link, LLC.
(LA, Mira Mesa and California) dated April 2, 1999.
7. Enron Agreements:
(a) Conduit and Fiber Lease between Worldwide Fiber Networks, Inc., a
Nevada corporation and Enron Communications, Inc., an Oregon
corporation, dated June 30, 1999.
Routes: Fiber. Buffalo to Albany; Seattle to Vancouver, B.C; and
either Albany to New York City or Los Angeles to San Diego. Conduit.
Denver.
(b) Fiber Lease between Enron Communications, Inc., an Oregon corporation
and Worldwide Fiber Networks, Inc., a Nevada corporation.
Routes: Amarillo to Austin to Houston to New Orleans.
(c) Fiber Lease between 3636607 Canada, Inc., a Canadian corporation and
Worldwide Fiber Inc., a province of Alberta, Canada corporation.
Routes: Detroit to Buffalo and Seattle to Vancouver, B.C.
(d) IRU Swap Agreement between Enron Communications, Inc., an Oregon
corporation and Worldwide Fiber Inc., a province of Alberta, Canada
corporation
<PAGE>
Routes: WFI to provide fibers to Enron from Minneapolis to Detroit.
Enron to provide fibers to WFI from Denver to Houston.
8. GST Agreements:
(a) Joint development agreement between GST Telecom Inc., a Delaware
corporation and Pacific Fiber Link, LLC, a Washington limited
liability company, dated April 2, 1999.
Route: Los Angeles to Mira Mesa
(b) Joint development agreement between Pacific Fiber Link, LLC, a
Washington limited liability company and GST Telecom Inc., a Delaware
corporation, dated August 5, 1998.
9. Level 3 Agreements:
(a) Conduit Sale Agreement between Pacific Fiber Link, Inc., a Nevada
corporation and Level 3 Communications, LLC, a Delaware limited
liability company, dated March 31, 1999. [ ]*
(b) Conduit Sale Agreement between Pacific Fiber Link, Inc., a Nevada
corporation and Level 3 Communications, LLC, a Delaware limited
liability company, dated March 19, 1999. [ }*
(c) Conduit Sale Agreement between Worldwide Fiber Networks, Inc., a
Nevada corporation and Level 3 Communications, LLC, a Delaware limited
liability company, dated May 17, 1999. [ ]*
(d) Agreement between Worldwide Fiber, Inc., an Alberta, Canada limited
liability company and Level 3 Communications, LLC, a Delaware limited
liability company, dated November 19, 1998. [ ]*
10. Joint development agreement between Pacific Fiber Link, Inc., a Nevada
corporation and Williams Communications, Inc., a Delaware corporation,
dated December 29, 1998. [ ]*
11. Joint development agreement between Pacific Fiber Link, LLC, a Washington
limited liability company and Pathnet, Inc., a Delaware corporation, dated
March 31, 1999. [ ]*
12. Pre-construction IRU Agreement between FTV Communications, LLC, a Delaware
limited liability company and GST Telecom Inc., a Delaware corporation,
dated September 30, 1998 entitling Worldwide Fiber Networks to revenue of
[ ]* pursuant to the agreement with GST described as 8(a) above.
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-2-
<PAGE>
13. Construction Contract between Worldwide Fiber Networks, Inc. and Kiewit
Pacific Company dated June 24, 1999.
14. Construction Contract between Worldwide Fiber Networks, Inc. and Ledcor
Industries Inc. dated June 22, 1999 (approx. $24,000,000), subject to
Worldwide Fiber Inc. board approval.
15. Purchase order with Nortel Networks related to the acquisition of
telecommunications equipment in the approximate amount of $47,600,000(US)
-3-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2.10(c)
List of Fiber Sale Agreements and Revenue
Revenue Reflected in
June 30, 1999
Revenue Financial Statements
<S> <C> <C>
Seattle - Portland (2)
Qwest $[ ]* $[ ]*
Fonorola [ ]* [ ]*
Nextlink [ ]* [ ]*
Nextlink [ ]* [ ]*
Nextlink [ ]* [ ]*
Worldnet [ ]* [ ]*
Toledo [ ]* [ ]*
Level 3 - constr [ ]* [ ]*
Qwest - constr [ ]* [ ]*
Sprint - constr [ ]* [ ]*
------------------
Seattle Ring (2)
Metromedia [ ]* [ ]*
Qwest [ ]* [ ]*
Summit Cable [ ]* [ ]*
Level 3 [ ]* [ ]*
Level 3 [ ]* [ ]*
------------------
Portland - Sacramento
GST [ ]* [ ]*
Williams [ ]* [ ]*
Level 3 [ ]* [ ]*
FTV [ ]* [ ]*
GTE [ ]* [ ]*
Gervais [ ]* [ ]*
Citizens [ ]* [ ]*
ATG [ ]* [ ]*
------------------
Chicago - Denver
Pathnet [ ]* [ ]*
------------------
Vancouver - Seattle
BCT.Telus [ ]*
------------------
Level 3 Eastern Builds (Buffalo - [ ]* [ ]*
------------------
Montreal) (1)
BCT.Telus Builds
Edmonton - Toronto(1) [ ]*
Eastern Builds [ ]* [ ]*
------------------
AT&T Canada (formerly MetroNet)
Eastern Builds - Canada [ ]*
Eastern Builds - USA [ ]* [ ]*
------------------ ------------------
TOTAL $ 478,812,718 $ 114,307,373
------------------ ------------------
</TABLE>
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
<PAGE>
1 Does not include non-cash consideration received i.e. 24/48 fibers
2 Excludes non-cash sales, i.e. Swaps with Metromedia and GST (LA to Mira
Mesa and Enron Agreements described in Schedule 2.10)
-2-
<PAGE>
SCHEDULE 2.10(d)
Changes in Network Description
1. The additional Central Build Section from Denver, Colorado to Dallas, Texas
to Houston, Texas to New Orleans, Louisiana with Enron Communications.
Scheduled for completion in Q2, 2000. Estimated Route Miles - 2,065. (Post
July 23, 1999.)
2. The segment from San Diego to Houston to New Orleans to Jacksonville,
Florida. Estimated Route Miles - 2,265. (Post July 23, 1999.)
<PAGE>
SCHEDULE 2.11(d)
Trademarks
1. WORLDWIDE FIBER and design, application for trademark registration filed in
the U.S. on August 18, 1999.
2. WORLDWIDE FIBER, and WORLDWIDE FIBER and design, application for trademark
registration filed in Canada on April 16, 1999, Application Number:
1,005,493.
<PAGE>
SCHEDULE 2.11 (e) and (f)
Third Party Intellectual Property
1. The Rail Plough License Agreement, dates as at May 31, 1998 by and between
Ledcor Industries Limited and 786520 Alberta Ltd. as assigned by Ledcor
Industries Limited to Ledcom Holdings Ltd. (formerly Starfiber
Communications Ltd.) and assigned by 786520 Alberta Ltd. to Ledcor
Communications Inc.
2. Letter to Worldwide Fiber Communications Ltd. from Ledcor Inc. dated as of
November 27, 1998 regarding Ledcor Inc.'s agreement to cause Ledcom
Holdings Ltd. to grant to Worldwide Fiber Communications Ltd. a worldwide
exclusive license for the use of the plow technology.
<PAGE>
SCHEDULE 2.15(a)
Encumbrances
1. Security interests, pledges or other security to be granted as contemplated
in the senior combined credit facility described as item 2 in Schedule 2.8.
2. Security granted or to be granted by WFI Entities in connection with
ordinary course bonding provided for construction projects.
3. Security interest granted by Worldwide Fiber Communications Ltd. in favor
of Ledcor Inc., encumbering the shares of Worldwide Fiber Communications
Ltd. in Ledcom Holdings Ltd., as contemplated in the Ledcom Holdings Ltd.
unanimous shareholders agreement dated December 1, 1998.
4. Permitted Encumbrances contemplated in the Ledcor Roll-Up.
5. Security interest granted by WFI-CN Fibre Inc. in favour of the Canadian
National Railway Company encumbering the property and assets of WFI-CN
Fibre Inc. as security for amounts owing pursuant to the license agreement
among WFI-CN Fibre Inc., Worldwide Fiber Inc. and the Canadian National
Railway Company dated as of May 28, 1999.
6. Security interest granted by each of IC Fiber Illinois LLC, IC Fiber
Kentucky LLC, IC Fiber Tennessee LLC, IC Fiber Mississippi LLC, IC Fiber
Louisiana LLC, IC Fiber Alabama LLC, IC Fiber Iowa LLC (collectively the
"IC Fiber LLC's") in favour of the Illinois Central Railroad encumbering
the property and assets of each of the IC Fiber LLCs as security for
amounts owing pursuant to license agreements among Worldwide Fiber Inc.,
the Illinois Central Railroad Company and each of the IC Fiber LLC's,
respectively all dated as of May 28, 1999.
7. UCC Filings in the United States and Personal Property Registry filings in
Canada resulting from conducting business in the ordinary course related to
equipment, vehicles and similar assets and filings which will be discharged
as required in connection with the senior debt financing described as item
2 in Schedule 2.8.
8. Encumbrances or assessments and liens securing workers' compensation,
unemployment insurance or other social security obligations and
governmental charges or levies provided that no such encumbrances,
assessments, charges or levies would have a Material Adverse Effect.
9. The reservations, exceptions, limitations, provisos and conditions, if any,
expressed in any grant from the Crown.
<PAGE>
10. Undetermined or inchoate liens and charges incidental to the current
operations of the WFI Entities taken as a whole.
-2-
<PAGE>
SCHEDULE 2.15(c)
Condemnation Proceedings
1. The Telecommunications Act (Canada) Part VII Application relating to the
fiber assets installed by Worldwide Fiber (F.O.T.S.) Ltd. on public rights
of way in the City.
<PAGE>
SCHEDULE 2.16
Employee Benefit Plans
General
1. Customary compensation arrangements entered into in the ordinary course of
business, none of which are materially burdensome to the Corporation or the
WFI Entities.
2. Severance and termination pay obligations as required by law or pursuant to
written employment agreements where such obligations are (a) not materially
greater than required by law or (b) are conditional upon the employee
complying with specified not compete covenants.
3. The 1998 Employee Long Term Incentive and Share Award Plan.
Worldwide Fiber Networks, Inc.
1. Employee 401K plan where employer matches 50% of employee contributions of
up to 6% of salary.
2. Humana PPO Health and Dental Insurance and Principal Disability Insurance
Voluntary Plan 185 (insured by Employers Health Insurance Company).
Worldwide Fiber Inc. - Canadian Operations
1. The benefits provided pursuant to the terms of the Collective Agreements
described in Schedule 2.17 requiring a fixed per hour contribution by the
Employer. Benefits are administered through the applicable labour union.
2. Life Insurance, Medical and Dental Employee Health Benefit Plan with The
Great West Life Assurance Company with fixed employer rates through to
4/1/2000 (corporation and subsidiaries participate as Ledcor affiliates).
3. RRSP Employer Contribution Plan where employees having two years of service
with the company are eligible to have employer contribute funds to an RRSP
Account established with Great West Life Assurance Company, in the name of
the Employee, in an amount determined at the discretion of management.
Ledcor Communications Inc.
1. Employee 401K plan where employer matches employee contributions, 50% of
employee contributions of up to 4% of salary.
2. Life and Accidental Death and Dismemberment Insurance. Salaried Only.
<PAGE>
o Basic Life: Up to $100,000 coverage
o Carrier: Paul Revere Life
o Accidental Death: Up to $100,000 coverage
o LCI: Pays All, Employer premium fixed for 1 year
3. Health Care
o Carrier: Guardian Life Insurance Co.
o Medical: PPO covered 90% - 10 deductible: Non-PPO covered 80% - 20
deductible
o Dental: Max $1,500 $25 insured
o Vision: In Network $10; Out of Network $40
o LCI: Pays all, Employer premium fixed for 1 year
4. Long Term Disability Group Insurance
o Carrier: The Paul Revere Life Insurance Company
o LCI: Pays all, Employer premium fixed for 1 year
o Coverage: Maximum benefit $5,000 per month
-2-
<PAGE>
SCHEDULE 2.17
Labour Relations; Employees
A. Collective Agreements
1. Labour unions represent WFI Entity employees pursuant to the following
Collective Agreements:
(a) Quebec - Collective Agreement expiring April 30, 2001 between The
Association des constructeurs de routes et grands travaux du Quebec
(ACRGTQ) and The Conseil provincial du Quebec des metier de la
construction (International) and The Federation des travailleurs du
Quebec.
(b) Manitoba, Saskatchewan - Collective Agreement expiring February 28,
2001 between Ledcor Communications Ltd. and Construction Workers Union
(CLAC), Local 152.
(c) Ontario - Collective Agreement between Ledcor Communications Ltd. and
the Christian Labour Association of Canada expiring February 28, 2001.
(d) British Columbia and Alberta - Collective agreements having the same
terms and expiry date as the Ontario Collective Agreement (with
Christian Labour Association of Canada) have been negotiated but not
yet ratified.
B. Employees having a base salary greater than $150,000 US):
[ ]* (start date: September, 1999)
C. Employees with Severance Beyond Legal Requirements (ss. 2.17(ii))
None
D. Change of Control
The 1998 ESOP contains change of control automatic vesting provisions
respecting employee options.
E. Employees Resigning
Jerry Tharp of Worldwide Fiber (USA) Inc. will retire his position in
September 1999 but will continue to provide services to that company
following retirement. David Love has been appointed his successor.
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
<PAGE>
SCHEDULE 2.18
Litigation, Orders
1. Application by Ledcor Industries Limited, on its own behalf and on behalf
of Worldwide Fiber (F.O.T.S.) Ltd. under Part VII of the Telecommunications
Act (Canada) respecting terms of access to City of Vancouver public
property for the purposes of installing fiber optic systems.
2. California Public Utilities Commission stop work order related to a portion
of the Portland - Los Angeles build pending an environmental review
process.
3. Contractor claim for construction extras on Seattle-Portland route of
approximately $500,000 (US) (no proceedings instituted).
<PAGE>
SCHEDULE 2.19
Compliance With Laws
1. Licenses or registrations to be obtained by the WFI Entity acquiring Fiber
Assets pursuant to the Ledcor Roll-Up Agreement described in Schedule
2.20(a).
<PAGE>
SCHEDULE 2.20(a)
Compliance with Telecommunications Laws
Schedule 2.20(a) - Notices Required
1. Obtaining :
(a) an Industry Canada International Submarine Cable Landing License;
(b) registration as a telecommunications common carrier under the
Telecommunications Act (Canada) and the rules and regulations
thereunder;
(c) Class A License for Provision of Basic International
Telecommunications Services; and
(d) Consent from the State of Washington to transfer of aquatic license
for undersea cable (Victoria to Seattle) (or, alternatively having
Ledcor grant an IRU for the useful life of the fiber if consents are
not readily available)
by the WFI Entity acquiring fiber assets pursuant to the Ledcor Roll-up in
connection with acquisition of the Fiber Assets, as defined in the Ledcor
Roll-Up Agreement.
<PAGE>
SCHEDULE 2.20(e)
Application of Communications Act
1. Tariff FCC No. 1 filed by Worldwide Fiber Networks, Inc. effective August
4, 1999 for domestic interstate dedicated transport service, pursuant to
Communications Act, 1934.
2. Further FCC filings required in connection with implementation of the
Corporation's business plan to sell telecommunications services.
3. Application for Cable Landing License filed with the Federal Communications
Commission on August 4, 1999 in relation to the Hibernia Project.
<PAGE>
SCHEDULE 2.22(a)
Licenses and Permits
Schedule 2.22(a) - Part I
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
<PAGE>
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-2-
<PAGE>
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-3-
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE FIBER NETWORKS, INC.
U.S. CERTIFICATION CHART
8/31/99
<S> <C> <C>
STATES BY ORDER OF DATE FILED DATE CERTIFICATION GRANTED/ORDER
IMPORTANCE/BUILD NO./DOCKET NO.
OUT
______________________
LENGTH OF TIME REQUIRED TO OBTAIN
CLEC STATUS3
WASHINGTON Worldwide Fiber filed for Granted
______________________ registration as a Order Authorizing Registration,
30 Days by statute telecommunications provider and Granting Petition for Competitive
petitioned for classification as Classification and Approving
a competitive provider - June 16, Price List - July 14, 1999,
1999 Docket No. UT-990858.
Foreign qualifications filed with
original Application
OREGON Worldwide Fiber - Granted
______________________ Interexchange (Long Distance) Interexchange Authority
N/A - Regulatory Burden not such Authority - April 27, 1999 June 8, 1999. Order No. 99-355,
that local authority should be Local Authority - April 27, 1999 Docket No. CP 649
stayed. Foreign qualifications filed with Local Authority - August 4,
original Application 1999. Order No. 99-460
Docket No. CP 648
CALIFORNIA Transfer of the Certificate Pending
______________________ from Pacific Fiber Link, L.L.C. Number: A99-06-015
4-6 months to Worldwide Fiber Networks, Inc.
- June 14, 1999
Foreign qualifications filed with
original Application
COLORADO Worldwide Fiber - Local and Granted
Interexchange Author- August 18, 1999
- ----------
3 This is the minimum amount of notice I require to obtain the necessary
authority before Worldwide may offer local telecommunications services in
each state.
-4-
<PAGE>
______________________ ity - June 25, 1999 Decision No. C99-904
45-60 Days 25, 1999 Docket No. 99A-332T
(The authority to operate as a
local carrier was withdrawn, but we are
still certified as a "local exchange
carrier", just without the authority or
obligation to offer local service) Foreign
company registration requirements - July
9, 1999
NEBRASKA Worldwide Fiber - Interex- Granted
______________________ change Authority - July 2, August 10, 1999
90 Days on average - 1999 Application No. C-2078
if statewide Foreign company registra-
authority is requested may tion requirements - July 12, 1999
take longer because rural ILECs will
protest application
IOWA Worldwide Fiber - Local Pending
______________________ Application and Interexchange Docket No. TCU-99-23
N/A Notification - July 9, 1999
Foreign company registration
requirements - July 13, 1999
ILLINOIS Worldwide Fiber - Interexchange Pending
___________________________120 Days Authority - July 6, 1999 Docket No. 99-0372
Foreign company registration Hearing held August 12, 1999.
requirements - July 23, 1999
KENTUCKY Worldwide Fiber - Local and Granted
______________________ Interexchange Authority - July August 13, 1999
N/A - CLECs receive statewide 13, 1999
construction exemption. Foreign company registration
requirements - August 26, 1999
-5-
<PAGE>
TENNESSEE Worldwide Fiber -Interexchange Pending
______________________ Authority - July 30, 1999 Docket No. 99-00556
60 Days Foreign qualifications filed with
original Application
MISSISSIPPI Worldwide Fiber -Interexchange Pending
______________________ Authority - August 13, 1999 Docket No. 1999-UA-614
30-45 Days Foreign qualifications filed with TC123174000
original Application
LOUISIANA Worldwide Fiber -Interexchange Pending
______________________ Authority - August 6, 1999
180 Days Foreign qualifications filed with
original Application
MISSOURI Worldwide Fiber -Interexchange Pending
______________________ Authority - August 27, 1999
30-45 Days Foreign qualifications to be
filed with original Application
NEVADA Worldwide Fiber -Interexchange Pending
______________________ Authority - August 13, 1999
45-60 Days
UTAH Worldwide Fiber -Interexchange Pending
______________________ Authority -
2-3 Months August 19, 1999
Foreign company registration
requirements - August 26, 1999
VIRGINIA Worldwide Fiber -Interexchange Pending
______________________ Authority - August 18, 1999
3-6 Months
NORTH CAROLINA Worldwide Fiber -Interexchange Pending
______________________ Authority - August 27, 1999
3-6 Months Foreign qualifications to be
filed with original Application
-6-
<PAGE>
MINNESOTA Worldwide Fiber -Interexchange Pending
______________________ Authority - August 26, 1999
6 Weeks - minimum Foreign qualifications to be
filed with original Application
MICHIGAN Worldwide Fiber -Interexchange Pending
______________________ Authority - August 26, 1999
180 Days by Statute Foreign qualifications to be
filed with original Application
WISCONSIN
- ----------------------
30-60 Days
INDIANA
- ----------------------
3-6 Months
SOUTH CAROLINA
- ----------------------
120 Days by Statute
ARIZONA Worldwide Fiber - Interexchange Pending
______________________ Authority - August 30, 1999
6-9 Months
TEXAS
- ----------------------
60 Days
NEW MEXICO
- ----------------------
3-5 Months
FLORIDA
- ----------------------
10-12 Weeks
NEW YORK
- ----------------------
90 Days by Statute
MASSACHUSETTS
- ----------------------
30 Days
GEORGIA
- ----------------------
120 Days by Statute
-7-
<PAGE>
ALABAMA
- ----------------------
60 Days
PENNSYLVANIA
- ----------------------
90 Days
CONNECTICUT
- ----------------------
10 Weeks
RHODE ISLAND
- ----------------------
30 Days from receipt of completed
filing
</TABLE>
-8-
<PAGE>
HIBERNIA PROJECT APPROVAL TIME LINE
SCHEDULE 2.22(a)
Part 2
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
<PAGE>
HIBERNIA PROJECT APPROVAL TIME LINE
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-2-
<PAGE>
HIBERNIA PROJECT APPROVAL TIME LINE
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-3-
<PAGE>
HIBERNIA PROJECT APPROVAL TIME LINE
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-4-
<PAGE>
HIBERNIA PROJECT APPROVAL TIME LINE
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-5-
<PAGE>
HIBERNIA PROJECT APPROVAL TIME LINE
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-6-
<PAGE>
HIBERNIA PROJECT APPROVAL TIME LINE
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to request for confidential treatment under Rule 406.
-7-
<PAGE>
SCHEDULE 2.22(b)
Exceptions to Access Rights
1. Access Rights have not yet been finalized for the following route segments:
(a) Washington, D.C. to Tallahasee
(b) Atlanta to Miami
(c) Memphis to Atlanta
(d) San Diego to Houston
(e) New Orleans to Jacksonville, Florida
(f) Denver to Sacramento
(g) Canadian Intra-City networks
2. Access Rights are not always obtained through a direct contractual
relationship with the landholder and are instead provided through Swap
arrangements or obtained from third parties such as Railroads, utilities
who, to the Corporation's knowledge, have previously been granted such
rights or have covenanted with the Corporation to obtain same.
3. Construction and crossing permits and licenses to be obtained in the course
of construction.
<PAGE>
SCHEDULE 2.24(a)
Related Transactions
1. Purchase of regeneration buildings from Ledcor Industries Limited on the
(a) Portland, Oregon to Sacramento, California route and (b) on the Omaha,
Nebraska to Chicago, Illinois route in 1999.
2. Construction Contract between Worldwide Fiber Networks, Inc. and Ledcor
Industries Inc. dated June 22, 1999 (approximately $24,000,000 (US),
subject to Worldwide Fiber Inc. board approval.
3. Utilization of Ledcor Industries Limited personnel as consultants in
connection with cable landing stations (proposed).
4. Transactions between WFI Entities.
5. Sublease of Nashua Drive, Mississauga premises and West Hastings Street,
Vancouver premises from Ledcor group.
6. Shared Assets: shared administrative support services including accounting,
finance, human resources, information technology, plant and facilities
(including associated personnel, overhead and licenses) provided by Ledcor
or its subsidiaries and used by the Corporation or its Subsidiaries.
-2-
<PAGE>
SCHEDULE 2.26
Taxes
1. In 1999, Worldwide Fiber (USA) Inc. has applied for an extension of time
within which to file its tax return; the estimated tax amount has been
remitted.
2. The following WFI Entities are registered under Division V of Part IX of
the Excise Tax Act: Ledcor Communications Ltd., Ledcor Cayer Inc. and
Worldwide Fiber Inc.
3. Section 85 elections under The Income Tax Act (Canada) in connection with
the transfer of certain fiber assets from Ledcor Industries Limited to the
Corporation or its Subsidiaries.
<PAGE>
SCHEDULE 2.29
Insurance
Insured: In all policies listed below, the named insured is Ledcor Industries
Limited and/or Ledcor Industries, Inc., however, they have been
extended to include Worldwide Fiber Inc., and its subsidiaries.
<TABLE>
<CAPTION>
Policy Description and No. Carrier Amount of Coverage
- -------------------------- ------- ------------------
<S> <C> <C>
1. "All Risks" Property American Home Assurance Company $25,000,000 with various
Policy No. RSL160052 sublimits
2. "All Risks" Course of Construction American Home Assurance Company $25,000,000 with various
Policy No. RSL160053 sublimits
3. Commercial General Liability American Home Assurance Company U.S. $5,000,000
Policy No. RMGLA2505702
4. Umbrella Liability American Home Assurance Company U.S. $50,000,000
Policy No. BE3585144
5. 1st Excess Liability Allianz Insurance Company of Canada U.S. $50,000,000
Policy No. XXK-000-7464-6693
6. 2nd Excess Liability CIGNA Insurance Company of Canada U.S. $30,000,000
Policy No. XCP397038
7. 3rd Excess Liability Elliott Special Risks Ltd. on behalf U.S. $20,000,000
Policy No. IE50565 of Scottish & York Insurance Co.
Limited, and Sovereign General
Insurance Company
8. 4th Excess Liability Chubb Insurance Company of Canada U.S. $40,000,000
Policy No. 7972-65-32
9. 5th Excess Liability Liberty Mutual Insurance Company U.S. $25,000,000
Policy No. LQ1-B71-070798-028
10. 6th Excess Liability Reliance Insurance Company U.S. $25,000,000
Policy No. 7301338
11. 7th Excess Liability Royal & Sun Alliance Ins. Co. of U.S. $10,000,000
Policy No. 60335000 Canada
12. Director's & Officer's Liability Encon Insurance Managers Inc. on U.S. $20,000,000 each Loss
Policy No. DO-027632 behalf of Commercial Union Assurance U.S. $20,000,000 each
Company of Canada, Continental Policy Year
Casualty Company, and Non-Marine
Underwriters at Lloyd's
<PAGE>
Policy Description and No. Carrier Amount of Coverage
- -------------------------- ------- ------------------
13. Contractor's Professional Liability Encon Insurance Managers Inc. on $10,000,000 per claim
Policy No. CON307242 behalf of Continental Casualty $10,000,000 per policy
Company, The Royal Insurance Company period
of Canada, and Non-Marine
Underwriters at Lloyd's under
Contract No. ENC5-97
14. Contractor's Pollution Liability Commerce & Industry $10,000,000 per claim
Policy No. GCPO7619205 $10,000,000 aggregate
15. Comprehensive Crime The Guarantee Company of North America $500,000 Employee Dishonesty
Policy No. 887023 $100,000 Depositor's Forgery
16. All Other States (Excluding The Insurance Company of the State of $1,000,000 each
California) Worker's Compensation Pennsylvania accident/each employee
and Employer's Liability
Policy No. WC 112 98 99
17. California Worker's Compensation The Insurance Company of the State of $1,000,000 each accident/
and Employer's Liability Pennsylvania each employee
Policy No. WC 112 99 00
18. Non-Owned Aircraft Liability Canadian Aviation Insurance Managers $50,000,000
Policy No. 400AC-5846 Ltd. on behalf of St. Paul Fire and
Marine Insurance Company
19. Standard Automobile SPF No. 1, American Home Assurance Company $5,000,000 Third Party
Ontario Automobile OAP 1 Liability
Policy No. RMBA3769485
20. Standard U.S. Automobile - American Home Assurance Company $5,000,000 Third Party
Guaranteed Cost Liability
Policy No. CA 382-98-06
21. Railroad Protective Liability National Union Fire Insurance Company U.S. $2,000,000 each
Policy No. GL 933-02-53 of Pittsburgh, PA occurrence
U.S. $6,000,000 aggregate
22. "All Risks" Property American Home Assurance Company $25,000,000 with various
Policy No. 7722620 sublimits
23. Composite Marine & Construction T.B.A. Property--Full replacement
Package Policy cost of insured property
Policy No. T.B.A. subject to various internal
sublimits
Business Interruption--
(pound)200,000,000 subject
to various internal sublimits
General Liability--
(pound)250,000,000
subject to various sublimits
UK Employer's Liability--
(pound)145,000,000
</TABLE>
-2-
<PAGE>
SCHEDULE 2.32
Real Property
United States Leases
1. Worldwide Fiber Networks Inc.
(a) One year lease dated March 1, 1999 with Brick Associates for premises
at 722 Avenue D, Suite C, Snohomish, Washington, USA 98290
(b) Three year lease dated September 1, 1998 with Eastridge Business Park
for premises at 11719 NE 95th Street, Suite A Vancouver, Washington,
USA 98682
(c) One year lease dated May 1, 1999 with Exports for premises at 215
Marine Drive, Suite G2, Blaine, Washington, USA 98230
(d) Five year lease dated March 1, 1999 with Melvin Mark Brokerage for
premises at 707 SW Washington, Suite 107C, Portland, Oregon, USA 97205
(e) Three year lease dated June 1, 1999 with One Park Center for premises
at 1333 West 120th Avenue, Suite 116, Westminster, Colorado, USA 80234
(f) Three year lease dated June 1, 1999 with One Park Center for premises
at 1333 West 120th Avenue, Suite 122, Westminster, Colorado, USA 80234
(g) Three year lease dated June 1, 1999 with One Park Center for premises
at 1333 West 120th Avenue, Suite 216 Westminster, Colorado, USA 80234
(h) Three year lease dated April 1, 1998 with Pavilion Court for premises
at 1400 122nd Avenue, Suite 130, Westminster, Colorado, USA 80234
(i) Temporary one year lease dated September 1, 1998 - August 31, 1999
with Robbie Cattanach Trucking for premises at 7194 Bridge Street,
Anderson, California, USA 96007
(j) Monthly lease dated March 1, 1999 with Smoots for premises at 721
Avenue D, Suite 201, Snohomish, Washington, USA 98290
(k) Monthly lease dated March 1, 1999 with Smoots for premises at 721
Avenue D, Suite 202, Snohomish, Washington, USA 98290
(l) Monthly lease dated March 1, 1999 with Smoots for premises at 721
Avenue D, Suite 203, Snohomish, Washington, USA 98290
<PAGE>
(m) Monthly lease dated March 1, 1999 with Smoots for premises at 721
Avenue D, Suite 204, Snohomish, Washington, USA 98290
(n) One year lease dated March 1, 1999 with S & R Rentals for premises at
719 SW Goodwin Street, Ankeny, Iowa, USA 50021
(o) Seven month lease dated July 1, 1999 with Rim Rock Corp. for premises
at 500 X 700 foot slab, 4 acres, South and East of Mill Yard
(p) Monthly lease dated August 15, 1998 with Airport Road Industrial Park
for premises at 29394 Airport Road, Suite B, Eugene, Oregon, USA 97402
(q) Six month lease dated June 16, 1998 with Mario Addiego for premises at
2258 North Street, Anderson, California, USA 96007
(r) Monthly lease dated December 1, 1998 with Durbin/Blloomberg for
premises at section 26, T 27, Rge 05, Snohomish County, Washington,
USA
2. Canadian Real Property
(a) Lands purchased by Ledcor Communications Ltd. for "shelter" sites
along the Canadian F.O.T.S. route, comprising approximately five
parcels having purchase prices ranging from $20,000 (Cdn) to $105,000
(US).
3. Canadian Leases
(a) Five year lease dated Feb. 19, 1998, between Ledcor Cayer Inc. and
Construction Cayer/Jestin Immobilieres Procay Inc. for premises in
Romoulaod, P.Q.
(b) Sublease from Ledcor Properties Inc. to Ledcor Communications Ltd. for
premises at 3930 Nashua Drive, Mississauga [no fixed term]
(c) Temporary trailer on site location leases (3-4 per year) in connection
with construction operations, not exceeding $10,000 per annum each.
(d) Lease of Suite 1520 and 14th Floor premises at 1066 West Hastings
Street, Vancouver, British Columbia.
-2-
<PAGE>
SCHEDULE 3
U.S. Representations & Warranties
If an Investor falls under one of the categories listed in Section 3(b) of
the Preferred Share Purchase Agreement, by executing the Preferred Share
Purchase Agreement, such Investor, on its own behalf and, if applicable on
behalf of others for whom it is contracting, represents, warrants and
acknowledges to the Corporation the following:
(a) Such Investor is acquiring the Series A Non-Voting Preferred Shares
for its own account, for investment purposes only and not with a view
to any resale, distribution or other disposition of the Series A
Non-Voting Preferred Shares in violation of the United States
securities laws.
(b) If such Investor decides to offer, sell or otherwise transfer any of
the Series A Non-Voting Preferred Shares, it will not offer, sell or
otherwise transfer any of such Series A Non-Voting Preferred Shares
directly or indirectly, unless such sale is made in compliance with,
or in reliance of an exemption from, the 1933 Act and applicable state
securities laws.
(c) Such Investor understands and agrees that there may be material tax
consequences to the Investor of an acquisition or disposition of the
Series A Non-Voting Preferred Shares and that, except as expressly set
forth in this Agreement, the Corporation gives no opinion and makes no
representation with respect to the tax consequences to the Investor
under United States, state, local or foreign tax law of the Investor's
acquisition or disposition of such securities.
<PAGE>
SCHEDULE 5.1
Use of Proceeds
To fund the repurchase of 45,000,000 Series C Redeemable Preferred
Shares of the Corporation $45,000,000
To fund the construction of the Hibernia project as defined
in Section 2.10(e) of the Purchase Agreement and general
corporate purposes related to the Hibernia project $300,000,000
------------
$345,000,000
============
SHAREHOLDERS AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Certain Definitions...............................................1
SECTION 2. Methodology for Calculations......................................7
SECTION 3. Limitations on Purchases and Sales of Shares by Shareholders......8
SECTION 4. Rights of First Offer.............................................9
SECTION 5. Tag-Along Rights.................................................12
SECTION 6. Bring-Along Rights...............................................14
SECTION 7. Preemptive Rights................................................15
SECTION 8. Corporate Governance.............................................17
SECTION 9. Major Transactions...............................................22
SECTION 10. Liquidity Rights.................................................26
SECTION 11. Representations and Warranties...................................28
SECTION 12. Certain Covenants................................................29
SECTION 13. [Intentionally omitted]..........................................39
SECTION 14. Reservation of Common Shares; Conversion.........................39
SECTION 15. Confidentiality..................................................39
SECTION 16. Specific Performance; Injunction.................................40
SECTION 17. No Inconsistent Agreements.......................................41
SECTION 18. Further Assurances...............................................41
SECTION 19. Duration of Agreement............................................41
SECTION 20. Legends..........................................................41
SECTION 21. Contractual Management Rights....................................42
SECTION 22. Severability.....................................................42
SECTION 23. Governing Law; Waiver of Jury Trial..............................43
SECTION 24. Successors and Assigns...........................................43
SECTION 25. Notices..........................................................44
SECTION 26. Amendments.......................................................48
SECTION 27. Headings.........................................................48
SECTION 29. Entire Agreement.................................................49
SECTION 30. Counterparts.....................................................49
SECTION 31. No Partnership...................................................49
SECTION 32. Ledcor Assurances................................................49
-i-
<PAGE>
Schedule 1.15 - Key Shareholders
Schedule 3(a)(i) -Permitted Assignees of WFH
Schedule 11(b)(i) - Security holdings of each Shareholder
Schedule 11(b)(ii) -Agreements related to security holdings of each Shareholder
Schedule 12.16 - Ledcor Regulatory Matters
-ii-
<PAGE>
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (the "Agreement"), dated as of September 9,
1999, by and among WORLDWIDE FIBER INC., a corporation continued under the laws
of Canada (the "Corporation"), DWF SRL, a Barbados company ("DLJ"), GS CAPITAL
PARTNERS III, L.P., a Delaware limited partnership ("GSCP") (signatory hereto
solely for purposes of Section 8), GSCP3 WWF (Barbados) SRL, a Barbados company,
WWF (Barbados) SRL, a Barbados company, each of which is an affiliate of The
Goldman Sachs Group, Inc. (collectively, with GSCP, the "GSCP Parties"),
PROVIDENCE EQUITY FIBER, L.P., a Delaware limited partnership, ("Providence"),
TYCO GROUP S.a.r.l., a Luxembourg corporation ("Tyco") (collectively with DLJ,
the GSCP Parties and Providence, the "Investors") WORLDWIDE FIBER HOLDINGS LTD.,
an Alberta corporation ("WFH"), LEDCOR INC., an Alberta corporation ("Ledcor")
(signatory hereto solely for purposes of the Sections specified in Section 32),
and the signatories listed on Schedule 1.15 hereto.
W I T N E S S E T H:
WHEREAS, the Corporation and the Investors are parties to that certain
Preferred Share Purchase Agreement, dated as of September 7, 1999 (the "Purchase
Agreement"), pursuant to which the Corporation has issued to the Investors, and
the Investors have purchased from the Corporation, shares of a newly created
series of Preferred Shares (the "Series A Non-Voting Preferred Shares"); and
WHEREAS, the Purchase Agreement contemplates that the parties hereto will
enter into this Shareholders Agreement and the parties hereto deem it to be in
their best interests to establish and set forth their agreement with respect to
certain rights and obligations associated with ownership of Shares (as defined
below).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties hereto hereby agree as
follows:
SECTION 1. Certain Definitions. As used herein, the following terms shall
have the following meanings (capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Purchase
Agreement):
1.1. Affiliate shall mean (i) with respect to any Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person, or (ii) with respect to any
individual, shall also mean the spouse, child (including a stepchild or an
adopted child), grandchildren, parent, brother, sister or other
<PAGE>
-2-
bona fide estate planning recipient thereof or any spouse of any of the
foregoing, and each trust created for the exclusive benefit of any one or more
of them. Notwithstanding the foregoing, neither the Corporation nor any Person
controlled by the Corporation shall be deemed to be an Affiliate of any
Shareholder for purposes of this Agreement.
1.2. Board shall mean the Board of Directors of the Corporation.
1.3. Cause shall mean:
(a) if the Senior Officer is convicted of a criminal offense involving
fraud or dishonesty; or
(b) if the Senior Officer takes any action or omits to take any action
which constitutes gross negligence or willful misconduct which is likely to
bring the reputation of the Corporation into disrepute.
1.4. Common Share Equivalents shall mean all options, warrants and other
securities and obligations convertible into, or exchangeable or exercisable for,
at any time or upon the occurrence of any event or contingency and without
regard to any vesting or other conditions to which such securities may be
subject, Common Shares.
1.5. Common Shares shall mean any common shares of the Corporation of any
class or series whether now or hereafter authorized, including without
limitation the Corporation's Class A Non-Voting Common Shares, Class B
Subordinate Voting Shares and Class C Multiple Voting Common Shares, and any
shares into which such common shares may be exchanged, reclassified,
recapitalized, converted or otherwise.
1.6. Competitor shall mean (i) WFI Competitor and (ii) Tyco Competitor.
(a) WFI Competitor means any Person deriving 25% or more of its annual
consolidated revenues from the construction, development, operation or sale of
terrestrial or underwater fiber optic networks or bandwidth fiber optic
communication capacity. WFI Competitors currently include, without limitation,
(i) Qwest Communications International Inc., (ii) Williams Communications Group
Inc., (iii) IXC Communications Inc., (iv) Global Crossing Ltd., (v) MCI Worldcom
Inc., and (vi) Level 3 Communications Inc. This list does not preclude later
inclusion of other Persons whose nature and scope of business would qualify them
for inclusion under this definition.
(b) Tyco Competitor means any Person in the market of Tyco Submarine
Systems Ltd. ("TSSL") that contends for material market share against TSSL in
TSSL's Business (as defined below). A Tyco Competitor further means any Person
offering alone or to-
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gether with any other Person, to supply Systems which generate annual
consolidated revenues in excess of (a) 15% of such Person's consolidated
revenues, or (b) $50 million dollars. Tyco Competitors shall mean, as of the
date hereof, Alcatel Submarine Networks, KDD Submarine Cable Systems, and
Pirelli Submarine Systems. This list does not preclude later inclusion of other
Persons whose nature and scope of business would qualify them for inclusion
under this definition. "TSSL's Business" shall mean the design, manufacture or
sale of commercial undersea fiber optic telecommunication Systems (where such
Systems may be inclusive of segments or products supplied by vendors or other
undersea cable system suppliers), as conducted by TSSL or by TSSL through or
with the Operating Companies ("Operating Companies" means collectively, Trans
Oceanic Cable Ship Co., Coastal Cable Ship Co., The Rochester Corporation, and
Tyco Printed Circuit Board Group). "Systems" as used herein includes, in whole
or part: (1) undersea fiber optic cables, branching units and signal
amplification units; (2) land-based terminal equipment typically associated with
undersea fiber optic cable systems (e.g. power, maintenance and supervisory,
signal conditioning, multiplexing, and network protection equipment); (3)
terrestrial-based cable crossings between undersea fiber optic cables which are
a part of a larger undersea telecommunication systems ("Cable Crossings"); and
(4) terrestrial-based backhauls which are attendant to such undersea
telecommunication systems ("Backhauls").
1.7. Dollar, US$ and $ shall mean, unless otherwise indicated, U.S.
dollars, and the symbol C$ shall mean Canadian dollars.
1.8. Fair Market Value of Shares shall mean, for purposes of Section 10,
the fair market value of each Series A Non-Voting Preferred Share, Series B
Subordinate Voting Preferred Share (a "Series B Voting Preferred Share") or
other Share of the Corporation as determined, at the Corporation's expense, by
an appraisal firm or investment bank of national standing experienced in the
valuation of such securities ("Valuation Firm") selected in good faith by an
Investor making a Section 10 Offer and approved by the Board, which approval
shall not be unreasonably withheld or delayed. For purposes of Section 10 the
determination of Fair Market Value of each Series A Non-Voting Preferred Share,
Series B Voting Preferred Share or other Share shall be based on the value that
a willing buyer with knowledge of all relevant facts would pay a willing seller
for all the outstanding equity securities of the Corporation in connection with
an auction of the Corporation as a going concern assuming bidders are prepared
to pay a control premium and without any discount for lesser voting rights, lack
of liquidity, lack of control, minority holder status or similar factors. The
Valuation shall be determined by the Valuation Firm as soon as practicable but
in any event not later than 60 days following the date of the appointment of the
Valuation Firm. If the Board has not approved a Valuation Firm within 15 days of
the proposal of such Valuation Firm by the relevant Investors hereunder, then
(without prejudice to the Investors' other rights and remedies) such
Investors(s) may request the President of the American Arbitration Association
to ap-
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point a Valuation Firm, which will then be the Valuation Firm for the
transaction in question. The Corporation shall furnish to the Valuation Firm all
reasonably available information requested by the Valuation Firm. The fair
market value established by the Valuation Firm (or by the written agreement of
all parties to the transaction) shall be final and binding with respect to each
Section 10 Offer.
1.9. Financial Investors shall mean each of (i) DLJ, (ii) the GSCP Parties
and (iii) Providence, collectively.
1.10. Group shall mean two or more Persons who agree to act together for
the purpose of acquiring, holding, voting or disposing of Shares.
1.11. In-The-Money Common Share Equivalents shall mean, at any time, any
Common Share Equivalents as to which the effective price per Common Share
issuable upon conversion, exchange or exercise of such Common Share Equivalents
(determined by dividing (A) the sum of (x) the aggregate purchase price paid in
respect of such Common Share Equivalents plus (y) the aggregate amount payable
upon conversion, exchange or exercise of such Common Share Equivalents in order
to issue all Common Shares issuable pursuant to such Common Share Equivalents by
(B) the number of Common Shares issuable upon the conversion, exchange or
exercise of such Common Share Equivalents) is equal to or less than the then
fair market value per Common Share as determined in good faith by the Board,
provided that the Series A Non-Voting Preferred Shares shall for all purposes be
deemed In-The-Money Common Share Equivalents.
1.12. Initial Purchase Price shall mean US$38.909 per Share (as equitably
adjusted to reflect any stock split, stock dividend, combination,
reorganization, recapitalization, reclassification or other similar event
involving Common Shares).
1.13. Investor Shares shall mean the Shares issued by the Corporation to
the Investors under the Purchase Agreement, by conversion or otherwise.
1.14. IPO shall mean sale of Shares by the Corporation pursuant to a bona
fide underwritten public offering made pursuant to (a) a final prospectus (for
which a receipt or receipts have been obtained) under Canadian provincial
securities laws ("Canadian Securities Laws") or (b) an effective registration
statement filed under the United States Securities Act of 1933, as amended (the
"Securities Act," collectively with the Canadian Securities Laws, the
"Securities Laws").
1.15. Key Shareholders shall mean and include any person who is (i) a
holder of Shares (as defined below), and (ii) is (x) a director (other than an
Investor Designee), or (y) a Senior Officer or (z) an employee or consultant of
the Corporation or a Subsidiary, who ac-
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quires from the Corporation at least one-half of one percent of Shares in the
aggregate of the then outstanding Shares (on either a primary or fully diluted
basis).
1.16. Ledcorshall mean Ledcor Inc., a corporation incorporated under the
laws of Alberta.
1.17. Ledcor Entitiesshall mean Ledcor Inc. and each of its Subsidiaries,
collectively, except for those entities which are defined as WFI Entities in the
Purchase Agreement.
1.18. Ledcor Roll-Up Agreement shall mean the amended and restated share
purchase agreement entered into on September 7, 1999 among Ledcor Industries
Limited, Ledcor Industries Inc. and the Corporation.
1.19. Material Investor shall mean, (a) any Investor and (b) any transferee
of Shares from an Investor or Material Investor that, together with its
Affiliates, holds at least 5% of the outstanding Investor Shares.
1.20. Minority Roll-Up Agreements shall mean: (a) the unanimous shareholder
agreement made as of May 28, 1999 between Worldwide Fiber Networks Ltd.,
Canadian National Railway Company and WFI-CN Fibre Inc., (b) the limited
liability company agreement of Worldwide Fiber IC LLC effective as of May 28,
1999 between Worldwide Fiber IC Holdings, Inc. and IC Fiber Holding Inc. and (c)
the shareholders agreement dated December 31, 1998 between the Corporation,
Worldwide Fiber Networks Ltd., Ledcor Industries Inc., Worldwide Fiber (USA),
Inc. (formerly known as Pacific Fiber Link, Inc.), Mi-Tech Communications, LLC,
Ledcor and Michels Pipeline Construction, Inc.
1.21. Minority Roll-Up Transaction shall mean the issuance by the
Corporation of Common Shares pursuant to any of the Minority Roll-Up Agreements
(or any transactions or series of related transactions with similar effect).
1.22. National standing all references herein to an investment banking
firm, appraisal or accounting firm of national standing shall mean of national
standing in the United States.
1.23. Other Shareholders shall mean, in connection with any transaction
involving a Selling Shareholder, the Shareholders other than the Selling
Shareholder.
1.24. Person shall mean any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust,
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unincorporated organization, other entity or government or any agency or
political subdivisions thereof.
1.25. Preferred Shares shall mean the Corporation's Series A Non Voting
Preferred Shares or Series B Voting Preferred Shares.
1.26. Private Sale shall mean a Sale that is not a Public Sale.
1.27. Public Sale shall mean a Sale (i) pursuant to a bona fide
underwritten public offering pursuant to (a) a final prospectus (for which a
receipt or receipts have been obtained) under Canadian Securities Laws or (b) an
effective registration statement filed under the United States Securities Act of
1933, as amended (the "Securities Act," collectively with the Canadian
Securities Laws, the "Securities Laws"), or (ii) pursuant to Rule 144 under the
Securities Act.
1.28. Qualified IPO shall mean a bona fide underwritten public offering of
Common Shares in a Public Sale pursuant to a final prospectus (for which a
receipt or receipts have been obtained) and/or an effective registration
statement, as the case may be, under the Securities Laws (i) resulting in at
least $150,000,000 of gross aggregate proceeds to the Corporation and any
Selling Shareholders before deducting underwriting discounts and commissions and
offering expenses, (ii) the gross offering price per share of which is at least
300% of the per share price (the "Adjusted Initial Per Share Price") obtained by
dividing US$345,000,000 by the number of Series A Non-Voting Preferred Shares,
Common Shares or Common Share Equivalents issued by the Corporation pursuant to
Sections 1.1 and 1.4 of the Purchase Agreement (as equitably adjusted to reflect
any stock split, stock dividend, combination, reorganization, recapitalization,
reclassification or other similar event involving Common Shares), and (iii) upon
consummation of which the Corporation's Class A Non-Voting Shares or Class B
Subordinate Voting Shares are listed on The Toronto Stock Exchange and a U.S.
national securities exchange or quoted on the Nasdaq National Market.
1.29. Sell shall mean, as to any Shares, to sell, or in any other way
directly or indirectly transfer, assign, distribute, pledge, encumber or
otherwise dispose of, either voluntarily or involuntarily, including the
assignment or transfer of voting rights attaching to such Shares (if any); the
terms Sale, Selling and Sold shall have meanings correlative to the foregoing.
1.30. Senior Officer shall mean any of the individuals, numbering at least
five, who hold any of the following positions or their functional equivalents
irrespective of actual title held in the Corporation: (A) Chairman; (B)
Vice-Chairman; (C) Chief Executive Officer; (D) President; (E) Chief Financial
Officer; (F) Chief Operating Officer; and (G) Executive Vice President.
<PAGE>
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1.31. Shareholders shall mean the parties to this Agreement (other than the
Corporation, GSCP or, except as specified in Section 32, Ledcor) and any other
Person who executes, and agrees to be bound by the terms of, this Agreement.
1.32. Selling Shareholders shall mean any Shareholders who Sell or propose
to Sell any Shares of the Corporation.
1.33. Shares shall mean (i) any Common Shares and (ii) any Common Share
Equivalents, in each case, whether owned or outstanding on the date hereof or
hereafter.
1.34. Subsidiary shall mean with respect to any Person, any company,
partnership or other entity (i) of which at least a majority of the shares of
capital stock or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other similar managing body of such
company, partnership or other entity are at the time owned or controlled,
directly or indirectly, by such Person or (ii) the management of which is
otherwise controlled, directly or indirectly, through one or more intermediaries
by such Person.
1.35. Supermajority shall mean all or all but one of the following
Investors who then own, or whose Investor Affiliates then own, Shares: DLJ, the
GSCP Parties, Providence and Tyco.
1.36. Voting Shares shall mean the Series B Voting Preferred Shares into
which the Class A Non-Voting Preferred Shares are convertible and the Class B
Subordinate Voting Shares.
1.37. WFH Share Purchase Agreements shall mean the agreements, as may be
amended from time to time, between Worldwide Fiber Holdings Ltd. and (i) Stephen
Stow and (ii) Larry Olsen, as the case may be, to sell and purchase shares.
SECTION 2. Methodology for Calculations. For purposes of this Agreement,
the Sale of a Common Share Equivalent (whether or not an In-The-Money Common
Share Equivalent) shall be treated as the Sale of the Common Shares into which
such Common Share Equivalent can be converted, exchanged or exercised. Except as
otherwise specifically provided in this Agreement, for purposes of all
calculations under this Agreement (including, without limitation, calculations
to determine the ownership of Common Shares of any Shareholder and the
percentage of outstanding Common Shares owned by any Shareholder), all Series A
Non-Voting Preferred Shares and (without duplication) all other In-The-Money
Common Share Equivalents, but no other Common Share Equivalents, shall be
treated as having been converted, exchanged or exercised into or for Common
Shares.
<PAGE>
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SECTION 3. Limitations on Purchases and Sales of Shares by Shareholders.
(a) Until the earlier of (x) 12 months from the date hereof, and (y) an IPO
by the Corporation, (the "Lockup Period"), no Shareholder shall Sell any Shares,
whether owned on the date hereof or acquired hereafter, other than:
(i) Sales of Shares to (x) with respect to any Investor, an
Investor Affiliate (as defined in Section 24) of such Investor, (y)
with respect to any individual, a spouse, child, parent, or trust
created for the exclusive benefit of such individual and/or any one or
more of such relatives or, (z) with respect to WFH, a wholly-owned
Subsidiary of Ledcor or the entities described in Schedule 3(a)(i) or
such other entity as may be consented to in writing by each of the
Investors;
(ii) Sales by WFH after the date hereof, in one or more
arm's-length transactions, of an aggregate of up to [ ]* Shares
(as equitably adjusted to reflect any stock split, stock dividend,
combination, reorganization, recapitalization, reclassification or
other similar event involving Common Shares) in one or more Private
Sales to any Person, provided in each case (A) each such Sale is made
in accordance with Section 5 hereof, (B) each potential purchaser has
not been disapproved by a Supermajority on the basis that a Sale to
such Person could reasonably be expected to diminish the value of the
Corporation and (C) the price per Share of each such Sale is equal to
or greater than the Adjusted Initial Per Share Price;
(iii) A Sale by WFH of all, but not less than all, of its Shares
in an arm's-length transaction to any Person; provided (A) such Sale is
made in accordance with Section 5 hereof and (B) the price per Share of
such Sale is equal to or greater than 300% of the Adjusted Initial Per
Share Price;
(iv) Sales of Shares pursuant to WFH Share Purchase Agreements;
(v) Sales of Shares pursuant to the letter agreement, dated as
of September 7, 1999, among WFH, the Investors and the other parties
thereto; and
(vi) Sales of Shares pursuant to Section 12.4.
(b) No Shareholder shall Sell any Shares, whether owned on the date hereof
or acquired hereafter, other than:
(i) Sales permitted by paragraph (a);
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
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(ii) Sales after the Lockup Period (but not including a pledge
or other encumbrance not constituting a disposition of a Shareholder's
entire interest therein) of Shares in accordance with Sections 4, 5 and
10 hereof;
(iii) Public Sales of Shares after the Lockup Period; and
(iv) Sales of Shares to the extent such Shares were acquired in
secondary market purchases (and not from the Corporation) following an
IPO.
(c) In addition to the restrictions set forth in paragraphs (a) and (b)
above, no Shareholder shall Sell any Shares in a Private Sale to a Competitor
except (i) in an Exit Sale (as defined in Section 6(a)) or (ii) in a Required
Sale (as defined in Section 10(c)).
(d) Ledcor shall not Sell any capital shares or other equity interests of
WFH or permit WFH to issue any of its capital shares or other equity interests
to any Person other than Ledcor or wholly-owned subsidiaries of Ledcor.
(e) Anything contained in this Agreement to the contrary notwithstanding,
any transferee of Shares pursuant to a Sale under paragraph (a) or clause (ii)
of paragraph (b) who is not a Shareholder shall, upon consummation of, and as a
condition to, such Sale (i) execute, and agree to be bound by the terms of, this
Agreement and shall thereafter be deemed a Shareholder, with the same rights and
obligations of the Shareholder which is the transferor of the Shares, for all
purposes of this Agreement (unless otherwise specified herein), and (ii) execute
and deliver a certificate and such other materials as shall be necessary to
establish to the satisfaction of the Corporation and each of the Investors that
(A) the transferee is purchasing the Shares for its own account, for investment
and not with a view to the distribution thereof, and (B) that such Sale is
otherwise being made in compliance with all applicable Canadian and non-Canadian
federal, provincial and state laws (including, without limitation, foreign
ownership and Securities Laws), and such Sale will not result in any violation
or non-compliance with any such laws on the part of the Corporation.
(f) Anything contained in this Agreement to the contrary notwithstanding,
each of Stephen Stow and Larry Olsen, as the case may be, shall be entitled to
pledge to a financial institution, insurance company, investment bank or other
similar entity, Shares acquired pursuant to the WFH Share Purchase Agreements;
provided, that such pledge is granted to secure amounts borrowed to purchase
such Shares.
SECTION 4. Rights of First Offer. Until the earlier of (x) two (2) years
from the date hereof, and (y) an IPO by the Corporation, subject to Section 4(e)
and Section 12.4 any Sale by a Shareholder, except a
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Sale pursuant to Section 3(a), shall be consummated only in accordance with the
following procedures:
(a) The Selling Shareholder shall first deliver to the Corporation and each
of the Other Shareholders a written notice (a "Section 4 Offer Notice"), which
shall (i) state the Selling Shareholder's intention to sell Shares to one or
more Persons (with no obligation (except in the case of a Sale that is permitted
only under the provision of Section 3(a)(ii) in which case the proposed
purchaser shall be identified) to identify or theretofore have identified the
name of such Person or Persons or to have negotiated a transaction with respect
to the Sale of such Shares), the amount and type of Shares to be sold (the
"Subject Shares"), the purchase price therefor and a summary of the other
material terms of the proposed Sale, and (ii) offer the Corporation and the
Other Shareholders the option to acquire all or a portion of such Subject Shares
upon the same terms and subject to the same conditions of the proposed Sale as
set forth in the Section 4 Offer Notice (the "Section 4 Offer"), provided that
such Section 4 Offer may require that it must be accepted by the Corporation and
the Other Shareholders on an all or nothing basis (an "All or Nothing Sale").
The Section 4 Offer shall remain open and irrevocable for the periods set forth
below (and, to the extent the Section 4 Offer is accepted during such periods,
until the consummation of the Sale contemplated by the Section 4 Offer). The
Corporation shall have the right and option, but not the obligation, for a
period of 30 days after delivery of the Section 4 Offer Notice (the "Section
4(a) Acceptance Period"), to accept all or any part of the Subject Shares at the
purchase price and on the terms stated in the Section 4 Offer Notice on its own
behalf or on behalf of a nominee of the Corporation that has been approved for
such purposes in writing by a Supermajority (a "Permitted Nominee"); provided,
however, that, if the Section 4 Offer contemplated an All or Nothing Sale and
only a part of the Subject Shares is accepted by the Corporation (or its
Permitted Nominee) during the Section 4(a) Acceptance Period, such acceptance
shall be subject to the acceptance of the Other Shareholders, pursuant to
Section 4(b), of the remaining Subject Shares. Notice of the Corporation's
intention to accept a Section 4 Offer, in whole or in part, shall be evidenced
by a writing signed by the Corporation (the "Section 4(a) Acceptance Notice")
and delivered to the Selling Shareholder and Other Shareholders prior to the end
of the Section 4 Acceptance Period, setting forth the number and type of Shares
that the Corporation elects to acquire.
(b) If the Corporation or its Permitted Nominee, as the case may be, (i)
shall fail to accept all of the Subject Shares offered for sale pursuant to the
Section 4 Offer, (ii) shall reject in writing the Section 4 Offer, or (iii)
shall fail to respond to a Section 4 Offer Notice prior to the expiration of the
Section 4(a) Acceptance Period, then, upon the earlier of the expiration of the
Section 4(a) Acceptance Period, the giving of the Section 4(a) Acceptance Notice
and the giving of written notice of rejection by the Corporation, each Other
Shareholder shall have the right and option, for a period of 15 days thereafter
(the "Section
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4(b) Acceptance Period"), to accept all or any part of the Subject Shares so
offered and not accepted by the Corporation or its Permitted Nominee, as the
case may be (the "Refused Shares") at the purchase price and on the terms stated
in the Section 4 Notice; provided, however, that, if the Section 4 Offer
contemplated an All or Nothing Sale, the Other Shareholders, in the aggregate,
may accept, during the Section 4(b) Acceptance Period, the Subject Shares which,
when taken together with the Subject Shares accepted by the Corporation pursuant
to Section 4(a), if any, constitute all, but not less than all, of the Subject
Shares, at the purchase price and on the terms stated in the Section 4 Offer
Notice. Such acceptance shall be made by delivering a written notice to the
Corporation and the Selling Shareholder within the Section 4(b) Acceptance
Period specifying the maximum number of Shares such Other Shareholder will
purchase (the "First Offer Shares"). If, upon the expiration of the Section 4(b)
Acceptance Period, the aggregate amount of First Offer Shares exceeds the amount
of Refused Shares, the Refused Shares shall be allocated among the Other
Shareholders as follows: (i) first, each Other Shareholder shall be entitled to
purchase no more than its Proportionate Percentage (as defined below) of Refused
Shares; (ii) second, if any of the Other Shareholders offered to purchase less
than its Proportionate Percentage in its acceptance notice so that Refused
Shares have not been allocated for purchase pursuant to (i) above (the
"Remaining Shares"), each Other Shareholder (an "Oversubscribed Shareholder")
which had offered to purchase a number of Refused Shares in excess of the amount
of Shares allocated for purchase to it in accordance with previous allocations
of such Refused Shares, shall be entitled to purchase an amount of Remaining
Shares equal to no more than its Proportionate Percentage (treating only
Oversubscribed Shareholders as Shareholders for these purposes) of the Remaining
Shares; and (iii) third, the process set forth in (ii) above shall be repeated
with respect to any Refused Shares not allocated for purchase until all Refused
Shares are allocated for purchase. For purposes of this Agreement,
"Proportionate Percentage" shall mean, as to each Other Shareholder, the
quotient obtained (expressed as a percentage) by dividing (A) the number of
Shares owned by such Other Shareholder on the first day of the Section 4(b)
Acceptance Period by (B) the aggregate number of Shares owned on the first day
of the Section 4(b) Acceptance Period by all Other Shareholders who exercise
their option to purchase Refused Shares.
(c) If complete effective acceptance shall not be received pursuant to
Sections 4(a) and 4(b) above with respect to all of the Subject Shares offered
for sale pursuant to the Section 4 Offer Notice, then the Selling Shareholder
may (subject to complying with the provisions of Section 5 hereof) Sell all or
any portion of the Subject Shares so offered for sale and not so accepted, at a
price not less than the purchase price, and on terms not more favorable, in the
aggregate, to the purchaser thereof than the terms stated in the Section 4 Offer
Notice at any time within 90 days after the expiration of the Section 4(b)
Acceptance Period (the "Sale Period"); provided, however, that, if the Section 4
Offer contemplated an All or Nothing Sale and only a part of the Subject Shares
has been accepted by the Corporation (or
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its Permitted Nominee) and the Other Shareholders following the expiration of
the Section 4(b) Acceptance Period, the Selling Shareholder may Sell all of, or
a portion of, the Subject Shares held by such Selling Shareholder. To the extent
the Selling Shareholder Sells all or any portion of the Subject Shares so
offered for sale during the Sale Period, the Selling Shareholder shall promptly
notify the Corporation, and the Corporation shall promptly notify the Other
Shareholders, as to (i) the number of Shares, if any, that the Selling
Shareholder then owns, (ii) the number of Shares that the Selling Shareholder
has sold, (iii) the terms and conditions of such Sale and (iv) the name of the
beneficial and record purchasers of any Shares sold. In the event that all of
the Shares are not sold by the Selling Shareholder during the Sale Period, the
right of the Selling Shareholder to Sell such unsold Shares shall expire and the
obligations of this Section 4 shall be reinstated; provided, however, that, in
the event that the Selling Shareholder determines, at any time during the Sale
Period, that the sale of all of the Shares on the terms set forth in the Section
4 Offer Notice is impractical, the Selling Shareholder may terminate the attempt
to Sell the Subject Shares as provided in this Section 4(c) by written notice to
all Shareholders that are a Party to this Agreement and reinstate the procedures
provided in this Section 4 without waiting for the expiration of the Sale
Period.
(d) All Sales of Subject Shares to the Corporation (or its Permitted
Nominee) and/or the Other Shareholders subject to any one Section 4 Offer Notice
shall be consummated contemporaneously at the offices of the Corporation on the
later of (i) a mutually satisfactory business day within 15 days after the
expiration of the Section 4(b) Acceptance Period or (ii) the fifth business day
following the receipt of all regulatory approvals, if any (including, without
limitation, (A) the expiration or termination of all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR") and (B)
the receipt of all approvals required by any applicable Canadian regulatory
authorities), applicable to such sales, or at such other time and/or place as
the parties to such sales may agree. The delivery of certificates or other
instruments evidencing such Subject Shares duly endorsed for transfer and
accompanied by stock powers shall be made on such date against payment of the
purchase price for such Subject Shares.
(e) The requirements of this Section 4 shall not apply to (i) any Sale of
Shares by a Shareholder pursuant to Section 3(a) hereof, (ii) any other Sale as
to which the Corporation, all of the Investors and holders of at least
two-thirds (2/3) of the outstanding Shares as of the date of such Sale waive
compliance and (iii) any sale pursuant to Sections 6, 10 or 12.4 or Sales of
Shares pursuant to the letter agreement, dated as of September 7, 1999, among
WFH, the Investors and the other parties thereto.
SECTION 5. Tag-Along Rights. Subject to Section 5(c) and except for any
Sale of Shares pursuant to Sections 3(a)(i), 3(a)(ii), 3(a)(iv), 3(a)(v),
3(a)(vi) or 3(b)(iii), Section 10 (with respect to Sales by In-
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vestors and Investor Affiliates) or Section 12.4 or Sales of Shares pursuant to
the letter agreement, dated as of September 7, 1999, among WFH, the Investors
and the other parties thereto, or any Sale of Shares to the Corporation (or its
Permitted Nominee) and/or the Other Shareholders pursuant to Section 4, each
Shareholder shall not, whether acting alone or in concert with any Other
Shareholders, in any transaction or series of transactions, Sell any Shares to
another Person or Group (other than to an Investor), except in accordance with
the following procedures:
(a) (i) Any Shareholder or Shareholders proposing to Sell Shares (for
purposes of this Section, the "Section 5 Seller") shall first deliver to each
Section 5 Other Shareholder (as defined below) a written notice (the "Section 5
Notice"), which shall specifically identify the proposed transferee (the
"Section 5 Purchaser"), the amount and type of Shares proposed to be sold, the
purchase price therefor, and a summary of the other material terms and
conditions of the proposed sale, and shall contain an offer (the "Section 5
Offer") by the Section 5 Purchaser to each Section 5 Other Shareholder, which
shall be irrevocable for a period of ten days after the delivery thereof (the
"Section 5 Acceptance Period") (and, to the extent the Section 5 Offer is
accepted during such ten day period, until the closing of the Sale contemplated
by the Section 5 Offer), to purchase an amount of Shares of such Section 5 Other
Shareholder (as defined below) at the same price per share (and, in the case of
Common Share Equivalents, such price per share multiplied by the number of
Common Shares issuable upon the conversion, exchange or exercise of such Common
Share Equivalent subject to reduction, if appropriate, for the amount per share
of the exercise or purchase price (if any) to be paid by the holder of such
Common Share Equivalent) to be paid to, and upon the same terms and conditions
as, the Section 5 Seller. A copy of the Section 5 Notice shall promptly be sent
to the Corporation. Notice of a Section 5 Other Shareholder's intention to
accept a Section 5 Offer, in whole or in part, shall be evidenced by a writing
signed by such Section 5 Other Shareholder and delivered to the Section 5
Purchaser as specified in the Section 5 Notice and the Corporation prior to the
end of the Section 5 Acceptance Period, setting forth the number of Shares that
such Section 5 Other Shareholder elects to Sell; provided, however, that such
Section 5 Other Shareholder may only sell up to that number of Shares
(calculated in accordance with Section 2) as shall equal the product of (x) a
fraction, the numerator of which is the number of Shares owned by the Section 5
Other Shareholder as of the date of such proposed sale and the denominator of
which is the aggregate number of outstanding Shares as of the date of such
proposed sale, multiplied by (y) the aggregate number of Shares proposed to be
sold by the Section 5 Seller. The number of Shares proposed to be sold by the
Section 5 Seller shall be reduced if and to the extent necessary to provide for
such sale of Shares by such Section 5 Other Shareholders electing to exercise
their right to Sell Shares under this Section 5. If effective acceptance by any
Section 5 Other Shareholders has been received pursuant to this paragraph (a),
then the Selling Shareholder shall not consummate such Sale of Shares without
participation of such Section 5 Other Shareholders. For purposes of this
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Agreement, "Section 5 Other Shareholder" shall mean any Other Shareholder that
is an Investor or a Material Investor.
(b) All Sales of Shares to the Section 5 Purchaser shall be consummated
contemporaneously at the offices of the Corporation on a mutually satisfactory
business day as soon as practicable, but in no event more than 15 days after the
expiration of the Section 5 Acceptance Period, or, if later, the fifth business
day following the receipt of all regulatory approvals, if any (including,
without limitation, (A) the expiration or termination of all waiting periods
under HSR and (B) the receipt of all approvals required by any Canadian
regulatory authorities), applicable to such Sales. The delivery of certificates
or other instruments evidencing such Shares duly endorsed for transfer shall be
made on such date against payment of the purchase price for such Shares.
(c) Anything contained herein to the contrary notwithstanding, any Selling
Shareholder shall, prior to complying with the provisions of this Section 5,
shall have first complied with the provisions of Section 4 hereof.
SECTION 6. Bring-Along Rights.
(a) Until the earlier of (x) eighteen (18) months after the date hereof,
and (y) an IPO by the Corporation, if WFH proposes to Sell to any Person or
Group of Persons (collectively, a "Buyer"), in a bona fide arm's-length
transaction or series of transactions, including by way of a purchase agreement,
tender offer, merger or other business combination transaction or otherwise, all
of the Shares held by it at a price per Share of more than 300% of the Adjusted
Initial Per Share Price (any such transaction being referred to herein as an
"Exit Sale"), then WFH may elect to require all Other Shareholders to Sell all
Shares beneficially owned by each of them concurrently with such Exit Sale to
such Buyer at the purchase price per share (and, in the case of Common Share
Equivalents, such purchase price per share multiplied by the number of Common
Shares issuable upon the conversion, exchange or exercise of such Common Share
Equivalent subject to reduction, if appropriate, for the amount per share of the
exercise or purchase price (if any) of such Common Share Equivalent), including
any fees and the value of any other consideration received by WFH or its
Affiliates in connection with the Exit Sale, and upon the same terms and
conditions, of the Exit Sale.
(b) The rights set forth in Section 6(a) shall be exercised by giving
written notice (the "Section 6 Notice") to each Other Shareholder setting forth
in detail the terms of the proposed Sale and the proposed closing date of the
Exit Sale, which proposed date (the "Section 6 Closing Date") shall be the later
of (i) a business day not less than 15 or more than 60 days after such Section 6
Notice is delivered to the Other Shareholders or (ii) the fifth
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business day following the receipt of all regulatory or third party consents and
approvals, if any, applicable to such Sale.
(c) Each Other Shareholder will (i) take all such actions, including,
without limitation, voting in favor of such proposed Sale and waiving any
appraisal, dissenter or similar rights under applicable law, as may be requested
by WFH to carry out the purposes of this Section 6, and (ii) execute all
documents reasonably requested by WFH containing such terms and conditions,
including, without limitation, representations and warranties with respect to
(x) matters of title to such Other Shareholder's securities and (y) the due
authorization (or capacity) and due and valid execution and delivery by such
Other Shareholder of documentation in respect of the Exit Sale, as those
executed by WFH; provided, however, such Other Shareholder shall not be required
to make any other representations and warranties and shall not be required to
join in any indemnity other than with respect to such Other Shareholder's
specific representations and warranties described above, or be a party to any
non-compete or similar provision.
(d) All Sales of Shares to the Buyer pursuant to this Section 6 shall be
consummated contemporaneously at the offices of the Corporation (or such other
place as is mutually agreed upon by the parties in advance) on the Section 6
Closing Date. The delivery of certificates or other instruments evidencing the
Sale of such Shares, duly endorsed for transfer, shall be made on such date
against payment of the purchase price for such Shares. WFI will bear all of the
costs and expenses incurred solely in connection with an Exit Sale to the extent
such costs are incurred for the benefit of all Shareholders and are not
otherwise paid by the Corporation or the Buyer.
(e) Notwithstanding anything to the contrary contained herein, any Sale of
Shares pursuant to an Exit Sale shall be exempt from the provisions of Section 4
hereof.
SECTION 7. Preemptive Rights.
(a) Except for Exempt Securities (as defined below), the Corporation shall
not issue, sell or exchange, or agree to issue, sell or exchange (collectively,
"Issue," and any issuance, sale or exchange resulting therefrom, an "Issuance")
(i) any of the Corporation's capital shares, (ii) any Common Share Equivalent or
(iii) any other equity security of the Corporation, including any rights to
subscribe for, purchase or otherwise acquire any capital shares or other equity
security of the Corporation (collectively, an "Equity Security") unless, in each
case, the Corporation shall have first given written notice (the "Section 7
Offer Notice") to each then holder of Preferred Shares (each a "Preemptive
Holder") which shall (a) state the Corporation's intention to sell Equity
Securities, the amount to be issued, sold or exchanged, the terms of such
securities, the purchase price therefor and a summary of the
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other material terms of the proposed Issuance and (b) offer (a "Preemptive
Offer") to Issue to each Preemptive Holder such Preemptive Holder's Pro Rata
Share (as defined below) of such securities (with respect to each Preemptive
Holder, the "Offered Securities") upon the terms and subject to the conditions
set forth in the Section 7 Offer Notice, which Preemptive Offer by its terms
shall remain open for a period of 15 days from the date it is delivered by the
Corporation to the Preemptive Holder (and, to the extent the Preemptive Offer is
accepted during such 15 day period, until the closing of the Sales contemplated
by the Preemptive Offer). "Pro Rata Share," for purposes of this Section, shall
mean the quotient obtained by dividing (i) the number of Common Shares, as
determined in accordance with Section 2, owned by that Preemptive Holder on the
date of the Preemptive Offer, by (ii) the total number of Common Shares
outstanding, as determined by Section 2 hereof, on the date of the Preemptive
Offer.
(b) Notice of a Preemptive Holder's intention to accept a Preemptive Offer,
in whole or in part, shall be evidenced by a writing signed by the Preemptive
Holder and delivered to the Corporation prior to the end of the 15 day period of
such Preemptive Offer (each, a "Section 7 Notice of Acceptance"), setting forth
such portion of the Offered Securities that the Preemptive Holder elects to
purchase.
(c) (i) In the event that a Section 7 Notice of Acceptance is not given by
a Preemptive Holder accepting all of its Offered Securities, the Corporation
shall have 30 days following the earlier of (A) delivery of the Section 7 Notice
of Acceptance and (B) the expiration of the 15 day period referred to in clause
(b) above if no Section 7 Notice of Acceptance is delivered, to Issue all or any
part of such remaining Offered Securities not covered by the Section 7 Notice of
Acceptance to any other Person or Persons, but only upon terms and conditions,
including, without limitation, per Share price, payment terms and dividend
payment rates, interest rates, conversion ratios or similar terms, if any, which
are no more favorable, in the aggregate, to such other Person or Persons or less
favorable to the Corporation than those set forth in the Preemptive Offer.
(ii) If the Corporation does not consummate the Issuance of all or part of
the remaining Offered Securities to such other Person or Persons within the 30
day period referred to in clause (c) above, the right provided hereunder shall
be deemed to be revived and such securities shall not be offered unless first
reoffered to the Preemptive Holders in accordance with this Section 7.
(iii) The purchase by a Preemptive Holder of any Offered Securities is
subject in all cases to the execution and delivery by the Corporation and the
Preemptive Holder of a purchase agreement relating to such Offered Securities in
form and substance similar in all material respects to the extent applicable to
that executed and delivered between the Corporation and such other persons. All
Issuances of Shares to any Preemptive Holder pursuant to this Section 7 shall be
consummated contemporaneously at the offices of the Cor-
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poration (or such other place as is mutually agreed upon by the parties) on the
later of (A) a business day not less than 15 or more than 60 days after the end
of the 15 day period referred to in clause (b) above, and (B) the fifth business
day following the receipt of all regulatory or third party consents and
approvals, if any, applicable to such Sales, or at such other time and/or place
as the parties to such Sales may agree. The delivery of certificates or other
instruments evidencing such Shares duly endorsed for transfer shall be made on
such date against payment of the purchase price for such Shares.
(d) As used herein, "Exempt Securities" shall mean: (i) any Common Shares
issuable or issued to employees, directors and consultants of the Corporation
pursuant to any employee benefit plans, and which issuances have been approved
in accordance with Section 9 or are Employee Shares (as defined in the Purchase
Agreement); (ii) any Series A Non-Voting Preferred Shares issued pursuant to the
Purchase Agreement and any Common Shares or Series B Voting Preferred Shares
issuable upon the conversion of any such Series A Non-Voting Preferred Shares;
(iii) Common Shares or Common Share Equivalents issued and outstanding on the
date hereof or Common Shares issued upon the conversion or exercise of any such
outstanding Common Share Equivalents; (iv) Common Shares issued or issuable as
direct consideration for the acquisition by the Corporation of another business
entity or in connection with a merger or consolidation or in connection with the
acquisition or lease of assets or the issuance of indebtedness, which issuance
has been approved in accordance with Section 9; (v) Common Shares issued in any
IPO; (vi) Common Shares issued pursuant to a Minority Roll-Up Transaction; or
(vii) Common Shares issued pursuant to the Ledcor Roll-Up Agreement; (viii)
Shares issued upon conversion of other Shares to the extent permitted by the
terms of this Agreement and in accordance with their terms; or (ix) Shares
issued to Ramsey-Beirne Investment Partners, LLC to acquire Shares pursuant to
terms of the agreement dated July 7, 1999 between the Corporation and
Ramsey-Beirne Investment Partners, LLC..
SECTION 8. Corporate Governance.
8.1. Board of Directors.(a) The Board shall have overall responsibility for
managing and supervising the management of the business and affairs of the
Corporation, and the power and authority of the directors shall be subject only
to such restrictions as are imposed by this Agreement and by applicable law.
(b) The maximum number of members of the Board shall be twelve (12).
(c) At all times, a majority of the directors on the Board and any
committees of the Board shall be Canadian citizens ordinarily resident in
Canada.
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(d) From and after the date hereof and until DLJ, together with its
Investor Affiliates, Sell 25% or more of the Shares issued to it pursuant to the
Purchase Agreement (as equitably adjusted to reflect any stock split, stock
dividend, combination, reorganization, recapitalization, reclassification or
other similar event involving Common Shares), DLJ shall have the right to
nominate one person (the "DLJ Designee") to serve as a director on the Board.
(e) From and after the date hereof and until the GSCP Parties, together
with their Investor Affiliates, Sell 25% or more of its Shares issued to it
pursuant to the Purchase Agreement (as equitably adjusted to reflect any stock
split, stock dividend, combination, reorganization, recapitalization,
reclassification or other similar event involving Common Shares), GSCP shall
have the right to nominate one person (the "GSCP Designee") to serve as a
director on the Board.
(f) From and after the date hereof and until Providence, together with its
Investor Affiliates, Sell 25% or more of the Shares issued to it pursuant to the
Purchase Agreement (as equitably adjusted to reflect any stock split, stock
dividend, combination, reorganization, recapitalization, reclassification or
other similar event involving Common Shares), Providence shall have the right to
nominate one person (the "Providence Designee") to serve as a director on the
Board.
(g) From and after the date hereof and until Tyco, together with its
Investor Affiliates, Sell 56% or more of the Shares issued to it pursuant to the
Purchase Agreement (as equitably adjusted to reflect any stock split, stock
dividend, combination, reorganization, recapitalization, reclassification or
other similar event involving Common Shares), Tyco shall have the right to
nominate one person (the "Tyco Designee"; collectively with the DLJ Designee,
the GSCP Designee and the Providence Designee, the "Investor Designees"), to
serve as a director on the Board.
(h) From and after the date hereof, the remaining members of the Board
shall be nominated by members of management of the Corporation (the
"Non-Investor Designees", collectively with the DLJ Designee, the GSCP Designee,
the Providence Designee and the Tyco Designee, the "Designees").
(i) At each meeting of Shareholders at which the election of members of the
Board is on the agenda, the Corporation shall recommend to Shareholders the
election of the Designees as directors and each Shareholder shall vote all of
the voting securities of the Corporation over which such Person has voting
control so as to effect the provisions of this Section 8.
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(j) Prior to an IPO, the Corporation shall, after receiving notice from
such Investors as to the identity of any representative of such Investor (a
"Representative"), (i) permit a Representative to attend all Board meetings and
all committees thereof as an observer; and (ii) provide the Representative
advance notice of each such meeting, including such meeting's time and place, at
the same time and in the same manner as such notice is provided to the members
of the Board (or such committee thereof) and copies of all materials distributed
to the members of the Board (or such committee thereof) at the same time as such
materials are distributed to such Board (or such committee thereof) and shall
permit the Representative to have the same access to information concerning the
business and operations of the Corporation; and (iii) permit the Representative
to discuss the affairs, finances and accounts of the Corporation with, and to
make proposals and furnish advice with respect thereto to, the Board, without
voting. Reasonable out-of-pocket expenses incurred by the Representative for the
purposes of attending Board (or committee) meetings will be paid by the
Corporation.
8.2. Vacancies; Removal.
(a) Subject to paragraph (b) of this Section 8.2, each director of the
Corporation shall hold office until his or her death or resignation or until his
or her successor shall have been duly elected and qualified. If any Investor
Designee shall cease to serve as a director of the Corporation for any reason,
the vacancy resulting thereby shall be filled by another director nominated by
the Investor initially nominating that director.
(b) Each Shareholder in its capacity as a holder of Shares agrees that it
shall not vote in favor of a resolution in respect of the removal of an Investor
Designee unless that resolution has been put forward by the Investor having the
right to designate that director, and the removal of that director has been
recommended by the Investor having the right to designate that director. Each
Investor shall have the right to call a meeting of Shareholders to put forward a
resolution of the Shareholders removing any director designated by it, with or
without cause, at any time.
8.3. Quorum.
(a) Subject to paragraphs (b) and (c) below, a quorum for meetings of the
Board shall be nine persons present of which three shall be Investor Designees;
provided, however, that at all times a majority of directors present must be
Canadian citizens ordinarily resident in Canada.
(b) If at a meeting of directors a quorum is not present, the directors may
adjourn the meeting to a fixed time and place (provided they shall give written
notice of such time and place to each director not in attendance). At the
meeting immediately following the
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adjourned meeting, the directors present at such meeting shall constitute a
quorum; provided, however, that unless a full quorum is present as provided in
paragraph (a) above, the directors present at such meeting may not transact any
business except as specifically set forth in the notice of meeting.
(c) The Corporation agrees that (i) each director shall be provided written
notice of the meetings of the Board , including adjourned meetings, at least
forty-eight (48) hours before such meetings, unless such notice is waived in any
manner, with attendance at such meetings constituting valid waiver (other than
attendance for the express purpose of objecting to the manner in which the
meeting was called), and (ii) each Investor Designee shall be provided with an
opportunity to participate in each meeting of the Board by means of a conference
telephone or similar communications equipment.
8.4. Committees of the Corporation.
(a) On or before the date hereof, the Board shall establish a nominating
committee (the "Nominating Committee") comprised of five directors, two of whom
shall be designated by the Financial Investors as long as designees of any of
the Financial Investors continue to serve on the Board, and three of whom shall
be designated by WFH and, shall be resident Canadians (as defined in the Canada
Business Corporations Act), which committee will have the exclusive authority to
make nominations with respect to hiring the Corporation's Senior Officers.
(b) On or before the date hereof, the Board shall establish a compensation
committee (the "Compensation Committee") comprised of five directors, two of
whom shall be designated by the Financial Investors as long as designees of any
of the Financial Investors continue to serve on the Board, and three of whom
shall be designated by WFH and shall be resident Canadians, which committee will
have the exclusive authority to make recommendations to the Board with respect
to all aspects of compensation and other benefits, including stock options or
other equity based compensation, of the Senior Officers of the Corporation.
(c) Without limiting paragraphs (a) or (b) above, the Corporation shall, at
the request of any of the Investors, cause a Investor Designee to be appointed
or elected in each case to each of the other committees of the Board, provided
that, following an IPO, such Investor Designee meets the qualifications
necessary to serve on such committee established in compliance with Section 9.
If any director serving on any committee shall cease to serve as a director of
the Corporation for any reason or otherwise is unable to fulfill his or her
duties on any such committee, he or she shall be succeeded by another director
designated in accordance with the provisions of Section 8.1 by the party
initially designating the director.
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8.5. Directors' Indemnification.
(a) The Corporation shall obtain and cause to be maintained in effect, with
financially sound insurers, a policy of directors' and officers' liability
insurance in an amount of at least US$5,000,000 or more and upon such terms as
are reasonably acceptable to the Investors.
(b) The Articles of Continuance, or By-Laws, or both, shall to the fullest
extent permitted by law provide for indemnification of, and advancement of
expenses to, and limitation of the personal liability of, the directors of the
Corporation or such other person or persons, if any, who, pursuant to a
provision of such Articles of Incorporation, exercise or perform any of the
powers or duties otherwise conferred or imposed upon such directors, which
provisions shall not be amended, repealed or otherwise modified in any manner
adverse to the directors until at least six (6) years following the date that
the Investors are no longer entitled to designate directors pursuant to this
Section 8.
8.6. No Expansion of Duties. The parties acknowledge that the Investors and
their Investor Affiliates have investments in other business similar to and
which may compete with the Corporation's businesses ("Competing Businesses") and
reserve the right to make additional investments in other Competing Businesses
independent of their investments in the Corporation. By virtue of an Investor
holding Shares or by having persons designated by or affiliated with such
Investor serving on the Board or any Subsidiary's Board of Directors (or the
functional equivalent thereof in the case of non-corporate Subsidiaries) or
otherwise, no Investor nor any of the Investor Affiliates shall have any
obligation to the Corporation, any Subsidiary or any holder of Shares to refrain
from competing with the Corporation or any Subsidiary, making investments in
Competing Businesses, otherwise engaging in any commercial activity, and none of
the Corporation, any Subsidiary or any holder of Shares (other than such
Investor) shall have any right with respect to any such investments or
activities undertaken by such Investor. Without limitation of the foregoing,
each Investor or any Investor Affiliates may engage in or possess an interest in
other business ventures of any nature or description, independently or with
others, similar or dissimilar to the business of the Corporation or any
Subsidiary, and none of the Corporation, any Subsidiary or any holder of Shares
(other than the Investor) shall have any rights or expectancy by virtue of such
Investor's relationships with the Corporation, any Subsidiary, this Agreement or
otherwise in and to such independent ventures or the income of profits derived
therefrom; and the pursuit of any such venture, even if such investment is in a
Competing Business, shall not be deemed wrongful or improper. No Investor nor
any Investor Affiliates shall be obligated to present any particular investment
opportunity to the Corporation or any Subsidiary even if such opportunity is of
a character that, if presented to the Corporation or a Subsidiary, could be
taken by the Corporation or such Subsidiary, and the Investor and their Investor
Affiliates shall continue to have the right to
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take for their own respective account or to recommend to others any such
particular investment opportunity.
8.7. Expenses. The Corporation shall pay all reasonable travel expenses and
other out-of-pocket disbursements incurred by the directors to attend meetings
of the Board, of any Subsidiary board of directors or of any committees thereof.
8.8. Shareholder Voting Arrangement. Each Shareholder agrees to vote all
Voting Shares of the Corporation beneficially owned by it with respect to the
election or removal, to or from the Board, of (a) so long as DLJ has the right
to nominate a DLJ Designee in accordance with section 8.1(d), the DLJ Designee
in accordance with the directions of DLJ, (b) so long as GSCP has the right to
nominate a GSCP Designee in accordance with section 8.1(e) the GSCP Designee in
accordance with the directions of GSCP, (c) so long as Providence has the right
to nominate a Providence Designee in accordance with Section 8.1(f), the
Providence Designee in accordance with the directions of Providence, (d) so long
as Tyco has the right to nominate a Tyco Designee in accordance with Section
8.1(g), the Tyco Designee in accordance with the directions of Tyco, and (e) the
Non-Investor Designees in accordance with the directions of the members of
management nominating such Designees.
8.9. Appointment of Senior Officers. The Board shall have the sole and
absolute authority to elect, appoint or hire any Senior Officer of the
Corporation. Each Senior Officer shall be elected or appointed by the Board only
from nomination lists prepared and approved by the Nominating Committee.
SECTION 9. Major Transactions.
(a) To the fullest extent permitted by law, from and after the date hereof
until an IPO resulting in at least $150,000,000 of gross aggregate proceeds to
the Corporation and any Selling Shareholders before deducting underwriting
discounts and commissions and offering expenses, the Corporation shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, undertake
or enter into any binding agreements or commitments with respect to a Major
Transaction (as defined below) unless (1) the Corporation shall have given to
each Investor at least thirty (30) and not more than ninety (90) days prior
written notice (a "Major Transaction Notice"), setting forth in detail the
proposed terms of any Major Transaction and the proposed closing date (if
applicable) of the Major Transaction and (2) within thirty (30) days of
receiving the Major Transaction Notice Investors representing a Supermajority
shall not have given notice to the Corporation of their election to disapprove
or veto such Major Transaction.
(b) A "Major Transaction" shall mean any of the following actions:
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(i) the Corporation or any Subsidiary shall consolidate or
merge into or with any other Person, sell or transfer all or
substantially all of its assets to another Person, or enter into any
other similar business combination transaction (other than any such
transaction entered between or among the Corporation and any of its
wholly owned Subsidiaries); provided, however, that this Section
9(b)(i) shall not apply to any consolidation, merger, sale of assets or
other similar business combination transaction pursuant to Section 10;
(ii) the Corporation or any Subsidiary shall purchase, acquire
or obtain any capital shares or other proprietary interest, directly or
indirectly, in any other entity or related entities, or any business or
assets of another Person or related Persons or enter into or commit to
enter into or make any investment in any joint ventures or
partnerships, establish any entity, including an affiliate of the
Corporation, for consideration (including assumed liabilities) having a
value (individually or in the aggregate during the term of this
Agreement) in excess of $200 million;
(iii) the Corporation or the Corporation and its Subsidiaries
taken as a whole shall change significantly the scope and nature of its
business or operations;
(iv) the Corporation or any Subsidiary shall sell, lease,
transfer or otherwise dispose of any asset or group of assets (other
than sales, lease, transfer or other disposition of assets or group of
assets in the ordinary course of business), in an aggregate amount
(from the date hereof) with a book value or fair market value of $100
million or more;
(v) the Corporation or any Subsidiary shall pay, or set aside
any sums for the payment of, any dividends, or make any distribution
on, any outstanding capital shares of the Corporation or any Subsidiary
or redeem, repurchase or otherwise acquire any outstanding capital
shares of the Corporation or any Subsidiary (except for dividends and
distributions to, and redemptions, repurchases or other acquisitions
from the Corporation or any wholly-owned Subsidiary of the
Corporation);
(vi) the Corporation or any Subsidiary shall authorize, issue,
sell or grant any of its capital shares or other equity securities
individually or in the aggregate during the term of the Agreement
having a value (at the time of issuance) in excess of $100 million
except for (A) the issuance of Series A Non-Voting Preferred Shares or
other classes of Shares pursuant to the Purchase Agreement, (B) the
issuance of Common Shares or Preferred Shares upon conversion of the
Series A Non-Voting Preferred Shares issued or issuable pursuant to the
Purchase Agreement, (C) the issuance of Common Shares upon the
conversion, exchange or exercise of any Common Share Equivalent
outstanding as of the date hereof, (D) the issuance of Common Shares
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in connection with the Minority Roll-Up Transactions, or (E) issuance
of 4,500,000 Common Shares in connection with the Ledcor Roll-Up
Transaction;
(vii) the Corporation or any Subsidiary shall enter into any
transactions (except as expressly permitted by the this Agreement and
except for transactions between or among the Corporation, any of its
wholly-owned Subsidiaries or any of the following entities so long as
such entities and their wholly-owned Subsidiaries substantially retain
their current ownership: (A) Worldwide Fiber (USA), Inc., (B) WFI-CN
Fibre Inc. and (C) Worldwide Fiber IC LLC) with any shareholder,
director, officer or employee of the Corporation or any of its
Subsidiaries, or any person who, directly or indirectly, controls, is
controlled by, or is under common control with any current shareholder,
director, officer or employee or any relative or spouse of any current
shareholder, director, officer or employee, other than any transactions
existing as of the date hereof or transactions in the ordinary course
of business on terms that are no less favorable to the Corporation or
such Subsidiary than those that would have been obtained in a
comparable transaction by the Corporation with a Person who is not an
Affiliate, provided that if such transaction involves consideration
exceeding $10,000,000 the Corporation shall have delivered to each of
the Investors an opinion that the transaction is fair from a financial
point of view to the Corporation issued by an accounting, appraisal or
investment banking firm of national standing in the United States. If
the proposed Major Transaction contemplated by this clause (viii) is
with a Person who is an Investor or an Affiliate of any Investor, then
such Investor shall be excluded from voting in a Supermajority's
consideration of the subject Major Transaction and a fairness opinion
shall not be required with respect to the subject Major Transaction
with any Financial Investor or its Affiliates;
(c) the Corporation shall amend its Articles of Continuance, By-Laws or
other constituent corporate documents, including, without limitation, any change
in the number of directors comprising its Board or the establishment of
committees;
(d) the Corporation or any Subsidiary shall become a party to any agreement
which by its terms restricts the Corporation's performance of the terms of the
Purchase Agreement, the Registration Rights Agreement, the Series A Non-Voting
Preferred Shares or this Agreement;
(e) the Corporation or any Subsidiary shall incur, create, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to any indebtedness of more than $100 million
(individually or in the aggregate during the term of this Agreement) excluding
drawdowns of up to $150 million under the Corporation's senior credit facility,
substantially in accordance with the terms as set forth in the form of the draft
Credit Agreement dated August 30, 1999 between the Corporation, Certain Lend-
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ers and Citibank Canada, as Administrative Agent (the "Citibank Facility") that
was provided to each of the Investors or any replacement facility with terms
that are at least as favorable to the Corporation as those in the Citibank
Facility in all material respects;
(f) the approval or adoption by the Corporation of its financing and
capital plans as well as any material amendments to the Corporation's annual
budgets;
(g) the Corporation and its Subsidiaries shall incur capital expenditures
exceeding 110% of the amount permitted by the approved budget in any fiscal year
on a consolidated basis;
(h) the Corporation or any Subsidiary shall adopt or amend any stock option
plan, bonus plan or other employee benefit plan or grant or issue any Common
Shares, Common Share Equivalents or other equity securities under any such plan
other than initial grants or issuances under the "Existing 10% Option Pool" or
the "New 5% Option Pool" and grants of "Permitted Reissued Options," as such
terms are defined in the Purchase Agreement, and issuances of Common Shares upon
the exercise of Permitted Reissued Options;
(i) the Corporation shall change its independent auditors;
(j) the Corporation or any Subsidiary shall grant any severance or
termination pay to any executive officer or senior management except payments
made pursuant to any written agreements outstanding on the date hereof and
furnished to the Investors prior to the date hereof or approved in accordance
with this Section 9 or as determined by counsel to the Corporation to be
required by the applicable Canadian law;
(k) the Corporation shall adopt or change any accounting principle,
practice or method (including, without limitation, changes in revenue
recognition), except for such changes which (A) in the opinion of its
independent auditors, are required by law, (B) do not involve discretion on the
part of the reporting entity, and (C) are described in a written notice
delivered to each of the Investors prior to implementation thereof;
(l) the Corporation shall authorize, issue or Sell any Shares for a
purchase price per Common Share (including any consideration paid upon the
issuance thereof and upon conversion or exercise of any Common Share Equivalent)
less than the Adjusted Initial Per Share Price;
(m) the Board shall make the determination permitted by the last sentence
of Section 10(c);
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(n) the Corporation shall remove from office, dismiss or terminate the
employment of any Senior Officer, other than for Cause; and
(o) the Corporation or any Subsidiary shall agree or otherwise commit to
take any of the actions set forth in the foregoing subparagraphs (i) through
(xix).
SECTION 10. Liquidity Rights.
(a) Following the fourth anniversary of the date hereof, in the event the
Corporation has not completed a Qualified IPO, (i) any of DLJ, GSCP or
Providence, or (ii) Tyco, together with one of DLJ, GSCP or Providence (a
"Section 10 Seller"), may require the Corporation (provided the Corporation does
not exercise its right to either (i) acquire or (ii) cause a third party to
acquire, all but not less than all of the Shares held by the Section 10 Seller
and its Investor Affiliates pursuant to paragraph (b) below), to conduct,
pursuant to the auction process set forth below (the "Auction"), or otherwise as
provided in paragraph (c) below, a sale of the Corporation, whether by means of
a sale of all or substantially all of the Shares of the Corporation, a merger, a
sale of all or substantially all of the assets of the Corporation, or other
business combination transaction to a third party not affiliated with the
Investor exercising the Section 10 Offer (the "Acquiror").
(b) A Section 10 Seller may initiate an Auction by delivering written
notice to the Corporation and each other Investor (the "Section 10 Notice"),
which shall (i) contain an offer (the "Section 10 Offer") by the Section 10
Seller to the Corporation to sell all, but not less than all, of the Shares held
by the Section 10 Seller to the Corporation or a third party identified by the
Corporation for the greater of (a) the liquidation preference of the Shares and
(b) Fair Market Value (the "Section 10 Minimum Price") during the Section 10
Option Period (as defined below) and (ii) shall set forth the Section 10 Minimum
Price, as determined in accordance with Section 1.7. Each other Investor shall
have a period of 10 days after receipt of the Section 10 Offer to notify the
Corporation in writing that it also makes a Section 10 Offer on the same terms
as the original Section 10 Offer. All Sales of Shares pursuant to the Section 10
Offers shall be consummated contemporaneously at the offices of the Corporation
on a mutually satisfactory business day as soon as practicable, but in any event
not later than 180 days after the delivery of the original Section 10 Offer (the
"Section 10 Offer Period"). The delivery of certificates or other instruments
evidencing such Shares duly endorsed for transfer shall be made on such date
against payment of the purchase price for such Shares. The Corporation or third
party purchaser shall bear all costs and expenses incurred in connection with a
Section 10 Sale. If any such purchase is not consummated in accordance with this
Section 10, including without limitation due to failure by the Corporation or
third party purchaser to pay the purchase price, such Section 10 Offer shall be
deemed to have not been accepted by the Corporation.
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(c) If the Corporation or another Person shall not have purchased all of
the Section 10 Offered Shares for not less than the Section 10 Minimum Price
prior to the expiration of the Section 10 Offer Period or if the Corporation
shall have rejected the Section 10 Offer, the Corporation shall at the election
of the Section 10 Seller either (i) retain an investment bank of national
reputation (the "Auctioneer") to conduct the Auction on the Corporation's behalf
or (ii) cause the Corporation to be sold in such other manner as the Section 10
Seller may elect with the consent of a Supermajority of the Investors (which may
include the Section 10 Seller). If the Corporation is to be sold by Auction, the
Auction shall be conducted pursuant to bidding procedures that are (i)
determined by the Auctioneer in its sole discretion, and (ii) uniformly
applicable and applied to all interested parties who are identified by the
Auctioneer or are otherwise invited to participate in the Auction for the
submission and evaluation of proposals. The Auction shall be completed as
promptly as possible and in any event within six months of the expiration of the
Section 10 Offer Option Period. The Corporation shall provide the Auctioneer
with all reasonable assistance requested by the Auctioneer to consummate the
Auction. All Shareholders and each of the Investors shall have the right to
submit a bid pursuant to the Auction for the outstanding Shares of the
Corporation not held by them and have such bid evaluated on a basis no more or
less favorable than that afforded to other participants in the Auction; provided
that for so long as WFH or any Investor shall wish to have its bid considered
pursuant to the Auction, WFH or such Investor, as the case may be, and its
representatives on the Board shall be recused from all information received or
considered by the Corporation or the Board with respect to the Auction or the
Board with respect to the Auction or the results thereof. The Acquiror shall be
identified by the Auctioneer at the conclusion of the Auction; provided, that
the bid by such Acquiror shall be satisfactory to the Section 10 Seller, and the
sale of such assets or capital shares of the Corporation to such Acquiror shall
constitute the "Required Sale" unless, prior to a binding agreement for the
Required Sale being entered into with the Acquiror, the Board shall determine in
good faith, after consultation with its financial and legal advisors, that any
bona fide written proposal from a third party for a competing transaction is
more favorable to the shareholders of the Corporation from a financial point of
view than the Required Sale, is likely to and capable of being consummated, and
is in the best interest of the shareholders of the Corporation, and the
Corporation has determined that failure to enter into such a competing
transaction will constitute a breach of the Board's fiduciary duties under
applicable law.
(d) If the Required Sale is by means of a Sale of all or substantially all
of the issued and outstanding Shares of the Corporation, then the Required Sale
shall constitute an Exit Sale for purposes of Section 6 and the provisions of
Section 6 shall be applicable to such Required Sale as if the Section 10 Seller
had all of the rights of WFH thereunder to require the Other Shareholders to
participate in such Required Sale, provided, however, that if the Required Sale
shall not be consummated, all of the provisions of this Section 10 shall then be
reinstated.
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(e) If the Required Sale is other than by means of a sale of the
outstanding capital shares of the Corporation, then the Corporation shall
deliver a written notice (the "Required Sale Notice") to each Shareholder
setting forth in detail the terms of the proposed Required Sale and the proposed
closing date of the Required Sale, which proposed date (the "Required Sale
Closing Date") shall be the later of (i) a Business Day not less than 15 or more
than 60 days after such Required Sale Notice is delivered to the Shareholders,
or (ii) the fifth day following the receipt of all regulatory or third party
consents and approvals, if any, applicable to such Required Sale. Each
Shareholder will (x) take all such actions, including, without limitation,
voting in favor of such proposed Sale and waiving any appraisal, dissenter or
similar rights under applicable law, as may be requested by the first initial
Section 10 Seller to carry out the purposes of this Section 10 and (y) execute
all documents reasonably requested by the initial Section 10 Seller containing
such terms and conditions, including, without limitation, representations and
warranties with respect to (x) matters of title to such Other Shareholder's
securities and (y) the due authorization (or capacity) and due and valid
execution and delivery by such Other Shareholder of documentation in respect of
the Required Sale, as those executed by the initial Section 10 Seller; provided,
however, such Other Shareholder shall not be required to make any other
representations and warranties and shall not be required to join in any
indemnity other than with respect to such Other Shareholder's specific
representations and warranties described above, or be a party to any non-compete
or similar provision. The Required Sale shall be consummated at the offices of
the Corporation on the Required Sale Closing Date. The Corporation will bear all
costs and expenses incurred in connection with the Required Sale to the extent
such costs and expenses are not otherwise paid by the Acquiror. If the Required
Sale shall not be consummated, all of the provisions of this Section 10 shall
then be reinstated.
SECTION 11. Representations and Warranties.
(a) Each of the parties hereto represents and warrants to the other parties
hereto as follows:
(i) It has full power and authority to execute, deliver and
perform its obligations under this Agreement;
(ii) This Agreement has been duly and validly authorized,
executed and delivered by it, and constitutes a valid and binding
obligation of it, enforceable against it in accordance with its terms
except to the extent that enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally;
(iii) The execution, delivery and performance of this Agreement
by it does not (A) violate, conflict with, or constitute a breach of or
default under its organiza-
<PAGE>
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tional documents, if any, or any material agreement to which it is a
party or by which it is bound or (B) violate any law, regulation,
order, writ, judgment, injunction or decree applicable to it;
(iv) No consent or approval of, or filing with, any governmental
or regulatory body is required to be obtained or made by it in
connection with the transactions contemplated hereby (except those
which have been made or obtained); and
(v) It is not a party to any contract or agreement which is
inconsistent with the rights of any party hereunder or otherwise
conflicts with the provisions hereof.
(b) Each of the Shareholders represents and warrants as follows:
(i) Schedule 11(b)(i) hereto sets forth a list of all
securities of the Corporation (including, without limitation, capital
shares, convertible securities, debentures, etc.) held of record or
beneficially owned by it immediately after the Closing; and
(ii) Except for this Agreement, the Purchase Agreement, the
Registration Rights Agreement of even date herewith or as set forth on
Schedule 11(b)(ii) hereto, it is not a party to any contract or
agreement, written or oral, (A) with respect to Common Shares, Common
Share Equivalents or other equity securities of the Corporation
(including, without limitation, any voting agreement, voting trust,
Shareholder's agreement, registration rights agreement, etc.) or (B)
otherwise with or relating to the Corporation.
SECTION 12. Certain Covenants.
12.1. Protection of Investors. The Corporation and the Shareholders each
agree that all of the following provisions of this Section 12 are for the
exclusive benefit, protection and enjoyment of each of the Investors (severally
and not jointly) and their permitted successors and assigns, and may only be
enforced or remedied by the Investors (severally and not jointly) and their
permitted successors and assigns.
12.2. Additional Issuances. The Corporation agrees that, anything contained
herein to the contrary notwithstanding, (a) any Person to which Shares are
issued in a Private Sale after the date hereof and who after giving effect to
such Issuance, would own more than 1% in the aggregate of the then total
outstanding Shares or voting power (on either a primary or fully diluted basis),
or (b) any Person to which Shares are issued and who is or becomes a Key
Shareholder of the Corporation, shall upon consummation of, and as a condition
to, such
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Issuance execute, and agree to be bound by the terms of, this Agreement and
shall thereafter be deemed a Shareholder for all purposes of this Agreement.
12.3. Ledcor Roll-Up Transactions. Ledcor and the Corporation shall
consummate the transaction contemplated by the Ledcor Roll-Up Agreement in
accordance with its terms. Neither Ledcor nor the Corporation shall amend,
modify or waive, temporarily or permanently, any of the terms or provisions of
the Ledcor Roll-Up Agreement in any manner adverse to the Corporation or the
Investors without the unanimous written consent of the Investors.
12.4. Ledcor Roll-Up Failure. In the event that the Corporation shall not
have consummated the transactions contemplated by the Ledcor Roll-Up Agreement
on or before the earliest of (w) the date of the pricing of an IPO, (x) the
earliest of the date of any corporate action approving, the record date of, or
the effective date of, a transaction of the nature referred to in Section
9(b)(i) (without giving effect to the proviso thereto), (y) the date any Section
5 Notice is given by WFH, Ledcor or their Affiliates (other than a Sale pursuant
to Section 3(a)(ii)), or (z) September 30, 1999, in consideration for the
issuance of 4,500,000 Common Shares in accordance with the terms of the Ledcor
Roll-Up Agreement (a "Ledcor Roll-Up Failure"), each Investor (a "Section 12.4
Seller") shall have the absolute right at any time thereafter by giving written
notice to Ledcor and each other Investor (the "Put Notice"), to sell to Ledcor
all, but not less than all, Shares held by such Investor (the "Section 12.4
Shares") for their aggregate Liquidation Value (the "Put Price"). Upon delivery
of the Put Notice pursuant to this Section 12.4 (the date of such delivery, the
"Put Date"), Ledcor will be obligated to purchase from the Section 12.4 Seller
and each other Investor who shall elect to put its Shares to Ledcor pursuant to
this Section 12.4 prior to the Purchase Date (as defined below) and each Section
12.4 Seller will be obligated to sell to Ledcor all, but not less than all, of
the Section 12.4 Shares, in exchange for payment of the Put Price. The
consummation of the purchase of the Section 12.4 Shares will take place on a
date (the "Purchase Date") mutually agreeable to the parties but in any event
not later than 15 days following the Put Date. On the Purchase Date, Ledcor
shall pay to each Section 12.4 Seller the Put Price by wire transfer of
immediately available funds to such account(s) as are specified in writing in
advance of the Purchase Date by each Section 12.4 Seller against delivery to
Ledcor of the Section 12.4 Shares, free and clear of all Encumbrances other than
this Agreement. The election of an Investor to sell its Shares to Ledcor under
this Section 12.4 shall not restrict or limit the right of any other Investor
who does not join in such Sale from subsequently exercising its rights under
this Section 12.4. The provisions of Section 3, Section 4 and Section 5 shall
not apply to a Sale of Shares pursuant to this Section 12.4.
12.5. Access to Records. From and after the Closing and so long as an
Investor or its Permitted Assigns continue to hold any Series A Non-Voting
Preferred Shares,
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Series B Voting Preferred Shares or Common Shares, the Corporation shall, and
shall cause each of its Subsidiaries to, afford such Investor or its Permitted
Assigns (as applicable) and their respective employees, counsel and other
authorized representatives access, during normal business hours, upon reasonable
advance notice, with due regard to its ongoing operations, to all of its books,
records and properties, and to all of its officers and employees for any
reasonable purpose whatsoever.
12.6. Financial Reports. From and after the Closing and provided an
Investor or its Permitted Assigns holds any Series A Non-Voting Preferred
Shares, Series B Voting Preferred Shares or Common Shares, the Corporation
agrees to furnish to such Investor or its Permitted Assigns (as applicable) the
following:
(a) Within 30 days after the end of each fiscal month, (i) internal monthly
financial and operating statements for such month ("Monthly Financials")
prepared by the Corporation under the direction of a senior executive officer of
the Corporation.
(b) Within 45 days after the end of each quarterly fiscal period, (i)
unaudited balance sheets and an income statement as of the end of such period,
together with statements of retained earnings and cash flow for such period
("Quarterly Financials") and a letter or memorandum discussing the summary
financial information for such period and setting forth a comparison by
reasonable categories of such financial information to the comparable figures
for the prior year and a reasonable explanation of any differences (a
"Management Letter") (with the Management's Discussion and Analysis of Financial
Condition and Results of Operation section of any Form 10-Q or Form 10-K or
similar document filed with the United States Securities and Exchange Commission
for such quarter being sufficient to satisfy this requirement), plus (ii) a
statement certified by the Chief Financial Officer of the Corporation,
certifying that the financial position and results of operations of the
Corporation for such period as presented in the Quarterly Financials are
presented fairly and have been prepared in accordance with GAAP (subject to
normal year-end adjustments and the absence of footnotes) consistently applied.
(c) Within 120 days (or such lesser period as is either (x) required under
applicable laws for similar disclosure to any securityholders of the Corporation
or (y) in which similar disclosure is provided to other financing sources of the
Corporation, including, without limitation, any banks) after the end of each
fiscal year, commencing with the first fiscal year ending after the Closing, (i)
audited balance sheets and an income statement as of the end of such fiscal
year, together with statements of retained earnings and cash flow for such
fiscal year, all in reasonable detail and certified by a recognized national
firm of independent accountants selected by the Board as presenting fairly the
financial position and results of op-
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erations of the Corporation and as having been prepared in accordance with GAAP
consistently applied, including their opinion thereon, (ii) the accounting
firm's management letter and (iii) a Management Letter (with the Management's
Discussion and Analysis of Financial Condition and Results of Operation section
of any Form 10-Q or Form 10-K or similar document filed with the United States
Securities and Exchange Commission for such quarter being sufficient to satisfy
this requirement).
(d) Promptly upon becoming available, (i) copies of all financial
statements, reports, press releases, notices, proxy statements and other
documents sent by the Corporation to its shareholders or released to the public
and copies of all regular and periodic reports, if any, filed by the Corporation
with any Canadian or non-Canadian securities regulatory agency or any securities
exchange and (ii) any other financial or other information available to
management of the Corporation as any Investors shall have reasonably requested
on a timely basis.
(e) If for any period the Corporation shall have any subsidiary or
subsidiaries whose accounts are consolidated with those of the Corporation,
then, in respect of such period, the financial statements and information
delivered pursuant to the foregoing paragraphs (a), (b) and (c) of this Section
12.6 shall be the consolidated and consolidating financial statements of the
Corporation and all such consolidated subsidiaries.
(f) At least 30 days but not more than 90 days prior to the beginning of
each fiscal year, an annual budget prepared on a monthly basis for the
Corporation for such fiscal year (displaying anticipated statements of income
and cash flows and balance sheets), and promptly upon preparation thereof any
other significant budgets prepared by the Corporation and any revisions of such
annual or other budgets, and, provided that an Investor make request therefor,
within 30 days after any monthly period in which there is a material adverse
deviation from the annual budget, a statement explaining the deviation and what
actions the Corporation has taken and proposes to take with respect thereto.
(g) Promptly (but in any event within seven Business Days) after the
discovery or receipt of notice of (i) any default under any material agreement
to which the Corporation and/or any of its Subsidiaries is a party, which
default could have a Material Adverse Effect on the Corporation or any of its
Subsidiaries, (ii) any other event which could reasonably be expected to have a
Material Adverse Effect (including, without limitation, the filing of any
material litigation against the Corporation or any of its Subsidiaries or the
existence of any dispute with any Person which involves a reasonable likelihood
of such litigation being commenced) a statement describing the foregoing in
reasonable detail.
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(h) Promptly, any information or financial data the Corporation provides to
its lenders or other sources of financing, which, if certified by an officer of
the Corporation, shall be certified to the Investors on no less favorable terms.
12.7. System of Accounting. The books of account and other financial and
corporate records of the Corporation and its Subsidiaries shall be maintained in
accordance with good business and accounting practices and the financial
condition of the Corporation shall be accurately reflected in the financial
statements referred to in this Section.
12.8. Compliance with Laws. The Corporation shall, and shall cause each of
its Subsidiaries to, comply with all applicable laws, rules regulations and
orders except where failure to comply would not have a Material Adverse Affect.
12.9. Insurance. The Corporation shall, and shall cause each of its
Subsidiaries to, keep its assets and those of its Subsidiaries which are of an
insurable character, if any, insured by financially sound and reputable insurers
against loss or damage by fire, extended coverage and other hazards and risks
and liability to Persons and property to the extent and in the manner customary
for companies in similar businesses similarly situated.
12.10. Licenses and Permits. The Corporation shall, and shall cause each of
its Subsidiaries to, use its best efforts to obtain all Canadian and
non-Canadian federal, provincial, state and local governmental licenses,
permits, authorizations, consents, waivers, certificates and approvals material
to and necessary in the conduct of their business, including the Hibernia
Project.
12.11. D&O. The Corporation shall maintain after the Closing the directors'
and officers' liability insurance described in Section 6.2(k) of the Purchase
Agreement.
12.12. Disclosure of Investment. The Corporation, on the one hand, and each
of the Investors, on the other hand, agrees that it will not use in advertising
or publicity the name of any party hereto, or any partner or employee of such
party hereto or any of its respective affiliates, or any trade name, trademark,
trade device, service mark, symbol or any abbreviation, contraction or
simulation thereof owned by the other party hereto or any of its respective
affiliates, in either case without the prior written consent of such party
(except as such release or announcement may be required by applicable securities
law or the rules or regulations of the United States Securities and Exchange
Commission, in which case the party required to make the release or announcement
shall make reasonable best efforts to allow each other party reasonable time to
comment on such release or announcement in advance of such issuance). From and
after the date hereof, neither the Corporation nor any of its Subsidiaries will
represent, directly or indirectly, that any product or any service provided by
the Corporation has been approved or endorsed by any Investor without the prior
written consent of all of
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the Investors. The Corporation and each of the Investors further agree that,
from the date hereof through the Closing Date, no public release or announcement
concerning the transactions contemplated hereby shall be issued by any party
without the prior consent of the Corporation and each Investor (which consent
shall not be unreasonably withheld), except as such release or announcement may
be required by applicable securities law or the rules or regulations of the
United States Securities and Exchange Commission, in which case the party
required to make the release or announcement shall make reasonable best efforts
to allow each other party reasonable time to comment on such release or
announcement in advance of such issuance.
12.13. Investor Consent for Conversion. WFH agrees that it will not convert
any Class B Subordinate Voting Shares held by WFH into Series A Non-Voting
Preferred Shares without the consent of each of the Investors.
12.14. Restrictions on Conversions into Voting Shares. (a) Each of the
Investors agrees that it may convert any Series A Non-Voting Preferred Shares
into Series B Voting Preferred Shares or any Class A Non-Voting Shares into
Class B Subordinate Voting Shares only concurrently with or after (1) any
underwritten public offering of shares with voting rights providing gross
aggregate proceeds to the Corporation or any selling shareholders of at least
$150,000,000 before deducting underwriting discounts and commissions and
offering expenses or (2) the Corporation has issued, paid any dividend of, or
made any distribution of, any shares with voting rights other than the Class B
Subordinate Voting Shares issued and outstanding as of the Initial Issue Date
and the Class C Multiple Voting Shares issued pursuant to the Ledcor Roll-Up
Agreement. The Corporation will provide to the Investors timely information
regarding the transactions referred to in clause (1) or (2) of the preceding
sentence in order to permit the Investors timely to convert Shares in accordance
with this Section 12.14 and the terms of such Shares. Notwithstanding the
foregoing, following the elimination of the restrictions on the ownership of
voting shares and on the control in fact of the Corporation by non-Canadians
under the Telecommunications Act (Canada) and the rules and regulations
promulgated thereunder, there shall be no restrictions on the conversion by the
Investors of any Series A Non-Voting Preferred Shares into Series B Voting
Preferred Shares or any Class A Non-Voting Shares into Class B Subordinate
Voting Shares.
(b) (i) The Corporation shall not issue any capital shares or equity
securities which fall within the definition of "voting shares" in the
Telecommunications Act (Canada) and the Ownership Regulations (as defined below)
except Sales of Shares pursuant to the Purchase Agreement or the Ledcor Roll-Up
Agreement.
(ii) WFH shall not sell, assign or otherwise dispose of any capital shares
or equity securities which fall within the definition of "voting shares" in the
Telecommunications Act (Canada) and the Ownership Regulations pursuant to a
Public Sale or in transaction pur-
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suant to Rule 144A of the Securities Act (or an analogous provision of Canadian
Securities Laws).
(iii) This Section 12.14(b) shall terminate following (x) the elimination
of the restrictions on the ownership of voting shares and on the control in fact
of the Corporation by non-Canadians under the Telecommunications Act (Canada)
and the Ownership Regulations promulgated thereunder or (y) any underwritten
public offering of Shares that do not fall with the definition of "voting
shares" in the Telecommunications Act (Canada) and the Ownership Regulations
providing gross aggregate proceeds to the Corporation of at least $150,000,000
before deducting underwriting discounts and commissions and offering
commissions.
(c) To the extent required by the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder
(the "HSR Act"), if any of the Investors elect to convert their non-voting
Shares into voting Shares, such Investor and (upon written request by such
Investor) the Corporation agree to (i) file or cause to be filed, as promptly as
practicable after such request, with the United States Federal Trade Commission
and the Antitrust Division of the United States Department of Justice, all
reports and documents required to be filed by such Investors and the Corporation
under the HSR Act concerning the conversion transaction and (ii) promptly comply
with or cause to be complied with any requests by the United States Federal
Trade Commission or the Antitrust Division of the United States Department of
Justice for additional information concerning such transactions in order to
obtain antitrust regulatory clearance as soon as possible. The Company agrees to
request, and to cooperate with any Investor in requesting, early termination of
any applicable waiting period under the HSR Act.
12.15. CEO Appointment Procedure.
At least 10 days before the Board shall hold a meeting (the "Preliminary
CEO Appointment Meeting") to consider the appointment of a chief executive
officer (or the functional equivalent) of the Corporation ("CEO"), the
Corporation shall provide to each Investor the name of such individual and
biographical information as contemplated by Item 401 of Regulation S-K under the
Securities Act. If at, or prior to the Preliminary CEO Appointment Meeting, a
Supermajority of Investors indicate by written notice to the Corporation that
they disapprove of the appointment of the proposed CEO (a "Preliminary CEO
Disapproval"), then (i) no formal vote shall be taken on the appointment of the
proposed CEO at the Preliminary CEO Appointment Meeting and (ii) the Corporation
shall not hire the proposed CEO unless and until the Board passes a resolution
appointing the proposed CEO at a meeting of the Board (the "CEO Effective
Appointment Meeting") subsequent to the date the Preliminary CEO Appointment
Meeting is originally scheduled to be held, which meeting shall be held not
earlier than the tenth day following the date the Preliminary CEO Appointment
Meeting is
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originally scheduled to be held. If there is not a Preliminary CEO Disapproval,
then this Section 12.15 shall have no further application with respect to the
proposed CEO (but shall be applicable to any other individual proposed as CEO).
If, within the 15 day period commencing on the first day immediately following
the date the Preliminary CEO Appointment Meeting is originally scheduled to be
held, either (i) a CEO Effective Appointment Meeting does not occur, or (ii) the
Corporation does not hire the proposed CEO, then the Corporation may not hire
such proposed CEO or any other proposed CEO except with renewed compliance with
all of the terms of this Section 12.15. The provisions of this Section 12.15
shall terminate upon an IPO resulting in at least $150,000,000 of gross
aggregate proceeds to the Corporation before deducting underwriting discounts
and commissions and offering expenses.
12.16. Ledcor Entities Regulatory Covenants.
(a) Ledcor represents and warrants, and agrees that during the period prior
to the completion of the transaction contemplated by the Ledcor Roll-Up
Agreement, Ledcor shall, and shall cause Ledcor Industries Limited to ensure
that:
(i) no Ledcor Entity is in violation of any judgment, decree,
order, writ, law, statute, rule, directive or regulation rendered or
enacted in Canada or any non-Canadian jurisdiction respecting
telecommunications and the regulation within Canada of
"telecommunications common carriers" (as defined in the
Telecommunications Act) or in any non-Canadian jurisdiction respecting
telecommunications applicable to any of the Ledcor Entities, or, to the
knowledge of Ledcor, any published interpretation or policy relating
thereto applicable to any Ledcor Entity. Except as disclosed in
Schedule 12.16(a)(i), no notices, reports or other filings are required
to be made by any Ledcor Entity during the period prior to the
completion of the transaction contemplated by the Ledcor Roll-Up
Agreement, with, nor are any consents, registrations, applications and
Permits required to be obtained by any Ledcor Entity from, any court or
governmental agency or other regulatory body or tribunal or similar
entity pursuant to Canadian or non-Canadian telecommunications and
radiocommunication regulatory law in connection with the completion of
the transaction contemplated by the Ledcor Roll-Up Agreement. The
development, implementation, construction or operation of the
telecommunications assets of Ledcor Industries Limited does not
conflict with and will not result in a breach or violation of any of
the Communications Statutes (as defined below) or existing regulations
thereunder except breaches or violations which may be remedied by
Ledcor at immaterial expense and which would not otherwise have a
Material Adverse Effect on the WFI Entities taken as a whole or Ledcor.
For the purposes of this Agreement, "Communications Statutes" means the
Telecommunications Act, the Canadian Radio-television and
Telecommunications Commission Act, or other statutes of Canada or any
non-Canadian jurisdiction specifically relating to the regulation of
the telecommunications industry within Canada or any non-Canadian
jurisdiction (including for this purpose the orders, rules,
regulations, directives, decisions, notices and policies promulgated
pursuant to such statutes, and applicable statutes or regulations, if
any, of any province of Canada or State of the U.S. specifically
relating to the
<PAGE>
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regulation of the Canadian or U.S. telecommunications industry and the
orders, rules, regulations, directives, decisions, notices and policies
promulgated thereunder);.
(ii) (A) Ledcor Industries Limited will remain eligible to
operate as a telecommunications common carrier in Canada, as defined
under and in accordance with the Telecommunications Act and the
Canadian Telecommunications Common Carrier Ownership and Control
Regulations (the "Ownership Regulations"); (B) Ledcor Industries
Limited will not violate 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; and (C)
control of Ledcor Industries Limited will not be 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
(iii) (A) not less than eighty percent of the members of the
board of directors of Ledcor Industries Limited will continue to be
individual Canadians, as defined under the Ownership Regulations; (B)
Canadians, as defined under the Ownership Regulations, will continue to
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 Ledcor Industries Limited; (C) Ledcor in respect of its
ownership of and control over Ledcor Industries Limited will remain a
carrier holding corporation, as defined under the Ownership
Regulations; (D) Ledcor will continue to be a carrier holding
corporation that is a qualified corporation, as defined under the
Ownership Regulations; and (E) Ledcor Industries Limited will not be
controlled in fact by non-Canadians.
(b) With the exception of Ledcor Industries Limited and Worldwide Fiber
(F.O.T.S.) Ltd., no other subsidiary of Ledcor operates in Canada as a
telecommunications common carrier as that term is defined in the
Telecommunications Act.
(c) During the period prior to the completion of the transaction
contemplated by the Ledcor Roll-Up Agreement, all Ledcor Entities will remain 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 of 1934, as amended by the Telecommunications
Act of 1996 (the "Communications Act") or to any
<PAGE>
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rules, regulations and policies of the FCC related hereto, except where failure
to comply would not have a Material Adverse Effect on the WFI Entities taken as
a whole or Ledcor.
(d) Except as set forth in Schedule 12.16(d), each of the Ledcor Entities
currently holds all licenses, permits, certificates, waivers, consents,
franchises, orders, approvals and authorizations issuable under the
Telecommunications Act or other similar Canadian or U.S. statutes which are
required for the development, implementation and operation of each Ledcor Entity
business as it is currently being conducted (collectively, the
"Telecommunications Licenses"). Each Ledcor Entity is in material compliance
with each Telecommunications License held by it. The Telecommunications Licenses
held by each Ledcor Entity contain no restrictions or conditions attaching to
the Telecommunications Licenses, that are (or would be) materially burdensome to
the Ledcor Entities and there are no other conditions attaching to the
Telecommunications Licenses.
(e) Except as set forth in Schedule 12.16(e), each of the Ledcor Entities
has timely filed all renewal applications with respect to all Telecommunications
Licenses held by any of them and no protests or competing applications have been
filed that are either available to the Ledcor Entities or of which the Ledcor
Entities have knowledge with respect to such renewal applications and nothing
has come to the attention of any of the Ledcor Entities that would lead them to
conclude that such renewal applications will not be granted by the appropriate
regulatory agency or body in the ordinary course, and the Ledcor Entities are
authorized under the Communications Statutes and the rules and regulations
promulgated thereunder to continue to provide the services which are the subject
of such renewal applications during the pendency thereof.
(f) The telecommunications business of the Ledcor Entities is not regulated
by any federal, state or provincial utility or rate-regulating commission, other
than the CRTC and Industry Canada, in the areas in which any Ledcor Entity
conducts or proposes to conduct such business, and the Ledcor Entities are not,
and based on existing regulations will not be, required to obtain any
Telecommunications License from any such utility or rate-regulating commission,
other than the CRTC and Industry Canada, in any such state or province.
(g) Ledcor shall cause Ledcor Industries Limited to take all necessary
actions by December 31, 1999 to, as soon as possible, assign and transfer
(including obtaining the approval of Industry Canada to such assignment) to the
Corporation or a wholly-owned Subsidiary of the Corporation all right, title and
interest of Ledcor Industries Limited in, to and under the International
Submarine Cable License issued by Industry Canada to Ledcor Industries Limited
and 3477967 Canada Inc. effective November 1, 1998 (the "ISCL License") pursuant
to the International Submarine Cable Licenses Regulations, in respect of a fiber
optic international submarine cable between the cable stations at Cordova Bay,
British Columbia and Point Roberts, Washington, and between the cable stations
located at Fleming
<PAGE>
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Bay, British Columbia and Whidbey Island, Washington, as more fully described in
the annexes to the ISCL License.
12.17. Underwritten Offering-Related Lock-Up of Shares.
If requested in writing by the managing underwriter(s), if any, of the
first IPO by the Corporation of equity securities (or securities convertible
into or exchangeable for equity securities) of the Corporation, each Shareholder
holding Shares agrees not to effect any Sale or distribution, including, without
limitation, any sale pursuant to Canadian Securities Laws or Rule 144 under the
U.S. Securities Act, of Shares (other than as part of such underwritten public
offering) during the time period requested by the managing underwriter(s), if
any, not to exceed 180 days. This Section 12.17 does not apply to any subsequent
IPO.
SECTION 13. [Intentionally omitted]
SECTION 14. Reservation of Common Shares; Conversion.
(a) The Corporation shall at all times reserve and keep available out of
its authorized but unissued capital (i) sufficient Common Shares to permit
conversion of all outstanding Series A Non-Voting Preferred Shares and any
outstanding Series B Voting Preferred Shares and (ii) sufficient Preferred
Shares to satisfy the Corporation's obligation to issue additional Series A
Non-Voting Preferred Shares to the Investors in accordance with the terms of the
Purchase Agreement and to permit the conversion of the Series A Non-Voting
Preferred Shares into Series B Voting Preferred Shares. The Corporation
represents, warrants and agrees that all Common Shares and Preferred Shares
which are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens, encumbrances and charges.
Ledcor, WFH and the Corporation shall take all such actions as may be necessary,
including adoption of amendments to the Articles of Continuance, to assure that
all such Common Shares may be so issued without violation of any applicable law
or governmental regulation or the Articles of Continuance of the Corporation or
any requirements of any securities exchange upon which such Common Shares may be
listed (except for official notice of issuance which shall be immediately
transmitted by the Corporation upon issuance).
(b) The Corporation agrees that, upon the request of any of the Investors,
it will convert any Non-Voting Shares held by such Investor into Voting Shares
of the same class unless in the reasonable opinion of the Corporation such
conversion would violate the statutory restrictions on "control" as defined in
the Telecommunications Act by "non-Canadians".
<PAGE>
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SECTION 15. Confidentiality.
(a) The Investors and each of the other Shareholders severally (the
"Confidants") recognize that certain non-public, confidential, proprietary
information ("Confidential Information") may be furnished orally or in writing
to the Confidants by, or at the direction of, the Corporation. The Confidants
agree not to disclose any Confidential Information to any Person except to a
Person who is advised of the Confidant's obligations under this Section 15 and
who is (i) a partner, managing director, director, officer or employee of a
Confidant or a Confidant's Affiliate who is involved in the Confidant's
investment in the Corporation, who is consulted with respect to such investment,
or who a Confidant determines otherwise needs to know such information, or (ii)
a Person acting as an advisor to a Confidant in connection with such investment,
except with the consent of the Corporation or pursuant to a subpoena, civil
investigative demand (or similar process), order, statute, rule or other legal
requirement promulgated or imposed by a court or by a judicial, regulatory,
self-regulatory or legislative body, organization, agency or committee or
otherwise in connection with any judicial or administrative proceeding
(including, in response to oral questions, interrogatories or requests for
information or documents) in which a Confidant or Investor Affiliate is
involved. The Confidants acknowledge that the United States securities laws
prohibit any person who is in possession of material, non-public information
regarding an issuer from purchasing or selling securities of such issuer or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities.
(b) If Confidential Information is to be disclosed pursuant to the
foregoing paragraph, the Confidant will, to the extent practicable, promptly
notify the Corporation thereof and cooperate with the Corporation to the extent
legally permissible if it should seek to obtain an order or other reliable
assurance that confidential treatment will be accorded to designated portions of
the Confidential Information. The Confidants shall be entitled to periodic
reimbursement from the Corporation for expenses incurred by it or any Investor
Affiliate, including the fees and expenses of counsel, in connection with any
action taken pursuant to this paragraph.
(c) Information will not be deemed Confidential Information if it (i) was
already available to, or in the possession of, the Confidant prior to its
disclosure by, or at the direction of, the Corporation, (ii) is or becomes
available in the public domain on or after the date hereof (other than as a
result of a disclosure by any Confidant or any of its advisors), or (iii) is
acquired from a person who is not known by a Confidant to be in breach of an
obligation of confidentiality to the Corporation.
<PAGE>
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SECTION 16. Specific Performance; Injunction.
(a) The parties agree that it is impossible to determine the monetary
damages which would accrue to the Corporation or any Shareholder or his personal
representative by reason of the failure of any Other Shareholder or the
Corporation to perform any of his or its obligations under this Agreement
requiring the performance of an act other than the payment of money only. Each
Shareholder shall be entitled to enforce its rights under this Agreement
specifically and to exercise all other rights existing in their favor. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that each party
may in its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
(b) In the event of a breach or threatened breach by a Shareholder of any
of the provisions of this Agreement, the Corporation, and the remaining
Shareholders shall be entitled to an injunction restraining such Shareholder
from any such breach. The availability of these remedies shall not prohibit the
Corporation from pursuing any other remedies for such breach or threatened
breach, including the recovery of damages from the Shareholder.
SECTION 17. No Inconsistent AgreementsNeither the Corporation nor any
Shareholder shall take any action or enter into any agreement which is
inconsistent with the rights of any party hereunder or otherwise conflicts with
the provisions hereof.
SECTION 18. Further Assurances.
(a) At any time or from time to time after the date hereof, the parties
agree to cooperate with each other, and at the request of any other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby and to
otherwise carry out the intent of the parties hereunder.
(b) At any time or from time to time, the parties agree to take all action,
including, without limitation, voting to approve any amendment to the Articles
of Continuance, or the By-Laws of the Corporation required to increase the
authorized number of Common Shares or Preferred Shares, if necessary, to permit
the issuance of all Shares contemplated under the Purchase Agreement, and the
conversion of all outstanding Series A Non-Voting Preferred Shares or
outstanding Series B Voting Preferred Shares.
<PAGE>
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SECTION 19. Duration of Agreement. The rights and obligations of a
Shareholder under this Agreement shall terminate at such time as such
Shareholder no longer holds any Shares. This Agreement shall terminate upon the
consummation of a Qualified IPO except that the terms of Section 8, Sections
12.1, 12.3, 12.4, 12.7, 12.8, 12.9, 12.10, 12.11, 12.12, 12.13, 12.14, 12.15,
12.16, 12.17, Sections 14 through Section 32 (inclusive) shall survive until, by
their respective terms, they are no longer operative. The terms of Sections 12.5
and 12.6 shall terminate upon the consummation of an IPO.
SECTION 20. Legends. Each certificate representing Shares shall bear a
legend containing the following words:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
QUALIFIED FOR PUBLIC DISTRIBUTION IN CANADA AND HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
APPLICABLE CANADIAN SECURITIES LAWS AND THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED.
IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE
SHAREHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 9, 1999, BY THE
CORPORATION AND THE PARTIES THERETO, A COPY OF WHICH IS ON FILE IN THE
OFFICE OF THE CORPORATION.
The requirement that the above securities legend be placed upon
certificates evidencing any such securities shall cease and terminate upon the
earliest of the following events: (i) when such Shares are transferred in an
IPO; (ii) when such Shares are transferred pursuant to Rule 144 under the
Securities Act; or (iii) when such Shares are transferred in any other
transaction if the seller delivers to the Corporation an opinion of its counsel,
which counsel and opinion shall be reasonably satisfactory to the Corporation to
the effect that such legend is no longer necessary in order to protect the
Corporation against a violation by it of the Securities Laws upon any sale or
other disposition of such Shares without registration thereunder. The
requirement that the above legend regarding the Shareholder Agreement be placed
upon certificates evidencing any such securities shall cease and terminate upon
the termination of this Agreement. Upon the occurrence of any event requiring
the removal of a legend hereunder, the Corporation, upon the surrender of
certificates containing such legend, shall, at its own expense, deliver to the
holder of any such Shares as to which the requirement
<PAGE>
-43-
for such legend shall have terminated, one or more new certificates evidencing
such Shares not bearing such legend.
SECTION 21. Contractual Management Rights. The Corporation and each of the
Shareholders acknowledge that the provisions of this Agreement are intended,
among other things, to provide DLJ, GSCP and Providence with "contractual
management rights" within the meaning of the Employee Retirement Income Security
Act of 1974, as amended, and the regulations promulgated thereunder.
SECTION 22. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement. In the event that pursuant
to any regulatory authority or regulation, the Corporation is required to make
any revisions or modifications to any provision of this Agreement or any of the
other Documents, the parties agree to enter into good faith negotiations and
make revisions or modifications, to the extent possible, that are in compliance
with such regulation or the rules of such regulatory authority, and which are
designed to accomplish the purposes of such provision to be revised or modified.
SECTION 23. Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of law, except for the
provisions of Section 8 and the provision in the last sentence of Section 10(c)
permitting a Board determination regarding a competing transaction to a Required
Sale, which shall be governed by and construed in accordance with the laws of
the Province of British Columbia and the federal law of Canada. Each of the
parties hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of New York and of the United
States of America, in each case located in the County of New York, for any
action, proceeding or investigation in any court or before any governmental
authority ("Litigation") arising out of or relating to this Agreement and the
transactions contemplated hereby (and agrees not to commence any Litigation
relating thereto except in such courts), and further agrees that service of any
process, summons, notice or document by facsimile or registered mail to its
respective address set forth in this Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York and of
the United States of America, in each case located in the County of New York,
and hereby further irrevocably and
<PAGE>
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unconditionally waives and agrees not to plead or claim in any such court that
any such Litigation brought in any such court has been brought in an
inconvenient forum. Each of the parties irrevocably and unconditionally waives,
to the fullest extent permitted by applicable law, any and all rights to trial
by jury in connection with any Litigation arising out of or relating to this
Agreement or the transactions contemplated hereby.
SECTION 24. Successors and Assigns. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors, assigns, heirs and personal representatives. Except pursuant to a
Sale of Shares permitted by Section 3, no Shareholder shall have the right to
assign its rights and obligations under this Agreement without the consent of
the other Shareholders. No Shareholder shall have the right to assign its rights
under Section 7 or 8 of this Agreement without the consent of the Corporation
and each other Investor. Upon any such assignment, such assignee shall have and
be able to exercise all rights of the assigning Shareholder. The parties
acknowledge that, subject to compliance with applicable securities laws, each
Investor may transfer and assign all or a part of its rights and obligations
under this Agreement (including, for the avoidance of doubt, under Section 7 or
8) to one or more other partnerships, corporations, trusts or other
organizations which have been created by or are controlled by, control or are
under common control with such Investor or one or more of the then current
partners, members or other equity holders of such Investor (the "Investor
Affiliates"), without the consent of the Corporation or any other Shareholder.
Notwithstanding the foregoing, neither the Corporation nor any Person controlled
by the Corporation shall be deemed to be an Investor Affiliate of any Investor
for purposes of this Agreement. Upon any such assignment, the assignee shall
have and be able to exercise all rights of the assigning Shareholder.
SECTION 25. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in Person or by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
<PAGE>
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(a) if to the Corporation, to:
Worldwide Fiber Inc.
#1510-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-6822
Attention: Stephen Stow
with a copy to:
Farris, Vaughan, Wills & Murphy
2600 - 700 West Georgia Street
Vancouver, British Columbia V7Y 1B3
Fax: (604) 661-9349
Attention: Cameron G. Belsher
and
Cahill Gordon & Reindel
Eighty Pine Street
New York, New York
U.S.A. 10005
Fax: (212) 269-5420
Attention: Roger Andrus
(b) if to DLJ, to:
DWF SRL
Chancery House
High Street
Bridgetown, Barbados, West Indies
and
DWF SRL
c/o DLJ Merchant Banking Partners II, L.P.
277 Park Avenue
New York, New York 10172
Fax: (212) 892-7272
Attention: Andrew Rush
<PAGE>
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with a copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, New York 10022-4802
Fax: (212) 751-4864
Attention: Steven Della Rocca
(c) if to any of the GSCP Parties, to:
c/o Ernst & Young Services Ltd.
P.O. Box 261
Bay Street
Bridgetown,
Barbados, West Indies
Fax: (246) 426-9551
Attention: Carol-Ann Smith
and
c/o GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Fax: (212) 902-3000
Attention: Robert R. Gheewalla
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Fax: (212) 859-4000
Attention: Stuart Z. Katz
and
GS Capital Partners III, L.P.
85 Broad Street
New York, New York 10004
Fax: (212) 357-5505
Attention: Ben Adler
<PAGE>
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(d) if to Providence, to:
Providence Equity Fiber, L.P.
50 Kennedy Plaza
Providence, Rhode Island 02903
Fax: (401) 751-1790
Attention: Glenn M. Creamer
with a copy to:
Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, Rhode Island 02903
Fax: (401) 276-6602
Attention: David K. Duffell
(e) if to Tyco, to:
Tyco Group S.A.R.L.
2nd Floor
6, Avenue Emile Reuter
L-2420 Luxembourg
Fax: 352-464-350
Attention: Managing Director
with a copy to:
Tyco Submarine System Ltd.
250 Industrial Way West
Eatontown, New Jersey 07724
Fax: (732) 578-7803
Attention: General Counsel
(f) if to WFH, to:
Worldwide Fiber Holdings Ltd.
1000-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-6822
Attention: Chief Financial Officer
with a copy to:
<PAGE>
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McLennan Ross
600 West Chambers
12220 Stony Plain Road
Edmonton, Alberta T5N 3Y4
Fax: (780) 482-9102
Attention: Rodney R. Neys
(g) if to Ledcor, to:
Ledcor Inc.
1000-1066 West Hastings Street
Vancouver, British Columbia V6E 3X1
Fax: (604) 681-6650
Attention: David Lede
with a copy to:
McLennan Ross
600 West Chambers
12220 Stony Plain Road
Edmonton, Alberta T5N 3Y4
Fax: (780) 482-9102
Attention: Rodney R. Neys
(h) if to any other Shareholder, to the notice information set forth in
Schedule I hereto.
All such notices, requests, consents and other communications shall be
deemed to have been given when received.
SECTION 26. Amendments. Unless otherwise set forth in this Agreement, the
terms and provisions of this Agreement may be modified or amended, or any of the
provisions hereof waived, temporarily or permanently, pursuant to the written
consent of the parties hereto.
SECTION 27. Headings. The headings of the Sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
<PAGE>
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SECTION 28. Nouns and Pronouns. Whenever the context requires, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and
vice-versa.
SECTION 29. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior and contemporaneous agreements and understandings
with respect thereto.
SECTION 30. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 31. No Partnership. The obligations of each of the parties to this
Agreement are several and not joint. Nothing in this Agreement shall imply or be
deemed to imply a partnership, joint venture or other relationship between the
parties.
SECTION 32. Ledcor Assurances. On the date hereof, Ledcor is a direct party
to this Agreement for purposes of Sections 1, 3(d), 8.4, 12.3, 12.4, 12.16,
12.17 and 16 through 32 (inclusive). Ledcor is also a direct party to this
Agreement as a Shareholder (as such) only if and so long as (whether now or at
any time or from time to time hereafter) it is a holder of Shares. Furthermore,
Ledcor agrees to take all action necessary to cause WFH or any other Affiliates
of Ledcor (with the exception of the Corporation and its Subsidiaries) to fully
perform their respective obligations under this Agreement.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
WORLDWIDE FIBER INC.
By: ____________________________________________
Name:
Title:
DWF SRL
By: ____________________________________________
Name:
Title:
THE GSCP PARTIES:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors III, L.P., its general partner
By: GS Advisors III, L.L.C., its general
partner
By: ____________________________________________
Name:
Title:
GSCP3 WWF (Barbados) SRL
By: ____________________________________________
Name:
Title:
WWF (Barbados) SRL
By: ____________________________________________
Name:
Title:
<PAGE>
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PROVIDENCE EQUITY FIBER, L.P.
By: Providence Equity Partners III L.P.
its general partner,
By: Providence Equity Partners III L.L.C.
its general partner
By: ____________________________________________
Name: Glenn M. Creamer
Title: Member and Managing Director
TYCO GROUP S.A.R.L.
By: ____________________________________________
Name:
Title:
WORDWIDE FIBER HOLDINGS, LTD.
By: ____________________________________________
Name:
Title:
LEDCOR INC.
By: ____________________________________________
Name:
Title:
-----------------------------------------------
MACKENZIE PARTNERS, LLC
-----------------------------------------------
CLIFFORD LEDE
-----------------------------------------------
DAVID LEDE
<PAGE>
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-----------------------------------------------
LARRY OLSEN
-----------------------------------------------
WILLIAM RAMSEY
-----------------------------------------------
RON STEVENSON
-----------------------------------------------
STEPHEN STOW
-----------------------------------------------
JIM VOELKER
<PAGE>
Schedule 1.15
Key Shareholders
Clifford Lede
David Lede
Larry Olsen
William Ramsey
Ron Stevenson
Stephen Stow
Jim Voelker
<PAGE>
Schedule 3(a)(i)
Permitted Assignees of WFH
A limited partnership (the "LP"), resident in Canada, the general partner
of which shall be a direct or indirect wholly-owned subsidiary of Ledcor and the
limited partners of which shall be the existing shareholders of Ledcor as of the
date hereof, holding substantially the same interest in the LP as such
shareholders hold in Ledcor, except that certain shareholders may have their
interest held by an offshore resident trust whose beneficiary is a charitable
foundation.
<PAGE>
Schedule 11(b)(i)
Security holdings of each Shareholder
[
]*
- ----------
* Material omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
Schedule 11(b)(ii)
Agreements relating to security holdings
of each Shareholder
1. Option agreements pursuant to the 1998 Employee Long Term Incentive and
Share Award Plan.
2. WFH Share Purchase Agreements.
<PAGE>
Schedule 12.16
Ledcor Regulatory Matters
1. The Application by Ledcor under Part VII of the Telecommunications Act
(Canada) involving the City of Vancouver.
WORLDWIDE FIBER INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 22nd day
of December, 1999 (the "Effective Date"), by and between WORLDWIDE FIBER INC., a
corporation incorporated under the laws of Canada (the "Company"), and GREGORY
B. MAFFEI (the "Purchaser") (collectively, the "Parties").
RECITALS
WHEREAS, the Company and the Purchaser have entered into an Employment
Agreement, dated December 22, 1999, pursuant to which the Company has agreed to
employ the Purchaser, and the Purchaser has agreed to serve as the President and
Chief Executive Officer of the Company (the "Employment Agreement"); and
WHEREAS, the Company desires to issue, and Purchaser desires to acquire,
stock of the Company as herein described, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IT IS AGREED between the Parties as follows:
Section 1. Purchase and Sale of Stock. Purchaser hereby agrees to purchase
from the Company, and the Company hereby agrees to sell to Purchaser, an
aggregate of thirty one million (31,000,000) shares of common stock of the
Company, of which twenty six million eighty thousand (26,080,000) shares will be
Class A Non-voting Shares of the Company (the "Class A Shares") and four million
nine hundred twenty thousand (4,920,000) shares will be Class C Multiple Voting
Shares of the Company (the "Class C Shares") (collectively, the "Shares"), at
two dollars and fifty cents (U.S. $2.50) per share (the "Purchase Price Per
Share"), for an aggregate purchase price of seventy seven million five hundred
thousand dollars (U.S. $77,500,000) (the "Purchase Price"). The Purchase Price
shall be payable by certified check or wire transfer. The Company will cause its
affiliate Worldwide Fiber Finance Ltd. to lend the Purchase Price to Purchaser
against delivery of a promissory note payable to Worldwide Fiber Finance Ltd. in
the form attached hereto at Tab 1. The closing hereunder, including the loan of
the Purchase Price and payment for and delivery of the Shares, shall occur at
the offices of the Company immediately following the execution of this
Agreement, or at such other time and place as the Parties may mutually agree.
Section 2. Repurchase Option.
(a) Repurchase Option. In the event Purchaser's employment by the Company,
(A) terminates for any or no reason, or (B) Purchaser fails to commence
employment with the Company on or before January 31, 2000 as a result of (i) his
death or Disability or (ii) for a reason which would have constituted a
termination by the Purchaser without Good Reason pursuant to Section 5(d) of the
Employment Agreement had the Purchaser commenced his employment with the Company
and then terminated his employment for such reason then the
<PAGE>
Company shall have an irrevocable option (the "Repurchase Option"), which shall
be exercisable during the ninety (90) day period after said termination or such
longer period as may be agreed to by the Company and the Purchaser in writing,
to repurchase from Purchaser for the Option Price, subject to adjustment
pursuant to Section 2(d), that number of Shares that have not ceased to be
subject to the Repurchase Option in accordance with the provisions of Section
2(b) below as of such termination date.
(b) Lapse of Repurchase Option.
(i) General Provisions. Seventy five percent (75%) of the Shares, all
of which will be Class A Shares, shall initially be subject to the
Repurchase Option and, therefore, 7,750,000 Shares, of which 4,920,000
Shares will be Class C Shares and 2,830,000 Shares will be Class A Shares,
are immediately vested upon the execution of this Agreement and will never
be subject to the Repurchase Option; provided, however, that if the
Purchaser fails to commence employment with the Company on or before
January 31, 2000 as a result of (i) his death or Disability or (ii) for a
reason which would have constituted a termination by the Purchaser without
Good Reason pursuant to Section 5(d) of the Employment Agreement had the
Purchaser commenced his employment with the Company and then terminated his
employment for such reason then, in addition to the Company's repurchase
right outlined in Section 2(a) of this Agreement: (1) the Company shall
have the option, which shall be exercisable during the thirty (30) day
period after said termination to repurchase from Purchaser for an amount
equal to the lesser of (i) the Fair Market Value of the Shares calculated
on the date of repurchase, or (ii) the Option Price, subject to adjustment
pursuant to Section 2(d), the 7,750,000 Vested Shares and (2) neither the
Purchaser nor the Company shall have any further obligations or liabilities
to the other Party under this Agreement, the Employment Agreement, after
Purchaser has repaid that certain promissory note dated December 22, 1999
by and between the Purchaser and Worldwide Fiber Finance Ltd., such
promissory note, or otherwise (except for Purchaser's obligations under
Section 7 of the Employment Agreement). Subject to the provisions of
Section 2(b)(ii) and Section 2(b)(iii) of this Agreement, the Shares that
are initially subject to the Repurchase Option shall cease to be subject to
the Repurchase Option according to the following schedule, provided that
the Purchaser is employed by the Company (or a parent or subsidiary of the
Company) on such date:
Number of Shares that cease to be
Date subject to the Repurchase Option
---- ---------------------------------
December 22, 2000 6,200,000
The last day of each calendar month 568,332
following December 22, 2000
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<PAGE>
(ii) Change of Control Provisions. Notwithstanding the preceding
provisions of Section 2(b)(i): (A) upon the occurrence of a Change of
Control, 40% of the remaining unvested Shares shall cease to be subject to
the Repurchase Option (i.e., the Repurchase Option shall lapse on such date
with respect to 40% of the Shares that remain subject to the Repurchase
Option immediately prior to such date), and (B) if at any time during the
two-year period immediately following the occurrence of a Change of
Control, Purchaser ceases for any reason other than a termination of
service or employment by the Company or its successor for Cause pursuant to
Section 5(a) of the Employment Agreement or by the Executive without Good
Reason pursuant to Section 5(d) of the Employment Agreement, to be (1) a
member of the Board of the surviving entity, and/or (2) the President
and/or Chief Executive Officer of the surviving entity on terms that are at
least as favorable as the then current terms of the Employment Agreement,
then 100% of the remaining unvested Shares shall cease to be subject to the
Repurchase Option (i.e., the Repurchase Option shall lapse in its entirety
on the date Purchaser ceases to be the President, Chief Executive Officer,
or a member of the Board of the surviving entity).
(iii) Termination of Employment Without Cause or For Good Reason.
Notwithstanding the preceding provisions of Section 2(b)(i), upon the
earliest to occur of: (a) the date that Purchaser's employment is
terminated by the Company without Cause pursuant to Section 5(d) of the
Employment Agreement; or (b) the date that Purchaser's employment is
terminated as a result of his death or Disability pursuant to Section 5(b)
of the Employment Agreement, or (c) the date the Purchaser terminates his
employment with the Company for Good Reason pursuant to Section 5(c) of the
Employment Agreement (clauses (a), (b) and (c) each being a "Termination
Event" and, collectively, the "Termination Events"), (x) if a Termination
Event occurs on or prior to December 22, 2000, that amount of Shares will
cease to be subject to the Repurchase Option equal to the sum of: (A)
twenty percent (20%) of the Shares plus (B) that number of Shares obtained
by multiplying the total number of Shares purchased under this Agreement by
the product of .0183333 by the number of calendar months that the Company
employed Purchaser for the period beginning on the Effective Date and
ending on the date that his employment by the Company terminated and (y) if
a Termination Event occurs after December 22, 2000, twenty two percent
(22%) of the Shares will cease to be subject to the Repurchase Option.
(c) Exercise of Repurchase Option. The Repurchase Option shall be exercised
by written notice signed by an officer of the Company or by any assignee or
assignees of the Company and delivered or mailed as provided in Section 19(a).
Such notice shall identify the number of Shares to be purchased and shall notify
Purchaser of the time, place and date for settlement of such purchase, which
shall be scheduled by the Company within thirty (30) days of receipt of such
notice. The Company, or any assignee or assignees of the Company, shall, at its
or their option, pay for any Shares purchased pursuant to the Repurchase Option
by certified check, by offset against any indebtedness owing to the Company (or
to such assignee
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<PAGE>
or assignees, in the case of an exercise of the Repurchase Option by such
assignee or assignees) by Purchaser or by reducing Purchaser's outstanding debt
under the promissory note delivered to Worldwide Fiber Finance Ltd. by Purchaser
pursuant to Section 1 of this Agreement, or by any combination thereof. Upon
delivery of such notice and payment of the purchase price in any of the ways
described above, the Company, or any assignee or assignees of the Company (as
applicable), shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest therein or related thereto, and the
Company shall have the right to transfer to its own name or the name of any
assignee or assignees of the Company the Shares being repurchased by the
Company, or any assignee or assignees of the Company without further action by
Purchaser.
(d) Adjustments to Stock. If, from time to time, during the term of the
Repurchase Option there is any change affecting the outstanding Stock as a class
that is effected without the receipt of consideration by the Company (through
merger, consolidation, reorganization, reincorporation, stock dividend, dividend
in property other than cash, stock split, liquidating, dividend, combination of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), then any and all new, substituted or
additional securities or other property which Purchaser receives and/or to which
Purchaser is entitled by reason of Purchaser's ownership of Shares shall be
immediately subject to the Repurchase Option and be included in the word
"Shares" for all purposes of the Repurchase Option with the same force and
effect as the Shares currently subject to the Repurchase Option, but only to the
extent the Shares are, at the time, covered by such Repurchase Option. While the
total Option Price shall remain the same after each such event, the Option Price
per Share upon exercise of the Repurchase Option shall be appropriately
adjusted.
(e) Termination of Repurchase Option. Section 2 of this Agreement shall
terminate upon the exercise in full or expiration of the Repurchase Option,
whichever first occurs.
Section 3. Joinder to the Shareholders Agreement. As of the Effective Date,
the Purchaser hereby agrees to join the Shareholders Agreement and, for all
purposes of such Shareholders Agreement to constitute, and be entitled to the
benefits, rights and features (subject to the obligations) associated with his
constituting, a "Shareholder" as that term is defined in the Shareholders
Agreement.
Section 4. Demand Registration Rights.
(a) Request for Registration. Subject to Section 4(b) of this Agreement,
Purchaser shall be entitled to make a written request ("Demand Registration
Request") to the Company for registration with the Commission under and in
accordance with the provisions of the Securities Act of all or part of the
Shares owned by him (a "Demand Registration") (which Demand Registration Request
shall specify the intended number of Shares to be disposed of by Purchaser and
the intended method of disposition thereof); provided, that the Company may, if
the Board so determines in the exercise of its reasonable, good faith judg-
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<PAGE>
ment that due to a pending or contemplated acquisition or disposition or public
offering or other similar occurrence it would be inadvisable to effect such
Demand Registration at such time, defer such Demand Registration for a single
period not to exceed one hundred eighty (180) days; provided, however, in the
event that the Company proposes to register shares of its stock under the
Securities Act, whether or not for sale for its own account, during such single
period, Purchaser shall have the right to exercise his Incidental Registration
Rights as outlined in Section 5 of this Agreement with respect to such
registration. Within ten (10) days after receipt of such request, the Company
will use its best efforts to effect the registration under the Securities Act of
the Shares which the Company has been so requested to register by Purchaser.
(b) Number of Demand Registrations. At any time on or after the earlier of:
(A) the date of the Company's IPO or (B) September 7, 2001, Purchaser shall be
entitled to make one Demand Registration Request at any time; provided, that (i)
the number of Shares subject to any such Demand Registration represents at least
twenty five percent (25%) of the number of Shares held, directly or indirectly,
by Purchaser immediately prior to his Demand Registration Request, (ii) the
Company shall not be obligated to effect more than one Demand Registration and
(iii) Purchaser shall not be entitled to make a Demand Registration Request
during any period during which (A) all of the Shares may be freely transferred
at the same time pursuant to Rule 144 promulgated under the Securities Act, or
(B) all of the Shares have been properly registered on a registration statement,
such registration statement is effective under the Securities Act and all of the
Shares may be freely transferable pursuant to such registration statement.
(c) Effective Registration and Expenses. A registration will not count as a
Demand Registration until it has become effective (unless Purchaser withdraws
the Shares, in which case such demand will count as a Demand Registration unless
Purchaser agrees to pay all Registration Expenses). The Company shall be solely
responsible for any and all costs and expenses of all registrations and
qualifications under the Securities Act, and of all other actions the Company is
required to take in order to effect the registration of Shares under the
Securities Act whether pursuant to this Agreement or otherwise.
(d) Priority on Demand Registrations. If the offering of Purchaser's Shares
pursuant to such Demand Registration is in the form of an underwritten offering
and the managing underwriter or underwriters of such offering advise the Company
and Purchaser in writing that in their opinion the number of Shares requested to
be included in such offering is sufficiently large to adversely affect the
success of such offering, the Company will include in such registration the
aggregate number of shares which in the opinion of such managing underwriter or
underwriters can be sold without any such adverse effect, and such amount shall
be allocated in the following order of priority: (i) first, the Shares of the
Purchaser subject to any such Demand Registration and (ii) second, any shares of
common stock that the Company or any other holder proposes to sell.
-5-
<PAGE>
Section 5. Incidental Registration Rights. As of the Effective Date, the
Company, certain shareholders of the Company and the Purchaser will enter into a
Joinder to the Shareholders Agreement substantially in the form attached hereto
at Tab 5, which shall provide that for purposes of Section 2.2 and all related
Sections of the Registration Rights Agreement, Purchaser shall constitute, and
shall be entitled to all of the benefits, rights and features associated with
being, a "Holder of record of Registrable Securities."
Section 6. Commitment to Register Shares. As soon as permitted under the
Securities Act following an IPO, the Company will register the Shares purchased
or otherwise acquired by the Purchaser pursuant to this Agreement on a Form S-8
and/or such other form as may be required to permit the sale of such Shares then
held by Purchaser or any "permitted transferee," within the meaning of Form S-8
and/or any other applicable form, in the public market without any restriction,
other than restrictions that arise from the volume limitations of Rule 144.
Section 7. Additional Registration Rights. If at any time, whether before
or after the Effective Date, the Company has granted or grants to any individual
or entity (an "Additional Investor") rights to register under an effective
registration statement pursuant to the Securities Act any shares of common stock
owned, directly or indirectly, by such Additional Investor, then the Company
shall also grant such registration rights to Purchaser with respect to any
Shares to the extent that such registration rights granted to such Additional
Investor in any way exceed, supplement, or otherwise provide increased benefit
or protection to such Additional Investor than the registration rights granted
to Purchaser under Sections 4, 5 or 6 of this Agreement; provided, that, the
Company will not grant registration rights to any Additional Investor unless
approved by the Board.
Section 8. Put by the Purchaser. Upon the occurrence of any of the events
specified below, Purchaser or any Permitted Transferee shall have the right to
sell all or any portion of his Shares, whether vested or unvested, to the
Company (the "Put") as set forth below:
(a) After Termination of Employment.
(i) Pre-IPO. Prior to an IPO of the Company, if the Purchaser ceases
to be employed by the Company for any reason, the Purchaser or any
Permitted Transferee or, upon the death of either the Purchaser or any
Permitted Transferee, his or her beneficiary shall at any time after such
date of termination be entitled to exercise the Put (A) with respect to any
Vested Share at a per Share price equal to the Fair Market Value of the
Shares calculated as of the Exercise Date and (B) with respect to any
Unvested Share at a per Share price equal to the lesser of (x) the Fair
Market Value of a Share calculated as of the Exercise Date or (y) the
Option Price per Share; and
(ii) Post-IPO. Following an IPO of the Company, if the Purchaser
ceases to be employed by the Company for any reason, the Purchaser or any
Permitted Trans-
-6-
<PAGE>
feree or, upon the death of either the Purchaser or any Permitted
Transferee, his or her beneficiary shall at any time after such date of
termination be entitled to exercise the Put (A) with respect to any Vested
Share at a per Share price equal to the Fair Market Value of the Shares
calculated as of the Exercise Date; provided, however, that the aggregate
amount of Shares that may be put to the Company pursuant to this clause (A)
shall not exceed the Aggregate Put Amount and (B) with respect to any
Unvested Share at a per Share price equal to the lesser (x) of the Fair
Market Value of a Share calculated as of the Exercise Date or (y) the
Option Price per Share.
(b) During Employment.
(i) Pre-IPO. Prior to an IPO of the Company, the Purchaser or any
Permitted Transferee or, upon the death of either the Purchaser or any
Permitted Transferee, his or her beneficiary shall be entitled to exercise
the Put with respect to any Vested Share at a per Share price equal to the
Fair Market Value of the Shares calculated as of the Exercise Date;
provided, however, that the aggregate amount of Shares that may be put to
the Company pursuant to this Section 8(b)(i) shall not exceed the Aggregate
Put Amount.
(ii) Post-IPO. Following an IPO of the Company, the Purchaser or any
Permitted Transferee or, upon the death of either the Purchaser or any
Permitted Transferee, his or her beneficiary shall be entitled to exercise
the Put with respect to any Vested Share at a per Share price equal to the
Fair Market Value of the Shares calculated as of the Exercise Date;
provided, however, that the aggregate amount of Shares that may be put to
the Company pursuant to this Section 8(b)(ii) shall not exceed the
Aggregate Put Amount.
Section 9. Escrow of Unvested Stock. As security for Purchaser's faithful
performance of the terms of this Agreement and to insure the availability for
delivery of Shares upon exercise of the Repurchase Option herein provided for,
Purchaser agrees, immediately upon receipt of the Stock certificate(s)
evidencing the Shares, to deliver to and deposit with the Secretary of the
Company or the Secretary's designee ("Escrow Agent"), as Escrow Agent in this
transaction, three (3) Stock assignments duly endorsed (with date and number of
shares blank) in the form attached hereto at Tab 2, together with a certificate
or certificates evidencing all of the Shares subject to the Repurchase Option;
said documents are to be held by the Escrow Agent and delivered by said Escrow
Agent pursuant to the Joint Escrow Instructions of the Company and Purchaser set
forth at Tab 3 attached hereto and incorporated by this reference, which
instructions shall also be delivered to the Escrow Agent at the closing
hereunder. As Shares cease to be subject to the Repurchase Option such Shares
will be released from escrow.
Section 10. Rights of Purchaser. Subject to the provisions of Sections 3,
4, 5, 6, 7 or 8 of this Agreement, Purchaser shall exercise all rights and
privileges of a stockholder of the Company with respect to the Shares from and
after the date that Purchaser deliv-
-7-
<PAGE>
ers payment of the Purchase Price until such time as Purchaser disposes of the
Shares or the Company, or any assignee or assignees of the Company, exercises
its or their right to repurchase the Shares pursuant to Section 2 of this
Agreement. Purchaser shall be deemed to be the holder for purposes of receiving
any dividends that may be paid with respect to such Shares and for the purpose
of exercising any voting rights relating to such Shares, even if some or all of
such Shares have not yet vested and been released from the Repurchase Option.
Section 11. Limitations on Transfer. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
hypothecate, donate, encumber or otherwise dispose of any interest in the Shares
while the Shares are subject to the Repurchase Option. After any Shares have
been released from the Repurchase Option, Purchaser shall not assign,
hypothecate, donate, encumber or otherwise dispose of any interest in the Shares
except in compliance with the provisions of this Agreement and applicable
securities laws. Notwithstanding anything to the contrary in this Section and to
the extent permitted by applicable securities laws, the following transfers of
shares will be exempt from this Section 11: (i) the transfer of any or all of
the Shares during Purchaser's lifetime by gift or on Purchaser's death by will
or intestacy to a Permitted Transferee (as defined below), provided that each
Permitted Transferee agrees in a writing satisfactory to the Company that (A)
the provisions of this Agreement including without limitation acknowledgement
that the Shares are subject to the lien securing that certain promissory note
dated December 22, 1999 by an between the Purchaser and Worldwide Fiber Finance
Ltd., will continue to apply to the transferred Shares in the hands of such
Permitted Transferee and (B) such Permitted Transferee will not transfer, or
permit any transfer, of the equity in such Permitted Transferee to any entity
other than one that also constitutes a Permitted Transferee; (ii) any transfer
of Shares made pursuant to a statutory merger or statutory consolidation of the
Company with or into another corporation or corporations (except that the right
of first refusal will continue to apply thereafter to such Shares, in which case
the surviving corporation of such merger or consolidation shall succeed to the
rights of the Company under this Section 11 unless the agreement of merger or
consolidation expressly provides otherwise); (iii) any transfer of Shares,
pursuant to the winding up and dissolution of the Company; or (iv) any transfer
of Shares to the Company or any assignee or assignees of the Company, in
accordance with Sections 2 and 8 of this Agreement.
Section 12. Restrictive Legends. All certificates representing the Unvested
Shares shall have endorsed thereon legends in substantially the following forms
(in addition to any other legend which may be required by other agreements
between the Parties hereto, including the Shareholders Agreement):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED
-8-
<PAGE>
TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR
EXPRESS WRITTEN CONSENT OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS
PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by applicable blue sky laws.
Section 13. Representations of the Company. The Company hereby represents
and warrants to the Purchaser as of the date of this Agreement as follows:
(a) Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of Canada. The Company has all requisite corporate power and authority
to execute and deliver this Agreement, to issue and sell the Shares, and to
carry out the provisions of this Agreement.
(b) Capitalization. As of the Effective Date, the capitalization of
the Company is set forth at Tab 4.
(c) Authorization; Binding Obligations. All corporate action on the
part of the Company necessary for the authorization of this Agreement, the
performance of all obligations of the Company hereunder at the closing and
the authorization, sale, issuance and delivery of the Shares pursuant
hereto have been taken or will be taken prior to the closing. The
Agreement, when executed and delivered, will be valid and binding
obligations of the Company enforceable in accordance with their terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, and (ii) general principles of equity that restrict the
availability of equitable remedies. The sale of the Shares are not and will
not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
Section 14. Section 83(b) Election. The Parties acknowledge that Purchaser
will file an election under Section 83(b) of the Internal Revenue Code of 1986,
as amended, (the "Code") with respect to his purchase of the Shares hereunder
and will report in such elec-
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<PAGE>
tion that the purchase price for the Shares is equal to the fair market value of
the Shares (determined without regard to restrictions that will lapse) at the
time of transfer. The Parties shall not voluntarily take (and the Parties shall
cause their respective affiliates not to voluntarily take) any tax reporting
position that is inconsistent with such Section 83(b) election, including the
valuation of the Shares. Purchaser assumes all responsibility for filing the
Section 83(b) election and paying all of Purchaser's taxes resulting from such
election or the lapse of the restrictions on the Shares. Purchaser acknowledges
that the Company is not responsible for any tax obligation of the Purchaser
regardless of his filing an election under Section 83(b) with respect to his
purchase of the Shares.
Section 15. Provisions Regarding Promissory Note. With respect to the
promissory note of Purchaser provided for under Section 1 of this Agreement, the
Company will provide or shall cause Worldwide Fiber Finance Ltd. to provide an
IRS Form W-8 BEN and a statement that the Worldwide Fiber Finance Ltd. is not a
bank within the meaning of section 881(c)(3)(A) of the Code or a controlled
foreign corporation within the meaning of section 881(c)(3)(C) of the Code and
intends to claim exemption from U.S. Federal withholding tax under section
881(c) of the Code. The Company shall also indicate or cause Worldwide Fiber
Finance Ltd. to indicate whether it is entitled to treaty benefits on such Form
W-8 BEN. The Company shall provide or cause Worldwide Fiber Finance Ltd. to
provide a duly executed Form W-8 BEN to Purchaser within thirty (30) days after
Purchaser's execution of the promissory note. The Company represents that
neither it nor Worldwide Fiber Finance Ltd. is a U.S. person (as such term is
defined in section 7701(a)(30) of the Code) and agrees that it will deliver or
cause Worldwide Fiber Finance Ltd. to deliver to Purchaser new, accurate and
complete forms or documentation prescribed by applicable law if such forms and
documentation are required to be updated so as to permit such payments to be
made without withholding tax or at a reduced rate of withholding tax.
Section 16. Refusal to Transfer. The Company shall not be required (a) to
transfer on its books any Shares which shall have been transferred in violation
of any of the provisions set forth in this Agreement or (b) to treat as owner of
such Shares or to accord the right to vote as such owner or to pay dividends to
any transferee to whom such shares shall have been so transferred.
Section 17. No Employment Rights. This Agreement is not an employment
contract and nothing in this Agreement shall affect in any manner whatsoever the
right or power of the Company (or a parent or subsidiary of the Company) to
terminate Purchaser's employment for any reason at any time, with or without
Cause and with or without notice.
Section 18. Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"Aggregate Put Amount" shall mean that amount of Shares, which when
multiplied by the Fair Market Value applicable to such Shares on the
Exercise Date, yields a payment from the Company to the Purchaser in an
amount that will be sufficient for
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<PAGE>
him to satisfy the following obligations: (A) the outstanding principal and
accrued interest on any promissory note used to purchase the Shares from
the Company and (B) any federal, state or local taxes payable by the
Purchaser as a result of any amount paid to Purchaser pursuant to clause
(A) or clause (B) of this sentence.
"Board" shall mean the Company's Board of Directors.
"Cause" shall have the meaning set forth in Section 5(f)(i) of the
Employment Agreement.
"Change of Control" shall have the meaning set forth in Section
5(f)(ii) of the Employment Agreement.
"Commission" shall mean the Securities and Exchange Commission.
"Disability" shall have the meaning set forth in Section 5(f)(iii) of
the Employment Agreement.
"Exercise Date" shall mean the date on which the Company purchases
Shares from the Purchaser pursuant to the Purchaser's exercise of his Put
under Section 8 of this Agreement.
"Fair Market Value" shall mean, for purposes of Section 10, the fair
market value of a share of Class A Non-voting Shares or a share of Class C
Multiple Voting Shares of the Company as determined, at the Company's
expense, by an appraisal firm or investment bank of national standing
experienced in the valuation of such securities ("Valuation Firm") selected
in good faith by the Purchaser and approved by the Board, which approval
shall not be unreasonably withheld or delayed. The determination of Fair
Market Value of a share of Class A Non-voting Shares or a share of Class C
Multiple Voting Shares shall be based on the value that a willing buyer
with knowledge of all relevant facts would pay a willing seller for all the
outstanding equity securities of the Company in connection with an auction
of the Company as a going concern assuming bidders are prepared to pay a
control premium and without any discount for lesser voting rights, lack of
liquidity, lack of control, minority holder status or similar factors. The
Valuation shall be determined by the Valuation Firm as soon as practicable
but in any event not later than 60 days following the date of the
appointment of the Valuation Firm. If the Board has not approved a
Valuation Firm within 15 days of the proposal of such Valuation Firm by the
Purchaser hereunder, then (without prejudice to the Purchaser's other
rights and remedies) the Purchaser may request the President of the
American Arbitration Association to appoint a Valuation Firm, which will
then be the Valuation Firm for the transaction in question. The Company
shall furnish to the Valuation Firm all reasonably available information
requested by the Valuation Firm. The fair market value established by the
Valuation Firm (or by the written
-11-
<PAGE>
agreement of all parties to the transaction) shall be final and binding
with respect to each required Valuation.
"Good Reason" shall have the meaning set forth in Section 5(f)(iv) of
the Employment Agreement.
"Investor Securities" shall mean any stock or other securities of the
Company held by any Investor.
"IPO" shall have the meaning set forth in the Shareholders Agreement.
"Option Price" means, with respect to one (1) Share, the sum of: (A)
the Purchase Price Per Share with respect to such Share and (B) the amount
of any interest accrued by the Purchaser with respect to such Share
pursuant to any promissory note payable to Worldwide Fiber Finance Ltd. the
proceeds of which were used by the Purchaser to purchase such Share.
"Permitted Transferee" shall mean: (i) Purchaser's spouse or children
or grandchildren (in each case, natural or adopted), (ii) any trust
established solely for such Purchaser's benefit or the benefit of such
Purchaser's spouse or children or grandchildren (in each case, natural or
adopted), (iii) any corporation or partnership in which the direct and
beneficial owner of all of the equity interest is such individual Purchaser
or such Purchaser's spouse or children or grandchildren (in each case,
natural or adopted) (or any trust for the benefit of such persons) or (iv)
the heirs, executors, administrators or personal representatives upon the
death of Purchaser or upon the incompetency or disability of Purchaser for
purposes of the protection and management of the assets of the Purchaser.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement by and among Worldwide Fiber Inc., DWF SRL, GSCP3 WWF (Barbados)
SRL, WWF (Barbados) SRL, Providence Equity Fiber, L.P., Tyco Group
S.A.R.L., dated as of September 9, 1999.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholders Agreement" shall mean the Shareholders Agreement by and
among Worldwide Fiber Inc., DWF SRL, GS Capital Partners III, L.P., GSCP3
WWF (Barbados) SRL, 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 I, dated as of September 9, 1999, as amended
to reflect the transaction(s) contemplated by this Agreement and the
Employment Agreement.
"Vested Shares" are Shares that have never been (i.e., all of the
Class C Shares) or have otherwise ceased to be subject to the Repurchase
Option.
-12-
<PAGE>
"Unvested Shares" are Shares that, as of a given date, remain subject
to the Repurchase Option.
Section 19. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or
facsimile transmission, three (3) days after deposit in the United States mail,
certified or registered mail (return receipt requested), or one (1) business day
after its deposit with any express courier (prepaid), addressed to the other
party hereto at his address (or facsimile number, in the case of transmission by
facsimile) hereinafter shown below its signature to this Agreement or to such
other address (or facsimile number) as such party may designate by ten (10)
days' advance written notice to the other party hereto.
(b) Successors and Assigns. This Agreement shall inure to the benefit of
the successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, Purchaser's heirs,
executors, administrators, successors, and assigns. The Repurchase Option
hereunder shall be assignable by the Company at any time or from time to time,
in whole or in part.
(c) Governing Law; Venue. This Agreement shall be governed by and construed
in accordance with the laws of the State of Washington. The Parties agree that
any action brought by either party to interpret or enforce any provision of this
Agreement shall be brought in, and each party agrees to, and does hereby, submit
to the jurisdiction and venue of, the appropriate state or federal court for the
district encompassing Seattle, Washington.
(d) Further Execution. The Parties agree to execute such further
instruments and to take all such further action(s) as may reasonably be
necessary to carry out and consummate the purpose and intent of this Agreement.
(e) Entire Agreement; Amendment. This Agreement and each of the Tabs
thereto, the Employment Agreement and each of the Exhibits thereto, constitute
the entire agreement between the Parties with respect to the subject matter of
this Agreement and supersedes and merges all prior agreements or understandings,
whether written or oral. This Agreement may not be amended, modified or revoked,
in whole or in part, except by an agreement in writing signed by each of the
Parties hereto.
(f) Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the Parties agree to renegotiate such
provision in good faith. In the event that the Parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then such provision
will be enforced to the maximum extent possible and the other provisions will
remain fully effective and enforceable.
-13-
<PAGE>
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(h) Headings. The captions and headings of this Agreement are included for
ease of reference only and will be disregarded in interpreting or construing
this Agreement. Unless specifically indicated otherwise, all references herein
to Sections will refer to Sections of this Agreement.
[This space intentionally left blank]
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
WORLDWIDE FIBER INC.
-----------------------------------------
David Lede, Chairman
Worldwide Fiber Inc.
PURCHASER:
-----------------------------------------
Gregory B. Maffei
Attachments:
Tab 1 -- Promissory Note
Tab 2 -- Stock Assignment Separate from Certificate
Tab 3 -- Joint Escrow Instructions
Tab 4 -- The Company's Capitalization
Tab 5 -- Joinder to the Shareholder's Agreement
-15-
<PAGE>
PROMISSORY NOTE
$ 77,500,000 December 22, 1999
FOR VALUE RECEIVED, Gregory B. Maffei, ("Borrower"), hereby promises to pay
to WORLDWIDE FIBER FINANCE LTD., a corporation incorporated under the laws of
Canada ("Holder"), or registered assigns, the principal sum SEVENTY SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($77,500,000) (the "Principal Amount" as
adjusted from time to time in accordance with the terms of this Agreement), on
December 22, 2005, together with interest accrued thereon through the date of
payment; provided, however, that (A) with respect to each Share, as that term is
defined in the Stock Purchase Agreement dated December 22, 1999 by and between
Borrower and Worldwide Fiber Inc. (the "Agreement"), that Borrower sells in an
arms-length transaction to an unrelated third-party (a "Sale"), Borrower
promises to pay to Holder, or any registered assigns, within thirty (30) days of
the closing of such a Sale, as a partial payment of the Principal Amount, an
amount equal to the lesser of (i) the per Share consideration received by
Borrower as a result such Sale or (ii) the Option Price of such Share and (B)
Borrower promises to pay to Holder, or any registered assigns, any then unpaid
Principal Amount together with interest accrued thereon through the date of
payment no later than the earlier of: (i) the two hundred and seventieth (270th)
day following the date that Borrower's employment with Worldwide Fiber Inc. (the
"Company") terminates as a result of a termination by the Company for Cause
pursuant to Section 5(a) of the employment agreement dated December 22, 1999 by
and between Borrower and the Company (the "Employment Agreement"), a termination
by Borrower without Good Reason pursuant to Section 5(d) of the Employment
Agreement or the Borrower's suffering a Disability pursuant to Section 5(b) of
the Employment Agreement or (ii) on or prior to the five hundred and forty fifth
(545th) day following the date that Borrower's employment with the Company
terminates as a result of a termination by the Company without Cause pursuant to
Section 5(d) of the Employment Agreement, a termination by Borrower for Good
Reason pursuant to Section 5(c) of the Employment Agreement or the Borrower's
death pursuant to Section 5(b) of the Employment Agreement.
This Promissory Note shall bear interest on the outstanding principal
balance hereunder at the rate of 6.20 percent per annum compounded annually.
Interest shall be calculated on the basis of a 365-day year for the actual
number of days elapsed and shall be payable at maturity. Interest accrued but
unpaid during any Yearly Period shall become part of the Principal Amount
effective at 11:59 P.M. E.S.T. on the last day of such Yearly Period. As used
herein, the term "Yearly Period" means each successive twelve-month period,
beginning on the date of this Agreement and ending on the first anniversary of
the date of this Agreement and continuing to each successive anniversary
thereafter, during which the Principal Amount remains outstanding.
TAB 1-1
<PAGE>
All payments hereunder shall be made in immediately available funds in
lawful money of the United States of America.
Except as set forth in the next sentence, the obligations of the Borrower
and the rights of the Holder under this Promissory Note shall be absolute and
shall not be subject to any counterclaim, set-off, deduction or defense. This
Promissory Note represents a recourse obligation of the Borrower only to the
extent of 35% of the Principal Amount. If for any reason the Borrower fails to
pay the full amount due hereunder, the Borrower's maximum personal liability
shall be an amount equal to 35% of the Principal Amount.
The Borrower hereby pledges to the Holder on the date of this Agreement,
the 31,000,000 Shares of the Company acquired by the Borrower pursuant to the
employment agreement dated December 22, 1999 by and between Borrower and the
Company to secure the satisfaction by Borrower of all his obligations to the
Holder under this Promissory Note. All applicable provisions of the Uniform
Commercial Code shall apply to and be deemed to govern this pledge.
All or any portion of the Principal Amount evidenced by this Promissory
Note may be prepaid at any time without premium or penalty.
In the event of default under this Promissory Note, the Holder shall have
all rights and remedies provided at law and in equity.
No interest or other amount shall be payable in excess of the maximum
permissible rate under applicable law.
This Promissory Note may not be changed, modified or terminated orally, but
only by an agreement in writing signed by the party sought to be charged.
This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of Washington, without giving effect to the
principles of conflict of laws thereof.
This Promissory Note shall be binding upon the successors and assigns of
the Borrower and shall inure to the benefit of the Holder and its successors and
assigns. Transfer of this Promissory Note may be effected only by surrender of
this Promissory Note to Borrower whereupon Borrower shall reissue this
Promissory Note to the Holder's transferee as a successor registered Holder.
--------------------------------
Gregory B. Maffei
TAB 1-2
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, GREGORY B. MAFFEI hereby sells, assigns and transfers
unto WORLDWIDE FIBER INC., a Delaware corporation (the "Company"), pursuant to
the Repurchase Option under that certain Stock Purchase Agreement, dated
December 22, 1999, by and between the undersigned and the Company (the
"Agreement"), ______________________________________ (___________) shares of
common stock of the Company standing in the undersigned's name on the books of
the Company represented by Certificate No(s) _________ and does hereby
irrevocably constitute and appoint the Company's Secretary attorney to transfer
said stock on the books of the Company with full power of substitution in the
premises. This Assignment may be used only in accordance with and subject to the
terms and conditions of the Agreement, in connection with the repurchase of
shares of common stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated: ________________________________
_____________________________________
TAB 2-1
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, GREGORY B. MAFFEI hereby sells, assigns and transfers
unto WORLDWIDE FIBER INC., a Delaware corporation (the "Company"), pursuant to
the Repurchase Option under that certain Stock Purchase Agreement, dated
December 22, 1999, by and between the undersigned and the Company (the
"Agreement"), ______________________________________ (___________) shares of
common stock of the Company standing in the undersigned's name on the books of
the Company represented by Certificate No(s) _________ and does hereby
irrevocably constitute and appoint the Company's Secretary attorney to transfer
said stock on the books of the Company with full power of substitution in the
premises. This Assignment may be used only in accordance with and subject to the
terms and conditions of the Agreement, in connection with the repurchase of
shares of common stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated: ___________________________
______________________________________
TAB 2-2
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, GREGORY B. MAFFEI hereby sells, assigns and transfers
unto WORLDWIDE FIBER INC., a Delaware corporation (the "Company"), pursuant to
the Repurchase Option under that certain Stock Purchase Agreement, dated
December 22, 1999, by and between the undersigned and the Company (the
"Agreement"), ______________________________________ (___________) shares of
common stock of the Company standing in the undersigned's name on the books of
the Company represented by Certificate No(s) _________ and does hereby
irrevocably constitute and appoint the Company's Secretary attorney to transfer
said stock on the books of the Company with full power of substitution in the
premises. This Assignment may be used only in accordance with and subject to the
terms and conditions of the Agreement, in connection with the repurchase of
shares of common stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated: _____________________________
______________________________________
TAB 2-3
<PAGE>
JOINT ESCROW INSTRUCTIONS
Secretary
Worldwide Fiber Inc.
Ladies and Gentlemen:
As Escrow Agent for both WORLDWIDE FIBER INC., a corporation incorporated
under the laws of Canada (the "Company") and GREGORY B. MAFFEI ("Purchaser"),
you are hereby authorized and directed to hold the documents (the "Property")
delivered to you pursuant to the terms of that certain Stock Purchase Agreement
dated as of December 22, 1999 ("Agreement"), to which a copy of these Joint
Escrow Instructions is attached as Tab 4, in accordance with the following
instructions:
1. In the event the Company or an assignee shall elect to exercise the
Repurchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing thereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver the same, together with the certificate
evidencing the shares of stock to be transferred, to the Company against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) for the number of shares of
Stock being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including but not limited to any appropriate filing with state or government
officials or bank officials. Subject to the provisions of this paragraph 3,
Purchaser shall exercise all rights and privileges of a shareholder of the
Company while the stock is held by you.
4. This escrow shall terminate upon the exercise in full or expiration of
the Repurchase Option, whichever occurs first.
TAB 3-1
<PAGE>
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that any property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the Parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or Parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the Parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the Parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the Parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company shall
appoint any officer or assistant officer of the Company as successor Escrow
Agent, and Purchaser hereby confirms the ap-
TAB 3-2
<PAGE>
pointment of such successor as his attorney-in-fact and agent to the full extent
of your appointment.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary Parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
Parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery, including delivery
by express courier, or five (5) days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to each of the other Parties entitled to such notice at the following addresses,
or at such other addresses as a party may designate by ten (10) days' advance
written notice to each of the other Parties hereto.
Company: Worldwide Fiber Inc.
Purchaser: Gregory B. Maffei
[At the address on file with
Company] With a Copy to:
Barton J. Winokur, Esq.
Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Escrow Agent:
By signing these Joint Escrow Instructions, you become a party hereto only
for the purpose of said Joint Escrow Instructions; you do not become a party to
the Agreement.
15. You acknowledge that you are holding the Property in addition to in
your capacity as escrow agent, as collateral agent for Worldwide Fiber Finance
Ltd. for the
TAB 3-3
<PAGE>
purpose of perfecting the lien securing that certain promissory note dated
December 22, 1999 by and between the Purchaser and Worldwide Fiber Finance Ltd.
16. You shall be entitled to employ such legal counsel and other experts
(excluding, the firm of [Company's Firm] and the firm of Dechert Price and
Rhoads) as you may deem necessary properly to advise you in connection with your
obligations hereunder. You may rely upon the advice of such counsel, and you may
pay such counsel reasonable compensation therefor. The Company shall be
responsible for all fees generated by such legal counsel in connection with your
obligations hereunder.
17. This instrument shall be binding upon and inure to the benefit of the
Parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" and "your" herein refer to the
original Escrow Agents. It is understood and agreed that the Company may at any
time or from time to time assign its rights under the Agreement and these Joint
Escrow Instructions.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of Washington. The Parties agree that any action brought
by either party to interpret or enforce any provision of this Agreement shall be
brought in, and each party agrees to, and does hereby, submit to the
jurisdiction and venue of, the appropriate state or federal court for the
district encompassing Seattle, Washington.
Very truly yours,
WORLDWIDE FIBER INC.
____________________________________
By:
PURCHASER
____________________________________
Gregory B. Maffei
ESCROW AGENT:
____________________________________
By:
TAB 3-4
<PAGE>
CAPITALIZATION OF WORLDWIDE FIBER INC.
As of the Effective Date of the Stock Purchase Agreement, the
capitalization of Worldwide Fiber Inc. is as follows:
Class A Non-Voting Shares
Ledcor Industries Limited as general partner for Ledcor Limited Partnership -
150,633,200 shares.
Class B Subordinate Shares
MacKenzie Partners, LLC - 1,200,000 shares;
Madison Square Inc. (Pledge) - 463,200 shares; and
Worldwide Fiber Holdings Ltd. - 39,651,200 shares.
Series A Non-Voting Preferred Shares
DWF SRL - 15,077,888 shares;
GFCP3 (Barbados) SRL - 11,102,056 shares;
WWF (Barbados) SRL - 3,975,832 shares;
Providence Equity Fiber, L.P. - 15,077,888 shares; and
Tyco Group S.A.R.L. - 25,700,800 shares.
Class C Multiple Voting Shares
Ledcor Industries Limited - 36,000,000 shares.
TAB 4-1
<PAGE>
JOINDER TO THE SHAREHOLDER'S AGREEMENT
TAB 5-1
[Letterhead of PricewaterhouseCoopers LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-4 of our report dated March 12, 1999, except as
to the subsequent events described in note 14 which are as of January 20, 2000
relating to the consolidated financial statements of Worldwide Fiber Inc., which
appear in such Prospectus.
We also hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-4 of our report dated March 12, 1999 relating
to the consolidated income statement and statements of changes in shareholders'
equity and of cash flows of Worldwide Fiber (USA), Inc., which appears in such
Prospectus.
We also consent to the references to us under the headings "Experts", Summary
Financial Data and "Selected Financial Data" in such Prospectus. However, it
should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such Summary Financial Data and "Selected Financial Data".
/s/ PricewaterhouseCoopers LLP
Vancouver, Canada
January 20, 2000
[Letterhead of Deloitte & Touche LLP]
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-4 of our report dated November 30, 1998,
relating to the divisional financial statements 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 year ended March 31, 1996, which appears in such Prospectus.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Prospectus. However, it should be noted that
Deloitte & Touche LLP has not prepared or certified such "Selected Financial
Data".
/s/ Deloitte & Touche LLP
Edmonton, Canada
January 21, 2000
